IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H4040, IDA-H7560, TF-92394)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H4040, IDA-H7560, TF-92394) ON A GRANT UNDER THE INTERNATIONAL DEVELOPMENT ASSOCIATION IN THE AMOUNT OF SDR 5.6 MILLION (USD 9.0 MILLION EQUIVALENT) A GRANT UNDER THE INTERNATIONAL DEVELOPMENT ASSOCIATION IN THE AMOUNT OF SDR 5.6 MILLION (USD 8.6 MILLION EQUIVALENT) AND A POLICY AND HUMAN RESOURCE DEVELOPMENT GRANT IN THE AMOUNT OF USD MILLION Agriculture Global Practice East Asia and Pacific Region TO THE LAO PEOPLE S DEMOCRATIC REPUBLIC FOR A KHAMMOUANE DEVELOPMENT PROJECT September 26, 2016 i

2 CURRENCY EQUIVALENTS (Exchange Rate Effective June 28, 2016) Currency Unit = Lao Kip Kip 1.00 = USD USD 1.00 = 8,093 Kip USD 1.00 = SDR FISCAL YEAR October 1 September 30 ABBREVIATIONS AND ACRONYMS AEG AF ALG BBC DAFO DDF DIMU DOA DOF DOI DOPC DPI DPT DS EDP ERR ESSF FRR FY GDP GoL GPAR Ha ICR IDA IPM JICA KDP Agricultural Entrepreneur Grant Additional Financing Agricultural Livelihoods Grant Basic Block Grant District Agriculture and Forestry Office District Development Fund Downstream Irrigation Management Unit Department of Agriculture Department of Finance Department of Irrigation Department of Planning and Cooperation Department of Planning and Investment District Planning Team Dry Season Education Development Project Economic Rate of Return Environmental and Social Safeguards Framework Financial Rate of Return Financial Year Gross Development Product Government of Lao PDR Governance and Public Administration Reform Program Hectare Implementation Completion and Results Report International Development Association Integrated Pest Management Japan International Cooperation Agency Khammouane Development Project ii

3 LDCF Least Developed Countries Fund MAF Ministry of Agriculture and Forestry MOF Ministry of Finance MOHA Ministry of Home Affairs MPI Ministry of Planning and Investment MTR Mid-Term Review M&E Monitoring and Evaluation NAFRI National Agriculture and Forestry Research Institute NPV Net Present Value NSEDP National Socio Economic Development Plan NT2 Nam Theun 2 NTPC Nam Theun 2 Hydropower Company OP Operational Policy O&M Operations and Maintenance PAFO Provincial Agriculture and Forestry Office PCS Project Coordination Section PDF Provincial Development Fund PDO Project Development Objective PFM Public Finance Management PHRD Policy and Human Resource Development PRF Poverty Reduction Fund PSC Project Steering Committee UNCDF United Nations Capital Development Fund UNDP United Nations Development Program UXO Unexploded Ordinances WS Wet Season WUA Water User Association WUG Water User Group XBF Xe Bang Fai Vice President: Victoria Kwakwa Country Director: Ulrich Zachau Country Manager: Sally Burningham Senior Global Practice Director: Juergen Voegele Practice Manager: Nathan Belete Sybounheung Phandanouvong/ Project Team Leader: Sergiy Zorya ICR Team Leader: Chanhsom Manythong iii

4 LAO PEOPLE S DEMOCRATIC REPUBLIC KHAMMOUANE DEVELOPMENT PROJECT Data Sheet... v 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of World Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Outputs by Component Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5. Beneficiary Survey Results Annex 6. Stakeholder Workshop Report and Results Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Annex 9. List of Supporting Documents The Map of the Project Areas iv

5 Data Sheet A. Basic Information Country: Lao People's Democratic Republic Project Name: Project ID: P L/C/TF Number(s): LA-Khammouane Development Project IDA-H4040,IDA- H7560,TF ICR Date: 09/04/2016 ICR Type: Core ICR Lending Instrument: IPF Borrower: LAO PDR Original Total Commitment: Revised Amount: SDR 11.20M Environmental Category: B SDR 5.60M Disbursed Amount: SDR 10.82M Implementing Agencies: Khammouane Province, through the Department of Planning and Investment and the Downstream Irrigation Management Unit Cofinanciers and Other External Partners: Japan Policy and Human Resource Development B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 07/05/2006 Effectiveness: 09/10/ /10/2008 Appraisal: 03/11/2008 Restructuring(s): 02/29/ /15/ /27/2015 Approval: 06/17/2008 Mid-term Review: 03/17/ /17/2014 Closing: 03/31/ /31/2016 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Substantial Moderately Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Quality of Supervision: Moderately Satisfactory Implementing Moderately Satisfactory Agency/Agencies: v

6 Overall Bank Performance: Overall Borrower Moderately Satisfactory Performance: Moderately Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Yes Moderately Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): Rating None None D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector Irrigation and drainage Rural and Inter-Urban Roads and Highways Sub-national government administration Water supply Theme Code (as % of total Bank financing) Decentralization Rural policies and institutions Rural services and infrastructure E. Bank Staff Positions At ICR At Approval Vice President: Victoria Kwakwa James Adams Country Director: Ulrich Zachau Ian C. Porter Practice Manager/Manager: Project Team Leader: ICR Team Leader: ICR Primary Author: Nathan M. Belete Sybounheung Phandanouvong/Sergiy Zorya Chanhsom Manythong Chanhsom Manythong Jean-Paul Chausse Rahul Raturi Toru Konishi vi

7 F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To strengthen the planning process and public financial management associated with the decentralized delivery of public services and infrastructure, including irrigation development, in Khammouane Province. Revised Project Development Objectives (as approved by original approving authority) n/a (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) vii Formally Revised Target Values Actual Value Achieved at Completion or Target Years Improved community water points constructed or rehabilitated under the project (number) Date achieved 05/01/ /18/ /27/ /31/2016 Comments (incl. % achievement) Achieved by 118%. Indicator 2 : Primary/secondary schools constructed or rehabilitated under the project (number) Value quantitative or Qualitative) Date achieved 05/01/ /01/ /31/2016 Comments (incl. % achievement) Achieved by 153%. Indicator 3 : Health facilities constructed, renovated, and/or equipped (number) Value quantitative or Qualitative) Date achieved 05/01/ /18/ /27/ /31/2016 Comments (incl. % achievement) Achieved by 120% Indicator 4 : Roads rehabilitated, Rural (km) Value quantitative or Qualitative)

8 Date achieved 05/01/ /11/ /31/2016 Comments (incl. % achievement) Achieved by 120%. Indicator 5 : Adoption of new budget procedures based on the district and provincial development fund DDF investment DDF investment procedures Value procedures incorporated into quantitative or Not adopted incorporated into the the district and Qualitative) district and provincial provincial budget budget procedures procedures Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Indicator 6 : Value quantitative or Qualitative) Achieved. All districts and the Province used the new budget procedures for DDF and PDF under KDP. Agreement between Government, NTPC and donors on sustainable approach to utilization of NT2 downstream water and irrigation rehabilitation along XBF river No agreement Agreement reached and implemented on utilization of NT2 downstream water and irrigation rehabilitation along XBF river viii Agreement reached and implemented on irrigation rehabilitation along XBF river Agreement reached and implemented on irrigation rehabilitation along XBF river Date achieved 05/01/ /18/ /27/ /31/2016 Comments (incl. % achievement) Achieved. The agreement on utilization of NT2 downstream water was no longer necessary as the originally planned water conveyance infrastructure could not be constructed. Indicator 7: Area provided with irrigation and drainage services (ha) Value quantitative or Qualitative) 0 4,000 New area: 2,000 Improved area: 2,000 4,541 New area: 2,541 Improved area: 2,000 Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Achieved by 114%. Indicator 8 : Clients who have adopted an improved agricultural technology promoted by the project (number) Value quantitative or Qualitative) inc. 400 female 938 inc. 478 female Date achieved 05/01/ /27/ /31/2016 Comments (incl. % Achieved by 120%.

9 achievement) Indicator 9 : Direct Project Beneficiaries (Number) Value 184, ,927 Share of female 0 66,000 inc. female share 50 inc. female share 51 beneficiaries, % Date achieved 05/01/ /18/ /27/ /31/2016 Comments (incl. % Achieved by 253%. More than half of the beneficiaries were women. achievement) Percentage of completed DDF financed subprojects that are satisfactory for Indicator 10 : beneficiaries Value quantitative or Qualitative) Date achieved 05/01/ /27/ /31/2016 Comments (incl. % achievement) Achieved by 149%. (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) ix Formally Revised Target Values Actual Value Achieved at Completion or Target Years Target Villages selected under DDF representing areas relatively underserved in terms of public investment (Number) 39 1, Date achieved 05/01/ /18/ /27/ /31/2016 Comments (incl. % achievement) Not achieved. The original target of 1,000 villages and even formally revised target of 566 villages were completely inaccurate as there are only 581 villages in Khammouane Province in total. Indicator 2 : Value (quantitative or Qualitative) PDF investments reflecting priorities expressed through consultation process participated by 6 key sectors: a)health, b) Education, c) Public Work, d) Commerce, e)tourism, and f) Agriculture Not complied Complied with in 9 districts Complied with in 10 districts Date achieved 05/01/ /18/ /31/2016 Comments Achieved. During the project implementation, provincial and district departments (incl. % were consulted with and actively involved in preparation of PDF investments. achievement) Recurrent costs for PDF Investments identified and included in the provincial Indicator 3 : Value (quantitative budget Not complied Complied with in 10 districts Complied with in 10 districts

10 or Qualitative) Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Achieved. The provincial budget includes recurrent costs associated with administrating and maintaining the KDP investments. They include wages of teachers and medical personnel, and O&M of the assets. Indicator 4 : Updated PIP planning format used and maintained Value Complied with in Complied with in 10 (quantitative Not complied 10 districts districts or Qualitative) Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Achieved. The format for Public Investment Planning prepared under KDP was used for PDF and DDF. It has also informed the PIP format developed by MPI for decentralization procedures. Indicator 5 : Annual Provincial budget plan aligned with priority planning process Value (quantitative Not included Fully included Fully included or Qualitative) Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Achieved. Indicator 6 : Comprehensive and timely budget execution reports Value Complied with in Complied with in 10 (quantitative Not complied 10 districts districts or Qualitative) Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Achieved. Indicator 7 : Value (quantitative or Qualitative) District and provincial officials by gender trained on DDF and PDF procedures covering financial management, procurement, safeguards, and consultation (Number) inc. 58 women 198 inc. 60 women Date achieved 05/01/ /18/ /15/ /31/2016 Comments Achieved by 102%. The target for number of female staff training was achieved by (incl. % 103%. achievement) Indicator 8 : Operational water user associations created and/or strengthened (Number) Value (quantitative or Qualitative) Date achieved 05/01/ /27/ /31/2016 Comments (incl. % achievement) Achieved by 112%. x

11 Indicator 9 : Value (quantitative or Qualitative) Strategic Plan for Downstream Irrigation completed includes participation, environmental, social and economic and market analysis A document with the title strategic plan was produced by KDP technical advisor. However, it does not Strategic Plan contain the elements of No Issued the strategic plan envisaged in the PAD. Rather, it is a brief report which utilizes available information and reports. Date achieved 05/01/ /18/ /31/2016 Comments (incl. % achievement) Not achieved. Indicator 10 : Number of households receiving ALG grant Value (quantitative ,600 1,624 or Qualitative) Date achieved 05/01/ /18/ /27/ /31/2016 Comments (incl. % achievement) Achieved by 102% Indicator 11 : PAFO and DAFO staff trained by agriculture extension center (Number) Value (quantitative 20 inc. 20 women inc. 52 women or Qualitative) Date achieved 05/01/ /18/ /31/2016 Comments (incl. % Achieved by 166%, including for training of female staff by 260%. achievement) Indicator 12 : Value (quantitative or Qualitative) Agriculture Entrepreneur Grant (AEG) recipients able to run and sustain their small businesses supported by the project (Number) Date achieved 05/01/ /27/ /31/2016 Comments (incl. % achievement) Achieved by 127%. xi

12 G. Ratings of Project Performance in ISRs No. Actual Date ISR DO IP Disbursements Archived (USD millions) 1 06/29/2009 Moderately Satisfactory Moderately Satisfactory /04/2010 Moderately Moderately Unsatisfactory Unsatisfactory /19/2010 Moderately Moderately Unsatisfactory Unsatisfactory /13/2011 Moderately Satisfactory Moderately Satisfactory /24/2011 Moderately Satisfactory Moderately Satisfactory /17/2012 Moderately Satisfactory Moderately Satisfactory /08/2012 Moderately Satisfactory Moderately Satisfactory /26/2012 Moderately Satisfactory Moderately Satisfactory /16/2013 Moderately Satisfactory Moderately Satisfactory /24/2014 Moderately Satisfactory Moderately Satisfactory /08/2014 Moderately Moderately Unsatisfactory Unsatisfactory /14/2015 Moderately Satisfactory Moderately Satisfactory /02/2015 Moderately Satisfactory Moderately Satisfactory /14/2016 Moderately Satisfactory Moderately Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions 02/29/2012 N MS MS 4.80 xii Reason for Restructuring & Key Changes Made Additional Financing, in the amount of SDR5.6 million, to scale up selected activities, add the agricultural livelihoods component, and revise selected project indicators. No changes were made to PDO. 10/15/2013 N MS MS Reallocate funds between categories to ensure appropriate funding to project activities and reflect the actual expenditures to date. To modify the Results Framework in order to strengthen project monitoring with new core sector indicators incorporated. No changes were made to PDO. 04/27/2015 N MS MS Revise the Results Framework.

13 Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Reason for Restructuring & Key Changes Made Drop selected activities under Component 2 as stipulated in the Financing Agreement, Part B, 2. Reallocated of IDA-H756 grant proceeds to address changes in the use of funds to ensure adequate financing of priority activities that contribute to the PDO due to depreciation of SDR against USD. No changes made to PDO. I. Disbursement Profile xiii

14 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Lao PDR s rapid growth during the 1990s had not translated into commensurate poverty reduction. At appraisal in 2008, the incidence of poverty remained especially high in rural areas, at 38 percent, which was almost twice the rate of the urban areas. Weak governance, the low capacity related to public financial management and service delivery, and slow private sector development were identified among the most significant constraints to development and redistribution of the benefits of economic growth. Another constraint was weak administrative decentralization: while fiscal independence was in place at the provincial level 1, districts had not started to play any role in planning and budgeting or in decentralized community-articulated service and infrastructure delivery. 2. At appraisal, the Government of Lao PDR (GoL) had already commenced actions for administrative decentralization to address some of the above mentioned constraints. Several initiatives to support decentralization and fiscal management were either started or underway to improve targeting and effectiveness of public expenditures based on an increased accountability to local communities 2. Yet, these initiatives were not implemented in the integrated manner. The Japan International Cooperation Agency (JICA) was assisting the Ministry of Planning and Investment (MPI) with public investment plan management. The United Nations Capital Development Fund (UNCDF) supported the Ministry of Home Affairs (MOHA), through the Governance and Public Administration Reform Program (GPAR), to develop the District Development Fund (DDF) instrument, which combined participatory planning, financing through DDF, and implemented locally at the district level. It was piloted in Saravan Province and scaled up to 27 districts in 4 Provinces (Sekong, Xiengkhouang, Oudomxay, and Houaphanh). The UNCDF had spearheaded an instrument, which used kumbans (village clusters) as the core vehicles for participatory planning at the village level. The Poverty Reduction Fund (PRF) was established in 2002 and managed by the Prime-Minister s Office with the support of a number of external development agencies, including the International Development Association (IDA) 3. The Swiss Agency for Development and Cooperation had developed the Lao Extension Approach to decentralize agricultural extension to the village level, and the IDA-financed Agricultural Development Project had used the Agricultural Livelihood Grant approach to market-driven farmer-oriented livelihoods development. 1 Provinces accounted for 60 percent of the country s total fiscal revenues, of which they retained 90 percent for expenditures at the provincial level, and they enjoyed significant discretion in the manner in which these revenues were used and budgeted, and decision making over investments and service delivery was done with little accountability toward local populations. 2 The Decrees No.1 of March 2000 and No.10 of June 2001 on decentralization stipulated that rural development activities should be initiated at the lowest possible level of authority, starting with the village, and established provinces as strategic units and districts as planning/budgeting units for public programs. A new Budget Law approved in December 2006 introduced fundamental changes in the fiscal framework. It centralized tax and customs functions, channeling almost all revenues to the national level from where they were redistributed to provinces through revenue-sharing arrangements. 3 PRF focuses on the country s 47 poorest priority districts. It works directly with villages and kumbans through a participatory planning approach, with villages and kumbans selecting their investment needs. 1

