Document of The World Bank Public Disclosure Authorized
Report No. 13156-ALB Public Disclosure Authorized STAFF APPRAISAL REPORT
ALBANIA
RURAL DEVELOPMENTPROJECT Public Disclosure Authorized
JANUARY 10, 1995 Public Disclosure Authorized Agriculture and Urban Development Operations Central Europe Department Europe and Central Asia Region CURRENCY EQUIVALENT Currency Unit = Lek
AVERAGE EXCIIANGE RATES
1987-90 1991 1992 1993 1994
US$1.00 = Leks 8 14 75 102 93
WEIGHTS ANI) MEASURES Metric System
ALBANIAN GOVERNMENT FiSCAI, YEAR January 1 - December 31
ABBREVIATIONS ADF Albanian Development Fund ASAC Agriculture Sector Adjustment Credit CAS Country Assistance Strategy EU European Union GDP Gross Domestic Product ha hectare IDA International Development Association IFAD International Fund for Agricultural Development IMF International Monetary Fund MOF Ministry of Finance MOLSP Ministry of Labor and Social Protection NGO Non-Governmental Organization OED Operations Evaluation Department PY Project Year RCB Rural Commercial Bank RDF Rural Development Fund RPAPP Rural Poverty Alleviation Pilot Project UNDP United Nations Development Program USAID United States Agency for International Development VCF Village Credit Fund ALBANIA RURAL DEVELOPMENT PROJECT
CONTENTS
CREDIT AND PROJECT SUMMARY ......
CHAPTER 1. ALBANIA'S RURAL SECTOR ...... A. Introduction ...... 1 B. Recent Economic Trends ...... C. Main Features of the Rural Sector ...... 2 D. The Impact of Land Reform: Return to Subsistence Farming ...... 3 E. The Safety Net in Rural Areas ...... 3 F. Local Government in Transition ...... 4 G. Deterioration of Rural Infrastructure and Natural Resources ...... 5 H. Rural Credit ...... 6
CHAPTERII. THlE GOVERNMENT'S RURAL POVERTY ALLEVIATION PROGRAM ...... 7 A. Overall Strategy ...... 7 B. Methodology: A Participatory Process Approach ...... 8 C. The Full-Scale Project: A Modular Approach ...... 9 D. Rationale for IDA Involvement ...... 9
CHAPTER mI. LESSONS FROM THE PILOT PHASE ...... 10 A. Overview of Pilot Phase Activities ...... 10 B. Rural Works ...... 12 C. Credit Program ...... 13 D. Transfer of Technology ...... 15 E. Project Impact Study ...... 15 F. Findings and Lessons Learned ...... 17
CHAPTER IV. THE PROJECT ...... 19 A. Objectives ...... 19 B. Project Description and Components ...... 19 C. Detailed Features ...... 20 D. Project Cost and Financing ...... 22 E. Coordination with IDA-Financed Sectoral Projects ...... 24 F. Environmental Impact ...... 24
CHAPVER V. PROJECT IMPLEMENTATION ...... 25 A. Project Management ...... 25 B. Procurement ...... 27 C. Disbursements ...... 29 D. Supervision, Reporting, and Monitoring ...... 31
This report is based on findings of an appraisal mission that visited Albania in June 1994. The mission comprised Maria Nowak (Task Manager, EC2AU); Kathryn Funk (Operations Officer, EC2AU); and Consultants Pierre Marie Berard (Infrastructure); Konrad Ellsasser (Credit); Yves Graton (Cooperative Banking); and Jean-Marie Collombon (Microenterprises). The mission was assisted by the staff of the Albanian Development Fund, especially by the Executive Director, Genc Juka, and the Deputy Directors. Johanna Eigen (Intern, EC2AU) contributed to this report. Aleathea Thomas and Richard Huber (EC2AU) were responsible for document processing. The Peer Reviewers are Alexandre Marc (EC4HR), Jacob Yaron (EMTAG), and Michael Nightingale (MN1AG). Rory O'Sullivan is the Division Chief and Kemal Dervi§ is the Department Director. CHAFFER VI. BENEFITS AND RISKS . 32 A. Benefits.32 B. Risks.32
CHAFFER VII. AGREEMENTS REACHED AND RECOMMENDATION.33
TABLES
Table 1.1 Rural Land Holdings Following the 1991 Land Reform.2 Table 2.1 Estimated Full-Scale Project Costs.9 Table 3.1 Breakdown of Pilot Project Costs, as of December 1, 1994.11 Table 3.2 Pilot Project Costs, Appraisal Estimates and Projected Final Costs.12 Table 3.3 Rural Works Subprojects Underway or Completed (as of 12/1/94).12 Table 3.4 Number of Credits Disbursed per District (as of 12/1/94).14 Table 4.1 Summary of Project Costs by Component.22 Table 4.2 Summary of Project Costs by Category of Expenditure.23 Table 4.3 Sources of Project Financing.24 Table 5.1 Summary of Proposed Procurement Arrangements.27 Table 5.2 Estimated IDA Disbursements.30 Table 5.3 Disbursement Categories.30
FIGURES
Figure 3.1 Use of Credits (As of December 1, 1994).14 Figure 5.1 Albanian Development Fund Organizational Chart.26
ANNEXES
Annex A Government Decision to Establish Albanian Development Fund (Decision 427, September 8, 1994) Annex B Summary and Detailed Cost Tables Annex C Rural Population, Villages, Farms, and Average Farm Size by District, 1993 Annex D Albanian Development Fund Manual of Procedures (Amended December 1995) Annex E Rural Development Project: Rural Works Component Annex F Rural Development Project: Small Credit Component Annex G Rural Development Project: Promotion of Rural Activities Component Annex H Implementation Schedule ALBANIA
RURAL DEVELOPMENT PROJECT
CREDIT AND PROJECT SUMMARY
Borrower: Governmentof Albania
ExecutingAgency: Albanian DevelopmentFund'
Beneficiaries: Rural inhabitants
Credit Amount: SDR 4.1 million (US$6.0 million equivalent)
Terms: Forty years maturitywith a ten year grace period. Credit proceedswould be lent to the Governmentat the standard IDA charge.
Project Objectives: To promote small farm and off-farm activities and help restart a rural market economy;to repair basic rural infrastructure; and to create employmentfor the rural populationand inject cash resources into rural households.
Project Description: The project is an extension of a successful pilot phase-the Rural Poverty AlleviationPilot Project (RPAPP, Credit 2461-ALB)-that establishedthe Rural Development Fund, which was subsequently transformed into the Albanian DevelopmentFund (ADF), and tested approaches to rural works, small credit, and microenterprisesupport. The proposed Rural DevelopmentProject would finance a core program to extend ADF activity for three years. Project componentsare:
(a) Rural works. Evaluate, design, finance, and help implementabout 190 rural works to rehabilitatesmall infrastructure,such as ex-cooperativedirt roads, village water supply or irrigation systems, schools and health centers, and market facilities.
(b) Small-scale credit. Establish and fund approximately 135 village credit funds in order to extend the existing village credit fund networkand provide small loans to farmers and other rural microentrepreneursfor all types of income-generatingactivity.
(c) Promotion of rural activities. In coordinationwith village credit funds, provide business and technical advice to approximately 600 rural microentrepreneurs,and promote and support the creation of village animal health associationsto improve prophylaxis.
(d) Studies and local governmenttraining. Beneficiary assessment studies would be undertakento regularly evaluateproject impact and to monitorand guide project activities. Training and study tours would be used to help equip local governmentofficials with the skills necessaryfor promoting and sustaining local development.
l/ The Albanian Development Fundwas establishedby the Council of Ministers as the successor to the Rural DevelopmentFund (GovernmentDecision 427, September 8, 1994). - j; -
Envirommental Aspects: The project has been assigneda category "B" environmentalrating, and will be subject to environmentalanalysis, although adverse environmentalimpact is unlikely given the small size of subprojects financed. During the pilot project, environmentalguidelines and checklists were developed and implementedfor rural works subprojects.
Benefits: Direct and immediate benefits would flow from the 190 labor-intensiverural works, which would create about 550,000 man-days of employment, injecting badly needed cash resources into the economy. In addition, rehabilitation of infrastructure-roads, water supply, irrigation, schools, and health centers- would provide the environment for increased trade and market activity, and would improve the qualityof rural life. Direct benefits would also accrue to the 135 villages given access to small-scalecredit through village credit funds, and activitiesto support microenterpriseswould help restart small-scale agriculture processingand off-farm activities
Risks: The risks of the project are minimizedby its process approach, which provides for continuousfeedback and adjustment. Furthermore, project componentshave alreadybeen tested duringthe pilot phase. The rural works componenthas been shown to work well, and village intermediation has proven an effective mechanism to limit the risk of small-scale credit. Activities to support microenterprisesbegan only recently, but risks would be limitedby keeping the size of the componentsmall. The ADF has proven its ability to manage the program, although there is a risk in overloadingthe ADF with too many parallel projects financed by different donors. There is also a risk of political interference,which could increaseas the project grows in size. Managementand political risks would be minimized by paying special attention to project organizationand management,as well as to written proceduresand regulations.
EstimatedProject Cost:
USS '000 equivalent Project Component Local Foreign Total Percent Ruml Works 3,938 1,020 4,958 44 Small-Scale Credit 4,064 279 4,342 39 Promotion of Rurl Activities 92 289 381 3 Studies / Local Govt. Training 52 182 234 2 Implementation Support 990 304 1,294 12 TotalBaneCoes 9,135 2,074 11,209 100 Physical Contingencics 457 104 560 5 Price Contingencies 195 36 231 2 Total Project Costa 9,786 2,214 12,000 107 NOTE: Figure mnaynot total exactly due to rounding. - iii -
Financing Plan: US$ million equivalent
Local Foreign Total Percent Govenmment 1,100 100 1,200 10 IDA 5,610 390 6,000 50 Other Donors 3,076 1,724 4,800 40 Total Financing 9,786 2,214 12,000 100
Estimated IDA Disbursements:
US$ million equivalent
FY95 FY96 FY97 FY98 FY99
Annual 0.2 1.8 1.8 1.8 0.4 Cumulative 0.2 2.0 3.8 5.6 6.0
Poverty Category: Although not all project components contain specific mechanisms for targeting the least well off, it is expected, given the nature of the project and its components, that the population of project beneficiarieswould have a larger proportion of poor people than the population as a whole. Consequently, the project would be rated as "Poverty Category: Program for Targeted Interventions"in accordancewith the provisionsof OD 4.15.
Maps: IBRD No. 26120R(Albania country map, showingrural works and village credit funds financed by the Rural Poverty Alleviation Pilot Project as of June 15, 1994)
IBRD No. 26121R (Albania country map, showing Rural DevelopmentProject Districts)
ALBANIA RURAL DEVELOPMENT PROJECT
STAFF APPRAISAL REPORT
CHAPTER 1. ALBANIA'S RURAL SECTOR
A. INTRODUCTION
1.1 Revolution and reform have transformed Albania's rural population, changing some 400,000 collectivizedagricultural worker families into a new class of private land owners whose averageholding is a very small 1.4 ha per family. While these new farmers have great potential for productivity and incomegrowth, they face a daunting set of obstacles. Many of their tiny new holdings are too small to provide the food needed to feed a family unless credit is available to buy inputs and other supplies. Roads, water supply, irrigation systems, and other rural infrastructure, already in poor shape under the old government, were devastated during the revolution, while reforms have eliminated the rural organizations in charge of infrastructure development and maintenance. The network of economic infrastructure-input suppliers, transport, market and credit mechanisms-that was dominatedby state- owned enterprises is in disarray or has disappeared. In February 1993, the World Bank Board of Directorsapproved the Rural Poverty AlleviationPilot Project (US$2.4 million). Described as a "project of hope" by PresidentBerisha, it penetratedthe prevailingturmoil and economicinertia and reachedout to small farmers and entrepreneursin Albania's most remote villages. Pilot project results to date have been highly positive. The proposed Rural DevelopmentProject would financea core program to extend the activities commencedunder the Rural Poverty AlleviationPilot Project for three years.
B. RECENTECONOMIC TRENDS
1.2 EconomicCollapse. Albania is the poorest country in Europe with an estimated 1994 GDP per capita of about US$400 (at market rates). The recent emergence from forty-five years of strict central planning and self-imposed isolation has been accompaniedby a severe economic crisis. With no alternativeeconomic institutions in place, the abolishmentof central planning resulted in a collapseof productionunprecedented even for Eastern Europe: GDP fell by 40 percent from 1990 to mid-1992, the Government's budget deficit ballooned to 44 percent of GDP in the first half of 1992, and inflation spiraled to 10-15 percent a month. Once an agriculturalexporter, Albania becameheavily dependenton food aid.
1.3 Stabilizationof the MacroeconomicEnvironment. Shortly after the first fully democratic electionsin Albania in March 1992, the Governmentembarked on a comprehensiveprogram of reforms. In accordancewith a twelve-monthIMF stand-by arrangement, the Government's program included stabilizationmeasures and structural reformsto initiatethe move toward a market economy. The budget deficit was cut in half, strict monetary targets were enforced, interest rates were increased, and the automaticextension of bank credit to state enterprises was stopped. All food and agriculture prices were freed, save for four basic items, whoseprices were increased200-500 percent. The currency was floated, private exchange transactions legalized, and all current account transactions liberalized. Quick mobilizationof internationalaid supportedthe program.
1.4 After Government's adoption of this comprehensiveprogram of reforms in mid-1992, the macroeconomicenvironment stabilized: inflation fell dramatically,agricultural production increased, and the lek remained fairly stable. In June 1993, the Governmentadopted a medium-termeconomic program - 2 - in consultationwith the IMF and World Bankthat establishedan ambitiousprogram of reforms for 1993- 1996to further reduce financial imbalancesand bring about a structural transformationof the economy. In mid 1994, the Government assessed the initial implementationof its program and, in light of the positive results, adopted more ambitiousmacroeconomic objectives for 1994-97.
1.5 While further progress on a number of key structural reforms is still necessary, the macroeconomicstabilization program has reached-even surpassed-its principle objectives. Spiraling inflationhas been reversed (1994 inflationis estimatedat less than 15 percent, 1995 inflation is projected at 10 percent), the Government'sbudget deficit has been slashed(14 percent of GDP estimatedfor 1994, 12 percent of GDP projected for 1995), and the severe fall in production has been halted-1993 GDP growth was 11 percent and 1994 growth is estimated at 7.4 percent. The challenge now is to turn the early successof the stabilizationprogram into the developmentof a strong marketeconomy for Albania's 3.3 million people, 60 percent of whom live in rural areas.
C. MAIN FEATURESOF THERURAL SECTOR
1.6 Agriculture. Albania is predominatelyan agriculturalcountry: the sector's contributionto GDP was close to 35 percent during the 1980s and 41 percent in 1993. About 50 percent of the labor force is employedin agricultureand forestry.
1.7 The main food crops are wheat and maize; industrialcrops are led by tobacco, sunflower seeds, cotton, and sugar beets. Livestockaccounts for about half of the GDP added by the agriculturesector. The production of milk, mainly from cows but also from sheep and goats, has been the principal focus of livestock production, while meat has been seen mainly as a by-product of the dairy sector.
1.8 Agriculturalproduction fell drastically-by 20-30 percent-over 1989-91. Once a net exporter of agriculturalproducts, Albaniabecame heavily dependent on food aid. This decline resultedfrom many factors, including confusioncaused by the sudden dismantlingof agricultural cooperatives,uncertainty over the future of state farms, and scarcity of inputs. The agricultural sector achieved growth of 18 percent in 1992, 14 percent in 1993, and nearly 7 percent (estimated)in 1994. Shortagesof inputs and absence of adequate collectionand marketing systemsremain serious constraints. While Albania is no longer dependentof food-aid imports, it is far from attaining its former status as a net food exporter.
1.9 Geography. Albania is dominated by a north-southmountain chain encompassingalmost Table 1.1: Rural Land Holdings FoUowing 75 percent of the land area and largely unsuitedto the 1991 Land Reform agricultural cultivation. Arable land, some Average Holding per Family 700,000 ha, includesabout 320,000 ha of terraced (ha) (1993) land and uplandvalleys in the mountainouszones. Nationwide ...... 1.42 The old central planning system stressed income Coasa Districts ...... 1.56 equalization, using price subsidies to raise Mountain Districts ...... 1.15 incomes in disadvantaged agricultural areas. Agricultural cooperatives and state farms were charged for inputs and paid for production Sourre: Ministry of Agriculture and Food according to their location in a plains, hilly, or mountainarea. Thus, agriculture in the hilly and mountainareas was heavily subsidized. - 3 -
1.10 Scarcityof Land. The principal feature of the rural sector is the scarcity of land in relation to the rural population. The average farm size per district varies from 0.5 ha in Puke District to 2.6 ha in Kolonje; the nationwideaverage is 1.4 ha per family (see Table 1.1; a more detailed list is shown in Annex C). Althougha significantreclamation increased arable land from 400,000ha in 1950to 704,000 ha, populationgrowth-encouraged by governmentpolicy-has been even more dramatic, and the number of Albaniansrose from 1.2 million in 1950 to 3.3 million in 1990.
D. THE INPACTOF LANDREFORM: RETURN TO SUBSISTENCEFARMING
1.11 Until 1991 agriculturalproduction was dominatedby the cooperatives,which held 76 percent of arable land, and state farms, with 24 percent. Agriculturalinputs were distributedby state enterprises, and mechanizationservices were providedto the cooperativesby the state-ownedmachine tractor stations. The state ensured agriculturalmarketing and processing.
1.12 The Government began privatizing the cooperatives and distributing their land to cooperative workers in 1991; state farm privatization began in 1992. This land reform, which was essentially completedin 1993, led to the creation of over 400,000 small family farms. The average allocationof 1.4 ha per family, but in six of the thirteen mountaindistricts it falls below 1.0 ha, far below subsistence level. While the land reform was carried out rapidly and efficiently,nothing was done to provide the new private farmers with working capital, exceptto distribute, in a very uneven way, the assets of the cooperatives. Thus, many farms still lack basic tools and inputs.
1.13 Similarproblems exist on the marketingside. Althoughthe state collectioncenters (Grumbullimi) still exist, very little private wheat production has been delivered to them since 1992. Becauseof the small size of plots and the uncertain economic and institutional environment, many farmers are subsistence-orientatedand prefer to keep their wheat and make their own bread.
1.14 The impact of the land reform was, therefore, a regression toward subsistencefarming. Three steps must be taken to encouragethe transition to a market economy:
(a) Employmentoutside of agriculture must be created to provide incometo rural families and reduce their dependencyon their farm plots so that a process of consolidationinto more economic units can begin;
(b) Credit must be made available to provide rural households access to the capital they need to develop both on- and off-farm enterprises; and
(c) Rural infrastructuremust be reestablished;this must includethe developmentof a new rural market structure.
E. TIlE SAFErYNEr IN RURALAREAS
1.15 Albania, like other former socialist countries in Central and Eastern Europe, had an extensive social security system prior to the transitionto a market economy:employment was guaranteed, wages were set to reflect equity considerationsrather than efficiency, prices of essential commoditieswere highly subsidized,the health and educationsystems provided universal coverage, and most people were eligible for pension, sick pay, maternity allowances, and other benefits. The collapse of the former system in 1989-91and structuraladjustment reforms initiatedin 1992have resulted in the need to develop - 4 - a new social safety net scheme in order to shield the most vulnerable population groups from the unavoidablecosts of adjustment.2
1.16 Until recentenactment of comprehensivelegislation for Ndihm2Ekonomike (economic assistance), the Government'sapproach to social assistancewas piecemeal. The largest programs-a sheltered wage scheme3 in effectuntil July 1992 and unemploymentcompensation enacted in late 1991-mainly targeted the ex-workers of state-owned enterprises and state farms. Because these groups constitute a lower percentage of the rural mountain population than elsewhere, the rural population benefitted disproportionately less from these programs. Ex-workers of agricultural cooperatives, which predominatedin rural mountainareas, were assumed to have received land. In reality, however, many ex-cooperativeworkers in rural mountainareas receivedplots inadequatefor subsistence, almost all lack inputs and basic tools, and some remain landless.
1.17 Recognizingthe vulnerabilityof the rural mountain population, the Government developed in 1991 a land-based income support scheme for farm families in hilly and mountainous areas with inadequatelandholdings. The land-basedcompensation scheme expired when a new, comprehensiveLaw on Social Assistance (No. 7710) went into effect on July 1, 1993. The Ndihme Ekonomike is administeredby municipalitiesand communes, funded by a block grant from the central budget. While Ndihm, Ekonomikeprovides a unified legal framework for social assistance, the law does not broaden the number of social assistancerecipients in rural mountainareas.
1.18 Clearly, Albania's budget resources are too meagerto provide subsidiesfor an extendedperiod; a significantchange in the socioeconomicsituation of the people living in the mountainareas is necessary. Programs are needed that combine poverty alleviationwith economic developmentwhile moving away from pure subsidy programs.
F. LOCALGOVERNMENT IN TRANSITION
1.19 In Albania's former commandeconomy, the "local" level of governmentamounted to little more than the local administrative arm of the central government, with no independentfiscal or legislative authority. Starting in mid-1992, Albania began reassessing the relationship between central and local government. Ultimately, significant political and administrative authority may be delegated to local government.
1.20 There are three levels of elected governmentin Albania:(a) the central government, (b) districts, and (c) bashkis (urban municipalities)and communes. Municipalitiesand communestogether constitute the basic unit of local government.4 In September1992, Parliament enactedlegislation providing for the election of village chairmen, who, while not members of commune councils, are responsible for articulatingvillage needs to those councils.5
2/ Family members working abroad constitute an informal, but important, social safety net. An estimated 300,000 to 340,000 people send home some US$300-400 million annually.
2/ Although many state enterprises ceased to function, idle workers continued to receive obligatory guaranteed payments.
4/ Communes and municipalities are comprised of one or more small towns or villages.
5/ There are currently 2,896 villages. 1.21 The June 1992 Law on the Functioning and Administrationof Local Government (No.7572) reorganizedand gave greater powers to local governments, especiallyto municipalitiesand communes. The number of districts was increasedfrom 26 (in 1990) to 36, 44 municipalitieswere created, and the 530 "joined villages" were replaced with 318 communes. The first local elections-electing municipal councils and their chairmen as well as commune councils and their chairmen-were held on July 26, 1992.
1.22 The Law on Prefectures (No.7608), promulgatedon September 22, 1992, establishedthe legal basis for an additional administrative layer responsible to the central government; prefects will be nominatedand dischargedby the Councilof Ministers. Accordingto the law, prefectureswill coordinate central government programs at the local level and oversee the legislative decisions of districts, municipalities,and communes, althoughtheir precise responsibilitiesand powers are still not clear. The Councilof Ministers passed a decision, on July 26, 1993, on the compositionof prefectures in Albania, creating twelve prefectures, each containingbetween two and four districts.' There is a variance in the population of each prefecture, and the scheme takes into account local customs and the ability to communicatebetween the areas of the prefectures.
1.23 There are still many issues of local governmentremaining to be resolved, includingcoordination between line ministries and local government; local finance; and establishment of policies and responsibilitiesof localgovernment in education,health, social assistance,privatization, judicial function, and other areas. Redefiningcentral and local governmentroles is an ongoingprocess. What is already clear, however, is that local government, having no previous experience in market-economy administrationand few resources, is ill equipped to handle the responsibilitiesbeing transferred and delegated. Local officials are coping with augmented responsibilities, inexperienced staff, limited financial resources, and growing needs.
G. DETERIORATIONOF RURAL INFRASTRUCTURE AND NATURAL RESOURCES
1.24 The cost/efficiencyratio of public investment under the previous system was low for several reasons. A lack of financial evaluation and cost-plus reimbursementfor projects led to expensive and capital-intensivetechnical designs. Compulsory labor led to low execution standards, while the state enterprises carrying out the projects had high administrativecosts and margins. A scarcity of budget resources stretched the entire investmentprocess, and led to poor maintenancethat was exacerbatedby a lack of user interest in preserving what was seen as state property and a minimal investmentin the protection of natural resources.
1.25 The already poor rural infrastructurewas severely damagedduring the unrest in 1990, and there was considerablescavenging of materials for private use. The present situation can be summarizedas follows:
Roads: Albania has approximately 10,000 km of rural dirt roads connecting villages and communes, most of which need to be rehabilitated. Some roads are seasonal and cannot be used in winter, although they are essential to the village inhabitants and for the development of effectiverural markets. These roads were previouslya village responsibilityand were maintained with bulldozers from the now-defunctcooperatives.
6/ The Council of Ministers also designated 10 million Leks for prefectures for 1994. Total prefecture staff will be 180, 15 per prefecture. - 6 -
WaterSupply: A national village water supplyscheme was begun in the 1980swith the goal of supplying all villages one tap per 60 people by 1992. All but 400 of some 2 700 villages now have systems, but a third of these systems need rehabilitation or extension.
Energy: While rural areas were electrified20 years ago, power per household is limited to 200 watts, which is only enough to provide light. About 25 percent of Albania's 30 000 km electricity network has been destroyed. Besides immediaterepair of the electrical network, the system's capacity needs expansion.
Irrigation: Irrigation infrastructure, which includes 313,000 ha that have been distributed to private farmers, is one of the agriculturalsector's most important capital assets. Here, also, the dissolution of the cooperatives created an organizationalvacuum. The subsector needs to be rehabilitated, adapted to the new land structure, and reorganized on the basis of water user associations.
Telecommunications.Albania has 1.4 telephonesper 100 inhabitants,compared with 10 per 100 in Hungary and 38 in Greece. While each village had at least one telephone, a large part of the network was destroyed during the land reform, because farmers used telephonewires to fence their new property boundaries. At least 1,000 villages no longer have telephone access.
Schools: Most of the schoolsin the rural areas are in poor physical condition. Moreover,during the unrest in 1990, around 875 village schools were damaged and about 50 burned, while in urban areas the destructionwas limited.
Market Infrastructure: Most cooperativebuildings have been destroyedand there is a great need for small marketplaceswith adequatefacilities for live animals and perishables, such as stalls, weighingstations, and cleaning equipment.
Afforestation: Forests cover 1 million ha, 48 percent of Albania's land area. Forests close to villagesprovided fuelwoodand timber for the villagesunder the supervisionof the cooperatives, which controlled some 60 percent of the forests. Since the dissolutionof the cooperativesthere has been no control over farmer wood cutting.
1.26 Repairing and rehabilitating rural infrastructure is both, thus, an urgent necessity and an employmentopportunity for the rural population.
H. RURAL CREDIT
1.27 The emergenceof commercialbanking institutions, as separatelegal entities with a customer base and staff separatefrom the Central Bank, is a recent phenomenonin Albania. The Bank for Agriculture and Development (BAD) was created by Law No. 7520, dated October 16, 1991. Following its emergence, however, BAD largely maintainedits role as payment mechanism for transferring budget resources to state enterprises, and for clearing payment between them. In effect, credit has not been availableto small farmers. Most traders, farmers, and small entrepreneursseeking credit borrow from family or friends.
1.28 The rural credit system is presently being restructured. The GOA recognizes that the development of a rural financial system adapted to a market economy and the provision of credit for farmers and other private entrepreneursis a key priority, and is followingtwo parallel approaches. First, - 7 -
supportedby the IDA AgricultureSector AdjustmentCredit, it liquidatedthe insolventBAD and created the new Rural CommercialBank (RCB)to provide loans under market conditionsto private farmers and farmers' associations, agroprocessingand transport enterprises, traders, and other rural entrepreneurs through a network of branches and agencies. The RCB's operations began on October 1, 1993. The privatizationof RCB is presently being studied. Second, the GOA supports the creation of decentralized village-basedcredit funds that offer small loans to individualfarmers and other small-scale enterprises in rural areas. These village funds provide the basis for the future developmentof a network of a private cooperativebanking sytem.
CHAPTER Il. THE GOVERNMENT'SRURAL POVERTYALLEVIATION PROGRAM
A. OVERALL STRATEGY
2.1 The October 1992 World Bank-EC report "An AgriculturalStrategy for AlbaniaNidentifies the main short- and medium-termmeasures required in price and trade policy, land market, privatizationof the state farms and state enterprises, and rural finance.7 The Government has endorsed the report's analysis,and to complementthe policy changescalled for in the strategy, is formulatinga comprehensive rural developmentapproach aimed at rebuildingthe rural economy - on a free-market basis-from the bottom up. The program has emphasizedpoverty alleviation.This rural development approach seeks to integrate and improve the programs already in place and develop and implementnew programs to fill in the gaps while assisting farm families through a difficult transition process. The strategy focuses on:
' Actively alleviatingrural poverty: The first challengefor the Governmentin the rural sector is to develop employmentand food production. Even if emigrationprospects improve and the services sector expands,the rural sector will have to absorb a large part of the Albanian labor force for at least the next few years. Given the very high land/labor ratio, this means the developmentof off-farm full- and part-time activities.
* Restoringfood security:While Albania is giving no considerationto returning to its old policy of food self-sufficiency,it recognizes that incentive mechanisms, adequate physical infra- structure, and working food processingand transport systems must be establishedto restart the food production and marketingchain. Price and tariff policiesthat will addressthe problem at a macroeconomiclevel must be supplemented with programs that help small farmers intensify production of cereals and other basic foods to cover their own needs and produce surpluses to feed the cities. A significantfactor in this process will be the injection of cash resources into the rural economy.
* Promotingthe smallprivate sector: Privatizingstate enterpriseswill require time, capital, and managementcapabilities. Privatizationmust be complementedby a self-employmentpolicy that helps people not to fall out of the employmentmarket so that they have to be supported by the safety net. This policy would help prepare for the coming market economy in which most of the services up- and downstreamof agriculture will be private.
7/ The IDA-financed Agricultural Sector Adjustment Credit is focusing on implementing the corresponding sectoral policies supported by a hybrid loan that includes a quick disbursing component and a component allocated to agricultural credit. * Strengtheninglocal governments: The main weaknessof the newly created communesis their lack of financial resources and experience in financial and economic management. Making financial resourcesavailable for infrastructureinvestment responds to their immediateneeds; technical assistance and training will introduce improved approaches to project evaluation, investmentfinancing, and implementationand maintenance.
* Rooting rural development policies in local tradition and culture: For 45 years local governancetraditions were purposely pushed toward oblivion in favor of collectivistdogma that have now been discredited. The credibilityof the rural developmentpolicy dependson its capacity to merge local culture and new orientations coming from the West.
2.2 This rural developmentstrategy calledfor creatinga transition institutionthat would establish and direct labor-intensiverural works and provide small loans that meet the needs of the poorest part of the population, while the Rural Commercial Bank expands its activities for larger loans. The Rural DevelopmentFund (RDF), described in paras. 3.2 and 5.2, was created for this purpose.
