PROJECT PREPARATION FACILITY: POLICY UPDATE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT PREPARATION FACILITY: POLICY UPDATE OPERATIONS POLICY AND COUNTRY SERVICES WORLD BANK June 16,2008

2 ~~ Abbreviations and Acronyms ACTCF AFR EAP ECA FY IBRD IDA IDA 14 LOA LCR LEG MNA OPCS PPA PPF SAR Loan Client and Financial Services Division Africa Region East Asia and Pacific Region Europe and Central Asia Region Fiscal year International Bank for Reconstruction and Development International Development Association IDA Replenishment for the period July 1, June 30,2008 Loan Department Latin America and the Caribbean Region Legal Vice Presidency Middle East and North Africa Region Operations Policy and Country Services Project Preparation Advance Project Preparation Facility South Asia Region

3 PROJECT PREPARATION FACILITY: POLICY UPDATE Contents I. INTRODUCTION I1. EXPERIENCE AND PERFORMANCE I11. NEW REQUIREMENTS Iv. PROPOSED FLEXIBILITY... 5 V. RECOMMENDATIONS... 6 Tables: Table 1. FY07 Regional Allocations... 1 Table 2. Active PPF Portfolio (US Dollars)... 4 Table 3. Number of PPF Advances by Size and Regions. as of June Figures: Figure 1. PPF Advances Approved. FY Figure 2. PPF Commitments That Did not Materialize into Loans. FY Annexes: Annex A PPF Timeline... 8 Annex B PPF Commitments FY96 - FY07: US Dollars Annex C PPF Commitments FY96 - FY07: Regional Distribution Annex D PPF Allocation Control (as of June ) Annex E PPF Active Portfolio. June Annex F Two IDA PPF Refinancing Cases Annex G. Changes in Traffic Light Assignments Over Time Annex H Project Preparation Facility Policy Update: Summary of Proposed Changes and Draft OP/BP 8.10 Revised Annex I. Proposed Amendments to the IDA and IBRD General Conditions. 32

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5 FROM: The President June 16,2008 PROJECT PREPARATION FACILITY: POLICY UPDATE I. INTRODUCTION 1. This paper reviews the use and performance of the Project Preparation Facility (PPF) over the twelve-year FY96-07 period, and recommends a more flexible approach to Project Preparation Advance (PPA) refinancing and repayment. The PPF has been an important and cost-effective instrument supporting the preparation of individual projects through providing technical assistance for successful project design and implementation start-up, and funding institutional strengthening and incremental operating support. These changes would bring the PPF fully in line with: the IDA grant eligibility and allocation framework introduced during the IDA1 4 Replenishment and agreed to be maintained in IDA15; the revised policy on the rapid response to crises and emergencies'; and with the demonstrated need for flexibility. 11. EXPERIENCE AND PERFORMANCE 2. Project Preparation FaciZity. The PPF was approved by the Board in November 1975 with an initial authorization of $5 million. In 1996 the Board approved the increase in the size of the Facility to the current level of $290 million (see Annex A). Operationally, the Managing Directors make indicative allocations to the Regions within the limits of the commitment authority and adjust these allocations periodically, as necessary. Regional allocations, as shown in Table 1, have remained constant since In conjunction with the Loan Client and Financial Services Division (ACTCF) and Operations Policy and Country Services (OPCS), the Regions monitor their commitments against the indicative allocations to ensure that the limits are observed. Since PPAs are normally refinanced out of loans, the funds advanced have been carried on the books of the Bank as receivables on account of project preparation, rather than as loans, until they are refinanced or repaid. Table 1. FY07 Regional Allocations Region ($ millions) Percent AFR EAP ECA LCR MNA SAR 43.O 14.8 Reserve Total ' On February 27, 2007, the Executive Directors approved a new policy on Rapid Response to Crises and Emergencies which is reflected in the new OPBP 8.00, Rapid Response to Crises and Emergencies, and OPBP 8.10, Project Preparation Facility.

6 2 3. Eligibility. No changes are proposed in the eligibility for PPAs or in the uses of PPA resources. As is currently the case, PPAs are made only to a Bank member country.2 PPAs finance: (a) Preparatory activities for investment operations, including preliminary and detailed designs and limited initial implementation activities, (b) Preparation of programs to be supported by development policy lending operations, and (c) Start-up emergency response activities in cases of crises and emergencies. 4. Revolving Nature ofthe PPF. The PPF was set up as a revolving fund: and therefore repayment and refinancing terms were established to maintain the integrity of this revolving fund. Currently, PPA recipients are required either to refinance the PPA from the proceeds of the loan4 for the preparation of which the PPA was being used or, if no loan materializes, to repay the advance from their own resources. Any undisbursed amount is cancelled. The changes proposed would provide more flexibility in the refinancing and repayment of the PPA. 5. Demand and Resource Use. Over the twelve-year period FY96-07, PPAs have provided steady support to the Bank s lending pipeline, particularly in IDA countries (see Fig. 1). In the period through June 30, 2007, 998 PPAs were approved for total commitments of $ million. Of these commitments, $623 million (77 percent) were made on IDA terms and $189 million (23 percent) on IBRD terms (see Annex B). See OPBP 8.10, Project Preparation Facility. Paragraph 12 of the 1975 Board paper states as follows: Bank advances would be at the Bank interest rate deferred until the advance was refinanced or other terms of repayment determined; IDA advances would bear the IDA service charge similarly deferred. They would normally be repaid through reimbursement under the loan (credit) for the project in question as soon as it becomes effective. However, the borrowing government would be required in its request to undertake to repay the advance and accrued interest or service charge to date in equal installments over the next five years at the Bank s rate of interest in the case of Bank advances or IDA service charge if a project loan (credit) was not made within a reasonable time period to be agreed upon at the time the advance was granted. Loans include IBRD loans, IDA credits and IDA grants. These requirements are set out in OP 8.10, Project Preparation Facility as follows: If the loan is not made within the period specified in the Letter Agreement, including any extensions, the recipient is required to repay the PPF advance (together with the accrued interest or service charge) in 10 semiannual installments over the next five years. If the disbursed amount of the PPF advance is US$50,000 or less, the recipient is required to repay it within 60 days.