15 3. Most of these initiatives were being implemented through national government counterparts and this did not advance the decentralization scaling up objective. The GoL wanted the World Bank to directly work with the provinces in an integrated manner to develop procedures for infrastructure and service delivery with local transparency and accountability given the enhanced provincial role in service and infrastructure delivery. Khammouane was selected as a participating province. The need for this initiative was significant in Khammouane. Although it was among the most affluent provinces, 2 out of 9 districts at appraisal were categorized as very poor and another 3 as poor. The probability of success was also relatively high given its status as a revenue surplus province. 4. In addition, the Nam Theun 2 (NT2) hydropower project, one of the largest hydropower project in Southeast Asia, created high expectations that GoL will ensure that benefits are translated into improved services and broad-base economic opportunities across the province. Additionally, GoL and the province were keen to utilize the discharge water from the NT2 hydropower station to develop irrigation facilities. 5. In this context and given the limited amount of resources committed, KDP did not intend to alleviate poverty or cover a full gap in infrastructure and service delivery at the district/provincial level. Rather, the focus of the project was to facilitate the decentralization process by strengthening the procedures for infrastructure and service delivery with improved local transparency and accountability through learning by doing, eventually resulting in adoption of these tested procedures for KDP, and by supporting through technical studies and piloting the development of a strategic vision and rational planning for technically, economically, and socially sustainable development of irrigation along the NT2 Downstream Channel and in areas situated along the Lower Xe Bang Fai (XBF) river. 6. The project was complementary to NT2-related activities. With its strong emphasis on capacity building and complementary investments, the project aimed to ensure that NT2 upstream and downstream compensatory activities were followed up by measures that enhance institutional sustainability and establish a provincial-level public sector framework that was able to deliver goods and services in the long term. It had also provided opportunity to profit from the downstream irrigation potential generated by the NT2 facility. 7. The project was fully aligned with the Khammouane Development Strategy , which was developed to respond to the province s development challenges. This Strategy was closely aligned with the National Social and Economic Development Plan (NSEDP) and had four main goals: (i) improving governance; (ii) promoting economic development; (iii) promoting social development; and (iv) enhancing rural livelihoods 4. Among the central drivers of the Strategy were the improvement of planning and financial management of public investments, the decentralization of the delivery of public services and development of irrigated agriculture. 4 The Khammouane Development Strategy was prepared with the support of the United Nations Development Program and the World Bank through a process of extensive consultations, in particular with villages identified as poorest by the National Growth and Poverty Eradication Strategy criteria. Discussion groups included ethnic minorities and women and covered a range of sectors such as agriculture, infrastructure, education, health, and private sector development, as well as gender and governance as cross-cutting themes. 2

16 8. The project was also aligned with the World Bank s Country Assistance Strategy The Additional Financing (AF) scaled up the activities of the original project with an increased focus on livelihood support for the poorest villages. Both the original financing and AF were also fully consistent with the World Bank s Country Partnership Strategy : Inclusive Growth, adopted in March 2012, which had among its strategic objectives the promotion of inclusive development and strengthening of capacities of the public sector. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 9. The PDO was to strengthen the planning process and public financial management associated with the decentralized delivery of public services and infrastructure, including irrigation development, in Khammouane Province. 10. The PAD included the following PDO indicators: (i) more equitable access to infrastructure and production and social services during the project implementation period; (ii) improvement of provincial budget procedures according to the new Budget Law; and (iii) development of a sustainable approach to utilization of NT2 downstream water and irrigation rehabilitation along XBF based on studies and results of pilots (Table 1). 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 11. There was no change in PDO during the project implementation, although additional activities were introduced under AF to achieve it 6. These activities were included in new Component 3 Support for Rural Livelihood and Agriculture Development aimed to: (i) improve the livelihood of the poorer households; (ii) pilot a program for promoting agricultural/rural entrepreneurs; and (iii) further strengthen the capacity of the Provincial and District Agriculture and Forestry Offices (PAFO and DAFO). 12. Three PDO indicators were added by AF to better capture the outcomes from improved irrigation and agricultural livelihood grants, and to include the mandatory corporate indicator on direct project beneficiaries (Table 1). The 2013 project restructuring revised 3 outcome indicators to better reflect the realities and increase precision, and retrofit the core sector indicators in the Results Framework. The indicator of access to services was replaced by investments in service provision indicators, while indicators for irrigation and livelihood grants were retrofitted with core sector indicators. 13. The project restructurings also made revisions to the end target values of outcome indicators and changes to the intermediate outcome indicators. Annex 2 presents these revisions and changes. 5 Country Assistance Strategy Progress Report (FY ); Report No LA, May 4, The three project restructurings were all a Level 2 Restructurings. 3

17 Table 1: Changes to PDO indicators during the project implementation PAD More equitable access to infrastructure and production and social services during the project implementation period measured by: (a) access to portable water; (b) access to secondary schools; and (c) access to health centers. Adoption of the new budget procedures similar to DDF and Provincial Development Fund (PDF) Agreement between the Government, NTPC, and donors on sustainable approach for utilization of NT2 downstream water and irrigation rehabilitation along XBF river 1.4 Main Beneficiaries Additional Financing February 29, 2012 More equitable access to infrastructure and production and social services during the project implementation period measured by: (a) access to portable water; (b) access to secondary schools; and (c) access to health centers. Adoption of the new budget procedures similar to DDF and PDF Agreement between the Government, NTPC, and donors on sustainable approach for utilization of NT2 downstream water and irrigation rehabilitation along XBF river (New) Area demonstrating increased agriculture production by more than 10 percent due to improved irrigation (New) Number of the identified poor villages demonstrating increased income by more than 10 percent due to livelihood support activities (New) Number of beneficiaries (of which female) Restructuring October 15, 2013 (New) (i) Improved community water points constructed or rehabilitated under the project (ii) Primary/secondary schools constructed or rehabilitated under the project (iii) Health facilities constructed, rehabilitated, or equipped (iv) Roads rehabilitated Adoption of the new budget procedures similar to DDF and PDF Agreement between the Government, NTPC, and donors on sustainable approach for utilization of NT2 downstream water and irrigation rehabilitation along XBF river (Revised) Area provided with irrigation and drainage services (Revised) Clients who have adopted an improved agricultural technology promoted by the project Number of beneficiaries (of which female) Restructuring April 27, 2015 (i) Improved community water points constructed or rehabilitated under the project (ii) Primary/secondary schools constructed or rehabilitated under the project (iii) Health constructed, rehabilitated, equipped facilities or (iv) Roads rehabilitated Adoption of the new budget procedures similar to DDF and PDF Agreement between the Government, NTPC, and donors on sustainable approach to utilization of NT2 downstream water and irrigation rehabilitation along XBF river Area provided with irrigation and drainage services Clients who have adopted an improved agricultural technology promoted by the project Number of beneficiaries (of which female) 14. At appraisal, the project aimed to provide gains to about 50,000 beneficiaries in the province s poorest districts. The main benefits would come from the provision of 4

18 transport and social infrastructure (through 560 Basic Block Grants (BBG)), irrigation (investments in 470 ha of Tha Thot village, 710 ha in Tha Thot area, and about 2,700 ha of pump schemes), and ALG (800 households receiving grants). Beneficiaries also included the provincial and district staff participated in capacity building activities, i.e. the Department of Planning Investment (DPI) and Department of Finance (DOP) of Khammouane Province benefitted from training of provincial and district level staff on participatory planning, implementation, and monitoring of delivery of public investments and services to local communities, and PAFO and DAFO staff benefitted from comprehensive training of their staff on participatory planning of agricultural investments, support services, and technical topics. 15. During implementation, through AF, the cumulative target for BBGs increased to 1,250, the number of ALG recipients to 1,600, and the area under irrigation to 4,000 ha. The anticipated end-target for direct project beneficiaries was set at 66, At completion, the actual number of direct project beneficiaries was much larger than planned under AF (232,927), with women accounting for 51 percent. They included 205,366 people benefitted from DDF and PDF; 19,072 farmers benefited from improved irrigation; 8,000 and 317 people benefited from ALG and AEG, respectively; and 198 provincial and district officials and 166 PAFO and DAFO benefitted from capacity building activities. 1.5 Original Components 17. The original project had two components: (i) Local Development and Provincial Capacity Building; and (ii) Support for Irrigation Development along NT2 Downstream Channel and Lower XBF River (Table 2). Support to project management was embedded in each of the two components. 18. Component 1: Local Development and Provincial Capacity Building (total cost $6.87 million, including $5.50 million of the IDA grant). The component provided support to: (i) pilot and adopt more transparent and participatory procedures for public investments in particular for improving rural livelihoods and (ii) strengthen key provincial departments to implement and sustain this approach. Component 1 had three sub-components: 19. Sub-component 1-1: District Development Fund (total cost $3.13 million). It piloted the establishment and funding of DDF in all of the province s 9 (later 10) districts. DDF financed infrastructure and service delivery for rural communities. The DDF consisted of: (i) BBGs to finance public infrastructure and services at the kumban and village levels; (ii) ALGs to support productive investments for village production groups; and (iii) contingency funds for the clearance of unexploded ordinance (UXO) linked to DDF. The sub component also strengthened the districts capacity for stakeholder consultation and developing and executing multi-sectoral investment plans. 20. Sub-component 1-2: Provincial Capacity Development (total cost $3.10 million). It supported the capacity building of the provincial government to implement, through a Provincial Development Fund (PDF), provincial-level public investments complementing those implemented through DDF. It also supported a comprehensive training program for planning and budgeting, implementation, financial management (FM), and monitoring of the provincial DPI, DOF, and PAFO. 21. Sub-component 1-3: Component Management (total cost $0.64 million). The sub-component supported a small Project Coordination Section (PCS) within the Provincial DPI, with key personnel and office space provided by DPI and the project 5

19 providing vehicles and equipment, technical assistance, administrative and fiduciary support (procurement and FM) and incremental operating costs. 22. Component 2: Support for Irrigation Development along NT2 Downstream Channel and Lower XBF River (total cost $4.17 million, including $3.50 million of the IDA grant). The component aimed to support the development of irrigation in Gnomalat District and the Lower XBF River by using water discharged from the NT2 hydropower station. The component included 5 sub-components: 23. Sub-component 2-1: Rehabilitation of the Existing Irrigation Facility in Tha Thot Village (total cost $0.95 million). The sub-component supported the rehabilitation of existing irrigation facilities in Tha Thot Village and capacity building for Water User Association (WUA) and Water User Groups (WUGs) to improve the scheme s operations and maintenance (O&M). 24. Sub-component 2-2: Support for Pilot Downstream Irrigation Development in Tha Thot Area (total cost $0.99 million). This sub-component supported the detailed design of four new irrigation schemes (710 ha in total) in Tha Thot area and the construction of one of the four schemes. 25. Sub-component 2-3: Strategic Plan for Irrigation Development along Downstream Channel (total cost $0.50 million). The sub-component supported the preparation of a strategic plan for sustainable development of irrigation with water flowing through the NT2 downstream channel on the basis of a scoping study carried out by NTPC for the development of five irrigation schemes covering a total of about 21,000 ha. The sub-component was to support: (i) pre-feasibility studies to identify priority areas for irrigation; (ii) detailed feasibility studies for high priority areas; (iii) the development of recommendations for the institutional arrangements for O&M activities; and (iv) a scoping study for potential additional sites. 26. Sub-component 2-4: Rehabilitation and Institutional Strengthening of Small Pump Irrigation Facilities along Lower XBF River (total cost $0.59 million). The subcomponent was to rehabilitate about 33 small pump-based irrigation facilities in the Lower XBF River (ranging from 20 ha to 100 ha), restructure existing Water User Associations (WUAs), and improve their O&M capacities. 27. Subcomponent 2.5: Component Management (total cost $1.14 million). The sub-component supported the Department of Irrigation (DOI) and the PAFO/DAFO of the Ministry of Agriculture and Forestry (MAF) to plan and implement the development of irrigation in the Province. Support included vehicles, equipment, technical assistance and incremental operating costs. 1.6 Revised Components 28. A new component Support for Rural Livelihoods and Agricultural Development was added under AF (Table 2). It included a scaled-up ALG scheme (extended to an additional 33 poorest villages), a new pilot AEG scheme, and an increased support for institutional strengthening of PAFO/DAFO by expanding the support to XBF Agriculture Extension Center and strengthening the capacity of PAFO/DAFO to implement extension activities for farmers in connection with ALG and AEG schemes. 6

20 Table 2: Original and revised project components, $ million Components 1. Local development and Provincial Capacity Building 2. Support for Irrigation Development along NT2 Downstream Channel and Lower XBF River 3. Support for Rural Livelihoods and Agricultural Development (New) Original Financing Total IDA GoL/ NTPC* Additional Financing Revised Costs PHRD Total IDA GoL Total TOTAL * Nam Theun 2 Hydropower Company (NTPC) provided $0.12 million and the GoL contributed $0.93 million. The GoL contribution was both in cash and in kind. The overall GoL contribution to the project was $1.62 million, including $0.66 million in-kind. 1.7 Other significant changes 29. In addition to the revised components, AF introduced the following other significant changes: Total project financing increased from $11.04 million to $20.33 million (Table 2). It extended the project by two years, from March 31, 2014 to March 31, It recapitalized DDF under Component 1 to: (i) scale up successful activities carried out under the original project; (ii) increase annual allocations to the poorer districts to address rural poverty more proactively; and (iii) create a specific fast track window to finance reconstruction of infrastructure damaged by the Typhoon Nokten that struck in August Using the experience from the implementation of ALG under original project, the responsibility for implementing Component 3 s activities was transferred from DPI to PAFO, who had more relevant experience, expertise and responsibility, and were more committed and closer to the livelihood grant beneficiaries than DPI. 30. Other significant changes were introduced by other two Project Restructurings approved in October 2013 and April 2015: The 2013 project restructuring modified the Results Framework to clarify some PDO and Intermediate Outcome indicators, align them with the World Bank s relevant core sector indicators, and introduce a new indicator specific to AEG. The indicators target values were not formally revised. The restructuring also reallocated the grant proceeds among various disbursement categories to 7

21 account for depreciation of SDR against USD and ensure adequate financing of the project priority activities. 7 The 2015 project restructuring followed the 2014 Mid-Term Review (MTR) and made the following changes: (i) it revised some of the indicators target values in the Results Framework to increase their precision; (ii) it dropped the Subcomponent 2.2, with the cost estimate of $0.9 million, which was expected to design four irrigation facilities in the Tha Thot area and construct one irrigation facility of about 130 ha utilizing the discharge water from NT2 downstream channel (off outlet 2). These irrigation activities were not undertaken as it became clear during the project implementation that the connecting pipe between the outlet 2 on the regulating dam and siphon under NT2 downstream channel could not be built due to the risk of damage to the regulating dam of NT2 hydropower project and potentially high operating losses; (iii) linked to the above point, the project dropped the first part of the following PDO level target Agreement between the Government, NTPC and donors on sustainable approach for utilization of NT2 downstream water and irrigation rehabilitation along XBF river due to the drop of Subcomponent 2.2; and (iv) it reallocated grant proceeds to address changes in the use of funds to ensure adequate financing of priority activities that contribute to the achievement of PDO due to the further depreciation of SDR against USD. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design, and Quality at Entry 31. The KDP was designed to support the Khammouane Province s Development Strategy for The design of Component 1 was well grounded on the considerable experience gained in decentralized public investment delivery through the IDA-financed PRF and GPAR Saravan Project, which had piloted the DDF approach. Both PRF and the GPAR demonstrated that community-driven approaches could efficiently deliver locally prioritized public goods and services to poor communities. It had not prescribed but facilitated the decentralization process by strengthening the procedures for infrastructure and service delivery with improved local transparency and accountability through learning by doing, eventually resulting in adoption of these tested procedures for KDP and providing lessons to the nation-wide decentralization process. 32. The design of Component 2 took into consideration the findings and recommendations of the Irrigation Diagnostic Study (August 2007), which showed the importance of ensuring effective management of WUAs and linking irrigation development with extension services and marketing support. The design of Component 2 had built in the mitigation measures to reduce the risk of unsustainable development of irrigation along the NT2 Downstream Channel. The feasibility studies and the withdrawal condition were put in place for implementation of Subcomponent 2.2 that 7 The deprecation of the USD/SDR exchange rate had the large impact on the actual value of the project funds during implementation. At appraisal in May 2008, the exchange rate was At the time of the second project restructuring in October 2013, exchange rate was , and at closing it was See Table (a) in Annex 1 for the impact of the exchange rate depreciation on the actual project costs. 8

