International Bank for Reconstruction and Development

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized International Bank for Reconstruction and Development FOR OFFICIAL USE ONLY R97-11 [SARI /1 FROM: Vice President and Secretary Februarv 14, 1997 LITHUANIA - Social Policy and Community Social Services Development Project Staff Appraisal Report (Corrigendum) The attached pages 16, 37, 39 through 45 replace those in the Staff Appraisal Report regarding a proposed loan to the Republic of Lithuania for a Social Policy and Community Social Services Development Project (R97-11 [SARI) dated January 29, This project will be considered at a meeting of the Executive Directors to be held on Tuesday, February 18, 1997 under the Streamlined Procedure. Distribution: Executive Directors and Alternates President's Executive Committee Senior Management, Bank, IFC and MIGA The Staff Appraisal Report has a restrictedistribution until the Executive Directors approve the project. Following project approval, the document will be available upon requesto the public.

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3 Document of The World Bank Report No LT STAFF APPRAISAL REPORT REPUBLIC OF LITHUANIA SOCIAL POLICY AND COMMUNITY SOCIAL SERVICES DEVELOPMENT PROJECT January 15, 1997 Municipal and Social Services Division Country Department IV Europe and Central Asia Region

4 CURRENCY EQUIVALENTS (Fixed Exchange Rate) Currency Unit = Litas Litas 1 = US$0.25 US $1 = Litas 4.00 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CPI - Consumer Price Index DOS - Department of Statistics EU - European Union GDP - Gross Domestic Product GTZ - Gesellschaft fur Technische Zusammenarbeit ICB - International Competitive Bidding IMF - International Monetary Fund MOF - Ministry of Finance MSSL - Ministry of Social Security and Labor NCB - National Competitive Bidding OECD - Organization for Economic Cooperation and Development PCU - Project Coordination Unit PEF - Policy Evaluation Fund PHRD - Policy and Human Resources Development Fund (formerly Japanese Grant Facility) Seimas - Parliament of the Republic of Lithuania SIF - Social Insurance Fund SoDra - Social Insurance Agency SOE - Statement of Expenditure TOR - Terms of Reference UNDP - United Nations Development Program USD - U.S. Dollar ZOPP - Zielorientierte Projektplanung (objectives oriented project planning) [ Vice President, Europe and Central Asia Region: Johannes Linn LITHUANIA - FISCAL YEAR January 1 - December 31 Director, Europe and Central Asia Country Department IV: Basil Kavalsky Chief, Municipal and Social Services Division, Country Department IV: Thomas Blinkhorn Project Task Manager: Louise Fox (Senior Economist, EC4MS)

5 STAFF APPRAISAL REPORT REPUBLIC OF LITHUANIA SOCIAL POLICY AND COMMUNITY SOCIAL SERVICES DEVELOPMENT PROJECT CONTENTS BASIC DATA SHEET... LOAN AND PROJECT SUMMARY... iii iv I. BACKGROUND AND ISSUES A. The Economy... 1 B. Social Safety Net Policy Development... 1 C. Institutional Structure... 2 D. Issues... 3 E. Government Reform Strategy... 4 F. Rationale for Bank Involvement... 6 THE PROJECT... 7 A. Project Objectives B. Main Project Features... 7 C. Description of Components... 8 Component 1: Social Policy Development... 8 Component 2: Community Social Service Pilot Projects Component 3: Project Management This report is based on the findings of an appraisal mission which visited Lithuania from November, 1995, comprising Messrs./Mmes. Louise Fox (senior economist, task manager), Philip Goldman (policy development, deputy task manager), Caroline Mascarell (implementation issues) (EC4MS); Vilija Kostelnickiene (social policy and operations) (EC4BS); David Tobis (community social service pilots), Marc Bellanger (civil works) Algis Dobravolskas (strategic planning and operations); and Ronald Penton (community pilots). Richard James provided assistance on the project costing and implementation issues. Rajakumari Stephen provided secretarial support. Peer reviewers were Martha de Melo (PRDPH) and Alexander Preker (ECl/2HR). Basil Kavalsky is the managing Department Director for the Europe and Central Asia Region and Thomas Blinkhom is Chief of the Municipal and Social Services Division. The preparation of the project began under James Q. Harrison, Division Chief of the former Human Resources Division for the region.

6 ii III. PROJECT COSTS, FINANCING, PROCUREMENT, DISBURSEMENTS A. Project Costs B. Financing C. Procurement D. Disbursement E. Accounting and Audits IV. PROJECT IMPLEMENTATION A. Organization and Management B. Monitoring and Reporting C. Project Supervision V. BENEFITS, RISKS AND PARTICIPATORY APPROACH A. Benefits B. R isks C. Participatory Approach D. Environmental Impact VI. AGREEMENTS REACHED AND RECOMMENDATION A. Agreements Reached Prior to Negotiations B. Agreements Reached During Negotiations C. Recommendation TEXT TABLES Table 3.1: Project Cost Summary by Project Component Table 3.2: Project Cost Summary by Expenditure Category Table 3.3: Financing Plan (US$ millions) Table 3.4: Summary of Procurement Arrangements (US$ millions) Table 3.5: Disbursement by Category (US $ millions) Table 3.6: Loan Disbursement Schedule (US$ millions) ANNEXES ANNEX A: Project Objectives and Monitoring Plan ANNEX B: Planned Procurement Package and Schedule ANNEX C: Estimated Disbursement Schedule ANNEX D: Project Costs and Financing Tables ANNEX E: Supervision Plan ANNEX F: Contents of Operational Manual ANNEX G: Documents Available in the Project File CHARTS Chart 1. Lithuania: Organization of the Ministry of Social Security and Labor MAP IBRD No

7 iii REPUBLIC OF LITHUANIA SOCIAL POLICY AND COMMUNITY SOCIAL SERVICES DEVELOPMENT PROJECT BASIC DATA SHEET INDICATOR LITHUANIA YEAR Country and Income Data Area ('000 sq. km) 65.2 GNP per capita (US$) 1, Population Indicators Population (millions) Females Males Population growth rate (percent) Crude birth rate (per 1,000 population) Crude death rate (per 1,000 population) Population 60 + (percent) Population 65 + (percent) Population 65 +/population Population 60+/population Working age population (millions) Women over 60/men over 60 (ratio) Selected Social Indicators Total labor force (millions) Total employment (millions) Life expectancy at birth (years) Female advantage Life expectancy at age Fertility rate (average births per woman) System dependency ratio' (percent) Gross pension (all types)/gross wage (percent) /The ratio of persons receiving pensions divided by the number of workers contributing in the same period.