7 3 F ure 1. PPF Advances Approved, FY Millions 100, IBRD 0 IDA I Total W98 W99 WOO W O l -02 N O 3 W NO7 6. In any given year, the number of PPAs represented approximately percent of the number of approved projects. Almost all the committed advances made in the reviewed period materialized into loans (see Fig. 2). In total, 166 advances in the amount of $138.3 million (less than 17 percent) did not result in loans financed by the Bank for the twelve-year period (see Annexes B and C) and were repaid. In addition, 44 PPAs (27 on IDA terms) in the total amount of $44 million, (equally divided between IDA and IBRD) were terminated (approved but never signed). Figure 2. PPF Commitments That Did not Materialize into Loans, FY c- IBRD -IC- IDA I FY96 FY97 FY98 FY99 WOO FYOI FY02 FY03 FY04 FY05 FY06 FY07 7. Open Advances. At the beginning of FY07, more than $1 17 million was available for new commitments. Of the total commitments of $172.8 million for 210 advances, more than half were concentrated in AFR (see Table 2 and Annex D).

8 4 Table 2. Active PPF Portfolio (US Dollars) Total AFR EAP ECA LCR MNA SAR June $122,817,909 $69,298,408 $3,058,156 $14,004,000 $12,592,719 $3,000,000 $20,864,626 30, 2006 Share (YO) June $172,794,949 $101,869,268 $5,796,156 $9,077,650 $17,315,819 $3,000,000 $35,736,056 30, 2007 Share (YO) Note: EAP includes a PPA of $150,000 to Myanmar (07/14/1980), which is in non-accrual status. 8. Of the active PPAs, more than 70 percent are smaller than $1 million (Table 3) representing 50 percent of the committed amounts. Table 3. Number of PPF Advances by Size and Region, as of June 30,2007 Size Range AFR EAP ECA LCR MNA SAR Total TotalAmount Up to $500, ,430,994 $500,000 - $1,000, ,265,990 $1,000,000 - $1,500, ,778,191 $1,500,000 - $2,000, ,819,774 $2,000,000 - $2,500, ,000,000 $2,500,000 - $3,000, ,500,000 Total by Region ,794, NEW REQUIREMENTS 9. Recent developments make it necessary to consider changing PPF refinancing and repayment requirements: the IDA system for allocating grants on the basis of a country s risk of debt distressy6 the approval of the revised policy on rapid response to crises and emergency7, and the demonstrated need for increased flexibility. 10. IDA Framework. The IDA framework bases the terms of financial assistance IDA provides on a country s risk of debt distress, with three traffic light categories: Green light (low risk of debt distress): 100 percent credits Yellow light (medium risk of debt distress): 50 percent grants, 50 percent credits Red light (high risk of debt distress, or in distress): 100 percent grants. See IDA 14 Deputies Report, Additions to IDA Resources: Fourteenth Replenishment- Working Together to Achieve the Millennium Development Goals. See Toward a New Frameworkfor Rapid Bank Response to Crises and Emergencies (R /4), April 2007.

9 5 11. Under the existing policy, a PPA is available to IDA countries only on credit terms. If no follow-on loan materializes, a red light country could be required to repay the full amount of the advance, with accrued service charges, within five years (or 60 days if the amount of the advance does not exceed $50,000). By the Bank s own measures, this requirement would contribute to the country s financial difficulties. 12. Rapid Response Policy. This IDA framework has already been reflected in the revised policy on rapid response to crises and emergencies. Under the revised rapid response policy, a PPA of up to US$5 million is available to cover start-up emergency response activities, instead of the current $2 million limit for operations expected to cost less than $200 million and $3 million for larger operations. In red light countries, if the IDA grant for the emergency operation does not materialize within two years following the effectiveness of the PPF grant, the disbursed PPF amounts may be refinanced out of the proceeds of any other IDA grant made to the country. If no subsequent financing or loan materializes during this period, the PPA will not be repaid. 13. Demonstrated Need for Flexibility. The Bank has already approved two country requests for flexibility in repayment and refinancing (see Annex F). Mali. In Mali a telecommunications and postal reform project had two PPAs, of US$250,000 and $475,000. In March 2004, a PPA in the amount of $1,500,000 was made for another project, the Mali Growth Support Project. This new project incorporated a telecommunications and postal reform component. At the request of the borrower, all three PPAs were included in the financing agreement for the Mali Growth Support Project. Guyana. In Guyana a PPA of $850,000 was approved for the Secondary Towns Infrastructure Project, The Government asked the Inter-American Development Bank to finance the project. In July 2006, the disbursed amounts from the PPA were refinanced from the Guyana Poverty Reduction and Public Management Operation, which was not related to the infrastructure project. IV. PROPOSED FLEXIBILITY 14. This paper proposes to address each of these three issues by providing more flexibility in refinancinghepayment of PPAs. 15. Proposed Policy Changes. Although the debt distress risk classification is external to the PPF instrument and the contractual relation under a PPA agreement, it needs to be taken into account to ensure that the refinancing terms are suitable. To facilitate equitable treatment of borrowers and to ensure a consistent approach across all PPAs, it is proposed to revise the existing PPA policy as follows: a) Country Directors will approve PPAs up to a maximum amount of $3 million (or $5 million in the case of emergency response operations). There is no longer a requirement that the PPF advances only be made when other resources are not available. If, on the date * An exception is IDA countries treatment under OP 8.00 Rapid Response to Crises and Emergencies.