22 required a prior agreement between all the parties involved (GoL, NTPC, and the World Bank) to make sure that irrigation development was technically, socially, and economically feasible. The design of ALG scheme, later moved from Component 1 to Component 3, incorporated lessons from the IDA-financed Agricultural Development Project, which successfully experimented farmer-driven, marketed-oriented approaches for supporting the agricultural development of poor communities. 33. The design of the project also acknowledged that fiduciary risks were generally high in Lao PDR, and that using existing government structures at provincial and district levels, with prevalent skill shortages in public FM, instead of establishing project-specific units such as under PRF, was a calculated risk that required mitigation measures. The project design placed a particular emphasis on building robust and transparent FM systems and procedures and strengthening from the start the FM capacities of provincial and district (DPI and DOF) staff. In addition, DDF and PDF mechanisms introduced the clear downward accountability and reporting requirements, which reduced the fiduciary risk associated with the project s decentralized approach for investment financing. Because of the acknowledged fiduciary risk, the overall risk rating for the project was properly estimated as a substantial, with significant other identified risks concerning a possible lack of sufficient coordination between provincial and national administrations in project execution, and delays in implementation due to weak initial implementation capacities of provincial and district staff. 34. The weak part of the design at appraisal was the Results Framework. It included a very long, cascading and at times unclear set of indicators, which were changed several times during project implementation. The line between Outcome and Intermediate Outcome Indicators was often blurred. Some of the modifications introduced under AF and other two project restructurings justified by a need to clarify and make more operational project indicators have been motivated at least in part by gaps in the project s M&E system or the need to revise targets more in line with implementation progress. 2.2 Implementation 35. Project implementation stretched over a seven and half year period, from effectiveness in September 2008 to closing in March This long implementation period included one AF in 2012 and two other restructurings in 2013 and There were a total of 15 implementation support missions, and the MTR took place in March The implementation was initially delayed due to the considerable up-front investment required for institutional set up (designing and establishing the DDF/PDF and basic training) made necessary because of the capacity constraints at the local level. The initial delay was also caused by the withdrawal of the UNCDF, in December 2009, from the participation in Component 1, who agreed to provide technical assistance during appraisal. The project could not agree on the costs and technical expertise required from the UNCDF and decided to hire other service providers/consultants. The implementation was also negatively affected by the high turnover of staff and difficulties in mobilizing qualified consultants to work in the Province. Overcoming these difficulties required a very intensive involvement and support from the World Bank. 37. After these initial delays, during 2010 the project implementation got on track. At the time of AF appraisal in October 2011, the total commitments stood at $5.8 million or 65 percent of the original grant. The project was in compliance with all legal 9

23 covenants and the ratings for progress toward achieving PDO and for implementation progress were Moderately Satisfactory. The detailed preparation of AF was instrumental in affecting several useful changes 8. An increased poverty focus was introduced in the design of DDF by increasing the weight given to the poverty factor in the annual allocations of DDF 9, and an increased attention was also given to maintenance of DDF-financed infrastructure. The creation of a new Component 3 focusing on all activities concerning agricultural development managed directly by PAFO/DAFO instead of DPI clarified implementation responsibilities and made support to agricultural development more effective as DAFO/PAFO were more committed, had the required technical skills and already established the dedicated management unit under arrangements similar to those used under Component 2 (directly managed by DOI). 38. Progress towards achieving PDO and implementation progress were consistently rated Moderately Satisfactory until MTR, which downgraded both ratings to Moderately Unsatisfactory to address the implementation difficulties under all three components. The technical audit of DDF investments under Component 1 highlighted significant issues with screening, quality control and supervision of works, as well as with contract management compounded by weak capacities of many local contractors due to limited district technical capacities, weak coordination between district and provincial staff of the concerned sectoral line agencies, and a lack of sufficient supervision by project management. Although progress under Component 2 was in general satisfactory, there was the uncertainty in regard to implementation of activities under Subcomponents 2.2 and 2.3, amounting to $1.4 million, caused by the long determination of technical feasibility of constructing the connecting pipe between the outlet 2 on regulating NT2 dam and the siphon under the NT2 Downstream Channel. It was later determined that such a pipe could not be constructed without the risk of damage to the regulating dam of NT2 hydropower project. Under Component 3, there was concerns and feedback that the revolving fund approach adopted to provide funding to poor households through the Village Agricultural Livelihood Block Grants may act as a deterrent for access by poorest and risk-averse villagers. The safeguards rating was also downgraded to Moderately Unsatisfactory because of the concerns mentioned above with regard to DDF infrastructure. 39. The MTR recommended a set of actions to address the above issues, including: (i) the recruitment of a new project Chief Technical Advisor to strengthen project management and M&E; (ii) the establishment of a task force led by the National Project Director and including technical staff from provincial line agencies to supervise and support district staff for DDF implementation, and the recruitment of an international engineer to be responsible for quality control/management; and (iii) the adoption of an grant-based approach instead of revolving loan-based approach under ALG to benefit more of the poor households. It also recommended to drop the activities related to utilization of NT2 downstream water and the irrigation development of Tha Thot area 8 In addition to GoL s requests for scaling up the operations of the DDF, providing support for reconstruction of rural infrastructure damaged by the Typhoon NokTen, financing the rehabilitation of additional small irrigation schemes and increasing the support to agricultural development. 9 Allocations to individual districts were based on their population and their poverty level. The original respective weights of two-thirds/one-third were changed to 50/50 under the AF. 10

24 due to the technical infeasibility of investments 10. These measures were efficiently implemented and project performance improved rapidly. All ratings were upgraded to Moderately Satisfactory or Satisfactory after the March 2015 implementation support mission. 2.3 Monitoring and Evaluation Design, Implementation and Utilization 40. M&E design. The PAD envisaged a very comprehensive M&E system to ensure a close tracking of activities undertaken, inputs provided and outputs achieved, and assessments of implementation processes and outcomes. For Component 1, indicators focused on accessibility to basic public services and effectiveness of the new decentralized system for investment and service delivery. For Component 2, indicators focused on the extension of irrigation areas (rehabilitated and new), the improvement of O&M (through more efficient WUAs), and economic returns on irrigation development. For Component 3, indicators focused on the number and profile of beneficiaries and economic returns on their investments. Yet, many indicators had to be changed and revised during the project implementation to improve their operational clarity, pointing to the gaps in the M&E design and to meet the corporate requirements on sector indicators. The list of Outcome and Intermediate Outcome indicators was long, and the line between them was often blurred 11. Some Outcome indicators were not clearly defined. 41. M&E implementation. Implementation varied by Components, and overall the quality of reporting improved during the project implementation. Collection of information for the indicators related to Component 1 was initially difficult but improved when the relevant indicators became clearer defined under AF and the 2013 restructuring. Monitoring of activities under Component 1 went beyond collecting the input and output data and included the monitoring and accountability for BBG activities (with the support of the local representatives of the Lao National Front and Lao Women s Union), the quality and timeliness of plans under DDF and PDF and budget executive reports, and the results of the capacity building activities. Collection and monitoring of data for Component 2 was comprehensive: the project could monitor the detailed input and outputs, changes in crop yields and cropping intensity, economic rates of return of investments, and collect information on WUAs. The difficulty was, however, in measuring the accuracy of Agreement between Government, NTPC, and donors on sustainable approach to utilization of NT2 downstream water and irrigation rehabilitation along XBF River as such an agreement was not clearly defined. The M&E implementation for Component 3 was less advanced. A baseline survey of ALG target villages was conducted, a comprehensive reporting questionnaire on ALG and AEG beneficiaries and their investments was prepared and a beneficiary database was established. However, data collected was patchy, concentrated essentially on investment proposals and included little useful information about beneficiaries or the impact of ALGs and AEGs on their activities and income, partially due to the late start of these activities. 10 The formal drop of these activities was made under the 2015 project restructuring. See the detailed description of the technical infeasibility in Section The set of indicators at completion included 1 general Outcome indicator; 6 specific Outcome and 8 Intermediate Outcome indicators for component 1; 4 Outcome and 2 Intermediate Outcome indicators for Component 2; and 2 Outcome and 4 Intermediate Outcome indicators for Component 3. 11

25 42. M&E utilization: The M&E system was fairly well utilized to inform decision making and resource allocation. Indicators on outcomes of investments and services delivered had informed the changes in capacity building activities for provincial and district staff to correct the identified weaknesses. The collected information was also used to inform the need for international and local consultants to provide timely assistance, and to reallocate funds among different activities though the project restructurings based on the assessment of implementation progress and needs. 2.4 Safeguard and Fiduciary Compliance 43. Safeguard Compliance. The project had an environmental category B and triggered 5 safeguards policies: Environmental Assessment, Pest Management, Indigenous Peoples, Involuntary Resettlement, and International Waterways. Project preparation and implementation gave a high priority to identification and management of its potential environmental and social impacts. Socio-economic surveys, interviews, and social analyses were carried out to identify likely beneficial and adverse impacts of the project on local communities. They concluded that DDF and PDF investments would result in significant social benefits. The rehabilitation and extension of irrigation schemes and the ALG scheme would also provide significant income opportunities for poor households. 44. To mitigate possible negative impacts of project activities, an Environment and Social Safeguard Framework (ESSF) was developed to provide the overall procedures and technical guidelines during the planning and implementation of project activities. Activities requiring full Environmental Impact Assessment were not eligible for funding under the project. An Indigenous Peoples Development Framework was prepared to ensure adequate consultation with and participation of minority ethnic groups during the planning and implementation of project activities. Although it was projected that DDF investments, given their small size, would not involve resettlement and/or land acquisition, the Compensation and Resettlement Policy Framework and the ESSF were developed to be applied to sub-projects that may involve resettlement or land acquisition. An Initial Environment Assessment was carried out for rehabilitation of the Tha Thot irrigation perimeter, which concluded that the proposed activities will not create adverse impacts on local environment and local people. The potential increase of chemicals and pesticide use was estimated negligible and the project excluded the procurement of any pesticides. Mitigation and preventive measures included chemical prohibition list, extension agents and farmers training on integrated pest management. Finally, both PSC managed by DPI, responsible for the overall coordination of the project and the implementation of Component 1, and DIMU established within PAFO, responsible for the implementation of Component 2, appointed Safeguards Coordinators, responsible for all safeguards issues and a series of safeguard training was undertaken for the project staff. 45. The World Bank accorded a high attention to monitoring safeguard compliance. In accordance with OP 7.50 on International Waterways, the letter of notification on development of irrigation along XBF River (one of Mekong s tributaries) was sent out to the neighboring riparians Thailand, Cambodia, and Vietnam. There was no involuntary resettlement and no issue with ethnic minorities associated with the project 46. By completion, the rating of Overall Safeguards was Satisfactory. The implementing agencies had gradually strengthened their capacity and were able by completion to comply with safeguards rules and procedures. Achieving this rating required the significant attention from the World Bank. In 2014, the World Bank had 12

26 to downgrade the Overall Safeguards rating to Moderately Satisfactory and then even to Moderately Unsatisfactory after it was found that the planned safeguard screening of DDF investments was not properly conducted/documented by district staff and that some investments may pose environmental and social risks. A detailed safeguard review of DDF subprojects was immediately carried out and an environmental code of practice developed and applied by all DDF contractors. Further training on safeguard issues, including on integrated pest management, was provided to the project staff. Compliance improved steadily. The Overall Rating was upgraded to Moderately Satisfactory in September 2014, along with the rating for environmental performance. All ratings were upgraded to Satisfactory in February 2016 on the basis of a final safeguard review that found all safeguard categories in compliance. 47. Fiduciary compliance. The PAD acknowledged that, as documented in the 2007 Public Expenditure Review, the fiduciary risk was high in Lao PDR, with inherent weaknesses in internal control systems and with an acute shortage of FM or procurement skills. This was particularly the case for KDP, which was designed to be implemented by provincial and district governments. These fiduciary weaknesses were confirmed by the World Bank assessments carried out during project preparation. As a result, the project was seen as high risk in fiduciary terms and a comprehensive action plan was designed to design adequate basic implementation and accountability systems and procedures and train concerned staff at all levels. Dedicated units were established in PCS, with the recruitment of senior project FM and procurement specialists, and in DIMU. Detailed financial and procurement procedures and manuals were prepared including clear accountability mechanisms at each implementation level and intensive training programs delivered with the participation of MOF s central services. A pilot Internal Audit Department was established at provincial level within DOF to carry out provincial and district internal controls. 48. By completion, the fiduciary capacity of the implementing agencies had been developed to Moderately Satisfactory, but there were weaknesses at the beginning of implementation. There were significant delays in recruiting FM and procurement specialists, due to difficulties in finding suitable candidates, and in setting up the computerized accounting system. For the first two years, accounts were maintained manually. The first audit report was submitted late in August Implementation was also affected by the high turn-over of FM staff. The ratings of both FM and procurement were Moderately Unsatisfactory until early The PCS and DIMU were finally fully staffed with fiduciary staff in February 2011, and fiduciary aspects improved markedly. The relevant ratings were upgraded to Moderately Satisfactory in mid-2011 and remained so until the end of the project. 2.5 Post-completion Operation/Next Phase 49. There is no direct follow-up to KDP, although its achievements and lessons are anticipated to inform the adoption of new institutional approaches for public investment planning and secure funding for future investment operations. The decentralized approach to community infrastructure and service delivery tested by KDP constitutes the most advanced and comprehensive approach to decentralization of fiscal transfer in Lao PDR. KDP has collaborated closely with MOHA and MPI, which are in charge of implementing the country-wide decentralization pilots, and the results and lessons learned from the capacity building program and the implementation of block grants in Khammouane will inform the on-going national dialogue on decentralization. 13

27 50. The guidelines developed for the implementation of DDF under KDP have already been adopted by the Phase III of the JICA-financed project for enhancing the capacity for public investment planning and by the Project Effective Governance for Small-Scale Rural Infrastructure and Disaster Preparedness in a Changing Climate implemented by the Ministry of Natural Resources and Environment in collaboration with GPAR under MOHA and supported by GEF LDCF2 project. In addition, Nakai district of Khammouane Province has partially adopted DDF approach to planning and managing its Social and Environmental Remedy Fund. This is the grant ($300,000) annually allocated by NTPC for O&M of all infrastructure provided by NTPC and address any environmental and social issues/accumulative impacts that may be emerging in the resettled villages in Nakai for the entire period of the project concession agreement ( ). Finally, Luxemburg Development-financed provincial livelihood project adopted a list of DDF priorities to their local development planning for Boualaphan and Nakai districts of Khammouane. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 51. KDP s objectives are as highly relevant in 2016 as they were in They are still fully in line with the Khammouane Development Strategy , the Seventh NSEDP, and the World Bank s Country Partnership Strategy FY , all of which support fast, sustainable and equitable growth, with a focus on: (i) improved access of communities in the poorer districts to basic public services and community participation in rural area, and (ii) sustainable development of agricultural sector based on a fast transition from subsistence to a commercial, smallholder-based agriculture, in particular in the Mekong river lowlands through the irrigation development KDP s design and implementation arrangements were and still are in line with GoL decentralization Sam Sang Program launched in This Program is designed to make of district authorities the operational and budget planning units assisting local communities in the provision of infrastructure and services. The KDP is well positioned to provide practical lessons for the enhanced implementation of this Program. 53. The project design was also realistic in restricting the outcomes to strengthening decentralization-related planning and PFM processes associated with the decentralized delivery of public investments and services rather than promising to complete the decentralization process by completion, which would have required a much longer time period and a different set of policy dialogue and investments. In addition, the overall integrity of the Results Framework and the overall causality between outputs and intermediate results produced by components and outcomes is well demonstrated. The components related to DDF/PDF and irrigation were strongly aligned with the PDO, and the AF further deepened this link by allocating additional funding to Components 1 and 2. Even the livelihoods improvement, which were unambitiously mentioned in the project description but seemed not to be mentioned in the PDO, were actually embedded in the outcome related to participatory approach and the procedure for public service/delivery for livelihood development. 12 Five-Year National Socio-Economic Development Plan, MPI, October 7, 2011; Country Partnership Strategy , January 25, 2012; and Country Partnership Progress Report, World Bank, Strategy for Agricultural Development , MAF, September