2.3 The main componentsof the program consist of demand-drivenrural works for rehabilitationof basic village infrastructureand small credits for any type of income-generatingactivity via village credit funds. The overall developmentof Albania's financial sector is being supported by the Enterprise and FinancialSector AdjustmentCredit, which was approved by the Bank's Board of Directors on August 2, 1994 to support the restructuring and privatization of the banking system and the continued privatizationof the industrialsector. The village credit fund networkfills a niche-providing micro loans to the poorer farmers who lack access to commercialbanking institutions-that is best served through a decentralizedapproach based on village solidarity. A low size limit on individualsubloans from village credit funds effectivelytargets them to the poorest farmers, eventually creating future clients for savings and commercial banking institutions, which are expected to provide larger loans to farmers and microentrepreneurs.
B. METIODOLOGY:A PARTICIPATORYPROCESS APPROAChI
2.4 The Government'srural developmentprogram is being implementedin a phased way as follows:
Phase 1: Pre-pilot phase (August 1992-April1993). Fundingfrom the UNDP (US$200,000)and from Freres d'Esperance (US$20,000), a French NGO, was used to finance the first village and farm surveys and to test organizationaland technicalapproaches for ten rural works projects and seven village credit funds.
Phase 2: Pilot phase (effective April 1993). The on-goingRural Poverty Alleviation Pilot Project is financedby IDA (Credit 2461-ALB, US$2.4 million equivalent)and the EU (about US$1.85 million). An Italian Government grant of US$2.35 million subsequently augmented the program to US$6.6 million total. Under this pilot phase, the Rural Development Fund, subsequentlytransformed into the Albanian DevelopmentFund, was establishedby special decree of the Governmentas an autonomousagency, and about 225 rural works projects and 75 village credit funds are being implementedin Albania's poorest mountaindistricts.
Phase 3: Full-scaleproject. The proposed full-scaleprogram, which would amount to US$22 million over three years, accordingto cofinancingavailable, would extendthe project to all rural areas with priority given to the poorest villages and communesfor the labor-intensiverural works. Within this program, the core project-the subject of this SAR-amounts to US$12 million; - 9 -
it would provide the basis to extend ADF activity for three years, which could be augmented with supplementalcofinancing.
2.5 This process approach allowsthe program to be adjustedto local needs and constraints as lessons drawn from each phase are used to prepare the next one. It also allows for-in fact encourages-participation by local people and institutions. During the pre-pilot phase, the organization of the rural works and the village credit fund concept were worked out in continuous dialogue with communeand village representativesto maximizetheir chances of success. This included contractual arrangementsbetween communes, village councils, and the Rural Commercial Bank that define their responsibilitiesand the relationship between them and the project.
C. THE FuLL-SCALEPROJECT: A MODULAR APPROACH
2.6 The full-scaleprogram, which would amount to US$22 million over three years, would finance 375 rural works and establishmentof about 300 village credit funds, and would extend to all rural areas of Albania (excludingthe four districts supported by the IFAD-financedNortheastern Districts Rural Development). Full-scaleproject costs are shown in Table 2.1.
Table 2.1: EstimatedFull-Scale Project Costs Component US$ million Percent Rural Works 9.9 45 Small-Scale Credit 7.5 34 MicroenterpriseSupport 1.1 5 Studies and Local Gov't Tmaining 0.9 4 Implementation Support (Albanian Development Fund) 2.6 12 TOTAL 22.0 100
2.7 The full-scale program lends itself easily to a modular approach-project area and component intensity would be increased incrementallyin accordance with financing resources, and actual program size could range from US$6.0 million to US$22.0 million. A modular approach worked well during the pilot phase; supplemental cofinancing from the Italian Government was used to finance new project districts. Similarly, cofinancingin excess of the US$4.8 million requested for the Rural Development Project would be used to expand and intensify project component activity. Conversely, if less that US$4.8 million cofinancingis secured, the program could be scaled back.
D. RATIONALE FOR IDA INVOLVEMENT
2.8 The project is basically an extension of a successfulpilot phase. It reflects the development priorities formulated in the Country AssistanceStrategy (CAS) for Albania, as discussed by the Board in August 1993, by addressingpoverty and privatization. The CAS called for "a flexible strategy that responds quickly to new informationwhile maintainingan overall frameworkthat promotes (i) stability; and (ii) new entrepreneurshipand private initiative." The project's small-scalecredit and microenterprise support componentswould assistin developingnew entrepreneurshipand privateinitiative, while the rural works componentwould enhance stability by providing immediate and visible results. The project's approach is flexible, allowing componentsto be adapted to Albania's changing environmentduring the transition period.
2.9 The project would complement on-going IDA-financed projects in Albania. It provides a complementarymicroeconomic and social approachto the IDA-supportedAgriculture Sector Adjustment - 10 -
Credit, and it addresses the need for rapid interventionduring Albania's transition to a market-based economy, compatible with short-term macro stabilization. The rural works component would also complement,and is being coordinated with, three other IDA-financedsectoral projects: the proposed Feeder Roads Project, the proposed School RehabilitationProject, and the proposed Health Services RehabilitationProject. The Feeder Roads Project, for example, would finance more expensive regional roads comparedwith the local dirt roads includedin this project. In the case of school and health center rehabilitation,the sectoralprojects are aimedprimarily at non-mountainousareas that are more conducive to large-scaleintervention. There is therefore no overlap of significancewith these projects.
CHAPTER III. LESSONS FROM THE PILOT PHASE
A. OVERVIEWOF PILOT PHASE AcTrIVTIES
3.1 Summary. The Rural Poverty Alleviation Pilot Project became effective on April 26, 1993, followingsix monthsof pre-pilotactivities and during a time of continuedeconomic upheaval in Albania. Despite the difficult conditions, experience under the project has been very positive to date, and preliminaryfindings and conclusionsof an OED performanceaudit are highly positive.8 As of December 1, 1994, 155 labor-intensiveworks subprojects in 21 districts have been financed (half of which are completed)at an averagecost of US$17,780per subproject, and 59 village credit funds (VCF) have been establishedin sevendistricts to disburse smallloans (averagesize US$350)for income-generatingactivity. Under the credit program, over 2,600 small credits have been granted, and loan recovery, which commenced in November 1993, has been 100 percent to date. About 800 subloans (30 percent of outstandingsubloans) are in the process of being repaid, and 72 subloans have been entirely repaid. In addition, activitiesto transfer technology(microenterprise support) are now being incorporatedunder the pilot project. Two agroprocessingdemonstration projects are being prepared, one of which is expected to becomeoperational in 1995. A project impact (beneficiaryassessment) study, which was carried out in twenty-one villages from March-May 1994, confirms that the project is viewed very positively by beneficiaries. Pilot project activitiesas of December 1, 1994 are summarizedin Table 3.1.
Table 3.1: Breakdown of Pilot Project Costs, as of December 1, 1994
Activity Disbursed Percent (Lek '000) of Total
Rural Works-155 subprojects in 21 districts 174,094 54% Small Credit-59 village credit funds in 7 districts 82,797 24% 2,647 subloans disbursed, 100% repayment Training and Studies 7,055 2% Equipment and Office Rehabilitation 28,781 8% Technical Assistance 27,871 8% ADF Operating Costs 28,749 8%
Total 349,346' 100% Approximately USS3.5 million.
8/ An OED mission was undertaken from June 6-10, 1994 in order to evaluate the pilot project prior to the appraisal of the full-scale project. The PPAR is expected to be presented to the Board of Directors in February 1995. - II -
3.2 The Rural DevelopmentFund. It was decidedduring the preparation and appraisalof the pilot project that the Rural DevelopmentProgram would be best implementedby an autonomoustransition agency, parallel to the governmentstructure. At that time, however, no law on foundationsexisted in Albania. Consequently,the Rural DevelopmentFund (RDF) was establishedby GovernmentDecision No. 12 (January 9, 1993) as an autonomousagency responsiblefor the implementationof the pilot and full-scale project. The RDF's decree granted it juridical personality with the authority to enter into contracts,and with administrative,technical, and financial autonomy. Overall RDF policy was governed by a Board of Trustees, chaired by the Deputy Prime Minister. An Executive Committee,formed by the RDF ExecutiveDirector, the Finance Director, and the Heads of Departments,was responsiblefor RDF management.
3.3 The Manual of Proceduresand Internal Regulationswere approvedby the Board of Directors at the time of their first meeting on March 5, 1993. Internal Regulationswere amendedin May 1994, and the Manual of Procedures was revised in February 1994. The Manual of Procedures was amended in January 1995 to incorporate new aspects of the project. The Manual of Procedures is shown in Annex D.
3.4 Project Costs and Disbursement. From April 26, 1993 to December 1, 1994, project disbursementstotal US$2.3 million (89 percent)of IDA funds and US$1.6 million (69 percent) of Italian trust funds. Disbursementof IDA funds has been substantiallyhigher than appraisal estimates, which forecast that US$1.2 million would be disbursed by June 1994 (total credit disbursement over thirty months). Project disbursementswould have been higher had it not been for periodic shortagesof funds in the Special Account and delays in cofinancing. The funding delays continueddespite an increase in the IDA Special Account from US$300,000 to US$500,000 following an amendment to the Credit Agreementon September30. Actual project operationalcosts have been lower than appraisalestimates, which allocated20 percent for RDF equipmentand recurrent costs and 13 percentfor technicalassistance (these figures do not include the extra twelve months of operational costs that were budgeted into the project). Pilot project componentcosts estimatedat appraisaland those projectedfor project completion are shown in Table 3.2.
Table 3.2: Piot Project Costs, AppraisalEstinates and ProjectedFinal Costs
Appraisal Projected Final Estimate Percent Project Costs Percent (US$'000) (US$'000)
A. Rural Works 1,590 33 3,365 51
B. Small Credit 750 16 1,650 25 C. Studies, Technology, and 366 8 250 4 Training
D. Equipment for ADF 369 8 300 5
E. Veterinazy Equipment n/a 0 280 4 E. Recurrent Costs 674 14 420 6 F. Technical Assistance 1,016 21 345 5 TOTAL 4,765 100 6,610 100
3.5 Cofinancing. The RPAPP has proven to be highly replicablewithin Albania and a magnet for attracting foreign aid to Albania. On December 3, 1993, the International Fund for Agriculture - 12 -
Development approved the Northeastern Districts Rural Development Project (NDRDP), most of which will be implemented through a northeastern branch of the ADF. The project, which was declared effective on April 19, 1994, amounts to US$18 million over six years, of which US$13 million will be used for ADF activities in the districts of Diber, Kukes, Has, and Tropoje; separate new activities are therefore not needed in these districts. The World Bank is the cooperating institution.
3.6 Also, in May 1993 the Italian Government expressed its interest in cofinancing the RPAPP. Following the conclusion of an Administrative Agreement between the Bank and the Italian Government on November 23, 1993, and the signing of a Grant Agreement between the Bank and the Albanian Government on March 23, 1994, an Italian trust fund has been established at the World Bank for the disbursement of approximately US$2.35 million in Italian funds for ADF activities as an extension to the pilot phase.
3.7 An urban counterpart to the RPAPP is also being developed. The proposed Urban Works and Microenterprise Pilot Project, which was appraised by the World Bank in April/May 1994, would test urban works, small credit, and microenterprise support in selected municipalities for twenty-four months. A "pre-pilot" phase has already started using funds from the Japanese Government, the UNDP and a Swiss NGO.
B. RURAL WORKS
3.8 Under the RPAPP, the ADF Infrastructure Department has (a) developed rural works methodology; and (b) organized and financed 155 infrastructure rehabilitation subprojects.
3.9 Component Methodology. A demand-driven program methodology was developed whereby villages select subprojects according to their needs, and in accordance with criteria established by the project: economic and social impact; degree of labor intensity; and potential contribution to local institution building. The types of projects that meet these criteria are: (a) rehabilitating communal dirt roads, (b) repairing or extending water supply systems, (c) rehabilitating small village irrigation schemes and adjusting them to the new landownership structure, (d) repairing and rebuilding schools and health centers, and (e) establishing new market facilities.
3.10 Once a village selects a subproject, the commune and the village work together in preparing project cost estimates and work plans, which are presented to ADF staff. If the subproject is approved by the ADF and by the district (to ensure its compatibility with national programs, especially for schools and health centers), a contract is signed with the commune defining the work program, timing, cost estimates, and future maintenance. Where relevant, users associations and/or maintenance funds are created to ensure adequate maintenance of the rehabilitated infrastructure for the first few years after its completion. Supplies and contractors are selected by the communes using local bidding or shopping. In the absence of local construction contractors, which has been the case so far, the communes directly recruit unskilled laborers from the village's poorest families for rehabilitation work.
3.11 The commune receives periodic disbursements in accordance with the progress of the work being carried out, and the work is closely supervised by project engineers. Commune technical staff receive appropriate training in works planning, costing, and implementing in a market-economy environment. - 13 -
Table 3.3: Rural WorksSubprojects Underway or Completed(as of 12/1/94)
Type Number Quantity Beneficiary Subproject Percent of Rehabilitated Population Costs (Lek) Total Costs
Dirt Roads 73 212 km 90,700 151,285,000 68
Potable Water Supplies 22 50 km 13,100 24,380,000 11
Schoots 24 4,504 m2 25,200 15,391,000 7
Health Centers 22 5,090 m2 73,800 15,925,000 7
Irrigation Schemes 7 465 ha 5,800 11,992,000 5
Foot Bridges 6 391 m 6,000 2,610,000 1
Telephone Line 1 17 km. 5,700 1,760,000 3
TOTAL 155 a/ 220,300 223,346 ,000 b/ 100
a - 76 subprojects are completed. Total does not include 7 subprojects undertaken during the pre-pilot phase. b - Approximately US$2.2 million-represents funds disbursed and fund committed.
3.12 Subprojects. As of December 1, 1994, 155 rural works subprojectshave been started in twenty- one districts (typesof works are shown in Table 3.3). A total of 76 subprojects (about 50 percent)have been completed. (In addition, seven projects were started and financedduring the pre-pilot phase.) The rehabilitated infrastructure is directly benefitting a population of 220,000, and corresponds to about 490,000 days of employment(wages have averaged 30 percent of subproject cost).
3.13 Averagesubproject cost is US$17,780, ranging from US$1,900 (for a foot bridge) to US$28,000 (for rehabilitating a water supply system). Low unit costs demonstrateADF's tight budgetary control: rural roads have averagedUS$7,000 per km, and buildingshave averagedUS$33 per m2.
3.14 Conclusion. Experience with the rural works component has been very positive: the methodologydeveloped during the pilot phaseworks well and subprojectsare makingconsiderable impact at the village level. Project feedbackis being used to continuallyadjust and improve procedures. As an increasingnumber of subprojectsare completed, more attention is being granted to assuring proper use and maintenanceof the infrastructure
C. CREDITPROGRAM
3.15 Under the pilot project, the ADF Credit Departmenthas (a) developed and tested a system to provide small loans for income-generatingactivity via "village credit funds;" and (b) establishedand funded 59 credit funds.
3.16 ComponentMethodology. A village credit fund (VCFs) is a revolving account that is made availableto a villagepopulation for small loans for income-generatingactivity. It is depositedin the local branch of the Rural CommercialBank (RCB). The VCF is managed by a village credit committee (VCC), which is comprisedof three elected village members; representativesof RCB and ADF are ex- officio members. The VCC decides on credit allocations,defines collateral, and controls the repayment of loans, while the RCB keeps accounts and handles money. - 14 -
3.17 VCF size depends on village population. On average, however, VCFs total US$20,000, and funds are typically delivered to the village in two or three tranches. The maximum loan duration is three years, and interest must be repaid at a minimum of once per year. Maximum loan size is US$500 equivalent (in exceptional cases, they may be up to US$1,000 equivalent). Loans are fixed to the US dollar at the time they are granted and are repaid in US dollar equivalent (to capture inflation) plus 6 percent in transaction costs to reimburse the RCB, ADF, and VCC, and provide for an emergency fund to help borrowers facing exceptional repayment difficulties.
3.18 Loan security is maximized by bringing loan decisions to the village level, where they are Tabk 3.4: Credits Disbursedper District made by neighbors who know potential creditors (as of 12/1/94) and who provide social support for timely District No. of Credits repayment. As an added security, in the case of Diber. . . 118 repayment defaults, all credits to the village may Elbas n .. 1,366 be stopped. Gramsh.. . 460
3.19 VCFs Created. As of December I Kruje.197 1994, 59 Village Credit Funds (VCF) have been Tbiranzd . . 55 establishedand funded in seven districts: Diber, Vira .. 117 Elbasan, Gramsh, Kruja, Librazhd, Tirana, and VTor a .. 117 Vlora. A total of 2,647 credits have been Totl.2,647 granted, amounting to Lek 88,153,041, or about US$881,000 (see Table 3.4). A total of 72 subloans (3 percent) have been completely repaid and 798 subloans (30 percent) are in the process of being repaid. Loan recovery, which began in November 1993, continues to be 100 percent or above, with no late payments and some payments in advance. A total of lek 15,478,768 (about US$155,000) have been repaid (Lek 13,994,457 of capital, Lek 1,484,311 of interest).
3.20 Loans average US$350 and range in length from nine months to almost three years, depending on the activity financed. There has been a continual diversification of activity-during the first three months of the pilot project (April-June 1993), 97 percent of credits were used to purchase livestock. The overall use of credits is shown in Figure 3.1.
Figure 3.1: Use of Credits (As of December 1, 1994)
Draft Animals-17% AgricufturalInpuls - 8%
- ..'A.. Mechanization- 7%
/ / Crafts& Services - 4%
Livestock - 59% - - 15 -
3.21 Conclusion. The credit delivery system that was designed during the pilot project with the participationof the beneficiariesof 59 villages is adaptedto the needs and constraints of small farmers, and the system is also-as demonstratedby the high level of loan reimbursement-effective in reducing risk. Having establisheda working credit delivery system, several issues, includingthe following, are now being addressed in order that the system becomes eventually a sustainablecredit/savings network based on a Raiffeisenmodel:
(a) At the beginning of the pilot phase, at a time of high inflation and disorganizationof the county's financial markets, it was decided to peg loan capital to the dollar (to capture inflation)plus 6 percent interest to cover transactioncosts. The unforeseenstability of the lek, in the face of inflation, has resulted in relativelyfavorable terms for the borrowers, and the interest rate now needs to be gradually adjusted to a lek-based rate (para. 4.8).
(b) During the pilot phase, the accountingand administrationof funds was performed by the Rural CommercialBank, which received 2 percent for its services. The evolving nature of the credit program and the poor performanceof RCB branches calls for the establishment of a different loan managementand accountingsystem (Annex F).
(c) Savingsmobilization, which shouldbe gradually introducedduring the next phase, requires a clear legal status for the VCFs; while an acceptableinterim legal framework now exists (the FoundationLaw), steps are now being taken to establishan appropriatelegal framework for the cooperatives(para 4.9).
D. TRANSFEROF TECHNOLOGY
3.22 Preparation for the transfer of technology-establishing small agroprocessing demonstration projects in priority sectors-began in late 1993. Three projects were included in the pilot project, one of which-a goat cheese production/demonstrationunit-is expectedto be fully operational in 1995.
3.23 Tregan Goat Cheese Unit. A goat cheese production/demonstrationfacility, which will introduce new technologyand demonstratenew systemsof supply and marketing, is being organized in Tregan Communeof ElbasanDistrict. A buildingto house the cheeseprocessing machinery was recently rehabilitated under the supervision of the ADF Infrastructure Department at a cost of approximately US$21,000. The building will remain the property of the commune, in accordance with procedures applied to rural works subprojects. Equipment, valued at approximatelyUS$15,000, is now being put into place to process about 500 liters of goat milk daily. Both the building and the equipmentwill be rented for one year to a seven-farmerassociation created under commercial law (since cooperativelaw does not yet exist in Albania). After the rental period, which will allow for experimentationand training, the equipmentwill be sold to the association. Marketing of the goat cheese will be organizedin Elbasan and Tirana with the technicalsupport of ADF.
3.24 The two other projects consist of fruit processing in Diber District and olive oil processing in Vlore District. Althoughtransfer of technology is relatively easy in itself, the subprojects have faced institutionaland legal problems typical of a transition period. - 16 -
3.25 Conclusion. The experienceof the pilot project indicatesthat considerablecare shouldbe taken before the componentis expandedunder the full scale project. While the conceptremains excellent,the implementationcapacity in Albania to this kind of approach is clearly inadequate. Financing of such schemesshould preferably be directed through the village credit fund.
E. PROJECTIMPACT STUDY
3.26 A project impact study was carriedout in April and May 1994 in twenty-onevillages selected in five districts-Elbasan, Gramsh, Kruje, Librazhd, and Diber. The sample includedfifteen villages that had experiencedADF intervention(eleven for rural works, seven for credit), and six villages that had not experiencedADF intervention, which served as a basis of comparison. The study was carried out by a team of nine locally recruited investigatorsunder the direction of the ADF StudiesDepartment and with the assistanceof two consultants.
3.27 Overall, the study confirms that the project is viewed positively by project beneficiaries. The results are summarizedbelow.
3.28 Regarding credit:
S Credit granted to poor families (average annual gross income of about US$100 per family member)has been typically used for short-term productive investment, such as purchase of small ruminants or agricultural inputs, that results in offspring or improves agricultural production, thereby ensuringfamily subsistence. The credit increasedfarm incomeby 15 to 70 percent, much of which represents increased milk or food consumed by the family; it helped to prevent poor families from falling into a vicious circle of poverty, whereby assets are sold to provide for basic family needs. Credit has also had an important psychological impact, because it has allowedthe farmers to elaborate plans for future developmentof their economicactivities.
* Credit granted to better-offfarmers (averageannual gross incomeof about US$320per family member) has been typically used for buying cows or draft animals or for making more substantialinvestments partly financedby the farmer's own resources. The increaseof gross income varies between 30 to 50 percent. The maximum level of credit (US$500)is already insufficientfor this categoryof population.
3.29 Villages that have received credit indicate the following results:
* Improved agriculturalequipment (small tractors and draft animals);
* Greater diversification of economic activities; access to credit encouraged new ideas for income-generatingactivities (such as trade and services), often benefitting the whole community;
* The number of livestockhas increasedin the poorer villages; while this has helped alleviate poverty, it could lead to overgrazingof pastures in some areas;
* The attitude of individualfarmers towards moneyand their vision of the future is substantially changed (the conceptof investmentwas unknownfor forty years), and their risk aversion has been reduced; - 17 -
* Farmers indicate that credit makes them less dependenton the state than social assistance;
* Migration in villages that received credit is reduced; and
* Creation of village credit committees has been an important step for rebuilding village solidarity and local democracy.
3.30 As regards infrastructure:
* Each subprojectemployed an average of 42 people (rangingfrom 11 for school rehabilitation to 120 for roads);
* The rural works succeeded in reaching the target population: wages paid for village labor benefittedthe poorest families in the village. The wages, which averagedUS$68 per worker, represented30 to 40 percent of annual incomeand contributedto family subsistencebut did not lead to savings.
* Infrastructurerehabilitation had an important psychologicaleffect on the village: it helped to restore a sense of village community,public interest, and confidencein the future by breaking individualisticand ultra-conservativebehavior. Committeesand maintenancefunds have been created by the users of the infrastructure,but follow-up is required to assure they function well.
e Rural works reinforcedthe dialoguebetween the village and the communesand initiateda first step in local planning by defining local priorities.
3.31 The impact has varied dependingon the type of infrastructure:
* Health centers have had an immediateeffect and are very much appreciatedby the population. The Governmentfaces, however, some difficulties in covering recurrent maintenancecosts.
* Schools are likely to have a long-term impact. Most of the population attaches great importanceto education,although some individualshave complainedabout the time spent by children at school rather than tendingto livestock.
* Water supply improvementshave reduced the need for medical care for intestinalinfections as well as the time spent by women for transporting water. In some cases, they have also allowed for irrigatinggarden crops and improvingsome artisanal productions,such as cheese and raki (a local alcohol).
* Roads are viewed by beneficiariesas having the most important economiceffect by breaking the isolation of the villages. Traffic has increased, and several people in the villages have bought a means of transport or have started new commercial or service activities. Local production is now bought by traders who can enter the village to make purchases, as well as to bring basic consumer items. Synergy between road rehabilitation and credit seems particularly important.
3.32 On the whole, the project is proving to be, as in the words of President Berisha, "a project of hope"-helping the rural populationto emergefrom chaos and start rebuildinga free society and a market economy. In this respect, the role of credit goes far beyond direct financing. It is an instrumentwhich - 18 - allows farmers to make choices, helping them to make a transition from the previous situation of cooperative worker to independentfarming.
F. FINDINGS AND LESSONS LEARNED
3.33 Giventhe chaoticsituation that existed in Albania, it was deliberatelydecided to focus on starting operational activities, to learn from doing, and to train Albanian staff "on-the-job," rather than to take the time to organizethe structure from the top and to train the staff in a more formal way. This option allowed the project to work directly with the farmers and communes from the beginning and to keep a truly participatoryapproach, which is the main reason of its operational success. The process approach has also helped reveal major differences in concepts and managementthat were underestimatedin the beginning.
3.34 The strengths of the project are the following:
(a) Its research-actionapproach has proven an effective method for developing a flexible demand-drivenproject in a transition economy, while providing for immediateand visible results. The approach does not compromiseproject quality; on the contrary, it results in more meaningful project preparation and provides for built-in project adaptability to a changing environment.
(b) Most projectstaff are highly motivated,dedicated to the project's socioeconomicobjectives, and are open to innovationand change.
(c) The quality of rural works undertaken by communes using unemployedvillage labor is fairly high, provided that project feedbackis continuallyused to improve procedures and adjust incentives. Using commune capacity to organize the public works, rather than applying competitivebidding in a situationwhere private firms did not exist, proved a cost effective method and had, moreover, an importanttraining effect on the communes.
(d) The participation of the beneficiariesin the design of the credit program led to greater ownership anidreduced risk. In Albania, and probably other post-communistcountries, village intermediation-using village-levelsolidarity-can very effectivelylimit the risk of small credit.
(e) The difficultiesexperienced in the implementationof the first demonstrationproject due to the constraintof private ownershipof the common facility center imposedby the Board in the course of action and to the lack of know how of the staff helped to reformulate the objectivesof the department and to provide lessons for its organization.
3.35 The weaknesses of the project are the following:
(a) Although several attempts have been made to improve the financial and administrative organization of ADF, they have not yet entirely succeeded. A long-term expatriate consultantmay be necessaryto assistthe Executive Director in shifting the organizationto the new scale of operations. Also, training on project managementwill be organized in Albania and abroad. An improvementin ADF managementis particularlycrucial now that the foundation will considerablyincrease and diversify its activities by implementingthe - 19 -
IFAD-financedNortheastern Districts Rural DevelopmentProject and the proposed Urban Works and MicroenterprisePilot Project (paras. 5.2 - 5.5).
(b) Implementationof an effective monitoring system has been blocked for about one year because of inadequatestaff in the ADF Studies Department. Favorable conditionsfor its implementationnow exist.
(c) The recently-createdADF MicroenterpriseDepartment does not yet have adequate staff, and methods and procedures have taken longer than expected to work out. Any future microenterprisecomponent should be designedwith particular care and excludeheavy top- down investments(para. 4.10).
(d) Project financinghas sufferedfrom bad replenishmentprocedures and an inadequateSpecial Account, creatingperiodic lack of funds. Delays in the arrival of EU PHARE cofinancing have caused even greater financingproblems. The special account needs to be enhanced (para. 5.20).
CHAPTER IV. THE PROJECT
A. OBjECrlVES
4.1 The proposed Rural DevelopmentProject would have the following main objectives:
(a) to promote small farm and off-farm activitiesand help create a rural market economy;
(b) to repair basic rural infrastructure;and
(c) to create employment for the rural population and inject cash resources into rural households.
4.2 The pilot project successfully establishedthe RDF-which was subsequently transformed by Government into the ADF (paras. 5.2 and 5.3)-trained local staff, and tested approaches to the implementationof the program. The Rural DevelopmentProject would provide for a core program to support ADF activity for three years.
B. PRoJECTDESCRIPTION AND COMPONENTS
4.3 To support the above objectives, the proposed core project would finance the following components: (a) Rural works. Organize, finance,and help to carry out approximately190 rural works that would rehabilitate small infrastructure.
(b) Small-scalecredit. Establish and fund approximately135 village credit funds to extend the existing village credit fund network and provide small loans to farmers and rural microentrepreneursfor income-generatingactivity. - 20 -
(c) Promotionof rural activities. In coordinationwith village credit funds, provide business and technical advice to approximately 600 rural microentrepreneurs, and promote and support the establishmentof village animal health associationsto improve prophylaxis.
(d) Studiesand exchanges. Beneficiaryassessment studies would evaluate project impactand help guide components. Training and study tours would be organized to equip Albania's rural local governmentwith the skills necessaryfor promotinglocal development.
(e) Implementationsupport. Finance related equipmentand operationalcosts of the Albanian DevelopmentFund (ADF).
4.4 Project Area. The Rural DevelopmentProject would support ADF activitiesin 14 districts, representingthe poorest and most mountainousdistricts of Albania's 36 districts. With the exceptionof one district, Puke, the ADF is already active in the project area.The rural works componentwould be implementedin 12 districts-Berat, Bulqize,Elbasan, Gramsh, Librazhd, Malesi e Madhe, Mat, Mirdite, Puke, Shkoder, Skraper, Tirana, and Vlore-and the small credit and promotion of rural activities componentswould intervenein 7 districts-Elbasan, Gramsh, Kruje, Librazhd, Puke, Tirana, and Vlore. The IFAD-financedNortheastern Districts Rural DevelopmentProject is supportingADF activitiesin four additional districts-Diber, Has, Kukes, and Tropoje.
C. DETAILEDFEATURES
Component 1: Infrastructure Works (Base Cost US$5.0 million)
4.5 The project would finance, on a demand-drivenbasis, approximately 190 rural infrastructure subprojects, which would includerehabilitating ex-cooperative dirt roads, repairing or extendingvillage water supply or irrigations systems, repairing schools and health centers, and establishingnew market facilities. Villages would select subprojects based on establishedcriteria. ADF staff would evaluate subprojects and, if approved, contracts would be signed with the communesdefining work programs, timing, cost estimates, and future maintenance. Communes would then hire technical and supervisory personnel to organize and oversee the project, drawing on the pool of technicians from the former cooperativefarms. When and wherefeasible, communes would select,using local shopping,construction contractors;otherwise, communes would hire unemployedvillage labor to carry out the works, and would use local shoppingprocedures for procuring materials and transport, which typically represent70 percent of total project cost (and whichhas been successfullydemonstrated to be cost effectiveand efficientunder the pilot phase). ADF engineerswould oversee subprojectimplementation and provide assistance, when necessary. Three main criteria would be used to select subprojects:economic and social impact; degree of labor intensity; and sustainabilityby local organizations.