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9 iv REPUBLIC OF LITHUANIA SOCIAL POLICY AND COMMUNITY SOCIAL SERVICES DEVELOPMENT PROJECT STAFF APPRAISAL REPORT LOAN AND PROJECT SUMMARY Borrower: Beneficiary: Amount: Terms: Commitment Fees: Republic of Lithuania Ministry of Social Security and Labor (MSSL), six municipalities, poor and other vulnerable groups US$3.70 million equivalent Twenty years, including a five year grace period, at the IBRD standard variable interest rate 0.75 percent on undisbursed loan balances, beginning 60 days after signing, less any waiver Financing Plan: See Table 3.3. Poverty Category: Program of Targeted Interventions Project ID: LT-PA-8539

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11 REPUBLIC OF LITHUANIA SOCIAL POLICY AND COMMUNITY SOCIAL SERVICES DEVELOPMENT PROJECT STAFF APPRAISAL REPORT I. BACKGROUND AND ISSUES A. The Economy 1.1 By 1990, Lithuania had undergone some fifty years of development under central planning, with an export-oriented industrial base that was highly integrated with the other republics of the Soviet Union, favorable terms of trade with those republics, a high level of energy dependence on Russia, a skilled work force and a relatively developed infrastructure. Severe economic and social shocks followed Lithuania's emergence as an independent state -- as a result, the country suffered a precipitous decline in output, with GDP falling some 13 percent in real terms in 1991, 38 percent in 1992, and 16 percent in With independence, the Government embarked on a comprehensive reform agenda aimed at reorienting to a market economy. A formal stabilization program was launched in October, 1992, and Lithuania has broadly remained within program targets, containing both monetary expansion and the fiscal deficit. Notable progress has been made in the areas of fiscal policy, currency and price reform, privatization, social safety net reform, and trade liberalization. A new currency, the litas, was adopted in June, 1993, and was pegged to the US$ at a rate of 4:1 under a currency board system in April, While there have been periodic setbacks in the areas of privatization, banking, and trade reform, the country succeeded in reversing the GDP decline with growth of about 1.5 percent in 1994 and 2.7 percent in 1995, and inflation has been reduced to single digit monthly levels (from about 50 percent in the first quarter of 1992). New private sector activity is growing and absorbing an increasing percentage of the work force. B. Social Safety Net Policy Development 1.2 During the transition to market, shifts in relative prices and other incentives that accompany structural changes in the economy (such as the removal of subsidies) impose costs on some households, and can particularly impact the poor and those at the margin. As the Government continues to reduce its role as the redistributor of national income, it has become increasingly important to establish a fiscally sound social safety net that targets Lithuania's scarce social protection resources on the most vulnerable, reinforced by clientresponsive programs that support the productivity, dignity, and quality of life of the individual. 1.3 Before independence, Lithuania's social security system was integrated with the social programs of the Soviet Union, financed through the state budget, and regulated from Moscow. This system was oriented to central planning, and assumed (i) almost full employment; (ii) heavily subsidized basic commodities; and (iii) widespread access to almost

12 free (if generally low quality) services such as health care and education. After independence, the Government introduced changes in the structure, financing, and administration of the social programs it had inherited, hoping both to address its perception that living standards were falling sharply for many households and to introduce social insurance programs that were fiscally sustainable and directly linked to contributions. Currently, three types of cash benefits are provided: 2 a. social insurance benefits, which are based on contributions to the Social Insurance Fund, and include old age, disability and survivors' pensions, short term sickness and maternity benefits, unemployment benefits, and funeral benefits; b. state allowances and pensions, with universal eligibility once certain conditions are met including childbirth grant, extended maternity leave (childcare benefit), foster care benefits, and pensions for special groups including military and professors; and C. means tested allowances, which includes a general benefit and a winter heating allowance. The Government has been unable to measure the impact of these programs on household income and consumption until recently, when the outmoded Soviet-era Household Budget Survey was replaced with a more reliable instrument (see Para. 1.15, page 5). 1.4 The cost of social insurance benefits has been rising rapidly, despite continued policy development. In 1993, an estimated 6.6 percent of GDP was spent on these benefits. Of this, social insurance benefits (covering some 23 percent of the population) accounted for 5.7 percent of GDP, and the others 0.9 percent of GDP. The cost of social insurance benefits rose to an estimated 8.7 percent of GDP in 1995 owing to the increase in pension benefits granted in the 1994 social insurance legislation. While the new legislation has a number of positive features, including universality and increased transparency, the entitlements provided will cause costs to continue to climb over the medium term. 1.5 Prior to independence, Lithuania had an extensive, though austere and authoritarian, system of social supports for well-functioning families, including creches, day care centers, extensive public health care, after-school programs and summer recreation. But when families or the elderly had severe difficulties, almost no forms of community-based help (which can include a range of services such as counselling, job training, child care, and material assistance) were available. The primary means of assistance was, and still is, removal of children and placement in kinship foster families or institutional placement of children, the disabled, or the elderly. C. Institutional Structure 1.6 Ministry of Social Security and Labor. The MSSL, which is responsible for the development, monitoring, and evaluation of social policy, is divided into three departments: Income Guarantee, Social Care, and Employment (see Chart 1, page 49). The Income

