PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Project Name PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB1710 Leader Preparation Technical Assistance Project (under the SIDEM Facility) Region EUROPE AND CENTRAL ASIA Sector General agriculture, fishing and forestry sector (100%) Project ID P Borrower(s) GOVERNMENT OF SLOVAKIA Implementing Agency Ministry of Agriculture Dobrovicova 12 Slovak Republic Tel: Fax: Environment Category [ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) Date PID Prepared June 23, 2005 Date of Appraisal June 30, 2005 Authorization Date of Board Approval September 9, Country and Sector Background The Slovak Republic s May 2004 entry into the European Union, and subsequent access to its full allocation of EU structural funds, appears to have made an immediate positive impact on the country s agricultural sector performance. Compared with the period from , which saw average total losses in the sector of approximately EUR 20 million, 2004 saw a sector-wide profit of some EUR 15 million. While it is true that very favorable weather conditions (and hence very good crop and livestock yields) in 2004 contributed to this profitability, there is no question of the impact of the EU funds. Of the total EU funds, two-thirds were allocated to direct payments and so-called top-ups (additions to direct subsidy payments from the state budget), with only one-third allocated to interventions for Less Favored Areas. This allocation of support is appropriate in the immediate post-accession period, in order to assist the larger farm operations to be competitive in the new circumstances. However, for the plans for the next EU funding period, from , there will need to be a re-orientation of the Ministry of Agriculture of the Slovak Republic (further as MoA) strategy. Because of EU requirements, the amounts allocated for direct payments will decrease substantially, whereas amounts for rural development will be increased. Rural development in this context implies a reduced importance on agriculture per se, and could include, inter alia, payments for: agri-environment schemes; agro-forestry; environmental services; conservation; rural tourism; small-scale local infrastructure; and other local or regionally-based activities which allow rural inhabitants to diversify their income sources.

2 EU Leader Program. The Leader program of the EU is completing its final phase - the socalled Leader+ program (Leader I and Leader II preceded Leader+). The Leader program provides member states with funding for new approaches to sustainable rural development. The Leader approach seeks to encourage and help rural actors to think about the longer-term potential of their area. It seeks to encourage the implementation of integrated, high-quality, original strategies for sustainable development designed to encourage experimenting with new ways of: enhancing the natural and cultural heritage; reinforcing the economic environment, in order to contribute to job creation; and improving the organizational abilities of their community. In the pre-accession period, Slovak Republic did not participate in Leader. The program is rather complicated to implement, considering the large amount of capacity which is required in rural areas. To-date, Slovak authorities have focused their efforts on ensuring the access to funding for agriculture. EU Leader axis within the EAFRD. However for the programming period, the EU will be re-orienting its rural development support policies, according to three axes under a single new funding instrument, the European Agricultural Fund for Rural Development (EAFRD). Under the EAFRD, each country program will need to contain a separate Leader axis to finance the local groups and their activities under each of the 3 main axes. Slovakia has a planned allocation of between EUR million for projects falling under the Leader Axis. The Ministry of Agriculture strongly believes that the Leader approach, and the projects it generates, will be the key intervention to address ongoing difficulties in the rural areas. For this to happen, there will need to be a very large investment in enhancing the capacity of local authorities throughout the country. There are a number of organizations active in rural regions (including e.g. Rural Parliament, local governments, regional offices of the Agriculture Paying Agency, regional offices of the Agency for Rural Development, local agriculture chambers, NGOs and others), but their efforts are not well-coordinated, and in any case, they lack the specific skills which would be required to access this new source of funds. In addition to capacity enhancement of the regions, there is an immediate need to develop the capacity of the central government authorities. At present, MoA is far short of the capacity to undertake program preparation for Leader approach, or the subsequent implementation. While the immediate funding available under Leader+ should not be underestimated, EAFRD requirements are an even more important reason for Slovakia to enhance its capacities for this type of intervention. Although the current EU programming document is not explicit, it seems to imply that without a Leader-type capacity, country programs will not be able to be approved. In any case, 7% of the total funding for the next period is set aside for Leader-type interventions, so having this capacity is critical. Further, a 3% fraction of the total EU allocations will be withheld in a reserve, to be distributed in the final years of the programming period to those member states having most successfully implanted and operated Leader-type programs.

