Document of The World Bank FOR OFFICIAL USE ONLY Report No: 93158 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF ETHIOPIA PROMOTING BASIC SERVICES PROGRAM PHASE III PROJECT (P128891) 25 th SEPTEMBER, 2012 TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA (12 DECEMBER, 2014) Social Protection East/Eastern Africa Africa Region Page 1 of 12 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Vice President: Makhtar Diop Country Director: Guang Zhe Chen Senior Global Practice Director: Arup Banerji Task Team Leader: Qaiser Khan Co-Task Team Leader: Colin Andrews Page 2 of 12 FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPA Promoting Basic Services Program Phase III Project CONTENTS Page DATA SHEET 4-5 SUMMARY OF PROPOSED CHNGES 5-6 PROJECT STATUS 6-7 PROPOSED CHANGES 7-8 ANNEX 1: Revised Project Cost and Financing Page 3 of 12 DATA SHEET Ethiopia Ethiopia Promoting Basic Services Program Phase III Project (P128891) AFRICA AFTSE Report No: RES13069 Restructuring Status: Draft Restructuring Type: Level 2 Basic Information Sector Investment and Project ID: P128891 Lending Instrument: Maintenance Loan Regional Vice President: Makhtar Diop Original EA Category: Not Required (C) Country Director: Guang Zhe Chen Current EA Category: Not Required (C) Senior Global Practice Arup Banerji Original Approval Date: 25-Sep-2012 Director: Practice Manager: Manuel Salazar (Acting) Current Closing Date: 07-Jan-2018 Team Leader: Qaiser M. Khan GEF Focal Area: Borrower: Government of the Federal Democratic Republic of Ethiopia Responsible Ministry of Finance and Economy Development Agency: Restructuring Type Form Type: Full Restructuring Paper Decision Authority: Country Director Approval Restructuring Level 2 Level: Financing ( as of 04-Dec-2013 ) Key Dates Approval Effectiveness Original Revised Project Ln/Cr/TF Status Signing Date Date Date Closing Date Closing Date P128891 IDA-51620 Effective 25-Sep-2012 18-Oct-2012 20-Dec-2012 07-Jan-2018 07-Jan-2018 P128891 TF-13952 Effective 12-Feb-2013 12-Feb-2013 12-Feb-2013 31-Dec-2017 31-Dec-2017 Page 4 of 12 Disbursements (in Millions USD) % Cancelle Disburse Undisbur Project Ln/Cr/TF Status Currency Original Revised Disburse d d sed d P128891 IDA-51620 Effective USD 600.00 600.00 0.00 486.67 113.33 80.63 P128891 TF-13952 Effective USD 602.74 602.74 0.00 288.00 314.75 47.78 Policy Waivers Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? Does the project require any policy waiver(s)? Yes [ ] No [ X ] A. Summary of Proposed Changes This restructuring paper seeks the approval from the Country Director to introduce the following changes in the Ethiopia Promotion of Basic Services Program 3, P128891 and associated MDTF, as well as any accompanying amendments to the project’s legal documents. The proposed changes seek to: (i) Reallocate funds under the Mutli Donor Trust Fund Grant Agreement (TF013952) and to change overall grant allocation (ii) Extend the current closing date by for IDA 51620 from 07 January 2018 to 07 January 2019 and for TF 13952 from 31 Dec 2017 to 31 December 2018. As a result of the project extension the Multi Donor Trust Fund (TF013592) end disbursement date will be changed to 30 June 2019. This will be reflected in the revised Administrative Agreements with DFID and the EU. The reallocation of funds under the MDTF takes into account DFID reductions for Sub-program A, as well as a need to update overall grant financing for Sub-program B in line with original commitments under the Project Appraisal Document. A summary of the revised Grant Schedule for the MDTF is outlined in Section C. A twelve month closing date extension for IDA 51620 and TF 13952 is required to enable the PBS III operation run side by side with the proposed new Program for Results on Equitable Access to Basic Services (P151432). This proposed P for R will replace IDA’s support for sub- component A under PBS 3. The closing date extension is devised as a zero cost extension for Development Partners and will enable the Program for Results operation to benefit from the technical and system strengthening support granted through subcomponent B of the PBS III program. It also enables continuity of the PBS Secretariat, which is expected to play an important role in verification of Disbursement Linked Indicators and ongoing technical support to the client. At this time