Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No: 36381-AM
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED CREDIT
IN THE AMOUNT OF SDR 16.9 MILLION Public Disclosure Authorized (US$25 MILLION EQUIVALENT)
TO
ARMENIA
FOR A
SOCIAL INVESTMENT FUND I11 PROJECT
September 27,2006 Public Disclosure Authorized
Human Development Sector Unit Europe and Central Asia Region Public Disclosure Authorized 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. CURRENCY EQUIVALENTS
(Exchange Rate Effective August 3 1,2006) Currency Unit = AMD (Armenian Dram) AMD 396.50 = US1.00 US$1.48 = SDR 1.00
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS
ASIF Armenia Social Investment Fund BA Beneficiary Assessment CAS Country Assistance Strategy CDD Community Driven Development CFAA Country Financial Accountability Assessment DFID Department for International Development ECA Europe and Central Asia FM Financial Management FMRs Financial Management Reports FMS Financial Management System FSU Former Soviet Union GDP Gross Domestic Product IDA International Development Association IFAD International Fund for Agricultural Development IFRs Interim Un-Audited Financial Reports IMF International Monetary Fund ISSCS Integrated Social Service Centers JBIC Japan Bank for International Cooperation KfW Kreditanstalt flir Wiederaufbau MDGs Millennium Development Goals MIS Management Information System MOFE Ministry ofFinance and Economy MOLSI Ministry of Labor and Social Issues MOTA Ministry ofTerritorial Administration NGO Non-governmental Agency OM Operations Manual PFM Public Financial Management PHRD Policy and Human Resources Development Fund PIA Project Implementation Agency PRSP Poverty Reduction Strategy Paper SIDA Swedish International Development Authority SIF Social Investment Fund SIL Specific Investment Loan UN United Nations UNDP United Nations Development Programme USAID United States Agency for International Development VAT Value-added Tax
Vice President: Shlgeo Katsu Country Director: Donna M. Dowsett-Coirolo Sector Director Charles C. Griffin Sector Manager: Herman von Gersdorff Task Team Leader: Caroline Mascarell .. 11 ARMENIA Social Investment Fund I11 Project
CONTENTS
A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues ...... 1 2 . Rationale for Bank Involvement ...... 5 3 . Higher level objectives to which the project contributes ...... 7 B. PROJECT DESCRIPTION...... 8 1. Lending Instrument ...... 8 2 . Project development objective and key indicators ...... 9 3 . Project Components...... 10 4 . Lessons learned and reflected in the project design ...... 13 5 . Alternatives considered and reasons for rejection ...... 14 C . IMPLEMENTATION...... 15 1. Partnership arrangements ...... 15 2 . Institutional and Implementation Arrangements ...... 17 3 . Monitoring... and Evaluation of OutcomesResults ...... 18 4 . Sustainability ...... 19 5 . Critical Risks and possible controversial aspects ...... 21 .. 6 . Credit Conditions and Covenants...... 22 D. APPRAISAL SUMMARY ...... 22 1. Economic and Financial Analyses ...... 22 2 . Technical ...... 24 3 . Fiduciary...... 24 4 . Social ...... 27 5 . Environment ...... 27 6 . Safeguard Policies ...... 28 7 . Policy Exceptions and Readiness...... 29
... 111 Annex 1: Country and Sector or Project Background ...... 30 Annex 1 (a): Priority Infiastructure Needs and the Future Role ofthe ASIF ...... 38 Annex 2: Major Related Projects Financed by the Bank and Other Agencies ...... 43 Annex 3: Results Framework and Monitoring ...... 45 Annex 4: Detailed Project Description ...... 50 Annex 5: Project Costs ...... 56 Annex 6: Implementation Arrangements ...... 57 Annex 7: Financial Management and Disbursement Arrangements ...... 61 Annex 8: Procurement Arrangements ...... 68 Annex 9: Economic and Financial Analysis ...... 73 Annex 10: Safeguard Policy Issues ...... 78 Annex 11: Project Preparation and Supervision ...... 87 Annex 12: Documents in the project File...... 89 Annex 13: Statement ofLoans and Credits ...... 90 Annex 14: Country at a Glance ...... 92 Annex 15: Poverty Targeting Strategy and Regional Allocation ofFunds ...... 94 Annex 16: Microproject Typology ...... 99 Annex 17: ASIF I11 Project Technical Committee for Financial Management Training...... 100
MAP: IBRD33364
iv ARMENIA
SOCIAL INVESTMENT FUND I11
PROJECT APPRAISAL DOCUMENT
EUROPE AND CENTRAL ASIA ECSHD
Date: September 27,2006 Team Leader: Caroline Mascarell Country Director: D-M Dowsett-Coirolo Sectors: Other social services (100%) Sector ManagerDirector: Hennann A. von Gersdorff Themes: Municipal governance and institution building (P); Participation and civic engagement (S) Project ID: PO94225 Environmental screening category: Financial Intermediary Assessment Lending Instrument: Specific Investment Loan
[ ] Loan [XI Credit [ ] Grant [ 3 Guarantee [ ] Other:
For Loans/Credits/Others: Total Bank financing (US$m.): 25.00
ASSOCIATION LOCAL COMMUNITIES 1.50 0.00 1.50 SPONSORS 0.13 0.00 0.13 Total: 32.18 1.12 33.30
Borrower: Republic ofArmenia
Responsible Agency: Ministry ofFinance and Economy 1, Government House Republic Square Yerevan, 375010 Armenia Tel: (374-10) 595-255 Fax: (374-10) 151-069 Mr. Vardan Khachatryan, Minister ofFinance and Economy
Armenia Social Investment Fund 3 1 K. Ulnetsu Str. Yerevan, 375037 Armenia Tel: (374-10) 247-123 Fax: (374-10) 240-159 [email protected] Mr. Ashot Kirakosyan, Executive Director
V Project implementation period: 4.5 years Expected effectiveness date: December 15,2006 Expected closing date: June 30,201 1 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 [XIYes [ ]No Project development objective Re$ PAD B.2, Technical Annex 3 The objective ofthe Project is to support the Government’s policy to raise the living standards ofthe poor and vulnerable groups through (i)improving the quality and access, and increasing the coverage ofcommunity infrastructure and services in poor communities, and for the most vulnerable groups in response to emerging critical needs; and (ii)promoting complementary institutional capacity building at the community and municipal level so as to improve the quality and sustainability ofservice delivery and municipal investments, increase accountability, and enhance greater stakeholder empowerment at the local level.
Project description Re$ PAD B.34 Technical Annex 4 Component 1. Community Investments (total estimated base cost: US$24.97 million). This component would support social and economic infrastructure microprojects in the poorest communities ofArmenia. Technical assistance, advisory services, and training would also be provided for microproject design and supervision and for field work to help implement a decentralized participatory framework at the local level and to complete the community mapping and profiling exercise. Component 2. Local Level Institutional Strengthening, Monitoring and Evaluation (total estimated base cost: US$0.60 million). This component would complement the community investment component through the provision oftechnical assistance, training and support services to local governments in such areas as financial management, budgeting, accounting, and asset management, designed to increase the competences and accountability ofmunicipal administration in support ofthe Government’s decentralization initiatives. Special studies, technical assessments, workshops and study tours to support and enhance monitoring and evaluation ofproject activities at the local level, would also be carried out. Component 3. Project Management (total estimated base cost US$3.14 million). This component would provide institutional support to the Armenia Social Investment Fund (ASIF) covering operating cost, financial audits and MIS maintenance. Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex IO Environmental Assessment, category: FI Nomajor environmental issues are anticipated under the proposed ASIF I11 project given the relatively small size and rehabilitation nature ofmost microprojects. However, certain microproject types such as water supply rehabilitatiodconstruction schemes to be funded under the project may require special environmental mitigation measures to protect quality ofthe water source (in-situ and upstream). In the case ofpotable water project proposals which involve the construction of new reservoirs which may have potential risks ofbeing linked to international waterways or trans-boundary water sources, a special study on this issue was conducted at the local level during project preparation. The study concluded that the water sources are outside the international waterways, and that, as in ASIF Iand 11, the new water supply microprojects under ASIF I11 would be based on small wells and surface springs. It was, therefore, concluded that the OP 7.50 will not be triggered and that the exclusionary language to ensure this will be specifically incorporated in the project documents. For other microprojects, environmental concerns will be mitigated during the selection and implementation of sub- projects . Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: There are no Board conditions.
Credit Effectiveness: -- The Government Decision establishing the ASIF I11 Project Technical Committee has been issued to develop and carry out the institutional and technical framework for the financial management training. -- A Project Account has been opened in a bank acceptable to the Association with an initial deposit ofUS$500,000 relating to the Government cash contribution and provision for taxes. -- The ASIF I11 Operational Manual, satisfactory to the Association, has been adopted by the Recipient. A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
1.1 Country Background
1. Armenia is a small, landlocked, mountainous country in the Caucasus Region, with limited natural resources and a population estimated at 3.2 million. Since the mid-l990s, the Government has successfully carried out a stabilization and structural reform program to transfonn its economy to a market-oriented one. These reforms were augmented in mid-2000 by an increased government focus on improving the overall business climate, and a supportive framework for investment. A major milestone in the Government’s evolving strategic reforms was its Poverty Reduction Strategy Paper (PRSP) of October 2003 directed towards reducing poverty, lowering inequality, and improving human resources. In line with the Armenian Constitution of 1995, the Government has also taken steps to create an effective decentralized administrative structure by delegating service delivery functions to the local self-government units. Further progress in this direction has been made by the Government with the support of donors in preparing regional development plans in 5 marzes (Lori, Tavush, Gegarqunick, Ararat, and Vayadzor) and to strengthen the capacity ofinter-community unions in support of local self- management. These reforms and initiatives have indeed set the stage for accelerating economic growth, reducing poverty, and improving the quality oflife ofthe Armenian population.
2. The Government’s reform programs, supported by large external resource flows and Armenia’s relatively high level of professional skills, contributed to an impressive real GDP annual growth rate ofclose to 11 percent since 2000. This robust economic performance has led to dramatic reductions in the poverty rate from 56.1 percent in 1998/99 to 34.6 percent in 2004, and the severity of poverty from 7.2 percent to 2.4 percent over the same period. In absolute numbers, almost 700,000 people were lifted out of poverty. In particular, the improvement of living standards and economic opportunities have benefited from the Armenia Social Investment Fund (ASIF) program, which has focused on improving economic and social infrastructure over the past ten years. In addition, a variety of projects and programs supported by the donor community has also contributed to the improvement ofliving standards.
3. Notwithstanding the economic progress witnessed in the recent past, Armenia’s income per capita is estimated at US$1,470 (2005), or only about a quarter of the income per capita in the Baltics. Over a million people live in poverty, including vulnerable groups such as orphans, refugees and disabled persons, and among them 200,000 are considered very poor. Moreover, strong economic growth has not resulted in a commensurate rise in employment. Although registered unemployment stands at around 10 percent of the labor force, some survey data indicate rates three times as high. Regional disparities in income suggest that benefits ofgrowth have not reached some regions (e.g. the Shirak Marz - the poorest) and some of the 145 communities living in high mountainous terrains (over 1930 meters above mean sea level), that lack basic social and economic infrastructure and key social services, as described below (see Annex 1 for sources).
1 1.2 Key Social Sector Issues
4. The Government’s development policy framework has continued to evolve in the direction of strategic social development in the medium and longer term, focusing on the three main sub-sectors - health, education, and social services. Each of these sub-sectors has witnessed significant progress in recent years, but further challenges remain.
5. In health, there are indications that conditions have begun to improve since 2000. As noted in the PRSP Progress Report of 2006, renovation and re-equipment works have been implemented in around 80 percent of the medical institutions within the system. High priority has been assigned to primary healthcare, as reflected in the Government’s “2003-2008 Strategy for Primary Healthcare ofPopulation of the Republic of Armenia.” Nevertheless, providing the poor with better access to healthcare services remains a challenge. Primary healthcare is short of funds, and consequently, health clinics have been inadequately maintained; much of the equipment is outdated. However, with plans for doubling ofhealth expenditures relative to GDP over the next 10 years and a shift of focus towards primary health, the MDGs on child mortality are likely to be met by 2015. The achievement of these goals will be further supported by improved access to safe drinking water, a PRSP priority currently supported by KFW, IFAD, USAID, and the Association’s ASIF I1 and Water Supply projects. Under the ASIF program alone, water supply services were rehabilitated or constructed recently in 62 villages. Currently 96.5 percent of households in urban areas and 74 percent in rural areas have access to safe drinking water. The PRSP envisages achieving 24-hour water supply from centralized services to 98 percent ofurban and 70 percent ofthe rural population by 2015.
6. In education, the major PRSP goals are to ensure the availability of educational facilities and to improve the quality ofeducation, while prioritizing the area ofgeneral education. To meet these goals, public expenditure on education has been significantly increased during 2003-2005, and directed towards raising teacher salaries and improving school facilities. Complementing the Government’s programs, under the ASIF I1 Project, as of end December 2005, 55 schools were constructed, 84 schools were renovated, and 37 schools were reconstructed. To improve school heating, since 2003, the quantity of fuel provided for school heating has been increased, having regard to schools by their location in plain, mountainous, and high mountainous areas. Although a number of improvements have been made in terms of infrastructure and school administration, partly financed under the ASIF I1 Project, there is a perceived need to further expand school heating and equip schools with better furniture, teaching materials, science laboratories and libraries. Another perceived need relates to the provision ofspecial furniture for children entering elementary schools at the age of 5 % years. In regard to early childhood education, the number of preschool institutions has decreased over recent years, while the number ofchildren enrolled has plummeted, especially in the rural areas.
7. As regards social services, most cities have branches of state bodies that provide mainly financial support (e.g. pensions, family benefits) the administration of which has been significantly improved over the recent years. Most benefits are well targeted, with no arrears in payments to beneficiaries, and have proven to be an efficient tool for the reduction of poverty and inequality. Nevertheless, further improvements in efficiency and effectiveness of social
2 service support are necessary. In particular, the administration of social benefits needs to be improved to reduce waste and delays, and to ensure that benefits reach more of the poor, especially in the rural areas. The general lack of knowledge of the benefit system, its rules and entitlements is also a cause for concern.
8. Other social services are largely provided by local, national, and international NGOs, supported in certain areas of the country by public funds, sometimes in partnership with local governments. Social services are provided by communities on a voluntary basis and are mainly limited to kindergartens except in large cities, where NGOs also participate. Small communities are virtually unable to provide social services, apart from occasional ad-hoc support. While the communities have the legal power to provide social services, the necessary funding has not been provided by the State.
9. The Elderly and the Handicapped. The PRSP has highlighted the challenges ahead in meeting the needs ofthe elderly and the handicapped. These include: in-house social services to the elderly; mitigation of disability; medical and social rehabilitation; prosthesis and orthopedic assistance to the handicapped; and the provision of appropriate rehabilitation accessories and wheelchairs. Although the State budget has made provision for these services, and a number of donors are providing active support, there is a need for more funding and capacity building in these areas.
10. Child Protection. A more serious concern relates to children at risk due to results from an increase of family disintegration, violence within families, child abandonment, and a rising number of children deprived of parental care. As a result, socially vulnerable families are increasingly seeking the assistance of institutions for the children that they are unable to care for, particularly children with physical and mental disabilities. There are eight state orphanages, two ofwhich are for children with restricted abilities, and an additional three non-public orphanages. Since 2004, programs have been in place to move children from orphanages to foster families, with financing from the State budget. In addition, a few programs were initiated in Armenia in 2003 to provide families and vulnerable children with services such as parent training, counseling, and respite-care. These services are provided through a few community social work and care centers, such as those supported in Yerevan and Guymri under the JSDF Grant for the Piloting Reforms in the Childcare System. Although the PRSP has highlighted the importance of developing social services and the national action plan for the protection of children and new legislation are already in place, progress has been rather slow in realizing the PRSP objective of a “gradual transfer” ofresponsibilities to local government.
11. Internally Displaced Persons and Refugees. Harsh conditions exist in the post-conflict regions adjacent to the national borders. Out of a total of 177 near-border settlements, in 132 of these, houses are badly damaged, and roads, communications, drinking water, and sewerage systems have been destroyed. A substantial part of agricultural land is mined. Improving the living conditions of people in these settlements remains a major challenge. Another socially vulnerable group consists of refugees who live in temporary shelters, which have little or no furniture and other necessities. Their levels ofpoverty and of extreme poverty are much higher, and the conditions for women refugees are particularly harsh. Moreover, refugees have little or no representation at the national, regional or community levels.
3 12. Government Initiatives. To address a variety of social service issues, a modest start in developing social services has been made through a number of new local initiatives. Armenia has already set up under Government Decree (No. 247-A of February 2004), and with donor financing, two service centers at the municipal level (Vanadzor and Masis) to provide a “one- stop-shop” or an “Integrated Social Services Center” (ISSC) putting all services under one roof, sharing a common office space. The services provided through these centers relate to pensions, social services, basic medical facilities, employment, and NGO activities. This arrangement is providing greater transparency and efficiency, including the obtaining ofneeded certificates and, as documented in a recent research study, has led to a reduction ofcorruption. In addition, a few community social work and care centers have been set up (e.g. at Yerevan and Guymri) to help address problems of children at risk; assistance for the elderly and the disabled; and special services to refugees. These local initiatives are partly donor funded, but warrant further support until the Government’s capacity is developed and resources are provided to carry out social services activities on a sustainable basis.
13. Capacity for Service Delivery. The lack of institutional capacity at the local government and community levels to effectively address social sector issues remains a major issue. In broad terms, the lack of institutional capacity at the local level has arisen from: (i)institutionally weak local governments with limited financial resources and skills needed for decentralized management of service delivery; (ii)inadequate systems of accounting, financial planning, and budgeting at the local level; (iii)the lack of effective partnerships at the local level; and (iv) inadequate involvement of local institutions, village councils, and citizens in the decision- making process and in service provision (e.g. management of schools established under the May 1999 Law on Education).
14. The central government, through deconcentration of administration, has established regional offices of certain government ministries and agencies in the 10 regions, or marzes. The marzes are each headed by a governor, or marzpet, appointed by the Prime Minister on the recommendation ofthe President. Yerevan, the capital, also has the status of a marz in addition to the other ten. The territorial administration is further subdivided into 930 Communities or local self-government units. Notwithstanding the initiatives made by the Government to create an effective decentralized administrative structure since 1995-96, in practice there are a number of major constraints which limit the effectiveness of decentralization in Armenia. The most significant constraint is the limitation of authority of local government by virtue of the continuing strong role ofcentral state authorities in local government.
15. The introduction of a new Law on Local Self-Government in 2002 provided incremental changes and represented a further development in strengthening the fiamework for decentralization; nevertheless Armenia remains a centralized state. A number of amendments to the law were introduced in 2004. In 2005, a new Law on Municipal Service was adopted, with provisions concerning the hiring, qualifications, and terms ofreference and security oftenure of municipal employees. The law has yet to be implemented.
4 16. Even in some areas where, in law, powers have been transferred to local government, practical constraints may prevent the community from acting on its responsibilities. Local functions relating to power and gas supply systems has not been transferred from the central government to local government. In the case of water, sewerage, or solid waste disposal, many local government units lack either the human resources and/or the financial capacity to manage the utilities. Reinforcing, this state of affairs is the fact that the core areas of service provision, including health and formal education, remain under central control. The limited decentralization of the management of schools, while, no doubt, worthwhile for other reasons, has not strengthened the role oflocal government in this sector. Thus, one ofthe main challenges ahead in improving the living standards of the poor, is to effectively implement the legal, functional, and financial decentralization, supported capacity building at the local level so that local communities can meaningfully take part in managing their own development (for details on sector background see Annex 1).
2. Rationale for Bank Involvement.
17. The main rationale for Bank involvement in the ASIF I11 Project is to support the Government in its continuing commitment to raise the living standards of the poor and vulnerable groups within the Government’s evolving social policies and programs. The Project targets segments of the population that do not appear to have received much benefits from economic growth, such as the poorest communities in remote areas, the socially vulnerable including orphans, refugees, and disabled persons, as well as high mountainous communities (145), earthquake zone communities (322), and border-zone communities (177). The ASIF I11 Project addresses, in particular, the need to build capacity at the municipal level to ensure project sustainability, within the framework of the Government’s decentralization program. The proposal responds to the Government’s request for such a project, and it is consistent with the Country Assistance Strategy (CAS) Goal Three ofreducing non-income poverty.
18. Notwithstanding infrastructure investments in recent years, major infrastructure gaps remain in Armenia, with adverse consequences on the living conditions ofthe population. These deficiencies largely reflect years of neglect in maintenance after the break-up of the Soviet Union, unclear responsibilities for maintenance, and ineffective institutional arrangements at the local level. Infrastructure gaps are most acute in the rural areas, especially in the remote and isolated communities noted above. These infrastructure gaps include 500 schools and 120-130 primary health clinics or ambulatories that need repair or reconstruction in two areas in which ASIF has been active. While unmet demands remain throughout Armenia, the second level of priorities of earthquake zone communities (after the demand for school construction or rehabilitation had been met under ASIF 11) highlights the need for potable water and special schools (see Annex 1 (a)). In addition, a recent analysis of priorities of 116 high mountainous communities carried out by ASIF provides some valuable insights. As shown in Annex 1 (a) potable water remains the highest priority accounting for 29.1 percent of total number of identified priorities, reflecting the scarcity ofwater in these communities. The second and third priorities in these communities are community centers (23.4 percent) and schools (19 percent) respectively. Even in a scenario where some ofthe potable water projects are financed by other agencies, ASIF may be requested to construct or rehabilitate 20 small isolated potable water
5 systems. These, together with the constant demand for multipurpose community centers, special schools (kindergartens/arts/music/sports), and the emerging demand for rural electrification systems, would constitute extensive demand for ASIF services over the medium term. The ASIF has the capacity to execute community investment projects to a level ofabout US$S.O million per year.
19. The main strength of ASIF is its capacity to penetrate into remote, isolated, and poor communities, induce effective discussion on their perceived priorities, and to bring into fruition project proposals to serve their needs. The technical and the professional capacity to carry out these activities has been built upon a solid foundation of experience and expertise gathered over the past ten years, during which 619 microprojects were completed under the ASIF Iand I1 Projects. Microprojects (334) completed under ASIF I1 mainly comprise schools (65 percent), followed by potable water (20 percent) and other types such as special schools, community centers, and irrigation. These microprojects have generated a visible development impact in terms of social and economic benefits to the poor communities in all regions of Armenia. Residents in the poorer communities are now enjoying rehabilitated and warmer schools during winter for their children, potable water in their homes, rehabilitated specialized schools for orphanages, handicap children, art students, and rehabilitated sports facilities. This legacy would be the foundation upon which the new operation would be built.
20. Construction works under the ASIF I1 program has been complemented by local government capacity building in support of the Government’s decentralization program. In particular, training of mayors and community accountants conducted by the ASIF has contributed to the quality of local administration, preparation of improved documentation to the marzpetaran, and has laid a stronger foundation for the leadership role of the mayors. The comparative advantage ofthe ASIF is its focus and current activities on the smaller and medium- sized communities where its resources have been optimally used to produce the greatest impact. Recent studies have shown that microprojects completed by ASIF are more cost-effective than those ofits comparators, while quality ofworks assessments have demonstrated the high quality ofconstruction by ASIF.
21. Under the proposed follow-up operation, the ASIF would help implement a development program supporting priority community investments, strengthened social service delivery, good governance including greater accountability, in line with evolving government policies and programs. The ASIF program would move in the direction of strategic social development and support for the Government’s decentralization policy in the medium and longer term, focusing on second generation policies and programs. Accordingly, there would be a shift of emphasis towards areas such as: (i)primary health care facilities; (ii)school rehabilitation with special attention to school heating systems, science laboratories, library furniture, teaching aids and equipment; (iii)support for social service delivery at the local level to implement recent initiatives by the Government; and (iv) support for the Government’s decentralization program through improved competencies at the municipal level, especially in financial management. The ASIF program would also address other second generation needs such as school playgrounds and gymnasiums, which provide opportunities for recreation and socialization for the youth in remote and rural areas.
6 22. The vision of ASIF’s future is one of an agency responsible for improving the living conditions ofthe poor through small and medium-scale infrastructure construction or renovation, especially in rural and isolated communities. In the longer term, the ASIF will become a relatively independent entity and function as an active partner to the Government of Armenia. The ASIF will also continue and enhance their capacity building services to municipalities, communities and local groups preparing them to take on additional responsibilities inherent in the Government’s decentralization program. ASIF’s activities would complement those of the Government, as the Government would not be involved in small and medium-scale infrastructure work. The Government would allocate hnding to the ASIF program provided ASIF collects community contributions from beneficiary communities. ASIF is envisaged as an agency that would work on the basis ofobjective criteria, target vulnerable communities, and set up systems for maintenance of facilities constructed or rehabilitated, so as to complement and enhance the development mission of Government. (see Annex 1 (a) regarding priority infrastructure needs and the future role ofthe ASIF).
3. Higher level objectives to which the project contributes
23. The PRSP referred to above was jointly assessed by the World Bank and the IMF, and they concluded that the strategy was a significant step in the Government’s effort to foster growth and reduce poverty, and endorsed its analysis and recommendations. From the broad range of interventions proposed in the PRSP, the CAS focuses on three areas which best fit the Bank Group’s comparative advantage and complement the activities of other donors: (i) promoting private sector growth by strengthening the financial sector, improving public sector management, and reducing bottlenecks; (ii)making growth more pro-poor by improving the labor market, promoting a more dynamic rural economy, and making social assistance more effective; and (iii)reducing non-income poverty through better health, education, and basic services.