28 3.2 Achievement of Project Development Objectives 54. The PDO was achieved, which is supported by the evidence from strengthening the planning process and PFM associated with the decentralized delivery of: (i) public services and infrastructure; (ii) irrigation development; and (iii) livelihoods improvement. 55. Strengthening the planning process and PFM for decentralized delivery of DDF and PDF. The central institutional objective of the KDP was to pilot a new decentralized approach to the delivery of critical public infrastructure and services in key sectors of Khammouane Province, and this objective was achieved. This new approach, adopted by KDP in the course of the project implementation, included the aspects such as: (i) the adoption of a participatory planning process at village/kumban/district levels that reflected the community aspirations; (ii) the preparation of annual public investment plans and budget reflecting populations priorities and aligned with NSEDP; (iii) pursuing poverty reduction objective through integrated approaches to rural development through investments in social infrastructure and agricultural livelihoods; and (iv) funding of these priority investments/activities through a decentralized mechanism established at district level, with district staff of line ministries being responsible for their implementation with technical guidance and back-up from the provincial and national level staff. The KDP had also strengthened the PFM accountability through: (i) the alignment of the Provincial budget with the planning processes; (ii) the inclusion of recurrent costs for PDF and DDF investments into the Provincial budget; and (iii) better monitoring and reporting. 56. To achieve these objectives, the project trained 198 provincial and district staff, adopted participatory planning approach and financial management and built the capacity of the local governments to implement and supervise the subprojects. It experimented with and involved various district implementation teams and consultants to resolve the encountered issues and improve the quality of services and infrastructure provided. By the end of the project, the level of satisfaction by beneficiaries of DDF projects was very high (97 percent). 57. Over the period of the project, a total of 185 investments/activities were financed by DDF in 300 villages, which were previously relatively underserved in terms of public investments, and a total of 10 districts-wide investments were financed by PDF (see Tables 2.2 and 2.5, Annex 2). The DDF-benefited villages accounted for 52 percent of the Province s 581 villages, and the benefits were provided to 41,000 households (205,000 people) in the Province, which was 60 percent of its total population. The project exceeded the outcome targets for construction or renovation of schools, health facilities, and roads. Investments were evenly distributed between sectors: (i) education and water supply (46 each); (ii) rural roads, including bridges (45); and (iii) health (36). There were also 12 investments in agriculture, mostly in expansion of the areas under small irrigation, which benefitted 3,068 households (16,000 people) in 21 villages. The actual delivery of so many subprojects at satisfactory quality was a major achievement in the context of Lao PDR. 58. Strengthening the planning process and PFM for decentralized delivery of irrigation development. The irrigation development promoted under KDP included the international best practice approach of combining technically, economically, socially sustainable investments in irrigation and drainage infrastructure with the development of institutions for participatory management to sustainably manage water for 15

29 agriculture. This also had been a significant achievement in the context of Lao PDR, where the past projects usually focused only on investments in irrigation infrastructure. 59. The KDP completed the Tha Thot gravity irrigation system and 37 pump-based irrigation systems along XBF River as planned, exceeding the outcome target for the area provided under irrigation and drainage by 14 percent. Before the start of civil works, DAFO and PAFO were trained by DOI to plan and implement irrigation schemes and provide assistance to WUAs and agricultural advice to farmers, and to WUAs to improve their management of the new/rehabilitated irrigation schemes. Under the technical back up from DOI, they supported the process of creating and strengthening 38 WUAs, a number higher that the target for the relevant Intermediate Outcome indicator (34 WUAs). They trained 5,543 WUA farmers in water management and 1,700 farmers in good farming practices for paddy and other crops (see Tables 2.10 and 2.11, Annex 2). Each re-organized WUA recruited a (part-time) technician to manage the pumping station and opened a village bank account to collect irrigation fees and finance the necessary operational expenses and repairs (with records open for review). The irrigation fees were gradually increasing, and by completion, the irrigation fees were estimated to cover 80 percent of the O&M costs. It is reasonable to expect that most schemes will be able to cover their full cost O&M within two or three years after KDP closing, which would sustain economic benefits of farmers from the improved irrigation (see Annex 3). 60. The project could not however support the utilization of the NT2 downstream water as was originally planned. As explained in Sections 1.7 and 2.2, this was caused by technical problems, which were not possible to identify at appraisal and were beyond the project control to resolve during the implementation. Yet, the project could have been more proactive in dropping these activities earlier than it actually took place. 61. Strengthening the planning process and PFM for decentralized delivery of livelihoods development. The project built the provincial and district capacity to adopt participatory approach to improving livelihoods of the rural population by showing alternatives to the village revolving funds practiced in Lao PDR. The ALG scheme had not only directly benefited 1,624 rural households, but it also demonstrated the factors of achieving success in livelihoods improvement programs. The poor are reluctant to participate in the revolving fund schemes actively promoted by the GoL due to the risks and uncertainty associated with investment returns. Directly targeting the poor with the grants such as ALG and using the community selection and monitoring mechanisms with the support from the local government offer a higher likelihood of the success of pro-poor targeting and financial benefits. The KDP has also demonstrated that the grants need to be complemented by capacity building activities of both beneficiaries and PAFO/DAFO involved in the delivery of agricultural services such as extension advice and veterinary support to sustain financial benefits of the livelihood grants. PAFO and DAFO also need the institutions such as the XBF Agricultural Extension Center to provide relevant services and goods to farmers and continue improving their capacity to deliver better services in the future. 62. The project experimented with AEG to expand the frontier of livelihoods support in Lao PDR by helping develop emerging commercial farmers and entrepreneurs in addition to supporting poor farmers. It established the rigorous procedures for selecting beneficiaries and providing them support beyond the matching grant so they realize their aspirations to become entrepreneurs. The KDP was the first project in Lao PDR to strengthen the capacity of the local government to design and 16

30 implement such schemes, and it well succeeded in offering the practical lessons for similar programs country-wide Efficiency 63. It can be expected that, as assumed at appraisal 15, DDF/PDF investments selected by beneficiary communities themselves are more relevant to their priority needs and that the decentralized, participatory process used under the project has generated significant benefits in terms of allocative efficiency compared to investments undertaken through more conventional top-down planning process. A beneficiary survey carried out by the KDP M&E team reported that the majority of beneficiaries were satisfied of DDF investments. The analysis undertaken for DDF investments in health centers, based on estimates of incremental days of labor, and rural roads, based on the impact of rehabilitation on transport costs and agricultural production, indicate high economic rates of returns (ERR) on these investments (19 percent and 22 percent, respectively). 64. At appraisal, a detailed economic analysis was carried out of proposed investments in irrigation rehabilitation. It showed ERRs of respectively 12.6 percent for rehabilitation of Tha Thot Scheme and 88.4 percent for rehabilitation of pump schemes along XBF River. The analysis carried out at completion confirms appraisal s findings about the economic/financial viability of the proposed investments, with even higher rates of return. The analysis highlighted the importance of a satisfactory O&M of the schemes by WUAs and the quality of technical support by PAFO/DAFO to increase productivity and promote diversification (see Annex 3 for details). 65. The observations at completion indicate that most ALG and AEG grants had a very positive impact on beneficiaries income, with no reported investment failure and most AEG grantees continuing to expand their business. A preliminary analysis was undertaken for animal raising activities funded under ALGs, accounting for over 55 percent of total ALG grants, which indicated a high ERR of 37 percent. An analysis of fish farming investment under AEG indicates ERRs of 48 percent. All AEG investments appear to be viable and most grantees had expressed their satisfaction. 3.4 Justification of Overall Outcome Rating Rating: Moderately Satisfactory 66. The project s objectives were highly relevant. The project met most of its key performance targets and had a clear and important economic, social, and institutional development impact. However, because of the shortcomings in the design of the Results Framework that led to frequent revisions of the project indicators during implementation, the delayed dropping of the activities related to NT2 downstream water development under Component 2, and the delayed launch of livelihood activities under Component 3, the Overall Outcome is rated Moderately Satisfactory. 14 However, more lessons could have been learned, would there be no delays in implementation of the grant activities. It took for the project longer than planned to launch livelihood grants and at the closure the project could evaluate only short-term gains. It would be important to go back later and assess a longer-term impact of AEG and ALG grants on beneficiaries to better inform future programs. 15 Although there were no data from Lao PDR on the issue of allocative efficiency, the PAD stated evidence from a similar project in Bangladesh suggesting that facilities selected by beneficiary communities achieved productive efficiency gains ranging from 23 to 37 percent. 17

31 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 67. The project had a strong poverty alleviation focus and impact. It provided direct support to 232,927 people (27 percent more than planned), with more than half of them being women, located in the Province s poorer communities. Altogether the project reached out to 60 percent of the Province s total population, previously largely underserved: Under Component 1, DDF investments improved the access to health and education centers, clean water, and markets for 205,366 rural people, including 104,048 women. Under Component 2, KDP investments rehabilitated and expanded 38 small irrigation schemes and provided trainings, benefitting a total of 19,072 people. When both wet and dry seasons are taken into account, the total command area increased by 58 percent. Irrigated areas in the dry season increased by 137 percent, offering substantial additional income opportunities to farmers. Under Component 3, 8,006 rural people were selected among the poorest households of the poorer villages in 5 poorest districts of the Province with priority given to women and ethnic groups to benefit from ALG scheme. (b) Institutional Change/Strengthening 68. A considerable amount of resources was devoted to capacity building activities under each of the components and under the companion PHRD Grant. A total of 1,113 provincial and district staff (of which 350 women) were trained and are now able to efficiently implement the new, decentralized and participatory approach to the delivery of public investments and services. It is estimated that about $4.0 million or about 21 percent of a total financing were used to finance capacity building activities. Although their full impact is difficult to evaluate, the project s capacity-building activities are likely to have had a significant economic and social benefits through an increase in allocative efficiency triggered by the implementation of a new, participatory approach for planning, funding, and implementation of public investment programs, and the increased rates of return of productive investments due to improved support by PAFA/DAFO to agricultural producers and WUAs. Project s capacity-building activities are also likely to have a wider positive impact on other public investments and support activities not financed under KDP. Feedback obtained from public servants that attended training indicates that they have incorporated learning provided by the project into their everyday tasks. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 69. A satisfaction survey carried out by the KDP evaluation team among the communities who benefitted from DDF investments showed that 97 percent of beneficiaries were satisfied. The field observations of the KDP evaluation team also indicated that the beneficiaries of rehabilitated irrigation perimeters both increased their production and diversified their crop mix toward higher value crops, and most ALGand AEG-financed activities had a positive impact on beneficiaries income, with no reported investment failure and most beneficiaries continuing to expand activities initiated with their grants. 70. The project conducted two stakeholder consultation workshops in February and March The first one was provincial consultation workshop, representatives 18

32 from participating districts and concerned line departments participated, discussion was focused on project achievements and lessons learned. The second workshop was conducted in Vientiane and focused on sharing lessons with the national stakeholders. The detailed summary of these workshops is presented in Annex Assessment of Risk to Development Outcome Rating: Substantial 71. At appraisal, the overall project risk rating was estimated as Substantial. Technical and fiduciary risks were clearly identified and adequate mitigation measures taken during implementation, so the project achieved its most development objectives. Yet, the risks to sustain these achievements are still Substantial. As mentioned in other parts of the ICR, the nation-wide process of decentralization is still on-going, and there is a risk that DDF approach and other planning and PFM processes promoted by KDP would not be maintained by Khammouane Province immediately after the closure of the KDP. If the decentralization slows down, most of the capacity built with project support, in terms of processes and staff skills, may gradually disappear. 72. The sustainability of the substantial increase in agricultural production and households income due to rehabilitation of village irrigation perimeters will largely depend on the continued good management of the perimeters by restructured WUAs. Although the latter were functioning well at the end of the project, and are gradually approaching the full recovery of O&M costs, they are still fragile in terms of both management skills and social cohesion and will need continued support from PAFO/DAFO in the medium-term. Also, there is yet no institutional mechanism for funding big repairs should a scheme suffer severe damage, for example from one of the frequent typhoons affecting the country. 73. The scale up of the ALG and AEG pilots by the Government of Khammouane Province appears to be restricted by the limited budget. There is a risk that unless additional resources are secured, the grant mechanism put in place by KDP may not be utilized in Khammouane. 5. Assessment of World Bank and Borrower Performance 5.1 World Bank Performance (a) World Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 74. The PDO was fully in line with the overall economic and social development program and decentralization strategy of the GoL, MAF s irrigation development strategy, and Khammouane Province s development strategy. The project design was based on a very thoughtful and detailed analysis of prevailing socio-economic conditions and local capacities. It incorporated lessons of other programs supporting the decentralized delivery of public investments. Detailed capacity assessments for FM and procurement at provincial and district levels were carried out and adequate upfront training and capacity building activities implemented. Extensive and detailed analysis of potential social and environmental impacts was also carried out during preparation. The required safeguards were triggered and a very comprehensive framework for social and environmental management of project activities prepared with adequate upfront training provided to the staff of concerned institutions. Finally, the AF preparation was based on a thorough analysis and evaluation of project s achievements and implementation constraints. 19

33 75. The quality at entry was however weakened by the poorly designed Results Framework. It was very complex and included a very long list of cascading Outcome and Intermediate Outcome indicators, many of which lacked relevance and sufficient clarity and had to be amended during project implementation. For these shortcomings, the World Bank Performance in Ensuring Quality at Entry is rated Moderately Satisfactory. (b) Quality of Supervision Rating: Moderately Satisfactory 76. The World Bank s implementation support was quite intensive. A total of 15 implementation support missions, amounting to 270 staff weeks of support, were carried out. The missions were well staffed and provided in-depth coverage of all institutional, technical, fiduciary, and safeguard issues. The World Bank had to assume a very strong coaching role for the relatively inexperienced staff of government departments assigned to manage the project s two implementation coordination units (PCS and DIMU). The World Bank missions went systematically to the field and quickly identified implementation issues. The Implementation Support and Results reporting was very detailed and frank, providing timely and clear guidance for necessary corrective actions. There was a systematic follow-up of recommended actions and persistence in assisting project coordination units addressing implementation problems. 77. The analytical work on institutional and technical issues carried out during implementation support missions was the basis for the design changes that were introduced under AF, in particular for strengthening the poverty targeting of the project. The World Bank accorded a high attention to safeguard compliance. The quick actions were taken when was needed, for example when the safeguard screening of DDF investments was not properly conducted or documented by District staff. The World Bank also spent a substantial amount of time providing FM and procurement guidance. Bottlenecks in FM and procurement management were efficiently resolved and there were no major fiduciary issues during implementation. 78. Aspects of sub-par performance of the World Bank were related to the failure to: (i) address the shortcomings of the project M&E system, with many indicators and frequently changed targets; (ii) be more proactive in dropping the infeasible activities through restructuring after the decision of NTPC not to build the pipeline necessary to bring water from the NT2 downstream channel to the proposed irrigation area; and (iii) timely adjust the overly optimistic assumptions and objectives for the XBF Center s development strategy. The Quality of Supervision is therefore rated as Moderately Satisfactory. (c) Justification of Rating for Overall World Bank Performance Rating: Moderately Satisfactory 79. Overall, the World Bank Overall Performance was Moderately Satisfactory, with a good performance for ensuring quality at entry and providing strong implementation support being tempered by a few design shortcomings and implementation support deficiencies. 20