of project restructuring it is noted Sub-program C, the Results Enhancement Fund, is dropped from the overall program. This does not affect the overall Financing or Grant agreement, as provisions for this component were on a pilot basis by DFID and not reflected in financing or grant agreements, not in the project Results Framework. It is further noted that for both IDA 51620 and TF 13592 there are no overdue audit reports or interim Page 5 of 12 financial reports pending from the Ministry of Finance. Financial management issues are being followed up through monthly working gropu meetings and through semi-annual missions. Change in Implementing Agency Yes [ ] No [ X ] Change in Project's Development Objectives Yes [ ] No [ X ] Change in Project's Global Environmental Objectives Yes [ ] No [ X] Change in Results Framework Yes [ ] No [ X] Change in Safeguard Policies Triggered Yes [ ] No [ X ] Change of EA category Yes [ ] No [ X ] Other Changes to Safeguards Yes [ ] No [ X ] Change in Legal Covenants Yes [ ] No [ X ] Change in Loan Closing Date(s) Yes [ ] No [ X ] Cancellations Proposed Yes [ X ] No [] Change to Financing Plan Yes [X ] No [ ] Change in Disbursement Arrangements Yes [ ] No [ X ] Reallocation between Disbursement Categories Yes [ ] No [ X ] Change in Disbursement Estimates Yes [ X ] No [ ] Change to Components and Cost Yes [X ] No [ ] Change in Institutional Arrangements Yes [ ] No [ X ] Change in Financial Management Yes [ ] No [ X ] Change in Procurement Yes [ ] No [ X ] Change in Implementation Schedule Yes [ ] No [ X ] Other Change(s) Yes [ ] No [X ] Appraisal Summary Change in Economic and Financial Analysis Yes [ ] No [ X ] Appraisal Summary Change in Technical Analysis Yes [ ] No [ X ] Appraisal Summary Change in Social Analysis Yes [ ] No [ X ] Appraisal Summary Change in Environmental Analysis Yes [ ] No [ X ] Appraisal Summary Change in Risk Analysis Yes [ ] No [ X ] B. Project Status PBS 3 contributes to the higher-level objective of expanding access and improving the quality of basic services by funding block grants that ensure adequate staffing and operations, and by strengthening the capacity, transparency, accountability and financial management of governments at the regional and local authorities levels. The program defines basic services as education, health, agriculture, water supply and sanitation and rural roads A nationwide program, PBS supports through the block grants woreda-level recurrent expenditures for basic services across the country, excluding Addis Ababa, which does not receive a federal block grant. In addition, the capacity building efforts of the program benefit the quality of local government services for Addis Ababa as well. As such, its beneficiaries include the population of Ethiopia. Thus, the program beneficiaries number 84 million of which 42.6 million (50.4 percent) are males and 41.8 million are females (49.6 percent). Page 6 of 12 The third Joint Review of Implementation and Support (JRIS) mission of PBS III took place from May 12-15, 2014, and reported an overall satisfactory outcome and resulted in an IDA disbursement of $92 million (DA) and $35 Million (Trust Fund). During PBS 3 the Government’s strong commitment to decentralized service delivery has been maintained, with sustained progress in basic service spending rising to 69 percent at sub-national levels. PBS 3 maintains a particular focus on enhanced results, especially to ensure access and quality of basic services. Examples of progress against the High-Level Indicators between 2011/12 to 2012/13 are as follows: • Primary school completion rates (Grade 8) show ongoing improvement, reaching 52.8 percent in 2013, showing a marginal improvement over last year (52.1 percent). Male completion rates have reached 53.3 percent while females are at 52.2 percent. • Net primary enrolment (Grades 1-8) remained high at 85.7 percent (virtually unchanged over the last two years), with a gap between girls’ vs. boys’ enrolment of 3.6 percent. • The percentage of children vaccinated against DPT3 reached 87.6 percent in 2013, up from almost 85 percent the previous year. • Ante-natal service (ANC 1) coverage has improved, with the number of pregnant women receiving antenatal care during their first visit to a health provider rising from 89 percent last year to 97.4 percent in 2013. • Based on