3 2. Objectives The objective of the project is to assist the Ministry of Agriculture of the Slovak Republic and its local authorities, as well as local governments, communities and civil society organizations, to develop their capacity to prepare for and implement the EU Leader axis in the period Rationale for Bank Involvement Since 2002, the World Bank has assisted Slovakia s agricultural policy-makers to produce analyses of various aspects of the country s agricultural performance. In early 2004, the Ministry of Agriculture of the Slovak Republic requested the Bank to cooperate on a new assessment, to address constraints to economic growth in three regions which are underperforming. The goal at that time was to provide a tool to assist policy-makers to develop comprehensive integrated rural development strategies which are sensitive to regional differences. Although some internal Bank effort had been expended to begin such an assessment, since early 2005, it is clear that the MoA is now interested in investigating the possibilities of direct support from the Bank, to prepare for rural development funding opportunities arising within the Leader Axis (Axis 4) of the new European Agricultural Fund for Rural Development (EAFRD) ( ). The Bank is particularly well-suited to assist in this preparation. The Leader approach is very much comparable to a community driven development model, and the Bank has extensive, world-wide experience in this field. In particular, numerous projects have demonstrated the possibilities to channel substantial amounts of funding through local agencies, while avoiding corruption, and this is an important concern to the MoA. 4. Description The project would have four components: Component 1: Creation of Policy and Administrative Framework (EUR 405,000) The objective of this component is to create the framework for policy-making processes and administrative preparation between the MoA and its associated national and local level institutions, municipalities (and other local governmental structures), and communities. The component would provide technical assistance to: (i) define a system of delegation of decision making power level of centralization, in terms of Leader approach (in terms of control, monitoring, projects selection, etc); (ii) assess the status of local level structures, specifically their capacities to implement the Leader approach, and subsequently provide clear recommendation on how to improve these structures; (iii) propose the most suitable co financing system within the new Leader axis; (iv) assist national and local authorities to prepare all initial strategic documents needed for implementation of the Leader axis, with specific reference to proposals for the checklist for the paying agency; and

4 (v) based on the foregoing analyses and recommendations, build the technical capacity (through focused training) in the Ministry, paying agency and local institutions so that they will be prepared to implement the new Leader axis. Component 2: Mapping (EUR 181,000). The main goal of this component is to create the map of Slovak republic with possible microregion territories according to the criteria from the EU regulation for Leader approach. This component will help the Managing authority to know more about individual microregions and to choose the right territories for support. It will also help the municipalities in defining their opportunities for cooperation among themselves. The main tasks under the component are to: (i) assess existing studies on rural areas in Slovak republic to define the main needs of rural regions from the Leader perspective; and (ii) develop a map of Slovak rural areas which would be most suitable for implementing the Leader approach. Component 3: Pilots (EUR 467,000). The objective of this component is to undertake a number of pilot projects utilitzing the Leader approach in at least three regions. The pilots will allow MoA authorities to obtain some practical experience with this new rural development approach prior to the full implementation period in In addition, this component also has the key task of forming and training the Local Actions Groups which will implement Leader projects. Component 4: Creation of National Rural Network (EUR 97,000). The objective of this component is to create the framework of the National Rural Network in the Slovak Republic, through a determination of the main rural actors, responsible persons, and functional requirements for managing the network. 5. Financing Source: ($m.) BORROWER 0 INTERNATIONAL BANK FOR RECONSTRUCTION AND 1.4 DEVELOPMENT Total Implementation Partnership arrangements There are no other agencies involved in financing this project.