34 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 80. The Central Government of Lao PDR was fully supportive of the project. It remained engaged in monitoring of and learning from the decentralization approaches promoted under KDP and in providing technical back up to the provincial and district level departments. For example, the format for Public Investment Planning developed under KDP had been eventually used by MPI to guide the country-wide decentralized investment planning procedures. The MOHA had engaged with the project to inform the preparation of its guidelines for implementation of the GoL s Sam Sang Program. The various MAF departments, especially DOI, were very active in supporting the implementation of KDP activities, including training of the provincial and district level staff and M&E activities. The Government Performance is therefore rated as Satisfactory. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 81. The Government of Khammouane Province was fully supportive of the project. The Project s Steering Committee was led by the Vice-Governor of the Province and included senior staff from the MPI, MOF, MOHA, and MAF, and of the Provincial Departments of Public Works and Transport, Health, and Education. It met regularly and provided strong and timely leadership for project implementation and coordination. When requested, it appointed two of its members (Director General of the Department of Finance and the Head of the Provincial Women s Union) to oversee and guide the project implementation. The Provincial Government consistently kept it commitment to provide the necessary counterpart funds for financing DDF investments maintenance from the start till the end of the project, even when the Central Government and Khammouane Province experienced a period of serious fiscal deficits. 82. Khammouane Province s departments working with KDP were very responsive to the World Bank s recommendations and took quick corrective actions. For example, they established a taskforce consisting of technical staff from concerned Provincial line agencies to oversee and provide technical support to District teams for implementing DDF activities. They also recruited the necessary external assistance for FM, procurement, and M&E. Yet, the project implementation was affected by sub-par performance and delays in procurement, the delays in producing the quality Unaudited Financial Reports, and the frequent staff turnovers. The implementing agencies could have also accelerated the start of livelihood grants and timely corrected the strategy for the XBF Center making it more realistic. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 83. In view of the moderately satisfactory performance of the Implementing Agency, the rating for Overall Borrower Performance is Moderately Satisfactory. 6. Lessons Learned 84. Moving from a highly centralized PFM system to the devolution of wideranging responsibilities to decentralized units is a long and difficult process that involves strategic and political issues and cannot be reduced to process and capacity 21

35 building issues that can be handled in the relatively short time of a standard project period. 85. Line agencies, when provided with appropriate training, supervision and guidance, can efficiently implement complex programs such as the establishment and operations of a fully decentralized, participatory mechanism for the delivery of public investment and services. 86. The involvement and commitment of beneficiaries in all aspects of an activity, from planning to implementation and monitoring, is necessary to engender a sense of ownership among key stakeholders and ensure buy-in, efficient implementation and sustainability. This was demonstrated under the project by the strong support from beneficiary communities for DDF investments, the satisfactory functioning of the restructured WUAs for O&M, including cost recovery from members of the rehabilitated irrigation perimeters, and the pro-poor targeting of the livelihood grants. 87. Strategic plans for transformation of the public agricultural research and extension centers such as XBF Center may need to include the objectives of becoming more market- oriented and self-financed, but they also need to acknowledge the public nature of many critical goods that these public institutions provide, which require the continued public funding. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 88. The project has made a significant impact on economic and social development of Khammouane Province (see Annex 7 for the Government s comments). KDP has not only provided direct benefits to the people through DDF and PDF investments, but also built the provincial and district capacity to adopt participatory approaches to improving livelihoods of the rural population, including through irrigated agriculture and livelihood grants. Unlike many other programs in Lao PDR, investments in upgrade of irrigation systems under KDP were complemented by the well designed and implemented capacity building of water user groups, establishment of practical arrangements for operation and maintenance of irrigation infrastructure, and promotion of good agricultural practices. The project piloted new approaches to livelihood development, showing better alternatives to the village revolving funds commonly practiced in Lao PDR. The KDP has also brought the XBF Agricultural Extension Center to a new, higher level, making it well positioned to continue supporting agricultural commercialization and diversification in Khammouane and in the neighboring provinces. (b) Cofinanciers 89. The KDP benefited from the PHRD Grant in the amount of $0.985 million financed by the Government of Japan. There was no comment raised by the Government of Japan, and the details of the final Grant Monitoring Report submitted by the World Bank to the PHRD Secretariat in 2014 are presented in Annex 8. 22

36 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Components Component 1: Support for Local Development and Provincial Capacity Building Component 2: Support for Irrigation Development along NT2 Downstream Channel and Lower XBF Component 3: Support for Rural Livelihood and Agricultural Development Total Project Costs and Financing Required Original Financing Estimate Additional Financing Estimate 2013 and 2015 Restructuring Estimate Total Estimate Total Estimate at Actual Exchange Rates* Actual/ Percentage Latest of Total Estimate * Total estimate was affected by the frequent change of the exchange rate for USD against SDR. (b) Financing (USD millions) Source of Type of Original Additional Total Total Estimate at Actual/Latest Percentage Funds Financing Financing Financing Estimates Actual Exchange Estimate of Total Estimate Estimate Rates Borrower Counterpart funding Borrower NTPC International Grant Development Association (IDA) H LA International Grant Development Association (IDA) LA Japan Policy Grant and Human Resources Development Fund Total (USD)

37 Annex 2. Outputs by Component Component 1: Local Development and Provincial Capacity Building (total cost $6.87 million in the original project and $11.02 million after the Additional Financing and adjustments of the 2013 and 2015 Restructurings) 1. The Component Objective was to support Khammouane Province to: (i) pilot and adopt more transparent and participatory procedures for public investment to improve rural livelihoods; and (ii) strengthen key provincial departments to implement and sustain this approach, so the provincial departments can implement the new procedures and approaches adopted by the GoL. This component consisted of two subcomponents addressing the above-stated objectives: (i) District Development Fund and (ii) Provincial Capacity Development. The component s management was integrated in these two subcomponents. Table 2.1 presents the project costs and the actual budget use by subcomponent. Table 2.1: Total costs and actual budget use, Component 1, $ million Subcomponents Project costs Total Original Additional Total Financing financing costs 1.1 District Development Fund 1.2 Provincial Capacity Development 1.3 Support for Component 1 management Other restructu rings costs at actual exchange rates Actual use TOTAL Subcomponent 1.1: The District Development Fund 2. The DDF, designed along the lines of the DDF piloted under the UNCDFassisted programs, received non-earmarked annual BBGs to finance investments in public infrastructure and service delivery selected by rural communities through a transparent and participatory process (out of a positive list covering the basic sectors such as education, health, agriculture, transport and water supply). Selected investments/activities were planned and implemented by District Planning Teams (DPTs) composed of district line offices staff, with the participation of communities, after approval by DPI. The DDF allocated a block grant and funded to all of the province s 9 (later 10) districts on a basis of poverty and population size. 3. At appraisal, the DDF funding consisted of three windows: (i) BBGs to districts; (ii) ALGs for production groups 16 ; and (iii) a contingency fund for dealing with UXOs for infrastructure investment supported by BBGs 17. The BBGs financed 16 Under the AF, the ALG scheme was moved to the new Component 3, and it will be described in detail under that component. 17 This contingency funding provision was not used as most of the areas selected for investments were already cleared of UXOs. This funding was added to BBG. 24

38 infrastructures and services, mainly at the kumban and village levels (at least 70 percent of BBG allocations were to be used for kumban or village level sub-projects, and no more than 30 percent used to finance district-level investments). District annual BBG allocations took into account both the size of their population (for two-thirds of the funding) and the level of poverty in the district based on official government statistics (for the remaining third of the total funding), with the Province contributing 10 percent of the total amount and IDA 90 percent 18. The respective weights of population and poverty was increased to 50/50 under the AF to make the allocations to districts more pro-poor. 3. The first DDF-financed investments/activities took place in in 3 of the Province s 9 (later 10) districts. All 10 districts were covered in the successive years ( to ). The AF in 2012 scaled up the DDF activities (Table 2.1). Over the period of the project, a total of 185 investments/activities were financed by the DDFs in 300 villages of the Province s 581 villages, or 52 percent of all villages in the Province 19 (Table 2.2). These investments benefitted 39,213 households (205,366 people) in the Province, which was 60 percent of its total population. Table 2.2: Summary of the DDF projects Sectors No. of No. of No. of No. of people projects villages households Total Female Thakhek ,794 50,490 25,507 Mahasay ,566 23,179 11,936 Nong Bock ,356 40,283 20,510 Hine Boune ,948 20,724 10,306 Gnommalat ,534 16,867 8,562 Boualapha ,801 15,126 7,659 Nakay ,455 7,524 3,848 Xe BangFai ,936 10,106 5,167 SayBouathong ,495 13,992 7,006 KhouneKham 7 8 1,328 7,068 3,544 Total , , , There were 175 village-level investments and 10 district-wide investments/activities, which was well within the prescribed limit of 30 percent of all DDF investments. Investments were evenly distributed between sectors: (i) education and water supply (46 each); (ii) rural roads, including bridges (45); and (iii) health (36). There were also 12 investments in agriculture, mostly in expansion of the areas under small irrigation, which benefitted 3,068 households in 21 villages. 5. The allocations from the DDF facility to each of the districts was determined on the dual basis of: (i) the districts respective population size (two thirds of the allocation); and (ii) their relative poverty (one-third). Under AF, the allocation formula 18 To provide incentives for districts to follow prescribed BBG procedures, full access to annual block grant allocations would be conditional upon compliance with a set of s p e c i f i e d Minimum Conditions. In the event that a district fails to comply with Minimum Conditions, its block grant allocation for the following year would be reduced by 50 percent. The sanctioned district can have its DDF allocation restored to 100 percent by demonstrating full compliance in the following year. This provision was adopted and applied against Boualapha, one the 10 provinces district under the project villages benefitted from 2 investments and 9 from 3 DDF investments. 25

39 was modified to make it more pro-poor (50/50). Table 2.3 presents for each district: (i) the allocations actually received during the project period; (ii) the allocations that would have been received if these allocations had been based only on a set amount per head; and (iii) the actual allocation/head. It indicates that the pro-poor targeting was effective. The poorest districts received a much greater allocation per capita than richer districts (a maximum of $21.2 per capita for Nakai, the poorest district, and a minimum of $7.4 per capita for Thakhek). Table 2.3: Targeting of the DDF funds District Poverty ranking (weight) Actual allocations mill Kips 6. The AF also established under DDF a specific window to provide resources for reconstruction of infrastructure damaged by the Typhoon Nokten in August Specifically, it was established to: (i) carry out quick assessments of damages incurred from natural disasters; (ii) develop procedures to conduct urgent post-damage reconstruction; and (iii) undertake the reconstruction of damaged infrastructure through a building-back better approach for increasing their resilience to similar disasters in the future. Approximately $450,000 was allocated through this fast track window to Nongbok (50 percent of total allocation), Xe Bang Fai (25 percent), and Gnomalat Districts (25 percent). Two box culverts damaged by the typhoon Nokten were re-built, on the build better principle, with funding and procedures from the fast-track postdisaster window of DDF (Table 2.4). In addition, the capacity of the Province and Districts for disaster management was strengthened, with funding from PHRD, through the integration of prevention and mitigation measures into planning and budgeting processes and the adoption of appropriate technical design of infrastructure. Table 2.4: The summary of the DDF Disaster Window Investment District Village Costs, $ Culvert, road Nongbok Ban Dan Nongbok B. Nonglom 167,260 Culvert, road Nongbok Thakhek Nongbok B. Kudjub 173,550 Subcomponent 1.2: Provincial Capacity Development $ $/ca pita Allocation if only based on Pop, $ Actual/ Popbased Total Allocat ion % of 7. Whilst subcomponent 1.1 aimed at strengthening the capacity of the district governments, the subcomponent 1.2 focused at strengthening the capacity of the provincial government for public expenditure management and budget planning. It included the Provincial Development Fund and capacity building activities. Popula tion Boualapha 2 (2.4) 3, , , ,20% 7.44 Gnommalath 3 (1.9) 3, , , % 8.21 Hinboune 3, , % Khoukham 6 (1.4) 1, , , % Mahaxay 4 (1.6) 4, , , % 9.16 Nakai 1 (2.6) 3, , , % 6.00 Nongbok 8 (0.6) 3, , , % Thakhek 7 (0.9) 4, , ,014, % Xe BangFai 9 (0.5) 1, , , % 7.56 Xaybouathong 5. (1.5) 2, , , % 6.14 Total 32,618 4,077, ,077,

40 8. The PDF was introduced as a pilot to provide the Province with financial resources to carry out strategic province-wide investments which cannot be identified at village or district levels. The Province was requested to provide 10 percent of total amount of PDF funding. The PDF was also conceived as an instrument for Khammouane Province to adopt the new provincial planning procedures developed through PCAP 20. Respective provincial line departments were responsible for the implementation of PDF-financed investments. A provision of 2 percent of the annual allocations was set aside to finance technical expertise and incremental operating costs to manage PDF. 9. The PDF financed 10 province-wide investments/activities (Table 2.5). Three of these activities were training programs directly linked to other investments financed by PDF such as the training in Haemodialsys and Colectomy for the doctors of Thakhek hospital, which also benefitted from the corresponding medical equipment. As a direct result of these PDF investments/activities, more than 60 surgeries were already successfully carried out at the Thakhek hospital. Table 2.5: Summary of the PDF investments Types of projects No. of sub-projects Total Rehabilitation of boarding school 1 1 Upper Secondary school 1 1 Provincial hospital rehabilitation 1 1 Haemodialsys machine for Provincial hospital Laparoscopy for colectomy for Provincial hospital 1 1 Specialized training programs Training center for industry and commerce department 1 1 TOTAL The capacity building activities included the following (Table 2.6): a. Technical Assistance related to DDF and PDF. The DDF and PDF were a new approach to carry out infrastructure planning and implementation, and it was expected that the Province would need extensive technical assistance to: (i) design/launch the process of stakeholder consultation, investment prioritization, and fiduciary management; and (ii) monitor compliance with the Operational Manual, technical quality and cost effectiveness of investments. b. Technical Assistance for PFM. Technical assistance was provided to allow the Provincial DOF to benefit from DDF/PDF activities but also more generally to strengthen the entire provincial PFM system. The participatory capacity needs assessment of DOF provided the basis for preparation of a training program addressing the institutional, organizational, and individual-level capacity gaps within the provincial PFM system. 20 PCAP, supported by JICA during , aimed to build capacity of sector ministries and provincial sector departments to effectively and efficiently implement PIP projects on schedule and in accordance with planned budget execution under an upgraded sector program. 27

41 Table 2.6: Number of staff trained and topics of training under Component 1 Type of training Total number of participants trained Female participants DDF and PDF procedures Project FM Procurement Capacity building for DPI and DOF Total 1, c. Technical Assistance for Strengthening Planning, Monitoring and Evaluation. Technical assistance was provided to strengthen the core functions of investment of DPI. This has also strengthened the province's ability to align itself with the NSEDP priorities and monitor the outcomes of its investment planning process. d. Technical Support for PAFO. A training program was carried out to strengthen the capacity of provincial and district agricultural extension staff to provide support to farmers, in particular in relation to ALG and development of irrigated agriculture. The sub-component also provided PAFO with logistical support and financed the construction of small demonstration facilities at the kumban level. Component 2: Support for Irrigation Development along NT2 Downstream Channel and Lower XBF (total cost $4.17 million in the original project and $6.22 million after the Additional Financing and the adjustments of the 2013 and 2015 Restructurings) 11. The main objective of Component 2 was to assist the GoL and Khammouane Province in developing a socially and economically feasible way to develop downstream irrigation and support the rehabilitation of small pump-based irrigation facilities. The Component included five subcomponents. The project costs and the actual use of funds by subcomponent is presented in Table Subcomponent 2.1: Rehabilitation of the Existing Irrigation Facility in Tha Thot Village. The sub-component supported the rehabilitation of existing irrigation facility in Tha Thot (or Ban Lao) village. The facility, which utilizes water from a local reservoir, was originally designed to cover about 460 ha but the irrigated area was reduced to about one-third to that area by a lack of maintenance and the reduction of available water due to the construction of NT2 downstream channel. The NTPC decided to restore the original water supply of the Tha Thot Scheme (through two new siphons) and facility was prepared for rehabilitation, as well as capacity building for WUGs to improve administration and management of the irrigation facility. 13. The rehabilitation of the Tha Thot irrigation system was successfully completed by the end of After detailed surveys, the head works were rehabilitated, the main canal (1.8 km), two secondary canals (4.2 km) and a tertiary canal (625 m) were restored, and an access road (2.3 km) as well as an office for WUA was constructed. After rehabilitation, irrigable area was restored, as planned, to 460 ha during the wet season and 255 ha during the dry season. The construction works were satisfactory and they did not create any significant adverse environmental impact. 28