revised data from the National Wash Inventory, national water supply coverage increased from 58 percent to just 68.4 percent in the same period, reflecting an increase in both rural and urban coverage. • Agricultural productivity (major cereal crops) rose from 17 quintal/hectare last year to 17.8. • The average travel time to an all-weather road has declined from 2.9 to 2.1 hours. Examples of progress against PDO Level Results Indicators between 2011/12 to 2012/13 include: • the national student-teacher ratio improved from 50:1 to 49:1; • the share of qualified primary school teachers increased from 60.6 to 64.7 percent, with women slightly outpacing men; • the ratio of health extension workers to population deteriorated slightly from 1:2170 to 1:2334 (during which time the estimated national population grew from approximately 82.7 to 84.8 million); • agricultural extension beneficiaries grew from 10.51 to 11.66 million households; • the share of malfunctioning water points fell from 24 to 17.2 percent; • the percentage of rural roads in fair and/or good condition grew from 86 to 90 percent; • the number of woreda road desks with qualified/appropriate staff has remained unchanged since last year at 500; • the number of Development Agents deployed grew to 3201 in 2012/13, up from 2669 the previous year. While promising, this is well below the government’s target of 9000 for 2012/13. The project enjoys solid implementation , with a number of ongoing priorities and achievements currently being pursued including :  in an effort to improve budget utilization within Sub-program B, project procurement has shown remarkable progress in the last few months in which about 85% of the procurement activities were initiated and the majority reached contract signing and implementation stage.  The Managing for Results sub-component (B3) is under active attention to enhance its performance and outputs, with a number of initiatives underway including enhanced supervision, workplan reviews, consultation workshops and engagement with sectors.  work is on progress in the PBS Secretariat to develop communication strategy around PBS III Page 7 of 12 The team has finalized PCN review for Program for Result operation (Equitable Basic Services) which will build on the successes of the PBS program. The PforR operation replaces IDA’s support for Sub-component A (Block Grant) which will run out in FY15 while IDA’s support for sub component B and DP’s support for the program will continue till the end of the program period. PBS III is almost two years under implementation, and entering a Mid Term Review. C. Proposed Changes: Reallocation of Grant Funds and Change to Overall Grant Amount: The reallocation of funds under the MDTF takes into account DFID reductions for Sub-program A, as well as a need to update overall grant financing for Sub-program B in line with original commitments under the Project Appraisal Document. On July 14, 2014 DFID communicated to the World Bank Group its decision to reduce its support to PBS 3. This reduction of support included £71.5 million for Sub Program A (Basic Service Block Grants), which directly affects the grant agreement. The reduction of DFID support represents a small - albeit significant - share of overall program financing. During project preparation, PBS III was estimated to cost $6.385 billion, with approximately 97% devoted towards Sub-program A (Basic Services Block Grant) which finances recurrent expenditure in the basic services at local level. The reduction of support for Sub-program A will be in a tapered fashion, so as to minimize negative impacts and enable Government to fill the financing gap. It is important to note the Government maintains a stead-fast commitment to filling this financing gap. This is reflected under Constitutional provisions for basic service delivery. Article 90.1 of the constitution reads as “To the extent the country’s resource permit, policies shall aim to provide all Ethiopians access to public health and education, clean water, housing, food and social security.” while article 94.1 states the responsibility on the government in bearing the financial expenditure necessary to carry out its responsibilities and functions. The reduction of funds for Sub-program A in the Grant Schedule is just £10.5 million. This reflects the large exchange rate buffer