4.6 Communes could be asked to contribute a part (5-10 percent) of subproject investment cost, dependingon circumstances. Current central budget transfers to communesfor investmentis minimal, and while local governmentnow has the ability to raise local revenues through certain taxes, these revenuesare likelyto remain very smallfor the next few years. Accordingly,the rural works component would provide communes and villages with urgently needed investmentfunds for the transition period, allowing time for more suitable financingsystems to be put into place.
4.7 Special considerationwould be given to the organizationof subproject maintenance. Since late 1993, the ADF has requested the establishment of a user maintenance fund as a precondition for financing. - 21 -
Component2: Small-ScaleCredit (Base Cost US$4.3 million)
4.8 The project would extend the existingvillage credit fund (VCF) networkand wouldfinance small loans to over 9,000 farmers and rural entrepreneursby establishing about 135 new VCFs, a system successfullytested under the pilot project. Including VCFs establishedunder the pilot project, the ADF would overseesome 300 VCFs, and about 12,000small credits would be granted in the three-yearproject period. VCFs-to be deposited at the Rural CommercialBank (RCB)-would be managed by village credit committees(VCC), of which a representativeof the ADF would be an ex-officiomember. The VCCs would decide on credit allocations,define collateral, and control the repayment of loans. During the pilot project, given the disorganizationof the country's financial markets, loan capital was pegged to the US dollar to maintain its real value plus 6 percent interest. Under the project, loans would be gradually shifted to a real positive lek-based interest rate. In order to provide for a transition to a lek- based rate, the initial lek-basedinterest rate would be 10 percentfor one year, which is the IMF projected inflation rate for 1995. Arrangements for the transition from a dollar-basedrate to a lek-based rate, satisfactoryto the Bank, were discussed during negotiations,and the ADF Board of Trustees formally approvedthese arrangementsin January 1995.
4.9 The component's broader objective would be to prepare the creation of a sustainable financial institutionbased on a Raiffeisen-typecredit/savings system. All new credit funds establishedunder the project would be registered as legal entities under its existing foundationlaw, permitting the long-term mobilizationof savings. Savingswould be graduallymobilized by the VCFs, first on the basis of a 10 percent downpaymenton or reduction from the loan, and later through voluntary fixed-term deposits. Rates of interest on savings would be kept in accordancewith those for loans, with voluntary savings remuneratedat a higher interest rate than obligatory savings. Assuranceswere obtained at negotiations that the Governmentwould finalize the post-projectstatus of this VCF network, which takes account of conditionsat the time and is acceptableto IDA, by June 30, 1997.
Component3: Promotionof Rural Activities (Base Cost US$0.4 million)
4.10 The project would organize business and technical advice to approximately 600 microentrepreneursvia a networkof some twenty local consultants,recruited among previousstate sector staff or from specializedinstitutes and remunerated accordingto their services. This advisory service would work in coordinationwith village credit funds in order to create synergy-but not compulsory interdependence-betweencredit and business advice. Also, the project would promote and support the establishmentof village animal health associationsin order to improve prophylaxis. Other activitiesto be supported under the component include marketing and technical studies for key subsectors and establishmentof a data base on small technologies.
Component4: Studies and Local GovernmentTraining (Base Cost US$0.2 million)
4.11 Beneficiaryassessment studies would be fundedto evaluate project impact and to guide project components. Studieswould also help to identifyobstacles to development and to root project activities in local culture. The project provides limited seed funding for training and study tours to help equip Albania's rural local governmentwith the skills necessary for local development.
Component5: ImplementationFramework (Base Cost US$1.3 million)
4.12 Theproject would provide for the implementationof the project by supportingrelated equipment and operational costs of the Albanian DevelopmentFund, which was established as a successor to the RDF (see paras. 3.2 and 5.2 - 5.3). - 22 -
Technical Assistance
4.13 Project components include 37 staff-monthsof foreign technical assistance considered essential for the implementationof the program; technical assistance requirements are relatively low because of the experiencealready gathered under the pilot project and becausesome long-termconsultancy positions would be partly funded by the Urban Works and Microenterprise Pilot Project (UWMPP). Foreign technicalassistance would include specializedcredit, microenterprisesupport, engineering, management and financial services, consisting of two long-term consultancies (10 months total) and short-term consultancies(27 months total) as follows: (a) Rural Works Component:
* One long-term adviser/engineer(5 staff-months). An additional 11 staff-months would be financed by the proposed UWMPP, for a total of 16 staff-months.
* Short-term consultancy(I staff-month)to address specific training needs.
(b) Credit Component:
* Short-term consultancies(14 staff-monthstotal) for installationof a computerized financial accounting and information system (3 staff-months), general program implementation(6 staff-months),and specializedcooperative banking, to help the program evolve toward a Raiffeisen-typecredit/savings system (5 staff-months).
(c) Promotion of Rural Activities:
SShort-term consultancies (6 staff-months total) for training local advisers and assisting with program implementation.
(d) Studies:
- Short-term consultancies (6 staff-months total) for assistance and training in undertakingproject impact and beneficiaryassessment studies.
(e) InstitutionalSupport:
* One long-term consultant for assistance with financial and administrative management(5 staff-months). An additional8 staff-monthswould be financedby the proposed UWMPP, for a total of 13 staff-months.
In addition to the 37 staff-monthsdescribed above, technical assistance is also budgeted for marketing and technical studies (rural activities support component) and for project auditing. Local technical assistanceamounts to 375 months, mainlyfor the microenterpriseadvisory service and for project impact studies. In all, technicalassistance amounts to 7 percent of base costs. Consultanttrust funds and other grant financingwould be soughtto finance as much technical assistance as possible.
D. PRoJEcT CosT ANDFINANCING
4.14 Total ProjectCost. The Rural DevelopmentProject is expectedto cost US$12 million over three years, includingcontingencies. The foreign exchangecomponent is estimatedat US$2.2 million, or about - 23 -
18 percent of total project costs. The estimated project costs are summarized in Tables 4.1 and 4.2 below. Detailed costs are provided in Annex B.
TABLE 4.1: Summary of Project Costs by Component USS '000 Equivalent % % Total Foreign Base Local Foreign Total Exchange Costs A. Rural Works 3,938 1,020 4,958 21 44 B. Small-scale Credit 4,064 279 4,342 6 39 C. Promotion of Rural Activities 92 289 381 76 3 D. Studies/Local Government 52 182 234 78 2 E. Implementation Support 990 304 1,294 23 12 Total Base Costs 9,135 2,074 11,209 19 100 Physical Contingencies 457 104 560 19 5 Price Contingencies 195 36 231 16 2 Total Project Costs 9,786 2,249 12,000 18 107 Note: Figures may not total exactly due to rounding.
TABLE 4.2: Summary of Project Costs by Category of Expenditure US$ '000 % % Total Local Foreign Total Foreign Base Exchange Costs I. Investment Costs A. Civil Works 3,929 922 4,850 19 43 B. Credit 4,050 - 4,050 - 36 C. Equipment and Materials 3 266 269 99 2 D. Training, Study Tours 56 169 225 75 2 E. Technical Assistance 115 646 761 85 7 Total Investment Costs 8,152 2,002 10,154 20 91 II. Recurrent costs A. Staff salaries 512 - 512 - 5 B. Other 470 72 542 13 5 Total Recurrent Costs 982 72 1,054 7 9 Total Base Costs 9,135 2,074 11,209 19 100 Physical contingencies 457 104 560 19 5 Price contingencies 195 36 231 16 2 Total Project Costs 9,786 2,214 12,000 18 107 Note: Figures may not total exactly due to rounding.
4.15 Cost Estimates. Project costs have been estimated in US dollars, and local costs are expressed in US dollars at the exchangerate prevailing in July 1994 (100 Leks/US$1.00). Physical contingencies of 5 percent have been applied to all investmentand recurrent costs. Price contingenciesare calculated based on 2.2 percent for foreign exchangeand local inflation of 20 percent in PYI, 15 percent in PY2, and 10 percent in PY3. Price contingencieswere not applied to investment costs for rural works or village creditfunds, becausethey reflect programswithout precise, predeterminedunit costs; any increase in costs would result in a reduction in the cope of the program. - 24 -
4.16 ProjectFinancing. Of the total project cost of US$12 million, the proposed IDA credit would financeUS$6 million (50 percentof total costs), and the Governmentwould finance US$1.2 million (10 percent of total costs). Grant financing of US$4.8 million is currently being sought. Possible cofinanciersinclude the EU, the Islamic DevelopmentBank, and the Italian Government-all of whom have shown considerableinterest in the pilot project (see para. 3.5)-as well as the Swiss and Austrian Governments9 . The project lends itself easily to a modular approach; additional cofinancing would financeincreased project districts and componentintensity (see para. 2.6). The financingplan is shown in Table 4.3.
TABLE 4.3: Sources of Project Financing USS '000 equivalent
Project Component IDA Cofinanciers Government of Total Albania A. Rural Works 2,325 2,884 -- 5,209 B. Small-Scale Credit 2,730 1,142 700 4,572 C. Promotion of Rural Activities 110 213 100 423 D. Studies / Local Gov't Training 90 170 -- 260 E. ImplementationSupport 745 170 400 1,536 Total Project Costs 6,000 4,800 1,200 12,000 Note: Figures may not total exactly due to rounding.
E. COORDINATIONWITH IDA-FINANCED SECTORALPROJECTS
4.17 Activities under the project's rural works componentwould be coordinatedwith rehabilitation work by sectoral projects. The ADF's demand-drivenapproach that empowers local communitiesis expectedto complementthe top-down approach of these other projects. There is no significantoverlap, although there are some opportunitiesfor collaboration,as indicatedby the following:
(a) Roads. Most roads to be rehabilitatedunder the proposed Feeder Roads Project are higher- volume secondary roads; only 10 percent are low-volume dirt roads-these could be undertakenby the ADF.
(b) Schools and Health Centers. The School RehabilitationProject will cover 20 percent of total rehabilitationneeds country-wide, so there is ampleopportunity and need for additional rehabilitationwork. Also, fabricationof furniture for schools in remoteareas could possibly be organizedthrough the project's microenterprisesupport component.The proposedHealth Services Rehabilitationproject would finance hospital/healthcenter rehabilitation in six districts,three of whichoverlap with the ADF project area. Both schools and health centers to be financedby sectoralprojects and located in remote mountainareas where construction contractorsare unavailablecould be rehabilitatedusing the ADF. Prior to financingschool or health center rehabilitation, the ADF currently checks with the district and ministry to verify that the infrastructureis consistentwith national priorities.
9/ As of December 1994, the Swiss Government has expressed its intention to provide 3.4 million Swiss francs (about US$2.5 million) to cofinance the Rural DevelopmentProject. - 25 -
F. ENVIRONMENTALIMPACT
4.18 The project has been assigned a category "B" environmental rating and will be subject to analysis, although adverse environmental impact is unlikely given the small size of subprojects financed under the project. During the pilot project, environmental guidelines and checklists were developed for rural works subprojects. Although checklists were for a time not completed, they are now being used and could help increase the environmental awareness of local government officials.
CHAPTER V. PROJECT IMPLEMENTATION
5.1 Elements of the Project Implementation Plan are covered in Chapters IV and V of this SAR and in Annexes E, F, and G. Key actions and dates for implementation are provided in Annex H. The components of the project would be implemented using the successful approaches developed under the pilot project (Chapter III). Given the increasing responsibility of the implementing agency, management is in the process of being strengthened and reorganized.
A. PROJECTMANAGEMENT
5.2 Implementing Agency. An independent agency, the Rural Development Fund (RDF), was created by special decree of the Government in January 1993 to implement the Rural Poverty Alleviation Pilot Project. The RDF was granted the status of a juridical person with the authority to enter into contracts, and with administrative,technical and financial autonomy. RDF main policy and objectives were defined and overseenby a Board of Trustees chairedby the Deputy Prime Minister and comprised of the Minister without Portfolio for Local Government, Deputy Minister of Agriculture and Food, Deputy Minister of Finance, and Deputy Minister of Labor. An Executive committee, formed by the RDF ExecutiveDirector (appointedby the BoardChairman), the OperationalDepartment Directors, and the Finance Director, was responsiblefor RDF's day-to-day management.
5.3 Governmenthas transformed the RDF by government decree into an Albanian Development Fund, which has authority to work in both rural and urban areas (see para. 3.7). The new government decree is shown in Annex A. At the request of Government, the ADF Board of Trustees is now comprisedof Ministers(rather than Deputy Ministers),and the Minister of Constructionwill be included among the Board members. Governmentwould be asked to conclude,prior to project effectiveness,an agreement acceptable to IDA under which it would pass the proceeds of the Credit to the project implementingagency, the ADF.
5.4 Internal ADF Organization. The ADF would be the implementingagency for both the Rural DevelopmentProject and the proposed Urban Works and MicroenterprisePilot Project. The proposed structure of the ADF, as discussed with senior ADF staff, is shown in Figure 5.1. Within the ADF, for efficiency and economy, the rural and urban projects would share the following: (a) financial and administrative management (which is being strengthened by technical assistance and training); (b) monitoringand evaluation (the same methodswould be used for both the rural and urban projects); and (c) microenterprise and rural activities support department (methods used to support microenterprises in rural and urban areas are largely the same, and the databaseand informationcenter would be common to both projects). The infrastructureand credit departmentswould operate separately for the rural and urban projects because the projects are at different stages of development, the approaches for rural and - 26 - urban works are different, and the future institutionalsetting for the rural and urban credit programs is different.
Figure 5.1: Albanian DevelopmentFund OrganizationalChair
Board of Trustee
Executive Director I~~~~~~~~~~~~~~~~~~~~~IMonitoringand X______Studies
Finance and Adininistration _ ~~~Microenterprise Support & Rural Activities
ural Rural Urban Pilot Infrastructure Credit Project
5.5 Staff. Followingthe creationof the ADF in September1994, the ExecutiveDirector of the RDF was appointed as Executive Director of the ADF. At negotiations, assuranceswere obtained that the Governmentwould at all times employ an ADF Executive Director whose experienceand qualifications are acceptableto IDA. Most high-levelstaff positionsare already filled; new high-levelpositions would be mainly filled by way of internal promotion, using professionals who have demonstrated their capabilities. Under the project, a consultantwould assist the Executive Director in the transformation and organizationof the new institutionalstructure. Also, a position of Assistantto the ExecutiveDirector would be establishedto help with internal communicationand coordination.
5.6 Regulationsand OperationalGuidelines. The ADF's operations are governed by its Internal Regulationsand Manualof Procedures,both of whichare updated periodicallyand approvedby the Board of Trustees. Assuranceswere obtained at negotiationsthat Regulationsand OperationalGuidelines for proposed project activities would be acceptableto IDA, and any changes in these manuals would only be made in consultationwith, and with the approval of, IDA. In January 1995, the ADF Board of Trustees amended the Regulations and Operational Guidelines to incorporate the new aspects of the project. The Manual of Proceduresis shown in Annex D.
5.7 Annual Works Plans and Budgets. Annual works plans and budgets for each project component,which would contain specificproposals for the use of Government's contribution, would be prepared by the ADF, and assuranceswere obtained at negotiationsthat such work plans and budgets would be submittedto IDA for review. A date in synch with the Government's budget cycle would be establishedfor their annual review. In accordancewith the process approach adopted by the project, - 27 -
works plans would reflect project experiencein the proceedingperiod. Budgets, which would be based on appraisalestimates, would be amendedwhere necessaryto reflect changes in costs and development policies.
B. PROCUREMENT
5.8 The project elements,estimated costs, and procurementarrangements for those elementsfinanced by the IDA credit are summarizedin Table 5.1 below.
TABLE 5.1: Summary of Proposed Procurement Arrangements (US$ '000 equivalent)4' Category of Expenditure ICB LCB Other Total ---- PPmcurementMethod ------
1. Civil works -- -- 5,093 b' 5,093 (2,300) (2,300) 2. Equipment & materials -- -- 290 c/ 290 (200) (200) 3. TA, training, & study tours - -- 1,087 Al 1,087 (380) (380) 4. Credit -- 4,253 S' 4,253 (2,620) (2,620) 5. Recurrent costs -- -- 1,278 f' 1,278 (500) (500) Total -- -- 12,000 12,000
NOTE: Figures in parentheses are the respoctive amounts financed by IDA. a - Figures may not total exactly due to rounding. Amounts in parentheses are the amounts to be financedby IDA. b - Civil works (aggregateamount USS2,300,000) to be carried out using communityassistance procodures, of which about US$1,600,000 (materialsand transport) to be local shopping. Construction contractors to be used when and where feasible. c- International shopping (aggregate US$155,000) packages estimaed at between US$20,000 and US$60,000 per contract; local shopping (aggmegateUS$30,000) packages estimated at less than US$20,000 per contract; direct contracting (aggregate US$15,000) for copyrighted materials. d - Services of consultants/institutionsto be engaged in accordance with IDA guidelines for the Use of Consultants. c - Livestock, minor agricultural inputs and tools, and other small equipment and materials (US$50-2,000 each) to be procured by village credit fund borrowers in accordance with traditional purchasing practices (aggregate amount US$2,620,000). f - Salaries and other ADP operating costs.
5.9 The AlbanianDevelopment Fund would be responsiblefor overall procurementactivities. ADF staff implementedthe Rural Poverty AlleviationPilot Project and have experience in procurement; to strengthentheir procurementknowledge, key staff dealingwith procurementwould attend a World Bank procurementseminar, scheduledto be held in Tirana in early 1995. Given the smallvalue and dispersed location of contracts to be financed, international competitive bidding is not considered suitable. Procurementfor items financedby the IDA credit would be carried out as follows:
5.10 Civil Works. Works contractsunder the project consistof demand-drivenpublic works (costing from US$5,000-US$50,000),which are geographicallydispersed over thirteen districts. The ADF would - 28 - sign contractswith communesfor the executionof subprojects. Constructioncontractors do not yet exist in most isolated rural areas of Albania, and the small size of the subprojects makes use of local competitivebidding unrealistic. In the absence of constructioncontractors, these works, which consist of materials and labor, would be organizedand carried out directly by the communes,using community- assistanceprocedures which are acceptableto IDA and which have proven to be both cost effective and efficientunder the RPAPP. Local shoppingprocedures based on comparingat least three price quotations from local suppliers would be used by communes to procure materials, which typically represent 70 percent of subproject cost; and unemployedvillage labor would be directly hired by communes under regulationsand wage rates specified in their contracts with ADF and the ADF Manual of Procedures. ADF inspectors would oversee subproject procurementand implementation;a database of the average costs of materials, equipment, and transport, which has been compiled under the RPAPP, would assist in monitoringlocal shoppingprocedures. When constructioncontractors are availableand when feasible, local shoppingprocedures would be used for construction(US$5,000-50,000). In the event a contract exceeds US$50,000, local competitivebidding proceduresusing the Bank's standard bidding documents prepared for Albania for this purpose would be used. During the project, the availability of local contractorswould be carefully monitored. The aggregateamount of IDA funds to be applied to works is not expectedto exceed US$2,300,000, which includes labor to be procured under direct hiring for an estimated aggregate amount of US$700,000, and materials to be procured using local shopping for an estimated aggregate amount of US$1,600,000. Individual subprojects are not expected to exceed US$50,000.
5. 11 Equipment and Materials. Contracts for equipment and materials (e.g. office and computer equipment, furniture, small microenterprise equipment), for an aggregate amount estimated at US$155,000, would be awardedthrough internationalshopping procedures based on comparingat least three price quotationsfrom suppliers from at least three eligible countries. It is expected that individual contractsunder internationalshopping would not exceed US$60,000. Local shoppingprocedures would be used for furniture and small supplies to be procured locally for an aggregate amount estimated at US$30,000. Individualcontracts for local shoppingare not expectedto exceedUS$20,000. Copyrighted materials, for an amount estimated at US$15,000, would be procured through direct purchase from suppliers.
5.12 Credit. Procurement under village credit funds, which would involve very small amounts (US$50-2,000),typically for purchaseof livestock,minor farm inputs, farm supplies,or smallequipment, would be organizedby the farmers or microentrepreneursconcerned in accordancewith their traditional purchasingpractices (basedon obtainingseveral quotationsfrom local supplies), experience with which has been satisfactory under the Rural Poverty Alleviation Pilot Project, for an aggregate amount of US$2,420,000.
5.13 Technical Assistance,Training, and Study Tours. Consultantsfor technicalassistance financed under the project would be selected in accordance with the "Guidelines for the Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency" (August 1981). Technical assistance (aggregate US$300,000) would consist of specialized credit, microenterprise support, engineering, and financial and auditing services involving consulting firms and individual experts, consisting approximately10 short-term consultanciesof one to three months. Because the services are in unrelated fields of expertise, it is not foreseen that contracts would be grouped into packages. In addition, about US$80,000aggregate for training and studytours may be procured from consultingfirms or specializedinstitutions. - 29 -
5.14 Recurrent Costs. The credit would finance recurrent costs of US$500,000 consisting of the salaries and operating costs of ADF incurred to implementthe project (see para. 5.19).
5.15 Contract Review. The procurement documentationto be submitted for prior review by IDA would include:
(a) Equipment and Materials:
- specialized equipment to be procured through direct contracting: all procurement documentation(selection criteria, draft contract); - contracts over US$40,000 procured through international shopping: all procurement documentation(technical specifications, letter of invitation,evaluation report, draft contract).
(b) Consulting Services:
- contacts above US$50,000: all documentation (terms of reference, letters of invitation, selection criteria, evaluation reports, draft contracts); - contacts below US$50,000:terms of reference; - amendmentsto consultantcontracts raising the contract amount above US$50,000.
(c) Training and Study Tours:
- all documentation(plans, selectioncriteria, selectionof institutionsto provide training, cost estimates).
All procurementprocedures, includingthose to be used for civil works, would be specifiedin the ADF's Manual of Procedures;therefore, prior review for civil works is not necessary. All contractsnot subject to prior review would be subject to selective post-awardreviews by IDA.
5.16 Procurement Information to be Provided by the Borrower. The ADF would promptlyinform IDA of contractawards and procurementissues and would includethe followingprocurement information in its quarterly progress reports: (a) for equipment/materials,technical assistance, and training, and studytours: status and timing of all pending actions; and
(b) status of aggregate limits on specifiedmethods of procurement.
C. DISBURSEMENTS
5.17 The proposed IDA credit of US$6 million would be disbursed over five fiscal years. The proposed closing date for the credit would be June 30, 1999. Estimated IDA disbursementsare shown in Table 5.2. - 30 -
Ta Le5.2: FwtmatedIDA sbursements USS million equivalent PY95 FY96 FY97 FY98 FY99 Annual 0.2 1.8 1.8 1.8 0.4 Cumulative 0.2 2.0 3.8 5.6 6.0
5.18 IDA disbursementcategories are shown in Table 5.3 IDA disbursementswould be based on full documentationof expendituresfor the following: (a) individual contracts for equipment and materials above US$40,000 equivalent;(b) technicalassistance; (c) training; and (d) study tours. Disbursements for civil works, credit, recurrent costs, and equipment and materials consisting of individualcontracts below US$40,000 would be made on the basis of statements of expenditure certified by the ADF Executive Director. The required supportingdocuments would be retained by the ADF for at least one year after receipt by the Bank of the audit report for the year in which the last disbursementwas made. This documentationwould be made availablefor review by the auditors and by visiting IDA staff upon request.
Table 5.3: Disbursement Categores
Amount Items (USS'000 equivalent) % Financing i. Civil works 2,100 100% 100% of foreign expenditures, 100% of local expenditures (ex-factory 2. Equipment & rmaterials 180 cost), and 85% of local expenditures for other items procured locally 3. TA, training, & study Tours 350 100% 4. Credit 2,420 100% of credits 5. Recurrent codts 450 100% 6. Unalocated 500 Total 6,000
5.19 Recurrent costs, which would consist of operation and maintenance costs that would not be incurred absentthe project, would include:(a) maintenanceand operationor rental of equipmentprocured or used under the project; (b) salaries and per diems paid to ADF staff hired under the project; (c) consumable office supplies; and (d) office rent and maintenance, utilities, and telecommunications pertainingto the project.
5.20 Special Account. To facilitate timely project implementation, the ADF would establish, maintain, and operate, under conditionsacceptable to IDA, a SpecialAccount denominated in US dollars in a local or foreign bank acceptableto IDA, to which IDA would deposit an initial amount of up to US$1,000,000, which, based on the experience of the pilot project, would be needed to cover three months of expenditureduring peak monthsof project activity. Unless IDA otherwiseagrees, the Special Accountwould be initiallylimited to US$500,000until the aggregateamount of disbursementstotal SDR 1.5 million (about US$2.2 million). The Special Accountwould be replenishedas appropriate when the undisbursed balance falls below an amount equal to 75 percent or less of the amount of the Special - 31 -
Account. Documentationrequirements for replenishmentapplications would follow the same procedure as described in preceding paragraphs. In addition, monthly bank statements of the Special Account, reconciledby the borrower, would accompanyall replenishmentrequests.
D. SUPERVISION,REPORTING, AND MONITORING
5.21 The project would require intense follow up and IDA supervision, given its process approach. IDA wouldundertake regular supervision missions,including field visits and spot checks of a sample of subprojects.
5.22 Monitoring. During the pilot phase, progress monitoring was mainly carried out by the individualoperational departments; and an impact study was carried out under the direction of the ADF Studies Department. The project would strengthen monitoring, which would gauge progress during implementationas well as assessthe project's impact, by establishinga ManagementInformation System coordinatedby the ADF Studies Department. The Studies Department would also undertakea project impact (beneficiaryassessment) study (paras. 3.26 - 3.32, 4.11).
5.23 QuarterlyReports. Assuranceswere obtainedat negotiationsthat ADF would submit quarterly reports to IDA. Quarterly reports would include the following informationby district and sector:
(a) Public Works: Rural works subprojectsappraised, in execution, completed, and evaluate ex-post, includingnumber of beneficiaries,amounts committedand executed, average cost per beneficiary, and the percentageof labor in the investmentcost;
(b) Credit: Number and total US dollar amount of loans distributed, activities financed, outstanding,repayment rate;
(c) Microenterprisesupport: Number and statusof subprojectsin preparationand in execution, activitiesbeing promoted, number of beneficiaries;
(d) Studiesand Exchanges:Number and types of exchanges,status of project-impactand other studies; and
(e) ADF: Names and titles of key personnel, indicating any changes that have taken place during the reporting period, operatingcosts, types of training courses organized.
5.24 Accountsand Audits. Assuranceswere obtainedat negotiationsthat the ADF would maintain accountingprocedures acceptable to IDA, and that private independentauditors, acceptableto IDA, would undertakeannual audits of the ADF. Not later than six months after the end of the financial year, ADF would submit to IDA certified copies of the audit reports containingbalance sheets, income statements, and the auditor's opinion on whether the ADF is achieving its objectives in a cost-effectiveway and whether internal controls are adequate to minimize the possibility of misuse of funds. Financial statementswould be presented using the standard formats shown in OperationalDirective 8.30.
5.25 A separate cost-accountingsystem for the credit program would be developedunder the project in order to produce separatebalance sheets and incomestatements, which would also be presented using - 32 - the formats shown in OD 8.30. Once such a system is in place, ADF would calculate the Subsidy DependencyIndex for the credit program on an annual basis.'"
5.26 Mid-Term Review. At negotiations, it was agreed that ADF and IDA would undertake an evaluationof the project no later than August 31, 1996.
CHAPTER VI. BENEFITS AND RISKS
A. BENEFITS
6.1 The project's benefits-both direct benefits and long-term benefits-can be estimated for each componentas shown below:
Direct and Immediate Benefits Long-Term Benefits Rural Works * 550,000 man-days of employment * Training local governments in project appraisal, management, and maintenance, and preparing * 190 subprojects, possibly consisting in: 61 roads, them for their future role in local development 8 irrigation schemes, 13 schools and health centers, 39 water supplies, etc. 0 Restoring a sense of village community
o Increased trade and economic activity
* Improved the quality of rurma life
SmaU Credit 0 135 village credit funds 0 Changing villager mentality and developing self- initiative * 9,000 loans for intensification of agriculture and non-farm activities * Building a sustainable village-based savings/credit system, essential for future economic development Promotion of * Assistance to 600 rural microenterprises * Transfer of business know-how, small Rural Activity technologies, new models of supply and * Establishment of and support to 75 village animal marketing organization health associations * Creation of a sustainable structure for village- wide prophylaxis
6.2 The economic impact of the intervention is expectedto be along the same lines as the impact evaluated for the pilot project (paras. 3.26 - 3.32). On the whole, the project would help to break the isolationof villages and to improve the environmentof agriculturalproduction, and would assist people to move toward a market economy.
B. RISKs
6.3 The risks of the project are minimizedby its process approach, which provides for continuous feedbackand adjustment. Furthermore, project components have already been tested during the pilot
10/ As described in World Bank Discussion Paper No. 174, 'Assessing Development Finance Institutions," by Jacob Yaron. - 33 - phase-the rural works componentis proceedingwell, and village intermediationhas proved an efficient mechanismto limit the risk of small-scale credit. Activities to support microenterprises began only recently,but their risks are limitedby the small size of the component,the demand-drivenapproach, and the experienceacquired during the pilot phase. The ADF has proven its ability to managethe program, although there is a risk in overloadingthe ADF with too many parallel projects financedby different donors. There is also a risk of political interference,which could increaseas the project grows in size. Managementand political risks would be minimizedby granting specialattention to project organization and management, as well as to written procedures and regulations.
CHAPTER VII. AGREEMENTS REACHED AND RECOMMENDATION
7.1 During negotiations, assuranceswere obtainedthat the Governmentwould:
(a) appoint an ADF ExecutiveDirector and any subsequentsuccessors during the projectperiod whose experience and qualificationsare acceptableto IDA (para. 5.5); and
(b) finalize the post-projectstatus of the village credit fund network and the rural works and microenterprise/livestocksupport programs,acceptable to IDA, by June 30, 1997 (para. 4.9).
7.2 During negotiations, assuranceswere obtained that the Albanian DevelopmentFund would:
(a) ensure the use of Regulationsand OperationalGuidelines acceptable to IDA, and any changes in these manuals would only be made in consultationwith, and with the approval of, IDA (para. 5.6);
(b) submit annual work plans and budgets for project activities, which would include specific proposals for the use of Government's contribution, for review by IDA (para 5.7);
(c) maintain accountingpractices acceptableto IDA, and an annual audit would be undertaken by independentauditors acceptableto IDA (para. 5.24);
(d) submit to IDA quarterly reports on project activities, in a format acceptableto IDA (para. 5.23); and
(e) undertakejointly with IDA a project mid-term review no later than August 31, 1996 (para. 5.26).