42 Table 2.7: Total costs and actual budget use, Component 2, $ million Subcomponents Project costs Total 2.1 Rehabilitation of the Existing Irrigation Facility in Tha Tho Village 2.2 Support for Pilot Downstream Irrigation Development in Tha Thot Area Original financing Additional financing Other Restructurings Total costs costs at actual exchange rates Actual use Strategic Plan for Irrigation Development along Downstream Channel 2.4 Rehabilitation and Institutional Strengthening of Small Pump Irrigation Facilities along the Lower XBF River 2.5 Management Support TOTAL Existing, largely non-functional WUGs were merged into one WUA with a management committee and comprised of all the 349 farmers operating on the perimeter. An intensive training program was implemented prior to and during the perimeter s rehabilitation (Table 2.8). In addition, the DAFO staff got assigned to facilitate and monitor irrigation operation, the village irrigation technician was recruited, and direct materials (e.g., painting, lubricants) were provided to WUG as demonstration material. Table 2.8: Training of WUA in Tha Thot village Module name No. of trainings No. of participants Total Women WUA management Water management and O&M Safeguards screening and monitoring Pre-construction training TOTAL Seven farmer production groups were also established and intensive agricultural training was delivered after as assessment of the deficiencies and possibilities for improvement of the prevailing farming systems. The training modules, implemented by DOI and DAFO staff included water management, sustainable rice intensification, seed selection and land and seed bed preparation, weeding, fertilization, pest control (including integrated pest management) and post-harvest methods. 29

43 16. Subcomponent 2.2: Support for Pilot Downstream Irrigation Development in Tha Thot Area. This subcomponent aimed to support the feasibility study, detailed design, and construction of irrigation facilities utilizing discharge water from NT2 for about 730 ha around the existing irrigation facility in Tha Thot village. The feasibility study and detailed design of four separate facilities were to be carried out during the first two years of project implementation. The project was then to finance the construction of one of the four facilities. The subcomponent also included assistance for the establishment of WUGs to ensure the efficient management of the new irrigation facility. 17. The feasibility study was completed in Based on the study and additional technical examinations, the NTPC determined that the connecting pipe between the outlet 2 on the regulating dam and siphon under NT2 downstream channel could not be built due to the risk of damage to the regulating dam of NT2 hydropower project and potentially high operating losses. This subcomponent was subsequently dropped in the April 2015 s restructuring. 18. Sub-component 2.3: Strategic Plan for Irrigation Development along Downstream Channel. The objective of this sub-component was to help the GoL to develop a strategic plan for development of irrigation using water flowing through the NT2 downstream channels further downstream of Tha Thot area. A scoping study was carried out by NTPC for development of 5 irrigation schemes covering a total of 21,000 ha. The study concluded that the economic viability of the schemes needed to be carefully examined on a site-by-site basis as the area was quite heterogeneous in terms of topographical, geomorphological, environmental, and social conditions. The subcomponent aimed at supporting: (i) scheme level pre-feasibility studies to identify priority areas for development; (ii) detailed feasibility studies for high priority areas; (iii) the development of recommendations for institutional arrangements for O&M activities and establishment of programs WUGs; and (iv) a scoping study for potential additional sites. 19. The project conducted the scoping study to explore the possibilities for developing 5 irrigation facilities comprising 21,000 ha in total out of 5 water gates constructed on the downstream channel. The scoping study provided the basis for preparation of the Strategic Plan. A Strategic Plan was completed at the end of 2012 by the KDP s technical advisor. It did not however include all the information and analysis required for taking informed decisions. It was in fact a brief report, which utilized available information and reports and summarized existing plans for ongoing and proposed irrigation development off all outlets of the NT2 regulating dam and downstream channel. It indicated that only gates 1 and 3 could be used to develop irrigation perimeters (of 5,000 ha and 3,400 ha, respectively). The other 3 gates had technical problems that made the development of irrigation facilities technically or economically infeasible. As a result of the low quality of the Strategic Plan and the technical problems leading to the drop of subcomponent 2.2, this activity was officially dropped from the project through restructuring in April Specifically, the first part of the relevant PDO Indicator Agreement between the Government, NTPC and donors on sustainable approach for utilization of NT2 was dropped. 20. Sub-component 2.4: Rehabilitation and Institutional Strengthening of Small Pump Irrigation Facilities along the Lower XBF River. The objective of the subcomponent was to rehabilitate the small pump irrigation facilities ranging from 20 ha to 100 ha along XBF River, and re-establish a sustainable institutional framework 30

44 for their O&M. Although still operating, the pumps were in need of repair because of poor maintenance. Through a rapid assessment it was confirmed that the farmers were keen to continue irrigation during the dry season, as the dry season crops provided them with reliable income. They were also willing to pay substantial amounts for O&M for functioning irrigation. It was also anticipated that the discharge of water from the NT2 dam would increase the water level of XBF River during the dry season by about one meter, and thus reduce the cost of pumping. 21. Under the original financing, 33 village-based pump irrigation schemes were targeted for rehabilitation. A detailed assessment of the schemes at the start of the project determined that the situation of the pumping stations was much worse than anticipated and that most of the pumps (electro-motors) were needed replacement. Also, extensive repairs of the main canals and floating pontoons needed to be replaced. The estimated cost of the sub-component was revised from $0.59 million to $0.85 million. The AF provided additional support to cover the increase costs and to rehabilitate 4 additional existing small pump-based irrigation schemes located in Thakho, Phanang, Kaengpae, and Nathan Thong villages, covering 430 ha in total. These schemes, based on diesel powered pumps, were abandoned in the early 2000s because of high fuel prices. In 2010, however, the four villages were connected to the electric grid and the GoL gave high priority to rehabilitation of these schemes based on electric pumps. 22. By the end of the project, a total of 37 village-based pumped irrigation schemes were rehabilitated along XBF River. The rehabilitation included: (i) the supply of new electric motors, electric control panels and spare parts for 37 schemes; (ii) the supply of 14 new steel pontoons at twelve schemes and the repair to fair condition of pontoons at 25 schemes; (iii) supply and installation of new flexible pipes at 37 schemes; and (iv) improvement (lining) of main canals at 37 schemes (total length of 23.3 km). Canal improvement was done with the participation of the WUA members, which provided an estimated 16,123 person-days of labor while the KDP supplied construction materials and technical assistance. 23. The project support resulted in the large increase in irrigated areas. As indicated by Table 2.9, the total command area of the rehabilitated schemes before rehabilitation (as measured by the wet season (WS) area) was 4,410 ha. It increased to 5,465 ha after rehabilitation, an increase of 24 percent. When both wet and dry seasons (DS) are taken into account, the total command area increased from 6,330 ha to 10,006 ha, i.e. an increase of 58 percent. In particular, the command area in the dry season increased by 137 percent, offering substantial additional income opportunities to farmers. Table 2.9: Improved access to irrigation Districts Command area prerehabilitation Command area after-rehabilitation No. of HHs % of female WS DS WS DS beneficiary Gnommalat Nongbok 2,520 1,490 3,295 2,602 2, Xe Bang Fai , Mahaxay TOTAL 4,410 1,920 5,465 4,541 3, In addition to civil works, the subcomponent strongly focused on capacitybuilding activities. It trained PAFO/DAFO to plan and implement irrigation schemes. It had also provided assistance to WUAs and agricultural advice to farmers, and to 31

45 WUAs to improve their management of the new/rehabilitated irrigation schemes. Existing WUAs, responsible for O&M of irrigation schemes, including payment for electricity and operational costs, were generally weak (technically and in terms of governance) and lacked proper support from PAFO/DAFO. Overall, 5,543 WUA committee members and farmers were trained (Table 2.10). Each re-organized WUA recruited a (part-time) technician to manage the pumping station and opened a village bank account to collect water fees and finance the necessary operational expenses and repairs (with records open for review). One DAFO staff was appointed to help WUA for better management on operation of all irrigation schemes. Table 2.10: Training for WUAs of pumping irrigation schemes Module name No. of trainings No. of participants Total Women WUA management (on job training) Water management and O&M (on 142 4, job training) Safeguards screening and monitoring (on job and in-class training) Pre-construction training (on job training) Pump repair O&M (on job training) TOTAL 315 5,543 1, An assessment of existing farming system was also carried out in each new/rehabilitated irrigation schemes to identify suitable technologies for promoting productivity increases and crop diversification. Farmer groups were established to serve as focal points for the extension and training programs delivered by PAFO/DAFO. The comprehensive farmer training program was then implemented, including study tours, focusing on rice production and crop diversification. A total of 1,702 farmers (including 36 percent female) were trained under these programs (Table 2.11). Table 2.11: Training of Farmers Module name A. Rice Production Village consultation for agricultural extension activities No. of trainings No. of participants Total Women System of rice intensification (SRI) B. Diversified crops Seed bed preparation and sowing methods Land preparation and bed forming Plot maintenance: weeding, fertilization, and pest control C. Field visits and study tour Information sharing between farmers in SRI demo plots Study tour for WUA farmers and PAFO/DAFO in Luang Prabang and Savannakhet Provinces TOTAL 164 1, The improved water availability and the enhanced capacity of farmers to apply new agricultural technologies increased land productivity. According to the evaluation 32

46 carried out by DOI, rice yields increased significantly in both WS and DS in the rehabilitated pump schemes (Table 2.12). The average paddy yield increase was 0.9 tons/ha in DS (+25 percent) and 1.2 tons/ha in WS (+52 percent). In the case of Tha Thot village, the yield increases were even higher: there was an increase of 1.7 tons/ha in DS (+94 percent) and 1.0 ton/ha in WS (+67 percent). These observed increases in yields are largely in line with or higher than what was originally estimated at appraisal. Table 2.12: Changes in paddy yields as a result of the project, tons/ha Areas with pump schemes Tha Thot Changes in yield WS DS WS DS KDP original estimates Pre-rehabilitation Post-rehabilitation Estimates from field visits Pre-rehabilitation Post-rehabilitation In addition, there had been changes in cultivation practices, with an increase in the use of R3 seeds of improved rice varieties (mostly provided by the XBF Center), an indication that farmers have become more aware of the benefits of using certified seeds of improved varieties. There has been also a higher use of compost and animal dungs. Finally, there is also evidence that the rehabilitation of the schemes have provided a considerable impetus to the production of high value diversification crops in DS. In Naportha village of XBF district, there was only 10 ha of paddy and only very small areas of sweet corn and vegetables during the dry season. After rehabilitation, the area under paddy increased to 58 ha and more than 5 ha under sweet corn and vegetables such as cucumber and water melon. In many benefitting villages, production has also become more diversified with expanded areas under diversification crops (sweet corn, chilly, water melon, and vegetables). 28. Subcomponent 2.5: Component Management. This sub-component supported DOI of MAF and the PAFO in Khammouane Province. Support included vehicles, equipment, technical assistance, and incremental operating costs. Component 3: Support for Rural Livelihoods and Agricultural Development (total cost $3.09 million after Additional Financing and the adjustments of the 2013 and 2015 Restructurings) 29. The KDP was originally designed with two components: Component 1: Local Development and Provincial Capacity Building, and Component 2: Support for Irrigation Development along NT2 Downstream Channel and Lower XBF River. The ALG program was conceived as a pilot activity to provide livelihood-increasing activities to poor rural households under Component 1. The pilot was to be implemented in 27 villages of Mahaxay district, which was among the country 72 poor districts, and in Himboun and Boulapha Districts, which were among the country 47 priority poorest districts targeted by GoL for specific poverty reduction program. Within these three districts, 27 selected villages were classified as severely poor by official statistics and were not already covered by any other GoL or donor-funded rural livelihoods programs. 30. The pilot included three main activities: (i) the provision of BBGs of a maximum of $10,000 to each of 27 villages to establish a revolving fund for financing, 33

47 on a reimbursable basis, individual or collective agricultural income generating activities (e.g., livestock, improved seeds, rice production and other processing equipment) selected by Village Committees in favor of the villages poorest households; (ii) training of extension staff in related technologies and value chain development, and village leaders in the management of revolving funds; and (iii) financing of incremental expenses for implementing the program, including office equipment and incremental non-salary operating costs. 31. The pilot, like other DDF activities, was under the general responsibility of DPI, which was responsible for fiduciary matters. However actual implementation was delegated to PAFO/DAFO. DAFO staff was responsible for assisting each target village in selecting beneficiary households and livelihood activities, forming activity or production groups and preparing a detailed program and its cost. After program s approval by District Planning Team (DPT) and PAFO, BBG was released to the villages, which established the revolving fund and approved activities were implemented with the assistance of DAFO. 32. Under AF in 2012, at GoL request, a new Component 3 Support for Rural Livelihood and Agricultural Development was introduced to provide more support to KDP livelihood and agricultural development activities. The new Component 3 included three subcomponents: (i) Small Agricultural Grants Program; (ii) Capacity Building for PAFO and DAFO with a focus on kumbans; and (iii) Component Management. To improve implementation effectiveness, the responsibility for these activities were transferred from DPI to PAFO/DAFO, which had already established a specific management unit, led by a dedicated manager, and had an adequate technical and fiduciary capacity to implement the component. Table 2.13 present the project costs and actual budget use by subcomponent. Table 2.13: Total cost and actual budget use, Component 3, $ million Subcomponent Project Costs Total costs Actual Original costs Additional financing Other restructu Total costs at actual exchange use rings rates 3.1 Small Agricultural Grants Program 3.2 Capacity Building for PAFO and DAFO 3.3 Component Management TOTAL Subcomponent 3.1: Small Agricultural Grants Program. This subcomponent supported rural livelihoods and local entrepreneurship development initiatives through two complement grant facilities: (i) Agricultural Livelihood Grants and (ii) Agricultural Entrepreneurship Grants. Agricultural Livelihood Grants 34. Under AF, ALGs planned to scale-up livelihood grants to cover 33 additional poor villages in 2 additional districts (Gnommalat and Hinboun), for a total of 60 villages in 5 districts. However, 9 villages were dropped as they were already covered or to be covered by other livelihood development projects, therefore, 24 villages benefited from ALG under AF. By the end of 2015, 51 ALG block grants of $10,000 each were disbursed to 1,624 households in 51 villages (this exceeded the end-target of 34

48 1,600 set at the 2015 restructuring). The first village block grants of $10,000 were disbursed to 14 of 27 initial target villages in The next 13 villages received their grants during The livelihood activities in the remaining 24 villages were completed by the second half of Beneficiary households and productive livelihood activities were selected by VDC through a transparent participatory process, applied the Lao Extension Approach developed with support from the Swiss Development Corporation. Livelihood opportunities were identified followed by the formation of interested production groups. The groups were then provided with training and hands-on technical support by PAFO/DAFO staff (whose capacities were strengthened by intensive training) for launching their activities. Of all ALG activities selected by beneficiaries, livestock accounted for a large majority of the total ALG funding, followed by crops and nonfarm activities (Table 2.14). Cattle raising was by far the dominant activity, followed by goat raising. Rice (improved seed production) was the most important crop activity. Table 2.14: Summary of the ALG activities No. of households Funding (mil KIP) % of total ALG funding Livestock , % Cattle raising 667 2, % Goat raising % Chicken raising % Pig raising % Crops % Rice plantation % Banana % Vegetable % Chili % Cassava % Non-farm activities % Handicraft (weaving) % Rice paddy clearing % Handicraft (rice box) % Hand tractor % Total of 13 activities 1,624 4, % 36. Although it is too early to assess their true impact on households incomes (activities were implemented within the last four years at most), initial observations indicate that most ALG-financed activities had a very positive impact in terms of both income level and income diversification, as indicated by Table 2.15 derived from KDP s monitoring system. 37. What helped increase incomes was training and other support received by the ALG recipients. All ALG recipients received training targeted at their selected activity (animal husbandry, crop production, feed making, pest-and-disease control, and IPM), and many beneficiaries received more than one training on various topics. Training was also provided to other stakeholders such as VDC members, village volunteer veterinary assistants and PAFO/DAFO staff. Study and exchanges visits to some successful projects in Lao PDR and in neighboring countries were organized for the grant recipients to raise awareness as well as demand and learn about good practice and applicable technology (Table 2.16). 35

49 Table 2.15: Estimates of income changes of the ALG beneficiaries Activities Cattle raising Goat raising % growth in income reported Net income observed from the field 92 Many HHs have not sold animals yet; some sold calves for 1.5 to 4.5 million (representing about percent of household pre-alg income) 78 Earned 1.5 to 2.8 million/year. Income estimated to be around 20 percent of average household income Chicken raising 47 Revenue of about KIP 1.2 to 2 million/year (around 15 percent of the members household income) Rice plantation percent for home consumption; revenue about KIP 0.5 to 3.2 million Vegetable percent for home consumption; sold to earn K100,000 per HH (considered by members as insignificant source of income) 38. The poverty targeting of the ALG scheme was good. The ALG villages were all located in the poorest districts of the Province and were the poorest villages in each of these districts (villages were selected on the basis of GoL poverty statistics). The most ALG beneficiaries were either officially poor according to the Decree (494 households) or vulnerable by most standards female headed-households, ethnic minority households, and households without land or livestock (650 households). These households were selected by Village Committees and PAFO/DAFO among the poorest households of the communities. Table 2.16: Capacity building activities for the ALG recipients Districts Training received by ALG beneficiaries ALG recipients % of female ALG Fund Mgmt ALG training Capacity building activities Village vet workers Animal feed making IPM Total Khounekham 1, Mahaxay 1, Boualapha 3, Hiboun Gnommalat Total 8, , ,682 Agricultural Entrepreneurship Grants 39. The AEG program was a pilot introduced under AF to provide support to emerging commercial farmers/rural entrepreneurs. The objective was to help these emerging farmers to take advantage of the opportunities offered by the Province s 21 According to the Decree 201, households with revenues lower than 180,000 Kip/month are considered poor. This is very restrictive definition which does not measure the full extent of poverty. According to the national poverty line, the poverty headcount in Khammouane was 1.5 percent in However, using the data from the latest Laos Expenditure and Consumption Survey and internationally compatible poverty line, the poverty headcount in the province in 2014/15 was 26 percent. 36