that was factored into the original MDTF. Fund allocations to Sub-program B are adjusted in line with the original Project Appraisal Document. This readjustment is again possible owing to the large exchange rate buffer that was factored into the original MDTF. Accordingly, the overall grant allocation is increased to $615,743,000. The consequent changes to the Grant Schedule of the MDTF Grant Agreement are outlined in Table 1. Table 1: Grant Schedule for MDTF 13952 Original Revised Program A 573,063,000.00 562,543,000 B1 5,340,000 8,600,000 B2 16,490,000 32,600,000 B3 7,850,000 12,000,000 Page 8 of 12 Total 602,743,000.00 615,743,000 Annex 1 provides an update of the overall Project Financing and Costs taking into account the Governments overall program, as well as IDA and MDTF support. The overall cost of the program is reduced from $6.385 bto $6. 305 billion, reflecting the cancelled Results Enhancement Fund. The financing gap for Program A is increased from $1483 to $1597 million, reflecting the reduction of support to the Basic Services Block Grant. Overall Donor Partner commitments to PBS 3 are also reduced from $984to 869 million Closing Date: The team proposes extension of the closing date for IDA 51620 from 07 January2018 to 07 January 2019 and for TF 13952 from 31 Dec 2017 to 31 Dec 2018 to enable PBS III run side by side with the proposed new project on Equitable Access to Basic Services (P151432). The new PforR operation is designed to replace IDA’s support for PBS III sub component A (Block Grant) while it continues to benefit from the technical assistance and system strengthening support granted through sub component B of the PBS III program. Hence, it is important to extend the PBS III program to correspond with the life of the PforR operation. Moreover, the proposed extension enables continuity of the PBS Secretariat during the lifecycle of the P for R. The secretariat will play a critical role in verifying the achievement of Disbursement Linked Indicators. This is the first project closing date extension. LN/Cr/TF Status Current Closing Proposed Closing Previous Closing Date Date Date IDA-51620 Effective 08 Jan 2018 08 Jan 2019 08 Jan 2018 TF- 13952 Effective 31 Dec 2017 31 Dec 2018 31 Dec 2017 In conclusion, the restructuring will have no impact on the Project development objective which remains relevant and achievable. Cancellation of Sub program C – Result Enhancement Fund- During PBS 3 project preparation, the REF was initiated by DFID as an affiliated sub component to the PBS program. During PBS III negotiation and agreement, the implementation arrangement and activities of the REF were deferred for finalization it the course of PBS III implementation. In the course of implementation some design work was carried out but the REF did not advance well and has now been cancelled. This was due to a reduction in DFID’s budget to the PBS programme and a design challenge as to the complementarity of the project’s focus to reward higher performing regions with the Government equity provisions. This sub-component will no longer continue. The cancellation of the REF has no implications for the Grant Agreement. Original PDO PBS 3 will contribute to the higher-level objective of expanding access and improving the quality of basic services by funding block grants that ensure adequate staffing and operations, and by strengthening the capacity, transparency, accountability and financial management of sub-national governments. The program defines basic services as education, health, agriculture, water supply and sanitation and rural roads. Change in Project's Development Objectives: NA Change in Project's Global Environmental Objectives: NA Change in Results Framework: NA Page 9 of 12 Other Change(s) Other Change(s): NONE Explanation: Page 10 of 12 Annex 1: Revised Project Cost and Financing (PAD page 20) Program component Program GOE Financing DP IDA % IDA B Gap cost MEFF A Gap Sub Program A: Basic 6,192.9 3,170.8 1,597.28 869.82 555.0 9% Service Block Grant Sub Program B: Strengthening Local transparency and accountability system B1: Citizen’s 35.0 8.6 10.0 28.6% 16.4 Engagement B2: Local PFM and 52.6 32.6 20.0 38.0% Procurement B3: Managing for 27.0 12.0 10.0 37.0% 5.0 Results Unallocated 5 Total (USD Millions) 6,305.7 3,170.8 1,597.28 923.02 600.0 9.4% 21.4 Page 11 of 12 Page 12 of 12