7.3 Conditions of effectivenesswould be:
(a) executionof a subsidiaryagreement acceptable to IDA between the Ministry of Finance and the Albanian DevelopmentFund, under which the proceeds of the Credit would be made availableto the Albanian DevelopmentFund (para. 5.3).
M:AAB\RURDEV\RDPBUFF.SAR J-2y 5, 1995
ANNEX A Page 1 of 4
ALBANIA RURAL DEVELOPMENTPROJECT
ANNEX A
GOVERNMENTDECISION ESTABLISHING THE ALBANIANDEVELOPMENT FUND (GOVERNMENTDECISION NO. 427, SEPTEMBER8,1994)
GovernmentDecision No. 12 (January9, 1993)established a Rural DevelopmentFund to finance rural works and promote economic activitiesthrough credit, studies, technologytransfer, and training.
Aftera pilot phase, the Governmentdecided to extend the activities of the Rural Development Fund to urban areas. Therefore, Government Decision No. 427 (September 8, 1994) established the Albanian DevelopmentFund as follows:
Statute of the AlbanianDevelopment Fund
CHAPrER 1 - GENERAL
Article 1. The Albanian Development Fund, hereinafter referred to as 'the Fund," is hereby establishedas a juridical person with administrative,technical, and financial autonomy. The Fund will be under the supervisionof the Council of Ministers.
The Fund shall perform its activitiespursuant to this Statuteand accordingto its Manual of Proceduresand Internal Regulations.
The headquartersof the Fund will be in the city of Tirana; the Fund may open offices in other jurisdictions within Albania.
Article 2. The Fund's objective shall be development of less-developedrural and urban areas through creationof employmentand economicactivities, infrastructure rehabilitation, and assisting the developmentof the private sector. The target populationof the Fund will consist of the poorest part of the rural population and of unemployedpeople in urban areas, including people receivingsocial assistanceor unemploymentbenefits.
CHAPTER2 - GUIDING PRINCIPLES OF FUND ACTIVITIES
Article 3. The Fund's objectivesshall be accomplishedas follows:
As regards public works:
The Fund will promote and financeinfrastructure construction and rehabilitationprojects, and the constructionand rehabilitationof subprojectsfor microenterprisedevelopment. In rural areas, requestswill be initiated by the villagesand presented to the Fund by the communes. In urban areas, requests will be presented by the municipalities. Projects will be selected and financedby the Fund accordingto its Manual of Procedures. ANNEX A Page 2 of 4
As regards small-scalecredit:
The Fund will provide small credits to farmers and microentrepreneurs who have difficultyin accessingbanks. Credit will be used to financeincome-generating activities.
As regards microenterprisedevelopment:
The Fund will finance and provide business and technical advice to private microentrepreneursand promote demonstrationprojects that will (i) transfer know-how and provide on-the-jobtraining; (ii) transfer appropriatesmall-scale technology; and (iii) organize new systems of marketing. The Fund may subsidize a part of the initial cost of their equipmentand machinery.
As regards studies, training, and exchanges:
The Fund will financestudies to provide basic informationto orient the Fund's activities and evaluatetheir impact.
Training will be provided to Fund staff and to professional staff associated with the Fund's activities.
Other:
The Fund may finance other activities, and may receive funding from other donors and organizations, for the objective of contributingdirectly in the developmentof the less- developedareas.
Article 4. The methodologyto be used by the Fund will be as follows:
Interventions of the Fund will be largely demand-driven. The Fund will practice a participatoryapproach, identifyingthe needs and constraintsof the target populationand of the local governments.
The Fund will carry out its activities by forming contractual partnerships with local institutions,juridical or physical private persons, and individualmicroentrepreneurs and producers. In the case of public works, the Fund's partners will be elected municipalities and communes. In the case of credit, they will be village credit funds, associationsof borrowers, or individual private microentrepreneurs. In the case of microenterprise development,they could be individualprivate persons or private associations.
CHAPrER 3- REVENUES AND RESOURCES OF THE FUND
Article 5. The Fund's revenuescomprise: * resources assignedby multilateralor bilateral aid programs, * grants provided by the Governmentof Albania, * domestic and foreign donationsand legacies, * resourcesderived from contractedsoft loans, * capital recovery from the loans granted and the interest earned, ANNEX A Page 3 of 4
* other revenues and incomethat may arise.
Article 6. The resources of the Fund are deposited in independentbank accounts in Albanian and foreign currency.
CHAPFER 4- FUND'S ORGANIZATIONALSTRUCTURE
Article 7. The governing bodies of the Fund are: * the Board of Trustees, * the Executive Committee
Article 8. The Board of Trustees, hereinafterreferred as "the Board" shall be composedas follows: * The Deputy Prime Minister; * The Minister of Agricultureand Food; * The Minister of Construction; * The Minister without Portfolio for Local Government; * The Minister of Labor; and * The Director of Economic Developmentand Aid Coordination.
Article 9. The Board shall be chaired by the Deputy Prime Minister and during his absence by ministersin the order indicated in Article 8 of this Decree.
Article 10. The Board shall have the following duties: * approve the polices and general guidelines regulatingthe Fund's activities; * approve the Fund's annual budget; * approve the Annual Financial Report; * authorize negotiationsand enter into agreementswith the Governmentof Albania and internationalfinancial institutionsnecessary to achieve its purposes; - authorize negotiationsto contract the loans required by the Fund for its operations; * approve the necessaryRegulations for the implementationof this Decree; * hold ordinary meetings every three months and extraordinary meetings as often as necessaryon the initiative of the Chairman; * all other duties assignedunder the correspondingregulations.
Article 11. Meetings will be held with the attendanceof at least four (4) board members and the decisions will be taken by the majority of the votes. The Board may invite the representativesof other public and private agencies to its meetings, who should have voice but no vote.
Article 12. The Executive Committeeshall be formed by: * The Executive Director * The Deputy Directors and Heads of Departments
Article 13. The Executive Director shall be named and removed by the Deputy Prime Minister and shall meet the professionalrequirements related to his function. The other members of the Executive Committeeare appointedby the Executive Director. ANNEX A Page 4 of 4
Article 14. The Executive Director shall be the highest executive authority of the Fund and shall have the followingduties: * hold the Fund's legal representation; * direct the operations of the Fund and the implementationof Board decisions; * managethe resourcesof the Fund; * sign the agreement with the Governmentand different donors; * select and appoint the staff; * sign the pertinent contracts for professional and technical services; * prepare and propose to the Board the Regulationsgoverning the Fund's activities; * sign the contractswith the external auditors; * all other duties assignedby this Decree, its Regulationsand Operational Guidelines.
Article 15. The Executive Committeeshall have among its duties the following:
* approve or disapprove all requests for financing submitted to the Fund. For this purpose only, the decisionsof the ExecutiveCommittee shall be taken by the majority of votes. If the votes are equal, the vote of the Executive Director will prevail;
* follow and analyze the implementationof the objective of the Fund.
Article 16. The work relations of the staff shall be regulatedby the InternalRegulations of the Fund and accordingto Albanian law.
Article 17. Operationalcosts, includingtechnical assistance, equipment,transport and vehicles, and other expendituresfor rehabilitation,maintenance, and rent of premises, shall be financed from the resources of the Fund.
CHAPTER5- AUDITING
Article 18. The internal auditor is responsiblefor controllingthe implementationof all budget, bank, financial, and technicaloperations of the Fund. The internal auditor is appointedby the Executive Director, to whom he shall directly report according to the operational regulationsof the Fund.
Article 19. The Fund shall be subject to external auditing by independent international auditors acceptableto the World Bank. Reports from the External Auditors shall be reviewed by the Board for the correspondinglegal actions.
CIIAPTER6 - FINAL AND TEMPORARY PROVISIONS
Article 20. The Fund should be exemptfrom any taxes, fees and charges, or from any other national or local revenue contributions,present or to be establishedin the future.
Article 20. The life span of the Fund is extendeduntil December 31, 2001. It may be shortened or extendedby decree, covering the life spans of the projects.
m:%alb\rurdcv\sarXannea. r ANNEX B Page 1 of 14
ALBANIA RURAL DEVELOPMENT PROJECT
ANNEX B
SUMMARY AND DETAILED COST TABLES
Summary Tables
Table A: Components Project Cost Summary Table B: Expenditure Accounts Project Cost Summary Table C: Expenditure Accounts by Components - Totals Including Contingencies Table D: Project Components by Year - Totals Including Contingencies Table E: Expenditure Accounts by Years - totals Including Contingencies
Detailed Cost Tables
Table 1: Rural Works Table 2: Small Credit Program Table 3: Promotion of Rural Activities Table 4: Studies/Local Government Training Table 5: ADF - Central Administration, Finance, Studies Table 6: ADF - Rural Infrastructure Department Table 7: ADF - Rural Credit Department Table 8: ADF - Rural Activities Department RuralDevelbpmwt Project Ta A: Componeat Proet Cost Sumuwy
% %Totd % %Tatal Foreign Base Foreign Bae Local Forign Totl Ex Costs Local Fogn Total E Costs
1. RuralWorks 393,760.0 102,040.0 495,800.0 21 44 3,937.6 1,020.4 4,958.0 21 44 2. Small-ScaleCredt 406,350.0 27,850.0 434,200.0 6 39 4,063.5 278.5 4,342.0 6 39 3. Promotionof RuralActIties 9,200.0 28,900.0 38,100.0 76 3 92.0 289.0 381.0 76 3 4. Studies/ Lcal Govennin Training 5,150.0 18,225.0 23,375.0 78 2 51.5 182.3 233.8 78 2 5. Implemetaon Suppolt 98,985.0 30,4000 129,385.0 23 12 989.9 304.0 1,293.9 23 12 Total BASEUNECOSTS 913,445.0 207,415.0 1,120,860.0 19 100 9,134.5 2,074.2 11,208.6 19 100 PhysicalContingenies 45,672.3 10,370.8 56,043.0 19 5 456.7 103.7 580.4 19 5 PriceContingencies 34,007.0 15,244.3 49,251.3 31 4 194.8 36.3 231.1 16 2 Total PROJECTCOSTS 993,124.3 233,030.0 1,226,154.3 19 109 9,786.0 2,214.2 12,000.1 18 107 Albania Rural Develobpent Pro*t Table B: Expenditure Accounts Project Cost Sunmrary
(Lek 000) (USS 00) % % Total % % Total Foreign Base Foreign Base Local Forelgn Total Exchange Costs Local Foreign Total Exchange Costs
1.Investrmnt Costs A. CMI Works 392,850.0 92,150.0 485,000.0 19 43 3,928.5 921.5 4,850.0 19 43 B. Credit 405,000.0 - 405,000.0 36 4,050.0 - 4,050.0 - 36 C. Goods 275.0 26,575.0 26,850.0 99 2 2.8 265.8 268.5 99 2 D. Services 1. Training and Study Tours 5,610.0 16,890.0 22,500.0 75 2 56.1 168.9 225.0 75 2 2. Technical Assistance 11,475.0 64,600.0 76,075.0 85 7 114.8 646.0 760.8 85 7 Subtotal Services 17,085.0 81,490.0 98,575.0 83 9 170.9 814.9 985.8 83 9 Total lnvestment Costs 815,210.0 200,215.0 1,015,425.0 20 91 8,152.1 2,002.2 10,154.3 20 91 II. Recurrent Costs A. Salaries 51,200.0 - 51,200.0 - 5 512.0 - 512.0 5 B. Other 47,035.0 7,200.0 54,235.0 13 5 470.4 72.0 542.4 13 5 Total Recurrent Costs 98,235.0 7,200.0 105,435.0 7 9 982.4 72.0 1,054.4 7 9 Total BASELINE COSTS 913,445.0 207,415.0 1,120,860.0 19 100 9,134.5 2,074.2 11,208.6 19 100 Physical Contingencies 45,672.3 10,370.8 56,043.0 19 5 456.7 103.7 560.4 19 5 Price Contingencies 34,007.0 15,244.3 49,251.3 31 4 194.8 36.3 231.1 16 2 Total PROJECT COSTS 993,124.3 233,030.0 1,226,154.3 19 109 9,786.0 2,214.2 12,000.1 18 107
lo IV Albania RuralDevelopment Project d Table C: ExpenditureAccounts by Components- Totals Including Contingencies (USS '000)
Studies/ Promotion Local Rural SnM11-Scale of Rural Governm t krplertatlon Works Credit Actvite Training Support Total
1.Invesment Costs A. CMI Works 5,092.5 - - - - 5,092.5 B. Credit - 4,252.5 - - - 4,252.5 C. Goods - - 125.8 41.6 122.9 290.3 D. Services 1. Trainingand Study Tours 29.2 60.4 60.9 66.6 32.6 249.8 2. TechnicalAssistance 87.7 258.6 236.5 151.8 102.6 837.1 Subtotal Servkis 116.9 319.0 297.4 218.4 135.2 1,087.0 Total InveshnentCosts 5,209.4 4,571.5 423.2 260.0 258.1 10,722.3 II. RecurrentCosts A. Salaries - - - 627.6 627.6 B. Other - - - 650.2 650.2 Total Recurrent Costs - - - - 1,277.9 1,277.9 Total PROJECTCOSTS 5,209.4 4,571.5 423.2 260.0 1,536.0 12,000.1
Taxes 407.4 - - - 62.8 470.2 ForeignExchange 1,073.5 302.6 312.8 197.6 327.7 2,214.2 Albania RuralDevelopment Project Table D: ProjectComponents by Year - TotalsIncluding Contingencies (USS '000)
Totals IncludingContingencies 1996 1996 1997 Total
1. RuralWorks 1,508.7 1,730.1 1,970.6 5,209.4 2. Small-ScaleCredft 1,824.0 1,687.4 1,060.2 4,571.5 3. Promotlonof RuralActMties 156.4 152.1 114.7 423.2 4. StudiesI LocalGovernment Training 89.1 86.9 84.1 260.0 5. ImpementationSupport 524.2 483.3 528.4 1,536.0 Total PROJECTCOSTS 4,102.4 4,139.8 3,758.0 12,000.1
Itto _ W Albania RuralDevelopment Proqect TableE: ExpenditureAccounts by Years- TotalsIncluding Contingencies (USS '°°°)
Totals IcludingContingencies 19t" 1996 1997 Total
1.Investmnt Costs A. ClviMWorks 1,438.5 1,690.5 1,963.5 5,092.5 B. Credit 1,732.5 1,575.0 945.0 4,252.5 C. Goods 131.7 85.8 72.8 290.3 0. Services 1. Trainingand Study Tours 99.6 87.5 62.7 249.8 2. TechncalAssistance 332.1 265.2 239.8 837.1 SubtotalServices 431.8 352.6 302.5 1,087.0 Total InvesdmentCosts 3,734.4 3,704.0 3,283.9 10,722.3 11.Recurrent Costs A. Salaries 168.3 210.3 249.1 627.6 B. Other 199.7 225.5 225.1 650.2 Total Recurrent Costs 368.0 435.8 474.1 1,m.9 Total PROJECTCOSTS 4,102.4 4,139.8 3,758.0 12,000.1 Albania RuralDevelopment Project Table1. RuralWorks Detailed Costs (USS '000)
Quantities Unit Base Cost Totals including Contingencies Unit 1996 1996 19n7 Total Cost 1996 1996 1997 Total 199 1996 1997 Total
1.Investment Costs A. InfrastuctureRehabilitation Works /a amount 1,370.0 1,610.0 1,870.0 4,850.0 1,438.5 1,690.5 1,963.5 5,092.5 B. Technkal Assistance Long termr/b Mo 3 2 - 5 13 39.0 26.0 - 65.0 41.4 28.2 - 69.6 Shortterm (fortraining) Mo 1 - - 1 17 17.0 - - 17.0 18.0 - - 18.0 SubtotalTechnical Assistance 56.0 26.0 - 82.0 59.4 28.2 - 87.7 C.Training/c amount 10.0 10.0 6.0 26.0 10.8 11.4 7.1 29.2 Total 1,436.0 1,646.0 1,876.0 4,958.0 1,508.7 1,730.1 1,970.6 5,209.4 la 63 subprojectsper year C USS25,700average cost persubproject. \b Costsfor a ong-termconsuftant to beshared with the UrbanPilot Project. \c Training(foriegn and local) for RDFstaff and commune technical staff.
IV Albania Rural DevelopmentProject Table 2. Small Credit Program Detailed Costs (USS '000)
Quantities UnKt Base Cost Totals Including Contingences Unit 1995 1996 1997 Total Cost 1995 1996 1997 Total 1995 1996 1997 Total
1. Investment Costs A. Village Credit Funds /a amount 1,650.0 1,500.0 900.0 4,050.0 1,732.5 1,575.0 945.0 4,252.5 B. Technical Assistance mo 4 5 5 14 17 68.0 85.0 85.0 238.0 72.2 92.2 94.2 258.6 C. Training amount 18.0 18.0 18.0 54.0 19.3 20.2 20.9 60.4 Total 1,736.0 1,603.0 1,003.0 4,342.0 1,824.0 1,687.4 1,060.2 4,571.5
\a Creation of 125 VCFs-55 in PYI, 50 in PY2, and 30 In PY3. Albania Rural DevelopmentProject Table 3. Promotionof Rural Activities Detailed Costs (US$ 000)
Quantities Unit Base Cost Totals Indluding Contingencies Unit 1996 1996 1997 Total Cost 1996 1996 1997 Total 196 1996 197 Total
L hIvesbnent Costs A. Microbusiness Advisory Service Local Adviers - Short Term mo 80 80 80 240 0.25 20.0 20.0 20.0 60.0 22.0 24.6 26.5 73.1 Training /a anourt 20.0 20.0 15.0 55.0 21.4 22.3 17.3 60.9 Subtotal Microbus_nss Advisory Service 40.0 40.0 35.0 115.0 43.4 46.9 43.7 134.0 B. Markdeng and Technical Reserch Marketng Studies anount 20.0 10.0 - 30.0 21.6 11.6 - 33.2 Techrcal Studies waout 20.0 10.0 - 30.0 21.4 11.1 32.5 Techndlogy Docmentai /b waourt 6.0 6.0 4.0 16.0 6.4 6.5 4.4 17.3 83.0 Subtotal Marktig and Technical Research 46.0 26.0 4.0 76.0 49.4 29.2 4.4 C. Veteriay Support Equtpmentandwdcvlne anount 30.0 40.0 30.0 100.0 31.8 43.4 33.3 108.5 97.7 D. Technical Auistane mo 2 2 2 6 15 30.0 30.0 30.0 90.0 31.8 32.5 33.3 423.2 Total 146.0 136.0 99.0 381.0 156.4 152.1 114.7 la Training (bcal end fomi) of tras \b Books, subcrpom, calogs, etc. It Albania Table4. Studies/ LOcalGovernment Trainig Detailed Costs (US$ '000)
Quantfties Unit Base Cost Totals IncludingContingencies Unit 1996 1996 1997 Total Cost 1996 1996 1997 Total 1995 1996 1997 Total
1.Investment Costs A. Projecth¶pact Studies TechnicalAssistance(foreign) mrc 2 2 2 6 17 34.0 34.0 34.0 102.0 36.1 36.9 37.7 110.7 Short-termLocalStaff each 45 45 45 135 0.25 11.3 11.3 11.3 33.8 12.4 13.9 14.9 41.1 LogisticalCosts /a amount 9.0 9.0 9.0 27.0 9.6 9.8 10.0 293 Materials amounrt 4.0 3.5 3.5 11.0 4.3 3.9 4.1 12.3 SubtotalProject hTpa Studies 58.3 57.8 57.8 173.8 62.3 64.4 66.6 193.4 B. M & ETraining amount 10.0 5.0 - 15.0 10.7 5.6 16.3 C. LocalGovt Training and Study amount 15.0 15.0 15.0 45.0 16.1 16.8 17.4 50.3 Total 83.3 77.8 72.8 233.8 89.1 86.9 84.1 260.0
\a Carrental, etc. Albania Rural DevelopmentProject Table 5. ADF - Central Administration, Finance, Studies Detailed Costs (US$ '000)
Quantities Unit Base Cost Totals Including Contingencies Unit 1995 1996 1997 Total Cost 1996 1996 1997 Total 1996 1996 1997 Total 1. Invesent Costs A. Office Equipment Computers each 3 - - 3 2.5 7.5 - - 7.5 8.0 - - 8.0 Printers each 1 - 1 2 2.0 - - 2.0 2.1 - 2.1 Furniture each 6.0 3.0 1.5 10.5 6.4 3.3 1.7 11.3 Subtotal Office Equipment 15.5 3.0 1.5 20.0 16.5 3.3 1.7 21.4 B. Training - Finance, Administation, Studies amount 20.0 10.0 - 30.0 21.4 11.2 - 32.6 C. Technical Assistance /a mo 4 1 - 5 13 52.0 13.0 - 65.0 55.2 14.1 - 69.3 D. ProjectAudit /b anount - 30.0 30.0 - - 33.3 33.3 Total investment Costs 87.5 26.0 31.5 145.0 93.1 28.6 34.9 156.6 IL. Recurrent Costs A. Personnel Executive Director each 1 1 1 3 4 4.0 4.0 4.0 12.0 4.4 4.9 5.3 14.6 Internal Controller each 1 1 1 3 3.25 3.3 3.3 3.3 9.8 3.6 4.0 4.3 11.9 Department Head - Finance and Studies Department each 2 2 2 6 3.5 7.0 7.0 7.0 21.0 7.7 8.6 9.3 25.6 Sr. Accountant each 1 1 1 3 3.25 3.3 3.3 3.3 9.8 3.6 4.0 4.3 11.9 Jr. Accountant each 1 1 1 3 3 3.0 3.0 3.0 9.0 3.3 3.7 4.0 11.0 PersonnelOfficer and Procurement Officer each 2 2 2 6 3.25 6.5 6.5 6.5 19.5 7.2 8.0 8.6 23.8 Studies/MonitoringDept. Staff each 2 2 2 6 3 6.0 6.0 6.0 18.0 6.6 7.4 7.9 21.9 Secretaries/c each 4 4 4 12 2.5 10.0 10.0 10.0 30.0 11.0 12.3 13.2 36.5 Driver each 1 1 1 3 2.5 2.5 2.5 2.5 7.5 2.8 3.1 3.3 9.1 Subtotal Personnel 45.5 45.5 45.5 136.5 50.1 56.0 60.2 166.3 B. Per Diemr/Hotel amount 10.0 10.0 10.0 30.0 11.0 12.3 13.2 36.5 C. Vehicle Operating Costs each 1 1 1 3 8 8.0 8.0 8.0 24.0 8.8 9.9 10.6 29.2 D. Office Supplies amount 6.4 6.0 6.0 18.4 7.0 7.4 7.9 22.3 E. Utilities amount 5.0 5.0 5.0 15.0 5.5 6.2 6.6 18.3 Total Recurrent Costs 74.9 74.5 74.5 223.9 82.3 91.7 98.6 272.6 Total 162.4 100.5 106.0 368.9 175.4 120.3 133.5 429.2
\a Costs for a long-term consultant to be shared with the Urban Pilk Project. \b Cost for audit for PY1 and PY2 budgeted under Urban Pilot Project. XcIncludes cashier/filer for Finance Department.
IVoat f 0 Albania RuralDevelopent Prcqect Table6. ADF - RuralInfrastrctur De*. Detalbd Coats (USS 000)
Quanties Unit Ba Cost Totals Including Contingenies Unit 1995 19 1997 Total Cot 1906 1M 1997 Totl 1990 1996 11n7 Total
L kivestnuentCodts A. Offlie Equipment
Comptr each 2 - - 2 2.5 5.0 - - 5.0 5.3 - - 5.3 Prhbtr sech 1 - - 1 2 20 - - Z0 2.1 - - 2.1 Copier each I - 1 3 3.0 - - 3.0 3.2 - - 3.2 Misc. SmallEquimt amot 2.0 2.0 2.0 6.0 2.1 2.2 2.2 6.5 Total h vwestmnarCosts 120 2.0 2.0 16.0 12.7 2.2 2.2 17.1 N.Recurren Coats A. Personel Depatme Heed each 1 1 1 3 3.5 3.5 3.5 3.5 10.5 3.9 4.3 4.6 12.6 DeputyDqutn Head ach 1 1 1 3 3.25 3.3 3.3 3.3 9.8 3.6 4.0 4.3 11.9 Work Inspectors each 7 7 7 21 3 21.0 21.0 21.0 63.0 23.1 25.9 27.8 76.7 Secretary each I 1 1 3 2.5 2.5 2.5 2.5 7.5 2.8 3.1 3.3 9.1 Drvr each 4 4 4 12 2.5 10.0 10.0 10.0 30.0 11.0 12.3 13.2 36.5 Subtotal Personnel 40.3 40.3 40.3 120.8 44.3 49.6 53.3 147.1 B. PerDiem/Hotel arnout 16.0 16.0 16.0 48.0 17.6 19.7 21.2 58.5 C. VehicleOperahg Costs each 4 4 4 12 8 32.0 32.0 32.0 96.0 34.3 35.9 37.2 107.4 D. VehicleRental amount 25.0 25.0 25.0 75.0 27.5 30.8 33.1 91.4 E. Offce Supplies amournt 10.0 10.0 10.0 30.0 11.0 12.3 13.2 36.5 Total Recuffent Costs 123.3 123.3 123.3 369.8 134.7 148.3 157.9 440.8 Total 135.3 125.3 125.3 385.8 147.4 150.4 180.1 457.9 Albania Rural DevelopmentProject Table 7. ADF - Rural Credit Dept. Detailed Costs (US$ '000)
Quantities Unft Base Cost Totals Including Contingencies Unit 1996 1996 1907 Total Cost 1996 1996 1997 Total 196 1996 1997 Total
1. h_wsnt Costs A. Ofel EquIpment Portbl compAuer/prtrunwlb each 9 3 3 15 3.5 31.5 10.5 10.5 52.5 33.4 11.4 11.6 56.5 SotwAre amout 5.0 1.0 1.0 7.0 5.3 1.1 1.1 7.5 Misc. Smal Eqipmret anmont 2.0 2.0 2.0 6.0 2.1 2.2 2.2 6.5 Total kwesbnit Cos 38.5 13.5 13.5 65.5 40.9 14.6 15.0 70.5 L 1Recurrui Costs A. Pronom Deqbnt Hed ech 1 1 1 3 3.5 3.5 3.5 3.5 10.5 3.9 4.3 4.6 12.8 ReglimdOfflows each 1 2 2 5 3.25 3.3 6.5 6.5 16.3 3.6 8.0 8.6 20.2 Acoourtrt each 2 2 2 6 3 6.0 6.0 6.0 18.0 6.6 7.4 7.9 21.9 CredOtficent eech 8 11 15 34 3 24.0 33.0 45.0 102.0 26.4 40.6 59.5 126.6 C_hoffeo ech 4 6 8 18 2.75 11.0 16.5 22.0 49.5 12.1 20.3 29.1 61.5 Secrtaly ech 1 1 1 3 2.5 2.5 2.5 2.5 7.5 2.8 3.1 3.3 9.1 Dwter ech 2 2 2 6 2.5 5.0 5.0 5.0 15.0 5.5 6.2 6.6 18.3 Suhtad Pesonnel 55.3 73.0 90.5 218.8 60.8 89.9 119.7 270.4 B. Per Dem / Hotl wnount 20.0 20.0 20.0 60.0 22.0 24.6 26.5 73.1 C.Vdehl.OporatngCosts each 2 2 - 4 8 16.0 16.0 - 32.0 17.6 19.7 - 37.3 D. Vehicle Rental amourit 9.0 13.0 17.0 39.0 9.9 16.0 22.5 48.4 E. Office Supplies amount 5.0 5.0 5.0 15.0 5.5 6.2 6.6 18.3 Total Recurrent Costs 105.3 127.0 132.5 364.8 115.8 156.4 175.3 447.5 Total 143.8 140.5 146.0 430.3 156.6 171.0 190.3 517.9
_ V
Albania RuralDevelopment Project _ Table8. ADF - RuralActbvies Dept. DetailedCosts (USS'000)
Quantites Unit BaseCost Totals ncluding Contingencies Unit 1995 1996 1997 Total Cost 1996 1996 1997 Total 1996 1996 1997 Total
1.investment Costs A. Office Equiprent Compuers each 2 - - 2 2.5 5.0 - 5.0 5.3 - - 5.3 Printr each 1 - - 1 2 2.0 - - 2.0 2.1 - - 2.1 Misc.Small Equipment amount 2.0 2.0 2.0 6.0 2.1 2.2 2.2 6.5 TotalinvestMe Costs 9.0 2.0 2.0 13.0 9.6 2.2 2.2 13.9 II. RecurentCosts A. Personnel DepartentrHead each 1 1 1 3 3.5 3.5 3.5 3.5 10.5 3.9 4.3 4.6 12.8 Staff each 2 2 2 6 3 6.0 6.0 6.0 18.0 6.6 7.4 7.9 21.9 Driver each 1 1 1 3 2.5 2.5 2.5 2.5 7.5 2.8 3.1 3.3 9.1 Subtotal Personnel 12.0 12.0 12.0 36.0 13.2 14.8 15.9 43.9 B. PerDierm/ Hotel amount 10.0 10.0 10.0 30.0 11.0 12.3 13.2 36.5 C. VehbieOperatng Costs amount 8.0 8.0 8.0 24.0 8.8 9.9 10.6 29.2 D. OfficeSupplies amount 2.0 2.0 2.0 6.0 2.2 2.5 2.6 7.3 Total RecurrentCosts 32.0 32.0 32.0 96.0 35.2 39.4 42.3 116.9 Total 41.0 34.0 34.0 109.0 44.8 41.6 44.6 130.9 ANNEX C Page I of 1
ALBANIA RURAL DEVELOPMENT PROJECT
RURALPOPULATION, VILLAGES, FARMS AND AVERAGE FARM SIZE BY DISRICT, 1993
Rural Number of Number of Arable Land Average Farm Population Villages Farms Area (ha) Size (ha) .,',',,',',"',',,,,,,,,,.,.,,,.'''-""""'''"'~~~~~...... , .....;. ,,...!.g.