13 Guarantee Department is responsible for social insurance and (cash) social assistance policy design, implementation, and monitoring. The Department's Social Indicators Division supports policy development in the Ministry, assessing minimum living standards and other indicators used in benefit formulae, while the Division of Family Assistance develops and monitors family assistance, maternity, and children's benefits. The Department of Social Care oversees the operations of institutions for the elderly, invalids, and handicapped children (especially drafting standards and guidelines) and also oversees the activities of the Ministry training center. The Employment Department oversees the development of active and passive labor market policies. 1.7 Social assistance. Means-tested social assistance entitlements are determined by national legislation, but the implementation of this legislation is the responsibility of the municipalities, using funds from their own budgets (which in turn are funded in part by transfers from the state budget). Municipalities administer these benefits, as well as any other special benefits provided at municipality discretion (such as emergency food aid or fuel) through their own local assistance offices. Responsibility for institutional care is gradually being transferred to local governments as well, although the MSSL currently sets standards and supervises these institutions Monitoring and evaluating the impact of social policy is a new role for the MSSL, as under the Soviet period these tasks (to the extent they were done at all) were performed in Moscow. The current system of monitoring and evaluation is: (i) largely based on the monitoring of current survey data (which until recently was unrepresentative of the population, especially of the emerging private sector and marginal groups), with some analysis of administrative and budgetary data; (ii) largely based on intra-agency collection and analysis of information, and less reliant on inter-agency collection and analysis; (iii) largely based on irregular evaluations of information for policy purposes, and less reliant on systematic and regular evaluation of information; and, (iv) largely based on short-term forecasting, and less reliant on medium to long-term forecasting. D. Issues 1.9 The capacity of the administration inherited from the pre-independence period and charged with developing and implementing social policy is extremely weak. The MSSL lacks the skills and knowledge to estimate the fiscal and social implications of proposed social policy (such as the pension law, which is proving to be fiscally unsustainable). The role of the MSSL with respect to the social assistance offices is also limited. At present, it consists of conveying, interpreting, and clarifying formulae and regulations enshrined in legislation, and there is little or no prompt or reliable information that the MSSL can use to track policy. Analytical policy work appears to be mostly conducted in an ad hoc fashion, with little attention devoted to long-term strategy. Difficult tradeoffs between policy options are not assessed, leading to ineffective and costly policy choices such as the new pension law The Social Indicators Division relies on its own policy analysis, as well as the analytical work of other MSSL divisions. At present, key evaluation issues concerning social

14 assistance are generally restricted to immediate budgetary priorities, and there is no regular mechanism for evaluating a given policy once it is in place. The MSSL has insufficient resources to: (i) identify a research program that would help the Government to establish progress towards policy objectives; (ii) carry out that program, either on its own or in cooperation with other agencies; and (iii) communicate evaluation results to the relevant parties The above problems are compounded by a frequently inefficient and inflexible organization for developing policy. Staff report spending 50 percent or more of their time on non-core tasks, such as adjudication of benefit disputes at the local level. In part because of its relatively recent emergence as an independent policy making institution, the MSSL has been unable to formulate definitive strategic organizational goals, develop clear lines of financial and managerial subordination, address critical gaps and overlaps in services provided, utilize scarce physical and human resources efficiently, and establish the flexibility to redeploy those resources and encourage teamwork between divisions Institutional placement continues to be the main service provided when problems develop for children, families or the elderly because little community-based social assistance is available. The need for assistance has risen since independence, as families cope with the strains of the transition. Traditional models of service provision have been maintained, and as a result there has been an increase of 34 percent in the number of children placed in institutions between 1992 and The MSSL and the municipalities recognize the problem and believe a reorientation is necessary, but are hampered by: (a) a lack of knowledge and experience of appropriate alternatives; (b) a rapidly changing policy framework which has resulted in some confusion regarding which levels of Government and which agencies are responsible for these services; (c) fiscal constraints; and (d) a lack of understanding in society about the needs of elderly, children, and disabled. E. Government Reform Strategy 1.13 The Government is committed to continuing to improve the safety net, both in the areas of policy design and implementation. During project preparation, the current policy framework was reviewed by the MSSL and the Bank. A medium term policy agenda has been prepared. Key items on the policy agenda for the medium term include: a. reformn of the public pension system to increase affordability and improve incentives for labor supply; b. monitoring of the effectiveness of the social assistance system, with revisions in benefit formulas as necessary to improve targeting; and c. reform of the policy framework for institutional care to provide incentives to develop cheaper and better community-based alternatives. The Government is also committed to undertaking the institutional changes needed to support the realization of these policy goals.