10 6 the Country Director approves the PPA9, (i) the recipient is classified as a red light country, the PPA will not be subject to any service charges; (ii) the recipient is classified as a yellow light, green light, or IBRD country, interest (or services charges) will accrue. b) The PPA Recipient will be given the opportunity to refinance the aggregate balance of the PPA (defined as the disbursed amounts plus any accrued interest and charges, less cancellations at the closing date of the PPA) out of the proceeds of one or more subsequent Bank loans made to the recipient. Normally the PPA will be refinanced out of the proceeds of the loan for the preparation of which the PPA was used, but if this loan is unlikely to materialize by the refinancing deadline, the PPA may be refinanced out of the proceeds of any other loan or loans to the country which materializes by such date. The refinancing of the PPA will normally be within two years from the approval date, and can be extended by the Country Director for two more years. Any extension beyond four years requires approval by the Regional Vice President. The effectiveness date of the subsequent Bank loan serves as the closing date of the PPA. c) If, by the refinancing deadline, no loan to a country in red light status (determined at the time of approval of the PPA), has materialized, the PPA will not be repaid. Instead the amount of the PPA will be counted towards the country s IDA allocation (for that fiscal year if it has not already been spent, or the next fiscal year if no funds are available) and the amount thus deducted from the IDA allocation will be used to reimburse the PPF pool. In all other cases, the PPA will be repaid in accordance with current OP8.10 provisions for which changes are not being proposed at this time. 16. A complementary approach is also being explored for the management of the PPF. This would be in line with the principles outlined in this paper, but it would take the approach a stage further by providing a Project Preparation Line of Credit to any interested country, and would create ceilings for each country. Country Directors would be authorized to make PPF advances to the country for specific projects up to this ceiling. This greater flexibility could be of benefit in the light of the proposed phase-out of PHRD grants for project preparation. As this potential approach has only arisen in recent discussions of the impact of the end of PHRD project preparation grants, the details have not yet been worked out or clients consulted, A proposal on an alternative way of administering the PPF within Regions is expected to be worked out in detail for later adoption to supplement the core approach proposed by this paper. If this approach were to involve any further changes to the PPF policy, they would be submitted to the Executive Directors for approval. V. RECOMMENDATIONS 17. To align Bank policy with IDA provisions for allocating grant resources to countries on the basis of their risk of debt distress, and to improve country programs effectiveness in using resources for institutional development and project preparation, it is recommended that the Executive Directors approve: Approval is determined as the date on which the Country Director signs the PPA Agreement.

11 7 (a) (b) the proposed changes to the policy governing the Project Preparation Facility as set out in paragraphs 15; and the changes to the General Conditions, substantially in the form set out in Annex I to this paper. 18. If the Executive Directors approve this recommendation, the policy will take effect immediately for all PPA Agreements that have not been signed, and OP/BP 8.10, Project Preparation Facility will be modified to reflect the changes. Robert B. Zoellick President by Juan Jose Daboub Managing Director

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13 8 Year Event Annex A. PPF Timeline November-75 December-75 July-76 December-76 March-77 The PPF is established. Executive Directors authorize $5 million for the newly created PPF Board Report: (Letter from the President) When the Executive Directors approved the establishment of the Project Preparation Facility, proposed in R75-224, dated November 17, 1975, it was agreed that reports on its use would be made semiannually. This is the first such report. The first 10 PPF advances ranged from $100,000 to $366,750, with a maximum of $500,000 but no explicit minimum amount being set. Board Report: 2nd semiannual Report. At this point, a total of 18 advances had been made, ranging from $25,000 to $500,000. President requests increase in PPF. Board approves raise in January of PPF is raised from $5 million to $12.5 million. Board Report on the Use and Nationality of Consultants provided a review of consultant procurement during the first 1 1/2 years of PPF. Board Report: 3rd semiannual Report. The Facility was viewed as performing satisfactorily and the President recommended that henceforth the August-77 the Board should receive (semiannual. annual reports on the PPF instead of March-78 October-78 January-79 December-79 July-80 Board Report: By Feb 1978, 36 of the 44 approved PPF advances were IDA credits and the rest were loans. President requests increase in PPF. PPF is raisedfrom 12.5 million to $22.5 million. Board approves increasing maximum amount of PPFs from $500,000 to $1 million to permit financing of detailed engineering and other preparation activities necessary to bring projects to desirable degree of readiness before loan approval. Advances over $500,000 to be made only after project are pre-appraised and appears to be justified. Board approves increase in PPF. PPF is raised by another $15 millionfrom $22.5 million to $3 7.5 million. Board approves increase in PPF. PPF is raised by another $20 million, from $37.5 million to $57.5 million. Board approves increase in PPF. PPF is raised by another $30 million, from $57.5 million to $87.5 million.