24. The ASIF I11 Project will contribute primarily to the CAS objective (iii)above through social and economic infrastructure microproj ects aimed at reducing non-income poverty. It will also contribute to the CAS objective (i)through improving financial management skills of key officers in municipalities that are participating ASIF microprojects so as to ensure sustainability facilities created, and to the CAS objective (ii)through its shift of focus to more effective social service delivery through pilot activities in selected municipalities.
25. The ASIF I11 Project builds upon the solid track record of its two predecessor projects referred to above, that have supported the Government ofArmenia in its continuing endeavor to improve living conditions of the poor and vulnerable groups and strengthen institutions at the local level. The program has targeted the poorest communities in regions ofArmenia, including Yerevan and in earthquake zones, in support of the Government’s Earthquake Recovery Program. The ASIF program has also created opportunities for effective decentralized systems, building upon the interactive partnership between the public and the Government. This activity involved redefining the roles and responsibilities of municipal authorities and citizens in the delivery of municipal services, as well as disseminating accurate and accessible information to the public. As a result, the ASIF has helped both the Government and the public in a better understanding ofthe fundamentals ofparticipation, project management, and accountability.
7 26. At a broader level, community members involved in ASIF projects gradually became aware ofthe benefits oftheir engagement in microprojects, and were confident oftheir new skills in applying for another ASIF project and for carrying out successfully the implementation of a microproject. Furthermore, improved public facilities in Armenian communities have created a strong incentive for community members to become more actively engaged in the maintenance of the rehabilitated facilities. The ASIF projects successfully built from and strengthened existing levels of social capital, which played an important role in the capacity of local communities to initiate and effectively manage microprojects. The prior endowments of social capital in communities, such as the presence of strong, trusted and effective leaders were key determinants in the success ofbeneficiary communities in obtaining microproject funds from the ASIF and in effectively managing microprojects.
27. The impact of the ASIF microprojects were also evaluated through different monitoring tools such as ongoing Beneficiary Assessments (BAS) and a Social CapitaVInstitutional Assessment carried out in June 2003. These assessments have confirmed that project beneficiaries have improved their quality of life as a result of the ASIF I1 microprojectes, and have revealed that the institutional framework of the ASIF I1 served as an effective catalyst for institutional development and social capital formation. Furthermore, the assessments revealed that the ASIF program was successful in carrying out local government and school training programs in support of the Government’s decentralization agenda including the School Modernization program. The training programs responded to priority needs, and have had an impact on the ability of the recipients to understand the content and implications of relevant legislation and regulations, and to undertake their responsibilities more effectively. Building upon this track record, the ASIF I11 Project will support capacity building and further incentives to service providers at the local level, within a broad framework of good governance and accountability, to higher quality standards.
B. PROJECT DESCRIPTION
1. Lending Instrument
28. The lending instrument for the proposed ASIF I11 Project is a Specific Investment Loan (SIL), financed by an IDA Credit in the amount of SDR16.9 million (US$25.0 million equivalent). The proposed terms of the Credit are: 20 years maturity including 10 years grace period, with standard IDA charges for service charge and commitment fees applicable less waivers. The Credit will finance activities related to the proposed follow-up social fund operation covering community works, goods for microprojects, consulting services and training, and operating costs. The financing plan includes: Government Counterpart Contribution: US$6.67 million; Community Contribution: US$1.5 million; and Sponsor Contribution: US$O. 13 million.
8 2. Project development objective and key indicators
29. The objective of the Project is to support the Government’s policy to raise the living standards ofthe poor and vulnerable groups through:
(i) Improving the quality and access, and increasing the coverage of community infrastructure and services in poor communities, and for the most vulnerable groups in response to emerging critical needs; and (ii) Promoting complementary institutional capacity building at the community and municipal level so as to improve the quality and sustainability of community investments and service delivery, increase accountability, and enhance greater stakeholder empowerment at the local level.
30. Proiect Outcomes. The long-term outcomes ofthe project will be:
(i)Increased community infrastructure and services providing higher quality and better access in poor and vulnerable communities targeted under the project and in particular in remote rural and isolated communities.
(ii)Capacity building at the municipal level to train municipal officials in financial management.
(iii)Strengthened social service delivery systems through integrated social service centers and specialized centers for vulnerable groups.
(iv) Empowerment ofbeneficiary communities through capacity building to effectively plan and manage their investments on a sustainable basis and strengthen partnerships with local government.
(v) Enhancement ofpoverty targeting through a community mapping and profiling exercise designed to identify the neediest communities in Armenia.
31. Performance Indicators: As part of Project Monitoring and Evaluation, key performance indicators (see Annex 3) will be used to monitor outcomes and impacts under the Project covering key project activities. These include quantitative indicators (Le., measurable improvements and outputs) relating to project benefits and qualitative assessments on demand- driven mechanisms, service delivery, and community participation carried out under an integrated local development framework. The specific areas that will be assessed include: (i) project impact in terms of social and economic benefits to poor communities in rural and urban areas throughout Armenia, relating to the improvement of the quality, access, and coverage of community infrastructure and services and promotion of institutional capacity building at the local level; and (ii)outputs relating to the number ofbeneficiaries from the poorest communities served in relation to targets; the successful completion of cost-effective, good quality and sustainable community infrastructure projects in key sectors covering education, health, water, and social services; the number of capacity building programs benefiting local governments and
9 communities; and enhancement of poverty targeting through a comprehensive community mapping and profiling exercise.
3. Project Components
32. The following project components have been designed to complement, reinforce each other, and develop over the life of the project. These components are closely interwoven under an integrated local development framework which responds to priority social needs, institutional capacity building, and empowerment in line with the Government’s evolving social policy and programs. See Annexes 4 and 5 on Detailed Project Description and Project Costs respectively.
33. Component 1. Communitv Investments (Total estimated base cost: US$24.97 million). This component will focus on continuing the work of the ASIF I1 Project, with improvements of procedures relating to quality of works, sustainability, participation, and targeting of project funds for microprojects for the provision of social and economic infrastructure in the poorest communities under a participatory framework. These projects would respond to emerging priority infrastructure needs and would include the construction or rehabilitation of schools including libraries, science laboratories, gymnasiums and playgrounds, special schools (arts/music/sports) health clinics, multipurpose community-based centers, small- scale water supply, sewerage, rural electrification systems, minor irrigation works, and access roads. In support of the Government’s development program in social service delivery, the project would finance the rehabilitation or reconstruction of an Integrated Social Service Center (one-stop-shop) in Aratgatson, the Center for the Elderly (shelter for the homeless) in Yerevan, and the Kindergarten for Children with Disability in Guymri. The Project would also cover school heating systems. Financing under the component would include goods for microprojects in support ofthe Government’s increasing emphasis on school improvement programs covering school furniture for regular classrooms in elementary schools and special equipment for children entering elementary school at age 5 %, library hiture and equipment, science laboratory furniture and equipment, and teaching materials. To ensure proper design and supervision of community works projects, the component will finance local consultancies for microproject design and supervision and support for field work in the form of technical assistance and logistical support.
34. Decentralized Participatory Framework. Training and support services will be provided to pilot a decentralized participatory framework involving selected municipalities and communities in microproject outreach and promotion which is currently being developed under the ASIF I11 PHRD. Community participation facilitators would be hired under the project to be responsible for training community members and ensuring both community engagement throughout the microproject cycle and the sustainability of community assets. Community forums would be organized to support a participatory process at the local level. These forums would be organized and carried out with the assistance of local facilitators to improve communication and information flows on community investment activities and develop partnerships between community members and local governments.
10 35. Two communities that were assessed under the Institutional Assessment which could be considered for inclusion as part ofthe decentralization pilot are Megharashen, and Saralanj. It is in these communities that the goal of promoting and sustaining community involvement have taken place through regular community meetings convened jointly by the Mayor and the community council (case of Megharashen), and through the posting of budget proposals and reports on expenditures on public notice boards (case of Saralanj). Such a pilot could also include working with local self-government entities such as inter-community unions, particularly in the rural communities, so as to achieve economies of scale and facilitate the establishment of the critical mass ofresources and management or technical capacity necessary to undertake large or complex tasks, or address local cross-boundary issues.
36. Targeting: The poverty targeting strategy of ASIF (see Annex 15) has been improved through the inclusion of additional indicators for communities in high mountainous, earthquake and border zones in the targeting formula, in addition to other poverty indicators. The new strategy consists of two stages: The first stage will consist of geographical targeting of project funds to regions outside Yerevan, based on: (a) the population size of each region; and (b) a composite poverty index computed from two poverty indicators and four special regional factors. The second stage will consist of the identification of needy communities within each region based on a set ofdetailed criteria based on the community mapping andprofiling exercise, which is currently underway. Using these criteria, the 930 communities will be ranked starting from the neediest to those with the least of priority needs. Such a ranking will form the basis for classifying the communities into three or more clusters, starting from the neediest cluster, thus providing a road map for ASIF operations. To effectively complete the community mapping and profiling exercise covering all 930 communities, the component will finance technical assistance to support the ASIF in this capacity.
37. Improvements through New Procedures and Piloting: With funding from the ASIF I11 PHRD Grant of US$3 16,000, key activities financed include the Social Service and Institutional Assessments and technical assistance in the areas of promotion and participation, quality of works, and MIS upgrading. As a result of the work carried out under the PHRD Grant, the project design has been enhanced to reflect improvements in ASIF procedures including new features. These relate to improving promotional and targeting activities through needs assessments, community mapping and profiling, enhancing community training and proposed pilots to work with Inter-Community Unions and to test the decentralization of promotional activities. Similarly, some innovative features have been introduced and incorporated as part of ASIF procedures to provide incentives for well performing contractors, ensure higher quality of construction through improved norms and standards focusing in particular on seismic construction, microproject design and supervision, and increased accountability of contractors. The MIS is also being upgraded to meet evolving needs of the project and to strengthen monitoring and reporting features of the system. The new database server software is the key feature of the upgraded MIS which together with a new interface will contribute to the overall enhancement of the MIS. The MIS is expected to be hlly upgraded in October 2006. These innovative procedures are being incorporated in the ASIF I11 Operational Manual which is expected to be completed by October 2006.
11 38. Component 2. Local Level Institutional Strengtheninp, Monitoring and Evaluation (Total estimated base cost: US$0.60 million). This component will complement the community investment component through the provision of technical assistance, training and support services designed to increase the competencies and accountability ofmunicipal administration in support of the Government’s decentralization initiatives. Building upon the recent Institutional Assessment financed by the ASIF I11 PHRD and carried out in consultation with Government officials, key donors, and Bank staff involved in municipal development, this component was designed to support capacity building efforts focusing specifically on the provision of basic training in financial management, budgeting, accounting and asset management. The training would benefit mayors, finance officers, accountants, and village council members. The ASIF training activities will be limited to those communities (i.e., small and medium-size) where the ASIF has implemented projects and has a strong comparative advantage.
39. Municipal Financial Management Training - Collaboration between the PSMP and the ASIF Project Teams. The proposed municipal training activities will be carried out with the close coordination and collaboration of the teams working on the ongoing Public Sector Modernization Project (PSMP) and on the proposed ASIF I11 Project. The PSMP would concentrate on the provision of a computerized Municipal Information System (MIS) consisting of the installation of systems including databases on civil registry and revenue mobilization based on property and land taxes, while the ASIF would focus on the provision ofbasic financial management training. The PSMP is currently selecting the 100 communities (small and medium-size mostly rural) to be targeted for the second phase of its project activities, while the ASIF has identified 100 ofthe neediest communities in Armenia. These two processes will lead to an intersection set of an estimated 70 communities, which would provide the initial basis for collaboration between the two projects. An ASIF I11 Project Technical Committee would be established as an interagency committee by a Government Decision to provide overall guidance and direction to the ASIF, so as to ensure the effective coordination of activities regarding the municipal training program, with special focus on the fundamental issue of matching the timelines of the ASIF I11 Project and of the PSMP in the communities targeted. The ASIF I11 Project Technical Committee will include representatives ofthe four key partners - - the Ministry ofFinance and Economy, the Ministry ofTerritorial Administration, ASIF and the PSMP PIU. A description ofthe duties and responsibilities ofthe Committee, including the development ofthe technical framework for the selection of the participating municipalities, the coverage and duration of the training program, the selection of the training findinstitute, the monitoring and supervision of training activities, and the dissemination of results/outcomes of the municipal training program through workshops and seminars, is provided in Annex 17. The Establishment of the ASIF 111 Project Technical Committee by a Government Decision is a Condition of Effectiveness. For the day-to-day coordination of operational activities and to facilitate communication between the PSMP and the ASIF I11 Project, an ASIF technical staff person will work on a part time basis at the PSMP PIU. The main role of this staff member would be to assist in implementing the decisions ofthe Committee and to help operationalize these decisions in the field.
12 40. Monitoring and Evaluation. Special studies, technical assessments, formal reviews, and workshops to support and enhance the monitoring and evaluation ofproject activities at the local level would be financed under this component. Study tours will also be financed under this component to provide training and learning opportunities to ASIF technical staff in the areas of local development, institution building, and monitoring and evaluation.
41. Component 3. Project Management (Total estimated base cost: US$3.14 million). This component will provide institutional support to the ASIF to effectively implement local programs and projects at the local level under an integrated development framework, in line with the Government’s poverty reduction agenda and its decentralization reform program. This will be achieved through the financing of operating costs, including salaries, utilities, office equipment, training, financial audits, and MIS maintenance.
4. Lessons learned and reflected in the project design
42. In designing this operation, the Bank and ASIF staff have drawn from the following key sources: (i)ASIF operational experience gained over the ten-year implementation period on the ongoing Armenia Social Fund I1 Project; and (ii)World Bank experience since 1987 covering 110 social funds in the ECA Region and in other Regions from 58 countries worldwide. The main lessons learned relate to poverty targeting, quality of works, sustainability and institution building, and to sectoral policies and investment priorities, as described below.
43. Poverty Targeting. Some of the lessons learned under social funds financed by the Bank related to poverty targeting are: (i)a clearly formulated poverty targeting and an allocation mechanism based on objective criteria and poverty data ensures the flow of project benefits to the neediest segments ofthe population; (ii)the use of a well developed targeting strategy and an allocation mechanism will mitigate political pressures in the allocation of funds; and (iii)a well developed targeting strategy should have sufficient flexibility, within the overall allocations to target specific needs on a demand driven basis. The ASIF I11 poverty targeting incorporates an improved targeting strategy using a two-stage process tested under Social Fund programs in ECA consisting of geographical targeting of project funds by region followed by the identification of needy communities within each region through a community mapping and profiling exercise, based on a set of detailed criteria. The resultant ranking from the neediest to those with the least ofpriority needs together with a classification into clusters has proven to be very effective in comparator countries.
44. Quality of Works. Experience under SIF programs has underlined the importance of delivering good quality community works projects identified as priority projects by poor communities. A number of measures have been taken under the ASIF program to improve the quality of works, obtain client satisfaction with services received, increase contractor accountability, and to address the issue of corruption. These comprise improved procedures for ensuring: (i)the inclusion of detailed technical specifications for all microproject types; (ii)the inclusion oftechnical specifications and delivery periods in bid documents; (iii)contracting on a competitive basis the design and supervision ofmicroprojects; (iv) selection ofthe winning bids based on lowest price at the required quality; (v) the use ofquality control monitoring techniques by ASIF staff at the follow-up stage; (vi) proper hand-over and hold back release procedures
13 depending on categories of works; (vii) training of contractors on technical standards and SIF procedures; (viii) the setting up of a showcase room in the ASIF Office to display the technical standards and quality of output in typical components expected under the SIF program; and (ix) the enforcement of pre-qualification criteria for participating contractors. To ensure that communities are well informed about the implementation of microproject activities, new procedures have also been developed and will be tested under the ASIF which involve the active participation of engineers in disseminating information to community citizens on the status of civil works activities. These procedures, together with regular post procurement reviews carried out by Bank procurement specialists, quality of works reviews contracted out, and regular financial management reviews and financial audits, comprise a comprehensive and effective approach to dealing with quality ofworks.
45. Sustainability and Institution Building. To ensure the sustainability of SIF operations, experience under SIFKDD type projects has shown that this can best be achieved through innovative designs that integrate multi-sector community-based projects with local institution building and self management. Such projects, can be effective in demonstrating that it is possible to bridge macro-and micro activities by linking local communities to civil society and local governments in a way that builds up local institutions that empower the poor. The success of this approach derives from the convergence of several mutually reinforcing factors: (i) deliberate responsiveness to local needs and priorities; (ii)local institutional capacity building complementing the Government’s decentralization policy; (iii)innovations in poverty targeting, promotion, and outreach; and (iv) systematic and continuous monitoring and evaluation. Social fund-type programs need to put primacy on capacity building aimed at improving the ability of community groups participating in microprojects to progressively enhance their roles as active agents in their communities with a greater sense ofcommitment, ownership and accountability in service delivery on a sustainable basis. The framework of the proposed ASIF I11 Project incorporates these measures to ensure the sustainability ofits development program in Armenia.
46. Sectoral Policies and Investment Priorities. Experience under social funds has shown that there is a critical need for ensuring that social fund activities are consistent with social sector strategy priorities, government reform programs, and activities of municipal, NGO, UN, and donor agencies. It is, therefore, important to ensure that projects focus on greater coordination of social fund-type activities with relevant sectoral policies (mainly health and education) and investment priorities. Under the proposed ASIF I11 Project, this will be achieved through the ASIF Board which will ensure that project activities are consistent with social sector strategy priorities and government reform programs in relevant sectors. An ASIF I11 Project Technical Committee will also be established under the Project to provide guidance and direction to the ASIF for the effective implementation ofthe municipal financial management training program. It will be further strengthened through the implementation of an effective information, outreach, and communication strategy designed to explain sectoral and priorities to beneficiaries.
5. Alternatives considered and reasons for rejection
47. Extension of activities under the framework of the current ASIF 11 Project. This alternative consists of a direct extension of ASIF I1 activities, concentrating primarily on community works projects sustained by local level capacity building. The coverage of the ASIF
14 I1program was considered appropriate at the time it was designed in 2000, as it was in line with the Government’s development agenda. However, in the context of evolving government policies with greater emphasis on social service delivery and municipal development, a direct extension was not considered appropriate. During the ASIF I11 project identification mission it was acknowledged that the follow-up operation would move forward in addressing emerging priorities in the Government’s continuing endeavor to raise the living standards ofthe poor and vulnerable groups. The new Project will support a similar program to that of the ASIF I1 in terms of community investments complemented by capacity building at the local level, but will move in the direction of social service delivery by supporting the Government’s evolving social development programs at the local level.
48. Distribution of local project activities to the relevant sectoral ministries and agencies. This second alternative was rejected for the following reasons: (a) the sectoral ministries’ top- down and overly bureaucratic approach may not be sufficiently responsive to the relatively small sized community-driven project proposals in a social fund operation. Flexibility is the key advantage of a social fund managed by a well qualified and experienced implementing agency, in adjusting to evolving local demands and producing tangible results in a short time; (b) the experiences ofASIF Iand 11, as well as those of other countries in the ECA region have shown that management and implementation of social fund operations have worked best as an autonomous entity with minimal bureaucratic processes; (c) the cost-effectiveness study conducted in 2004 has shown that costs of microprojects completed by ASIF I1 to be, on the whole, lower than those carried out by traditional government departments and agencies; (d) the Bank has a comparative advantage vis-a-vis other donors, drawing from its international experience in financing SIF programs and in designing institutionally sound frameworks to implement SIF activities; and (e) the ASIF I11 Project has a well designed capacity building program at the local level to ensure the sustainability of assets created or rehabilitated under the project, and to continue CDD activities in the future.
C. IMPLEMENTATION
1. Partnership arrangements
49. A number of donors and IDA-financed projects are implementing programs with coverage similar to that of the proposed ASIF I11 Project. These programs include rural development @e., irrigation, rural roads, natural resource management, water supply, community forestry and income generation activities), local governance, and social service delivery, as summarized in Annex 2. As an integral part of project design, meetings were organized with representatives from DFID, USAID, UNDP, GTZ, and EU TACIS. In addition, the project team met with Bank staff working on the Rural Enterprise and Small-scale Enterprise Development Project, the Public Sector Modernization Project and the Yerevan Water/Waste Water Services Project. The purpose ofthese meetings was to share the proposed objectives and coverage ofthe follow-up operation, learn about the other projects and programs being carried out or planned with similar activities, and coordinate efforts to ensure consistency. The Institutional Assessment and Social Service Assessment developed under the ASIF I11 PHRD describe the involvement of donors and other projects and programs in Armenia and provide suggestions for the coverage of activities under the ASIF I11 Project where the ASIF has a strong comparative advantage. The
15 framework of the ASIF I11 Project provides several mechanisms of coordination described below.
50. Project Institutional Framework. Given the multisectoral activities ofthe ASIF program, the ASIF will be governed by a Board which will have the representation of relevant key ministries, and partner donors and NGOs (see Annex 6 for details). The role of the Board will consist of (i)guiding and supervising the administration and operation ofthe ASIF program; (ii) ensuring that project activities are consistent with social sector strategy priorities and government reform programs in relevant sectors; (iii)ensuring consistency and coordination with donor and other projects and programs being implemented in Armenia; and (iv) monitoring project outcomes and results. The role of the ASIF Community Outreach and Promotion team will be enhanced through a more effective information dissemination approach including workshops and meetings with central government, local communities, and donors. The ASIF would also expand training activities at the local community level to cover a wider range of communities and thereby increase awareness of the ASIF program at the local level. Also envisaged is the expansion ofnetworks at the local level by working with organized community groups such as Inter-Community Unions so as to increase community mobilization from different communities. These activities would be supported under a decentralized participatory framework which would be carried out with the assistance of local facilitators. The facilitators would be responsible for improving communication and information flows on community investment activities and develop partnerships between community members and local governments. The Impact monitoring and evaluation framework would be improved through an upgraded Management Information System in the ASIF, enhanced monitoring and reporting procedures at all levels ofthe microproject cycle, field surveys and workshops to discuss survey findings. The aim would to improve communication and information flows, develop partnerships between central and municipal officials and local communities, marginalized groups and donors, and enhance national level development planning and policy formulation.
5 1. Collaboration between the PSMP and the ASIF Project Teams. The proposed municipal training activities described under Component 2 of the Project will be carried out with the close coordination and collaboration ofthe teams working on the Public Sector Modernization Project (PSMP) and on the ASIF 111 Project. The objective is to optimize the outcomes ofboth projects through close coordination and collaboration. An ASIF I11 Project Technical Committee will be established as an interagency committee by a Government Decision to provide overall guidance and direction to the ASIF, so as to ensure effective coordination of activities regarding the municipal training program, with special focus on the fundamental issue of matching the timelines of the ASIF I11 Project and of the PSMP in the communities targeted. The ASIF I11 Project Technical Committee would include the representation of the four key partners - - the Ministry of Finance and Economy, the Ministry of Territorial Administration, the ASIF and the PSMP PIU. A description of the duties and responsibilities of the Committees, including the development of the technical framework for the Municipal Training Program is provided in Annex 17. For the effective day-to-day coordination of operational activities and to facilitate communication between the PSMP and the ASIF I11 project, an ASIF technical staff member would work on a part time basis at the PSMP PIU. The main role ofthis staff member would be to assist in implementing the decisions of the Committee and to help operationalize these decisions in the field.
16 2. Institutional and Implementation Arrangements
52. Building from the ASIF 11 Project. The ASIF I11 Project will benefit from the effective institutional and implementation arrangements already in place under the current ASIF I1Project. After ten years in operation, the ASIF set up as an autonomous institution serving as the implementing agency, has gained valuable experience in all aspects of project management and administration, laying a solid foundation for the ASIF I11 Project. The Beneficiary Assessments, the Social Capital Assessment, and the recent Institutional Assessment have revealed the high performance and dedication ofthe ASIF staff as perceived by communities benefiting under the microprojects. Supervision missions in the field together with special reviews and assessments undertaken under the ASIF Program have benefited the ASIF I1 Project. This work covered technical, administrative and procurement issues, as well as quantitative impact assessments of the benefits ofASIF activities. A Mid-term mission was carried out in November 2003 with the objective of assessing overall project performance, including institutional and implementation arrangements, the current issues and future direction ofthe project.
53. Institutional set-up and Administrative Structure of the ASIF. The ASIF was established as an autonomous organization pursuant to the Decree No. 162 dated April 11, 2000 and received authorization to manage the ASIF I11 Project pursuant to the Decree No. 772-A dated June 8, 2006. The ASIF as a Fund will administer its operations as an autonomous entity and will be governed by its Board, with full authority to manage and administer its program under operating guidelines and procedures set out in the Project’s Operational Manual. The ASIF will recruit office staff and technical consultants on a competitive basis according to qualifications and selection criteria set out in the Finance and Personnel Administration Manual. The ASIF will also have the authority to enter into consultant services and civil works contracts and to manage the project’s financial accounts. The independent set-up of the ASIF will be critical to ensure that the ASIF will carry out its day-to-day operations in an efficient and effective manner.
54. The ASIF Organizational Structure. The organizational structure ofthe ASIF I11 Project will benefit from the structure under the current ASIF I1 Project, which has proven to be effective. One change in the structure will be the incorporation of a new Department on Management Information, Monitoring and Evaluation. This will ensure the proper coordination ofmonitoring activities with the upgraded Management Information System, thus ensuring more effective monitoring of the results and outcomes of project activities and the tracking of performance indicators. The roles and responsibilities of the different departments in the ASIF and the related procedures in project activities have been enhanced to meet the institutional challenges and evolving needs under the enhanced scope of the project. The ASIF, as the Implementing Agency, will be headed by the Executive Director and will comprise five departments and a number of specialized units. The Institutional Support Department will consist of two units: a Community Outreach and Promotion Unit, and a Training and TA Coordination Unit. The Microprojects Department consists of three units: an Appraisal Unit, a Follow-up Unit, and an Estimation Unit. The Finance and Administration Department consists of two units: an Accounting Unit and a General Administration Unit. The Procurement Department consists of a Procurement Unit and a Legal Unit. The Management Information,
17 Monitoring and Evaluation Department consists of a Data Generating and Office Technology Unit and a Monitoring and Evaluation Unit.