50 strong economic development for developing their own businesses. Project support aimed at overcoming the constraints faced by these emerging commercial farmers, in particular their lack of access to credit and to specialized technical and managerial advice. It was expected that the promotion of these lead farmers/rural entrepreneurs would help diversifying the Province s agricultural/agro-industrial base and be a driving force for the development of other farmers in their respective communities by demonstrating new technologies/practices and opening access to market opportunities. 40. The start of the program expected in late-2012 was delayed by difficulties in recruiting the external technical assistance to develop the implementation procedures and implement the scheme. The external assistance was only on board in September 2013 and a first batch of 67 candidates was preselected in late 2013 out of 1,019 applications received from every district in the Province through a comprehensive competitive selection process. These 67 candidates were trained in business management and technical aspects of their proposed investments and assisted in preparation of their business plans. After the latter screening, 8 candidates were finally selected, including 4 producer groups and 4 individual farmers, and signed a detailed contract with the program in January 2014, including an output-based disbursement mechanism. Individual entrepreneurs received grants of maximum $5,000 while producer groups received grants of maximum $15,000. A second batch of 9 candidates (3 producer groups and 6 individual farmers) were selected through a similar process and signed their contract with the project in October The 17 AEG beneficiaries (7 producer groups and 10 individuals from 17 villages in 6 districts, representing 56 households in total) received in total $155,000 or $2,740 per household. All 17 AEG beneficiaries received technical and business assistance for implementing their investments. As for AEGs, livestock activities represented the largest proportion of all investments followed by paddy seed production and milling (Table 2.17). 42. The sub-projects of first AEG beneficiaries had at most two years of implementation at project closing and it is thus difficult to assess the financial returns from their investments or their sustainability. However, preliminary discussions with beneficiaries carried out by the impact evaluation indicate that most of the AEG beneficiaries, groups or individuals, have significantly increased their revenues through their new activities, with rice milling and fish production being the most profitable activities (Table 2.18). It also appears that most AEG grantees have already expanded or are planning to expand their activities after the end of KDP support, which gives a good indication of the likely sustainability of the investments financed by the scheme. 37

51 Table 2.17: Summary of the AEG activities Beneficiaries No. of individuals/ or groups (HH) Amount (kips) 22 Individual households ,000,000 Cattle raising 2 80,000,000 Goat raising 1 40,000,000 Meat pig raising 1 40,000,000 Piglet raising 2 80,000,000 Rice seed production 1 40,000,000 Fish 1 40,000,000 Frog 1 40,000,000 Water melon 1 40,000,000 Groups 7 groups (46 HHs) 828,500,000 Cattle raising 1 group (4 HHs) 120,000,000 Goat raising 1 group (5 HHs) 120,000,000 Rice Mill 1 group (3 HHs) 120,000,000 Rice seed production 3 groups (28 HHs) 348,500,000 Mushrooms 1 group (6 HHs) 120,000,000 TOTAL 1,228,500,000 Table 2.18: Preliminary assessment of income from AEG investments AEG activities Pig raising Income increase estimated by KDP-C3 Earned 30 million Kip. Total income increased between percent (3 individual farmers) Villages (year of AEG start) Nongping (2015) Commercial rice production Rice seed production Total income increased by 20 percent (1 group) Earned between million Kip per household Total income increased between percent (3 groups) Park-E Tou (2014), Navanthong (2015) Rice miller Income increase of million Kip Phanam (2014) Water melon Income increase of 30 percent Fish raising Earned about million Kip. Total income Sivilay (2014) increased by 78 percent. Mushroom Earned 20 million Kip after 6 months. Total Nabo (2015) income increased by 20 percent. Goat raising No sale yet Laongoua (2014) 43. Subcomponent 3.2: Capacity building for PAFO and DAFOs with a focus on kumbans. This subcomponent included: (i) continued strengthening of the XBF Agriculture Extension Center and (ii) technical and functional training of PAFO and DAFO staff to support effective demonstration and extension activities for villagers. 44. Under the original project design, Component 1 provided technical support to PAFO and DAFO to increase their capacity to establish village-level production groups and provide them with efficient technical support, with a particular focus on 22 Exchange rate used during the reporting period was 8,000 Kip/$. 38

52 beneficiaries of ALGs. KDP support included training, logistical support and the construction and/or rehabilitation of small facilities such as the XBF Agriculture Extension Center. 45. Under AF, in line with the priority given to the development of commercial agriculture by the Provincial Government and with the scaling up of ALG activities and the introduction of the AEG pilot, KDP increased the support for building the capacity of PAFO and DAFO. The new Component 3 included a more comprehensive support to the XBF Agriculture Extension Center, and strengthened technical and functional training of PAFO and DAFO staff. Strengthening of the XBF Agriculture Extension Center 46. Khammouane Province is the third biggest province in terms of rice production, after Savannakhet and Champassak Provinces, with a growing demand for R3 certified seeds, in particular from rice millers. The XBF Center has been producing small quantities of registered and certified paddy seeds since 2003, and established a network of farmer multiplication groups. Also, the Province has a very active fish farming sector, with more than 3,300 families involved in fish production in 750 villages. The demand for fingerling was estimated at 5 million per year, with a production in the Province estimated at 600,000 (of which 300,000 from the XBF center), the balance being imported mostly from Thailand. In 2011, GoL decided to upgrade the status and responsibilities of the XBF center and make it a key place for providing better support to the development of the agricultural sector in the Province, in particular to the emerging commercial sector. To this effect, a 5-year Strategic Plan 23 was developed in January 2012 for the XBF Center with the KDP support. The Plan set out an ambitious path for the Center to: (i) upgrade its capacity, both technical and management, so that it would respond efficiently to the needs of commercial producers for improved rice seeds, fingerlings and technical support; and (ii) make the Center financially more self-sustaining through the sale of its production and services to commercial producers (by 2016). 47. The Plan, with the total cost of $743,000 over the 4 year period, had specific targets in terms of production and operational modalities, and the Plan called for: (i) strengthening the Center s human resources (18 additional technical staff and comprehensive training programs); (ii) building/upgrading the Center s productive infrastructure and equipment; and (iii) restructuring the organizational structure, by creating and management practices, technical training for staff, reforming the organizational structure with in particular the creation of a Marketing Department responsible for the promoting a market focus for the Center s activities. 48. There have been significant achievements in the implementation of the Plan. Key infrastructure was built or renovated (road access, irrigation infrastructure, fish ponds, offices and dormitory) at a total cost of $300,000. Technical skills of the Center s staff was improved through training programs. Contractual staff (7 junior consultants paid by KDP and a rice researcher seconded by NAFRI) were recruited to strengthen the Center s capacities. With the additional support of contractual staff paid by KDP, the Center has thus be able to implement significant research, rice seed production and extension programs: 23 XBF Agriculture Technical Center Strategic Plan , January

53 a. XBF center increased the production of breeder, foundation, and registered seeds to support farmer rice seed multiplication groups to produce certified seed. In June 2015, it released 3 promising lines of rice varieties as commercial cultivars 24 to be tested before multiplication and distribution to farmers. b. The Center has significantly increased its capacity to produce registered and certified seeds. Since 2014, it has been producing 20 tons of registered seeds per year to support certified seed production by farmer multiplication groups. A rice seed production network was set up between the Center and farmer groups to increase the capacity of the Province to supply good quality certified seeds to producers. About 180 tons per year of certified rice seed was produced in 2015, enough for about 2,500 ha of paddy. c. Although the production of fingerlings was lower than expected (less than 1.0 million against 1.5 million target in 2015), the Center has improved its breeding stock and set up fingerling and frog production groups that will produce fingerlings and frogs to support more than 320 farmer production groups in the Province. d. The Center implemented a number of training-of-trainer programs to increase the technical skills of PAFO and DAFO implementing extension activities. 49. Implementation however fell short of the Plan s institutional objectives of establishing a service institution driven by market demand and financially autonomous. The Marketing Department was not established, weakening the Center s capacity to generate business and increase its sales. At completion, it was clear that initial assumption regarding the ability of the Center to cover a significant share of its (nonsalary) operating costs was overly optimistic and that the Center will not be able to cover its (non-salary) operating costs in the near future. 50. Yet, achieving a reasonable level of financial autonomy and fiscal sustainability appears possible by Excluding KDP funding, the FY total operating cost of the Center will be $350,000, with $80,000 in revenues (23 percent of total operating costs). With additional staff to accommodate the creation of the Marketing Department and the recruitment of a few of the young contractual staff previously financed by KDP (an increase of 50 percent in staff salaries) and an increase of the direct cost of rice and fingerlings production, the total operating cost of a refocused Center may amount to $600,000 per year in real terms. With the growth in the sale of goods and services continuing at the same pace, revenues may reach about $250,000 by FY , representing 80 percent of non-salary operating costs. The Center s operations would then only require from GoL: (i) the payment of staff salaries; and (ii) a small (and declining) operating subsidy ($50,000 per year). Khammouane Province is one of the priority provinces for MAF under the national food security program to increase rice and livestock production, so the Center is expected to continue receiving budget funds. The budget plan for sustaining the Center was approved by the Government of Lao PDR on August 14, Due to the uncertainty of state budget as a result of recent financial crunch, it may experience short-term fund shortfalls after the closure of KDP and it would need to calibrate its activities depending on the projected 24 XBF1 (a glutinous, flooding and drought tolerant cultivar); HXBF2 (aromatic, non-glutinous, photoperiod insensitive cultivar with flood and drought tolerant) and HXBF3 (aromatic, non-glutinous cultivars, photoperiod sensitive with flood and drought tolerance). These varieties are well adapted to the flood prone areas of Khammouane Province 40

54 budget inflows and generated incomes. PAFO and DAFO capacity building 51. Component 3 provided extensive training to PAFO and DAFO staff to strengthen their technical, planning and communication skills and be able to deliver effective support to farmers, in particular to farmers engaged in the Project activities (DDF, irrigation, and ALG and AEG schemes). It also financed the technical assistance necessary to design and implement Component 3 s activities, the input and other operational cost of demonstration activities and the construction of small offices for DAFO s extension staff at kumban level. It heled establish veterinary facilities in 14 kumban offices of 5 districts to support livestock production (vaccines and equipment such as refrigerators). By the end of the project, close to 20,000 animals were vaccinated and registered. 52. Training was provided at several levels: a. 43 PAFO staff (24 female) were trained at Provincial level in agribusiness/entrepreneurship, effective extension and communication, participatory community planning, M&E computer and internet skills, and project management. PAFO were specifically trained to become trainers of DAFO staff. b. 103 DAFO staff (28 female) were trained, also in agribusiness/entrepreneurship, effective extension and communication skills, participatory community planning, M&E, but with an greater emphasis on technical skills for agricultural and livestock production, IPM, animal disease control and post-harvest technologies. c. 3,634 farmers (870 female) attended trainings on the production of specific crops and livestock, IPM, post-harvest technologies, and handicraft. d. 107 provincial and district staffs (48 female) and 450 farmers participated in study tour focusing on specific topics relevant to prevailing farming systems and Component 3 s specific schemes. 53. From field assessments made by KDP evaluation team, it appears that PAFO and DAFO staff regularly use the skills acquired through Component 3 training in their day-to-day work. Finally, there appears to be among the farmers that participated in C3 training programs a greater adoption of technologies promoted by extension staff utilization of new varieties, improved animal pen (bullpen) construction, animal health care (vaccination), forage cultivation and animal nutrition (mineral nutrition block). It thus appears that the capacity-building activities supported under Component 3 had an important impact on strengthening PAFO/DAFO effectiveness in providing support to farmers and on the latter adoption of improved technologies and management techniques. 41

55 Annex 3. Economic and Financial Analysis 1. This analysis captures the tangible benefits generated by KDP investments. Tangible benefits arise from investments in infrastructure such as health clinics and roads under Component 1, investments in rehabilitation and expansion of the irrigation systems under Component 2, and the ALG and AEG under Component 3. The KDP also generated intangible gains from the capacity building activities but they are not calculated or compared with other projects due to the difficulty of generating accurate figures and the lack of comparable benchmarks. 2. The analysis includes the estimates of Net Present Values (NPV) and Economic Rates of Return (ERR). The lack of significant distortions to tradable and non-tradable prices makes it redundant to estimates the Financial Rates of Return. Future revenues are estimated over a 20-year delivery period and are discounted by 12 percent. The exchange rate of 8,000 Kip/$ was used for conversions. Investments in public infrastructure under Component 1 Health centers 3. The DDF financed the construction of 16 new and rehabilitated 20 existing health centers. As a result, at completion, the number of health centers in the Province increased from 77 to 93. The proportion of the population located within 1 km of a health center increased from 6 percent at the beginning of the project (2010) to 8 percent by 2015 (an increase of about 7,000 people). The average distance for the population to visit a public health center decreased from 7 km to 5 km. 4. The improved health centers will make a better treatment of rural people and reduce the negative effect of diseases, especially of diarrheal diseases, which are among the most frequent causes of health problems in rural Laos. The monetary benefits are estimated using the concept of DALYs (days of work) lost, developed by the World Health Organization. The DDF delivered 36 health centers serving a total of 70,000 catchment beneficiaries. If at any given time 30 percent of these people are assumed to benefit directly from better health services, there will be 22,500 direct beneficiaries every year. The World Health Organization estimates diarrheal DALYs in Lao-PDR at 13 per 1,000 of population. Matching this fraction with the direct beneficiaries of investments estimates the without project loss to society of 293 DALYs annually. By making the assumption that investments reduced negative effects of disease by 70 percent, the savings were estimated at around 205 DALYs per year. When these savings are translated into net benefits over a 20-year period and discounted against an initial investment cost of 4.3 billion Kips, it produced NPV of 5.3 billion Kip and ERR of 19 percent. Rural roads 5. The DDF helped improve 94 km of rural roads, at the unit cost $8,000/km. The majority of roads was built in lowland paddy growing communities. On this basis, it is assumed that increased physical access allowed by improved roads will have the following effects: (i) increased planted area due to better trade; (ii) higher farm-gate prices due to lower transport costs and more competition from traders; and (iii) higher yields due to improved access and cheaper inputs. Under the assumptions that area planted expands by 350 ha, yields increase by 200 kg/ha, and prices grow by $7.00/ton, the ERR is 22 percent. 42