14 9 Year July-8 1 July- 82 December-84 March-86 July-87 April-8 8 FY 89 February-9 1 September-9 1 Event Board approves increase in PPF. PPF is raised by another $35 million, but it was also proposed that future requests for additional commitment authority refer to commitment authority as of a specijic date. Presently net commitment authority was $64.5 million; therefore, PPF was raised to $99.5 million. President recommends that reporting requirements on the PPF be satisfied through standard tables in semiannual reports on technical assistance, and that proposals for increase in commitment authority under PPF be included in annual administrative budget. President proposes creation of Special Project Preparation Facility (SPPF), a $10 million grant facility for IDA-eligible countries in Sub-Saharan Africa to prepare sound investment proposals consistent with their development priorities, for subsequent financing by other donors, to extend the assistance we now provide for the preparation of projects for Bank financing. Board approves increasing the ceiling of PPF advances from $1 million to $1.5 million. President proposes the further operation of the SPPF for a further three years beyond its current expiration of June 30, President proposes the sixth increase in PPF (first since 1981) by $55.5 million, bringing the total commitment authority to $155 million. Reports over 80 percent of all PPF advances have been used for IDA countries Reports: The substantial rise in demand for new advances coupled with the lengthening of the period between commitment and retirement led to a rapid and unanticipated depletion of the available net funding level under the Facility during the second half of CY87. PPF overcommitted by $17.5 million. IAD conducts a comprehensive review of the facility. Recommendations (a) distinctions between Case A and Case B PPF activities should be eliminated; (b) Operational Directive should be revised; and (c) the facility should be monitored better. Board Report: Gave an overview of the IAD s findings and the changes that resulted (outlined above). Also, a monitoring mechanism was put in place that defined the roles of the Region, the Loan Department, and the COD-Central Operations Department. President proposes another increase in PPF of $35 million, bringing the total commitment authority to $190 million.

15 10 Year October-92 September-93 Event President proposes another increase in PPF of $30 million, bringing the total commitment authority to $220 million. Board Report: to raise the individual advances under the Project Preparation Facility (PPF) to $2 million per advance, and in special circumstances to $3 million per advance for loans exceeding $200 million. Reasons: (a) inflation has made $1.5 million advance equivalent to $1.02 in real terms, (b) average size of Bank-financed projects has increased by 40 percent since 86. [By end of June 1993,70.4 percent of advances by number were for Sub-Saharan Africa, 74.5 percent by volume.] December-94 August-96 President proposes another increase in PPF of $30 million, bringing the total commitment authority to $250 million. President proposes another increase in PPF of $40 million, bringing the total commitment authority to $290 million.

16 11 PPF: Relevant Board Reporting Assistance in Project Preparation (R75-224), November 17, 1975 PPF: The First Six Months (SecM76-473), July 1, 1976 PPF: Request for Additional Commitment Authority (R76-298), December 28, 1976 PPF: Use and Nationality of Consultants (SecM77-175), March 10, 1977 PPF: Third semiannual Report (SecM77-663), August 3 1, 1977 PPF: Annual Report and Request for Additional Commitment Authority (R78-69), March PPF: Review and Request for Additional Commitment Authority, April 6, 1988 PPF: Review and Request for Changes (R9 1-30), February 20, 1991 PPF: Request for Additional Commitment Authority (R ), September 23, PPF: Request for Additional Commitment Authority (R92-18 l), October 16, 1992 PPF: Request for Raising Individual Advances (R93-165), September 23, 1993 Project Preparation Facility, OPBP 8.10, Project Preparation Facility, May 1994 PPF: Request for Additional Commitment Authority (R94-247), December 5, 1994 PPF: Request for Additional Commitment Authority (R ), August 29, 1996 Project Preparation Facility, OPBP 8.10, Feb 2002, replaces the version dated May Project Preparation Facility, OPBP 8.10, August 2004, Revision to reflect the term development policy lending (formerly adjustment lending), in accordance with OPBP 8.60, issued in August 2004.

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19 14 Annex D. PPF Allocation Control (as of June 30,2007) I Region I C e i I i n g I Open PPFs I Available to Commit I Period Range < 1 year 1 year -3 year > 3 year* Number of Disbursed & Accrued PPA's Commitment Undisbursed Outstanding Charges ,2 82,96 8 9,896,264 16,191, , ,654,800 3,194,657 2,460, , , ,200 22,959