55. The other participating institutions under the project include: (i)the Project Implementing Agencies (i.e., local governments and community members) responsible for the implementation of the community investment projects; (ii)Inter-Community Unions serving as project implementing agencies to be tested on a pilot basis; (iii)private contractors who compete for microproject contracts for the rehabilitation of works; (iv) local supervisors hired by the Project Implementing Agencies to supervise the construction work of microprojects; and (v) NGOs, individual consultants and Jirms who compete for technical assistance and training activities advertised under the project.
56. Implementation Arrangements. Implementation arrangements under the ASIF I11 Project would be governed by the guidelines and procedures set out in the Operational Manual (OM). The Operational Manual is currently being developed under the ASIF I11 PHRD, using the OM of the ASIF I1 as a basis. To strengthen the financial management capacity ofthe ASIF, it was recommended that the Finance and Administration Manual be updated to reflect the new project activities proposed under the ASIF I11 Project and the related financial management arrangements described in Annex 7, including project costing and financing. Similarly, the ASIF I11 Operational Manual will reflect procurement arrangements proposed under the new operation which are detailed in Annex 8. The approval of the ASIF III Operational Manual by the Association is a Condition of Effectiveness. The OM has been upgraded based on the lessons learned and the experience gained in the management and implementation of the ASIF Iand I1 Projects. The refined and upgraded version ofthe OM defines the enhancement ofthe roles and responsibilities of the institutional project structure, strengthened procedures for community outreach and promotion, quality of works, operations and maintenance, and monitoring and evaluation. It also provides detailed descriptions of the project components and procedures covering administrative and management arrangements for project implementation.
3. Monitoring and Evaluation of OutcomeslResults.
57. The monitoring and evaluation ofoutcomes and results under the ASIF I11 Project would be consistent with and be an integral part ofArmenia’s capacity to monitor sector outcomes and progress towards attaining MDGs.
58. Country Capacity to Monitor Sector Outcomes and MDGs. As noted in the PRSP Progress Report of 2006, the Government ofArmenia has set up a system for poverty monitoring under the PRSP, harmonized with the Millennium Development Indicators framework. Activities on the PRSP monitoring and evaluation system development were initiated in August 2003 soon after its adoption by the PRSP Working Group, with support from the Association, GTZ, and UNDP. The technical work for the development of a monitoring system was performed by more than 15 independent experts and one consulting company. Following a review in November 2004, the PRSP monitoring indicators’ system was approved by Government Decree N1780-A.
18 59. The PRSP monitoring system encompasses 177 indicators, out of which 36 are target indicators and 141 factor indicators which are clustered in the following groups: (i)poverty reduction and improved living conditions; (ii)education; (iii)health; (iv) basic public services and housing conditions; (v) civil isolation and inequity; and (vi) sustainable environmental development. The indicators include those relating to the under-five mortality rate, secondary education completion rate, maternal mortality rate, and access to drinking water, which are broadly consistent with the key IDA 14 sector outcomes. According to the Decree mentioned above, relevant data on indicators and targets have to be submitted to the Ministry of Finance and Economy. Such sets of data are being currently used for monitoring progress on poverty reduction and in assessing progress towards attaining the Millennium Development Goals. The PRSP Progress Report of 2006 provides an update in terms of key indicators and an assessment ofthe progress made.
60. Monitoring and Evaluation of 0utcornedResult.s under the ASIF 111 Project. The process of monitoring and evaluating project outcomes and results will be carried out continuously and systematically during project implementation under Component 2. Monitoring and evaluation will be the joint responsibility of the ASIF, the Project Implementing Agencies (PIAs), and Bank supervision team, contracting out these bctions when appropriate. The Ministry of Finance and Economy (MOFE), which has the overall responsibility for the ASIF I11 Project, will regularly monitor and evaluate implementation progress and outcomes of the project. The Monitoring and Evaluation (M&E) Unit proposed to be located under the new Department on Management Information, Monitoring and Evaluation will be responsible for monitoring and evaluating activities and for coordinating such activities with the Data Generating and Office Technology Unit. Data collection, analysis and information dissemination would be the primary responsibility of the ASIF M&E Unit supported by ASIF MIS Officers. Under the ASIF I11 PHRD Grant, the MIS has been upgraded to strengthen monitoring and reporting features of the system. The new database server software is the key feature ofthe upgraded MIS which together with a new interface will contribute to the overall enhancement of the MIS. The M&E Unit will also be responsible for the preparation of the quarterly, mid-term, and annual reports. Impact monitoring and evaluation would be carried out through beneficiary assessments, technical assessments, workshops and round table meetings to discuss the results and impact of project activities. Bank supervision missions will be carried out semi-annually; in addition a mid-term review will be conducted. The aim of the monitoring and evaluation activities would also be to improve communication and information flows, develop partnerships between central government and municipal officials and local communities, and donors, and thereby enhance local level development. Annex 3 provides the results framework of the project covering key outcome indicators to be collected, the use of outcome information, and arrangements for results monitoring.
4. Sustainability.
61. Benefiting from ten years of operation of the ASIF program, local governments and community members are more conscious of operations and maintenance issues and recognize that they have an important role in ensuring the sustainability of the facilities rehabilitated or constructed under the program. Building upon this positive experience, project sustainability of the ASIF I11 will be enhanced at the local level through the following mechanisms.
19 62. Ensuring Project Quality. The ASIF will ensure that: (i)microprojects selected in response to priority needs, clearly demonstrate potential net benefits to the communities, in terms of facilities created and short-term employment generated; (ii)quality of works are maintained through adherence to standards, use ofqualified staff, and periodic assessments; and (iii)there is strict adherence to agreed microproject typology.
63. Community Participation: Municipal authorities and communities will have key roles as members of the Project Implementing Agencies (PIAs). They will receive training to plan, manage, monitor, supervise and maintain community investments and improve the quality of service delivery. Under ASIF 111, training will be expanded to cover larger segments of communities in the regions targeted to ensure a broader coverage and empowerment of communities. The membership ofthe PIAs will be expanded and the roles and responsibilities of the PIAs will be enhanced and defined in the ASIF I11 Operational Manual. This would ensure effective engagement and mobilization of members at all stages of the microproject cycle and strengthen community-municipal partnerships at the local level. The community will also provide a share ofthe financial contribution for microprojects, which will serve as an effective mechanism for the involvement oflocal authorities and local resource mobilization.
64. Role of Local Government in Maintenance of Public Facilities. To help maintain the assets created or rehabilitated under the project, special training to local government officials will be provided from specialized institutions in the areas of financial management and budgeting (Le. development of three-year budgets with provisions for maintenance of public facilities); and asset management (i.e. inventory monitoring, operation and maintenance ofpublic assets). The understanding would be that municipalities would assume greater accountability and full responsibility of maintaining the public assets beyond the life of the project, from their own resources.
65. Institution Building. To complement and ensure the sustainability ofthe activities under the microproject component ofthe ASIF I11 Project, municipal capacity building activities would be carried out as an integral part of project activities. The complementary interaction between institutionally-strengthened local governments and mobilized community members participating in ASIF microprojects will help create linkages between local government and communities. The focus on strengthening the financial management capacities ofmayors and council members will be to place greater attention to transparency, accountability, and more open relations with the public. As it was demonstrated under the ASIF I1 Project, capacity building will also contribute to strengthening the quality of work of the community administration, provide a stronger foundation of knowledge for the leadership role of mayors, and provide greater focus and attention to the sustainability ofcommunity investments.
66. Cost Recovery. For revenue generating investments such as water projects or solid waste disposal projects, the ASIF will ensure that cost recovery mechanisms are established for charging user fees to cover operations and maintenance costs.
20 67. Cost Sharing. To ensure greater ownership of the assets created or rehabilitated under the project, local governments and communities together will be required to finance up to 10 percent of the cost of microprojects, averaging 7 percent overall, with a minimum of 4 percent for poor communities, based on an assessment ofpoverty and capacity to pay. This is a feasible target since community contributions under the ongoing ASIF I1 operation have already been in the range of6-9 percent.
5. Critical Risks and possible controversial aspects.
Risk Risk Mitigation Measure Risk Rating with Mitigation Rising construction costs may reduce the The following measures will mitigate this risk M number ofmicroprojects and in turn the -- use ofcost-effective, standardized, and functional number ofbeneficiaries from the Project. designs for construction works, while adhering to the required norms and standards. -- intensified supervision to ensure that microprojects are completed without cost overruns. -- obtaining additional funding from donors and sponsors.
The Government’s capacity to provide To ensure counterpart funding on a timely basis, L counterpart funding equivalent to US$6.67 the Government will include a line item in the million or US$74 1,000 on a semi-annual central government budget on an annual basis. basis for 4.5 years, representing its net cash In addition, a covenant in the Financing contribution ofUS$1.67 million and Agreement has been included to provide a provision for taxes ofUS$5.0 million. safeguard for ensuring government counterpart funding.
Availability and sustainability offunding This risk can be mitigated by: M for capacity building activities at the -- Designing a small-scale capacity building municipal level. program, limiting the targeting to those communities participating in ASIF microprojects, and seeking some financial resources from the Government in support ofits decentralization program. -- Establishing an ASIF I11 Project Technical Committee to ensure coordination ofactivities between the ASIF and the PSMP regarding the municipal financial management training, and to optimize the outcomes ofboth projects.
The project will be implemented in a The Association will closely monitor performance M country environment where corruption can under the Project and the following mitigation be an issue. Although at a project-specific measures will be taken: level, the Armenia SIF I1Project has a --The Project will establish a formal internal clean record to date in this respect, it was control framework described in the Finance and considered prudent to flag this as a risk and Administration Manual. indicate mitigation efforts. --The flow of funds mechanism agreed to will be monitored and enforced. --The project financial statements will be audited
21 by independent auditors and on terms acceptable to the Bank. I -- Government’s move towards e-procurement and use of public web-sites to disseminate tenders and announce results. -- Regular financial management and procurement post and prior reviews will be conducted to monitor and assess the corruption risk. --The ASIF will monitor new procedures to improve the quality of civil works, and increase contractor accountability.
6. Credit Conditions and Covenants.
68. Credit Effectiveness Conditions
e The Government Decision establishing the ASIF I11 Project Technical Committee has been issued to develop and carry out the institutional and technical framework for the financial management training. e A Project Account has been opened in a bank acceptable to the Association with an initial deposit of US$500,000 relating to the Government cash contribution and provision for taxes. e The ASIF I11 Operational Manual, satisfactory to the Association, has been adopted by the Recipient.
69. Covenant on Financial Management. The ASIF will maintain a financial management system acceptable to the Association. ?.he project financial statements, SOEs and the Designated Account will be audited by independent auditors acceptable to the Association with terms of references acceptable to the Association. The annual audited statements and audit report will be provided by the Association within six months of the end ofeach fiscal year.
D. APPRAISAL SUMMARY
1. Economic and Financial Analyses
70. Economic Analysis. As in other community development projects, the demand driven nature ofthe project -- which responds to microproject proposals from poor communities during the life of the project - clearly precludes the ex-ante use of traditional methods of cost-benefit analysis. Neither the size nor the types of microproject proposals are known ex-ante. In these circumstances, the approach adopted was to examine the project at the macro and micro levels as follows: (i)the project rationale within the broader context of national development objectives, government strategy, and the Bank’s country assistance strategy and programs; and (ii)the cost- effectiveness of microprojects completed under ASIF I1 compared with those completed under traditional government programs, and NGO programs - with the implicit assumption that cost- effectiveness under ASIF I11 would be at least the same as that of the ongoing ASIF I1 Project. The cost-effectiveness study carried out in 2004 was used as the basis for the micro level analysis.
22 71. The macro level analysis has shown that the project rationale is consistent with the Government’s development strategy, and the Bank’s Country Assistance Strategy (CAS) ofMay 2004, specifically the CAS goal (iii)of reducing non-income poverty through better health, education, and basic services. (See Economic and Financial Analysis at Annex 9).
At the micro level, the cost-effectiveness study revealed favorable results. In school projects which constitute more than half of ASIF’s microprojects, the average cost of a new school constructed was favorable (US$116,000) compared those constructed by a relevant NGO selected for the study (US$147,410) and the Government (US$158,620). The cost per beneficiary in new schools constructed by ASIF also was lower than that of the NGO and the Government. Water suppZy projects -- which constitute around 20 percent of ASIF microprojects -- had the lowest cost per beneficiary (US$23) compared to those constructed by the NGOs (ranging from US$24 to US$35). However, due to the size and complexity of ASIF projects, they were on average more costly than those of the NGOs. In the irrigation sector, the ASIF’s cost-effectiveness profile has been only slightly better than those ofits comparators -- an NGO and the Government’s Irrigation Project, which are well managed. Although ASIF’s cost per beneficiary was lower than that of the Government’s program, it was higher than that ofthe NGO. On the other hand, the Government’s cost per meter has been favorable than those of ASIF and an NGO, reflecting economies of scale. In the health sector, the ASIF has also made a modest contribution towards achieving the Government’s objective of enhancing primary health care services. (See Annex 9 for details)
72. Thus, the analysis suggests that the proposed ASIF I11 Project will be a cost-effective means of meeting the social infrastructure needs of the poor, provided the same standards of technical and economic efficiency are maintained, or further improved. Cost-effectiveness is expected to improve since technical standards will benefit from the quality of works enhancement program, while the implementation of new procedures will help improve cost- efficiency.
73. Financial Analysis. No detailed financial analysis showing the net present value and the financial rate of return was undertaken since ASIF I11 is a non-revenue generating project. Instead, the analysis was focused on the fiscal impact of the project. The main fiscal impact of the project will be the counterpart finding required from the Government estimated at US$6.67 million, and an additional in-kind contribution of US$450,000 for ASIF office rent. The government counterpart finding will cover and taxes and duties estimated at US$5.00 million and a net cash contribution of US$1.67 million. The total government cash contribution (US$6.67 million) under ASIF I11 over a period of four and a half years will consist ofnine semi- annual payments ofUS$741,000 each. The principal fiscal benefit would be substantial savings in the government budget, mainly on education, water supply, and irrigation, which would otherwise require central government budgetary allocations in the absence ofthe project.
74. The other fiscal impact relates to project’s contribution to tax revenues: (a) income taxes from ASIF staff salaries and wages; and (b) the 20 percent VAT on all expenditures on microprojects financed by IDA, the Government, local communities, and local private sponsors.
23 2. Technical
75. Under the ASIF I11 Project, procedures will be implemented to ensure that the microprojects financed are of high quality, technically sound and cost-effective. The quality of works and cost-effectiveness will be enhanced by a number of procedures developed with financial support fiom the ASIF I11 PHRD Grant. These consist of: (i)improved engineering designs for community works projects; (ii)updated technical specifications for various types of community works projects; (iii)improved civil engineering estimation and methods to ensure cost-effectiveness; (iv) standardization of designs based on model construction solutions; (v) enforcement of norms and standards through effective procurement procedures; (vi) improved procedures for supervision of community works and engagement of qualified staff to ensure quality ofworks, cost-effectiveness, and timeliness in completing and handing over community works; (vii) training of implementing agencies and contractors in relevant fields of quality enhancement; (viii) the recruitment of local advisors/supervisors in quality ofworks; (ix) annual procurement and technical reviews; and (x) semi-annual Bank supervision missions and the mid- term review.
76. With regard to the Municipal Financial Management Training Program proposed under the ASIF I11 Project, the technical quality, impact and outcomes will be monitored closely by the Ministry ofFinance and Economy (MOFE), the Ministry ofTemtorial Administration (MOTA), the Training and TA Coordination Unit, and the Monitoring and Evaluation Unit in the ASIF. An ASIF I11 Project Technical Committee would be established under the ASIF I11 Project to provide overall guidance and direction to the ASIF, so as to ensure effective coordination of activities between the ASIF I11 and the PSMP regarding the municipal training program. This Committee will be responsible for developing and carrying out the technical framework for the municipal financial management training program.
3. Fiduciary
77. The financial management (FM) functions ofthe project will be handled by the Armenian Social Investment Fund (ASIF), the Implementing Agency responsible for the flow of funds, accounting, reporting, and auditing.
78. Fiduciary Risk at Project Level. The financial management arrangements of the ASIF have been reviewed periodically as part of previous project supervisions and have been found satisfactory. An assessment of the financial management arrangements for the project was undertaken in May-June 2006. Based on the FM assessment, it was established that the ASIF has acceptable financial management arrangements: (i)accounting and reporting is performed with the use of an in-house developed accountingMIS software, which was assessed to be a reliable and flexible system to record and report with the required details and formats; (ii)the filing system allows to keep in a well systematized manner all supporting financial documentation relating to the project; (iii)the ASIF accounting staff have extensive experience in Bank procedures for disbursement and financial management, including FMR preparation; (iv) internal control system is adequate; and (v) FM supervisions and annual audits conducted in respect of IDA-financed project implemented by ASIF confirmed the satisfactory financial management arrangements. The overall FM risk for the Project is moderate.
24 79. As the Project will be implemented in an environment where corruption (see below) can be perceived as an important issue, adequate mitigation measures have been put in place to ensure that the residual project risk is acceptable. Mitigations measures are incorporated in the project design and Bank staff will closely monitor performance during implementation. These mitigation actions can be summarized as follows: (a) the Government's move towards e- procurement and use of public websites to disseminate tenders and announce results; (b) the project will establish a formal internal control framework described in the Finance and Administration Manual; (c) the funds flow mechanism agreed will be enforced; (d) the project financial statements will be audited by independent auditors and on terms acceptable to IDA; (e) regular financial management supervision and procurement prior and post reviews will be conducted to monitor and assess the corruption risk; and (f) the ASIF will monitor new procedures to improve the quality ofcivil works, and increase contractor accountability.
80. Fiduciary Risk at the Country Level. According to the latest Doing Business Survey 2007, Armenia was the top-rated CIS country and scored well vis-&vis many other developed and developing countries (34'h out of 175). At the same time, in the latest Business Environment and Enterprise Performance Survey (BEEPS) report, about 30 percent of businesses have indicated that corruption is a problem in doing business. A Country Procurement Assessment Review (CPAR) done in 2004 also concluded that based on the analysis of the legislative framework, procurement practices, institutional capacity and the opportunity for corruption, the environment for conducting public procurement in Armenia was one ofhigh risk at that time. The Country Financial Accountability Assessment (CFAA) report, which was finalized in 2005, concluded that the overall fiduciary risk' in Armenia is significant. The key reasons are: (i)inadequate capacity of core control and supervisory agencies performing the audits within the public sector; and (ii)although most of the basic laws are in place with respect to various entities' (private sector and public enterprises, including state non- commercial organizations) financial reporting, compliance remains a problem and authorities need to improve the quality ofauditing, monitoring and supervision.
81. Since the CFAA and the CPAR reports were published, there was some progress recorded on the development of the Public Financial Management (PFM). Particularly, following the amendment to the Constitution of the Chamber of Control (COC) (Armenian Supreme Audit Institution), which gained more independence from the Parliament, is now in the process of development of the new Law on COC. The Bank is assisting the COC with the development of its audit manuals and methodologies according to internationally accepted practices. The internal audit reform is under implementation, with the Government strategy in place supported by PRSC Ito I11 programs acceptable to IDA. The Ministry of Finance and Economy also adopted an action plan for implementation of the IPSAS in the Government sector and now is designing the detailed timeline for the transfer to cash basis IPSAS and then to accrual.
Risk ofillegal, irregular or unjustified transactions not being detected, measured on a four point scale according to the CFAA Guidelines (low, moderate, significant or hgh).
25 82. Regarding procurement, major achievements have been: (i)the passage of the amended Public Procurement Law with the provision of E-Government Procurement (E-GP); (ii)a workshop on E-GP where some of the good practices on E-GP from selected countries were presented; (iii)preparation of the E-Government Procurement Strategy; and (iv) procurement training benefiting about 800 officials. Furthermore, the Government has already established a procurement website where most ofthe legislative documents, official procurement bulletin and other state procurement information are posted. An e-catalogue comprising of a list of 13,000 items (goods, works and services) has been created and is on the website. The catalogue also contains the process for vendor registration.
26 4. Social
83. Notwithstanding the economic progress witnessed in the recent past, over a million people live in poverty, including vulnerable groups such as orphans, refugees and disabled persons, and among them 200,000 are very poor. Poverty in Armenia, apart from being extensive, it is also multi-dimensional in character. Strong growth, has not resulted in a commensurate rise in employment - reflecting the lack of opportunity in securing a sustainable livelihood. Regional disparities in income suggest that benefits ofgrowth have not reached some regions. Non-income poverty also manifests itself in the key social sub-sectors - health, education, and social services. Although much progress has been made in recent years, within the framework ofthe Government’s evolving policy development policy, assisted by a number of external donors, the access to basic social and economic infrastructure services remains limited, especially for the poor and vulnerable groups. Amongst the vulnerable groups are children with physical and mental disabilities, families with several children, single mothers, and the elderly. As a result, socially vulnerable families are increasingly seeking the assistance of institutions. The Project will address the poverty issue through improvement to social and economic infrastructure, and grants for specific social services -- which will improve the living conditions ofthe poor in tangible terms.
84. The proposed ASIF I11 Project represents a continuous and evolving effort in supporting community development at the local level by preparing local governments and community groups to effectively deliver municipal services to the most vulnerable groups of society. The Project will build on the efforts initiated under the ASIF I1 Project aimed at buttressing participatory approaches in service delivery. The Social Capital Assessment carried out under the ASIF I1has shown that the institutional linkages strengthened under the framework ofthe project increased the efficiency oflocal communities and government institutions in service delivery and created effective social capital. The ASIF I11 Project will reinforce this social capital and progressively prepare local governments and communities in the fundamentals ofparticipation, accountability, and service delivery. The social development strategy implicit in the project design includes institutional arrangements, participatory methods, service delivery, and capacity building, to address issues of institutional development and social capital formation. The expected social outcomes of the project focus on three key areas: (i)advancing community development in the poorest communities; (ii)promoting participatory, inclusive processes in communities that identify goals and priorities cutting across subsets of communities; and (iii) strengthening linkages between community members and participating local institutions through institutionally-strengthened local governments and mobilized community members participating in ASIF microprojects. Community investment projects will be the main framework under which communities and local governments are closely involved in the preparation, design, implementation, and subsequent operations and maintenance ofcommunity investments.
5. Environment
85. No major environmental issues are anticipated under the proposed ASIF I11 project given the relatively small size and rehabilitation nature of most microprojects. However, certain microproject types such as water supply rehabilitatiodconstruction schemes to be funded under
27 the project may require special environmental mitigation measures to protect quality ofthe water source (in-situ and upstream). In the case of potable water project proposals which involve the construction of new reservoirs which may have potential risks of being linked to international waterways or trans-boundary water sources, a special study on this issue was conducted at the local level during project preparation. The study concluded that the water sources are outside the international waterways, and that as in ASIF Iand 11, the new water supply microprojects under ASIF I11 would be based on small wells and surface springs. It was therefore concluded that the OP 7.50 will not be triggered and that the exclusionary language to ensure this will be specifically incorporated in the project documents. Environmental mitigation measures may also be needed in the case of sewage, sanitation systems and irrigation rehabilitation works sub- projects. Environmental concerns will be mitigated in the selection and implementation of sub- projects.
6. Safeguard Policies
86. The ASIF, as the Implementing Agency of the proposed ASIF I11 Project has been operating under the ASIF Iand I1 operations as an effective management unit with close to 10 years of experience. To date, about 619 Works projects have been carried out with no major environmental issues encountered. The ASIF effectively monitored sub-project implementation including ensuring that the sub-projects meet the environmental requirements ofthe country and are consistent with Bank guidelines and procedures incorporated in the environmental section of the ASIF I1 Operations Manual (OM). The OM lays out procedures and implementation arrangements for ensuring full consideration of environmental safeguards, in accordance with Bank environmental assessment guidelines. According to the guidelines, each microproject is individually screened and reviewed by the ASIF -- by specific type -- for any negative impacts, and mitigation measures. In addition, the community proposals incorporate an environmental review checklist, and the standard microproject appraisal document includes an environmental checklist and mitigation measures. Special environmental mitigation measures were included in the OM in the case of certain project types such as water supply rehabilitation schemes, sewerage, sanitation systems and irrigation rehabilitation works sub-projects. As part of the Quality of Works Technical Reviews carried out under the ASIF I1 Project, training was provided by environmental specialists, on a regular basis, in the area of evaluation and monitoring of sub-projects according to agreed environmental standards. The Environmental Section of the OM has been included and updated in the ASIF I11 Operational Manual and was publicly disclosed on July 10, 2006. This section was discussed in detail with the ASIF team during Appraisal. See Annex 10 for environmental mitigation measures and review checklist. The Safeguard policies triggered are set out in the table below.
28 Safeguard Policies Triggered Yes No Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X
Forests (OP/BP 4.36) X ~ Pest Management (OP 4.09) X Cultural Property (OPN 11.03) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X Projects on International Waterways (OP/BP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X
7. Policy Exceptions and Readiness.
Policy Exceptions: The project does not require exceptions from current Bank policies.
Readiness Criteria: The adoption of the ASlF I11 Operational Manual satisfactory to the Association is a condition of Credit Effectiveness.