Berat 91,660 120 20,324 35,522 1.75 Kucove 15,612 15 3,139 5,503 1.75 Durres 59,840 61 16,283 26,405 1.62 Kavaje 59,500 63 13,237 25,134 1.90 Elbasan 118,855 174 25,471 39,221 1.54 Pegin 27,656 49 6,060 8,523 1.41 Fier 131,838 108 34,471 57,031 1.65 Mallakaster 34,867 37 6,852 14,134 2.06 Kruje 35,748 41 10,730 15,231 1.42 Lac 18,082 22 5,855 10,228 1.75 Lezhe 53,125 63 12,670 18,583 1.47 Lushnje 89,239 113 25,637 51,136 1.99 Sarande 25,755 51 9,546 15,359 1.61 Delvine 20,146 48 6,367 10,466 1.64 Shkoder 120,426 135 29,240 30,243 1.03 Malesi e Madhe 48,650 55 11,810 15,255 1.29 Tirana 137,046 148 31,191 33,103 1.06 Vlore 86,666 99 26,218 37,812 1.44 Korca 102,089 149 23,902 47,000 1.97 Devoll 34,377 44 7,904 15,975 2.02
:...... , . . .. "..... c ...... j. 2 ..
Diber 94,199 138 25,071 19,365 0.77 Bulqize 37,830 60 11,897 8,091 0.68 Gjirokaster 40,430 95 10,251 17,693 1.73 Gramsh 33,960 92 6,549 10,360 1.58 Kolonje 16,011 75 4,334 11,260 2.60 Kukes 62,564 90 13,300 11,416 0.86 Has 24,100 29 4,306 6,492 1.51 Librazhdi 82,464 73 13,573 15,519 1.14 Mat 60,406 85 12,600 14,123 1.12 Mirdite 39,294 80 10,328 6,318 0.61 Permet 30,026 96 5,917 14,723 2.49 Pogradec 49,518 72 12,057 17,506 1.45 Puke 39,775 74 10,476 5,165 0.49 Skrapar 21,930 101 6,063 12,141 2.00 Tepelene 35,822 76 7,955 13,055 1.64 Tropoje 35,162 65 11,114 7,390 0.66
Source: Ministry of Agriculture and Food, May 1994
ANNEX D Page 1 of 41
ALBANIA
RURAL DEVELOPMENT PROJECT
ANNEX D
MANUAL OF PROCEDURES OF THE ALBANIAN RURAL DEVELOPMENT FUND
PART I. GENERAL OBJECTIVES AND PRINCIPLES
SECTIONA: OBJECTIVESOF RDF
This ProceduresManual (the Manual)provides operational guidelines and general administrative proceduresfor activitiesto be carried out by each departmentof the AlbanianDevelopment Fund (ADF), as specifiedin Article 1 of the Internal Regulationsof ADF. The Internal Regulationsof ADF contains detailed administrativeprocedures.
GeneralObjectives
1.1 ADF's objective is the development of Albania's less-developedareas through employment creation and economicactivities, infrastructurerehabilitation, and assistingin the emergenceof a private sector. The target populationof ADF is the poorest part of the rural populationand the unemployedin urban areas, includingthose receiving social assistanceor unemploymentbenefits.
Rural Works Projects
1.2 ADF will promote and finance, through grants, labor-intensiverural infrastructureconstruction and rehabilitation projects. Projects shall be initiated by the villages and submitted to ADF by the communes. ADF shall enter into contractualpartnerships with local institutionssuch as electedcommune councils, elected village committees,or other bodies. In each case, contracts shall make provision for the operationsand maintenanceof public worksprojects. ADF shall select and financeprojects according to principles and procedures set out in Part B of this Manual.
CreditProjects
1.3 ADF will promote and establishvillage credit funds to finance small loans to farmers and other rural residents for all types of income-generatingactivity. ADF's contractualpartners shall be elected VillageCredit Committees. ADF's activitiesin this field shall be carried out accordingto principlesand proceduresset out in Part C of this Manual. ANNEX D Page 2 of 41
Promotion and Support of Rural Activities
1.4 ADF will assist in the developmentof rural activities by promoting professional associations, including animal health associations for village-wide prophylaxis, and by providing demand-driven technical and business advise and essential materials to farmers and microentrepreneurs,according to principles and procedures set out in Part D of this Manual.
Studies and Training
1.5 ADF will monitor the progress and impact of its activities, and will carry out studies in the project's intervention area to assess the new situation of the rural areas, evaluate the impact of the project, and orient the activities of ADF. ADF will also organize training for its staff and for local governmentstaff. Part E of this Manual coversprinciples and proceduresfor ADF's respectiveactivities in these areas.
SECTIONB: WORKINGPRINCIPLES OF ADF
Autonomy
1.6 Relations between ADF and the Government are governed by the Decision of the Albanian Councilof Ministersestablishing ADF. The Board of Trustees is ADF's regulatingbody, and no other authoritycan influenceor override ADF's choicesof activities,apart from laws and regulationsgenerally applicableto legal persons under private law.
Inpartiality
1.7 In its relations with third parties, such as communes, villages, village credit funds and sub- contractors, ADF shall practice no form of discriminationor preferentialtreatment and will exclusively apply the decision-makingcriteria and selectionprocedures described in this Manual. In order to avoid potential conflicts of interest, ADF staff cannot hold any interest in enterprises, or exercise any responsibilityin the public or private institutions,that are maintainingcommercial relations with ADF, as set out in Article 9 of ADF's Internal Regulations.
Transparency
1.8 Based on the provisions in this Manual, ADF shall seek to put in place transparent and controllableprocedures that are simple and streamlined, but at the same time flexible enough to enable ADF to carry out its wide range of activities.
Cost-Effectiveness
1.9 ADF shall seek to maximize,and monitor closely, the achievablebenefits of its activitieswithin ADF's budget constraints. Cost-effectivenessmust be an important working principle and criterion for all of ADF's decisions. ANNEX D Page 3 of 41
Sustainabilityof the Credit System
1.10 ADF shall charge interest rates and fees that will cover the full transactionscosts of all parties involvedin providingrural creditunder the village credit fund system. Furthermore, interest rates should be positive in real terms, and, in the long term, a savings scheme should achieve ownership of village credit funds by beneficiaries.
Annual Work Plan and Budget
1.11 Each ADF departmentshall present to the Board of Trustees for approval an Annual Work Plan and Budget, to be agreed by participatingdonors. The Annual Work Plan and Budget may be adjusted during the year with the agreementof the Board of Trustees and participatingdonors.
EnvironmentalConsciousness
1.12 The appraisalcriteria set out in this Manualfor selectingrural works and credit projects explicitly refer to environmentalconsiderations in project design and implementation. ADF's engineers and credit officers are required to take into account the impact of prospectiveprojects on the physical, biological and social environmentof the concernedvillages. ANNEX D Page 4 of 41
PART II. - RURAL WORKS SUBPROJECTS
SECTION A: ELIGIBLE REGIONS AND PROJECTS
Regional Distribution
2.1 During the full-scale stage of ADF's operations, rural works subprojects shall be extended progressivelyto all districts of the country, with priority given to the poorest areas.
2.2 Funds for rural works projects shall be assigned in two stages: In the first stage, funds are allocated to the districts; in the second stage, funds are then allocated to the communes within each district. The allocationof funds to districts and communesis performed such as to target a larger share of resourcestowards the poorest families. The formula to be used for both stages of distributingfunds is a poverty index, or marginalityindex. This index takes into consideration:
(a) arable land per capitaamong the rural population(ex-cooperative members and state farm workers). The more arable land is available per rural inhabitant, the more likely are families to satisfy their subsistencerequirements, and less funds for rural works will be allocatedto the respectivedistrict or commune;
(b) the percentageof arable mountainousand hilly land per district. Mountainousand hilly land is less fertile and farmers living in these districts have less access to inputs (such as water, seeds, pesticides, and fertilizer) and face higher costs to transport their produce to distant markets. More funds for rural works will be allocatedto these districts, and to communes in mountainousand hilly areas within these districts.
(c) the official unemployment rate per district. Districts and communes with high unemploymentwill be assigneda larger portion of funds for rural works. However, this criterion will have a smaller degree importancein allocatingfunds than the two criteria described above.
2.3 Allocation of funds will also take into account the amount invested previously in the district/commune, and constraints imposed by donors. In addition, the motivation and interest of communes in undertaking rural works is taken into account, as well as the ability and efficiency of communes in carrying out previous contractsfor ADF rural works.
2.4 Further informationon the methodologyused to determine distributionof funds among districts is provided in Attachment 1.
2.5 Detailedbudget plans for distributingfunds to rural works projects in districtsshall be elaborated for each year. These plans can be revised after the first 6 months of the respectiveyear, and allocations of funds to districts and communescan be changed. However, these changesmay not affect more than 25% (plus or minus) of the budget allocatedper district at the beginning of the respective year.
2.6 In any given commune,ADF shall initially financeonly one rural works subproject in order to test the commune'smotivation and implementationcapacity. Additionalprojects may be approvedif the preceding works have been completed satisfactorily, and the final paymentby ADF has been made. ANNEX D Page 5 of 41
Distributionby Sector
2.7 ADF sets its priorities for selectingrural works subprojectsin the various public works sectors in accordancewith its key objectives: to improve rural infrastructure,create employmentand provide support to localgovernment and organizations. Given these objectives,rural works subprojectsfinanced by ADF will be mainly oriented towards the following sectors and project types:
(a) repairing communaldirt roads and small bridges;
(b) rehabilitatingvillage irrigation and drainage schemes;
(c) extending and repairing existing water supply and village sewerage systems; in some cases, completingwater supply investmentsstarted before 1991;
(d) repairingor reconstructingschools and health centers;
(e) building or repairing market facilities; and
(f) pilot subprojects, such as installing hydraulic rams in small irrigation schemes and rehabilitationof idle land into pastureland.
2.8 Projects with lower priority, because of their lower overall impact given ADF's key objectives, are repairs of electricity and telephone networks, and afforestationand water/soil conservation.
2.9 These sectoral priorities shall be reviewed and revised annually, based on the needs expressed by communes and villages, and dependingon technicaland financial considerations.
Distributionby Project Size
2.10 Averageproject size shall be estimatedin the ADF InfrastructureDepartment Annual Work Plan and Budget, to be agreed by the Government and participating donors. ADF shall not finance rural works projects with total costs exceeding US$40,000 equivalent. If certain projects require larger amounts of financing,the respective infrastructureproject should be divided into several independent, consecutiveproject phases such as not to exceedthe set size limit, and each project phase would have to be completedbefore a related following project phase could be started.
2.11 The size limit of rural works projects shall be reviewed periodically and, if necessary, altered.
Public versus Private Projects
2.12 ADF shall provide financing for public works projects only. However, private infrastructure projects that are linked to the public works to be undertakenand financedby ADF can be includedinto project design and implementation. Examples include small private access paths to public roads, and privately-ownedwater canals to public water supply networks or public irrigation/drainagesystems. In these cases, private works projects will be dealt with as follows:
requestedprivate infrastructureworks shall be clearly identified, specifiedand separated from public works at initial project design; ANNEX D Page 6 of 41
private works shall be carried out together with ADF-financedpublic works in order to ensure high quality, identical technical standards and compatibility of all works performed;
ADF shall financethe cost of performingthe public portion of the works. The commune will pre-financethe cost of the private works portion, and will then seek reimbursement for the respective expensesfrom the private beneficiary.
SECTIONB: PROJECTAPPRAISAL CRITERIA
Project Selection
2.13 Rural works subprojectspresented to ADF for financing shall meet the following criteria:
(a) subprojects shall have a high social and economic impact in improving rural public infrastructure;
(b) subprojectsshall rely less on heavy equipmentand emphasizelabor intensivetechniques in their implementation,although heavy equipmentmay be used if not replaceableby manual labor or if such equipmentpermits an improvementin the sustainabilityof the project or a decrease in associatedoperational and recurrent costs;
(c) subprojects shall provide support to local governmentand organizations;
(d) subprojects shall focus on repairing existing infrastructuresrather than financingnew investments; however, this rule may be waived when a new investment: (i) is badly needed by the rural population; (ii) is simple to carry out; (iii) is technicallybetter than the partially existinginfrastructure; (iv) preservesthe biologicaland social enviromnent; and does not exceed the limit of project size specifiedin the Manual.
(e) to the extent possible, subprojects shall have a high local material content. Exceptions are possiblefor projectswith large social impact requiring importedequipment and parts, such as water supply projects;
(f) subprojects shall be designed and be implementablesuch as to preserve the physical, biological, and social environment;
(g) subprojects shall encourage the active participation of women in the communes and villages concerned; and
(h) subprojects shall be simple, avoid administrative complexity, and should be implementablewithin one year.
2.14 ADF staff shall assign weightsto each of these subprojectselection criteria and develop a scoring system for selecting rural works projects. If the volumeof eligible projects presented to ADF exceeds ADF's administrativeand financial capacities, this scoring system shall be applied to pre-select rural works projects for subsequentdetailed evaluation. ANNEX D Page 7 of 41
Project Evaluation
2.15 Each rural works subproject selected for subsequentappraisal shall undergo separate technical, environmental,economic and financial evaluationsby ADF staff.
Technical Design
2.16 Rural works subprojectsshall be evaluatedaccording to standardengineering and other technical specifications. Technicaldesign shall be done by local technicians(usually at the district level) with the assistance of ADF inspectors, using the design models establishedby ADF. The following technical guidelinesshall be used in project design.
- Roads will be only earth roads, 6.5m maximumwidth when possible (includingshoulders and drainage ditch). Special attentionwill be paid to road drainage (ditches and related pipe culverts); compactingwill be undertakenwhen possible.
- Irrigation will be based on rehabilitation of the existing works, improvement of distribution networks (field outlets) and minimizingwater losses (lining of the canals). Priority will be given to small gravity networks. The key question in irrigation works will be the Water User Associationwhich will be the local partner, and creation of such associationswill be a prerequisitefor ADF intervention.
- Water supply: Only small gravity village networks will be repaired or extended,based on public fountains (averagingone fountain per family). When public fountains do not exist, they may be installed;when they already exist, they may be rehabilitated and, if technicallyand financiallyacceptable, extended. If villages request private taps, it must provide the necessary pipes before the commencementof the subproject. Most of the works will concern repairs and/or completionof existinggalvanized steel pipes networks, but new materials such as polyethylenepipes may be tested.
- Schools:repairs (or construction)will be done accordingto the norms of the Ministryof Education. As far as possible, small enterprises and local craftsmen (brick layers, carpenters),will be hired.
Environmental Evaluation
2.17 In order to assure that rural works projects have no adverse impact on the environment, ADF staff shall carry out environmental assessments of rural works projects in accordance with ADF's Environmental Guidelines and Checklists. Such Guidelines shall be reviewed and changed when necessary, with the agreement of the Board of Trustees and participatingdonors.
Economic Evaluation
2.18 Economic rates of return on different rural works projects are difficult to estimate, given the present uncertaintyrelated to domesticprice and tax levels. ADF staff shall therefore estimate expected project benefits through an analysisof the impact of investmentsfinanced on the village economyand on the standard of living of the affected population. This assessmentshall be made through brief surveys carried out before and after project execution. ANNEX D Page 8 of 41
2.19 The evaluationof benefits shall concentrateon the number of village inhabitantsbenefitting from the proposed rural works. The amountof additionalincome generated, eitherthrough direct employment during the works or through utilizationof the infrastructurecreated, shall also be estimatedby ADF staff. Specific economicevaluation criteria for differenttypes of rural works projects will include:
- for rod: the projecteduse by additionaltraffic at differentseasons of the year (number of pedestrians, cars, trucks);
- for irrigationprojects: the numberof benefittingfarmers, the amount of additionalwater supplied at differentseasons of the year, and degree of effective organizationreached for the local Water User Association;
- for water suXl2 projects: the quality of water, the number of benefitting households, and the average time required to retrieve and transport water from a public fountain;
- for school projects: the number of benefittingstudents and classes,and the averagetime required to reach the school from the parents' home.
2.20 Furthermore, ADF staff shall utilize the following ratios to evaluate whether expected benefits will be achieved in a cost efficient way:
(a) cost per man/monthemployed;
(b) unit cost (per km of road, per liter of water, etc.) for each type of rural works project;
(c) investmentcost per capita and/or per beneficiary;
(d) percentageof labor in the total investmentcost.
2.21 These unit costs shall be used to establishstandard profiles and prototypesfor each differentkind of rural works projects and shall help define maximum and minimum parameters generally acceptable.
Financial Evaluation
2.22 Projects presentedto ADF must provide a detailedproject cost budget, revealingthe breakdown of total cost includingthe followingpositions:
(a) material cost: types of inputs required, unit cost, amounts required, total cost per type of material, contingencies,timetable showing at what project stage materials are needed;
(b) salaries: types hired workers required, unit cost, hours of labor required, total labor cost, contingencies,timetable showing at what project stage which labor input is needed;
(c) other contracted services (such as transport): types, cost, contingencies,and timetable.
2.23 ADF staff shall carefully review all assumptionsmade on costs and project timing and propose necessarychanges such as to assure that projects can be carried out within a realistic and enforceablecost budget and time-frame. ANNEX D Page 9 of 41
SECTIONC: PROCEDURESFOR PROJECT PROCESSING
Promotionby ADF
2.24 ADF's rural works activities are fully demand driven, with the initiative being taken by communes and villages. InfrastructuralDepartment promote ADF's services by informing communes and villages in qualifyingdistricts about the type of rural works projects to be financed by ADF. This promotion campaign should be carried out through visits by ADF staff to the respective districts and communes. In order to promote activities at the national level, the ADF may place advertisementsin newspapersand broadcast announcementson radio and television.
Requestfrom the Village/Commune
2.25 Each village will establish a list of potential subprojectsby organizinga village meeting. At the commune level, village chiefs will meet to discuss the subprojects, and the commune will present the priority subprojectsto ADF. All subprojectswill be filed within ADF's rural works subprojectsdatabase, and the priority subproject will be subject to a feasibility study.
Appraisal of Subprojects
2.26 All requestsfor financingof eligible subprojectsshould result in technicalvisits of the respective village by ADF engineers. In case of large numbers of requests, subprojects may be pre-selected for subsequentvisits, and for detailed evaluation, based on the criteria for project selection set out in this Manual. During their technicalvisits, ADF engineerswill verify the informationcontained in the request for financing and gather additional informationif required. ADF engineers will meet with the village committee, the commune representative,the designer, the (potential) contractor and the local technical supervisor of the proposed project and will verify, at the district level, the subproject's selectioncriteria.
2.27 ADF engineers will inquire about prices of material and labor in the respective region and will, progressively,build up a comprehensivecost database for the entire country. Unit cost tables will be prepared, and updated regularly, on a regional basis for the most representativetypes of rural works projects financedby ADF. Given the diversity of prices on local markets, this will allow for effective cost control of projects to be financed. ADF's collectionand disseminationof price information on a nationwidebasis will also have a positiveeffect on the organizationof local markets. ADF engineerswill also establish a list, by district and commune, of artisans and small entrepreneurswho correspondto ADF's quality requirements.
2.28 After compiling all required information, ADF engineers will evaluate each eligible (and pre- selected)rural works subprojectfollowing the evaluation criteria set out in this Manual.
2.29 Subprojectsshall be part of existingmaster plans establishedby the state and/or district, and ADF shall inform and collaboratewith the relevant ministries.
SubprojectApproval and ContractSigning
2.30 On the basis of the appraisalreport presented by the appraising ADF engineer,ADF's Executive Committeeapproves, rejects or request modificationsof the rural works subproject. Contracts between ANNEX D Page 10 of 41
ADF and communes, approving the allocation of ADF funds for subprojects, shall be drafted. Contracts need to be signed by ADF's Executive Director, or by the person designatedby the Executive Director for signature, and by the chairman of the commune. Within the financial limits set by the contract, the commune then signs agreements with subcontractors for labor, equipment, and materials. In the case that works are subcontractedto a private enterprise, a contract will be signed by the enterprise and the commune,using a model contract provided to the communeby ADF.
2.31 The two conditionsfor ADF financingand signing of the contract are that:
(a) an infrastructural committee has been established, comprised of the commune chief, commune treasurer, president of the users' committee, and commune technician; the infrastructural committee is in charge of assuring the technical and financial implementationof the subproject;
(b) a users' committeehas been established,comprised of a president (electedby the village), communetreasurer, village technician(elected by the village). The establishmentof a two-year maintenancefund is obligatory before the commencementof the subproject. The maintenance fund is managed by the users' committee and the infrastructural committee.
CounterpartFinancing
2.32 Counterpartfinancing of at least 5% of investmentcost should normally be required by ADF to ensure that good quality projects are presented by the communes, that the cost of the projects is as low as possible, and that projects will be sustainablebeyond ADF financing. Given the severe lack of local investmentbudgets in Albania , the requirementfor such a contributionmay be waived.
Worker Selection
2.33 Workers are selected by village councils on a voluntary basis along the following criteria:
(a) workers shall be inhabitantsof the village concerned;
(b) workers shall have the minimum legal age;
(c) priority shall be given to workers coming from the poorest families in the village concerned;
(d) only one member per family will be employed.
2.34 If the subproject is undertakenby a private enterprise, the enterpriseshall recruit unskilledlabor on the basis of the same criteria (para. 3.10 (a)-(d)).
Salaries and Fees
2.35 For manual labor, the salaries to be paid on ADF-financedsubprojects will be defined according to unskilled sectoral market rates. In the case of subprojects where the social and overall economic impact is more importantthan the employmentgenerating effect of the works to be carried out, salaries ANNEX D Page 11 of 41 will be below market rates in order to allow for a contributionof the village to the financing of the project. This may be the case for water supply and school repair subprojects, especiallyin lowlandareas where an additional cash income is not an absolute necessity.
2.36 The preparation of subprojects will be considered as in-kind contribution by communes. Technical supervision will be remunerated according to the actual amount of time spent by local technicians and engineers, but shall be limited to an amount of US$100 equivalent. ADF will limit administrativeexpenses and profit margins allowed under projects. Such margins should, however, be adequateto interest qualified contractorsand ensure quality of works.
Procurement
2.37 ADF shall contract with the commune. In most cases, the communeshall directly carry out the subproject, using local shopping procedures-comparing the price of at least three offers-for the purchaseof all materials, transport, and equipmentrental. In some cases, the communemay subcontract the entire subproject to a private enterprise using local shopping procedures and sample bidding documents provided by ADF. ADF engineers will train and assist communes in applying and documentingprocurement procedures.
Disbursements
2.38 Disbursementsby ADF will be undertakenas follows:
(a) When the communecarries out the subproject:
- one advancepayment, calculatedon the basis of supplies, labor and contracted services, of not more than 40% of the total estimated project cost;
* mediumterm payment(s),made on the request of the commune accordingto the actual expenses, and justified by certified invoices as described below. When asking for medium term payment, the commune will set up a revised cost estimate of the works accordingto actual works done and prices paid on inputs. Both advance and medium term payments will not exceed 80% of the revised cost; - final payment, equal to the difference between the total cost according to the actual expenses of the commune, and all previous payments made by ADF. Expenses need to be justified by certified invoices. The final payment will be made after (i) successfulcompletion and operationof all works agreed under the contract; (ii) provisionof acceptableassurances for safeguardingand maintenance of the works by the village council. Reductions in final payments can be made by ADF dependingon the quality and amount of works actually performed;
- in special cases, when the commune is not financially able to complete the project without a third payment, and if the communeguarantees to completethe work within one month, a third payment no greater than 10% of the revised cost estimate may be provided. ANNEX D Page 12 of 41
(b) When a private enterprise is the subcontractorfor the subproject, payments will be made in three tranches, accordingto terms stipulatedin the contractbetween the communeand the enterprise. The subcontractorshall provide a 5% guaranty.
2.39 For purchasedmaterials, equipment and services, ADF disburses against detailed and certified invoices presented and signed by the commune infrastructuralcommittee, the commune chairman, the president of the users' committee, and the technical supervisor. For labor costs, ADF will make paymentsagainst payrolls. The communewill keep records and provide all receipts andjustifications for expensesrelated to the works. In the event of changesin costs, quantities,or works, the communeshall obtain the prior approval of ADF. If the subproject is undertaken by an enterprise, disbursement procedures shall be stipulated in the contract.
Supervision of Projects
2.40 Although communes are responsible for technical supervision of works carried out in their villages, ADF engineers will visit all projects in execution on a regular basis to check progress and quality of works done. For that purpose, ADF staff will design and implementa follow-up system that will assure that approvedrural works projects receiveperiodical visits. Each engineeremployed by ADF will be responsiblefor covering one specified region or group of districts in the country. According to the disbursementmechanism specified above, at least two technical audit missionsby ADF staff will be required for each project: (i) before medium term payments, and (ii) before final payment.
Breaking of Contracts
2.41 ADF reserves its rights to break the contractif the communeas the contract partner fails to fulfill its duties or it appearsthat the works cannot be properly carried out in due time and cost. In these cases, a detailedaccount of the expenseswill be made and deliveredgoods and supplies will remainthe property of the ADF, the communebeing responsiblefor them by keeping them in safety until the ADF decides on their new allocation. Moreover, if the failure comes from the side of ADF's contractualpartner, such as the commune, it will lose eligibility for any further fundingfrom ADF.
Sustainability and Cost Recovery
2.42 In most projectcases, maintenanceof the new local infrastructurewill be the responsibilityof the commune. When necessary, creation of maintenancecouncils and maintenancefunds may be required to ensure the sustainabilityof projects. Cost recovery shouldbe consideredfor certain projects, such as water supply where user fees should be progressively introducedwith the framework of general tariff reform.
Infrastructure Department Records
2.43 In order to monitor and record the history of program development, the ADF Infrastructure Departmentshall maintain a file containingall sample contracts and other documentsused in processing projects. All versions of such documentsshall be maintainedin the file; all changes to documentsshall be carefullyrecorded. This file shall be availableto Governmentand participatingdonors upon request. ANNEX D Page 13 of 41
SECTIOND: STAFF REQUIREMENTS
2.44 The rural works departmentof ADF will require the employmentof two categories of technical staff: infrastructurefield inspectors who will be in charge of identifyingand supervising rural works projects, and chief inspectors in charge of coordinatingfield inspectors.
2.45 Staff will be recruited through announcementsin the mediaand selected accordingto professional experience and basic tests. To complement their technical backgrounds, infrastructure and chief inspectorswill be trained by ADF in the fields of local organization and intervention in rural areas. ANNEX D Page 14 of 41
ArrACHMENT 1
TARGETINGMETHODOLOGY FOR RURAL WORKS PROJECFS
Objectives
The Rural DevelopmentFund (RDF) will operate in all areas of rural Albania. However, RDF will target and allocatea larger than proportionalshare of resourcestowards the poorest families. An index of marginality is used to identifythe districts where the poorest families reside, and to rank the districts into 4 poverty categories.
Thereafter, RDF's resources for rural works projects are divided among the districts on a per capita allocation basis, weighted in favor of the poorest districts. This allocationprocess will then be repeatedto divide the resourcesallocated to single districtsamong the various communesof each selected district.
Selection of Variables
The poverty index used is based on the arable land per rural capita, weighted by the percentage of plain, hilly and mountainarable land. As a first componentto this indicator,the amountof arableland per capita among the rural population (ex-cooperativemembers and state farm workers) is measured. The larger the per capita availabilityof arable land, the more likely a family will be in a position to satisfy their subsistencerequirements and produce a marketablesurplus.
Second, the percentage of arable mountainous and hilly land per district is taken into consideration. This criterion reflects the level of poverty in a district as mountainousand hilly land is less fertile, and farmers living in these districtshave less accessto inputs (especiallywater, pesticideand fertilizer) as well as higher transactionscosts to market their produce.
It needs to be noted, however,that the unemploymentrate, as a potential third indicatorof rural poverty has not be taken into considerationfor the following reasons:
- respectivedata are not accurate since availableJuly 1992 unemploymentrates were not properly constructed as some districts included only individuals receiving social assistance;
- unemploymentdata are not yet available at the commune or village level, such that a budgetallocation between communes could not be carriedout with the same methodology used at the district level.
Once reliableunemployment information will be availablein the required detail, RDF staff should incorporate the rate of unemploymentinto the methodologyfor targeting RDF's rural works funds.
Methodology
Topographyindex
The Table 1 shows the actual arable area (in ha) per district with a breakdownbetween plains, hilly and mountainousareas. These data are based on the previousborders of districts in Albania, wbich ANNEX D Page 15 of 41 have been changed recently. RDF staff will adjust the data used in this Attachment 1, and recalculate the distributionof RDF's budget resourcesfor rural works projects among districts in the country, once updated data accordingto the new district structure become available.
In order to take into account the lower fertility of hilly and mountainousfields, the following weights have been used to calculate the weighted arable land per district: a coefficient of 100% for plains, of 75% for hilly areas, and of 50% for mountainousareas. A Topography Index has been calculatedas the ratio of weighted arable land per district, expressedin percent of the total arable land in the respectivedistrict.
Arable land per capita
In a secondstep, weightedarable land is being set in relation to the total rural populationwithin each district. As shown in Table 2, the national average for arable land per capita is equal to 0.27 ha, with the highest value of 0.47 ha per capita in the Kolonje district, and the lowest value of 0.06 ha per capita for the Puke district.