15 To improve the effectiveness of the MSSL in safety net policy design, monitoring and evaluation, the Ministry has undertaken a review of the work organization and staff functions. With assistance from consultants, core tasks have been identified, and new approaches to performing these tasks efficiently were explored during a seminar on strategic management in August, These new approaches, which involve clarifying responsibilities in the Ministry and formalizing relationships with service delivery agencies, will be applied during the project period through the development and implementation of an MSSL strategic plan. The plan will clarify agency functions, interrelationships and goals, set organizational targets for improving service to MSSL clients, and develop a mechanism for monitoring and evaluating MSSL performance. The result should be a more efficient, effective, and flexible Ministry structure. Before negotiations, an acceptable outline of the MSSL strategic plan approved by Ministry management was submitted to the Bank by the Government (see Para. 6.1 (d), page 33) To improve the information base for the design, monitoring, and evaluation of social safety net policy, the Department of Statistics redesigned the household survey. Data from the new survey was made available in mid The MSSL intends to use this data, as well as an improved administrative information base to be developed under the project, to assess better the social, economic and fiscal impacts of government policy. With the assistance of consultants, the MSSL has identified a strategy for improving the quality of applied social policy research, and will leverage its scarce resources for in-house analysis through increased use of outside consultants selected through a competitive tendering process and funded through a new Policy Evaluation Fund (PEF). Future legislation presented to Government and the Seimas will incorporate the results of these analyses. Before negotiations, by-laws for the Policy Evaluation Fund (PEF) acceptable to the Bank and a plan acceptable to the Bank for implementing and funding the PEF were submitted by the Government (see Para. 6.1 (c), page 33) The Government has adopted a new policy focus in the delivery of social assistance and social care which includes a commitment to the family and the community as the primary location for raising children and maintaining the elderly. This approach, in use in OECD countries for over 30 years, has been shown to be more effective because individuals are better off if they are assisted in the community. The cost of providing assistance is also less when it is not residential. Implementing this commitment requires improving the coordination between agencies and levels of government, as well as the development and testing of new, non-institutional interventions The Government has already begun the process of developing new community-based interventions. After extensive discussion in the Ministry and with municipal representatives, the Government has decided to support the development of two types of community-based services: (a) day schools for handicapped children, and (b) community multi-service centers. With technical assistance financed by the Swedish Government and the PHRD Grant, outlines of these two interventions were prepared. In the fall of 1995, municipalities were invited to submit proposals to develop these programs on a pilot basis. Out of 16 proposals, the six best were chosen by a panel of external and local experts. The municipalities have revised their proposals based on further technical assistance. The implementation of the proposals will be supported under the project. Mid-term and final evaluations of each pilot will be

16 6 undertaken with the goal of developing replicable models in other communities. The policy framework governing institutional care is also being reviewed to increase flexibility and encourage local governments to develop community-based approaches tailored to the needs of their client base. F. Rationale for Bank Involvement 1.18 The Bank's assistance strategy for Lithuania recognizes the crucial need to re-orient the social safety net through policy reform and institutional development. This project is part of a wider Bank program to support the implementation of these goals. This project, originally called the Social Safety Net Project, was developed in response to a Government request for a broad social policy project. After appraisal, the Government reviewed the project and requested that several components be postponed and reconsidered after the November, 1995 election. The scope of this project was therefore reduced during negotiations. The Bank is discussing the redesign of the remaining components with the Government The institutional development activities supported by the Project will increase the Government's options with respect to social policy reform. Bank support for project activities will facilitate the ongoing policy dialogue on social safety net issues. Project activities will also strengthen the Government's ability to monitor the social impact of the transition and to develop measures to reduce this impact on vulnerable groups, thus improving the chances that Lithuania's transition strategy supported by the Bank will be implemented successfully This project supports the Government strategy to expand the role of the private sector in social service delivery where appropriate. The project supports the development of a system in the MSSL of competitive tendering for applied policy research contracts. While the bulk of the contracts will probably go to researchers associated with government universities and institutes, some could be awarded to private research firms, thus supporting the development of this knowledge industry. In the pilot projects, it is envisaged that nongovernmental organizations may become subcontractors to provide some of the client services Bank-supported project preparation activities have generated substantial donor interest and participation. Each project component has attracted donor partnerships in the form of commitments to finance or provide technical assistance. In total, approximately 39 percent of project costs will be covered by donor financing. In component 1, the Dutch Govermnent and UNDP are the partners. All technical assistance and training for component 2 will be financed by the Swedish Government. Thus, the Bank has played a catalytic role in attracting financing for project goals, while remaining the financier of last resort in project activities.

17 7 II. THE PROJECT A. Project Objectives 2.1 The Social Policy and Community Social Services Development project will support the Government of Lithuania in providing social security to the population at an affordable cost through institutional development activities to improve: (i) the capacity to analyze social policy at all stages; and (ii) community social care services. This will be achieved through the institutional development of the MSSL. The proposed project would assist the Government in the following areas: a. developing the capacity of the MSSL to design, implement, monitor and evaluate social safety net policies; b. reducing institutionalization of groups at risk (the handicapped, the elderly, etc.) through the development, testing and replication of new community-based social service models; and c. developing MSSL project management capacity. B. Main Project Features 2.2 The project will be implemented over five years by the Ministry of Social Security and Labor and six municipalities. Total project costs are estimated at about US$12.83 million. It comprises three components as follows: 1. Social Policy Development Component A. Improved Resource Use in the MSSL B. Policy Monitoring, Evaluation, and Implementation 2. Community Social Service Pilots Component A. Community Multi-Service Centers B. Centers for Disabled Children C. Monitoring and Evaluation 3. Project Management Component

18 8 C. Description of Components Component 1: Social Policy Development (US$2.60 million base cost, or 24 percent of total base cost) 2.3 This component will support the development, implementation, monitoring and evaluation of the MSSL social policy agenda. It will improve the allocation of human and financial resources within the Ministry through a strategic planning approach, so that scarce organizational resources are used more effectively and priority policy development and evaluation tasks appropriately addressed. The component will strengthen the Ministry's capacity to develop workable social policy solutions for presentation to the MSSL's clients, including Government, Parliament, and the municipalities, and to improve municipal administration of cash social assistance. It will also strengthen local capacity to prepare high quality social policy analyses through training for users of household survey data (such as universities and institutes). Component indicators for monitoring and evaluation progress towards objectives are outlined in Annex A (page 35). Subcomponent A: Improved Resource Use in the MSSL (US$0.95 million base cost) 2.4 This subcomponent will improve the resource allocation within the MSSL through implementation of a strategic planning approach to Ministry relationships with service delivery agencies, including local governments. It will help the MSSL to implement and evaluate a program to improve the effectiveness of the organization with respect to core policy development tasks, to institute an improved human resource policy, and to improve the monitoring of MSSL program performance. a. Strategic Plan for Social Policy Development. The efficiency and effectiveness of the MSSL in developing social policy will be supported through implementation of a strategic plan, including a mission statement, corporate objectives, clear lines of financial and managerial subordination, quantifiable program targets at all levels, agreed indicators of performance, and a mechanism for periodic re-evaluation of objectives and targets. Implementation of the plan will be supported through technical assistance to: (a) facilitate reorganization associated with the plan; (b) improve inter-agency and intra-agency linkages, particularly oversight and linkages with the municipalities, including a feasibility study for administering cash social assistance through a central agency; (c) improve client service, to include support for an annual survey of municipal social service office clients; and (d) develop monitoring and evaluation mechanisms for tracking agency performance. b. Improved Human Resources Policy. The second set of activities under this subcomponent will support implementation of a management and administration training program (local training, fellowships, study tours, workshops) to provide staff with necessary skills in areas such as public