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30 25 ANNEX H. PROJECT PREPARATION FACILITY POLICY UPDATE: SUMMARY OF PROPOSED CHANGES AND DRAFT OPBP 8.10 REVISED Source Topic Existing policy Issue Proposed change OP 8.10 para. 8. PPF If the loan is not made within Under the existing policy, a PPA Align the PPF refinancing refinancing the period specified in the Letter is available to IDAcountries only policy with the IDA framework, policy Agreement, including any extensions, the recipient is required to repay the PPF advance (together with the accrued interest or service charge) in 10 semiannual installments over the next five years. If the disbursed amount of the PPF advance is US$50,000 or less, the recipient is required to repay it within 60 days. on credit terms, with the exception of IDA countries treatment under OP 8.00 Rapid Response to Crises and Emergencies. If no follow-on loan materializes, a country receiving a PPA when it has been classified as a red light country could be required to repay the full amount of the advance, with accrued service charges on expedited terms. Result: Inconsistency between the PPA repayment requirements under OP 8.10 Project Preparation Facility, that may impose hardship on already distressed borrowers, and the treatment of red light countries under OP 8.00 Rapid Response to and maintain the principle of equitable treatment for all IBRD and IDA (i.e,, grant and credit) recipients by introducing a more flexible refinancing and repayment policy. (Paper para 15).... OP 8.10 para 2 PPF only when PPF is used only when other PPAs are carefully Drop this requirement. BP 8.10 para 3 other resources Bank resources to assist in screened at the Regional level are not project preparation are not within the Regional allocation. available suitable or resources are not However, the requirement to available prove that other resources are not suitable or are not available has the unintended consequence of delaying the Bank s ability to provide timely assistance to project preparation through the.... PPF OP8.10 Size of PPAs The maximum size of PPAs can To simplify the acility PPAs have a $ 3 million for Borrowers, it is recommended that there be only one maximum size of non-emergency operations. be US$2 million for operations maximum, except for expected to cost less than $200 Emergency Response million, US$ 3 million for larger Operations which have a $ 5 operations, and US$ 5 million million maximum. for Emergency Response Operations BP8.10 para 6 Approval PPA is approved by the RVP or To simplify the use of the Facility, PPAs are approved by the authority designate it is recommended that approval country directors. authority over individual PPAs be given to the country directors

31 26 OP PROJECT PREPARATION FACILITY (February, 2002) This Operational Policy statement was revised in August 2004 to reflect the term "development policy lending" (formerly adjustment lending), in accordance with OP/BP 8.60, issued in August A previous revision to this statement was made in April 2004 consequent to the issuance o f OP/BP 6.00, which changes may be viewed here. OP PROJECT PREPARATION FACILITY (June, Draft) Note: OP and BP 8.10 replace the version dated February 2002 (revised in April and August 2004). For guidance on, and answers to, specific questions about, the Project Preparation Facility, staff should contact odmanual@, - worldbank.org. Note: OP and BP 8.10 replace the versions dated May For guidance on, and answers to specific questions about, the Project Preparation Facility, staff should contact opmanualo,worldbank.org. 1. The Bank' may make an advance from the Project Preparation Facility (PPF) to a borrowing country to finance (a) preparatory activities for investment operations, including preliminary and detailed designs and limited initial implementation activities, and (b) preparation of programs to be supported by development policy lending operations. 2. The PPF complements other Bank methods of assisting project preparation, such as emergency recovery assistance loans, technical assistance loans, grants, and retroactive financing.* It is used only when these methods are not suitable and alternative sources of funds are not available. A PPF advance is made only to a member country. 1. The Bank' may make a ProjectProgram Preparation Advance (PPA) from the Project Preparation Facility (PPF) to a borrowing country to finance: (a) preparatory activities for investment operations, including preliminary and detailed designs and limited initial implementation activities; and (b) preparation of programs to be supported by development policy lending operations. 2. A PPA is made only to a borrowing country. The PPA complements other Bank methods of assisting project or program preparation, such as trust fund grants for projecvprogram preparation and retroactive financing.* 3. A PPF advance is made only when there is a strong probability that a Bank loan will be made for the project under preparation. However, granting the PPF advance does not commit the Bank to finance any portion of the project. The PPF advance is designed to be refinanced out of the proceeds of the loan or, if the loan does not materialize, to be repaid as provided in paragraph 8. The PPF advance is made in US dollars on IBRD3 or IDA terms, depending on whether the project is likely to be financed by IBRD or IDA.4 Payment of interest or service charges is deferred until the PPF advance is refinanced out of the proceeds of the loan or other repayment terms take effect. 4. The Bank determines the PPF's total commitment authority and the ceiling on individual advances. One or more PPF advances may be made for the project at any stage before the Bank approves the loan, up to an aggregate maximum amount of US$2 million per proposed project, or US$3 million if the project is expected to cost US$200 million or more. 3. A PPA is made only when there is a strong probability that a Bank loan will be made for the operation under preparation. However, granting the PPA does not commit the Bank to finance any portion of the operation. The PPA is designed to be refinanced out of the proceeds of the loan for whose preparation the PPA is granted or, if the loan does not materialize, to be refinanced or repaid as provided in paragraph 8. The PPA is made in US dollars and carries interest on IBRD fixed spread terms or charges on IDA credit or IDA grant terms, depending on the borrowing status of the ~ountry.~ Payment of interest or service charges, where applicable4, is deferred until the PPA is refinanced out of the proceeds of the loan or other repayment terms take effect. 4. The Bank determines the PPF's total commitment authority and the ceiling on individual advances. One or more PPAs may be made for the operation at any stage before the Bank approves the loan, up to an aggregate maximum amount of (a) US$5 million for operations made under OP 8.00, Rapid Response to Crises and Emergencies; or (b) US$3 million for all other operations. Refinancingrnepayment RefinancingiRepayment