Marginality index
The marginalityindex is a correctionfactor which is introducedin order to allocatea larger than proportionalshare of resources(on a per capita basis) to the poorest districts. For this purpose, districts are ranked and dividedinto 4 categoriesof poverty, accordingto their arable land per capita, as shown in Table 2. Marginalityindexes in the form of weightsbetween 120% for the poorest districts and 80% for the better-offdistricts are assignedto districts in each poverty category. ANNEX D Page 16 of 41
TABLE 1
District Plains Hilly Mountains Total Weighted Topogr&phy Index
PUKE 680 4018 467 5165 3927 76% MIRDITE 1263 3849 1206 6318 4753 75% TROPOJE 1118 4097 2175 7390 5278 71% KUKES 3581 9621 4722 17924 13158 73% KAT 1810 7690 4633 14133 9894 70% DIBER 9613 11241 7636 28490 21862 77% LIBRAZHDE 2841 8238 3410 14489 10725 74% BERAT 151 17613 14250 32014 20486 64% GRANSH 1128 5101 4133 10362 7020 68% TIRANE 9516 17739 5864 33119 25752 78% ELBASAN 11979 23487 12278 47744 35733 75% TeEPLENE 1826 9144 2098 13068 9733 74% SKRAPAR 441 7912 3800 12153 8275 68% SHKORDER 36203 7091 2290 45584 42666 94% VLORE 15052 8864 13908 37824 28654 76% SARANDE 11525 5930 8372 25827 20159 78% PERMET 2999 6670 5054 14723 10529 72% FIER 41445 22857 6864 71166 62020 87% KRUJB 18942 4658 1876 25476 23374 92% LEZHE 16768 1737 0 18505 18071 98% DURRES/KAVAJE 30028 17501 4021 51550 45164 88% KORCE 30536 26872 5568 62976 53474 85% GJIOKASTER 9499 6080 2114 17693 15116 85% POGRADEC 2381 8347 6778 17506 12030 69% LUSHNJE 37012 10574 3550 51136 46718 91% XOLONJE 2191 6323 2754 11268 8310 74%
TOTAL 300528 263254 129821 693603 562881 81%
Average (%) 43% 38% 19% 100% 81% ANNEX D Page 17 of 41
TABLE 2
District Area (ha) Area (ha) Rural ha/capita ha/capita Marginal. Total Weighted Populat. Total Weighted Index
POOREST PUKE 5165 3927 67400 0.08 0.06 120% MIRDITE 6318 4753 43900 0.14 0.11 120% TROPOJE 7390 5278 35800 0.21 0.15 120% KUKES 17924 13158 86900 0.21 0.15 120% MAT 14133 9894 63000 0.22 0.16 120% DIBER 28490 21862 133800 0.21 0.16 120% LIBRAZHDE 14489 10725 64900 0.22 0.17 120% Subtotal 93909 69597 375280 0.25 0.19
POOR BERAT 32014 20486 110100 0.29 0.19 110% GRANSH 10362 7020 36700 0.28 0.19 110% TIRANE 33119 25752 120400 0.28 0.21 110% ELBASAN 47744 35733 144200 0.33 0.25 110% Subtotal 123239 88991 411400 0.30 0.22
LESS POOR TEPELENE 13068 9733 36700 0.36 0.27 90% SXRAPAR 12153 8275 30500 0.40 0.27 90% SHKORDER 45584 42666 157100 0.29 0.27 90% VLORE 37824 28654 92200 0.41 0.31 90% SARANDE 25827 20159 62700 0.41 0.32 90% PERMET 14723 10529 30700 0.48 0.34 90% Subtotal 149179 120016 409900 0.36 0.29
BETTER OFF FIER 71166 62020 178300 0.40 0.35 80% KRUJE 25476 23374 67000 0.38 0.35 80% LEZHE 18505 18071 50800 0.36 0.36 80% DURRES/KAVAJE 51550 45164 125700 0.41 0.36 80% KORCE 62976 53474 144100 0.44 0.37 80% GJIOKASTER 17693 15116 39800 0.44 0.38 80% POGRADEC 17506 12030 30100 0.58 0.40 80% LUSHNJE 51136 46718 106100 0.48 0.44 80% KOLONJE 11268 8310 17600 0.64 0.47 80% Subtotal 327276 284277 759500 0.43 0.37
TOTAL 693603 562881 2076500 0.33 0.27 98% ANNEX D Page 18 of 41
PART HI. RDF CREDIT PROGRAM
SECTiONA: GENERAL
3.1 The objective of ADF's Credit Programn(ADF CP) is to provide small-scale credit for farmers and micro-entrepreneurs. The ADF CP shall administer credit funds and lines of credit (Designated Credit Funds, DCF) provided by Governmentand multilateraland bilateral donors for this objective.
3.2 DCF shall be administered and disbursed with the cooperationof the Rural CommercialBank (RCB)and individualvillages, which are representedby village credit committees(VCCs). ADF shall retain ownershipof DCF; loan contractsshall be between ADF and the individualborrowers or a group. ADF shall assign the rights to VCC to participate in the selection of borrowers, the appraisal and approval of sub-loans, and, generally, to promote ADF CP loans.
3.3 ADF shall administerDCF in accordancewith the provisions of Section 3 of these Regulations and in conformitywith prudent banking and credit practice.
Eligibility of Villages
3.4 In its selection of districts, communes and villagesfor setting up VCCs, staff in ADF's credit departmentwill apply the following criteria:
(a) ADF shall target those areas where access to formal sector credit from RCB branchesis particularlydifficult, either due to the lack of RCB branch offices in that area, or due to the financial or institutionalincapacity of existing RCB branches to provide small loans to private individualsand groups; and
(b) ADF shall assessthe potential demandfor loans by final beneficiariesat the village level. Villages will be selected such that sufficientdemand for loans is assured.
3.5 In order to be eligible for receiving funds from ADF, villages shall:
(a) have created a village credit committee(VCC); and
(b) remain in good standingwith ADF, which includes specificallythe timely repaymentof all loans approved and assignedto final borrowers by VCC.
3.6 Basedon the interest in participation expressedby villages, ADF staff shall guide and facilitate the process of creating VCCs.
Eligibility of Beneficiaries
3.7 ADF's credit projects target the rural poor and seek to provide incentivesand opportunitiesfor productiveeconomic activities. Loans from VCC's are thereforeopen to all income-generatingactivities in all economicsectors, agriculturalas well as non-agricultural. Loans are made to both men and women on an equal, non-discriminatingbasis. Loans are equally available for both individual borrowers and ANNEX D Page 19 of 41 groups of borrowers, regardless of whether groups are organized in legal units. State farms and other state enterprises are not eligible for loans from VCCs.
3.8 Borrowersmay receive only one credit at a time; to access a second credit, a borrower must have fully reimbursedthe first credit. The ADF may authorizea VCC to lag creditdisbursement over a period of time, when justified by the nature of the investment activity.
Funds
3.9 DCF shall be held in separate sub-accounts,which shall be maintained in accordancewith the provisionsof Section2 of these Regulations,and in compliancewith terms of any agreementunder which DCF were placed under ADF administration. Each sub-accountshall be identified by a title and an account number.
SECTIONB: ACCOUNTINGPROCEDURES
3.10 ADF shall maintain a separate credit program administrationaccount and DCF sub-accountsin accordance with good accounting practice and in compliance with prevailing and future national accountinglaw. In addition, ADF shall ensure that maintenanceof the DCF sub-accountsshall comply with the specific conditionsset out hereunder.
3.11 The credit program administration account and DCF sub-accounts shall be prepared and maintainedso as to produce annual balancesheets and, as appropriate, incomeand expenditureaccounts; to furnish a statementof account at any time; and to meet the specificrequirements of Governmentand of a participatingdonor agency. Such annual accounts and statementsshall reflect a true and fair view of the state of affairs of ADF CP and DCF sub-accounts;and they shall be subject to audit in accordance with the requirement of relevant national legislationand of the participatingdonor agencies.
ADF Accounting for Loans made from DCF Sub-Accounts
3.12 ADF shall accountfor each sub-loanmade from DCF in accordancewith the regulationsset out hereunder. Notwithstandingthe accountsmaintained by RCB for the financialtransactions on each sub- loan under para. 2.18, the ADF sub-loan account shall be taken as the accurate record in case of any dispute.
3.13 A Loan Portfolio File ("File") shall be maintained at the District Branch of the ADF responsible for each sub-loan. The File shall consist of client data including: (i) evidenceof legal personalityfor group or corporate clients; (ii) the original loan applicationform; (iii) the loan preparation documents; (iv) the minutes of VCC meeting at which the loan was evaluated and approved; (v) the loan contract specifying schedulesof disbursement;(vi) supervisionand repayment; (vii) client correspondence;and (viii) all such other informationas may be necessaryfor the orderly managementof the sub-loan.
3.14 Each loan shall be clearly identifiableand referencedto the File.
3.15 Interest rate. The VCF lendingrate will be changed from the existingdollar-based rate to a lek- based rate. The rate of interest shall be revised twice a year by the ADF Executive Committeeon the basis of the followinginformation: ANNEX D Page 20 of 41
(a) Evolutionof consumer prices (source: Ministry of Finance)
(b) Evolutionof farm income(source: sample survey conductedannually by the ADF Studies Departmenton about 100 farms in 5 districts)
(c) Evolutionof commercialinterest rates (source: formal banking sector)
(d) Transaction costs (source: ADF)
(e) VCF default rate (source: ADF)
During the period of implementationof the IDA-financedRural DevelopmentProject, any changes in the interest rate shall only be made after consultationwith IDA. The interest rate is indicated in Attachment 2.
3.16 Interest shall be charged on the outstandingbalance of the loan accordingto the interest rate and the conditions specified in the loan contract. Each individual loan contract contains a repayment plan specifyingprincipal and interest for each repaymentdate.
3.17 Interest includes a fixed percentage("transaction costs") to reimburse ADF, RCB, and VCC and to contribute to an Emergency Fund (para. 2.15) and any other fund agreed between ADF and VCC. The total amount of transactioncosts shall be agreed by the ADF Executive Committee,and is indicated in Attachment2.
3.18 In the event an amount overdue appears on a village account, no further disbursementswill be made by RCB for that village. The VCC shall immediatelyinvestigate the reasons for delays in loan repayments and shall assist in loan recovery by seeking to resolve related difficulties faced by the borrowers or by calling in the loan and enforcingliquidation of the collateral obtained from borrowers.
3.19 Based on loan approvals, the ADF district branch shall keep a separate accounting of disbursementsand repaymentsallowing (i) to check and verify RCB account management,and (ii) to establishan efficientwork plan for district credit officers. The ADF districtofficers shall provide to their Deputy Director a monthly statement, which will include a summary of their activities and the status (balancesheet) of loan accounts.
3.20 From these monthlystatements, the ADF credit departmentshall establishan aggregate3 months financial report for each DCF account. Such reports shall present the state of arrears.
3.21 Arrears. Each DCF account shall be so maintainedas to reflect the state of arrears on its sub- loan accounts. For this purpose, the following definitionof arrears will apply:
"Arrears shall be calculatedas the total amount falling due during the year (A) plus the amountoverdue at the beginningof the year (B) less the amount actually collectedduring the year (C) and the rate of arrears shall be expressed as the arrears outstandingat the end of the year (A+B-C) as a percentage of total demand (A+B)." ANNEX D Page 21 of 41
3.22 Statementof arrears shall be prepared quarterly and at such other times as may be required by Governmentand by participatingdonor agencies.
3.23 Bad and DoubtfudDebts. ADF shall account for bad and doubtful debts in accordance with prudent, internationalaccounting practices, and specificallyit shall establish in its accounts a reserve for bad and doubtfuldebts by a transfer from the surplus on "incomeand expenditureaccount" of an amount equivalentto 1% of loan principal outstandingand to 1 % of loan interest outstandingon the date of the preparationof the annual accounts. The classificationand write-off of bad debts shall be in accordance with prudent banking practice, alwaysprovided that it shall be acceptableto participatingdonors.
3.24 Reschedulingof Sub-accountLoans. Reschedulingof individual and group loans of ADF may only be undertakenwith the approval of the ADF Executive Committee, at the request of the Deputy Director for Credit. A reschedulingagreement shall specify the loan or loans affectedand the terms and conditionsunder which the rescheduling is permitted. The annual accounts relating to arrears shall contain a return of rescheduledloans and shall certify that account has been taken of the rescheduled loans in the calculationof the arrears ratio.
3.25 EmergencyFund. In the event of exceptionaldifficulties by a borrower, the VCC may advise the Deputy Director of Credit to withdrawfunds from the EmergencyFund created for this purpose. Use of the EmergencyFund shall be approvedby the ADF Executive Committee.
3.26 ADF CP Income. In the preparation of DCF sub-accountsin accordance with provisions of paragraph 2.2 of these Regulations,the transactioncosts due to ADF shall be credited to the CP Income and Expenditureaccount on the basis of amounts actually collected and not on the basis of the amount due or accrued.
CP AdministrationAccount
3.27 The costs to ADF of ADF CP administrationthat are specificto its lending operations shall be charged to the CP AdministrationAccount. Record of such costs shall be maintainedat both the local (district) level and the aggregate level for each DCF.
RCB Accountingfor DCF Sub-Loans
3.28 RCB shall maintain such accounts for the managementof the DCF sub-loans to the extent and in the manner prescribed in the ADF-RCBAgreement by which RCB undertakes to administer such accounts. The ADF-RCBAgreement is attached as Attachment1 to these Regulationsand shall be read in conjunctionto them in all matters affecting DCF sub-loans.
3.29 Local RCB branches shall report monthlyto ADF and to each VCC by providing a summary listingof all disbursementsmade and all loan repaymentsreceived. The RCB managementof the village accounts by RCB shall allow for clear identificationand separationof principal and interest for each individualloan.
SECTIONC: LoAN PROCESSINGAND ADMINISTRATION
3.30 DCF sub-loans shall comply with the lending conditionsand procedures set out herein. ANNEX D Page 22 of 41
3.31 Village Credit Fund. ADF shall establish an interest-bearingaccount in the RCB branch; the accountshall be earmarkedfor the respectivevillage. ADF shall transfer a first tranche of capital to this account, which constitutesthe village credit fund. Once these funds have been used up for loans, ADF may replenish that accountby consecutivetranches. The maximum amount of a village credit fund may be set by the ADF ExecutiveCommittee based on village populationand the loan ceiling (Attachment2); it will be reviewed periodicallyand changed as necessary.
Loan Identificationand Borrower Eligibility
3.32 Loan identificationand borrower eligibility shall be carried out by the VCC, duly appointedby ADF to carry out these duties.
3.33 Village Credit Committee. The compositionof VCC shall be as follows:
(a) A minimumof three village representativeswho shall be democraticallyelected for this purpose;
(b) one representativeof the responsiblebranch of the RCB; and
(c) one staff member of the ADF credit department, representingADF on the VCC.
3.34 VillageRepresentatives will undergo a training program, designedand carried out by ADF staff, to get familiar with the conditionsand techniquesapplicable under ADF-financedvillage credit funds.
3.35 On behalf of ADF CP, VCC shall:
(a) select loan beneficiaries,determine loan amounts, and define collateral requirementsto secure loans. For VCFs that have been establishedduring the pre-pilot or pilot stage, VCCs shall be assigneda single loan ceiling per beneficiaryof US$1,000 equivalentby the ADF. On an exceptionalbasis, not to exceed20% of the total amount disbursed by a VCF, the ADF ExecutiveCommittee can authorizeloan amountsup to double the fixed loan ceiling, if justified by the proposed investment project. New VCFs established during the full-scale stage will retain loan ceiling of US$500 equivalent; the ADF Executive Committeecan authorize loan amountsup to double the fixed loan ceiling;
(b) set loan maturities, as short as possible, and loan repaymentschedules in order to limit risk and to maximize the number of beneficiaries; loan duration greater than the maximum duration establishedby the ADF Executive Committee shall require prior approval by the ADF Executive Committee;and
(c) define and enforce sanctionsfor late loan repaymentor default.
Loan Evaluation and Approval
3.36 VCCs shall meet as required, but at least every two months, to consider loan applicationsfrom village residents. Loan applicationsshall be consideredin the order received, and all requests shall be acted upon within six weeks after their receipt by the VCC. ANNEX D Page 23 of 41
3.37 VCC decisionsmust have the approvalof a majorityof the VillageRepresentatives present during a VCC meeting. The representativesof ADF and RCB shall each have the right to veto any loan so approved. VCC loan approvalsshall be formulatedwithin the contextof a loan agreementbetween ADF, representedby VCC, and the final beneficiary.
3.38 On behalf of ADF CP, VCCs shall technicallyand financiallyappraise the loan applications. In carrying out the appraisal, VCC shall, inter alia, have regard to:
(a) the real need of the borrower for credit due to lack of other resources;
(b) the ability of the borrower to use the funds productivelyand economically.
(c) the capacity of the borrower to repay the loan based on the estimated financial viability of the loan;
(d) the environmentalimpact on the village of the activity financed by the loan;
(e) adequacy of the collateral (equipment, livestock, supplies, crops, real estate, or guaranteesfrom relatives and friends) offered by the borrower;
(f) the technical and/or commercialknowledge of the applicant, and the adequacyof inputs (land, labor) for the proposed investmentactivity;
(g) the availability of key technical services (e.g., vaccinationfor animals) to support the proposed investment;
(h) verificationthat the candidate is in good standing with the RCB and the village credit fund.
3.39 ADF may request that the technicalpreparation and/or evaluation of sub-loanbe carried out by or under the supervisionof a competenttechnical agency or technicianso appointed. The ADF CP shall collaborate with technical agencies or private specialists for technical preparation, supervision and evaluationof the loanswhenever necessary in order that VCCs appraisepotential loans in accordancewith soundtechnical criteria. Such technicalservices shall be reported in the loan File. Each technicalagency or specialistappointed for one or more of these tasks shall be approved by the ADF DeputyDirector for Credit.
Loan Agreements
3.40 Loan agreementswill specify the following items:
(a) borrower's name and address;
(b) purpose of the loan, items to be financedfrom the proceedsof the loan;
(c) loan amount, loan maturity, and repaymentschedule; ANNEX D Page 24 of 41
(d) mechanismfor maintainingthe real value of the loan either: (i) through indexationof the loan to the US$-Lek exchangerate or usage of an indicator of actual inflation (such as prices of crops or livestock);or (ii) through charging Lek-based loan interest rates high enoughto compensatefor inflation;
(e) additionalinterest charges (para. 2.7 and Attachment2); and
(f) collateral required.
Loan Disbursement and Repayment
3.41 Any disbursementfrom the village RCB accountrequires a written demand by the VCC, signed by the VillageRepresentatives, the ADF credit officer and the RCB representative. Disbursementshall be effected by RCB directly to the borrower, on demand of VCC and in accordance with the loan contract. VCC does not handle cash.
3.42 Loan repaymentshall be effectedby the borrower, in accordancewith the scheduleof repayment, directly to RCB.
Experimental Programs
3.43 The ADF CP may undertakeexperimental activities that do not conform to these Regulations. The objectiveof such activitiesshall be to developand test new credit program methods in order to better address the needs of the target population. Experimentalactivities shall constitute no more than 5% of ADF CP loans. Operational guidelines for experimental activities shall be approved by the ADF ExecutiveCommittee and shall be fully incorporatedinto this Manual at the end of the test period.
Credit Department Records
3.44 In order to monitor and record the history of program development,the ADF Credit Department shall maintain a file containing all sample contracts and other documents used in processing and administeringloans. All versions of such documents shall be maintained in the file; all changes to documents shall be carefully recorded. This file shall be available to Government and participating donors upon request.
SECTIOND: STAFFREQUIREMENTS
3.45 The credit departmentof ADF shall be staffed with credit officers experiencedin rural economic activities, such as agronomists or economistswith previous work experience in former cooperatives. Some departmentalstaff shall be based in respectivedistricts, since it will be required to engage, on a regular basis, in extensivefield trips in order to assist in creating VillageCredit Committees(VCCs) and to decide on loan applications as active members of the VCC. To complement their technical backgrounds, credit department staff will be trained by ADF in the fields of local organization and interventionin rural areas. ANNEXD Page 25 of 41
ATTACHMENT1
Agreementbetween the Rural CommercialBank and the AlbanianDevelopment Fund
Protocolof Accord
The AlbanianDevelopment Fund (ADF) and The Rural CommercialBank (RCB)
"RuralPoverty AlleviationPilot Project"
(translatedfrom Albanian)
Introduction
To assistpoor rural areas and to establishrural credit funds, the AlbanianDevelopment Fund (ADF) shall intervene in these areas via the "Rural Poverty AlleviationPilot Project." With this project, the ADF aims to establish "village credit funds" (VCF) that permit village populationsto benefit from small loans for profitable economic activity. In order to benefit from this project, the ADF requests that the RCB, through its district branches, undertake responsibilityfor the technical and financial administrationof these funds. The RCB, taking into considerationthe results obtained during the experimentalphase of the project in the district of Elbasan, has agreed to the project in question and commitsitself to cooperate with the ADF in other districts.
The two parties agree on the following:
Article 1
ADF and RCB shall collaboratein the realizationof the "Rural Poverty AlleviationPilot Project" and its successor projects which aims to establish a new system of rural credit. These funds shall be establishedin accordancewith the general regulationsfor VCF, annexed to this agreement.
Article 2
The VCF shall be put at the disposition of the villages selected by ADF and shall remain the property of the ADF. The risk resulting from the allocationof this credit shall be born by ADF. ADF and VCF accounts shall be considered as normal bank accounts and shall earn the appropriate interest rate.
Article 3
For the ADF credit activity, RCB shall act as financial agency via its district agencies. Technical and financial treatmentof VCF is defined in the rules for accountingand administrationof VCF annexedto this agreement. ANNEX D Page 26 of 41
Article 4
RCB district agenciesshall periodicallyprovide informationabout ADF and VCF accounts accordingto the annexedrules.
Article 5
In compensationfor the service provided by RCB district branches, ADF shall pay to RCB 2% of the amount of each loan reimbursedby beneficiaries. This amount covers all administrativecosts undertaken by RCB for its activities concerning VCF, such as accounting, allocation of credit, cashing of reimbursements, and trips by RCB representatives. ADF shall assist RCB officers improve their professionalcapacity through seminars and training courses.
Article 6
RCB and ADF shall assist each other and cooperate in a friendly and productive way.
Article 7
The agreement between the "Rural Poverty Alleviation Pilot Project" and the RCB branch in Elbasan signed on 21 February, 1993 is abrogated. VCFs establishedin the Elbasan District shall operate under the regulations defined herein, commencingon the day this agreementis signed.
Article 8
The agreement shall be effective on the day it has been signed by both parties; it shall terminate three months after one of the parties has announcedits annulment.
Signed on......
For RCB For ADF General Director Executive Director ANNEX D Page 27 of 41
ATTACHMENT 2
Credit Program Indicators
1. The following figures shall be reviewed periodically by the ADF Executive Committee. All changesto such figures shall be documentedand filed. The file shall be availableto the Governmentor participatingdonors upon request.
(a) The interest rates to be used are the following:
(i) Loan principal pegged to the US dollar plus transaction costs
(ii) Lek-based interest rate of 10%
StartingJanuary 1, 1995, interest rate (ii) will be applied to new VCFs created in new districts. A transitionperiod will be applicableto new loans in existingVCFs and to new VCFs in districts with existing VCFs; borrowers will have the choice of interest rates (i) or (ii) up to December 31, 1995. Existing borrowers may reimburse their loan and replace it with a lek-based loan if desired.
(b) Transaction costs to be includedin interest rate:
2% RCB 2.5 % ADF 0.5% Emergency Fund 1 % Village Credit Committee
The differencebetween the interest rate and the transactioncosts shall remain in the village credit fund.
(c) Method to calculateamount of village credit fund:
# farnilies --- x loan ceiling 3
(d) Maximumloan duration: 3 years. ANNEX D Page 28 of 41
PART IV. PROMOTION AND SUPPORT OF RURAL ACTIVITIES
SECTION A: OBECTIVES AND ACTIVITIES
4.1 In coordinationwith village credit funds, ADF shall provide technicalsupport in the areas of: (a) agriculturaland livestockproduction; and (b) microenterprisedevelopment. Suchtechnical support shall be organized and implementedby the ADF's Departmentof Rural Activities.
Agricultural and Livestock Support
4.2 The ADF Departmentof Rural Activitiesshall ensure liaison with the Ministry of Agriculture's Agricultural Extension Department and Livestock Department and shall inform the ADF's Credit Department of all technical actions undertaken by the Ministry of Agriculture in ADF's districts of intervention.
4.3 As regards animalhealth, the Departmentshall promotethe creationof animal health associations in the villages benefitting from small-scale credit. The animal health associations, created with the participationof ADF, farmers, and veterinarians, shall organize the vaccinationof all village animals. Their statute is attached (annex...).
Microenterprise Support
4.4 For the purpose of the project, a microenterpriseis defined as a sole proprietorship, partnership, or famnilybusiness that has fewer than 5 employeesand does not have accessto commercialbank lending. Most of the microenterprises in Albania's rural areas consist of self employment and/or part-time employment.
4.5 The ADF's Departmentof Rural Activities shall:
(a) providedemand-driven business and technical advice to privatemicroenterprises-existing microenterprisesor new income-generatingactivity-financed by smallcredit via village credit funds; and
(b) assist in the creation of "common facility centers," providing services to a group of microentrepreneurs.These common facility centers should also be demand-drivenand owned by an associationof microentrepreneurs.
SECTION B: PROCEDURES FOR LIVESTOCK SUPPORT
4.6 The Department of Rural Activities shall promote the establishmentof "village animal health associations"(VAHA) as a means of improvingvillage livestockquality and productionthrough village- wide prophylaxis. VAHAs shall consist of voluntary, independentassociations; their members shall be private farmers and veterinarians. The statute for VAHAs shall be at all times acceptableto IDA and to ADF's Board of Trustees.
4.7 In villages where there is establisheda village credit fund and a VAHA in good standing, the ADF may contributefinancially toward village-wideprophylaxis, accordingto the terms and conditions ANNEX D Page 29 of 41
set forth in an agreement signed by the Village Chief, AuthorizedRepresentative of the VAHA, and the AuthorizedRepresentative of VeterinarianServices. The modelagreement shall be at all times acceptable to IDA and to ADF's Board of Trustees.
SECTION C: PROCEDURES FOR MICROENTERPRISE SUPPORT
4.8 The Department of Rural Activitiesmay be contactedthrough the credit department or directly by microentrepreneurs.Subprojects that consistof small/mediumenterprises rather than microenterprises shall be referred to the European Union-financedSME Foundationand/or the FAO AgribusinessProject. The Departmentshall work with a team of local consultants, selected and trained to prepare business plans and assist microenterprisesin the areas of productionmanagement, supply, marketing, accounting, administration,and legal advice. The Departmentshall also provide the local consultantswith technical information. The Departmentwill set up and maintain,in liaisonwith the technical institutesin Albania and aborad, a databaseon, inter alia, small technologies,equipment, suppliers, and prices.
Remuneration of Local Consultants
4.9 The local consultantsshall be remunerated accordingto the services performed. The business advice shall be financed by ADF, except for a symbolic participation of the clients (similar to the contributionof farmers in the village animal health associations).
Subproject Files
4.10 A MicroenterpriseSubproject File shall be maintainedby the Department. The file shall consist of subprojectdata, including:
- information on the client; - the business plan; - a record of all contactswith the client, and of the support/informationprovided to the client; and - a plan for follow-up.
Reporting and Evaluation Requirements
4.11 Each staff member of the Department, includingthe local consultants,will prepare a monthly report of his/her activities comprising:
- a general descriptionof his/her activity; - a list of all contactswith microentrepreneurs; - a list of business plans prepared; - the status of all subprojects; and - suggestions to improve methods.
4.12 The Director of the Departmentshall prepare a summaryof these reports and present them each month to the ADF Executive Director. ANNEX D Page 30 of 41
SECTIOND: STAFF REQUIREMENTS
4.13 The department shall require the employment of staff who have a university education in agriculture, animal husbandry, and economics. The staff in charge of microenterprise support shall receive a specializedtraining in microenterprisepromotion. Training shall also be organized for local veterinariansworking with the animal health associationsand for local consultantsfor microenterprises. ANNEX D Page 31 of 41
PART V. STUDIES AND TRAINING
SECTIONA: STUDIES
Village Profiles
5.1 In order to build a bridge between historical roots and present rural development issues, the studiesdivision shall interviewolder village inhabitantsabout local traditions of labor organization,land ownership, off-farm activities, village organization, informal credit, and other topics, before collectivizationunder the communistregime. Shortvideo films presentingvillage profiles basedon these interviewsmay be used in project training, and may also be shown in local schools.
Identifying Village Problems
5.2 The ADF studiesdivision will create an inventoryof present village problems: accessto markets; water and energy supply; land use; managementof local resourcessuch as irrigation, pasture, forest; and other relevant problems.
Farm Surveys
5.3 ADF staff will also undertake sample farm surveys in villages benefiting from ADF-financed village credit funds. These surveys will focus on production factors (land, labor, equipment,inputs), the choiceof products (crops, cattle, ruminants, etc.), householdbudgets, and the attitudes and motivations of the farmers toward land ownership, employment,migration, and services provided by the state and by the private sector. These surveys shall includethe evolutionof farm income in order to provide the informationrequired to monitor the credit interest rate. These farm surveys will supplementcountry- wide statisticalstudies, and will provide valuableinformation for poverty assessments. All farm surveys will be conductedin villagesand will mostly be carried out by ADF-contractedex-cooperative staff, who will receive special training.
Project Impact and Beneficiary Assessment
5.4 The Studies Division shall undertaketwo comprehensiveproject impact/beneficiaryassessment studies during the life of the Rural DevelopmentProject-the first to take place before the mid-term review, and the second to take place before the end of the project.
Organization of Work
5.5 All activities of ADF's in the area of studies will involve strong participationof infrastructure inspectorsand credit officers of ADF working in the respectivecommunes and villages. Furthermore, these activitieswill be coordinated with, and supportedby local research centers. ANNEX D Page 32 of 41
SECTIONB: TRAINING
Trainingof ADF Staff
5.6 An importanttask of ADF is to maintaina highly trained and competent staff. Newly-recruited staff shall be trainedusing on-the-jobtraining and short-term in-housetraining courses. ExperiencedADF staff shall be encouragedto continuallyimprove their skills through participation in local and foreign training courses. External consultantsmay also be engagedby ADF in order to provide training in new or technical subject matters. Prior to submitting the annual work program and budget, Department Directors should discuss and identify training needs for all ADF staff; proposed training should be includedin the annual work program and budget. Additional,unforeseen training may be undertaken with the approval of the Executive Committee,subject to budget availability.
Trainingof CommuneStaff and Rural Entrepreneurs
5.7 ADF's activities,carried out with communesand villages, are an ideal channelfor providing "on- the-job" training to local partners in all skills relevant within a market economy: project evaluation, financial managementin communes,business planning, managementand marketing for private farmers and rural micro-entrepreneurs.
5.8 ADF shall organize short training courses for communestaff and rural entrepreneursand may seek assistancefrom external consultantsin settingup these training programs. Training of local partners will greatly facilitate ADF's project work in communesand villages. ANNEX D Page 33 of 41
PART VI. FINANCE AND ADMINISTRATION
SECTION A: FINANCIAL MANAGEMENT AND ACCOUNTING
Management of Financial Resources
6.1 As specified in the Decision of the Albanian Council of Ministers establishingADF, ADF's resources and revenues comprise:
- resources assignedby multilateralor bilateral aid programs, - grants provided by the Governmentof Albania, - domesticand foreign donations and legacies, - resourcesderived from contractedsoft loans, - capital recovery from loans granted and interest earned, - other revenues and incomethat may arise.
6.2 ADF's staff in the financial managementand accountingdivision will be responsiblefor keeping track of all resources committedand received, and of engaging in mobilizing additional resources as needed. In particular, ADF staff will be responsiblefor followingrequired procedures for drawingdown on funds availableto ADF from the InternationalDevelopment Association (IDA) and other multilateral and bilateral institutions. This involvesverifying, filing and compilingall supportingdocumentation for disbursementrequests.
Accounting
6.3 ADF shall establish and maintain an efficientinternal accountingsystem. ADF accountingstaff shall be trained by an expert in order to assure familiarity with a western-style accountingframework which has been unknown in Albania in times of the centrally-plannedeconomy.