19 9 administration and strategic management, budgeting, and use of hardware and software. It will also support development of a Ministry personnel unit, which will provide basic human resources services to management and staff. 2.5 Under this subcomponent, the project will finance technical assistance, fellowships and training, and goods and furniture. Subcomponent B: Policy Monitoring, Evaluation and Implementation (US$1.65 million base cost) 2.6 This subcomponent will strengthen the MSSL's capacity to assess social policies in light of their social and fiscal impacts, and to prepare viable policy options for presentation to other agencies and the broader public. It will assist the MSSL to improve the management and analysis of survey and administrative data, and to produce and disseminate regular reports on the impact of Government programs on the poor and vulnerable. It will also strengthen local capacity to undertake social policy analysis through training of users of the new household survey, and by supporting competitive contracting of social policy studies. a. Preparation of an Annual Social Report. The activities under this subcomponent will support preparation and publication of an annual Social Report. The Social Report will serve as a forum for decision-makers and independent experts in social policy to review the situation of the poor and vulnerable in Lithuania, to set priority areas to be addressed through social policy, and to develop an appropriate action plan. Technical assistance and training (including seminars and workshops on social policy issues) will be provided to assist the MSSL to prepare and present the report. b. Applied Training Program. The second set of activities under this subcomponent will support the establishment of a training program (seminars and workshops, fellowships, and local and foreign training) to provide MSSL staff and users of the household survey data with the skills necessary for effective social policy monitoring and evaluation. Technical assistance and training will be provided to develop skills in the areas of micro and macro economics (especially human resources economics), actuarial/modeling techniques, using household surveys for policy analysis, and related areas. c. Policy Evaluation Fund. The third set of activities under this subcomponent will support the activities of the MSSL Policy Evaluation Fund (PEF), which will strengthen local research capacity and improve the quality and relevance of social policy analysis. The PEF will commission, select, review, and disseminate studies on the implementation of the social policy agenda, introducing a competitive tendering procedure for research contracts. The project will help finance consultant services (local and foreign) identified by the PEF board, including joint proposals by local and foreign researchers.

20 2.7 Under this subcomponent, the project will finance technical assistance, fellowships and training, and equipment and materials. 10 Component 2: Community Social Service Pilot Projects (US$7.08 million base cost, or 66 percent of total base costs) 2.8 This component will develop a feasible, cost-effective approach to social service delivery that is community based and responsive to local needs. This approach should result in fewer individuals being placed in institutional care, and better coordination of the delivery of cash and non-cash benefits to clients by linking all social assistance offices and nongovernmental service providers in the community. It was designed in part on the basis of a competitive tendering process with the municipalities (see para. 5.2, page 30). Component indicators for monitoring and evaluation progress towards objectives are outlined in Annex A (page 36). Subcomponent A: Multi-Service Centers for The Elderly, Families with Children, and the Disabled (US$4.02 million base cost). 2.9 This subcomponent will support the implementation of three pilot Multi-Service Centers in Vilnius (the capital, pop. 590,100), Siauliai (pop. 147,800), and Svencionys (pop. 36,000), serving the elderly, families with children, and the disabled. The goal of the subcomponent is to provide services to more than 1600 individuals a year that will help prevent the institutionalization of more than 1100 of those individuals. The multi-service centers differ in design because of varying local needs and existing resources. Different projects will assist these groups of vulnerable individuals in the following ways: Vilnius: The Social Service Center in Vilnius will serve four vulnerable groups at risk of institutional placement or homelessness: mentally handicapped young adults, the elderly, mothers and their children who have been physically abused, and alcoholics and drug abusers. The activities of the Social Service Center will be coordinated by a screening office where staff will identify individuals' problems and the most appropriate assistance for them. The four service components are: 1. Training Center for Handicapped Young Adults. This program will be located in underutilized space in a special school for mentally handicapped children. Fifty four youth will be trained in carpentry, sewing and taught other job skills. Relations will be established with the Labor Exchange which will work to find jobs for these youth so that they may lead financially and socially independent lives. 2. Day Center for the Elderly and Handicapped. This center will provide a place for the elderly and the handicapped to have social contact, participate in cultural activities and receive needed social services. These types of social supports have been shown to prevent institutionalization and deterioration of the elderly. In addition, twenty