29 Annex 1: Country and Sector or Project Background ARMENIA: Social Investment Fund I11 Project
The Country Context. Located in the Caucasus Region, Armenia is a small landlocked country, neighbored by Turkey and Iran to the south-east and south, and by Azerbaijan and Georgia to the north and north-east. It faces many economic disadvantages owing to its small size, its landlocked and mountainous terrain, and limited natural resources. Armenia re-gained its independence in 1991, after more than 70 years of Soviet rule. The initial period oftransition was marked by considerable economic deterioration resulting in a 60 percent drop in real GDP from 1991 to 1993. In addition, the economy faced a number of external shocks: the Nagorno- Karabakh conflict; the Russian financial crisis of 1998; the severe drought in 2000, and the extreme frosty conditions in the spring of 2002. However, the country’s high levels of human capital, a large and active Diaspora, and high levels ofremittances and external resources have compensated for these disadvantages. Armenia’s population is estimated at 3.2 million, and with a per capita income of US$1,470 (2005), Armenia ranks amongst the lower-middle income countries .*
The Economic Setting. In response to successful implementation of economic reforms, the country’s economy rebounded from the early 1990s, recording a real GDP growth rate of 5.4 percent per year during 1995-2000. These reforms were augmented in mid-2000 by an increased government focus on improving the overall business climate, and a supportive framework for a market economy. More recently, the Government’s reform programs, supported by large external resource flows and Armenia’s relatively high level ofprofessional skills, contributed to an impressive real GDP growth rate of close to 11 percent per year since 2000, led by construction and industry. (See Table 1).
Growth has been driven by productivity gains in the private sector as macroeconomic stability took hold, the role ofprivate markets was rapidly expanded, the public sector remained small as a share ofthe total economy, and important institutional measures to ensure free price formation, liberal trade in goods services and investment, private ownership of assets, including land, and industrial re-structuring were adopted. Moreover, the adoption of responsible fiscal and monetary policies in the late 1990s led to the conquest of inflation and infused predictability in the stance of financial policies (See Table 1). Thus, first generation structural and institutional reforms achieved laid the foundations for an impressive growth performance.
* This Annex draws from a number of Bank sources which include: (i) The Country Assistance Strategy for Armenia May 2004; (ii) The Drafi Country Economic Memorandum for Armenia (May 2006); (iii) Social Snapshot and Poverty in Armenia, A Joint Report by the National Statistical Office, RA and the World Bank, (iv) The Institutional Review ofASIF I1and Recommendations for ASIF 111, Phillip Rawkins (Consultant); and (v) ASIF I11 Social Services Assessment, Final Report, Beate Gross (Consultant).
30 Table 1: Armenia: Selected Macroeconomic Indicators 1995 - 2004
Indicator 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Real GDP Growth 6.9 5.9 3.3 7.3 3.3 5.9 9.6 13.2 14.0 10.1 Official Unemployment Rate 6.7 9.3 10.8 9.4 11.2 11.7 10.4 10.8 10.1 9.6 Inflation (period average) 176 18.7 14.0 8.7 0.6 -0.8 3.1 1.1 4.7 7.0 Public Expenditure(%ofGDP) 26.3 22.0 21.9 24.5 28.4 24.7 23.6 22.0 22.4 20.7 Fiscal Deficit (% of GDP) -6.0 -3.6 -2.5 -3.7 -5.4 -4.8 -4.2 -2.5 -1.3 -1.5 I Exchange Rate (Drams/US$) 406 413 491 505 535 540 555 573 579 533 I Source: National Statistical Service of RA and the World Bank, Social Snapshot and Poverty in Armenia, 2006, Table 2.1
A major milestone in the Government’s evolving strategic reforms was its PRSP of October 2003 directed towards reducing poverty, lowering inequality, and improving human resources. In line with the Armenian Constitution of 1995, the Government has also taken steps to create an effective decentralized administrative structure by delegating service delivery functions to the local self-government units. Further progress in this direction has been made by the Government with the support of donors, in preparing regional development plans in five marzes (Lori, Tavush, Gegarqunick, Ararat, and Vayadzor) and to strengthen the capacity of inter-community unions in support of local self management. These reforms and initiatives have indeed set the stage for accelerating economic growth, reducing poverty, and improving the quality of life of the Armenian population.
Poverty Reduction. The robust economic performance witnessed since the mid-1990s has led to dramatic reductions in the poverty rate from 56.1 percent in 1998/99 to 34.6 percent in 2004, and the severity of poverty from 7.2 percent to 2.4 percent over the same period. In absolute numbers, almost 700,000 people were lifted out of poverty. In particular, the improvement of living standards and economic opportunities can be attributed to the Armenia Social Investment Fund (ASIF) program which has focused on economic and social infrastructure over the past ten years. In addition, a variety of projects and programs supported by the donor community has also contributed to the improvement ofliving standards.
Table 2: Armenia: Poverty Indicators, 1998/99 and 2004 ( in Percent)
1998/99 2004 Pov. Incidence Serverity of Pov. Incidence Serverity of YO Poverty YO YO Poverty % Urban 62.1 8.7 36.4 2.8 --Yerevan 58.4 7.9 29.2 2.2 Other Urban 65.5 9.4 43.9 3.5 Rural 48.2 5.1 31.7 1.6 ITotal Population 56.1 7.2 34.6 2.4 Source: National Statistical Service of RA and the World Bank, Social Snapshot and Poverty in Armenia, 2006, Table 3.1
Notwithstanding the economic progress witnessed in the recent past, Armenia’s income per head estimated at US$1,470 is only about a quarter of the income per head in the Baltics. Over a million people live in poverty, including vulnerable groups such as orphans, refugees and
31 disabled persons, and among them 200,000 are very poor. Moreover, strong economic growth has not resulted in a commensurate rise in employment. Although registered unemployment stands at around 10 percent of the labor force, some survey data indicate rates three times as high. Regional disparities in income suggest that benefits of growth have not reached some regions (e.g. the Shirak Marz - the poorest) and some of the 145 communities living in high mountainous terrains (over 1930 meters above mean sea level), which lack basic social and economic infrastructure and key social services, as described below.
The recent period of growth has resulted in a sharp rise in the consumption by the poor. Poorer quintiles ofthe income distribution have gained more from growth than richer quintiles, with the extremely poor gaining the most. The reduction in poverty - with overall poverty falling from over half the population to one-third between 1998 and 2003; and extreme poverty falling from over one quarter ofthe population to just five percent over the same period - has been driven by consumption growth rather than redistribution effects. The capital city of Yerevan has reaped large dividends in the fall ofpoverty, with other urban areas benefiting to a much lesser degree.
The recent period of impressive GDP growth, has also witnessed the emergence of a dual labor market with large under-employment or subsistence employment co-existing with a more skilled labor force that has enjoyed large real wage gains in expanding sectors of the economy. The causes ofweak response of employment to investment and growth lie in a business climate that has discouraged the flexible use of labor and in inadequate skills among the unemployed. Addressing the binding constraints which inhibit the formation and expansion of firms would remain central to raising employment. More broadly, the incompleteness of structural reforms and inadequacies in the development of institutions that encourage competition are factors that lead to the persistence ofunemployment.
The policy adaptations described above are also essential to dealing with the weak response of employment to high rates ofeconomic growth in Armenia. The initial output and price shocks of transition led to a shift of labor to subsistence agriculture and to the development of a large informal economy. MacroeGonomic stability, privatization and enterprise re-structuring have promoted flexibility in labor markets, but deficiencies in the business environment, some rigidities in the employment regime and inadequate financial markets have led to a dual labor market: one of rising real wages on the strength of impressive productivity gains; and the other (larger) informal and stagnant labor market.
Social Sector Issues. The Government’s social policy framework has continued to evolve in the direction of strategic social development in the medium and longer term, focusing on enhancing human development and improving social safety nets. In this regard three main sub-sectors on which much attention has been focused are health, education, and social services. Each ofthese sub-sectors has witnessed significant progress in recent years, but further challenges remain as described below.
Notwithstanding infrastructure investments in recent years, major infrastructure gaps remain in Armenia, largely reflecting years of neglect in maintenance after the break-up of the Soviet Union, unclear responsibilities for maintenance, and ineffective institutional arrangements at the local level. Infrastructure gaps are most acute in the rural areas. Preliminary data on
32 infrastructure deficits, based on the Bank’s recent Rural Infrastructure Report on Armenia (2004)’ the Social Snapshot and Poverty in Armenia Report (2006) and other sources from the ministries of Education and Science and Health indicate major challenges ahead. These infrastructure gaps include 500 schools and 120-130 primary health clinics or ambulatories that need repair or reconstruction at an estimated cost of around US$82 million, in two areas in which ASIF has been active. Even in a scenario where some of the potable water projects are financed by other agencies, if ASIF constructs or rehabilitates 20 small isolated potable water systems, the estimated cost would amount to about US$2 million. These, together with the constant demand for multipurpose community centers, special schools (kindergartens/arts/music/sports), and the emerging demand for rural electrification systems, would constitute extensive demand for ASIF services over the medium term. The ASIF has the capacity to execute community investment projects to a level ofabout US$8.0 millionper year.
In health, there are indications that conditions have begun to improve since 2000. As noted in the PRSP Progress Report of 2006, renovation and re-equipment works have been implemented in around 80 percent of the medical institutions within the system. High priority has been assigned to primary healthcare, as reflected in the Government’s “2003-2008 Strategy for Primary Healthcare of Population of the Republic of Armenia.” Nevertheless, providing the poor with better access to healthcare services remains a challenge. Primary healthcare is short of funds, and consequently, health clinics have been inadequately maintained; much of the equipment is outdated. However, with the doubling ofhealth expenditures relative to GDP over the next 10 years and a shift of focus towards primary health, the MDGs on child mortality are likely to be met by 2015. The achievement ofthese goals will be further supported by improved access to safe drinking water, a PRSP priority currently supported by KFW, IFAD, USAID, the Bank’s ASIF I1 and Water Supply projects. Under the ASIF program alone, water supply services were rehabilitated or constructed recently in 40 villages. Currently 96.5 percent of households in urban areas and 74 percent in rural areas have access to safe drinking water. The PRSP envisages achieving 24-hour water supply from centralized services to 98 percent ofurban and 70 percent ofthe rural population by 2015.
In education, the major PRSP goals are to ensure the availability of educational facilities and to improve the quality of education, while prioritizing the area ofgeneral education. To meet these goals, public expenditure on education has been significantly increased during 2003-2005, and directed towards raising teacher salaries and improving school facilities. Complementing the Government’s programs, under the ASIF I1 Project, as of end December 2005, 55 schools were constructed, 84 schools were renovated, and 37 schools were reconstructed. To improve school heating, since 2003, the quantity of fuel provided for school heating has been increased, giving consideration to schools by their location in plain, mountainous, and high mountainous areas. Although a number of improvements have been made in terms of infrastructure and school administration, partly financed under the ASIF I1 Project, there is a perceived need to further expand school heating and equip schools with better furniture, teaching materials, science laboratories and libraries. Another perceived need relates to the provision ofspecial furniture for children entering elementary schools at the age of 5 ?4 years. In regard to early childhood education, the number of preschool institutions has decreased over recent years, while the number ofchildren enrolled has plummeted, especially in the rural areas.
33 As regards social services, most cities have branches of state bodies that provide mainly financial support (e.g. pensions, family benefits) the administration of which has been significantly improved over the recent years. Most benefits are well targeted, with no arrears in payments to beneficiaries, and have proven to be an efficient tool for the reduction of poverty and inequality. Nevertheless, further improvements in efficiency and effectiveness of social service support are necessary. In particular, the administration of social benefits needs to be improved to reduce waste and delays, and to ensure that benefits reach more of the poor, especially in the rural areas. The general lack of knowledge of thi benefit system, its rules and entitlements is also a cause for concern.
Other social services are largely provided by local, national, and international NGOs, supported in certain areas ofthe country by public finds, sometimes in partnership with local governments. Social services are provided by communities on a voluntary basis and are mainly limited to kindergartens except in large cities, where NGOs also participate. Small communities are virtually unable to provide social services, apart fi-om occasional ad-hoc support. While the communities have the legal power to provide social services, the necessary funding has not been provided by the State.
The Elderly and the Handicapped. The PRSP has highlighted the challenges ahead in meeting the needs of the elderly and the handicapped. These include: in-house social services to the elderly; mitigation of disability; medical and social rehabilitation; prosthesis and orthopedic assistance to the handicapped; and the provision of appropriate rehabilitation accessories and wheelchairs. Although the State Budget has made provision for these services, and a number of donors are providing active support, there is a need for more finding and capacity building in these areas.
Child Protection. A more serious concern relates to children at risk due to an increase of family disintegration, violence within families, child abandonment, and a rising number of children deprived ofparental care. As a result, socially vulnerable families are increasingly seeking the assistance of institutions for the children that they are unable to care for, children with physical and mental disabilities. There are eight state orphanages, with two for children with restricted abilities, and three non-public orphanages. Since 2004, programs have been in place to move children from orphanages to foster families, with financing from the State budget. In addition, a few programs were initiated in Armenia in 2003 to provide families and vulnerable children with services such as parent training, counseling, and respite-care. These services are provided through a few community social work and care centers, such as the ones supported in Yerevan and Guymri under the JSDF Grant for the Piloting Reforms in the Childcare System. Although the PRSP has highlighted the importance of developing social services and the national action plan for the protection of children and new legislation are already in place, progress has been rather slow in realizing the PRSP objective of a “gradual transfer” of responsibilities to local government. To provide the legal framework to address these issues, the Law of the Republic of Armenia on Social Assistance was passed in early 2005 clearly enunciating its goal as follows:
“to satisfy the main needs of persons having occurred in a difficult situation of life, create conditions for their integration in the society, stimulate the development of skills for acting
34 independently and addressing the key issues that have arisen, prevent their social isolation, as well as assist in the solution oftheir financial problems”.
Internally Displaced Persons and Refugees. Harsh conditions exist in the post-conflict regions adjacent to the national borders. Out of a total of 177 near-border settlements, in 132 of these, houses are badly damaged, and roads, communications, drinking water, and sewage systems have been destroyed. A substantial part of agricultural land is mined. Improving the living conditions ofpeople in these settlements remains a major challenge. Another socially vulnerable group consists of refbgees who live in temporary shelters, which have little or no fbrniture and other necessities. Their levels of poverty and of extreme poverty are much higher, and the conditions for women refbgees are particularly harsh. Moreover, the refbgees have little or no representation at the national, regional or community levels.
Government Initiatives. To address a variety of social service issues, a modest start in developing social services has been made through a number of new local initiatives. Armenia has already set up under Government Decree, and with donor financing, two service centers at the municipal level (Vanadzor and Masis) to provide a “one-stop-shop” known as “Integrated Social Services Centers” (ISSCs) putting all services under one roof, sharing a common office space. This arrangement is providing greater transparency and efficiency and, as documented in a recent research study, has led to a reduction ofcorruption. The services provided through these centers relate to pensions, social services, basic medical facilities, employment, and NGO activities. In addition, a few community social work and care centers have been set up (e.g., at Yerevan and Guymri) to help address problems of children at risk; assistance for the elderly and the disabled; and special services to refbgees. These local initiatives are partly donor funded, but warrant further support until the Government’s capacity is developed and resources are provided to carry out social services activities on a sustainable basis.
Capacity for Service Delivery. The lack of institutional capacity at the local government and community levels to effectively address social sector issues remains a major issue. In broad terms, the lack ofinstitutional capacity at the local level has arisen from: (i)institutionally weak local governments, with limited financial resources and skills needed for decentralized management of service delivery; (ii)inadequate systems of accounting, financial planning, and budgeting at the local level; (iii)the lack of effective partnerships at the local level; and (iv) inadequate involvement of local institutions, village councils, and citizens in the decision- making process and in service provision (e.g. management of schools established under the May 1999 Law on Education).
The introduction ofa new Law on Local Self-Government in 2002 provided incremental changes and represented a further development in strengthening the framework for decentralization; nevertheless Armenia remains a centralized state. A number of amendments to the law were introduced in 2004. In 2005, a new Law on Municipal Service was adopted, with provisions concerning the hiring, qualifications, and terms ofreference and security oftenure ofmunicipal employees. The law has yet to be implemented.
Even in some areas where, in law, powers have been transferred to local government, practical constraints may prevent the community from acting on its responsibilities. Local functions
35 relating to power and gas supply systems has not been transferred from the central government to local government. In the case of water, sewerage, or solid waste disposal, many local government units lack either the human resources andor the financial capacity to manage the utilities. Reinforcing, this state of affairs is the fact that the core areas of service provision, including health and formal education, remain under central control. The limited decentralization of the management of schools, while, no doubt, worthwhile for other reasons, has not strengthened the role oflocal government in this sector. Thus, one ofthe main challenges ahead in improving the living standards of the poor, is to effectively implement the legal, functional, and financial decentralization, supported by capacity building at the local level so that local communities can meaningfilly take part in managing their own development. In this regard, the Government’s decentralization program assumes considerable importance - and requires support to accelerate its pace and consolidate its gains.
Decentralization Initiatives. In 1995-96 a conceptual and legal framework for decentralization and local government was put in place. The foundation for the legal framework for decentralization is found in the Constitution of 1995; Chapter 7 is entitled Territorial Administration and Local Self-Government. In addition, detailed provisions are set out in as many as 15 major laws as well as perhaps another 25-30 Presidential, Government, and Prime Ministerial Decrees and other normative acts. The most significant legislation includes: the Law on the Administrative and Temtorial Division of the Republic (December 1995); the Law on Local Government Elections (1996); the Law on Local Self-Government (1996), and the new law, ofthe same title, of 2002. This new Law on Local Self-Government introduced incremental changes and represented a further development in strengthening the framework for decentralization. A number of amendments to the law were also introduced in 2004. Other laws impacting directly on local government include: the Law on the Budget System (1997); the Law on Local Duties and Fees (1998), and the Law on Financial Decentralization (1998). In 2005, a new Law on Municipal Service was adopted, with provisions concerning the hiring, qualifications, job descriptions and security oftenure ofmunicipal employees. The law has yet to be implemented.
The Government Structure. There are only two tiers of government in Armenia: central and local. There is no regional level of government. Instead, the central government, through deconcentration of administration, has established regional offices of certain government ministries and agencies in the 10 regions, or marzes. The marzes are each headed by a governor, or marzpet, appointed by the Prime Minister on the recommendation ofthe President. In addition to the 10 marzes, the capital city, Yerevan, also has the status of a marz. Yerevan is headed by a mayor, who has the status ofa marzpet, and who is appointed in the same way.
The marzpets and their offices (marzpetarans), along with the regional administrative offices of central government ministries, represent central government in the regions and carry out central government policy. The marzpets supervise the implementation of a wide range of state functions that have a significant impact on citizens and local communities. These include: public works, utilities, transportation, education, health and social welfare.
The country is divided into 930 units of local government, or “communities”. Of these, 59 are urban communities, including 47 cities and the 12 districts of Yerevan. The latter has a
36 population of 1.1 million and its 12 districts have elected mayors and councils, as do all other communities. Aside from the 12 districts ofYerevan, the largest communities by population size are Guymri (149,600) and Vanadzor (106,200). Rural communities account for 871 of the 930 units of local government. Of these, most are small. In fact, more than half the population lives in settlements with less than 1,000 inhabitants. Ninety-three per cent of communities have populations ofless than 5,000. All communities, regardless ofsize, have the same powers.
The principal sources ofrevenue for local government are: (i)local land and property taxes, and (ii)the “equalization subsidy” provided by the Central Government. The level of the subsidy received by each community is determined by a formula, based on population size, but also taking into account other factors (Le. location in the “Earthquake Zone”). The 2002 Law on Local Self-Government also provided for local government to receive a share ofpersonal income tax and business tax (“profit tax”). However, the law did not stipulate the basis for making the allocation, and, to date, the National Assembly has not appropriated any portion ofthe revenues concerned for local government.
Challenges Ahead. Even in some areas where, in law, powers have been transferred to local government, practical constraints may prevent the community from acting on its responsibilities. Control ofpower and gas supply systems has not been transferred from the central government to local government. In the case of water, sewage, or solid waste disposal, many local government units lack either the human resources and/or the financial capacity to manage the utilities. Reinforcing, this state of affairs is the fact that the core areas of service provision, including health and formal education, remain under central control. The limited decentralization of the management of schools, while, no doubt, worthwhile for other reasons, has not strengthened the role oflocal government in this sector. Thus, one ofthe main challenges ahead in improving the living standards of the poor, is to effectively implement the legal, functional, and financial decentralization, supported capacity building at the local level so that local communities can meaningfully take part in managing their own development.
37 Annex 1 (a): Priority Infrastructure Needs and the Future Role of the ASIF ARMENIA: Social Investment Fund I11 Project
The objective of this annex is to provide a brief overview of the emerging priority needs in Armenia in the sub-sectors covered by the ASIF, its current areas ofconcentration, and the tasks ahead. In particular, the note will focus on the strengths of the ASIF, the opportunities ahead, the challenges it is likely to face in the medium to the longer term, and the vision of its future role.
Economic Performance and Poverty. Armenia’s robust economic performance with a real GDP growth rate of close to 11 percent per year since 2000 has no doubt led to dramatic reductions in the poverty rate from 56.1 percent in 1998/99 to 34.6 percent in 2004. As a result, almost 700,000 people have been lifted out of poverty. Nevertheless, over a million people continue to live in poverty, including vulnerable groups such as orphans, refugees and disabled persons, among these 200,000 are very poor. Regional disparities in income suggest that benefits ofgrowth have not reached some regions (e.g. the Shirak Marz - the poorest), and some isolated communities still lack basic social and economic infrastructure and key social services. These isolated communities comprise:
0 145 high mountain zone communities (over 1930 meters above mean sea level). 0 177 border zone communities (affected by conflicts). 0 322 earthquake zone communities.
Priority Needs. Although a large number of microprojects in those areas already carried out under the ASIF program benefit the above-mentioned communities, a number of critical needs remain. These consist mainly of schools, water supply, and multipurpose community centers. Hitherto, the ASIF concentrated its construction works on the structural aspects of school buildings. While school building work is likely to continue in response to metdemands, second level needs have begun to emerge. These include school heating, science laboratory and library construction, school furniture, library furniture and equipment, science laboratory furniture and equipment, and teaching materials. Likewise, other second generation needs comprise school playgrounds and gymnasiums, which provide opportunities for recreation and socialization for the youth in remote and rural areas.
The priorities ofthe above-mentioned isolated communities during the recent past can be gauged from the pipeline ofmicroprojects archived by ASIF for lack of funds. Table 1 below shows, in summary form, the degree ofpriority, by typology, assigned by each marz in terms ofthe values for each type, in relation to the total value oftheir proposals. As shown in this table, the degree ofpriority in the proposals presented by the rnarzes that include these isolated communities are 36.7 percent for schools, 20.8 percent for water supply and sewerage, and 12.9 percent for community centers. These, together with emerging priorities noted above, would be the key areas offocus ofthe ASIF team in implementing the proposed ASIF I11 Project. To target needy communities more effectively, a community mapping exercise, in progress, will provide a ranking of Armenia’s 930 communities and a classification by clusters, starting fiom the neediest. This would provide ASIF with a road map for it activities. To date, the neediest 100
38 communities (positive list - highest priority) and the 100 most well off communities (negative list) have been identified.
Total I 15,342.2 I 8,715.6 I 5,399.9 1 1,950.0 I 10,414.0 I 41,821.7 Priority (%) 36.7 20.8 12.9 4.7 24.9 100.0
The Strengths of ASIF and its Track Record
Strengths of ASIF. The main strength ofASIF is its capacity to penetrate into remote, isolated, and poor communities, induce effective discussion on their perceived priorities, and to bring into hition project proposals to serve their needs. The technical and the professional capacity to carry out these activities has been built upon a solid foundation of experience and expertise gathered over the past ten years, during which 619 microprojects were completed under the ASIF Iand I1Projects. Microprojects completed under ASIF I1mainly comprise schools (62 percent), followed by potable water (20 percent) and other types such as special schools, community centers, and irrigation. These microprojects have generated a visible development impact in terms of social and economic benefits to the poor communities in all regions of Armenia. Residents in the poorer communities are now enjoying rehabilitated and wanner schools during winter for their children, potable water in their homes, rehabilitated specialized schools for orphanages, handicap children, art students, and rehabilitated sports facilities.
The ASIF was the lead institution to support the Government’s Earthquake Recovery Program. By the end of December 2002, the ASIF successhlly responded to priority community
39 infrastructure needs (mainly schools) in poor communities throughout the earthquake zone. In the process, the ASIF acquired considerable expertise in seismic construction methods and techniques.
In addition to intensive supervision by the ASIF engineers and Bank supervision missions, special studies have been conducted to assess the effectiveness of ASIF activities. Quality of Works assessments conducted by external engineers have confirmed the designs, construction materials, and the norms and standards of construction to be of high quality. Likewise, Cost- Effectiveness studies conducted by external consultants have shown that construction by ASIF is more cost-effective than those of comparable NGOs and government agencies, especially in the construction of schools and small-scale water supply systems. As regards the final outcomes, Beneficiary Assessments conducted by external consultants have revealed the high level of satisfaction by the final beneficiaries ofmicroprojects completed by ASIF.
Capacity Building and Links with Communities. The microproject activities of ASIF have been complemented by local government capacity building to ensure the sustainability of facilities constructed or rehabilitated by ASIF and to provide support for the Government’s decentralization program. In particular, training ofmayors, community accountants, and village council members conducted by the ASIF has contributed to the quality of local administration, preparation of improved documentation to the marzpetaran, and has laid a stronger foundation for the leadership role of the mayors. The comparative advantage of the ASIF is its focus and current activities on the smaller and medium-sized communities where its resources have been optimally used to produce the greatest impact. More importantly, over the past ten years, the ASIF has earned the trust of the communities as has no other institution in the country, and has become a well known and respected development agency throughout Armenia. By virtue ofits track record, its continuous outreach and promotion, and the demand driven character of its operations, the ASIF has virtually become the first point ofcontact by communities.