6.4 Contracts constitutethe basic documentfor commitmentof funds and subsequentdisbursements and entry into the accountingsystem. Followingthe signingof contracts(employment contracts for ADF staff members, rural works project contracts, credit project contracts, consultantcontracts, etc.), ADF accountingstaff recordsthe commitmentequal to the amount of the contractand, if applicable,establishes a payment schedule. At any time, the undisbursedand availableportion of the amount committedis the differencebetween the initial commitmentand the sum of payments already disbursed.
6.5 ADF's accounting staff shall be responsible for transferring funds for financing civil works, village credit funds, and other project activitiesfollowing the approval of the ADF Executive Committee and in accordancewith the contract for the item to be financed. All checks and payment orders shall be signed by the ADF Executive Director and the Director of Finance and Administration. The Executive Director may delegate in writing the authorityto sign in their absence.
6.6 Accountingstaff shall regularly request bank statementsand, on the basis of these statements, maintain accountingrecords. Such recordsshall be signedby the Director of Finance and Administration and filed. ANNEX D Page 34 of 41
6.7 A photocopy of each signed check or payment order and, if the signature authority has been delegated, a reference to the delegation, shall be attached to an invoice before it is filed with the supporting accountingdocuments maintainedby ADF for accountingpurposes.
6.8 Directorsof operationaldepartments shall be responsiblefor relations with banking branchesand district Treasury Department branches, and shall be responsible for the documentationof financing operations performed in conjunctionwith their departmentalactivities.
SECTION B: PROCUREMENTAND DISBURSEMENTS
Procurement
6.9 All IDA-financed goods and services shall be procured according to the applicable IDA guidelines, which have been agreed between the Government of Albania and IDA. For specific procurementrules, ADF staff should refer to Schedule 1 of the Project Agreementbetween ADF and IDA, and to World Bank ProcurementGuidelines (May 1992).
6.10 For financial resources stemmingfrom cofinanciers,their respectiverules and regulations shall be followed.
6.11 In order to facilitateefficient procurementfor very small items, a petty cash systemshall enable the purchaseby check of cash of items valued at less than US$50 equivalentper unit, for a maximumof US$500equivalent per day. For these small purchases, it shall not be necessaryto use local shopping procedures (documentingthree offers).
Disbursements
6.12 Details of disbursementprocedures are set out in the Credit Agreementbetween the Government of Albania and IDA. With respect to IDA proceduresfor procurementand disbursement, ADF staff may seek informationand assistancefrom the World BankResident Missionin Albaniaand from other Project ImplementationUnits for IDA-financedprojects.
SECTIONC: PERSONNELADMINISTRATION
Managementby Objectives
6.13 ADF will be administered in accordance with the principles of managementby objectives. Managementby objectives is a systematic effort to enrich tasks vertically to permit managers and employees, within their sphere of responsibility, to contribute to attainment of their organization's objectives. Specifically, each ADF manager and supervisor (the Executive Director, the three departmental directors, and the Department Head for Studies, Technology, and Training, and chief infrastructure inspectors)will come together with her/his respective subordinates, at all administrative levels, and set the goals to be attained by the subordinate over a certain period of time. A progress review is carried out on a pre-establisheddate to evaluate the actual achievementsin relation to the expectedoutcomes. ANNEX D Page 35 of 41
QuarterlyStatement of Objectives
6.14 Every three months, and at the date of entry into ADF of new employees, each manager or supervisory employeereceives his Quarterly Statement of Objectives. This quarterly cycle runs from January I to April 1 and is repeated every three months. As a well-managedorganization, ADF should:
- inform its employeeswhat is expectedof them;
- help them perform their work efficiently;
- identifythose employeeswho are capable of assuminggreater responsibilities;
- remunerate them in accordancewith their contribution;and
- sanction their failures.
6.15 For their part, employees should know how their work is being evaluated, and what they can expect as a result of their work.
6.16 On the basis of their efforts, it is necessaryto implementa program that:
* allows each employeeto be informed,at least every three months, of her/his supervisor's explanationof the results of her/his work;
encourages managers to counsel their employees on their individual development (improvementof performance,possible promotion); and
- serves as the basis for applicationof the policy of increasing salaries on the basis of merit.
6.17 The process will be as follows:
(a) at the beginningof the quarter, ADF's ExecutiveDirector meets with the entire staff and sets out the overall mission and objectivesof ADF for the year to come;
(b) the Executive Director establishesan individualizedstatement of objectivesfor the staff members that report directly to him (the managers of the four Departments);
(c) each manager arranges a meeting of all her/his employeesand discusses with them the objectivesof the respectivedepartment, whichwill be the basis for individualobjectives. The manager then personally interviews each employee to discuss the organization of her/his work, potentialproblems and unavoidableobstacles, to come to an agreementon the employee's individualobjectives and to set forth the criteria for eventual evaluation of her/his performance. All of this is recorded, in summary fashion, in a documentthat serves as the Annual Statementof Objectives. ANNEX D Page 36 of 41
Self-evaluation
6.18 The concept of self-discipline,incorporated in the method of managementby objectives, is an important source of work motivation. Self-disciplinerelies on the assumption that employees are responsiblefor their own work, and that they have the desire to contributeto attaining the objectivesof ADF. By referring to the individualStatement of Objectives,each employeecan verify whether she/he is on schedule with her/his work program, and, on this basis, can make necessary decisions to improve individualperformance. Thus, without awaitingthe end of the quarter, the employee is able to evaluate her-/himself and seek, if necessary, the opinion of the immediatesupervisor.
Evaluationat the end of the quarter
6.19 At the end of the quarter, each employee is interviewed by the immediate supervisor, who presentsher/his written evaluationof the employee'sperformance relative to the objectivesset out in the Statement of Objectives. The supervisor will take into account external factors, such as unforeseen difficultiesand problems, that may have a negativeor positive bearing on the employee's performance. The employeeacknowledges the evaluationand can make her/his own commentson it. The employee's signatureproves that she/he has read the contentof the evaluation,but it does not constitutean agreement with the content of the evaluation. Performance ratings should follow these five rating levels: outstanding,very good, good, needs improvement,unsatisfactory. All evaluationsare approved by the ExecutiveDirector of ADF.
Salary structure
6.20 ADF's structure of salaries will be based on the degree of responsibility and the level of professionalqualification at the various levels within ADF's organizationalstructure. Within each salary category, there will be a range between lowest and highest salaries in that same category. ADF's ExecutiveDirector will propose the concretesalary structure and will seek approval from the Board of Trustees.
Salaryduring the probationaryperiod
6.21 During the probationaryperiod, as defined in ADF's Internal Regulations,new employeeswill be remuneratedaccording to the next lower salary categorythan that categorywhich correspondsto their assignedposition. Upon confirmationafter the end of the probationaryperiod, the employeewill move up into the salary category that she/he has been assignedto in accordancewith her/his position.
Salary increases
6.22 Generally, salary increases are awarded on the basis of merit as a direct function of the performance evaluationgiven at the end of the quarterly cycle. Only "outstanding"and "very good" ratings can usually lead to an increase in the employee's salary within the range of her/his salary category,or to a promotionto a higher salary category. Furthermore, one-time bonuses may be paid to "outstanding' performers (bonus of 125% of monthly salary) and "very good" performers (bonus of 110% of monthly salary). ANNEX D Page 37 of 41
6.23 Given the context of high inflation in the country, the Executive Director will propose mechanismsfor additional,general increasesin the salary of all employeesfor approval by the Board of Trustees.
Sanctions
6.24 An overallevaluation of "unsatisfactory"means that the employeewill be very closely supervised, and a file will be prepared in anticipation of separation of the employee if significant and quick improvementsin performanceare not seen.
6.25 Generally,sanctions for various infractionsare as follows:
- oral remarks and written warnings;
- written reprimand;
- suspension from duty; and
- dismissal.
6.26 Sanctionsare taken by the employee's supervisor; accordingto the seriousnessof the infraction committed,the measure may be taken directly by the ExecutiveDirector of ADF.
6.27 When the sanction is taken by the supervisor, other than in the case of oral remarks, the Executive Director should be informed in advance.
SECTIOND: AcTIvrrYREPORTS
6.28 ADF will submit to IDA quarterly reports includingthe following informationby district and sector: (a) rural works projects presented by the communes, appraised, in execution, completed and evaluated ex-post, including number of projects and beneficiaries, amounts committed and executed, average cost per beneficiaryand the percentage of labor in the investmentcost; (b) village credit funds created, number and total amount of loans distributed, activities financed, outstanding loan amounts, repayment rates; (c) rural studies carried out, pilot projects in new technology implemented,training courses performed;(d) ADF's key personneland consultantsindicating the changesthat have taken place during the reporting period; and (e) operatingcosts of the ADF. An outline for quarterly reports to IDA is set out in attachment 1 to Part E of this Manual.
6.29 ADF's activitiesunder the IDA project will require intense follow up and supervisionfrom the IDA, given the pilot nature of ADF's activities. IDA would undertake regular supervision missions includingfield visits and spot checks of a sample of projects.
6.30 ADF's annual budget and annual reports will be prepared by the Director for Finance and Administration in order to be furnished to the Executive Director for presentation to the Board of Trustees and subsequentpublication. ANNEX D Page 38 of 41
SECrTONE: STAFFREQUIREMENTS AND FUNCTIONS
6.31 A professionalbackground in accountingor financial managementis not a necessaryrequirement for employmentin the ADF accountingdepartment, since western-styleconcepts have been unknown in the country under the communistregime. Accountingstaff shall be trained in western-styleaccounting concepts. ANNEX D Page 39 of 41
AITACIMENT 1
Quarterly ADF Activity Report to IDA and other Donors (Outline)
PERIOD COVERED (three months):
RURAL WORKSSUBPROJECTS:
Differentiatebetween type of subprojects (roads, water supply, irrigation, school and hospital repairs, others to be specified), and provide name of district, commune and village foe each project; give informationon:
- number, and Lek volume of works, with respect to: applications received, projects appraised, projects approved/rejected,status of executionand of payment of approved projects, projects finished; number of field visits and technical audits performed; - average cost of approvedprojects: per project, per beneficiary; - percentageof labor cost as of total project cost for approved projects; - special observations, comments, explanation of delays in project execution; progress achievedin developingcost data base.
CREDIT PROJECTS:
Differentiatebetween and give names of district, commune and village for each village credit fund project; give informationon:
- number, and Lek volume of ADF commitmentsand disbursements, with respect to: village credit funds in the phase of promotion and creation, village credit funds created and operating; - for each operating village credit fund , provide number and total volume of loans, and type of activity to be financed,with respect to: loan applicationsreceived, loan requests evaluated, loans approved, loans disbursed, loans repaid; - give loan repayment rates for each village credit fund, and explain differences in repaymentperformance.
STUDIESTECHNOLOGY AND TRAINING:
Differentiate between studies projects, projects for technology transfer, and ADF training activities. For each group of activities,give informationon: total numbers of projects planned, in execution, finished. For each project, provide time frame, total staff weeks required for planning and execution, total cost, objectives and content of project, estimatedbenefits.
ADF STAFFING:
Positions filled during the reporting period, number and qualification of staff hired, staff dismissed (why dismissed). ANNEX D Page 40 of 41
REVISED ADF BUDGET:
Enclose latest budget revision for the current year.
SIGNATURES: To be signed by the ADF Executive Director, and by the Director for Finance and Administration. ANNEX D Page 41 of 41
PART VII. INTERNAL AND EXTERNAL AUDITING
Internal Auditing
7.1 ADF's InternalAuditor is responsiblefor monitoringADF's budgetary situationand all financial operations. The InternalAuditor also verifies that ADF managementand staff follow their duties spelled out in ADF's Internal Regulationsand this Manual. The Internal Auditor reports directly to the ADF Executive Director through reports which include any irregularities found in ADF's operations, and proposalsfor correctingthem. These reports shall be made availableto the ADF Board of Trustees and to IDA and other donor organizations.
External Auditing
7.2 Private international and independent auditors, acceptableto IDA, will also undertake annual audits of the ADF. Not later than six months after the end of fiscal year, ADF will submit to IDA certified copies of audit reports containingbalance sheets, income statementsand the auditor's opinion on whether the ADF is achievingits objectives in a cost-effectiveway and whether internal controls are adequateto minimizethe possibilityof misuse of funds.
hriuary 6, 1995 m:\alb\nudev\mr\annexd.x&r
ANNEX E Page 1 of 10
ALBANIA RURAL DEVELOPMENT PROJECT
ANNEX E
RURAL WORKS COMPONENT
INTRODUCfoN - THE PILOT PHASE
1. As of December 1, 1994, the InfrastructureDepartment of the Rural Development Fund has undertaken 155 rural works, 76 of which are completed, and has disbursed or committeda total of 229 million leks (about $2.3 million)'. The rehabilitated infrastructure-about 212 km of road, 22 potable water supply, 24 schools, 22 health centers, 6 foot bridges, and over 460 ha of irrigation-benefits about 215,000 people.
2. Averageunit costs are entirely "reasonable"-US$7,000 per km for road rehabilitationand US$33 per meter for building rehabilitation. For those subprojectsthat are completed, the differencebetween estimated and actual cost has averaged only 4 percent, reflecting the strong efforts by both RDF and communestaff to tightly control costs.2
3. Ten rural works inspectors, led by a DepartmentChief and AssistantChief, are responsiblefor identifying and evaluating subprojects proposed by villages and communes, and for supervising both technical and financial aspect of the works. Following a training period, each inspector handles an averageof ten subprojectsin two districts. Direct departmentaloperating costs have amountedto about 5 percent of investment.
THE RuRAL DEVELOPMENT PROJECT: OBJECTIVES
4. The Rural DevelopmentProject, which builds upon the successfulexperience of the pilot phase, would finance a core program to extend the rural works componentfor three additional years (component base costs are US$5.0 million). If additional cofinancingis secured, the rural works componentcould expand to all of Albania's rural areas, at a full-scale componentcost of US$11.0 million.
5. The rural works componenthas three main objectives:
(a) Rehabilitateand improve small rural infrastructure that is indispensablefor economic activity or for the well-beingof village inhabitants;
(b) Provide employmentin rural areas; and
1/ Average investmentper inhabitant is about 1,000 lek (US$10).
Z/ These efforts are particularlyremarkable in light of major price increases during the last fourteen months: cement increaed from 4,500 to 11,000 leks per ton and diesel fuel increased from 25 to 38 leks per liter. ANNEX E Page 2 of 10
(c) Help local authorities (communesand villages)to develop the necessary skills to foster local development.
6. Rehabilitate Small Rural Infrastructure. Existing infrastructure in Albania is insufficient and of poor quality, and its management and maintenance is almost nonexistent. Technically, most infrastructureis of poor quality:
* Techniquesused were often obsolete;
* Project design was uniquely based on technical-rather than economic-criteria, leading to high operationaland maintenancecosts;
* Political considerations often resulted in a low quality of service (for example, rural electrificationundertaken twenty years ago provides only 200 watts per household); and
* Small budgets and lack of motivationled to poor quality during construction.
7. The managementand maintenanceof all rural infrastructurewas the responsibilityof agricultural cooperatives or state farms. These structures have been dismantled and 318 communes were created based on democraticrepresentation and are theoreticallyin charge of all aspects of local life However, communeshave almost no means by which to assure maintenanceof existing infrastructure.
8. DevelopingEmployment in Rural Albania. Two thirds of Albania's population lives in the countryside. This high percentage is partly the result of the policy of the former government, which restrictedpopulation movement and subsidizedmountain populations. Recently,all cooperativeand state farm land has been distributed to villagers.3 This land allocation gave, on average, 1.4 hectares of land to each family (in certain mountainousareas some familiesreceived less than one hectare). These very smallplots do not allow for the developmentof economicallyviable agriculture, which is one of the main reasons for migration from rural to urban areas, which was prohibitedfor over 40 years.
9. In order to sustain Albania's poorest families, the governmentintroduced an economicassistance program, NdihmeEkonomike. This program strives to assures a minimum subsistenceincome for each family; in reality, the amount distributedto rural families is too small for subsistence. 10. For these reasons, a basic objective of the rural works componentis to focus on labor intensive works and injectcash into isolatedvillages by providing employmentto the most disadvantaged.The 129 rural works organized and financed by the Rural DevelopmentFund as of June 1, 1994 are injecting about US$0.5 million in wages to villages, correspondingto about 400,000 days of employment. The impactof this componenton rural incomesis important;rural works shouldbe viewed withinthe context of safety net programs implementedby the Government.
11. Help Local Government Foster Local Development. The dismantling of agricultural cooperativesleft a huge gap in the managementand maintenanceof public services. In mid-1992, 318 democraticallyelected communes were established, but they do not have yet the financial means or organizationalstructure to effectivelyassume the gap left by the cooperatives. One of the priorities of the component is to help communes acquire the resources they need to work as real partners in local development.
3/ Cooperative land was distributed in 1991-92 with property titles; state farm land was distributed later and the new owners have only the 'right to use' the property. ANNEX E Page 3 of 10
RuRAL WORKS PRIORmES
12. Subprojectpriorities have been selected taking into considerationthe objectives and experience of the Rural DevelopmentFund (RDF). Table E. 1 shows the order of priorities for types of subprojects, basedon three main criteria: (a) socioeconomicimpact; (b) impacton rural employment;(c) sustainability and maintenanceby local organizations (the ability of local organizationsto maintain the rehabilitated infrastructure).
TableE. 1: ComparingSubproject Socioeconomic Impact, EmploymentGeneration, and Sustainability
Type of Subproject Socioeconomic Employment Sustainability by Local Impact Generation Organizations
Irrigation/Drainage + + + + + + . . .
Roads ++ +++ ++
Schools and Health ++ + . . . Centers
Patureland + . . . ++
Drinking Water + + + ++
Electricity +.+ +
Telephone + +
+ - ranging from zero (none) to high (+ + +)
13. PrioritySectors. Rehabilitatingrural roads has good socioeconomicimpact, high labor intensity, and requires communeorganization for constructionand maintenance. Irrigationhas the highest priority, but requires the establishmentof user associations for water management;Potable water supply and rehabilitationof schools and health centers have a high social impact but require a low percentage of manual labor. Local organizations (villages and communes) are responsible for construction and maintenance; the central government supplies personnel and medical equipment. Other types infrastructurenot mentionedabove could be envisagedif requestedby villages, such as foot bridges, rural markets, or other social infrastructure.
14. Sectors to Test. Forest Management and Soil and Water Conservationrequire high labor intensityand have a positive economicimpact in the long term. Afforestation,pasture management,and anti-erosionmeasures could be tested, possiblyin coordinationwith the rural credit component,as most loans so far have been used to purchase livestock.
15. Non-PrioritySectors. Rehabilitationof the electricity and telephone network is not envisaged despite the economicimpact, given that the use of manuallabor is low and such infrastructureis not local responsibility.
16. Possible Evolution of Rural Works. The demand-drivenapproach developedduring the pilot phase will be continued,and it is not possibleto predict exactly what types of works will be undertaken. However, a possibleoutline of rural works to be undertakenis shown in Table E.2, based on pilot project experienceand knowledgeof local needs. ANNEX E Page 4 of 10
Table E.2: Possible Evolution of Rural Works
Type of Subproject Pilot Project 1995 1996 1997 (1993/94)
Roads 46% 40% 35% 30% Drinking Water Supply 14% 20% 20% 20% Buildings 33% 20% 15% 10% Irrigation 3% 10% 20% 30% Others 4% 10% 10% 10%
COMPONENT METHODOLOGY
17. Rural works are demand driven, selectedby villages and communesaccording to the most urgent local needs, thereby helping to assure their relevance and their future maintenance. The initial identificationof a subproject comes from the village; the commune then undertakes a technical and financialfeasibility study of the project with the help of the Rural DevelopmentFund.
18. The methodologyfor implementingrural works is based on a clearly defined financingcontract between the project and the commune,which is responsiblefor carrying out the works and maintaining the rehabilitatedinfrastructure. The commune assures:
* Technical control of the works by a specializedtechnician; 4 * Procurementand transport of materials and equipmentnecessary for the works; * Hiring and supervisingunskilled labor from the village, giving priority to the unemployed from the poorest families; and = Maintainingthe rehabilitatedinfrastructure by establishinga MaintenanceFund (corresponding to two years of maintenance cost) that is jointly managed by the commune and a user association/committee.
19. Use of Private Contractors. During the pilot project, communeshave been used to carry out the works for the following reasons: (a) there are not yet private contractors in the isolated mountain villages where the project has focused; (b) large contractorswould not be interested by the small size of the individualcontacts, which are scatteredover many districts; and (c) involvinglocal authoritiesto the greatest extent possible helps to prepare them for their future responsibilityfor local infrastructure. In fact, communeshave procured about 70 percent of subprojectcost (materials, equipment, and transport) from the private sector using local shopping (at least three price quotations). The Rural Development Fund has trained communesin procurement, and has prepared, in consultationwith private enterprises, subcontractingcontracts for use by communes.
20. It is expectedthat smallprivate contractorscould become availablein mountainareas during the next few years. Under the Rural DevelopmentProject, subcontractingcontracts will gradually become more important, eventuallyreaching the stage when communes subcontractthe entire works.
4/ The Rural Development Fund (which finances the works) verifies that the work undertaken and the costs correspond to the subproject estimates. ANNEX E Page 5 of 10
21. Average Subproject Cost. Average subproject costs used for budget estimationsare based on the figures in Table E.3.
TableE.3: Calculationof Avcrage Subproject Cost Type of Unit Cost Quay Cost per Subpoject (1,000 Rehabilitation Works (1,000 Lek) Lek) Roads 80 per hn 3 hn 2,400 Water Supply 650 per kIn 2 kom 1,300 Buildings 4 200 n 800 Irrigation 20 ha 100 ha 2,000
SUBPROJECTALLOCATION AMONG DISTRICTs
22. In order to assure equitable allocation of rural works among project districts, taking into considerationrural poverty, districtshave been evaluatedon the basis of topography and arable land per rural inhabitant and have been assigned a poverty coefficientranging from 1.2 (for the poorest) to 0.8 (for the better off), as shown in Table E.4. Investmentper district has been calculated by allocating funds amongproject districtsaccording to rural population,adjusted by the poverty coefficient(see Tables E.6 and E.9).
Table E. 4: Albania District Rural PovertyRankdng No. of No. of Rural Arable Ha per Poverty DISTRICT Topography Communes Villages Population Land (ha) Person Coefficient Poorest BULQIZE Mountainous 6 60 37830 8100 0,21 120% DIBER Mountainous 15 138 94199 19365 0,21 120% HAS Mountainous 4 29 24100 6492 0,27 120% KUKES Mountainous 12 90 62564 11416 0,18 120% LIBRAZHD Mountainous 9 73 82464 15519 0,19 120% M.MADHE Plain 5 55 48650 15255 0,31 120% MAT Mountainous 12 85 60406 14123 0,23 120% MIRDITE Mountainous 7 80 39294 6318 0,16 120% PUKE Mountainous 7 74 39775 5165 0,13 120% TROPOJE Mountainous 7 65 35162 7390 0,21 120% Subtotal 84 749 524444 109143 0,21 Poor BERAT Plain 10 120 91660 35522 0,39 110% ELBASAN Plain 21 174 118855 39221 0,33 110% GRAMSH Mountainous 9 92 33960 10360 0,31 110% KUCOVA Plain 2 1S 15612 5503 0,35 110% PEGIN Plain 5 49 27656 8523 0,31 110% TIRANA Plain 17 148 137046 33103 0,24 110% Subtotal 64 598 424789 132232 0,31 ANNEX E Page 6 of 10
No. of No. of Rural Amble Ha per Poverty DISTRICT Topography Communes Villages Population Land (ha) Person Coefficient Less Poor DELVINE Plain 4 48 20146 10466 0,52 90% LAC Plain 3 22 18082 10228 0,57 90% MALAKASTER Plain 8 37 34867 14134 0,41 90% PERMET Mountainous 6 96 30026 14723 0,49 90% SARANDE Plain 5 51 25755 15359 0,60 90% SHKODRA Plain 15 135 120426 30243 0,25 90% SKRAPAR Mountainous 8 101 21930 12141 0,55 90% TEPELENA Mountainous 8 76 35822 13055 0,36 90% VLORE Plain 11 99 86666 37812 0,44 90% Subtotal 68 665 393720 158161 0,40 Better-Off DEVOLL Plain 4 44 34377 15975 0,46 80% DURRES Plain 8 61 59840 26405 0,44 80% FIER Plain 14 108 131838 57031 0,43 80% GIROKASTER Mountainous 11 95 40430 17693 0,44 80% KAVAJE Plain 8 63 59500 25134 0,42 80% KOLONJE Mountainous 6 75 16011 11260 0,70 80% KORCA Plain 15 149 102089 47000 0,46 80% KRUJE Plain 5 41 35748 15231 0,43 80% LEZHE Plain 9 63 53125 18583 0,35 80% LUSHNJE Plain 15 113 89239 51136 0,57 80% POGRADEC Mountainous 7 72 49518 17506 0,35 80% Sub Total 102 884 671715 302954 0,45 36 DISTRICTS 318 2896 2014668 702490 0,35
COMPONENT INVESTMENTS: CORE PROJECT
23. The Rural Development Project would finance a core prograrn of about 189 rural works over three years. The potential scope of works to be undertaken is shown in Table E.5 Actual subprojects to be undertaken would be proposed by villages, so the scope of works could differ.
Table E.S: Core Project: Potential Scope of Works Type of Works Number Number Number Total Percent Investment Investment (PYI) (PY2) (PY3) (Mil. Lek) (percent) Roads 23 20 18 61 32 219.7 43 Water Supply 13 13 13 39 21 79.8 16 Buildings 13 10 7 30 16 35.9 7 Irrigation 7 13 20 40 21 129.3 25 Other 7 7 5 19 10 46.5 9 TOTAL 63 63 63 189 100 511.20 100 ANNEX E Page 7 of 10
24. Under the core program, the componentwould be limited to thirteen districts in order to have a significantimpact in each district; it wouldexpand to other districts if additional cofinancingis secured (see para. 28). In additionto these thirteen districts, rural works in four northeasterndistricts would be financedby the NortheasternDistricts Rural DevelopmentProject.
25. Investmentper district, based on rural populationand the poverty coefficientdescribed in para. 23, is shown in Table E.6 The following parameters were used to calculate the budget for the core project: * Investmentper inhabitant: ...... 620 leks
* Investmentper commune: average ...... 4,100,000 leks minimum ...... 2,700,000 leks maximum ...... 5,400,000 leks
* Investmentper district: average ...... 39,500,000 leks maximum ...... 59,300,000 leks
Table E. 6: Core Project: Investment per District No of Population Rural Budget No. of Feeder R. DISTRICT Zone Communes Communes Coef 1 000 L Projets 1 000 L M.MADHE 1 5 48650 90% 27000 10 0 SHKODRA 1 15 120426 90% 59300 22 0 MIRDITE 2 7 39294 120% 29200 11 0 PUKE 2 7 39775 120% 29600 11 0 MAT 3 12 60406 120% 44900 17 0 BULQIZE S. 4 3 18915 120% 14100 5 0 LIBRAZHD 4 9 82464 120% 48600 18 0 TIRANA 5 17 137046 110% 59300 22 27300 ELBASAN 6 21 118855 110% 59300 22 0 GRAMSH 6 9 33960 110% 24300 9 0 BERAT 7 10 91660 110% 54000 20 0 KUCOVA 7 2 15612 110% 10600 4 0 SKRAPAR 7 8 21930 90% 21600 8 0 TOTAL (13 Districts) 125 828993 481800 179 27300
26. An estimated breakdown of costs for rural works financed under the core project is shown in Table E.7
Table E. 7. Estimated Breakdown of Costs for Rural Works Number of Wages Materials Trnsport Taxes Other TOTAL Subprojecb 1995 63 38.7 45.7 34.3 11.3 6.4 136.4 1996 63 47.2 59.6 40.1 14.1 7.9 168.9 1997 63 56.3 76.5 46.1 17.2 9.8 205.9 TOTAL 189 142.2 181.8 120.5 42.6 24.1 511.2 28% 36% 24% 8% 5% 100% ANNEX E Page 8 of 10
COMPONENTINVESTMENTS: FULL SCALE PROJECT
27. The rural works program can be progressivelyexpanded and additionaldistricts incorporatedinto the project if additional cofinancingis secured. A proposed full-scaleproject, to be implementedover three years, would entail 372 subprojects in twenty-seven districts (not including the four districts supportedby the NortheasternDistricts Rural DevelopmentProject. The potential scope of works that could be undertakenduring the full-scaleproject is shown in Table E.8
Table E.8: Full-Scale Project:Potential Scope of Rural Works Type of WorkB Number Number Number Total Penent Inveatmcnt Inveamnot (PYI) (PY2) (PY3) (Mil. Lek) (pecnt) Roads 40 35 30 105 28 376.8 38 Water Supply 28 28 27 83 22 169.3 17 Buildings 28 21 14 63 17 75.0 8 Irrigation 14 28 41 83 22 268.2 27 Other 13 13 14 40 11 100.3 10 TOTAL 123 125 126 374 100 989.60 100
TableE.9: Full-ScaleProject: District Budgets DISTRICT Zone No. of Rural Poverty Budget No. of Feeder R. Communes Population Coef. 1 000 L Projets 1 000 L M.MADHE 1 5 48650 90% 30600 11 0 SHKODRA 1 15 120426 90% 63900 24 0 MIRDITE 2 7 39294 120% 33000 12 0 PUKE 2 7 39775 120% 33400 12 0 MAT 3 12 60406 120% 50700 19 0 BULQIZE S. 4 3 18915 120% 15900 6 0 LIBRAZHD 4 9 82464 120% 55800 21 0 nIRANA 5 17 137046 110% 63900 24 29400 PEGIN 5 5 27656 110% 21300 8 0 ELBASAN 6 21 118855 110% 63900 24 0 GRAMSH 6 9 33960 110% 27900 10 0 BERAT 7 10 91660 110% 62000 23 0 KUCOVA 7 2 15612 110% 12000 4 0 SKRAPAR 7 8 21930 90% 24800 9 0 DURRES 8 8 59840 80% 33500 12 15400 KRUJE 8 5 35748 80% 20000 7 9200 LAC 8 3 18082 80% 10100 4 4600 LEZHE 8 9 53125 80% 29800 11 0 KAVAJE 9 8 59500 80% 33300 12 15300 LUSHNJE 9 15 89239 80% 50000 19 23000 FIER 10 14 131838 80% 63900 24 29400 MALAKASTER 10 8 34867 90% 24800 9 11400 VLORE 11 11 86666 90% 54600 20 0 PERMET 11 6 30026 90% 18900 7 0 TEPELENA 11 8 35822 90% 24800 9 0 KORCE 12 15 102089 80% 57200 21 0 POGRADEC 12 7 49518 80% 27700 10 0 TOTAL (27 Districts) 247 1643009 1007700 372 137700 ANNEX E Page 9 of 10
28. Investmentper district for the full-scale project is shown in Table E.9. Budget calculations are based on the following parameters: * Investmentper inhabitant: 700 leks
* Investmentper commune: average ..... 4,700,000 leks minimum .... 3,100,000 leks maximum ... 6,200,000 leks
* Investmentper district: average ..... 42,600,000 leks maximum . . .63,900,000leks
RURALINFRAsrRucTuRE DEPARTMENT ORGANIZATION
29. Geographic Zones. The Rural InfrastructureDepartment of the Rural DevelopmentFund would organize its operations by geographiczones, created in order to maximizeoperational efficiency and subproject supervision. The following zones are proposed:
RURALDEVELOPMENT PROjECT (CORE PRoJECr)
Zn Districts 1 .M.Madhe, Shkoder 2 .Puke, Mirdite 3 . Mat 4 .Librazhd, Bulqize (south) 5 .Tirana, Peqin"' 6 .Elbasan, Gramsh 7 .Berat, Kucova, Skrapar
I/ Only if full-scale project is undertaken.