21 11 two social workers will visit the frail elderly in their homes to prepare their meals, provide housekeeping services and transport them to medical and other needed services. 3. Shelter for Battered Mothers and Their Children. A former nursery will be used as a temporary residence for approximately 40 mothers and their children who have been physically abused. Young, single mothers without families who have been discharged from a children's institution will also be able to use this as a temporary residence. The project will provide social services to help these mothers through their crisis and help them to find permanent and safe living accommodations. Absent such a program, the young children might have no place to live other than an institution after their families break up. The mothers are at risk of homelessness. 4. Rehabilitation Center for Alcoholics and Drug Abusers. A day center will be established for recovering alcoholics and drug abusers to meet, and to receive counselling and social services. The program will help keep families together so that children have a safe place in the community. Svencionys: Svencionys is a poor rural area in the west/east of Lithuania with many vulnerable groups. One third of the population are pensioners, one hundred now receive care, and 1,000 should receive care. Without care in their homes, many will be placed in an institution. Svencionys will create a Social Service Center with several components in different locations that will be part of a network of services. The components are: 1. Reception Center. This Center would assess the needs of individuals for services and refer them to the most appropriate program. The Center would also coordinate the network of social service programs including non-governmental organizations. This coordination will improve and rationalize the delivery of services. 2. Social Rehabilitation Center for the Handicapped. This center will be opened for children in the former nursery school "Gandriukas." This center will provide education and training to help children learn to live independently. It will also provide support to their parents so that their children can live with them more easily. 3. Home Delivery of Services for the Elderly. This program will have social workers visit the homes of 500 elderly, bring and prepare meals, provide personal care and housekeeping services, and bring the elderly to medical and other appointments, allowing them to live safely in the community.

22 12 4. Program for Former Prisoners. Individuals who have returned from prison have caused serious problems in Svencionys. This program will provide a short-term residence, services and assistance to former prisoners. Without this assistance, former prisoners returning to Svencionys are more likely to commit new crimes and return to prison. 5. Temporary Residence for Children. A short-term residence will be created for children who need a temporary place to live until a crisis in their family is resolved or until a more permanent, long-term communitybased solution can be found such as living with a relative or foster care. Social assistance will also be provided to the families of these children to enable them to return home safely, thus avoiding the more costly and harmful long term placement. Siauliai: The municipality of Siauliai has developed the beginnings of a social services network to serve some of the individuals living in vulnerable situations, but many individuals who are at risk of being institutionalized are not receiving the assistance they need. The services that are provided are fragmented. There are 860 invalids living alone, 530 pensioners over 70 years old living alone (some of whom are at risk), 240 families in which both spouses are invalids, and 2,160 families with children with income lower than the minimum living level. The Social Services Center that will be created in the former Soviet Army barracks will be both the coordinating center for social services for Siauliai and a Day Employment Center and social service center for mentally handicapped adults. 1. Coordinating Center for Social Services. The center will organize different activities for almost 600 people. It will coordinate a network of services including those provided by non-governmental organizations. This coordination will improve and rationalize the delivery of services. Twenty social work staff will provide home care to the elderly and the handicapped, allowing them to have enough support to remain safely in their homes. The Center will also become a training center for social workers throughout the city to increase the number of individuals who can work to prevent institutional placement. 2. Day Employment Center for the Handicapped. Handicapped individuals at the Center will learn job skills and be assisted in finding work. They will also learn housekeeping skills and other skills to live independent lives and avoid institutional placement. Many of these individuals live isolated from society; the Day Center will provide the opportunity to socialize with others. A van will pick up individuals who have difficulty walking, take them to the Day Center and return them home at night Under this subcomponent, the project will finance technical assistance, staff training, renovation of buildings, furniture, and special equipment for the centers.

23 Subcomponent B: Education Centers for Disabled Children (US$1.85 million base cost) The subcomponent will support the implementation of three Education Centers for Disabled Children in Anyksciai (pop. 38,400), Moletai (pop. 27,100) and Utena (pop. 54,000). The goal of the subcomponent is to prevent over 70 handicapped children from being placed an institution, by developing services in the community at a lower cost than institutional placement. These children currently reside in their own homes, receive no education or training, and have very little social contact. They are at risk of being placed in an institution because of the strain on their parents. As they currently receive no training to live independently, when their parents are no longer available as educators, the children will be forced to reside in an institution. The Centers will prevent the institutionalization of these children by educating them, teaching them to live independent lives, and providing support and assistance to their families. Anyksciai: Moletai: Utena: Sixty-four mentally handicapped children under the age of 20 live with their families in the Anyksciai district. Forty-three of these children are socially isolated and do not attend any school or activity. Unless assistance is provided many of these children may be placed in institutions for the handicapped. Anyksciai has established a small day center educating 15 handicapped children. It will expand the existing center to serve an additional 25 children. The program will add a job training and job placement program to help them to develop skills to live financially and socially independent lives. The component activities will enhance the training of the existing staff as well as the staff for the expanded program. A special bus will pick up the children every day at their homes and return them home at night. Parents will also participate in the program at the center. Forty mentally handicapped children under the age of 20 live with their families in the rural area surrounding Moletai. They are socially isolated and their parents live under great strain. Unless assistance is provided, many of these children may be placed in institutions for the handicapped. Moletai will establish a center to educate 24 of these children, train them to live independently, provide basic job skills, and help them to gain self-confidence. The center will work with the parents in their homes and in the center to teach them how to improve the care provided to their children, and to reduce the strain on them. A special van for the handicapped will be used to take these children from their homes every day, bring them to the center and return them home at night. Twenty two children in the Utena region live with their families but do not attend school, and have little (if any) social contact outside of their immediate family. The center will educate these children and train them to be able to live in society independently. The center is being established in close cooperation with the Utena Medical College, which is training occupational therapists, nursing specialists and social workers who will have field

24 14 placements in the center during their studies and be employed by the center upon graduation Under this subcomponent, the project will finance consultant services, staff training, renovation of buildings, furniture, and special equipment for the centers. Subcomponent C: Monitoring and Evaluation (US$1.22 million base cost) 2.13 The subcomponent will support the monitoring and evaluation of the implementation of the three Multi-Service Centers and the three Education Centers for Disabled Children. Monitoring and evaluation will include the following activities: (i) a baseline study of social service needs and services available; (ii) an analysis of funding of institutions and community services that could recommend ways of redirecting funding to community-based services; (iii) establishment of a computerized case monitoring system and bi-annual site reports; (iv) annual conferences to review the pilot projects; (v) a mid-term evaluation to ensure that the pilots are on schedule, and to provide a preliminary assessment of services; and (vi) a final evaluation including the plan for replication. These activities will be used to determine if the pilot projects are improving the quality of services provided, cost effective and replicable alternatives to institutional placement for the various groups of clients served Under this subcomponent, the project will finance consultant services, training of staff, and the cost of renovating and equipping facilities, equipment for the disabled and vehicles for transporting the disabled and visiting the elderly. Component 3: Project Management (US$1.02 million base cost) 2.15 This component will support the management of the implementation of project activities through the development of a Project Coordination Unit (PCU). The project will finance local consulting services, technical assistance and training in procurement, and required PCU equipment.