Opportunities Ahead and the Evolving Role of ASIF
Opportunities for ASIF. Looking ahead, the opportunities, or the “market share” of ASIF, lie in the construction and rehabilitation of small and medium-scale infrastructure. Notwithstanding infrastructure investments in the recent past, major infrastructure gaps remain in Armenia, largely reflecting years ofneglect in maintenance ofpublic facilities, unclear responsibilities for maintenance, and ineffective institutional arrangements at the local level. Infrastructure gaps are most acute in the rural areas, especially in the remote and isolated communities noted above. These infrastructure gaps include 500 schools and 120-130 primary health clinics or ambulatories that need repair or reconstruction, at an estimated cost of around US$82 million. Even in a scenario where some of the potable water projects are financed by other agencies, if ASIF constructs or rehabilitates 20 small isolated potable water systems, the estimated cost would amount to about US$2 million. These, together with the constant demand for multipurpose community centers, special schools (kindergartens/arts/music/sports), and the emerging demand for rural electrification systems, would constitute extensive demand for ASIF services over the medium term. These estimates exclude the need for school furniture, library furniture, science laboratory furniture and equipment, and teaching materials. While unmet demands remain throughout Armenia, Table 2 (below) shows the second level of priorities of
40 earthquake zone communities after the demand for school construction or rehabilitation had been met under ASIF 11.
Table 2 : Priorities of Earthquake Zone Communities under ASIF 11, other than Schools
Type of Microproject 1Number IPercentage I 1. Potable WaterlSewage 22 27.16 2. Special Schools (Kindergartens/Arts/usic/Sports 20 24.69 3. Community Centers 15 18.52 4. Others (e.g., irrigation, roads) 24 29.63 Total 81 100.00
A recent analysis of priorities of 116 high mountainous communities carried out by ASIF provides some valuable insights. As shown in Table 3 (below), potable water is the highest priority accounting for 29.1 percent oftotal number ofidentified priorities, reflecting the scarcity of water in these communities. The second and third priorities in these communities are community centers (23.4 percent), and schools (19 percent) respectively.
Table 3 :Priorities of High Mountainous Communities
Type of Microproject Number Percentage 1. Potable Water 98 29.08 2. Community Centers 79 23.44 3. Schools 64 18.99 4. Imgation 47 13.95 4. Others (e.g., first aid stations, roads, communications) 49 14.54 Total 337 100.00 Source: ASIF
Looking ahead, there is much to be done in the 100 neediest communities identified by the current community mapping exercise. So far, only 23 ofthese communities have benefited from the ASIF program.
A Competitive Environment and Opportunities for Collaboration. A main challenge likely to be faced by the ASIF is the level ofcompetition from agencies funded by sources such as the US Millennium Challenge Account, the Japan Bank for International Cooperation (JBIC), and from other NGOs. These agencies may develop or strengthen their capacity to carry out work programs in some areas where the ASIF has been active. Nevertheless, the ASIF as an institution with high levels of professional skills and dedication, a proven track record on quality of output, cost-effectiveness, beneficiary satisfaction, and the outreach, trust and confidence established with the communities, has a strong likelihood of retaining a considerable market share. The evolving scenario is the extensive workload of infrastructure construction or rehabilitation of such a large magnitude and of a varied typology and size that it requires the collective efforts of several agencies to carry out the tasks involved. The work of the ASIF
41 would, in fact, complement those of other projects. For example, while the Association’s Education Modernization Project focuses on the quality ofeducation or the “software”, the ASIF would focus on the “hardware” of school buildings, heating systems, fiuniture, special equipment and teaching materials. In water supply, the ASIF would largely focus on isolated self-contained systems in remote areas, complementing the work of other agencies that would deliver large systems.
Project Typology. The typology ofmicroprojects in the ASIF’s future portfolio would include, but not necessarily be limited, to the following:
0 Construction or rehabilitation of schools, primary health clinics, and community centers. 0 Special schools (e.g. music/arts schools), gymnasiums, and playgrounds. 0 Construction or rehabilitation ofsmall-scale isolated water supply systems. 0 Construction or rehabilitation ofrural electrification systems. 0 School, library, and laboratory furniture. 0 Science laboratory equipment and teaching materials.
A Vision of ASIF’s Future Role. The vision of ASIF’s future, based on the views of ASIF Management, is one of an agency responsible for improving the living conditions of the poor through small and medium-scale infrastructure construction or renovation, especially in rural and isolated communities. The ASIF will also continue and enhance their capacity building services to municipalities, communities and local groups preparing them to take on additional responsibilities inherent in the Government’s decentralization program. The Ministry ofFinance and Economy shares a similar vision in which ASIF will become a relatively independent entity and function as an active partner to the Government of Armenia. ASIF’s activities would complement those of the Government, as the Government would not be involved in small and medium-scale infrastructure work. The Government would allocate funding to the ASIF program provided ASIF collects community contributions from beneficiary communities. ASIF is envisaged as an agency that would work on the basis of objective criteria, target vulnerable communities, and set up systems for maintenance of facilities constructed or rehabilitated, so as to complement and enhance the development mission ofGovernment.
42 Annex 2: Major Related Projects Financed by the Bank and Other Agencies ARMENIA: Social Investment Fund I11 Project
Sector Issue Project Latest Supervision ISR Ratings (Bank- financed projects only)
Implementation Development Progress UP) Objective (DO) Providing better links to targeted Rural Enterprise & S S farmers and rural entrepreneurs Agriculture Development with markets, so as to increase their income from rural activities and enlarge employment opportunities in &a1 areas. Availability of safe 24-hour water Yerevan Watermastewater S S supply in Yerevan at a reasonable Services cost while reducing environmental pollution. The capacity to provide more Social Protection efficient effective and high quality Administration services to the population by the public employment, pension and social assistance agencies. Inadequacies in the quality of Municipal Water & S water and wastewater services in Wastewater the Armenia Water and Sanitation Company (AWSC) Service Area to provide efficient and sustainable water and wastewater services and the need to strengthen the capacity and sustainabilitv ofAWSC. The need to improve transparency, Public Sector MS S accountability, effectiveness, and Modernization efficiency in public sector management. The need to improve the living Armenia Social Investment S standards ofthe lower income Fund I1Project groups of the population and to strengthen institutions at the local level. Implementation of the Government Health System health reform program through Modernization expanding access to quality primary health care, improving quality and efficiency of selected hospital networks, and the groundwork for health sector policy and monitoring.
43 The need to improve the quality Education Quality and MS S and relevance of the Armenian Relevance school system to meet the Zhallenges ofthe knowledge societv. To increase the use of clean, Urban Heating Project S S efficient, safe, and dependable heating svstems in urban schools. Other Development Agencies hadequate capacity in Armenia’s USAID: Armenia Social Ongoing new social protection departments, Transition Program (ASTP) agencies and systems. Prevention of child abandonment USAID: Children in Ongoing and institutionalization. Especially Difficult Circumstances (CEDC) Setting up of Integrated Social USAID -- PADCO Completed Service Centers (ISSCs) Improving socioeconomic USAID: Community Self- Ongoing conditions in some communities. Help Fund.
Improving pre-school education, UNICEF Ongoing providing advice to parents about children, and assisting the implementation of“Life Skills” Program. Preparation of Regional DFID (UK) Completed Deielopment Plans. Preparation ofRegional European Union TACIS Completed Development Plans. MDG Country Reporting and UNDP (Annual Work Plan Ongoing Poverty Monitoring 1) Reconstruction of drinking IFAD Ongoing water DiDelines Drinking water supply and KFW Ongoing sewerage svstems Construction of Schools, water Hayastan All-Armenia Ongoing pipelines and roads Fund Formation of Inter-Community GTZ Ongoing Unions Coordination of activities focusing UNHCR Ongoing on the protection of the rights of refugees. Support school improvement Anavour pour 1’ Armenie Ongoing programs through construction and renovation works and school eauhment. Preservation and promotion of Armenian General Ongoing Armenian heritage through Benevolent Organization educational, cultural and humanitarian Dromams.
44 Annex 3: Results Framework and Monitoring ARMENIA: Social Investment Fund I11
Project Results Framework
Project Development Outcome Indicators Use of Outcome Information
Objectives ~ Support the Government’s 0 Increased community infrastructure Ensures coverage and targeting policy to raise the living and services providing higher quality of beneficiaries is on track. standards of the poor and and better access in poor and vulnerable groups through: vulnerable communities targeted Ensures most vulnerable are Improving the quality and under the project. benefiting from ASIF 111. access, and increasing the 0 Capacity building at the municipal coverage of community level to train municipal officials Monitor progress ofcapacity infrastructure and services in directly involved in community building activities at the poor communities, and for the microprojects in financial municipal level and provide most vulnerable groups in management. timely feedback to government. response to emerging critical 0 Strengthened social service delivery needs; and systems through integrated social Evaluate the beneficiary Promoting complementary service centers, specialized centers communities’ capacity to plan institutional capacity building for vulnerable groups. and manage their investments at the community and municipal Empowerment ofbeneficiary and strengthen their partnership level so as to improve the communities through capacity with local government. quality and sustainability of building to effectively plan and service delivery, increase manage their investments on a accountability, and enhance sustainable basis and strengthen greater stakeholder partnerships with local government. empowerment at the local level. 0 Enhancement ofpoverty targeting through a community mapping and profiling exercise designed to identify the neediest communities in Armenia.
Intermediate outcomes (one Intermediate Outcome Indicators Use of Results Monitoring per component) (per component) Component 1: Community Number and types of social and Determines relevance of Investments economic microproj ects completed. investments selected and need to Social and economic Percentage ofthe population in adjust planning and infrastructure microprojects targeted communities benefiting implementation process. targeting the poorest from improved sociaVeconomic communities, including school infrastructure and social services. hdicates if there has been an heating systems and science Number ofconsultations that have increase in access to community laboratory taken place at the ISSC. infrastructure and to goods for constructionhehabilitation and Number ofelderly people benefiting microprojects by targeted poor specific social service centers: :ommunities.
45 (i)an Integrated Social Service from the Elderly Center. Center (ISSC), (ii)a Center for Number ofkindergarten children Provides a roadmap for the the Elderly, and (iii)a with disability benefiting from the ASIF promotional team to select kindergarten for children with kindergarten center. municipalities and local disability. Number ofschools benefiting from communities for initial Goods for microprojects school furniture, including library discussions on needs and covering school furniture, furniture and equipment, science priorities. library furniture and equipment, laboratory furniture and equipment laboratory fbmiture and and teaching materials. equipment, and teaching 0 Number ofcommunities mapped and materials. profiled out ofa total of930 Community Mapping and communities. Propling covering all communities in Armenia.
I Component 2: Local Level Number ofmunicipalities received Indicates if participating Institutional Strengthening, training and technical assistance to municipalities have received Monitoring and Evaluation plan and implement investment necessary training and that they Increase in the competencies programs more effectively and are prepared for additional and accountability ofmunicipal transparently and deliver quality responsibilities. administration in support ofthe social services at the local level. Government’s decentralization Number ofkey stakeholders (i.e. Determines if financial initiatives in the areas of municipal officials, village council management training has been financial management, members, community leaders, etc.) achieved. budgeting, accounting, and asset trained in financial management, management. budgeting, accounting, and asset Indicates that project activities Completion ofspecial studies, management and number oftraining have been effectively monitored technical assessments, study modules developed. and evaluated and that the tours, workshops and seminars 0 Evaluation and information results and outcomes ofthe to support and enhance the dissemination on process, outcomes, project have been disseminated. monitoring and evaluation of and results ofproject project activities at the local implementation. level. Component 3: Project Regular technical, financial, and Indicates if management and Management, Monitoring and procurement audits, and progress oversight ofproject activities Evaluation reports and supervision mission and program as a whole is Effective management capacity reports are satisfactory. effective at the local level. ofASIF to administer local programs and projects on a timelv and cost-effective basis.
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0 3 0 3 00, QI 3 Annex 4: Detailed Project Description ARMENIA: Social Investment Fund I11 Project
The project components described below are supported under an integrated institutional framework consisting of institutional arrangements, participatory methods, service delivery, and capacity building to empower communities and strengthen institutions at the local level.
Component 1. Community Investments (Total estimated base cost: US$24.97 million).
This component will finance small-scale community works projects selected on a demand-driven basis with the active participation ofcommunity groups and local governments. The component would focus on the continued work of the ASIF I1 project, with improvements of procedures relating to quality of works, sustainability, participation, and targeting of project funds for microprojects for the provision of social and economic infrastructure in the poorest communities under a participatory framework. It will respond to the Government’s shift in emphasis towards areas such as: (i)primary health facilities; (ii)school rehabilitation with special attention to science laboratories, gymnasiums and playgrounds, special schools (arts/music/sports), library furniture, teaching aids and equipment; (iii)priority social service facilities (Integrated Social Service Center (One-Stop Shop) in Aratgatson, a Center for the Elderly (shelter for the homeless) in Yerevan, and the Kindergarten for Children with Disability in Guymri); and (iv) rural electrification systems.
The microproject typoZogy will include the renovation and rehabilitation of key social infrastructure covering education (ie., kindergarten, primary and secondary schools, and special schools), health (i.e., primary healthcare facilities), multipurpose community-based centers, social service centers for vulnerable groups, water supply, small access roads and priority economic infrastructure, including but not limited to, small-scale water supply systems, small- scale sanitation systems, minor irrigation works, and rural electrification. Microprojects will also cover school heating systems and science laboratory, gymnasium and playground constructionhehabilitation. Financing under the component will include goods for microprojects in support of the Government’s increasing emphasis on school improvement program covering school hiturefor regular classrooms in elementary schools and special equipment for children entering elementary school at age 5 %, library furniture and equipment, science laboratory furniture and equipment, and teaching materials. To ensure proper design and supervision of community works projects, the component will finance local consultancies for microproject design and supervision and field work in the form oftechnical assistance and logistical support.
Microprojects will be selected on a demand-driven basis by community members in open meetings organized by the ASIF promotion team. The projects will be carried out at the local level by Project Implementation Agencies (PIAs) responsible for overseeing the implementation of microprojects. As an integral part of promotional activities, on-the-job training will be provided benefiting local governments, communities and contractors participating in community investments. The training will cover the planning, management, operation, supervision, operation and maintenance ofmicroprojects. The maximum size ofcommunity works projects is set at AMD 110 million ($250,000 equivalent). The only exceptions to this limit will be: (i)a ceiling of US$350,000 (estimated base cost) as a contribution by ASIF for the
50 reconstructionhehabilitation of the Integrated Social Service Center (one-stop-shop) in Aragatsotn; (ii) a ceiling of US$300,000 as a contribution by ASIF for the reconstructionhehabilitation of the elder home in Yerevan; and (iii)a ceiling ofUS$200,000 as a contribution by ASIF for the reconstructiodrehabilitation of the kindergarten for disabled children in Guymri. The remaining costs in excess of these amounts would be covered either by the Government (Ministry of Labor and Social Issues), donors or sponsors, to be determined during project implementation. The average size of microprojects, other than heating systems is estimated at US$110,000 (estimated base cost), while that for school heating system is estimated at US$40,000 (estimated base cost). A total of US$110,000 (estimated base costs) is expected to be financed against community works projects by local sponsors. In the case of goods for microprojects (i.e., school fimiture, library firniture and equipment, science laboratory fimiture and equipment, and teaching materials), the total allocation will be set at a maximum of US$3.7 million (estimated base cost). The community contribution for community works projects will finance up to 10 percent of the cost of microprojects, averaging 7% percent overall, with a minimum of 4 percent for poor communities, based on an assessment ofpoverty and capacity to pay. Guidelines and procedures covering microproject appraisal will be set out in the ASIF I11 Operational Manual.
Targeting: The poverty targeting strategy of the ASIF (see Annex 15) has been improved through the inclusion of additional indicators for communities in mountainous and border zones in the targeting formula, in addition to other poverty indicators. The strategy proposed consists of two stages: The first stage will consist of geographical targeting of project finds to regions outside Yerevan, based on: (a) the population size of each region; and (b) a composite poverty index computed from two poverty indicators and four special regional factors. The second stage will consist of the identification of needy communities within each region based on a set of detailed criteria based on the community mapping and profiling exercise, which is currently underway. Using these criteria, the 930 communities will be ranked starting from the neediest to those with the least of priority needs. Such a ranking will form the basis for classifying the communities into three or more clusters, starting from the neediest cluster, thus providing a road map for ASIF operations. To effectively complete the community mapping and profiling exercise covering all 930 communities, the component will finance technical assistance to support the ASIF in this capacity.
Allocation and Selection procedures relating to Goods for Microprojects. The Goods for Microprojects will be financed by IDA and the Government, with no community contribution. The procedures for the allocation and selection relating to this activity are broadly defined as follows:
(i)From a total allocation of US$3.7 million (estimated base cost), 14% is allocated to Yerevan schools and a special allocation to be determined is provided for schools to be constructed anew. (ii)The remaining finds are allocated to marzes based on a formula which includes the number ofstudents in each marz and the poverty score for each marz. (iii)Within these broad allocations, the selection of projects will be conducted on the basis of a) participation of communities in ASIF Iand I1 projects; b) the need for new furniture and equipment; c) border zone schools; d) earthquake zone schools; e) high mountainous zone and remote village schools.
51 The ASIF will receive the Government’s specification on school furniture, equipment, and materials and will coordinate with the Department of Education at the Marz level regarding school needs in their communities. The ASIF will also receive clearance from the Ministry of Education and Science regarding the selection ofschools.
Decentralized Participatory Framework. Training and support services will be provided to pilot a decentralized participatory framework involving selected municipalities and communities in microproject outreach and promotion which is currently being developed under the ASIF I11 PHRD Grant. Community participation facilitators will be hired under the Project and be responsible for training community members and ensuring both community engagement throughout the microproject cycle and the sustainability of community assets. Community forums will be organized to support a participatory process at the local level. These forums will be organized and carried out with the assistance of local facilitators to improve communication and information flows on community investments activities and develop partnerships between community members and local governments.
Two communities that were assessed under the Institutional Assessment which could be considered for inclusion as part ofthe decentralization pilot are Megharashen, and Saralanj. It is in these communities that the goal of promoting and sustaining community involvement have taken place through regular community meetings convened jointly by the mayor and the community council (case of Megharashen) and through the posting of budget proposals and reports on expenditures on public notice boards (case of Saralanj). Such a pilot could also include working with local self-government entities such as inter-community unions particularly in the rural communities, so as to achieve economies of scale and facilitate the establishment of the critical mass of resources and management or technical capacity necessary to taker large or complex tasks, or address local cross-boundary issues.
Capacity Building at the Microproject Level. Capacity building at the microproject level will focus on local governments, communities and contractors participating in community infrastructure microprojects. The focus of the training will be on building the capacity of these local groups to manage, operate, supervise, and maintain investments and improve the quality and availability of local service provision. At every stage of the microproject cycle, on-the-job training will be provided benefiting these groups and would be carried out jointly by promotion, appraisal and follow-up teams from the ASIF, with the participation of the community participation facilitators. These teams will provide technical, managerial and organizational support to these community groups, thus enhancing their capacity to perform functions related to the community investment projects. Specific topics to be covered under the training program will include: (i)project identification and formulation focusing on developing project proposals together with cost estimates; (ii)project costing and accounting; (iii)competitive bidding procedures; (iv) mobilization of community involvement in construction and maintenance activities; (v) management of partnerships with LGs, NGOs, and other entities; (vi) disseminating information to community members on microproject activities; (vii) formulation ofbusiness plans; (viii) quality control; and (ix) monitoring and evaluation. Additional training would be assessed during the course ofthe project implementation.
52 Improvements through New Procedures and Piloting: With funding from the ASIF I11 PHRD Grant of US$3 16,000, key activities financed include the Social Service and Institutional assessments and technical assistance in the areas of promotion and participation, quality of works, and MIS upgrading. As a result of the work carried out under the PHRD Grant, the project design has been enhanced to reflect improvements in ASIF procedures including new features. These relate to improving promotional and targeting activities through needs assessments, community mapping and profiling, enhance community training and proposed pilots to work with Inter-Community Unions and to test the decentralization of promotional activities. Similarly, some innovative features have been introduced and incorporated as part of ASIF procedures to provide incentives for well performing contractors, ensure higher quality of construction through improved norms and standards focusing in particular on seismic construction, microproject design and supervision, and increased accountability of contractors. The MIS is also being upgraded to meet evolving needs of the project and to strengthen monitoring and reporting features of the system. The new database server software is the key feature of the upgraded MIS which together with a new interface will contribute to the overall enhancement of the MIS. The MIS is expected to be hlly upgraded in October 2006. These innovative procedures are being incorporated in the ASIF I11 Operational Manual which will be completed by October 2006. The Operational Manual will also include the Environmental section which was reviewed with the ASIF team during Appraisal.
Component 2. Local level Institutional Strengthening, Monitoring and Evaluation (Total estimated base cost: US$0.60 million)
This component will complement the community investment component through the provision of technical assistance, training and support services designed to increase the competencies and accountability of municipal administration in support of the Government’s decentralization initiatives. Building upon the recent Institutional Assessment carried out under the ASIF I11 PHRD, and in consultation with Government officials, key donors, and Bank staff involved in municipal development, this component was designed to support capacity building efforts focusing specifically on financial management, budgeting, accounting and asset management. The training will benefit mayors, financial officers and accountants, and village council members. Given that similar training is envisaged in particular under the ongoing Public Sector Modernization Project (PSMP) Bank operation, it was agreed that the ASIF training activities will be limited to those communities (i.e., small and medium-size) where the ASIF has implemented projects and has a strong comparative advantage. Special studies, technical assessments, formal reviews, and workshops to support and enhance the monitoring and evaluation of project activities at the local level will be financed under this component. Study tours will also be financed under this component to provide training and learning opportunities to ASIF technical staff in the area of local development, institution building, and monitoring and evaluation.
Municipal Financial Management training - Collaboration between the PSMP and the ASIF Project Teams. The proposed municipal training activities will be carried out with the close coordination and collaboration ofthe teams working on the ongoing Public Sector Modernization Project (PSMP) and on the proposed ASIF I11 Project. The PSMP will concentrate on the provision of computerized Municipal Information System (MIS) consisting of the installation of
53 systems including databases on civil registry and revenue mobilization based on property and land taxes, while the ASIF will focus on the provision of basic financial management training. The PSMP is currently selecting the 100 communities (small and medium size mostly rural) to be targeted for the second phase ofits project activities, while the ASIF has identified 100 of the neediest communities in Armenia. These two processes would lead to an intersection set of an estimated 70 communities, which would provide the initial basis for collaboration between the two projects. An ASIF I11 Project Technical Committee would be established as an interagency committee by a Government Decision to provide overall guidance and direction to the ASIF, so as to ensure the effective coordination of activities regarding the municipal training program with special focus on the fundamental issue ofmatching the timelines ofthe ASIF I11 Project and of the PSMP in the communities targeted. The ASIF I11 Project Technical Committee will include representatives of the four key partners - - the Ministry of Finance and Economy, the Ministry of Territorial Administration, ASIF and the PSMP PIU. A description ofthe duties and responsibilities ofthe Committee, including the development ofthe technical framework for the selection of the participating municipalities, the coverage and duration of the training program, the selection of the training findinstitute, the monitoring and supervision of training activities, and the dissemination ofresults/outcomes ofthe municipal training program through workshops and seminars, is provided in Annex 17. The Establishment of the ASIF III Project Technical Committee by a Government Decision is a Condition of Effectiveness. For the day-to-day coordination ofoperational activities and to facilitate communication between the PSMP and the ASIF I11 project, an ASIF technical staff person will work on a part time basis at the PSMP PIU. The main role of this staff member will be to assist in implementing the decisions of the Technical Committee and to help operationalize these decisions in the field.
Financial Management Training. The Project will finance a total of US$300,000 for the continued and enhanced training targeting local government officials at the city level (city councils, mayors) and at the community level (village councils, mayors) in the areas covering financial management, budgeting, taxation and asset management. The training will support local government to: (i)raise awareness ofthe rights and responsibilities ofmayors; (ii)gain an understanding of the basic concepts of property tax, land tax, duties and fees; (iii)develop revenue and expenditure forecasts, and plan and manage their own budgets (i.e., develop three- year financial plans and annual budgets); (iv) gain a better understanding ofthe basic knowledge of asset management covering inventory monitoring, operation and maintenance of assets, and planning of future investments; (v) strengthen partnerships with marzpets (governors) from the regional offices; (vi) work in partnership with Inter-Community Unions; and (vii) acquire an understanding of how to reach out, communicate and disseminate information to citizens. In addition, the training program will include a special program on the rights, responsibilities, and entitlements ofrefugees. The methodology used for the local government training will include a mixture of theory and interactive training. The training will be conducted simultaneously for larger clusters of participating municipalities. A typical training session would benefit 40 participants at a time over a period ofthree weeks conducted at the marz level. There would be four to five sessions conducted in the selected marzes depending on its size. The phasing of these training sessions would coincide with the implementation period ofthe microprojects.
54 Component 3. Project Management (Total estimated base cost: US$3.14 million).
This component will provide institutional support to the ASIF to effectively implement local programs and projects at the local level under an integrated development framework, in line with the Government’s poverty reduction agenda and its decentralization reform program. This would be achieved through the financing of operating costs, including salaries, utilities, office equipment, training, financial audits, and MIS maintenance.