FULL-SCALE PRojECr
Zone District 8 .Lac, Kruje, Lezhe, Durres 9 .Lushnje, Kavaje 10 .Fier, Malakaster 11. Vlore, Tepelena, Permet 12 .Korce, Pogradec
NORTEASiERN DiSTRICT RURAL DEVELOPMENTPROJECT (IFAD-Financed Project) Ze Districts IFAD 1 .... Tropoje IFAD 2 .... Kukes, Has IFAD 3 .... Diber, Bulqize (north)"
1/ Bulqize would be fuanced by the full-le pnrject, but would be included in tPAD Zone 3 for logisi mum. ANNEX E Page 10 of 10
30. Department Staff. Staff required in the Rural Infrastructure Department under different financingscenarios is shown in Table E. 10.
Table E. 10: DepartmentalStaff Requirements Position Core Project IFAD- Subtotal Incremental TOTAL Financed Staff Requird NDRDP for Full-Scale Pmject Department Head I I 1 Assistant to Dept. Head I 1 2 1 3 Inspectors 7 3 10 5 15 Secretaries I I 1 2 Drivers 5 5 1 6 TOTAL 15 4 19 8 27
31. Each infrastructureinspector would be assignedto cover a geographiczone (about two districts). He/she would superviseabout twelve works per year, in addition to assisting communes in identifying and preparing potential subprojects.
32. Equipment. The InfrastructureDepartment currently has four vehicles (four-wheeldrive) and two computers. The following incrementalequipment is necessaryfor the Rural DevelopmentProject: two computers, one photocopier. The full-scale project would require incremental equipment of: one vehicle, one computer.
33. Technical Assistance. One long-termconsultant would be shared with the Urban Infrastructure Department.
m:\aib\nsrdv\iar\,mxe.sar ANNEX F Page 1 of 7
ALBANIA
RURAL DEVELOPMENT PROJECT
ANNEX F
SMALL-SCALE CREDIT COMPONENT
I. THE PILOT PHASE
A. Overview
1. During the pilot phase of the project, a financial intermediationsystem, based on village credit funds (VCF), was developed and tested with the participation of 59 villages. VCFs are revolving accountsmade availableto a village for small loans to farmers and microentrepreneursfor any type of income-generatingactivity. Village funds-the amount of which is determined by a formula based on village population-are deposited in the local branch of the Rural CommercialBank (RCB). The VCF is managedby a village credit committee (VCC), which is comprised of three elected village members; representatives of RCB and the Albanian Development Fund (ADF--the successor to the Rural DevelopmentFund) are ex-officiomembers. The VCC decides on credit allocations,defines collateral, and controls the repayment of loans, while the RCB keeps accounts and handles money.
2. On average, a VCF totals about US$20,000, and funds are typically delivered to the village in two or three tranches. The maximum loan duration is three years, and interest must be repaid at a minimum of once per year. Maximumloan size is US$500 equivalent(in exceptionalcases, they may be up to US$1,000 equivalent). Loans are fixed to the US dollar at the time they are granted and are repaid in US dollar equivalent (to capture inflation)plus 6 percent in transaction costs to reimburse the RCB, ADF, and VCC, and provide for an emergency fund to help borrowers facing exceptional repaymentdifficulties.
3. Loan security is maximizedby bringing loan decisionsto the village level, where they are made by neighborswho know potential creditors and who provide social support for timely repayment. As an added security, in the case of repaymentdefaults, all credits to the village may be stopped.
4. As of December 1, 1994, 59 VCFs have been established and funded in 7 districts: Diber, Elbasan, Gramsh, Kruja, Librazhd, Tirana, and Vlora. Over 2,600 subloans have been disbursed, and loan recovery, which began in November 1993, is 100 percent. A total of 72 subloans have been completelyrepaid, and 798 subloans (30 percent) are in the process of being repaid.
5. The main objectiveduring this pilot phase was to alleviatepoverty and work out a credit delivery system adaptedto the needs and constraints of small farmers. Figure F. I shows the steady progression of loans granted, slowed down by an occasionallack of funds linked to the replenishmentof the Special Account. ANNEX F Page 2 of 7
Figure F.l: Subloans Granted Since Commencementof Pilot Project
Village Credit Fund Program Number of Subloans 3000-
2500-
2000
1 500-. 1500 - IDA-FinancedPilot Project Begins
500 Pro-Pilot Phase
a) al a) a am a) a a) >* .6 ,.- . >. 0 W Q.0 U z L- Z
6. Loans average US$350and range in length from nine months to almost three years, depending on the activity financed. There has been a continual diversificationof activity financed, reflectingthe developmentof local markets-during the first three months (April-June1993), 97 percent of credits were used to purchase livestock. The overall use of credits during the pilot phase is shown in Figure F.2.
Figure F.2: Use of Credits (As of December 1, 1994)
DraftAnimals - 17% AgnculturalInputs - 8%
Mechanization- 7% Trade- 5% Crafls& Services- 4%
Livestock-59% ANNEX F Page 3 of 7
B. Impact of Small-scaleCredit
7. The impact of small-scalecredit was evaluatedby the ADF during a project impact study. The findings can be summarized as follows:
* The target populationconsists mainly of poor and medium-incomehouseholds. The richest families, which need loans greater than US$500, are de facto excludedby a self-selection process.
* Most loans have been granted to households with annual per capita income of less than US$200. The poorest segment of the target populationhas an annual per capita income of less than US$100. For this segmentof the population,the increasein incomeresulting from credit can be estimatedat 15 to 70 percent. For medium-incomehouseholds, loan amounts are higher (US$300), but the increase of annual income is lower (approximately30 to 50 percent).
In the poor households, where credit is mainly used for livestock, its initial impact is to increasethe work of women, but the nutritionalimpact has been substantial. In the medium- income families, credit usually leads to the development of external services (transport, tractor services, etc).
i Developmentof livestock is constrainedby the availability of pastures and developmentof agriculture is limitedby a lack of irrigation, which usually requires higher investmentsat the village or communelevel.
* On the whole, the credits disbursed up until now have reached the general objective of poverty alleviation. They provided enhanced food security and they initiated an important development process. For the medium-incomehouseholds, the maximum loan amount (US$500)is already too low.
* The most important impact of the credit, however, is the creation of a new mentalitythat stimulates farmers to think in terms of the future and alternative choices. It is not only a financial instrument, but a psychologicalinstrument that helps the population adjust to the new market economy.
C. Issues to be Resolved
8. Due to its process approach and to the active participationof the beneficiariesin the design of the project, the VCF system can be regarded as a success in general terms. However, there are a number of issues that must be resolved following the pilot phase:
(a) Mobilizationof savings: Given the limited resources of the pilot project (the VCFs cover only 59 villages out of 2,896, and each VCF addresses only a part of village credit needs), mobilizationof rural savings is a conditionof extension.
(b) Legal status of the village credit funds: Mobilization of savings creates a new responsibilityfor the village credit committeesand requires a clear legal status for the VCFs. ANNEX F Page 4 of 7
(c) Interest rate: While the rate of interest (6% on capital pegged to the dollar) was supposed to be positive in real terms when the pilot project started, stability of the lek created an overly favorable position for the borrowers. In this second phase, there would be a transition to a real positive lek-based rate of interest.
(d) Subloan ceiling: Although many farmers request higher loans, this issue should be considered carefully. On the one hand, increasing loan ceilings would reduce resources allocated to poor farmers and increase differences in income; on the other hand, the most dynamic farmers should be given access to credit.
(e) Credit management and accounting: During the pilot phase, the limited number of operations allowed the credit department to concentrate on the creation of village credit funds and on the distribution of credit, while the accounting and administration of funds was performed by RCB, which received a 2 percent fee for its services. The rather poor performance of RCB branches, resulting from a lack of staff motivation (VCFs give them additional work without additional compensation) and due to the rapidly increasing scale of the operations, calls for a different loan management and accounting system.
(f) Financial sustainability: In 1994, the total amount of interest received by ADF will be approximately US$14,000. The transaction costs at district level amount to approximately US$17,000, including the salaries and operating costs of credit officers, the 2 percent fee of RCB, and the I percent fee of the village credit committees. (District-level transaction costs do not include the costs of headquarters in Tirana, nor technical assistance.) The interest revenue covers about 80 percent of district-level transaction costs. As operations increase, this coverage should become positive in 1995.
II. THE RURAL DEVELOPMENT PROJECT
A. Objectives
9. The two main objectives of the Rural Development Project Small-Scale Credit Component ($4.3 million base costs) are:
(a) Extend the activities started under the pilot phase by using project resources ($4.1 million base costs for credit), but also using the revolving funds of the pilot phase financed by IDA, European Union and an Italian grant (totaling US$1.6 million), and the Northeastern Districts Rural Development Project implemented by ADF (US$4.0 million). The total of US$9.7 million in outside resources for credit would be available to the VCF system.
(b) During the three-year project period, prepare for the creation of a sustainable financial institution based on a Raiffeisen-type system with a special opening to poor farmers. This objective would require a positive outcome for all issues listed above (para. 8).
B. Action Program
10. In order to achieve these objectives, an action program has been established, as shown in Table F. I. Table F.l: Small Credit Component Action Program
Geographic Follow-up/ Extension Institutional Phase Products/Outputs Financial Structure Training Evaluation/ ______Experimentation
Year 1 Deployment in Register legal statute of Individual and Accounting performed First formal training Establish a follow- 11 Districts VCFs under group loans, by ADF Finance of credit officers. up, evaluation, and Foundation law compulsory savings Department. Parallel Establishment of experimentation unit mobilization accounting in the ADF training manuals in to develop new Credit Department. Albanian, study visits products. Establish Mobile village and training abroad follow-up network cashiers
Year 2 Increasing the Transform the VCF Individual and Equipment and Implement full Follow-up and density of the into Savings/Credit group loans, operating cost program for evaluation of network within Funds based on the compulsory savings accounting performed qualification of credit activities in year 1. the existing 11 Cooperative Law and mobilization. Start by ADF Finance officers. First Testing of new districts initiate development of experimentation Department. formal training of products regional federations with voluntary Autonomous adminis- Village Credit savings mobilization tration of loans and Committee members. savings in Credit Development of Department of ADF teaching documents for client training seminars
Year 3 Increasing the Establish first federa- Individual and Establish bank Establish a joint Follow-up and eva- density of the tions and begin transfer group loans, accounting plan. training center (if luation of activities network within of responsibility from compulsory and Autonomous financial financing available), in year 2. Testing the existing 11 ADF to federations voluntary savings management of the start training of new products and districts mobilization. Credit Department federation officials following up the Begin experimentation establishment of with permanent cooperative cashier offices. structures.
Post Extension of the Transfer of Full range of Transfer of financial Full availability of Transfer of Project network responsibilities from financial services administration to training for further evaluation, follow- ADF to National National expansion of credit up and Confederation of VCFs Confederation of network experimentation unit VCFs. Reimbursed to the Confederation revolving funds build up equity of the new > institution. z ° mX ANNEX F Page 6 of 7
11. The program is based on the followingassumptions:
12. Location. The small credit program will be located in 11 districts, 7 financedunder the Rural Development Project (Elbasan, Gramsh, Librazhd, Kruja, Puka, Tirana, and Vlora) and 4 financed under the NortheasternDistricts Rural DevelopmentProject (Tropoje, Has, Kukes and Diber), for which ADF is the implementing agency.
13. Given the limited resources available, the preferred option would be to increase the density of the VCF network at the district level rather than expand to new districts. This would also facilitate optimizing the number of villages per credit officer and the overall institution-building process.
14. Institution-building. The institution building process will be carried out in four phases:
(a) A statute has been prepared for the VCF on the basis of the Foundation law of April 1993. Although this legal basis is not fully satisfactory, VCFs are to be registered under this statute beginning in the last quarter of 1994.
(b) A cooperative law is now under preparation and will be presented to the Government by the Minister of Agriculture and Food before the end of 1994. This law could apply to not only savings/credit cooperatives, but to all types of rural and urban associations. As a result, considerable discussion of the bill will be required before its finalization. As soon as the law is passed, the statute of the VCF will be changed and the VCFs will be registered under the new law.
(c) The village credit funds will federate on a regional basis.
(d) ADF will transfer its management training, follow-up, and audit responsibilities to the National Confederation of Village Credit Funds. The resources that have been put at the disposal of the VCFs will be reimbursed to the Confederation and will become part of its equity, serving to extend the network. The Confederation will become subject to the banking law of April 28, 1994, while the VCFs themselves will remain subject to the cooperative law.
15. The system would be built up gradually; a first federation of the VCFs would be organized at the district level. An organizational chart of the future system is shown in Figure F. 3.
Figure F. 3: Organizational Chart for the Future Savings/Credit Cooperative System
Couintry | National Confederdbtnon
Dbtrlct, conuune ' n Iwo
Vlllte viag F VCF VFS E[:S3S31l IF l ANNEX F Page 7 of 7
16. Target population and financial services provided by the VCFs. The target population of the VCFs comprises 493,000 small farms, as well as, in some regions, the landless rural population. Although the loan ceiling would be increased to US$1,000, there would be no competition with the RCB, which has high transaction costs for loans under US$3,000.
17. The financial services would be kept as simple as possible and would comprise loans for income- generating activities (average loan: US$600: maturity 2 years) with a possibility of group lending; compulsory savings corresponding to 10 percent of the loan amount (already being tested in Gramsh district); and voluntary savings/fixed deposits, timed according to the schedule of cashiers travelling through the village for the collection of installments. The volume of these savings is very difficult to predict. Projections have been made based on a percentage of credit distributed the previous year.
18. All other financial services, such as housing loans, leasing, regular deposits, and insurance schemes, are not yet feasible at the village level and would not be experimented before project year 3.
19. Financial organization. An autonomous financial structure would be established progressively by developing an independent loan management and accounting system parallel to the financial department of ADF and the accounting system of RCB. RCB accounting of VCF loans is not very satisfactory and the administration of funds is becoming increasingly problematic given the growth in operations. Therefore, the agreement with RCB, whereby a 2 percent fee is paid on all VCF operations, will be abandoned and ADF will become a normal RCB client. ADF will continue to transfer funds to the districts through its local branches of RCB.
20. As the total volume of loans per village is limited, each credit officer will be in charge of 10 to 20 villages. Beginning the second year, mobile cashiers will be responsible for disbursement of funds from RCB to the villages, and for the collection of loan repayments and voluntary savings.
21. Training. The good performance of the VCFs is largely due to the quality of its staff, trained and challenged on the job. As the number of VCFs increases, a more organized training program must be set up, based on the experience of the pilot phase. Training of the credit officers and village credit committee members should be complemented by the training of regional staff and board members. A cooperative training center could be set for this purpose if financing is made available.
22. Evaluation and follow-up. Building up a savings/credit cooperative system requires a continuous process approach and the participation of the village credit committee members. Testing different types of organization, procedures, and services requires close follow up and evaluation.
ANNEX G Page I of 6
ALBANIA RURAL DEVELOPMENT PROJECT
ANNEX G
PROMOTION OF RURAL ACTIVITIES
I. BACKGROUND
1. Prior to the democratic revolution in 1990/1991, all agricultural production in Albania was organized on agricultural cooperatives and state farms, and even private livestock ownership was prohibited. Under the land reform, whichtook place from 1991 to 1993, agriculturalland and livestock were distributedto the former cooperativeand state farm workers, resulting in the creation of 493,000 small farms averaging1.4 ha. Livestockmarkets were amongthe first marketsto develop in remoterural areas, and the number of livestockhas increasedin the last few years, especially in mountainousareas. But due to the lack of farmers' cash and credit and the collapse of agricultural and livestock support services, poor farmers face serious livestockconstraints related to husbandrypractices and animal health.
2. The collapseof the public sector upstream and downstreamfrom agriculture has also opened up a number of opportunitiesfor the creationof small production, trade or service units in rural areas, even thoughlabor mobility is still constrainedby unemploymentand housingproblems, and land concentration is delayed by legal difficulties. These microenterprises reflect the limited capital and management capacitiesof the potentialentrepreneurs, the numberof whichis increasingas market conditionsimprove.
3. The main sub-sectors where microenterprises can be developed relatively rapidly are the following:
(a) The dairy sub-sector: There is an opportunityto develop small milk processing plants to supply urban markets, as well as cheese plants for goat and sheep milk that could be produced at very competitiveprices for export. The capacity of these plants should not exceed 500 to 1,500 liters/day.
(b) Cerealsprocessing: The small cereal mills functioningunder private ownership are obsolete but could be modernized with relatively little investment. Small bakeries and dried pasta plants could be developedin many areas as rising farm incomes allow farm familiesto buy their bread and some additionalfood.
(c) Fruit and vegetablesprocessing could be developedin small processingunits (jam, pickles, tomato sauce) and using drying techniques at village level. These products could be distributed in the domestic market, which is presently supplied mostly by imports from Greece and Macedonia,while some products, like black cherries, could be exported.
(d) Olive oil: Traditional mills could be modernized by simply adding an engine. New appropriate technologiescould be developedat village level. ANNEX G Page 2 of 6
(e) Wine: Although most of the state vineyards have disappeared, there is a potential domestic market for good quality wines, which can be produced by small wineries.
(f) Honey, aromatic plants and mushrooms, which were previously collected by state companies, could become an important source of income for the mountain areas.
(g) Wool processing and carpet making could be rehabilitated at village level as a part-time activity for women.
(h) Poultry and eggs production could be developed in small production units for the local market.
(i) Carpentry, blacksmith, mechanical shops could be modernized and put to work relatively quickly since the former cooperative artisans are still living in the villages but generally jobless for lack of equipment and raw materials. Manufacturing of agricultural tools and machinery maintenance is again becoming an important activity and an interesting market.
(j) Construction and building materials: This sector is expanding very rapidly in both rural and urban areas. It offers a good opportunity for the creation of small tiles and bricks factories, which require only a very small investment.
(k) Rural trade is developing rapidly, although the majority of traders are, up to now, located in towns. This sector is closely connected to the development of transport, which also has an important potential for growth.
(I) Rural tourism could become, progressively, a part-time activity in some areas.
11. EXPERIENCE UNDER THlE PILOT PROJECT
4. In accordance with the process approach, the methods and procedures for the component have been established on the basis of lessons learned during the pilot phase.
5. Supportfor Livestock. Despite the collapse of animal health support services in Albania, nearly 60 percent of village credit fund subloans have been used to purchase livestock. During the pilot project, it was recognized that improved village-wide prophylaxis would not only strengthen the village credit fund program, but would have a significant economic impact on poor farmers and would advert the possibility of village health problems caused by animal diseases and parasites. In early 1994, the ADF Credit Department began developing, using participatory methods, a program to support prophylaxis in the commune of Gjinar of Elbasan District. A village animal health association was created, consisting of the local veterinarian and all farmers with livestock. In exchange for a unanimous agreement by the farmers to regularly vaccinate and treat their livestock, the ADF agreed to partially pay for vaccinations and provide basic veterinary equipment to the local veterinarian. The program has been very successful to date, and is being replicated in additional villages.
6. Transfer of Technology. Under the pilot project, two types of pilot actions have been undertaken by ADF to transfer appropriate small-scale technology: ANNEX G Page 3 of 6
(a) Three agriculturalprocessing projects have been started in the most important sub-sectors with the support of the Ministry of Agricultureand specializedresearch institutes:
(i) In Tregan (Elbasan district), a goat cheese production unit, which collects milk in 5 villages and processes 500 liters per day, has been designed as a model of training- production unit. This unit was suppose to function for two years under the responsibilityof RDF before being transferred to local private farmers. The Board decided that the production unit should belong to the private sector from the beginning, whichhas created a number of institutional,legal, and financialproblems. Solving these problems was beyond the capacitiesof an inexperiencedand changing technicalstaff. The decision taken consistsfinally in renting the unit to a local private associationof farmers, which could buy it on credit after one year. Although the plant was built under the supervisionof the rural works department,the equipmenthas been imported and the technicianhas been trained, full production may not begin before the next season (April 1995).
(ii) In Melan (Diber district), a fruit processingproject establishedin a 600 ha. fruit-tree production area, was designed to create a model "common facility center" for sterilizing and canning farm-made jams. For the same reasons as those found in Tregan, the orientation of the project has had to be changed. The project was considerablydelayed to allow for the creation of a private associationof 15 producers, and was suppose to be implementedin two phases: market tests on farm made products in 1994, and establishmentof the canning unit in 1995 if the results of the tests are positive. The cost of the total investmentwas estimatedat about $10,000 to 15,000. The ADF executivecommittee decided in July 1994 to postpone the project consideringthat the conditionsof its success were not met.
(iii) In Viora district, an olive oil project has been developedto includetwo components: the modernizationof traditionaloil mills by adapting their engines, and the creation of a small privately owned model oil mill. The whole project would cost approximately$10,000. The olive season begins in November,and the project is now under preparation.
(b) A project to rebuild an entire supply-production-marketingchain for seed potatoes. This project, implementedin Stebleva (Librazhd district), was based on 70 small farms and is being implementedin cooperationwith the Ministryof Agriculture, the specializedinstitute, and the credit department of ADF.
7. While all projects were well performed from the technical point of view, they revealed the ambiguitiesof the transition period:
(a) On the side of the Administration,there is a strong will to privatize, yet managementremains very centralized;
(b) On the side of the farmers, there is a strong desire to create independentprocessing units for their products, but they are still trying to get all possible assistance from the state without taking any risk themselves; ANNEX G Page 4 of 6
(c) On the side of the ADF, there is a communicationgap between local staff, who have no experience with private enterprise creation, and technical assistancepersonnel, who have no experience with the workings of a centrally-plannedeconomy.
8. The difficultiesexperienced during the pilot phase, along with the increasingnumber of private initiativesemerging in the villages, helped to redefine the microenterprisecomponent and make it as demand-drivenas the rest of the project.
III. OBJECTIVES
9. The main objectives of the Promotion of Rural Activities componentare to (a) help improve village-wideprophylaxis; and (b) provide support for the developmentof non-farmactivities in order to provide additionalsources of incometo complementthe relativelysmall agriculturalincome and provide employmentopportunities to the rural population.
IV. SUBCOMPONENTS
10. To support the above objectivesand draw lessons from the pilot phase, the proposed promotion of rural activities componentwould support the followingactivities:
11. Veterinary Support (US$100,000). Under the component, the ADF would establish and support the creation of village animal health associationsto improve prophylaxis in villages with village credit funds. The animal health associations, which would consist of voluntary independent associations representingprivate farmers and veterinarians,would organizethe vaccinationand treatment of all village livestock. The statutes of the animal health associationsshall be at all times acceptableto IDA and the ADF Board of Trustees. In villages where there is establisheda village credit fund and an animal health association in good standing, the ADF may contribute financially toward village-wide prophylaxis, accordingto the terms and conditionsset forth in an agreement signed by the village chief, authorized representativeof the animal health association,and the authorizedrepresentative of veterinarianservices. The model agreement shall be at all times acceptableto IDA and ADF's Board of Trustees.
12. Microbusiness Advisory Service (US$SIS,OOO).The project would provide business and technical advice to approximately600 microentrepreneursor groups of microentrepreneursby helping them to prepare a business plan, choose the right technology, find information about available equipment, and advising them on the legal proceduresfor creating a microenterprise. For the purpose of the project, a microenterpriseis defined as sole proprietorship,partnership, or family businessthat has fewer than five employees. In this demand-drivenapproach, the "commonfacilities centers" would not be created a priori, but only if establishedby a producers' organization. The ADF Department of Rural Activities and Microenterpriseswill be assisted in its work by a networkof local consultantsrecruited on a service basis among previous cooperativeand state farm specialistsand/or within the specializedinstitutes. The advisors will receive special training.
13. The advisory service would work in conjunction with village credit funds in order to create synergy--butnot mandatoryinterdependence--between business advice and credit distributed under the same project. The microentrepreneurswould be free to seek other sources of financing--especiallyfrom the Rural Commercial Bank--just as and the Village Credit Committees would apply their normal proceduresand loan ceilings($ 1,000 per borrower) and would be free to approveor reject a loan request. ANNEX G Page 5 of 6
14. Cooperation would be sought with the SME Foundation and the FAO-sponsored agribusiness advisory units, especially in the field of basic business training of the staff and local consultants. This cooperation cannot be extended to all fields of intervention, since the microentrepreneurs and the projects targeted by ADF are far below the level targeted by these institutions, and the methods applied quite different from those used for SME promotion.
15. Marketingand TechnicalResearch and TechnicalAssistance (US$166,000). The componentwill support marketing and technical studies for key subsectors, and the ADF will set up and maintain, in liaison with technical institutes in Albania and aborad, a database on, inter alia, small technologies, equipment, suppliers, and prices. The component will also finance six months of technical assistance.
V. IMPLEMENTATION
16. Since microenterprisessupport issues are very similar in rural and urban areas, economies of scale can be maximizedby implementingthe rural and urban componentsunder the guidanceof the same department of the Albanian DevelopmentFund..
17. An annual workplanand budget would be establishedand revised during an evaluation seminar held every three monthswith the participationof the credit departmentand of the foreign microenterprises consultant.
18. An internal monitoring and follow-up system will be set up to (a) assess how villagers are benefitting from improved prophylaxis; (b) assess the number of microenterprises that will receive informationand advice, and the time spent on each of them; and (c) collect and process informationon microenterpriseprojects subsectors. An analyticalaccounting system will facilitateclose monitoringof the cost of microenterpriseadvice being provided. Once the system is established and proves to be effective, a small contribution could be requested from the microentrepreneurs.
VI. BENEFITS AND RISKS
19. Benefits. Assuming that an average of three jobs are created per microenterprisesestablished, the 600 microenterprisessupported by the project would benefit approximately 1,800 rural households and about 10,000 persons.
20. The component will have a direct effect on reducing losses and adding value to the local production. It will slow down migrationto the cities, which are not able to absorb surplus labor. Above all, however, the project will have an important demonstrationand training effect by helping to adapt mentalitiesto the marketeconomy and improvingskills and technologieswhile adjustingthem to the new agrarian structure and to the limited markets and investmentcapacities
21. Risks. The main difficulty, alreadyexperienced during the pilot phase, is the lack of experience of both advisers and beneficiariesin the creation of microenterprises. Overcoming this difficulty will require a great deal of training, informationand making some initial mistakes on which any kind of experiencecan be built. The demand-drivenapproach would limit this risk.
22. Finally, a general problem for development of small business is the weakness of the existing market and, more specifically, the weakness of the rural markets. This problem can be partially addressed by good coordination with the urban project. One could help to organize the supply of urban ANNEX G Page 6 of 6
microenterprises(like carpet or kilim producers) with raw materials from the rural areas (like wool). Inversely, one could market some urban products (e.g. mechanical products) in rural areas. Both of these approaches would benefit both urban and rural enterprises.
23. Also, the ADF InfrastructureDepartment can provide some captive markets (for instance for bricks) to help start new microenterprises, and quality improvement could be a good basis to start commercialpromotion for Albanianproducts facing competitionfrom imported products.
m:aIb\nudev\nnexg.=r ANNEX H Page 1 of 2
ALBANIA RURAL DEVELOPMENT PROJECT
ANNEX H
IMPLEMENTATION SCHEDULE
As a result of the on-going Rural Poverty Alleviation Pilot Project (C. 2461-ALB), the implementationframework for the Rural DevelopmentProject is largely in place. Some key actions and dates are shown in the ImplementationSchedule below.
Implementaton Schedule for 1994 and 1995 Target Dates Action ImplementingAgency Pre-EffectivenessActvities: completed9/94 Passage of Government decree transforming Chairman of the ADF Board of the RDF into the ADF, and official Trustees appointmentof ADF Executive Director completed 8/94 - Training of ADF staff in: project ADF I IDA 12/94 management, monitoringand evaluation completed 12/94 Rehabilitationof additional office space ADF completed 12/94 Preparation of revisions to the Manual of ADF I IDA Procedures, submitted to IDA for prior review 12/94 Preparation of terms of reference, letter of ADF invitation, and short-list for 1994 project audit 12/94 - 1/95 Preparation of 1995 Annual Work Programs ADF / IDA and Budgets for each project component, submitted to IDA for prior review 1/95 Internal reorganizationof ADF ADF 1/95 Recruitmentof additional staff ADF 1/95 - 3/95 Preparation for procurement of additional ADF computers (technical specifications,letter of invitation, etc.) 1/95 - 3/95 Preparation for procurementof additional ADF furniture and other office equipment 1/95 - 3/95 Preparation for recruitment of additional ADF consultants 1/95 - 2/95 Participationin World Bank procurement ADF workshop in Tirana ANNEX H Page 2 of 2
Target Dates Action Implementing Agency Implementation Activities: 4/95 Project Effectiveness 4/95 Procurement of Computers, Office ADF Equipment, Furniture 4/95 Registration of VCFs under the Cooperative ADF Law 8/96 Mid-Term Review Government I IDA
As regards the three components:
Target Dates Action Implementing Agency
Rural Works: There are no specific action required; the activities are already underway Small Scale Credit: 1
Pre-EffectivenessActivities:
completed 8/94 to Training in cooperative banking 12/94 completed 8/94 to Registration of VCFs under Foundation Law ADF 12/94 (as a provisional measure) completed 9/94 - 12/94 Drafting of Cooperative Law IDA/consultants 11/94 - 12/94 Discussion of draft Cooperative Law within Ministry of Agriculture the Ministry of Agriculture and the Ministry of Industry and Trade 1/95 Passage of Cooperative Law by Parliament Parliament
Microenterprise Support
Implementation 1/95 to 6/95 Training in microenterprise promotion and business advice.
Creation of a network of local consultants.
Establishment of relations with foreign small technology and microenterprise centers.
Creation of a Database I - For detailed implementation plan, see Annex F.
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