25 15 III. PROJECT COSTS, FINANCING, PROCUREMENT, DISBURSEMENTS A. Project Cost Estimates 3.1 Total project costs, net of taxes and duties, are estimated at about US$12.31 million, including physical and price contingencies of US$1.61 million. The project will finance civil works, furniture, equipment and materials, vehicles, technical assistance, computer hardware and software, and local and foreign training. 3.2 All local cost estimates are based on comparative unit prices currently prevailing in Lithuania, while all foreign costs for machinery and equipment are based on prices prevailing in the United States as well as other international sources. Base costs of all components were calculated at 1996 prices, and under the assumption of a fixed exchange rate of 4 Litai/US$1.00 (February, 1996). Foreign costs also include provisions for shipment and insurance to Lithuania. Tables 3.1 and 3.2 below summarize the estimated costs by component and expenditure category, respectively. A detailed project cost and financing summary table is provided in Annex D (see page 39). Table 3.1 Project Cost Summary by Component ($ Millions) LITAI US$ % Total For. Base Components Local Foreign Total Local Foreign Total Exch Costs 1. Social Policy Development 2. Community Social Services Pilot 3. Project Management Total Baseline Costs Physical Contingencies Price Contingencies Total Project Cost: Note: Totals may not add due to rounding

26 16 Table 3.2 Project Cost by Expenditure Category % % Total (Litas Million) (USS Million) Foreign Base Local Foreign Total Local Foreign Total Exchange Costs I. Investment Costs A. Civil Works B. Furniture & Other Supplies /a C. Equipment Office Equipment Computer Equipment Special Equipment /b Appliances Subtotal Equipment D. Vehicles E. Consulting and Related Services F. Training Total Investment Costs II. Recurrent Costs A. Staff Salaries B. Operating Expenditures Administrative and Operating Costs Operating and Maintenance Costs of Building Supplies Meal Service Program Audit Subtotal Operating Expenditures C. Other /c D. Repair and Maintenance Repair & Maintenance of Equipment Repair & Maintenance of Vehicles Subtotal Repair and Maintenance Total Recurrent Costs Total Baseline Costs Physical Contingencies Price Contingencies Total PROJECT COSTS: \a Include minor material supplies \b Rehabilitation equipment for handicapped adults & children \c Includes office rent Totals may not add due to rounding File: Sumea.xls

27 Recurrent Costs. Recurrent costs, estimated at US$3.93 million, are the incremental operating costs generated by project investments. All local recurrent costs are financed entirely by the state and the six participating municipalities in which community-based service projects will be located. These recurrent costs arise from: (i) administrative and operating activities associated with the PCU; (ii) operating and maintenance activities of the Community Multi-Service and Disabled Children Centers; (iii) operating costs of equipment (electricity and other); (iv) repair and maintenance of equipment (computer equipment, special equipment and appliances); (v) supplies (for computer equipment, office equipment, equipment for disabled, and other); (vi) repair and maintenance of vehicles; (vii) staff salaries for MSSL and Multi-Service and Disabled Children Centers; (viii) meal service programs for the Multi-Service and Disabled Children Centers; (ix) annual project audits; and (x) other costs associated with conferences. These recurrent costs will be monitored through the disbursement tracking system and examined closely during annual reviews. B. Financing Arrangements 3.4 The proposed Bank Loan of US$3.70 million equivalent would finance about 30 percent of total project costs, including contingencies (see Table 3.3 and Annex D). The Bank would finance 27.9 percent of foreign costs and 31.7 percent of local costs. The Bank will not finance any recurrent costs, which will be financed by the state, municipalities and donors. 3.5 Counterpart Funding. Lithuania's counterpart contribution is estimated at US$4.32 million (representing 35 percent of total project cost). The breakdown is as follows: The Government of Lithuania will provide US$0.67 million, or about 5 percent of total project costs, and the participating Municipalities will contribute US$3.65 million, or about 30 percent of total project costs. 3.6 Co-Financing Arrangements. Parallel co-financing for project technical assistance and training activities on a grant basis, of about US$4.29 million has been confirmed. The Government of Sweden has given preliminary confirmation of about US$3.44 million for technical assistance activities under Component 2, and the Government of Netherlands has confirmed an amount of US$0.85 million equivalent for Component 1. During Negotiations, agreement was reached that in the event that proposed grant financing does not materialize, the Government of Lithuania would find alternative financing (para. 6.2 (c), page 33). 3.7 Implementation Agreements. The MOF will provide direct grant assistance to the participating municipalities to assist in the implementation of the proposed Community Multi- Service and Disabled Children Centers. An Implementation Agreement has been entered into between the MOF and each Municipality (para. 6.1(e), page 33). The respective implementation responsibilities of the MSSL and the Ministry of Finance concerning expenditure management and reporting requirements have also been agreed. As a condition of loan effectiveness, a Project Implementation Agreement will have been executed on behalf of the Ministry of Finance and MSSL on terms and conditions satisfactory to the Bank for the purposes of the Project (para. 6.3 (e), page 34).