32 27 5. The Letter Agreement between the Bank and the recipient spells out the purposes, terms, and conditions of the PPF advance and specifies a date by which the advance is to be refinanced or the repayment process initiated. The refinancing date is the expected date of effectiveness of the loan to be made for the project under preparation. After this date, no withdrawals of the advance are made and any unwithdrawn amount of the advance is canceled. If the loan is not effective by the agreed date but is expected to become effective within a reasonable time thereafter, the Bank may agree with the recipient on an extension of the refinancing date. 6. To refinance the PPF advance, an amount sufficient to cover the principal amount of the advance plus estimated accrued interest or service charges is allocated in a separate category in the disbursement schedule of the Loan Agreement providing for the Bank loan. Any excess amount remaining in this category after refinancing the PPF advance may be reallocated to other disbursement categories in the disbursement schedule of the loan agreement. 7. Further disbursements for continuing PPF activities that have been included for financing under the loan are made against the appropriate disbursement categories in the disbursement schedule of the Loan Agreement. 8. If the loan is not made within the period specified in the Letter Agreement, including any extensions, the recipient is required to repay the PPF advance (together with the accrued interest or service charge) in 10 semiannual installments over the next five years. If the disbursed amount of the PPF advance is US$50,000 or less, the recipient is required to repay it within 60 days. Suspension of Disbursements and Cancellation 9. The Bank may suspend disbursements of the PPF advance6 if: (a) any proceeds of the PPF advance have not been used in accordance with the provisions of the Letter 5. The PPA agreement between the country and the Bank spells out the purposes, terms, and conditions of the PPA and specifies a date by which the advance is to be refinanced or the repayment process initiated. The refinancing date is the expected date of effectiveness of the loan agreement to be made for the operation under preparation. After this date, no withdrawals of the advance are made, and any unwithdrawn amount of the advance is canceled. If the loan agreement has not become effective within two years following the date of PPA approval, a later refinancing date may be agreed between the country and the Bank. Extension of the refinancing date beyond four years following PPA approval requires RVP approval. If the loan for which the PPA was made is unlikely to materialize by the refinancing date, the PPA may be refinanced out of the proceeds of any other loan to or guaranteed by the country whose loan agreement becomes effective by the refinancing date. 6. To refinance the PPA, an amount sufficient to cover the principal amount of the advance plus estimated accrued interest or service charges, where applicable, is allocated in a separate disbursement category in the loan agreement providing for the Bank loan. Any excess amount remaining in this category after refinancing the PPA may be reallocated to other disbursement categories in the disbursement schedule of the loan agreement. 7. Further disbursements for continuing PPA activities that have been included as eligible for financing under the loan are made against the appropriate disbursement categories in the loan agreement. 8. If no loan agreement providing for the refinancing of the PPA has become effective by the refinancing date (including any extensions), the following apply: (a) If the country was an IBRD-country or an IDA-country eligible to receive IDA credits6 on the PPA approval date, it is required to repay the PPA (together with the accrued interest or service charges, as applicable) upon notice by the Bank in 10 approximately equal semiannual installments over a five year period after the refinancing date. However, if the disbursed amount of the PPA is US$50,000 or less, the country is required to repay it within a period of 60 days after the Bank s notice to repay.7 (b) If the country was an IDA-country eligible only to receive IDA grants on the PPA approval date, the advance becomes a grant and is not repaid by the country. Suspension of Disbursements and Cancellation 9. The Bank may suspend disbursements of the PPA upon occurrence of any of the events of suspension specified or referred to in the PPA agreement.g The Bank may also request a refund of any amount of the advance that has not

33 28 Agreement; (b) the recipient has failed to carry out any of the other provisions of the Letter Agreement; (c) the right of the recipient, or any other entity to which the IBRD has made a loan with the guarantee of the recipient, to make withdrawals under any Loan Agreement with the IBRD or any Development Credit Agreement with IDA has been suspended; (d) the Bank has decided, at any time after consultation with the recipient, to withdraw its support for the project; or (e) the recipient has withdrawn its request for the Bank s financial assistance in support of the project. 10. At any time after disbursements of the PPF advance have been suspended, the Bank may cancel any amount of the PPF advance remaining unwithdrawn. Bank includes IBRD and IDA, and loans includes IDA credits and IDA grants, Project Preparation Facility advances, and cofinanciers loans or grants administered by the Bank. For emergency recovery assistance loans, see ml& 8.00, Rapid Response to Crises and Emergencies; for technical assistance loans, see Op/& 8.40, Technical Assistance; for grants, 8.45, Grants; and for retroactive financing, see BP 6.00, Bank Financing. At the IBRD s standard variable interest rate for fixed-spread loans as provided in para. 5 of the Annex to the Letter Agreement, available online at the OPCS Temolates. When the project is likely to be financed with a blend of IBRD and IDA funds, the PPF advance is normally granted on IDA terms and refinanced out of the proceeds of the IDA credit, in accordance with the policy that IDA funds are normally disbursed first. A model form of the Letter Agreement is available online to staff at the OPCS Temolates. -- OPDP 13.40, Suspension of Disbursements. See the Letter Agreement template, available online to staff at the OPCS Temolates. been used in accordance with the provisions of the PPA agreement. 10. At any time after disbursements of the PPA have been suspended, or an amount of the advance has been refunded, the Bank may cancel any remaining unwithdrawn amount of the PPA. Bank includes IBRD and IDA, and loans includes IDA credits and IDA grants, borrower includes recipient of an IDA credit or grant. For grants, see Q&BJ 8.45, Grants; and for retroactive financing, see BP 6.00, Bank Financing. When the operation is likely to be financed with a blend of IBRD and IDA funds, the PPA is normally granted on IDA terms and refinanced out of the proceeds of the IDA credit or grant, in accordance with the policy that IDA funds are normally disbursed first. See OP 3.10, Financial Terms and Conditions of IBRD Loans, IBRD Hedging Products, and IDA Credits, Annex D. If, on the date of approval of the PPA, the country is eligible only to receive IDA Grants, the PPA does not cany service charges. See OP 3.10, Financial Terms and Conditions of IBRD Loans, IBRD Hedging Products, and IDA Credits, Annex D. Approval is determined as the date of signature by the Country Director of the PPA agreement. The notice of how the PPA will be repaid is sent by ACTCF. See OP 3.10, Financial Terms and Conditions of IBRD Loans, IBRD Hedging Products, and IDA Credits, Annex D - IBRD/IDA Countries: Per Capita Incomes, Lending Eligibility, and Repayment Terms. OPIBP 13.40, Suspension of Disbursements. See the Standard Conditions for Project Preparation Facility Advances, incorporated by reference in the PPA agreement.