55 Annex 5: Project Costs ARMENIA: Social Investment Fund I11 Project
Local Foreign Total Project Cost By Component and/or Activity us us us $million $million $million
1. Community Investments 24.97 0.00 24.97 2. Local Level Institutional Strengthening, 0.50 0.10 0.60 Monitoring and Evaluation 3. Project Management 2.84 0.30 3.14 Total Baseline Cost 28.31 0.40 28.71 Physical Contingencies 1.73 0.28 2.01 Price Contingencies 2.14 0.44 2.58 Total Project Costs 32.18 1.12 33.30 Total Financing Required 32.18 1.12 33.30
56 Annex 6: Implementation Arrangements ARMENIA: Social Investment Fund I11 Project
Building from the ASIF 11 Project. The ASIF I11 will benefit from the effective institutional and implementation arrangements already in place under the current ASIF I1Project. After ten years in operation, the ASIF set up as an autonomous institution serving as the implementing agency, has gained valuable experience in all aspects ofproject management and administration, laying a solid foundation for the ASIF I11 Project. The Beneficiary Assessments, Social Capital Assessment, and the recent Institutional Assessment have revealed the high performance and dedication of the ASIF staff as perceived by communities benefiting under the Project. Supervision missions in the field together with special reviews and assessments undertaken have benefited the ASIF I1 project. This work covered technical, administrative and procurement issues, as well as quantitative impact assessments of the benefits ofASIF activities. A Mid-term mission was carried out in November 2003 with the objective of assessing overall project performance, including institutional and implementation arrangements, the current issues and future direction of the project. As a result, the ASIF has: (i)strengthened its institutional structure making it more effective and responsive to changing needs of the organization and the enhanced focus on monitoring and evaluation of the results and outcomes of project activities; (ii)enhanced its Management Information System (MIS) for effectively monitoring and supervising ASIF activities and expenditure using the Results Framework developed; (iii) enhanced the accountability of ASIF management in the effective delivery of its services at the local level focusing on quality ofworks, empowerment, capacity building and on operations and maintenance; and (iv) strengthened its partnership with line ministries, donors and relevant project coordinating units of Bank investment operations to ensure consistency with the Government’s current reform program and the Bank’s assistance program in Armenia.
Institutional set-up and administrative Structure of the ASIF. The ASIF was established as an autonomous organization pursuant to the Decree No. 162 dated April 11, 2000 and received authorization to manage the ASIF I11 Project pursuant to the Decree No. 772-A dated June 8, 2006. The ASIF as a Fund will administer its operations as an autonomous entity and will be governed by its Board, with full authority to manage and administer its program under operating guidelines and procedures set out in the project’s Operational Manual. The ASIF will recruit office staff and technical consultants on a competitive basis according to qualifications and selection criteria set out in the Finance and Personnel Administration Manual. The ASIF will also have the authority to enter into consultant services and civil works contracts and to manage the project’s financial accounts. The independent set-up of the ASIF will be critical to ensure that the ASIF will carry out its day-to-day operations in an efficient and effective manner.
The ASIF 111 Organizational Structure. The organizational structure of the ASIF I11 Project will benefit from the structure under the current ASIF I1 Project, which has proven to be effective. The one change in the structure will be the incorporation of a new Department on Management Information, Monitoring and Evaluation. This will ensure the proper coordination ofmonitoring activities with the upgraded Management Information System, thus ensuring more effective monitoring of the results and outcomes of project activities and the tracking of performance indicators. The roles and responsibilities ofthe different departments in the ASIF and the related
57 procedures in project activities have been enhanced to meet the institutional challenges and evolving needs under the enhanced scope ofthe project. The organization will be governed by a Board, chaired by the Prime Minister, and include: (i)one representative each from the Ministries of Finance and Economy, Territorial Administration and Infrastructure Operation; Urban Development, Education and Science, Labor and Social Issues; (ii)the Mayor ofYerevan; (iii)one representative each fiom the NGOs involved in the project; and (iv) the Executive Director ofthe ASIF. The duties and responsibilities ofthe Board at the institutional level will be to appoint the Director of ASIF and approve the recruitment of staff as Heads of Departments. At the administrative level, the Board will guide and supervise the administration and operations of the ASIF program in accordance with the Decree and the Operational Manual. At the technical level, the Board will be responsible for reviewing and approving quarterly and annual reports, key studies on technical and procurement reviews, and ASIF community investments as required by the Operational Manual. In addition to routine Board meetings, the participation and involvement of the Board will be enhanced under the ASIF I11 Project by setting up periodic field visits for Board members to demonstration projects, and by organizing yearly workshops and seminars with key stakeholders on special project related themes.
The ASIF, as the Implementing Agency, will be headed by the Executive Director and will comprise five departments and a number of specialized units. The Institutional Support Department will consist of two units: a Community Outreach and Promotion Unit, and a Training and TA Coordination Unit. The Microprojects Department consists of three units: an Appraisal Unit, a Follow-up Unit, and an Estimation Unit. The Finance and Administration Department consists of two units: an Accounting Unit and a General Administration Unit. The Procurement Department consists of a Procurement Unit and a Legal Unit. The Management Information, Monitoring and Evaluation Department consists of a Data Generating and Office Technology Unit and a Monitoring and Evaluation Unit. A comprehensive technical assistance and training program has been developed and carried out under the ASIF I11 PHRD to respond to capacity needs identified in the ASIF in the areas of quality of works, community participation, and MIS upgrading. These services will initially respond to the intensive needs at the project preparation and start-up phase and will be provided thereafter on a periodic basis during project implementation.
The other participating institutions under the project include: (i)the Project Implementing Agencies (i.e., local governments and community members) responsible for the implementation of the community investment projects; (ii)Inter-Community Unions serving as project implementing agencies to be tested on a pilot basis; (iii)private contractors who compete for microproject contracts for the rehabilitation of works; (iv) local supervisors responsible for supervising the construction work of microprojects; and (v) NGOs, individual consultants and firms who compete for technical assistance and training activities advertised under the project.
Project Implementing Agency. The community-based organization, referred to as the local Project Implementing Agency (PIA), is directly responsible for microproject implementation. The PIAs will be responsible for the identification, prioritization ofneeds and consensus building on small-scale investment priorities which maximize public benefit projects for their communities. Lessons under the ASIF Iand I1Projects have shown that effective participation at the community level comes fiom the active participation of local governments and established
58 community associations as members of the PIA. The project would pilot working with local self-government entities such as inter-community unions particularly in the rural communities, so as to achieve economies of scale and facilitate the establishment ofthe critical mass ofresources and management or technical capacity necessary to taker large or complex tasks, or address local cross-boundary issues. These institutional entities are important, particularly for: (a) asset management, operations and maintenance of the facilities renovated or rehabilitated under the microprojects; and (b) improvement of programs and services provided at the local level. The composition of the PIA under the ASIF I11 will therefore support this partnership by including representatives from the local government, established community associations (i.e. school councils and WAS),and community members. The PIA will be headed by a local government official or a member of a community-based association, and will legally be responsible for carrying out the microproject under a Framework Agreement with the ASIF. The PIA will be responsible for microproject proposal, design, up-front collection of a financial in-kind contribution consiting of an average of 7 percent of total project costs, and operations and maintenance of facilities. The PIA will also take charge of procurement, implementation and reporting to the community on the progress ofthe microproject.
Implementation Arrangements. Implementation arrangements under the ASIF I11 Project would be governed by the guidelines and procedures set out in the Operational Manual (OM). The Operational Manual is currently being developed under the ASIF I11 PHRD Grant. The approval of the ASIF 111 Operational Manual by the Association is a Condition of Effectiveness. The OM has been upgraded based on the lessons learned and the experience gained in the management and implementation of the ASIF Iand I1 Projects. The refined and upgraded version of the OM defines the roles and responsibilities of the institutional project structure, strengthened procedures for community outreach and promotion, quality of works, operations and maintenance, and monitoring and evaluation. It also provides detailed descriptions on the project components and procedures covering administrative and management arrangements for project implementation.
Partnership Arrangements. A number ofdonors and IDA-financed projects are implementing programs with coverage similar to that of the proposed ASIF I11 Project. These programs include rural development (Le., irrigation, rural roads, natural resource management, water supply, community forestry and income generation activities), local governance, and social service delivery, as summarized in Annex 2. As an integral part ofproject design, meetings were organized with representatives from DFID, USAID, UNDP, GTZ, and EU TACIS. In addition, the project team met with Bank staff working on the Rural Enterprise and Small-scale Enterprise Development Project, the Public Sector Modernization Project and the Yerevan Water/Waste Water Services Project. The purpose of these meetings was to share the proposed objectives and coverage of the follow-up operation, learn about the other projects and programs being carried out or planned with similar activities, and coordinate efforts to ensure consistency. The Institutional Assessment and Social Service Assessment developed under the ASIF I11 PHRD describe the involvement of donors and other projects and programs in Armenia and provide suggestions for the coverage ofactivities under the ASIF I11 Project where the ASIF has a strong comparative advantage. The framework of the ASIF I11 Project provides several mechanisms of coordination described below.
59 Project Institutional Framework. Given the multisectoral activities of the ASIF program, the ASIF will be governed by a Board which will have the representation of relevant key ministries, and partner donors and NGOs. The role of the Board will consist of: (i)guiding and supervising the administration and operation of the ASIF program; (ii)ensuring that project activities are consistent with social sector strategy priorities and government reform programs in relevant sectors; and (iii)ensuring consistency and coordination with donor and other projects and programs being implemented in Armenia. The role of the ASIF Community Outreach and Promotion team will be enhanced through a more effective information dissemination approach including workshops and meetings with central government, local communities, and donors. The ASIF would also expand training activities at the local community level to cover a wider range of communities and thereby increase awareness of the ASIF program at the local level. Also envisaged is the expansion of networks at the local level by working with organized community groups such as Inter-Community Unions so as to increase community mobilization from different communities in different regions. These activities would be supported under a decentralized participatory framework which would be carried out with the assistance of local facilitators. The facilitators would be responsible for improving communication and information flows on community investment activities and develop partnerships between community members and local governments. The Impact monitoring and evaluation framework would be improved through an upgraded Management Information System in the ASIF, enhanced monitoring and reporting procedures at all levels of the microproject cycle, field surveys and workshops to discuss survey findings. The aim would to improve communication and information flows, develop partnerships between central and municipal officials and local communities, marginalized groups and donors, and enhance national level development planning and policy formulation.
Collaboration between the PSMP and the ASIF Project Teams. The proposed municipal training activities described under Component 2 of the Project would be carried out with the close coordination and collaboration of the teams working on the Public Sector Modernization Project (PSMP) and on the ASIF I11 Project. The objective is to optimize the outcomes of both projects through close coordination and collaboration. An ASIF I11 Project Technical Committee would be established as an interagency committee by a Government Decision to provide overall guidance and direction to the ASIF, so as to ensure effective coordination of activities regarding the municipal training program with special focus on the fundamental issue of matching the timelines of the ASIF I11 Project and of the PSMP in the communities targeted. The ASIF I11 Project Technical Committee would include the representation of the four key partners - - the Ministry of Finance and Economy, the Ministry of Territorial Administration, ASIF and the PSMP PIU. A description of the duties and responsibilities of the Committee, including the development of the technical framework is provided in Annex 17. For the effective day-to-day coordination of operational activities and to facilitate communication between the PSMP and the ASIF I11 project, an ASIF technical staff member would work on a part time basis at the PSMP PIU. The main role of this staff member would be to assist in implementing the decisions of the Technical Committee and to help operationalize these decisions in the field.
60 Annex 7: Financial Management and Disbursement Arrangements ARMENIA: Social Investment Fund I11 Project
1. Country Issues The Country Financial Accountability Assessment (CFAA) report, which was finalized in 2005, concluded that the overall fiduciary risk3 in Armenia is significant. The key reasons are: (i) inadequate capacity of core control and supervisory agencies performing the audits within the public sector; and (ii)although most of the basic laws are in place with respect to various entities’ (private sector and public enterprises, including state non-commercial organizations) financial reporting, but compliance remains a problem and authorities need to improve the quality ofauditing, monitoring and supervision. Since the CFAA report there was some progress recorded on the development of PFM. Particularly, following the amendment to the Constitution of the Chamber of Control (COC) (Armenian Supreme Audit Institution), which gained more independence from the Parliament, is in the process of development of the new Law on COC. The Association is assisting the COC in development of its audit manuals and methodologies according to internationally accepted practices. The internal audit reform is under implementation, with the Government strategy in place supported by PRSC 1 to 3 programs and acceptable to the Association. The MOFE also adopted an action plan for implementation ofthe IPSAS in the Government sector and now is designing the detailed timeline for the transfer to cash basis IPSAS and then to accrual. The government counterpart finding used to be a major concern but actions have been taken by the Government and the Association to monitor the status ofthis problem. Specific procedures are developed by the project to secure proper financial accountability ofthis project and to minimize project financial management risks. Additional financial management arrangements in the project will include the audit ofproject financial statements by independent auditor acceptable to the Association, in accordance with terms of reference acceptable to the Association. The banking sector in Armenia is relatively weak and all the IDA-financed projects which opened their projects’ DesignatedSpecial Accounts in Armenia were opened in a single commercial bank (HSBC Bank Armenia) acceptable to the Association. As these arrangements have been satisfactory, they will remain in place during ASIF I11 project implementation, unless other banks become acceptable for opening designatedspecial accounts in Armenia.
Risk of illegal, irregular or unjustified transactions not being detected, measured on a four point scale according to the CFAA Guidelines (low, moderate, significant or high).
61 2. Risk Analysis The overall financial management risk for the project is moderate. Although the project will be implemented in an environment of high perceived corruption, adequate mitigation measures are in place to ensure that the residual risk is acceptable. Table below summarizes the financial management assessment and risk ratings of this project:
Condition of Residual Effectiveness I RiskFM Risk Mitigating Measures Risk INHERENT RISKS Country level Weak PFM institutions S ASIF is to maintain independent M No (additional dormation are financial management system, use of included in country issues in the private auditors and use of commercial previous section) banks for designated accounts. Entity level Risk ofpolitical interference in M Board composition and structure of No entity’s management ASIF will provide for independence of the entity. Ll Project level Project is small sized, with M Implementation arrangements that Treasury used for flow of funds allow close monitoring of activities from IDA and Government with under the Project. risk of inefficiency of the operations on the Treasury and resulting slow funds disbursement. OVERALL INHERENTRISK M MI No
I L No Accounting IL Internal Controls The FMM will be updated. Funds flow IL LI No Financial Reporting IL
OVERALL CONTROL RISK
M RESIDUAL RISK RATING I H - High S - Substantial M - Modest L - Low
62 3. Strengths The significant strengths that provide a basis for reliance on the project’s financial management system include: (i)significant experience of ASIF FM staff in implementing IDA-financed projects for the past twelve years; (ii)adequate accounting software utilized by the ASIF, (iii)FM arrangements similar to the ASIF I1 which has been implemented by the ASIF and found to be adequate, and (iv) the unqualified audit reports and positive management letters issued by ASIF managed project’s auditors.
4. Weaknesses and Action Plan The significant weaknesses were not identified at the ASIF. However, the Fund needs to update its FMM to reflect the specific activities of the project with the relevant Chart of Accounts to be enclosed.
Actions Responsibility Deadline Update the Finance and Administration Manual for the inclusion ASIF By Credit of new activities of this project. Effectiveness
5. Implementing Entity Under the ASIF I1 Project, the Government granted the SIF a special status by establishing the ASIF I1 as a Fund. The ASIF received authorization to manage the ASIF I11 Project pursuant to the Decree No. 772-A dated June 8,2006. The ASIF as a Fund will administer its operations as an autonomous entity and will be governed by its Board, with full authority to manage and administer its program under operating guidelines and procedures set out in the project’s Operational Manual. The ASIF will recruit office staff and technical consultants on a competitive basis according to qualifications and selection criteria set out in the Finance and Personnel Administration Manual. The ASIF will also have the authority to enter into consultant services and civil works contracts and to manage the project’s financial accounts. The ASIF will be headed by the Executive Director and will comprise five departments and a number of specialized units. The Finance and Administration Department responsible for financial management activities under the Project will consist of two units: an Accounting Unit and a General Administration Unit. The other participating institutions under the project include: (i)the Project Implementing Agencies (i.e., local governments and community members) responsible for the implementation of the community investment projects; (ii)Inter-Community Unions serving as project implementing agencies to be tested on a pilot basis; (iii)private contractors who compete for microproject contracts for the rehabilitation of works; (iv) local supervisors hired by the PIAs to supervise the construction work ofmicroprojects; and (v) NGOs, individual consultants andfirms who compete for technical assistance and training activities advertised under the project. The risk associated with ASIF is low with low probability of external intervention to modify the structure and staff ofthe organization.
63 6. Accounting Staffing The accounting function in ASIF is well staffed; including a very experienced Financial Manager who works at ASIF since 1994, a chief accountant and two accountants. The existing FM staffing in the ASIF is considered adequate to implement the new project. The Financial Manager will have primary responsibility for the quarterly interim un-audited financial reports (IFRs) and will prepare the annual financial statements for audit. The risk associated with staffing is assessed as low.
7. Budgeting and Planning ASIF is capable to prepare relevant budgets. ASIF budget is prepared by the Financial Manager who receives the forecasts from all the ASIF departments and integrates them all into a single budget. The Financial Manager is highly experienced in budgets preparation (for ASIF Iand ASIF I1 projects). The budgeted for all significant activities are prepared in detail since the MOFE also requires very detailed budgets. The risk associated with planning and budgeting is assessed as low.
8. Information Systems ASIF uses in-house developed software called PRINSY, which incorporates both accounting software and Management Information System (MIS). The software automatically generates the SOEs and FMRs, and is considered to be satisfactory. Nevertheless, the financial manager plans to acquire new accounting software under ASIF 111. The risk associated with information systems is assessed as medium.
9. Accounting Policies and Procedures The accounting books and records ofthe ASIF I11 will be maintained on a modified cash basis and project financial statements, including quarterly IFRs, will be presented in United States dollars. Currently ASIF has a Finance and Administration Manual for ASIF I1Project, which is acceptable to the Bank. The Finance and Administration Manual is being updated to incorporate the new chart ofaccounts for the ASIF 111, which is a condition ofeffectiveness. The risk associated with accounting policies and procedures is considered as low.
10. Internal Controls and Internal Audit The Fund has adequate internal controls for the project implementation including adequate accounting policies and procedures, segregation ofduties among the FM staff and reconciliation of disbursement data ofthe Association and balances in the commercial bank with project accounting records. The payments under the contracts are implemented in the following way: the Management Information System (MIS) maintained at the ASIF has the capacity to show timing of the payments under the contracts. The Financial Manager checks the implementation status of the contracts (which is tracked by the Micro Projects Department) then authorizes the payments that come due. For delayed contracts the penalties are calculated automatically by the software.
64 The procurement of goods is the responsibility of the Procurement Department which, issues the acts of acceptance and delivers them together with invoices to the Accounting Unit. The Accounting Unit verifies those acts of acceptance and the invoices with the contracts (timing, amount, deliverables, and any penalties) and submits those for financial manager’s approval. The Logistics Officer (office administrator) is responsible for the delivery and storage of office supplies, the payment for which is made exclusively via bank transfers. Each department head prepares goods requisition requests which are included in the consolidated spreadsheet by an accountant. The Financial Manager then authorizes and the logistics officer acquires office stationary. The ASIF has been connected to the Client Connection (CC) and downloads disbursement data from the system for reconciliation purposes. Reconciliations are performed in Excel spreadsheet via CC after each WA sent. FWSDR revaluation is conducted in an Excel table and is considered to be adequate. The in-house software has a fixed assets register. The stock take was conducted on March 31, 2005. The next stock take is planned to be conducted in June, 2006. During the last supervision (May 2006), it was also observed that all tags were attached to the fixed assets. The backup ofthe accounting data is done on a weekly basis on CD. There is a cash box at the ASIF for purchasing minor office supplies. The cash book for March and April, 2006 was reviewed and the biggest payment amounted to less than USD 100 with average monthly expenditure ofUSD 100. There is a reasonable segregation of duties established between financial management staff at the ASIF. The project accounting will be on a modified cash basis, and detailed assethnventories register will be maintained as part of the project internal control procedures. The ASIF needs to update its FMM to reflect the specific activities of the project with the description ofthe enhanced internal controls. There is no internal audit unit considering the small size of the entity. The risk associated with internal controls and internal audit is considered as moderate.
11. Reporting and Monitoring
Project management-oriented Interim Un-audited Financial Reports (IFRs) - previously known as Financial Monitoring Reports (FMRs) - will be used for project monitoring and supervision and the indicative formats of these will be included in the ASIF FMM. ASIF will be producing a full set ofIFRs/FMRs every three months throughout the life of the project. The format of IFRs have been agreed to during assessments which include: (a) Project Sources and Uses ofFunds, (b) Uses of Funds by Project Activity, (c) Designated Account/Treasury Account Statements, (d) Physical progress report, and (e) Procurement report. These financial reports will be submitted to IDA within 45 days ofthe end of each quarter. The first quarterly IFRs will be submitted after the end ofthe first full quarter following the initial disbursement. The risk associated with reporting and monitoring is assessed as low.
12. External Audit No significant issues have arisen in the audits ofprevious IDA-financed projects implemented by ASIF.
65 Audit Report Due Date Entity financial statements NIA Project Financial Statements (PFS), including Within six months of the end of each fiscal year and also at SOEs and Speciavdesignated account. The the close of the project. PFSs include sources and uses of funds by category, by components and by financing source; SOE statements, Statement of designated account, notes to fmancial statements, and reconciliation statement.
ddition, the Armenian Chamber of Control, the country’s supreme audit institution, performs ad hoc external audits ofASIF and the projects under its implementation. The risk associated with external audit is considered moderate.
13. Funds Flow and Disbursement Arrangements To facilitate project implementation, ASIF will open and manage a Designated Account (DA) for IDA fhds in a commercial bank on terms and conditions acceptable to IDA. The DA will be denominated in US dollars with the ceiling ofUS$ 2 million and will be replenished regularly, at least every three months, and audited in conjunction with the annual financial audit of the project. The Treasury currently uses commercial banks’ for transfer of Government Counterpart Funding. Project funds will flow from: (i)the Association, either via a single Designated Account which will be replenished on the basis of SOEs or by direct payment on the basis of direct payment withdrawal applications; or (ii)the Government, via the Treasury at the Ministry of Finance and Economy (MOFE) on the basis of payment requests. Both Association and Government funds will be managed solely by the ASIF. Withdrawal applications for the replenishments of the DA will be sent to the Association at least every three months, or when the balance ofthe DA is equal to about half ofthe initial deposit or the authorized allocation, whichever comes first. The risk associated with funds flow and disbursement is considered as low.
SOE disbursement procedure would be used for contracts for: (i)civil works for microprojects not exceeding US$250,000 per contract; (ii)goods for microprojects not exceeding US$lOO,OOO per
66 contract; (iii)services of consulting firms costing less than US$lOO,OOO per contract and services of individual consultants costing less than US$50,000 per contract; and (iv) training and incremental operating costs. The required supporting documentation would be retained by the ASIF for at least one year after receipt by IDA of the audit report for the year in which the last disbursement was made. This documentation would be made available for review by the auditors and by Association staff upon request.
Table 1: Allocation of Credit proceeds
Expenditure Category Amount Expressed in Financing US$ million Percentage, YO Civil Works 16.56 78.0 Goods 3.50 78.0 Consulting Services, Study Tours, Training 2.05 78.0 1 and Studies Incremental Operating Costs 1.39 50.0 Project Preparation Facility 1.50 78.0 Total 25.00
14. Supervision Plan
As part ofits project supervision missions, IDA will conduct risk-based financial management supervisions, at appropriate intervals. During project implementation, the Association will supervise the project’s financial management arrangements in the following ways: (a) review the project’s quarterly IFRs as well as the project’s annual audited financial statements and auditor’s management letter and remedial actions recommended in the auditor’s Management Letters; and (b) during the Association’s on-site supervision missions, review the following key areas: (i) project accounting and internal control systems; (ii)budgeting and financial planning arrangements; (iii)disbursement management and financial flows, including counterpart funds, as applicable; and (iv) any incidences ofcorrupt practices involving project resources. As required, a Bank-accredited Financial Management Specialist will assist in the supervision process.”
67 Annex 8: Procurement Arrangements ARMENIA: Social Investment Fund I11
A. General Procurement for ASIF I11 will be carried out in accordance with the World Bank’s Guidelines: “Procurement Under IBRD Loans and IDA Credits“ dated May 2004; and Guidelines: “Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Financing Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Association in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
Procurement of Works: Works procured under this project will include: construction or rehabilitation of schools including libraries, science laboratories, gymnasiums and playgrounds, special schools (arts/music/sports) health clinics, multipurpose community-based centers, small- scale water supply, sewerage, rural electrification systems, minor irrigation works, and access roads. In support ofthe Government’s development program in social service delivery, the project would finance the rehabilitation or reconstruction of an Integrated Social Service Center (one- stop-shop) in Aratgatson, the Center for the Elderly (shelter for the homeless) in Yerevan, and the Kindergarten for Children with Disability in Guymri. The Project would also cover school heating systems. The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICBs and National SBD agreed with or satisfactory to the Association.
Procurement of Goods: Goods procured under this project will include: school furniture, library fbrniture and equipment, vehicles, computers, science laboratory furniture and equipment, and teaching materials. The procurement will be done using the Bank’s SBD for all ICBs and National SBD agreed with or satisfactory to the Association.
Selection of Consultants: Consultant Services required under the project will include local consultancies for microprojects design and supervision; technical assistance, advisory services, and training to: a) help implement a decentralized participatory framework involving selected municipalities and communities in microproject outreach and promotion; and b) complete the community mapping and profiling exercise. Short lists ofconsultants for services estimated to cost less than $100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions ofparagraph 2.7 of the Consultant Guidelines. It is expected that NGOs and eligible public training institutions will also be involved and short-listed for the consultant assignments.
Training: Training, study tours and workshops under the second component ofthe project will cover travel, accommodation and training related expenses ofthe participants. The list of participants, traininglworkshop agenda, locations and estimated budget will be reviewed and agreed with IDA.
68 Operating Costs: including ASIF staff salaries, utilities, office equipment, communications, local travel, financial audits, printing and publication, translation, and interpretation expenses, office supplies, fuel, vehicle insurance and inspection, office and vehicle maintenance and repair, and MIS maintenance will be financed by the project and procured using the ASIF’s administrative procedures acceptable to the Association.