28 18 Table 3.3 Financing Plan (US$ Million) Source of Funds Local Foreign Total % of Total IBRD Donors Gov't of Lithuania Municipalities Total Project Cost: C. Procurement 3.8 Since Lithuania does not have a long tradition of competitive bidding for procurement of public goods and services, a Country Procurement Assessment Report (CPAR) is not required at this stage. A "Country Procurement Note" (CPN) dated May, 1995, containing information about bidding opportunities (for procurement on the basis of International Competitive Bidding) was prepared, which established that the Government has started to introduce forms of competitive bidding. The Government has adopted legislation instituting public procurement regulations as part of its comprehensive program to transform its centrally planned economy to a market-oriented system based on the development of a competitive private sector. However, the progress in developing and implementing national procurement regulations with associated monitoring system has been slow to date. The Borrower will follow the Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" (January, 1995, revised January and August, 1996). Similarly, all Consulting Services will be procured in accordance with the Guidelines for "Use of Consultants by World Bank Borrowers and by the World Bank as an Executing Agency" (August, 1981). Since legislation regulating national procurement procedures might take some time, the National Competitive Bidding (NCB) procurement under the project will follow the Bank's Guidelines and the Regional Bidding documents for the Procurement of Works through NCB (less than US$250,000), issued by the Region on August, For individual or other small consulting contracts, sample Bank documents will be used. Procurement arrangements are summarized in Table All procurement methods are described in the Operational Manual, which are consistent with Bank Guidelines. The detailed procurement plan relating to the nature and size of the packaging, procurement methods and the schedule of the procurement activities are in Annex B. The General Procurement Notice (GPN) was initially published in Development Business, No. 429, December 31, 1995, and was updated on November 30, 1996 (Issue No. 451). The GPN shall be updated annually for all outstanding procurement A technical assistance and training plan for developing the capacity of the PCU to manage the project, including procurement arrangements, is undergoing implementation. The efficiency and capability of the Borrower to carry out the Bank's procurement procedures will be strengthened further through ongoing training and the use of standard

29 19 bidding documents. In addition, provision of foreign technical assistance for the PCU should ensure adequate administration of procurement. The Bank will conduct a Project Launch Workshop in the first half of 1997 to include training sessions on procurement for the staff of the PCU. Procurement activities will also be monitored regularly through Bank supervision missions. Table 3.4: Summary of Procurement Arrangements ($ Million) Procurement Method Project Element NCB J_Other" N.B.F. Total A. Civil Works Rehabilitation (0.96) - (0.96) B. Goods 1. Computer Equipment (0.07) (0.07) 2. Special Equipment for Handicapped & Elderly (0.25) (0.25) 3. Office Equipment (0.08) (0.08) 4. Facility Appliances and Supplies (0.12) (0.12) 5. Furniture & other Supplies (0.22) (0.22) 6. Vehicles (0.29) (0.29) C. Consultancies 1. Technical Assistance (1.27) (0.07) (1.34) 2. Training (0.37) (0.37) D. Miscellaneous 1. Recurrent Expenditures Total (0.96) (2.67) (0.07) (3.70) Totals may not add due to rounding Figures in parenthesis are the respective amounts financed by IBRD N.B.F - Not Bank Financed; N.C.B. - National Competitive Bidding 1/ Other Methods of procurement include International Shopping (IS) - US$0.82 million, National Shopping (NS)- US$0.22 million, and Shortlisting (SL)- US$1.63 million.

30 Management of Procurement. The PCU will carry out procurement of all goods and services and for civil works for the project using Standard Bidding Documents and evaluation guidelines. The PCU will manage and keep records of all procurement operations and ensure compliance with aggregate limits on specified methods of procurement. The PCU will closely coordinate with component and sub-component coordinators on procurement related matters. The technical specifications, terms of reference, evaluation methodologies and reports for procurement operations under the project will be prepared jointly between the component and sub-component coordinators and the PCU. The PCU will also be responsible to ensure that all major procurement steps are carried out in accordance with the Bank guidelines and procedures. The PCU will maintain a procurement registry of all procurement operations under the project to be submitted as part of the semi-annual progress reports Co-financing would be carried out in parallel, and thus procurement for non-bank financed sub-components would be carried out in accordance with procurement regulations of the respective financier. The PCU would carry out the Bank financed procurement Procurement of Civil Works (US$0.96 million). The project will support rehabilitation of existing facilities under Community Social Service Pilot Projects (component 2 of the project). Contracts valued less than US$250,000 equivalent would be procured using NCB procedures acceptable to the Bank, nationally advertised to ensure adequate competition. The project has given consideration to Lithuania's competitive and highly skilled construction sector. Moreover, the type of construction works envisaged under the project are minor rehabilitation in different parts of the country, consisting mainly of upgrading existing structures that are well within the capacity of domestic industry and are unlikely to be attractive to foreign firms. International bidders shall be allowed to participate in the bids in accordance with the World Bank Procurement Guidelines Community Social Services Pilot Component. The project will finance the rehabilitation and upgrading of Community Multi-Service and Disabled Children Centers under this component. Three contracts, with an aggregate amount of $687,000 to upgrade existing multi-service centers, and another three contracts with an aggregate amount of $175,000 to rehabilitate education centers for disabled children in the project municipalities, are expected A preliminary civil works plan outlining all civil works operations, including an implementation schedule of critical activities, has been already prepared. Since all civil works are for rehabilitation, no land acquisition will be needed. Clear title to land and building or a suitable long-term lease will be required prior to proceeding with civil works operations envisaged under the project Procurement of Goods (US$1.04 million). The project will finance computer equipment, special equipment for handicapped and elderly, office equipment, appliances and supplies, furniture and other supplies, and vehicles for the Ministry of Social Security and Labor, and the Multi-Service and Disabled Children Centers. Equipment plans have already been prepared by the Government. Smaller contracts of up to $250,000 equivalent, such as for computer equipment ($0.07 million); special equipment for handicapped and elderly