34 29 BP PROJECT PREPARATION FACILITY (February, 2002) This Bank Procedures statement was updated in April 2007 consequent to the issuance of OPBP 12.00, Disbursement. Previously updated to reflect title change to "finance officer" (formerly disbursement officer) that took effect on July 1, BP PROJECT PREPARATION FACILITY (June, Draft) Note: OP and BP 8.10 replace the version dated February 2002 (revised in April and August 2004). For guidance on, and answers to, specific questions about, the Project Preparation Facility, staff should contact odmanual@worldbank.org. Note: OP and BP 8.10 replace the version dated May For guidance on, and answers to specific questions about, the Project Preparation Facility, staff should contact opmanual@worldbak.org. 1. Project Preparation Facility (PPF) advances are made by Bank' management under a special authority granted by the executive directors, who determine, from time to time, the ceiling on the commitment authority of the facility and on the size of individual advances. The Managing Director, Operations, makes indicative allocations to the Regions within the limits of the commitment authority and adjusts them periodically, as necessary. The Regions monitor their commitments against the indicative allocations to ensure that the limits are observed. Since PPF advances are normally refinanced out of loans, the funds advanced are carried on the books of the Bank as receivables on account of project preparation, rather than as loans, until they are refinanced or repaid. 2. The processing of a PPF advance begins when the Bank receives a letter from the country requesting the advance and containing the following information: (a) brief statement of the purposes of the PPF advance, and the expenditures it would finance; (b) the expected period of project preparation; and (c) a table showing local currency and U.S. dollar estimates for the items to be financed under the PPF advance. 3. The country unit and the task team leader (TL) review the country's proposal for a PPF advance to determine: (a) whether financing can be provided by the requesting country or another source; (b) whether the proposal is sound; (c) whether the proposed activities are appropriate; (d) what amount of PPF advance would be needed, 1. ProjectProgram Preparation Advances (PPAs) are made by Bank' management from the Project Preparation Facility (PPF) under a special authority granted by the Executive Directors, who determine, from time to time, the ceiling on the commitment authority of the PPF and on the size of individual PPAs. The Managing Directors responsible for Operations, make indicative allocations to the Regions within the limits of the commitment authority and adjust them periodically, as necessary. The Regions monitor their commitments against the indicative allocations to ensure that the limits are observed, Since PPAs are normally refinanced out of loans, they are carried on the books of the Bank as receivables on account of project preparation, rather than as loans, until they are refinanced or repaid. 2. The processing o f a PPA begins when the Bank receives a letter from the country requesting the advance and containing the following information: (a) brief statement of the purposes of the PPA, and the expenditures it would finance; (b) the expected period of project preparation; and (c) a table showing local currency and U.S. dollar estimates for the items to be financed under the PPA. 3. The country unit and the task team leader (TL) review the country's proposal for a PPA to determine2: (a) whether the proposal is sound; (b) whether the proposed activities are appropriate; (c) what amount o f advance would be needed, given the estimated cost of the activities; (d) how the activities would be carried out (including