The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, will be presented in the ASIF I11 Operational Manual.
B. Assessment of the agency’s capacity to implement procurement
Procurement activities under the Project will be carried out by the Procurement Unit of the Armenian Social Investment Fund. As part ofthe organization structure of the ASIF I11 Project, the Procurement Department consists ofa Procurement Unit and a Legal Unit and is staffed by the Head ofUnit, a full time procurement specialist, a lawyer, and an assistant.
An assessment ofthe capacity ofthe Implementing Agency to implement procurement actions for the project has been carried out in May 2006. The assessment reviewed the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement and the ASIF’s Board.
The ASIF will be governed by a Board, chaired by the Prime Minister, and include: (i)one representative each from the Ministries of Finance and Economy, Territorial Administration and Infrastructure Operation; Urban Development, Education and Science, Labor and Social Issues; (ii)the Mayor of Yerevan; (iii)one representative each from the NGOs involved in the project; and (iv) the Executive Director ofthe ASIF.
Taking into account the large number of civil works contracts to be procured under the project, one ofthe key issues and risks identified is the low level of competition for civil works contracts observed under the ASIF I1 Project. The construction boom over the past two-three years and the associated price increases (both for labor and materials) in the local construction market, compounded by exchange rate fluctuations of USD/AMD and low estimated microproject prices during the bidding process, have discouraged construction companies to bid for contracts under the ASIF I1Project. To address this issue, agreements was reached with the ASIF on the following corrective measures: (i)closely monitor the development on the local construction market, to revise and update price estimates for goods and works in a timely manner to ensure a realistic Procurement Plan; and (ii)include a price adjustment provision in civil works contracts when construction period is close to eighteen months.
The overall project risk for procurement is high.
C. Procurement Plan The Recipient, at Appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Recipient and the Project Team on July 14, 2006 and is available at the office of Armenian Social Investment Fund, (31, Ulnetsu Street, Yerevan Armenia). It will also be available in the project’s
69 database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.
D. Details of the Procurement Arrangements
Procurement Methods and Thresholds. The financing agreement defines the appropriate methods and thresholds for various procurement and selection methods to be followed. Thresholds for procurement methods and prior review requirements are indicated below on the basis of the Association’s assessment ofthe capacity of the ASIF which will be responsible for procurement. The Procurement Plan will specify which procurement action is subject to prior or post review.
70 Table 8.1. Procurement methods and thresholds
Procurement Method I Threshold Comments Goods >US$300,000 All contracts will be subject to prior review
NCB ICB >us$2,000,000 All contracts will be subject to prior review NCB First 2 and all contracts above US$l,OOO,OOO will be subject to prior- review ~~ Shopping All contracts will be subject to post review Works contracts which meet the requirements ofthe Procurement Guidelines 3.6 and with Bank’s prior I review Consulting Services QCBS, QBS, FBS and All contracts above US$l00,000 will be subiect to Drior review All contracts will be subject to post review Individual Consultants N.A. All contracts with individuals above US$50,000 will be subject to prior review Single-Source Selection For assignments which meet the requirements ofpara. 3.10. ofthe Consultant Guidelines and with the hAssociation’s prior review 71 Short lists ofconsultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely ofnational consultants in accordance with the provisions of paragraph 2.7 ofthe Consultant Guidelines. Prior review by the Association. The Procurement Plan sets forth those contracts which shall be subject to the Association’s prior review process. All other contracts shall be subject to post review. Advertisement. A General Procurement Notice shall be published in the on-line edition of Development Business in September. Special Procurement Notices for all ICB goods contracts and Requests for Expressions of Interest for consulting assignments exceeding the value ofUS$200,000 equivalent shall be published in a local newspaper of a wide circulation, in the on-line edition ofthe UNDB and posted on the websites ofthe ASIF. At the same time, all notices will also be advertised in the dgMarket. E. Frequency of Procurement Supervision In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended two supervision missions per year, field visits, and the carrying out ofpost reviews ofprocurement actions. 72 Annex 9: Economic and Financial Analysis ARMENIA: Social Investment Fund I11 Project I. Introduction 1. The objective ofthis annex is to examine the cost effectiveness ofthe ASIF I11 Project as a direct means of reducing non-income poverty. The demand driven nature of the project -- which responds to microproject proposals from poor communities during the life ofthe project - clearly precludes the ex-ante use oftraditional methods ofcost-benefit analysis. Neither the size nor the types ofmicroproject proposals are known ex-ante. In these circumstances, the approach adopted was to examine the project at the macro and micro levels as follows: (i)the project rationale within the broader context ofnational development objectives, government strategy, and the Bank’s country assistance strategy and programs; and (ii)the cost-effectiveness of microprojects completed under ASIF I1 compared with those completed under traditional government programs, and NGO programs - with the implicit assumption that cost-effectiveness under ASIF I11 would be at least the same as that of the ongoing ASIF I1 Project. The presentation in this annex is based on the findings of a cost- effectiveness analysis carried out in 2004. 2. The ASIF I11 Project is expected to generate far-reaching benefits to a large number oflow income communities, as judged from the experience of the ongoing ASIF I1 Project. With a project size of US$29.3 million, ASIF I1 has improved living conditions of many low income communities by supporting basic small-scale social and economic infrastructure rehabilitation (schools, potable water supply, clinics, irrigation systems). Building upon this experience, the ASIF I11 Project with an investment of US$33.3 million will respond to community demands for priority social needs, and would move in the direction of strategic social development goals, in line with the Government’s evolving government policies and programs. While the largest share of investment of around 80 percent will finance microprojects of the same typology as ASIF 11, Le., construction or rehabilitation of schools, school heating projects, health clinics, water supply and sewerage projects, and minor irrigation works, there would be a shift of emphasis towards areas such as: (i)primary health facilities; (ii)school rehabilitation with special attention to science laboratory furniture and equipment, library fimiture, teaching aids and equipment; (iii)support for social service delivery at the local level to help implement recent initiatives by the Government; and (iv) improved competencies at the local level in support of the Government’s decentralization program. 3. The ASIF I11 Project will generate short-term employment for the poor, at least through the construction phase of a microproject. It will also stimulate the development of the local construction industry through the continuation ofcompetitive procurement and encouraging small- 73 scale contracting firms. More importantly, through the use of participatory mechanisms and its demand-driven approach, significant qualitative benefits from the ASIF I11 project will be the increased sense ofownership, trust and social cohesion in many communities. 4. From a cost-effectiveness perspective, the main assumptions in formulating the ASIF I11 Project are as follows: (i)the project is consistent with Armenia’s development strategy and the PRSP in particular; (ii)the microprojects under ASIF I11 will be more cost-effective than those under alternative government or NGO supported projects; (iii)the unit costs of construction and impact upon communities will be more favorable than under alternative projects; and (iv) microprojects will be selected according to criteria described in the Operational Manual, which integrate simple quantitative economic analysis, consistent with the size of the microproject, cost per beneficiary, and local capacity. 5. The ASIF I11 Project and Development Strategy. Since the mid-l990s, the Government has successfully carried out a stabilization and structural reform program to transform its economy to a market-oriented one. These reforms were augmented in mid-2000 by an increased government focus on improving the overall business climate, and a supportive framework for investment. The Government also introduced comprehensive structural reforms in the social sectors (social assistance, social insurance, health and education). A major milestone in the Government’s evolving strategic reforms was its PRSP ofOctober 2003 directed towards reducing poverty, lowering inequality, and improving human resources. 6. The ASIF program has been an important tool for the Armenian Government in poverty reduction. It forms an integral component of the Government’s goal to improve accessibility, sustainability and quality of social services provided to the poor. It has been effective in carrying out this mandate by financing the construction and rehabilitation of social and economic infrastructure, to complement the work ofother line ministries. The ASIF has also been crucial in strengthening social capital and providing short-term employment opportunities to the low income groups. 7. From the broad range of interventions proposed in the PRSP, the CAS focuses on three areas which best fit the Bank Group’s comparative advantage and complement the activities of other donors: (i)promoting private sector growth by strengthening the financial sector, improving public sector management, and reducing bottlenecks; (ii)making growth more pro-poor by improving the labor market, promoting a more dynamic rural economy, and making social assistance more effective; and (iii)reducing non-income poverty through better health, education, and basic services. 8. The ASIF I11 Project will contribute primarily to the CAS objective (iii)above through social and economic infrastructure microproj ects aimed at reducing non-income poverty. It will also contribute to the CAS objective (i)through improving financial management skills of key officers in municipalities that are participating ASIF microprojects so as to ensure sustainability facilities created or rehabilitated, and to the CAS objective (ii)through its shift of focus to more 74 effective social service delivery systems through pilot activities in selected municipalities, so as to address the issues ofsocial sustainability and poverty alleviation. 9. The proposed ASIF I11 Project is also consistent with the main findings and recommendations ofthe Bank’s Sector Work . Thus, the Social Snapshot and Poverty in Armenia (2006) produced jointly by the National Statistical Office of Armenia and the World Bank notes that “ a well educated, healthy population is not only crucial for any country’s socioeconomic development, but also very important for households and individuals well being. .. . . Continuing and deepening the reforms that aim at increasing eficiency, effectiveness and quality of services in health and education, as well as ensuring more public resources for their financing, are two crucial elements of the Government’s strategy to accomplish the PRSP’s human capital development goals”. A decade earlier-at the start of the ASIF program -- the Bank’s 1996 Poverty Assessment found that regional public works programs, such as ASIF, can provide short- term employment with poverty reducing effects. 10. Cost-Effectiveness. At the micro level, the study conducted in 2004 has revealed some very usefil results. In schoolprojects which constitute more than half of ASIF’s microprojects, the average cost of a new school constructed was favorable (US$116,000) compared those constructed by a relevant NGO selected for the study (US$147,410) and the Government (US$158,620). The cost per beneficiary in new schools constructed by ASIF also was lower than that of the NGO and the Government. As regards water supply projects, although ASIF projects are, on average more costly than those of the NGO, due to the size and complexity of ASIF projects, they had the lowest cost per beneficiary compared to those constructed by the NGOs. 11. In the irrigation sector, the ASIF has played an important role in complementing the large- scale irrigation projects ofthe Government. However, its cost-effectiveness profile has been only slightly better than those of its comparators - an NGO and the Government’s Irrigation Project, which are well managed. Although ASIF’s cost per beneficiary (US$37.65) is lower than that of the Government’s program (US$77.68), it is higher than that of the NGO (US$30.95). On the other hand, the Government’s cost per meter (US$16.07) has been favorable than those of ASIF and the NGO, which were around US$20.00, reflecting economies of scale. In the health sector, the ASIF has also made a modest contribution towards achieving the Government’s objective of enhancing primary health care services. Notwithstanding some drawbacks in selection comparators, the study showed that ASIF’s cost per beneficiary (US2.32) to be significantly lower than those ofone NGO (US$4.35) and another NGO (US$3.43). 12. Thus, the analysis has suggested that the proposed ASIF I11 Project will be a cost-effective means of meeting the social infrastructure needs of the poor, provided the same standards of technical and economic efficiency are maintained, or further improved. Cost-effectiveness is expected to improve since technical standards will benefit from the quality ofworks enhancement program, while the implementation ofa cost accounting system will help improve cost efficiency. 75 Table 1. Average Costs of Completed ASIF II Microprojects by Type Project Type No. of Av. Cost Units Cost per Unit Cost per Projects (US%) (UW Beneficiary Schools (New & Rehab.) 50 82,208 sq.m 58.00 60.54 Water Supply 19 41,345 M 14.66 23.26 5 25,773 M 20.05 37.65 Irrigation Health 4 48,851 sq.m 104.00 2.32 TotaYAverage 93 62,556 22.92 11. The main indicators used for project monitoring will be: (a) the average cost per each type ofmicroproject; and (b) impact and efficiency indicators which are listed below: Microproiects Indicators Potable Water Cost per beneficiary, Cost per unit length ofpipe. (Urban and Rural) Irrigation Cost per beneficiary, Cost per unit ofpipe length. Cost per Irrigated hectare. School Constructioflehab. Cost per beneficiary, Cost per unit area. 12. The average full cost per microproject, including physical and price contingencies, is currently estimated at approximately US$128,000. Norms for each type ofmicroproject as well as for impact and efficiency indicators will need to be developed by ASIF. These should be developed on the basis of ASIF I1 cost indicators, which may be used as benchmarks before factoring in price inflation and likely increased size and scope of future microprojects. Results of the ASIF I1 cost-effectiveness analysis presented in Table 1 above should be used as a guide for developing these benchmarks. 13. Past experience has shown that ASIF invests on average far more in water supply infrastructure than the NGOs. The availability of significant investment resources allowed the ASIF to undertake medium sized and often costly microprojects which typically did not fit into the selection criteria of some of the other development agencies in Armenia. In the absence of such investments, many communities would have been deprived ofthis basic necessity to improve their living standards. In the irrigation sector, the Government (supported by the Association) invests much more than the ASIF. 76 14. An important factor in the above analysis is that the degree of cost-efficiency and effectiveness of alternatives can significantly vary depending on the nature, mandate and modus- operandi of an organization. For example, project cost comparisons are not sufficient to capture the principal differences among the demand-driven (ASIF, NGOs) and supply-driven (government) agencies in terms of their efficacy and impact. Other important factors that have implications on costs and effects are the use of participatory vs. centralized management, accountability and transparency in the management ofresources, institutional capabilities, and use ofinnovative approaches. While these are important considerations, unit cost and cost per beneficiary indicators will be used to monitor the cost efficiency and the cost-effectiveness ofthe ASIF I11 Project 77 Annex 10: Safeguard Policy Issues ARMENIA: Social Investment Fund I11 Project The proposed ASIF I11 Project is expected to only have a limited environmental impact. It is classified as an Environmental Category “Fl” project. The project will be implemented in several regions of Armenia. As microprojects are demand driven, it is not known ex-ante the exact location of the community works and social services. However, according to the envisaged poverty targeting, it is expected that community investments would be located in areas with poor vulnerable groups. The ASIF, as the Implementing Agency ofthe proposed ASIF I11 Project has been operating under the ASIF Iand I1operations as an effective management unit with close to 10 years of experience. The ASIF effectively monitored microproject implementation including ensuring that the microproject meet the environmental requirements of the country and are consistent with Bank guidelines and procedures incorporated in the environmental section of the ASIF I1 Operations Manual (OM). The OM lays out procedures and implementation arrangements for ensuring full consideration of environmental safeguards, in accordance with Bank environmental assessment guidelines. According to the guidelines, each microproject is individually screened and reviewed by the ASIF - by specific type - for any negative impacts, and mitigation measures. In addition, the community proposals incorporate an environmental review checklist, and the standard microproject appraisal document includes an environmental checklist and mitigation measures. Special environmental mitigation measures have been included in the OM in the case of certain project types such as water supply rehabilitation schemes, sewerage, sanitation systems and irrigation rehabilitation works sub-projects. As part of the Quality of Works Technical Reviews carried out under the ASIF I1 Project, training was provided by environmental specialists, on a regular basis, in the area of evaluation and monitoring of sub-projects according to agreed environmental standards. To date, close 619 works projects have been carried out with no major environmental issues encountered. No major environmental issues are anticipated under the proposed new operation, given the relatively small size and rehabilitation nature of most community infrastructure projects. However, certain microproject types such as water supply rehabilitatiodconstruction schemes to be funded under the project may require special environmental mitigation measures to protect quality of the water source (in-situ and upstream). In the case of potable water project proposals which involve the construction of new reservoirs which may have potential risks ofbeing linked to international waterways or trans-boundary water sources, a special study on this issue was conducted at the local level during project preparation. The study concluded that the water sources are outside the international waterways, and that as in ASIF Iand 11, the new water supply microprojects under ASIF I11 would be based on small wells and surface springs. It was therefore concluded the OP 7.50 will not be triggered and that the exclusionary language to ensure this will be specifically incorporated in the project documents. Environmental mitigation measures may also be needed in the case of sewerage, sanitation systems and irrigation rehabilitation works sub-projects. Environmental concerns will be mitigated in the selection and implementation of sub-projects. The Environmental Section has been included and updated in the ASIF I11 Operational Manual and was publicly disclosed on July 10,2006. 78 Land Acquisition. Since civil works under the ASIF I11 Project would consist ofrehabilitation of existing structures, and given that new construction, would occur in state owned lands, no land acquisition is expected. Furthermore, experience under the ASIF I1 suggests that encroachments on the Right of Way will not be an issue. However, to address the possibility that there may be minor (less than 10 percent of individual land holdings) land acquisition or encroachments on the Right of Way under the project. No microproject involving involuntary resettlement will be eligible for financing under the ASIF I11 Project. Historical and Cultural Property. Impacts on historical and cultural sites or in the form of chance finds of physical cultural resources are also expected to be minor. The attached tables include procedures to be followed, should they occur. Project Implementation. Project Implementation Agencies (i.e. local government officials and citizens of communities) and municipal governments will be the key stakeholders of community infrastructure projects. Stakeholders will be consulted on a case-by-case basis, depending on the nature of the proposed project, during the screening process, during the development of plans to address potential environmental impacts, and during microproject supervision, to assess environmental aspects ofmicroprojects. Typically, ASIF promotion staff and appraisal engineers will hold discussions on-site with the community during screening and both the community and the municipality in preparing and reviewing environmental assessments and EMPs if and when required. When possible, experts within the municipality will participate directly in the preparation of environmental assessments and plans. Communities must obtain all necessary permits and clearances from the municipality before final approval by the ASIF of any project proposal. During project implementation, follow-up engineers will monitor the quality of works, including environmental standards, of a number ofselected projects of a different typology. Bank supervision missions, in particular, will examine compliance with safeguard policies, in the implementation ofthe ASIF I11 Project. 79 ENVIRONMENTAL MITIGATION MEASURES AND REVIEW CHECKLISTS LOCAL HEALTH POSTS MICROPROJECTS Environmental and Impacts rlitigation Measures Social Components Phvsical Environment Soils Contamination from waste materials Protection of soil surfaces during (construction and medical) construction; control and daily cleaning ofconstruction sites; provision of adequate waste disposal services Water Resources Clogging ofdrainage works Special attention to drainage; proper Decline in water quality due to disposal ofoil and other hazardous contamination materials; adequate sanitation and Introduction ofhazardous wastes disposal system for waste Air Quality Dust during construction Dust control by water or other means; Degraded interior air quality (caused by appropriate design and siting subproject construction works, evaporation from medicines and chemical substances) Odor problems Acoustic Environment Noise disturbance ofnatural habitats Restrict construction to certain hours Biological Environment Natural Habitats Disturbance ofnatural habitats Minimize loss ofnatural vegetation during construction; consideration of alternative sites; various special measures for alternative sites; various special measures for sensitive species Fauna and Flora Loss or degradation ofvegetation Disruption or destruction ofwildlife Social Environment Aesthetics and Landscape Debris Cleaning-up ofconstruction sites; provision ofadequate solid waste disposal systems HistoricaUCultural Sites Degradation ofsites Consideration ofalternative sites; Disturbance to structures special measures to project buildings and other cultural resources/areas Human Health Construction accidents Specify designed systems fore disposal Medical wastes from health posts ofmedical waste Human Communities Involuntary resettlement Zompensation per OD 4.20; good siting; Losses ofbuildings, property, or economic :ommunity participation in environmental livelihood issessment Disruption due to greater traffic loads 80 EDUCATION FACILITY MICROPROJECTS Environmental and Impacts ditigation Measures Social Components Phvsical Environment Soils Contamination fiom waste materials Protection ofsoil surfaces during construction; control and daily cleaning ofconstruction sites; provision of adequate waste disposal services Water Resources Clogging ofdrainage works Special attention to drainage; proper Decline in water quality due to disposal ofoil and other hazardous contamination materials; adequate sanitation and Introduction ofhazardous wastes disposal system for waste Air Quality Dust during construction Dust control by water or other means; Degraded interior air quality (caused by appropriate design and siting subproject construction works) Odor problems Acoustic Environment Noise disturbance ofnatural habitats Restrict construction to certain hours Biological Environment Natural Habitats Disturbance ofnatural habitats Restrict construction to certain hours Fauna and Flora Loss or degradation ofvegetation Minimize loss ofnatural vegetation Disruption or destruction ofwildlife during construction; consideration of alternative sites; various special measures for alternative sites; various special measures for sensitive species Social Environment Aesthetics and Landscape Debris Cleaning-up ofconstruction sites; provision of adequate solid waste disposal systems HistoricaVCultural Sites Degradation ofsites Consideration ofalternative sites; Disturbance to structures special measures to project buildings and other cultural resourcedareas Human Health Construction accidents Specify designed systems fore disposal Medical wastes fiom health posts of medical wastes Human Communities Involuntary resettlement :ompensation per OD 4.20; good siting; Losses ofbuildings, property, or ommunity participation in environmental economic livelihood ssessment Disruption due to greater traffic loads 81 WATER RELATED MICROPROJECTS A. WATER SUPPLY MICROPRL ECTS Environmental and Impacts rlitigation Measures Social Components Phvsical Environment Soils Degradation ofsoil cover Protection during construction; re- vegetation or physical stabilization services. Water Resources Contamination ofwater resources Adequate protection form livestock; Over-exploitation of aquifers minimal distance from human Inadequate wastewater disposal settlements and agricultural areas; Introduction to hazardous wastes regional water use planning; proper Creation ofstagnant water pools drainage near pumping stations; community participation; link to sanitation micro-projects. Acoustic Environment Noise disturbance from pump if near a Siting studies home Bioloaical Environment Natural Habitats Disturbance ofnatural habitats Siting studies Fauna and Flora Loss or degradation ofvegetation Siting studies; protection ofvegetation Disruption or destruction ofwildlife during construction Social Environment Aesthetics and Landscape Marred landscapes Cleaning-up ofconstruction sites Debris Human Health Waterborne diseases Correct design and adequate training; Chemical imbalances in delivery system testing procedures Human Communities Involuntary resettlement :ompensation per OD 4.20 Loss ofbuildings or property 82 WATER RELATED MICROPROJECTS B. SMALL SCALE IRRIGATION MICROPROJECTS Environmental and Impacts vlitigation Measures Social Components Phvsical Environment Soils Increase ofsoil erosion Proper siting ofirrigation subprojects; Soil water-logging as a result ofimproper extension and training in crop selection drainage and agricultural technology; careful Increased salinization design and appropriate selection of inigation systems; adequate drainage Water Resources Water quality degradation in ponds and Control ofagrochemical use; proper reservoirs design ofcanals; monitoring ofwater Deoxygenation ofreceiving water quality; operation and maintenance Clogging ofcanals from weeds plan; regional water use plans Inefficient water flow because ofheavy sedimentation Degradation ofwater systems receiving irrigation waters by nutrients, agrochemicals and salts Depletion ofaquifers from over- exploitation Disturbances to flow regimes Biological Environment Natural Habitats