5 Institutional and implementation arrangements The duration of the project is 18 months, with completion expected at the beginning of the year The Project will be implemented by the Ministry of Agriculture of the Slovak Republic (MoA), as the implementing body. The Project will not establish an implementation unit outside of the ministry. Rather, responsibility for coordination of project implementation as a whole shall be carried out by a Project Director, established within the MoA implementing body. To assist the Director, a Project Deputy Director and Procurement Specialist will be appointed within MoA. In addition, to ensure proper function of the financial management aspects of the project, two additional persons within MoA will assist the core team: one employee from the Budgetary and Closing Account Department within MoA (Financial Manager), who will closely cooperate with the Project Deputy Director on financial issues; one employee from the Agricultural paying agency (Coordinator for APA) who will cooperate on project relating paying and monitoring issues; A Steering Committee for Leader axis will be established within MoA to provide overall guidance and direction of the project as a whole. The Project Director, Deputy Director and the Procurement Specialist will work closely with each other and the members of the Steering Committee for Leader axis and other governmental staff involved in implementation of the project to ensure its proper implementation. 7. Sustainability The project design is based on the detailed proposal of the Borrower for assistance to develop their capacity to manage the Leader axis funding during the next EU programming period from This includes evaluation of the policy preparation process and development of further strategies to implement innovative rural development approaches through Leader. In addition to the capacity building, a key part of the project will be the establishment of fundamental conditions for operation of the Leader program. This includes processes and procedures for central MoA authorities, local governments, and the Local Action Groups themselves. Further, the project will provide a number of assessments which will contribute to developing further strategies for effective implementation of future bottom-up types of rural investments. From a practical standpoint, diversification of rural livelihoods at least through EU funding instruments - will increasingly rely on the Leader approach. Therefore, assuming that the abovementioned capacity development is achieved, and the procedural guidelines provide comprehensive and straightforward guidance on preparation and implementation of projects under the Leader axis, the long-term sustainability of the project is highly likely.. From a purely financial standpoint, the loan of EUR 1.2 million is expected to prepare the ground for at least EUR 150 million in funding through the new Leader axis for rural livelihood diversification projects. Assuming that even half of this money materializes, the financial

6 sustainability appears very good. It is also noted that the loan will not provide any incremental resources to the MoA, but will be financed by the budget of the Ministry. 8. Lessons Learned from Past Operations in the Country/Sector The Bank has not previously supported a comprehensive rural development project in Slovakia. Nevertheless, during the last four years, the Bank and the Government have collaborated extremely well on agricultural policy dialogue and sector studies to prepare for EU Accession, as well as on a GEF Medium-sized Project (MSP) related to agriculture and biodiversity. Project design takes account of the challenges facing policy-makers and rural inhabitants detailed in the publication, Food and Agriculture in the Slovak Republic the Challenges of EU Accession (February 2003), and the Study on Market Linkages in Slovakian Agriculture (VUEPP Study, with Bank assistance, to be published Autumn 2005). During implementation, the recommendations arising from the study on CAP reform options will inform the priorities for capacity building and training. On the agri-environment side, the lessons learned from the Central European Grasslands Conservation and Management Project (GEF MSP) provide important insights into new opportunities for rural inhabitants, and these lessons are incorporated in the project design. During project implementation, the team will coordinate as much as possible with the ongoing Bank work related to the new Living Standards Assessment (LSA), and its various modules. These include the analysis of labor market vulnerability, the PSIA of the tax reform, the poverty profile, and the socioeconomic mapping. It is proposed that the team include the Bank s social scientist who is also managing aspects of the LSA, which should help to ensure that the capacity building plans during implementation are properly oriented to improve policy-making to address rural poverty issues. Very importantly, project design draws on the experience of the Human Capital TA Project (HCTA) (2005), implemented jointly through the Ministry of Education and the Ministry of Labor, Social Affairs, and Family. The HCTA design draws on the experience of the Public Finance Management Project (2003) and the Health Sector Modernization Project (2004). These projects both have capacity building components that the proposed project can draw on during implementation. Broad lessons learned to-date from these and other capacity building loans indicate a few key preconditions for successful technical assistance. These include: (i) strong project ownership in the implementing Ministries and other participating institutions; (ii) understanding of the rationale for the changes supported by the project; and (iii) clear goals which are communicated consistently to all relevant stakeholders. These lessons are incorporated in the design of the project. 9. Safeguard Policies (including public consultation)

7 The Project as proposed is Category C, and does not trigger any safeguards (see the Integrated Safeguards Data Sheet, available in the World Bank InfoShop). This is primarily due to the fact that the Project is almost entirely Technical Assistance, and will not finance any civil works. 10. List of Factual Technical Documents World Bank Project Appraisal Document (available August 2005) 11. Contact point Contact: David A. Bontempo Title: Operations Analyst Tel: (202) Fax: ( For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: wb C:\Documents and Settings\wb145764\My Documents\SK All\SK New Rural Project 2005\PID\Project Information Document - Appraisal Stage.doc 06/23/2005 2:50:00 PM