56 Investments in irrigation under Component 2 6. The analysis looks separately at gravity and pump irrigation. The Tha Thot scheme covering 460 ha in WS under irrigation is the example of the gravity irrigation. The investments in small pumps along XBF River cover all 37 schemes with the total coverage of 4,018 ha in WS. Crop models are developed from actual input use and yield data gathered by KDP and ICR field visits. Increases in output are accrued from higher use of inputs, especially improved seeds, higher yields, expanded cropping area and increased cropping intensity, i.e. greater use of the same unit land area over one calendar year. These increases in output are translated into incremental incomes per hectare, serving the basis for calculating NPV and ERR. Gravity irrigation scheme in Tha Thot village 7. The majority of rehabilitation work of this existing irrigation scheme was completed under the original financing of KDP. Main elements of the rehabilitation included the head-works (weir), 1.8 km of the main canal, an access road of 2.3 km, two secondary canals of 4.2 km, and a tertiary canal of 625 m. Total investment costs in infrastructure were $976,211 or $2,122/ha. In parallel to physical infrastructure works, a comprehensive program of WUA training and establishment of farmer groups and agricultural extension was delivered. The delivered output of these activities is a fully functional command area of 460 ha WS and 255 ha DS. The estimates presented in Table 3.2 shows the significant increase in gross profits from KDP investments. In WS, it amounts to 1.87 million Kip/ha and in DS it reaches 3.35 million Kip/ha. The returns to family labor for 50 man-days per hectare are also estimated to increase. Using the farm model information, the combined seasons NPV is estimated at 5.8 billion Kip and ERR at 27 percent. This is above the 12.6 percent ERR assumed in the PAD for this subcomponent. Table 3.2: Farm budget for Tha Thot gravity irrigation scheme Unit Without the Project With the Project WS DS WS DS Gross revenue Yield Tons/ha Paddy price Kip/ton 2,500,000 2,5000,000 2,500,000 2,5000,000 Gross revenue Kip/ha 3,750,000 4,500,000 6,250,000 8,750,000 Costs Seeds Kip/ha 120, , , ,000 Fertilizers Kip/ha , ,500 Hired labor Kip/ha 2,500,000 2,500,000 2,500,000 2,500,000 Animal, machines, fuel, oil Kip/ha 1,000,000 1,000,000 1,000,000 1,000,000 Threshing Kip/ha 262, , , ,500 Land tax Kip/ha 0 35, ,000 Other costs (tools, etc.) Kip/ha 194, , , ,500 Total costs Kip/ha 4,076,625 4,168,500 4,706,625 5,071,500 Gross profit Kip/ha -326, ,500 1,543,375 3,678,500 Return to family labor Kip/day -6,533 6,630 30,868 73,500 Change in gross profit Kip/ha WS 1,870,000 DS 3,347,000 43

57 Small pump irrigation schemes 8. The investment in pump irrigation infrastructure amounted to $2,851,752. These investments led to the improved irrigation over a total of 4,081 ha ($699/ha) of paddy. Funds were deployed in rehabilitation and purchase of new electrically-powered pumps, pontoons, pipes and materials for 23.3 km of secondary canals. 9. The approach to economic analysis to the pump scheme is the same as above. The farm budget was developed for both WS and DS in with and without project scenarios. Paddy yields under this investment are significantly higher in both seasons when compared to Tha Thot gravity model above. Both family and hired labor contribution is maintained at 50 person-days each per hectare. The use of other inputs increased, directly contributing to higher yields in combination with better water management. Returns to family labor remain below opportunity cost in WS without the project scenario at around 40,000 Kip/person-day. As yields increase, so do returns to labor and incremental profits. The with the project scenario delivers an incremental financial gain of 4.95 million Kip/ha and a gross return just under 100,000 Kip/personday worked in one hectare (Table 3.3). Table 3.3: Farm budget for small pump irrigation Unit Without the Project With the Project WS DS WS DS Gross revenue Yield Tons/ha Paddy price Kip/ton 2,500,000 2,500,000 2,500,000 2,500,000 Gross revenue Kip/ha 6,250,000 9,000,000 8,750,000 11,250,000 Costs Seeds Kip/ha 150, , , ,000 Fertilizers Kip/ha ,000 1,375,000 Hired labor Kip/ha 2,500,000 2,500,000 2,500,000 2,500,000 Animal, machines, fuel, oil Kip/ha 1,000,000 1,000,000 1,000,000 1,000,000 Threshing Kip/ha 437, , , ,500 Land tax Kip/ha 0 35, ,000 Other costs (tools, etc.) Kip/ha 204, , , ,500 Total costs Kip/ha 4,291,875 5,685,750 3,282,125 4,984,125 Gross profit Kip/ha 1,958,125 3,314,250 3,282,125 4,984,125 Return to family labor Kip/day 39,163 66,285 65,643 99,683 Change in gross profit Kip/ha WS 1,324,000 DS 1,669, For the estimate of the return to investments, other costs are added. In DS, the farmers pay water pumping fees, 400,000 Kip/ha. In addition, KDP invested in capacity building of farmers and WUAs and in vehicles, consultancy, and building for WUAs. Fifty percent of these costs are added to the investment part. 11. The combined seasons ERR is estimated at 54 percent. The PAD estimated the ERR at 88.4 percent for these investments justifying the high rate by describing rehabilitation as very small deferred maintenance. During the implementation it became obvious that much more work and capacity building was required than small maintenance to ensure a sustainable O&M, and there was the purchase of new pumps and pontoons, which were not foreseen in PAD. 44

58 Investments in livelihoods improvement under Component 3 Agricultural livelihood grants 12. ALG was designed as a targeted funds to the common interest groups at the village level built around identified value chains and micro-enterprises. Fifty-one villages were identified as eligible through a combination of criteria that included the low income levels, a lack of assets, and absence of existing debt, female headed households, and others. A total 1,624 households were selected with defined groups. Each village was allocated maximum grant funding of $10,000 and allocation of funds decided by an especially convened VDC. A Handbook (project Manual) was develop to govern the management, disbursement and participant s contribution of the collective fund. Interest was not charged and the grant required no repayment of the principal. Grants were allocated across 13 value chains/business activities with a total value of just over 4 billion Kips. 13. As over 55 percent of ALG grants were allocated to cattle raising, this analysis is based on the cattle animal model that can be aggregated up to project scale using actual numbers of original livestock and their offspring. The built model revolves on the following key assumptions: (i) productivity drivers such as mortality rates, months to maturity, productive life/culling rate of female cows; (ii) production costs such as veterinary items, additional feed, housing and additional labor; and (iii) investment costs such as housing and the opportunity cost of replacement cattle. In without the project scenario, the grantees are assumed not to own cattle as a prerequisite of participation. 14. The ALG grants purchased 853 heads of cattle since 2012/13. It is estimated that 103 heads were sold for an average price of 2.2 million Kip or a total of million Kip. In 2016, the total ALG heard was valued at 2.94 billion Kip or $368,000 in total and $431 per household. Around 92 days per year of family labor are required per animal although this figure is likely to decline as the heard grows in size. These values estimate a return to family labor of about 23,000 Kip/person-day. The investment in cattle is estimated to generate the NPV of 2.1 million Kip and ERR of 37 percent. Agricultural Entrepreneur Grants 15. The AEG was designed as an enterprise incubator to develop agricultural entrepreneurs running existing small businesses. The component launched the search for a shortlist of 20 potential businesses in all districts of the Province. The selection process was overseen by a seven-member steering committee and required 10 months to complete. Eventually, a short list of 17 grantees was selected, and of these, 10 were individual applicants entitled to maximum funding of $5,000 each. The other 7 grantees were groups legally registered as cooperatives. 16. Total AEG investment was 1.23 billion Kip. There was conditional obligation for grantees to commit matching funds and the current balance sheet shows that grantees committed 48 percent of total funds invested. The Income Statement currently shows a loss (i.e. total expenditure exceeds revenues) of 0.56 billion Kip, mainly due to the early stage of most investments where cash is tied up in working capital and stocks prior to realization of margins through sales. Despite the current loss, the total value of the balance sheet is above the value of the initial AEG investment by 3 percent. 17. The 17 grantees operate in 11 different value chains covering a variety of sectors, and the example of the AEG induced business used for the economic 45

59 calculations is fish farming. The owner-run fish farms located at Silvilay village. The owner received a grant of 40 million Kip and contributed a further 17 million Kip of his own funds to finance an expansion of existing operations. Additional funds were used to expand 6 existing ponds to 11. Each pond is capable of two production cycles per year growing tilapia and cat fish from fingerlings to individual weights of around 700 gram each. The main use of cash in the business so far has been for expansion of pond area and other fixed assets, at 20 million Kip. Direct costs included fingerlings (30 million Kip), feed (51 million Kip), and other items, making a total of 94 million Kip. 18. The benefits come from the business expansion and better fish management. When incremental benefits are extended over a 20-year period, the project generates an NPV of 90 million Kip and ERR of 48 percent. While caution is required in interpreting one year s figures, the owner is entrepreneurial and committed to business, pointing to high likelihood of success. 46

60 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Toru Konishi Senior Economist EASVS TTL Sybounheung Phandanouvong Social Development Specialist EASTS Co-TTL Viengkeo Phetnavongxay Environmental Specialist GENDR Team Member Chanhsom Manythong Rural Development Specialist EASRE Team Member Souphanthachak EASR2 - Procurement Specialist Team Member Sisaleumsak HIS Juliane Clotilde Ineichen Maeder Operations Officer EACLF Team Member Kannathee Danaisawat Financial Management Specialist EASFM - Team Member HIS Olga Hoxon Rizo Program Assistant EASER - Team Member HIS Shimazaki Irrigation Specialist Consultant Team Member Supervision/ICR Sybounheung Senior Social Development Phandanouvong Specialist GSU02 TTL Sergiy Zorya Senior Economist GFA02 Co TTL ICR Team Chanhsom Manythong Agriculture Specialist GFA02 Leader/ ICR-Co Author Khamphet Chanvongnaraz Procurement Specialist EASRP- HIS Team Member Malarak Souksavat Financial Management Analyst GGO20 Team Member Garvan OKeeffe Infrastructure consultant GEDDR Team Member Peter William Crawford Environment Specialist Team Member Maya Gabriela Q. Villaluz Environmental Specialist GEN2A Team Member Juana Veronica Guillermi Mendizabal Joffre Capacity building consultant GSURR Team Member Satoshi Ishihara Senior Safeguards Specialist GSU02 Team Member Sihattha Rasphone Operation Officer GEN2A Team Member Siriphone Vanitsaveth Financial Management Specialist GGO20 Team Member Sombath Southivong Senior Transport Specialist GGO20 Team Member Son Thanh Vo Senior Rural Development Specialist GFA02 Team Member Jean-Pual Chausse Consultant GFADR ICR Co-Author Richard Morgan Agricultural Economist FAO Team Member Ylli Dedja Pump Irrigation Specialist Consultant Team Member Kaysone Vongthavilay Program assistant EACLF Team Member Thongkham Chanthavong Program Assistant EACLF Team Member 47

61 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY FY FY Total: Supervision/ICR FY FY FY FY FY FY FY FY Total:

62 Annex 5. Beneficiary Survey Results 1. A beneficiary satisfaction survey was carried out for subprojects financed by DDF in November The survey aimed to identify initial impacts and obtain feedback from randomly selected beneficiaries on whether they are satisfied with the investments so far or not. The survey covered three cycles of investments completed during the period In total 640 beneficiaries at different ages were interviewed under the beneficiary satisfaction survey from 64 target villages (or about 12 percent out of total 564 villages) in 10 districts. Out of the total respondents, 321 were male and remaining 321 were female. The villages selected represented ethnic groups and geographic coverage. 3. When asked about the number of DDF subprojects in the village which the respondents belong to have received, 500 out of 640 beneficiaries responded that they received one investment since the beginning of KDP and remaining 140 beneficiaries mentioned that their village got two of such investments. It shows that the projects were equally distributed among villages and not scattered in few villages, which is a positive sign. 4. The second question tried to find out whether the investments are operational or not. 460 beneficiaries mentioned that the one investment which they have received are already operational and they are benefiting from it. 120 beneficiaries responded that two investments in their respective villages are already operational and only 60 responded mentioned that none of the investments are operational yet. It was found out that the investments, which are not operational are from the last financial year and due to different reasons for example the implementation of those sub-projects have not been initiated yet. 5. When asked whether the beneficiaries have already received benefits from the sub-projects, 542 beneficiaries responded positively and only 98 beneficiaries responded negatively. When analyzed, it was found out that the beneficiaries responded negatively got the DDF sub-projects in FY and implementation of those sub-projects was delayed due to technical audit and 49

63 other external factors, which the project has already addressed. quality of DDF sub-projects. 6. Lastly, the question related to satisfaction by the beneficiaries related to DDF sub-projects was asked. Out of a total 640 beneficiaries, 619 (or 97 percent) beneficiaries responded that they are very happy with the DDF sub-projects, which have impacted each and every household in their respective villages positively. And 21 respondents were not happy regarding the design and 50

64 Annex 6. Stakeholder Workshop Report and Results 1. Two stakeholder workshops were organized toward the end of KDP. The first workshop was conducted for the concerned provincial and district agencies of Khammouane covered by the project. This workshop discussed the lessons learned from the project implementation and handed over the project investments and assets to the respective provincial and district agencies. The second workshop was carried out with the central government agencies and developments partners to discuss and share experiences from KDP to inform ongoing and future policy and programs particularly those related to decentralization using DDF as a funding facility to finance decentralized public service delivery and infrastructure development. 2. Key lessons learned and comments from these workshops were the following: The arrangements for quality assurance and quality management system are to be incorporated into the DDF guidelines to ensure high quality investments. It is important that communities are empowered to participate in the whole DDF subproject cycle from priority identification, implementation and monitoring of DDF subprojects. It results in enhanced accountability, quality and sustainability of DDF investments. Community-based procurement, construction and monitoring of simple and small-scale subprojects financed by DDF could be promoted and incorporated into the DDF guideline based on experiences from Component 2 and the ongoing Lux-KHALODEP 25. Systematic support from provincial line sector departments for some districts is necessary in design, costing, procurement and quality control of civil works. For effective knowledge management and transfer and continued application of planning and FM for DDF and public investments, a capacity building program (e.g., training of trainers) should be in place as integral part of broader national program under MOHA. Robust M&E system is crucial to identify and address challenges and ensure the project implementation progress toward achieving the objective and targets. The decentralized approach to community infrastructure and service delivery tested by KDP constitutes the most advanced and comprehensive approach to decentralized fiscal transfer in Lao PDR. KDP has collaborated closely with MOHA, which is in charge of implementing decentralization pilots in other provinces, and the results and lessons learned from the capacity building program and the implementation of block grants in Khammouane will inform the on-going national dialogue on decentralization. 25 Khammouane Livelihood Development Project financed by Lux-Development,

65 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 52

66 53

67 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 3. The KDP benefited from the PHRD Grant (in the amount of $0.985 million) financed by the Government of Japan. This is the summary of the final Grant Monitoring Report submitted by the World Bank to the PHRD Secretariat in The Grant objectives were achieved satisfactorily. The PHRD Grant had successfully contributed to develop provincial and district capacities for decentralized planning and financial management in order to enhance delivery of public services at local levels. Specifically, through technical assistance, training, on-the job coaching, and knowledge exchanges, the PHRD Grant has supported: (i) the adaptation to the Lao context of the DDF approach for the direct transfer of financial resources to districts; (ii) the piloting of block grant transfers and implementation by all ten districts of Khammouane Province; and (iii) the development of technical capacities of provincial and district public servants on participatory planning and financial management. 5. This work was achieved through a consultative and learning process with stakeholders at national, provincial, district and village levels, including development partners such as UNDP, UNCDF, and JICA. The Grant has funded a comprehensive capacity needs assessment for the provincial DPI and the provincial DOF that was followed by learning activities in prioritized areas. Beyond training, the PHRD Grant also financed the development of improved systems and procedures for planning and financial management. Successes include the development of a web-based optimized system for financial management and reporting that has effectively connected the provincial administration with all its ten districts. The package included tailored software, training, and support with operationalization, and is expected to have a strong positive impact on financial management transparency and accountability. 6. Based on this experience and as follow up, the KDP was working towards developing a similar system for the management of statistical data and connecting provincial and district statistics offices, which would help enhancing the planning process. The established system and enhanced capacity in planning and financial management has directly contributed toward the on-going national decentralized program to develop districts as a planning unit. 54

68 Annex 9. List of Supporting Documents GoL National Growth and June 2004 Poverty Elimination Strategy World Bank The Country Partnership March 2005 Strategy for the Lao PDR GoL 6 th National Socioeconomic October 2006 Development Plan World Bank Project Appraisal Document May 2008 GoL Lao Household Expenditure September 2008 and Consumption Survey World Bank Financing Agreement July 2008 World Bank/Japanese PHRD Grant Agreement September 2008 Grant GoL/MAF Agricultural Strategy September GoL/MAF Project Implementation October 2010 Manual GoL 7 th National Socioeconomic October 2011 Development Plan World Bank Project Paper December 2011 World Bank World Bank The Country January 2012 Partnership Strategy for the Lao PDR World Bank (First) Project Restructuring October 2013 Paper World Bank (Second) Project Restructuring Paper April 2015 World Bank Aide Memoires of the Project Implementation Support Missions World Bank Project Status and Results Reports GoL/Khammouane Project Quarterly Reports Province GoL/PRF/LAO-ASIE Consultants Group PRF Technical Audit Report January 2015 GoL/Khammouane Project Completion Report February 2016 Province GoL/ Khammouane Province Impact Assessment Study February

69 The Map of the Project Areas 56