Disturbance ofnatural habitats Consideration ofalternative sites; select Disturbance ofprotected areas appropriate design and crops Fauna and Flora Algae blooms, proliferation of aquatic Provision ofcorridors ofhabitat for weeds movement ofanimals Disruption or destruction ofwildlife Social Environment Human Health Risk ofwaterborne diseases from Education in proper sanitation and artificial water flows health practices; avoidance ofstagnant Disease transmission from human and waters; adequate treatment of irrigation animal waste deposits in irrigation waters waters; careful management of used on agriculture pesticides; integrated pest management Toxicity ofpesticides (IPM) programs; protection ofcanals from livestock Human Communities Involuntary resettlement Adequate compensation as per OD Loss ofproperty 4.20; good consultation and Conflicts over water use rights participation with affected Multiple land use demands on restricted communities; consideration of water sources cumulative impacts ?oliticaland social problems associated with upstream land use and pollutant lischarges 83 WATER RELATED MICROPROJECTS C. DO: Environmental and Impacts kfitigation Measures Social Components Phvsical Environment Soils Degradation ofsoil cover Erosion control during construction Water Resources Point soil pollution at discharge ofpipe Select appropriate technology for Water quality degradation wastewater treatment; settling pond, (Deoxygenation) in receiving surface screens, or aeration systems; siting waters studies; incorporation into larger Contamination of subsurface water wastewater systems; adequate training resources in maintenance oflatrines or disposal systems; alternative siting; monitoring programs Biological Environment Natural Habitats Disturbance of natural habitats Alternative site Fauna and Flora Loss or degradation ofvegetation Alternative site Disruption or destruction of wildlife Social Environment Aesthetics and Landscape Unpleasant odors Include odor-control technology in design Human Health Disease transmission Select appropriate technology; training Accident risk during construction and monitoring programs, community Sewer gas leaks participation, operation and Improper use of night soil from maintenance plans composting toilets Human Communities Impacts may be concentrated downstream idequate consultation and participation 0: in other communities 111 potentially affected communities 84 SC LID WASTE MANAGEMENT MICR )PROJECTS Environmental and Impacts vlitigation Measures Social Components Phvsical Environment Soils Point-source pollution from landfill Adequate siting studies; good design Seepage of contaminants into aquifers standards; consideration of alternative Contamination from clandestine dumping sites; ensure adequate drainage; community participation; training Air Quality Particulate contamination from burning Spread and cover garbage at landfill garbage site; prohibit or minimize burning Increase in haze and smog design and siting subproject Biological Environment Natural Habitats Disturbance or loss ofnatural habitats Adequate siting studies Fauna and Flora Loss or degradation of vegetation Adequate siting studies Disruption or destruction ofwildlife Social Environment Aesthetics and Landscape Unpleasant odors Provide complete collection and Marred landscapes near landfill site disposal service; pilot collection Garbage littered about in towns from systems; cost recuperation; proper inefficient collection services design of collection or disposal systems; recycling programs; community participation Human Health Methane and other noxious chemicals Separate disposal system for medical or emitted hazardous wastes; gas recovery Disease transmission from animal and systems; safety procedures insect vectors implemented; training of workers and Hazardous particulates emitted during beneficiaries; operation and burning maintenance plans Safety and health hazard from medical and industrial wastes Human Communities Involuntary resettlement :ompensation as per OD 4.20; control of Unpleasant living conditions adjacent to :oning; attention to route selection for site (e.g., frequent movement oftrucks) vaste transfer vehicles 85 ENVIRONMENTAL REVIEW CHECKLIST Microproject Microproject # Community Marz Present Necessary mitigation lDoesmicroproject the contain Environmental Component 1. Soil Implementation phase Exploitationphase 2. Water Implementation Phase Exploitationphase 3. Air Implementation phase Exploitationphase 4. Flora and Fauna Implementation phase Exploitation phase 5. Esthetics and landscape Imlementation phase Exploitationphase 6. Human health Implementation phase Exploitationphase 7. Human settlements Implementation phase Exploitation phase CONCLUSIONS OF THE APPRAISAL ENGINEER with regards to: 1. Scale ofimpacts on the environment caused by the proposed microproject; 2. Incorporation of obligatory mitigation measures, which were not primarily included in the proposed microproject; 3. Realistic possibility ofmitigating the negative impacts; 4. Necessity of applying Limited Environmental Assessment for the microproject; 5. Transfer of microproject to the second phase ofappraisal. Appraisal engineer Date Signature 86 Annex 11: Project Preparation and Supervision ARMENIA: Social Investment Fund I11 Project Planned Actual PCN Review 03/14/2006 04/03/2006 Initial PID to PIC 04/21/2006 04/2 1/2006 Initial ISDS to PIC 04/24/2006 04/24/2006 Appraisal 07/10/2006 07/13/2006 Negotiations 08/21/2006 09/11/2006 Board/RVP Approval 10/24/2006 Planned Date of Effectiveness 12/15/2006 Planned Date of Mid-term Review 05/15/2009 Planned Closing: Date 06/30/2011 Key Institutions responsible for preparation of the project: Ministry of Finance and Economy; Armenia Social Investment Fund; Ministry of Temtorial Administration; Ministry of Labor and Social Issues Bank staff and consultants who worked on the project included: Name Title Unit Caroline Mascarell Sr. Social Protection Specialist and TTL ECSHD Aleksandra Posarac Sr. Economist and PTL ECSHD Susanna Hayrapetyan Sr. Health Specialist ECSHD Junk0 Funahashi Sr. Counsel LEGEC Andrina Ambrose Sr. Financial Officer LOAGl Hilarian Codippily Sr. Social Economist Consultant Arman Vatyan Financial Management Specialist ECSPS Alexander Astvatsatryan Procurement Officer ECSPS Samantha de Silva Sr. Social Protection Specialist HDNSP Rodrigo Serrano-Berthet Sr. Social Protection Specialist HDNSP Keth McLean Sr. Social Development Economist ECSSD Mariana Felicio Operations Analyst HDNSP Maria Gracheva Operations Officer ECSHD Yelena Fadeyeva Operations Officer ECSHD Nicole La Borde Program Assistant ECSHD Carmen Laurente Sr. Program Assistant ECSHD Svetlana Georgieva Raykova Program Assistant ECSHD Bank funds expended to date on project preparation 1. Bank Resources: US$165,022 2. Trust Funds: US$3 16,000 3. Total: US$48 1,022 Estimated Approval and Supervision costs: 87 Remaining costs to approval: US$O.OO Estimated annual supervision costs: US$62,000 88 Annex 12: Documents in the project File ARMENIA: Social Investment Fund I11 Project Bank Staff Assessments: Armenia Social Investment Fund I1Mid-term Review Report, January 2004 Armenia Country Assistance Strategy, May2004 Other: Social Services Assessment, Beate Gross, March 2006 Institutional Assessment, Philip Rawkins, April 2006 Cost Effectiveness Analysis, Hilarian Codippily and Vahan Kerobyan Social Capital Assessment, Babken Babajanian and Philip Rawkins Procurement and Technical Audits, Armenia Social Investment Fund Beneficiary Impact Assessments, Armenia Social Investment Fund ASIF I11 PHRD Technical Reports, Armenia Social Investment Fund Financial Audit Reports, Armenia Social Investment Fund 89 Annex 13: Statement of Loans and Credits ARMENIA: Social Investment Fund I11 Project Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fm. Rev’d PO93459 2006 AM -PRSC 2 0.00 20.00 0.00 0.00 0.00 20.43 0.00 0.00 PO87011 2006 RUR ENT & AGRIC DEVT 0.00 20.00 0.00 0.00 0.00 18.11 -0.96 0.00 PO57880 2006 URBAN HEAT 0.00 15.00 0.00 0.00 0.00 12.69 -1.70 0.00 PO83352 2006 RENEW ENERGY 0.00 5.00 0.00 0.00 0.00 5.04 0.00 0.00 PO87641 2005 YEREVAN WATEWW SERVS 0.00 20.00 0.00 0.00 0.00 16.36 5.54 0.00 PO87620 2004 SOC PROT ADMIN 0.00 5.15 0.00 0.00 0.00 4.77 I.66 -0.06 PO74503 2004 EDUC QUAL & RELEVANCE (APL #I) 0.00 19.00 0.00 0.00 0.00 14.83 3.75 0.77 PO73974 2004 HEALTH SYS MOD (APL #1) 0.00 19.00 0.00 0.00 0.00 16.22 7.94 0.47 PO88499 2004 IRRIG DAM SAFETY 2 0.00 6.75 0.00 0.00 0.00 5.78 0.42 0.00 PO63398 2004 MUN WATER & WW 0.00 23.00 0.00 0.00 0.00 15.07 3.90 0.00 PO60786 2004 PUB SECT MOD 0.00 10.15 0.00 0.00 0.00 9.02 2.67 0.00 PO69917 2002 NAT RES MGMT (GEF) 0.00 0.00 0.00 5.12 0.00 3.75 0.82 0.00 PO57847 2002 NAT RES MGMT 0.00 8.30 0.00 0.00 0.00 6.85 0.85 0.00 PO55022 2002 IRRIG DEVT 0.00 24.86 0.00 0.00 0.00 9.22 3.95 0.00 PO44852 2002 ENT INCUBATOR LIL 0.00 5.00 0.00 0.00 0.00 1.93 1.23 0.63 PO57838 2001 JUDICIAL REFORM 0.00 11.40 0.00 0.00 0.00 1.57 -0.44 0.00 PO57952 2000 SIF 2 0.00 20.00 0.00 0.00 0.00 0.15 -2.66 0.00 PO64879 1999 IRRIG DAM SAFETY 0.00 26.60 0.00 0.00 0.00 8.16 7.88 2.19 PO08276 1999 ELEC TRANSM & DISTR 0.00 21.00 0.00 0.00 0.00 1.06 0.38 0.30 Total: 0.00 280.21 0.00 5.12 0.00 171.01 35.23 4.30 90 ARMENIA: Social Investment Fund I11 Project STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ACBA Leasing 2.00 0.27 0.00 0.00 2.00 0.27 0.00 0.00 2004 Armeconombank 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2000 Hotel Armenia 0.00 0.00 3.57 0.00 0.00 0.00 3.57 0.00 2004 Hotel Armenia 0.00 0.00 1.25 0.00 0.00 0.00 1.25 0.00 Total portfolio: 4.00 0.27 4.82 0.00 4.00 0.27 4.82 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. Total pending commitment: 0.00 0.00 0.00 0.00 91 Annex 14: Country at a Glance ARMENIA: Social Investment Fund I11 Project Evope& Lower- POVERTY and SOCIAL Addem Development diamond* Atmeria Asia income 1 2004 Poplatiin, ~yXr(m~1bns) 30 GNIperoFita(Atlasmethodc6$) 1070 GNI (AtlaSdW c6$ tillbns) 3.3 Average amual groHth, I99844 a7 0.7 Most recent estimate (latest paravailable, 898-04) 51 €4 64 49 75 €8 70 33 29 33 3 ?l CQ 91 81 99 97 90 99 M tt4 w M ts 97 M 70 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1994 23 28 35 215 24.7 242 Trade 3.3 329 33.1 -Q.3 68 BO a2 -m 67 4.9 ~ Domestic 03 0.4 0.3 WI 402 317 ~ 27 9.0 51 ~ 251 6B.4 2003 2004 2004-08 119 l4.4 282 92 Armenia ~ ~~~ PRICES and GOVERNM ENT FINANCE 1994 2003 1984 2004 Inflation (Y.) Domestlc prices (%change) ~16T Consumer pnces 4,962.3 4.6 3.2 Implicit GDP deflator 4,137.3 4.6 5.9 Government flnance (%ofGDP,includes cumntgranfs) Current revenue 27.7 Q.8 M.7 Current budget balance -65 4.1 12 -GDPdeflaor -CpI Overall surplusldeficit -6.5 -13 -3.4 i I TRADE 1894 1984 2003 2004 Export and import levels (US5 mill.) (US$ millions) Totalexports (fob) 215 686 677 1,500 T Goid,)ewelry,andotherp~lousStones 351 Machineryand mechanical equipment 20 1,wo Manufactures 99 67 Total imports (cif) 401 1279 1338 Food 71 222 500 Fuel and energy 60 79 Capital goods 43 28 259 0 Exgort pnce index (2000=00) lmporl pnce index (2000=@0) Terms of trade (2000=XIO) BALANCE of PAYMENTS 1994 2003 1984 2004 Current account balance to GDP (%) (US$ millions) Exports of goods and services 257 894 1151 0 Imports of goods and services 58 1397 1674 Resource balance -261 -503 -524 5 Net income -7 91 a2 .10 Net current transfers 136 225 28 .15 Current account balance -62 -67 .l74 -20 Financing items (net) 69 313 204 Changes in net reserves 3 -93 -30 Memo: Reserves including gold (US$ millions) 35 550 534 Conversion rate (DEC.local/US$) 142.2 578.6 533.5 EXTERNAL DEBT and RESOURCE FLOWS 1984 1994 2003 2004 IComposltlon of 2004 debt (US5 rnlll.) (US$ millions) Total debt outstanding and disbursed 214 187 195 IBRD 2 8 7 IDA 6 662 684 Total debt service 4 95 68 iBRD 0 1 1 IDA 0 4 6 Composition of net resource flows Official grants 71 53 Official creditors 61 44 37 Private creditors 0 -6 4 Foreign direct investment (net infiows) 8 81 Portfolio equity(net inflows) 0 0 World Bank program Commitments 65 40 0 A - IBRD E- BildLaal 7 ' Disbursements 77 23 ~ B - IDA 0 ~OtkmJltildaal F- Privzte Principal repayments 0 1 2 IC-IMF 0.Short-tan Net flows 7 77 21 interest payments 0 5 5 Net transfers 6 72 6 Note: This tablewas producedfrom the Development Economics LDB database. 8/24/05 93 Annex 15: Poverty Targeting Strategy and Regional Allocation of Funds ARMENIA: Social Investment Fund I11 Project Introduction The purpose of this Annex is to outline the poverty targeting strategy and the allocation of project funds across marzes (regions) in Armenia, under the ASIF I11 Project. Exluding Yerevan, the ten marzes are: Aragatcotn, Ararat, Armavir, Gegarqunick, Kotaik, Lori, Shirak, Sunik, Tavush, and Vajoc Dzor. The objective of the allocation is to ensure regional equity in the use of ASIF I11 funds, and to provide the basis for planning of the disbursement of ASIF I11 funds by region. In addition, fixing regional allocations will mitigate political pressures to move funds across regions during the life ofthe project. Poverty Targeting Strategy The objective of the poverty targeting strategy and the regional allocation is to ensure regional equity in the use of ASIF I11 funds, and to provide the basis for planning of the disbursement of ASIF I11 funds by region. A two-stage poverty targeting strategy was discussed and agreed with the Government. According to this strategy, the first level oftargeting defines broad allocations for the regions, and is based on a methodology which includes population size, and indicators of poverty and special regional factors. The second level of targeting to identify needy communities is based on a detailed criteria relating to social, demographic, economic, financial, geographic, and infrastructure conditions. This stage of targeting is currently being developed through a community profiling and mapping exercise, with financing under the PHRD Grant. The Targeting Methodology Stage 1: Regional Allocations. The total amount of ASIF I11 funds available for community investment projects is estimated at approximately US$22.45 million. It has been agreed that: (i) the allocation for Yerevan be limited to US$3.2 million (14.3 percent oftotal); (ii)a reserve fund of US$1.2 million be made available for social service microprojects (US$0.85 million) and other priority projects that may arise during the life of the project; and (iii)a sum ofUS$501,000 be included to compensate for shortfalls under ASIF I1 for the Kotaik and Sunik marzes. This leaves a total of approximately US$17.55 million to be allocated to the marzes outside Yerevan. The regional allocations are based on two broad factors: (a) the population size of each region; and (b) a composite poverty index computed from two poverty indicators and four special regional factors. The two poverty indicators are: (i)the poverty incidence (head count index) or the proportion of the population living below official poverty line - representing the extent or the “quantity” of poverty; and (ii)the severity index which is the Foster-Greer-Thorbecke (FGT) measure P2 - representing the intensity of poverty. Unemployment was not used as an indicator (as in ASIF 11), given that the data at the regional level was not considered sufficiently robust. The latest 94 available estimates for the poverty indicators i.e. for the year 2003 were obtained from the draft World Bank report “Armenia: Poverty Profile 1998/99--2003. Thefour special regionalfactors are: (i)the number ofpopulated areas or communities in each region - to allow some provision for the likely demand for projects, as they are generated by the communities; (ii)the number of communities in the earthquake zones to reflect the remaining reconstruction needs ofthese communities; (iii)the number ofborder zone communities to allow some provision for reconstruction needs as a result of recent conflicts; and (iv) the number of communities in high mountainous terrains (over 1930 meters above mean sea level) to reflect the special needs arising from the relative degree ofdifficulty ofaccess to such communities. Combining the six features mentioned above, the formula for the allocation of funds by region (outside Yerevan) is as follows: Where A = total allocation available for all ten regions outside Yerevan; A r = allocation for a given region r; Nr = population ofa given region r; 1, = composite poverty index for a given region r. The poverty index (a weighted index) is defined by: Ir = [Po,+P~~+C1r +C 2r+ C3r +C4,]/6, for a given region r. PO,= poverty rate in region r; P2r = intensity ofpoverty in region r; C 1r = number ofcommunities in region r; C 2r = number ofearthquake zone communities in region r; C3r = number ofborder zone communities in region r; and C4r = number ofhigh mountainous communities in region r. The sum ofweights = 6. Table 1 presents the data inputs for each region on: (a) population; (b) poverty incidence; (c) severity of poverty; (d) the number of communities; (e) the number of earthquake zone communities; (f) the number of border zone communities; and (g) the number of high mountainous communities. The purpose of Table 2 is to normalize the input data into indicators for the ten regions other than Yerevan. Thus, the numbers for (b), (c), (d), (e), (0, and (g) above are expressed as proportions of their respective averages. Table 3 shows the resulting regional allocations calculated according to the formula given above. Stage 2: Selection of Communities. This second stage consists of the identification of needy communities within each region based on a set of detailed criteria relating to social, demographic, economic, financial, geographic, and infrastructure conditions, as mentioned above. Using these criteria, the 930 communities will be ranked starting from the neediest to those with the least ofpriority needs. At present, in each marz, the neediest 10 communities and 95 the 10 communities with the least needs have been identified - making a total of 200 communities across 10 marzes outside Yerevan. This exercise will provide a methodology for profiling using a simplified questionnaire which the ASIF can use to complete the exercise for the remaining 730 communities, with the assistance ofthe consultants financed under the PHRD Grant. When all 930 communities are evaluated, the ranking obtained will form the basis for classifying the communities into three or more clusters, starting from the neediest cluster, thus providing a road map for ASIF operations. This road map will be used by the ASIF promotional team, during the life of the project, to select municipalities and local communities for initial discussions on community needs, priorities perceived by the communities, project possibilities, and modalities of operation of the ASIF. However, specific project proposals will have to be presented by the communities. The selection process ofcommunities will be hrther developed and refined by the ASIF prior to and during project implementation, based on lessons learned and experience of other donors active in community development. An appropriate assessment and rating system will also be developed and incorporated in the ASIF 111 Operational Manual. 96 ARMENIA: POVERTY TARGETING STRATEGY TENTATIVE REGIONAL ALLOCATION OF ASIF I11 FUNDS (US$) Table 1: Poverty Indicators and Regional Factors For Marzes outside Yerevan High Mountain Poverty Earthquake Zone Border Zone Zone Incidence Severity of No. of Communities Communities Communities Marz Population (%) Poverty (%) populated areas (No.) Aragacotn 164,927 50.80 2.50 121.oo 42.00 2.00 38.00 Ararat 220.004 34.50 2.40 98.00 0.00 8.00 2.00 ~TOTAUAV I 2,096,8421 32.001 1.601 1,000.00l 322.001 177.001 145.001 Source: Armenian State Department of Statistics, and World Bank, Armenia: Poverty Profile 1998/99 - 2003, Draft Report of May 2005. Table 2: Normalized Poverty Indicators and Regional Factors For Marzes outside Yerevan 97 Table 3: Poverty Scores and Resulting Allocations in US$ for Marzes outside Yerevan and Special Allocations for Yerevan and the Reserve Fund Allocation for Yerevan (based on proportion close to that in ASlF 11): I 3,200,000 Reserve Fund (for social service MPs (US$1.O million) and other priority investments) 1,200,000 Total I I I I 22,446,000 98 Annex 16: Microproject Typology ARMENIA: Social Investment Fund 111 Project The ASIF I11 project will finance the implementation ofmicro projects in the following three areas: 1. Social Infrastructure and Goods: Renovation, rehabilitation and construction ofkindergartens, primary and secondary schools, health centers, clinics and polyclinics. Renovation, rehabilitation and construction ofspecial schools for disabled children, art, music and sports schools, gymnasiums and playgrounds. Rehabilitation and construction of school heating systems, and science laboratories. Provision of school furniture, science laboratory equipment and teaching materials. Construction of an Integrated Social Services Center. Renovation and rehabilitation oforphanages, homes for the elderly and homes for veterans. Renovation and rehabilitation ofcommunity centers (including libraries, museums, community halls, clubs, etc.). 2. Economic Infrastructure: a) Renovation, rehabilitation and construction ofpotable water systems limited to those based on small wells and surface springs (with no connections to international waterways). b) Renovation, rehabilitation and construction ofsmall-scale local level irrigation systems, including reservoirs which are not connected to international waterways. c) Rehabilitation ofvillage or neighborhood roads, access roads to isolated villages, access roads to agricultural lands and farms (including bridges, drainage, culverts, retaining walls, etc.). d) Construction or rehabilitation ofrural electrification systems. 3. Sanitation and Environmental Infrastructure: a) Renovation, rehabilitation and construction of sewerage systems (only upon the condition of having the system connected to the main sewerage network or the presence ofa filtration plant downstream) and storm water canals. b) Improvement and rehabilitation of degraded environment through tree planting and clean- UP. c) Rehabilitation and reconstruction ofrecreation areas in towns. 99 Annex 17: ASIF I11 Project Technical Committee for Financial Management Training ARMENIA: Social Investment Fund I11 Project Background. To ensure the effective implementation of municipal financial management training activities proposed under Component 2 of the Project, these activities would be carried out with the close coordination and collaboration of the teams working on the Public Sector Modernization Project (PSMP) and on the ASIF I11 Project. The objective is to optimize the outcomes ofboth projects. An ASIF III Project Technical Committee would be established as an interagency committee by a Government Decision to provide overall guidance and direction to the ASIF, so as to ensure effective coordination of activities relating to the municipal training program with special focus on the fundamental issue of matching the timelines of the ASIF I11 Project and of the PSMP in the communities targeted. The Establishment of the ASIF III Project Technical Committee by a Government Decision is a Condition of Effectiveness. Composition of Committee. The ASIF I11 Project Technical Committee would include the representatives ofthe four key partners -- the Ministry ofFinance and Economy, the Ministry of Territorial Administration, the ASIF and the PSMP PIU. The members of the Committee would include the Deputy Ministers of Finance and Economy and of Territorial Administration, the Executive Director of the ASIF, the Head of the PSMP PIU, and the ASIF Officer in charge of the Municipal Training Program. Committee meetings would be co-chaired by the Deputy Minister ofFinance and Economy and the Deputy Minister ofTerritorial Administration. Main functions. The ASIF I11 Project Technical Committee will be responsible for the following key activities: Provide overall guidance and direction to the ASIF so as to: a) ensure effective coordination and implementation of activities relating to the municipal training program; and b) optimize the outcomes of both projects through close coordination and collaboration. Develop and reach agreement on the technical framework for the Municipal Financial Management Training Program consisting of the coverage and duration of the training program, the selection of the training findinstitute, matching the timelines of the respective projects in the communities targeted, the monitoring and supervision of training activities, and the dissemination of results/outcomes of the municipal training program through workshops and seminars. Assess the impact of municipal training programs through evaluations received from participants. Review status of operational activities relating to municipal financial training with special focus on the fundamental issue of matching the timelines of the ASIF I11 Project and ofthe PSMP in the communities targeted. Determine if revisions are needed to the municipal training program to comply with changing legislation. 100 (vi) Organize workshops and seminars to disseminate the lessons learned under the Municipal Training Program. (vii) Review and formulate recommendations on quarterly and annual progress reports relating to the financial management training activities. (viii) Participate at selected training sessions to assess quality of training and to receive feedback on the training program from participants. Limitations. The ASIF I11 Project Technical Committee shall recognize the autonomous status of the ASIF and therefore shall not have any authority over: (i)staffing decisions; (ii)financial management; and (iii)all other day-to-day operational activities. Operational Procedures. The ASIF I11 Project Technical Committee will be guided by the following operational procedures: The ASIF Officer in charge ofthe Municipal Training Program will hnction as Secretary ofthe Technical Committee. The Secretary of the Committee will give at least one week’s notice for convening of meetings. The first meeting will be organized by the ASIF and will take place shortly after Project Effectiveness, but not later than six months after Effectiveness. Thereafter, the ASIF Executive Director in consultation with the other Committee members will determine when to hold the next set ofmeetings. The Committee shall reach its conclusions and recommendations by consensus. In the event there is a substantial issue for discussion and a decision requiring a voter a simple majority will be considered as valid. In the case of a tie, the co-chairs will cast the deciding vote. In the event that a Committee member is unable to be present at a meeting, he or she may authorize in writing another member ofthe Committee to act as proxy. The Secretary of the Committee shall be responsible for recording the minutes of the meetings. The minutes shall be cleared by the co-chairs and distributed to all Committee members within one week ofthe meeting. All records ofthe proceedings ofthe Committee shall be maintained by the Secretary. All meetings shall be conducted at the Ministry of Finance and Economy or at another location to be decided by the co-chairs. The Executive Director ofthe ASIF and the Head ofthe PSMP PIU will routinely report to the Committee on the status ofoperational activities relating to the Municipal Training program. 101 MAP SECTION SEPTEMBER 2004 SEPTEMBER 41 40 ° ° N N 43 43 ° E shown on this map do not imply, the part of The World Bank This map was produced by the Map Design Unit of The World Bank. Group, any judgment on the legal status of territory, or The boundaries, colors, denominations and any other information endorsement or acceptance of such boundaries. ° E ARMENIA TURKEY INTERNATIONAL BOUNDARIES PROVINCE (MARZ) BOUNDARIES RAILROADS MAIN ROADS RIVERS NATIONAL CAPITAL PROVINCE (MARZ) CAPITALS SELECTED CITIES AND TOWNS Aras GEORGIA A r p Kars To Borjomi a To SHIRAK SHIRAK ARMA ARMAVIR Ar Armavir mavir Gyumri ARAGA ARAGATSOTN 44 VIR 44 Artik Ar ° ° E L L L E tik tik e e e s s s s s s TSOTN Tashir T e e Ashtarak e Ashtarak Aragats (4090 m) ashir Stepanavan Stepanavan r r r ISLAMIC REPUBLIC To T’bilisi C C C LORRI a a a u u u OF IRAN YEREV YEREVAN 02 30 Miles 20 10 0 102030400 c c c V Vanadzor Alaverdi anadzor a a a s s s Aras Ar Artashat u u YEREV u YEREVAN AN AN Hrazda tashat tashat s s n s To T’bilisi KOT KOT KOTAYK’ M M M ARARA ARARAT AN Ararat Ararat A A o o o YK YK Hrazdan Hrazdan u u u ’ ’ n n Sevan n Sevan t t Dilijan t Dilijan a a Naxçivan a T i i 45 i To n n Gavar n Gavar ° A E r s s s a 50 Kilometers s TAVUSH T GEGHARK GEGHARK’UNIK’ A Ijevan Ijevan VUSH V VUSH A a AZERBAIJAN Karmir Kar r p r a Sevan V VAYOTS’ mir d Lake A A Martuni Mar Y Yegegnadzor DZOR DZOR e egegnadzor YOTS YOTS n tuni i To Gäncä s ’ UNIK R Vaik V Artsvashen Ar To Naxçivan Gäncä aik a tsvashen ’ To Vardenis V Jermuk Jer ardenis n To Gäncä muk g ’ e K u r a Z Z Z 46 To Ordubad a a a Angekhakot Angekhakot n n n ° E g g g e e e z z z SYUNIK SYUNIK’ GEORGIA u u u r r r V o R R R Megri r Megri o a a a t n n n a n g g g e e e Kapan Kapan AZERBAIJAN Goris Goris ’ Qubadli To Qubadli ARMENIA To To Füzili Mingechevir Reservoir Aras 47 ° E 47 ° E 39 40 41 ° ° ° N N N IBRD 33364 IBRD