35 30 given the estimated cost of the activities; (e) how the activities would be carried out (including procedures for procurement of goods and services); (0 whether the PPF advance should be made by IBRD or IDA; and procedures for procurement of goods and services); (e) whether the PPA should be made by IBRD or IDA (including country debt-risk classification - green; yellow; red); and (0 a suitable deadline for refinancinghepaying the PPA. (8) a suitable deadline for refinancinghepaying the PPF advance. 4. If the proposal meets the criteria set out in OP 8.10, paras. 1-3, the TL prepares a brief memorandum* to the Regional vice president (RVP), requesting approval of the PPF advance. The memorandum covers the following points: (a) a brief description of the project, its objectives, and its economic justification, and whether it is likely to be financed by IBRD or IDA; (b) the recipient's commitment and readiness to undertake project preparation; (c) the activities to be financed by the PPF advance, and their appropriateness; (d) why other sources of financing are not available; (e) the refinancing date; and (0 the procurement methods and disbursement arrangements, including the terms and conditions of any designated ac~ount.~ 5. The draft memorandum, together with a copy of the recipient's letter of request, is sent to the finance officer, the procurement specialist, and the lawyer for review. The lawyer prepares a Letter Agreement,4 which is cleared by the TL, the finance officer and the procurement specialist. The finance officer ensures that the proposed advance falls within the Regional commitment level and assigns the PPF number that is shown in the Letter Agreement. 6. The TL sends, through the country director, the memorandum and two originals of the cleared Letter Agreement, together with a copy of the recipient's letter of request, to the RVP for appr~val.~ The originals of the Letter Agreement are signed by the RVP, the country director or any other person designated by the RVP,6 and sends them to the recipient for countersignature by an authorized representative of the recipient. One original Letter Agreement is returned to the Bank. Upon receipt by the Bank of the countersigned original, the Letter Agreement becomes effective in accordance with the terms of the Letter 4. If the proposal meets the criteria set out in OP 8.10, paras. 1-3, the TL prepares a brief memorandum to the Country Director requesting approval of the PPA. The memorandum covers the following points: (a) a brief description of the project, its objectives, and its economic justification, and whether it is likely to be financed by IBRD or IDA (including country debt-risk classification - green; yellow; red); (b) the recipient's commitment and readiness to undertake project preparation; (c) the activities to be financed by the PPA, and their appropriateness; (d) the refinancing date; and (e) the procurement methods and disbursement arrangements, including the terms and conditions of any designated ac~ount.~ 5. The draft memorandum, together with a copy of the country's letter of request, is sent to the finance officer, the procurement specialist, and the lawyer for review. The lawyer prepares the PPA agreement, which is cleared by the TL, the finance officer and the procurement specialist. The finance officer ensures that the proposed advance falls within the Regional commitment level and assigns the PPF number that is shown in the PPA agreement. 6. The TL sends the memorandum and two originals of the cleared PPA agreement, together with a copy of the country's letter of request to the Country Director for approval. The originals of the PPA agreement are signed by the Country Director or any other designated per~on,~ and are sent to the country for countersignature by an authorized representative of the country. One original fully signed version of the PPA agreement is returned to the Bank. Upon receipt by the Bank of the countersigned original, the PPA agreement becomes effective in accordance with the terms of the PPA agreement.5 This original is sent to the lawyer, and

36 31 Agreement.' This original is sent to the lawyer, and a copy is sent to LOA and OPCS. Extension of Refinancing Date 7. Requests for approval of an extension of the refinancing date are made in a memorandum that explains the rationale for the extension. The memorandum is prepared by the TL, cleared by the country director, the finance officer, and the lawyer, and sent to the RVP.' Reporting Arrangements 8. After signing, the Region reports the agreement for a PPF advance in the Report to the Executive Directors on Bank and IDA Operations and in the Monthly Operational Summary of Bank and IDA Proposed Projects. Operations Policy and Country Services reports to the Board on the use of the facility, answers policy inquiries from the executive directors and management, and provides to the RVPs a monthly summary of outstanding commitments relative to the approved ceiling. 1 "Bank" includes IBRD and IDA, "loans" includes IDA credits and IDA grants, and "Loan Agreement" includes Development Credit Agreement. 2 A sample form of the memorandum is available online to staff in the OPCS Temolates. 3 When relatively few payments are anticipated, the establishment of a designated account may not be warranted. 4 A sample Letter Agreement with attachments related to the terms and conditions of the grant and procurement procedures is available online to staff in the OPCS Temolates. 5 The RVP may delegate to the country director the authority to approve a PPF advance. In such cases, the sector manager submits the approval memorandum to the country director, otherwise following the same procedures as provided in paras a copy is sent to LOA and OPCS. Extension of Refinancing Date 7. Requests for approval of an extension of the refinancing date are made in a memorandum that explains the rationale for the extension. The memorandum is prepared by the TL, cleared by the finance officer, and the lawyer, and sent to the Country Director for approval. Extensions of tht refinancing date beyond four years following PPA approval requires RVP approval. Reporting Arrangements 8. After signing, the Region reports the agreement for a PPA in the Report to the Executive Directors on Bank and IDA Operations and in the Monthly Operational Summary of Bank and IDA Proposed Projects. 1 "Bank" includes JBRD and IDA, "loans" includes IDA credits and IDA grants, "borrower" includes recipient of an IDA credit or grant. 2 For PPAs made under OP 8.00, Rapid Response to Crises and Emergencies, staff should follow BP When relatively few payments are anticipated, the establishment of a designated account may not be warranted. 4 Staff should see Administrative Manual Statement Annex C, Designation of Authorized Signatories for Instruments Relating to Lending, Technical Assistance, and Cofinancing Operations. 5 Usually, the Letter Agreement becomes effective as of the date of countersignature. 6 Staff should see Administrative Manual Statement Annex C, Designation of Authorized Signatories for Instruments Relating to Lending, Technical Assistance, and Cofinancing Operations. 7 Usually, the Letter Agreement becomes effective as of the date of countersignature. 8 The RVP may delegate to the country director the authority to extend the refinancing date.