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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY EMERGENCY PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR MILLION (US$ 47.8 MILLION EQUIVALENT) INCLUDING SDR 29.5 MILLION (US$ MILLION EQUIVALENT) IN PILOT CRW RESOURCES TO NEPAL FOR AN THE SOCIAL SAFETY NETS PROJECT May 7, 2010 Report No: NP This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective April 08, 2010) Currency Unit = Nepalese Rupees (NRs) 1US$ = NRs. FISCAL YEAR JULY 15 - JULY 14 (Nepali fiscal year) JULY 1 - JUNE 30 (World Bank fiscal year) ABBREVIATIONS AND ACRONYMS ARCS CA CFAA DDCs DISSPRO DOA DOI EMP FCGO FPCR GON GFRP ISN IWRMP MOF MoLD MoAC MOU NARC NPC NSC OAG OP/BP PEFA PFAA PIM PPRO PSC RCIW SGA VAM VDC WFP Audit Report Compliance System Constituent Assembly Country Financial Accountability Assessment District Development Committees District Seed Self Sufficiency Program Department of Agriculture Department of Irrigation Environmental Management Plan Financial Controller General s Office Food Price Crisis Response Trust Fund Government of Nepal Global Food Crisis Response Program Interim Strategy Note Irrigation and Water Resource Management Project Ministry of Finance Ministry of Local Development Ministry of Agriculture and Cooperatives Memorandum of Understanding Nepal Agriculture Research Council National Planning Commission Nepal Seed Company Office of the Auditor General Operational Policy/Business Policy Public Expenditure Financial Accountability Public Financial Accountability Assessment Project Implementation Manual Protracted Relief and Recovery Operations Policy Steering Committee Rural Community Infrastructure Works Subsidiary Grant Agreement Vulnerability Analysis and Mapping Village Development Committee World Food Programme Vice President: Country Director: Sector Manager: Task Team Leader: Isabel Guerrero Susan G. Goldmark Simeon K. Ehui Gayatri Acharya/Jasmine Rajbhandary ii

3 NEPAL Additional Financing for the Nepal Social Safety Nets Project CONTENTS Page A. Introduction... 1 B. Background and Rationale for Additional Financing... 1 C. Project Performance and Proposed Changes... 2 D. Appraisal of Project Activities E. Expected Outcomes F. Benefits and Risks G. Financial Terms and Conditions For the Additional Financing H. Policy exceptions and readiness Annex 1: Food Security and Monitoring Arrangements Annex 2: Results Framework and Monitoring Annex 3: Summary of Estimated Project Costs Annex 4: Governance and Accountability Action Plan (GAAP) Annex 5: Financial Management and Disbursement Arrangements Annex 6: Map. 30 iii

4 NEPAL ADDITIONAL FINANCING FOR THE NEPAL SOCIAL SAFETY NETS PROJECT Date: May 7, 2010 Country Director: Susan G. Goldmark Sector Manager/Director: Simeon Kacou Ehui PROJECT APPRAISAL DOCUMENT SOUTH ASIA SASDA Project ID: P Lending Instrument: Emergency Recovery Loan Project Financing Data [ ] Loan [X] Credit [ X ] Grant [ ] Guarantee [ ] Other: Team Leader: Gayatri Acharya Sectors: Crops (60%);Other social services (30%);Public administration- Agriculture, fishing and forestry (10%) Themes: Global food crisis response (100%) Environmental category: Partial Assessment For Loans/Credits/Others: Total Bank financing (US$m.): 47.8 Proposed terms: Standard, 40 years maturity Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT International Development Association (IDA) Total: Borrower: Government of Nepal Responsible Agency: Ministry of Local Development Estimated disbursements (Bank FY/US$m) FY Annual Cumulative Project implementation period: Start May 25, 2010 End: September 30, 2013 Expected effectiveness date: June 30, 2010 Expected closing date: September 30, 2013 iv

5 A. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an Additional Financing in an amount of IDA credit of US$ million (SDR million equivalent) and IDA grant of US$ million (SDR million equivalent) to Nepal for the Social Safety Nets Project (SSNP) (P113002/Credit Number 4510-NP and Grant Number H424-NP). A total amount of SDR 29.5 million will be provided by the IDA Crisis response window; USD 2.3 million from the restructuring of the Avian Flu project and USD 800,000 from the now closed Economic Recovery Technical Assistance project. The total financing available for the additional financing is approximately USD 47.8 million. The outcomes envisaged in the ongoing project have by and large been met but since the emergency situation related to food insecurity continues, and may be exacerbated by the impacts of the global and regional effects of the financial crisis, the project will need to have additional financing to meet the needs of the country. The additional financing will focus project activities on improving agricultural production and nutritional impact, primarily through food and cash for public works programs as the means for increasing agriculture production in food insecure areas. Public works programs are programs that create temporary employment (which can be paid for in cash or in kind-often food) for people to increase their income and create a public good at the same time. The additional financing will also provide resources for improving access to critical agriculture inputs and strengthening the implementation and monitoring of safety nets programs of the Ministry of Local Development. 2. The Government of Nepal received financing under the Nepal Food Crisis Response Program (NFCRP) consisting of (i) US$14.3 million of additional financing to the Irrigation and Water Resource Development Project (IWRMP) and (ii) a credit/grant of US$21.7 million for a new project on Social Safety Nets (SSNP). These funds were made available from the restructured and cancelled credits/grants under the Financial Sector TA Project (P071291); the Financial Sector Restructuring Project (P084219) and the Telecom Sector Reform Project (P050671), as well as a US$5 million grant from the Food Price Crisis Response Trust Fund. A total of USD 36 million was provided under this program. The NFCRP is intended to finance activities to mitigate both the short-term and the medium to long-term impact of rising food prices in Nepal as a result of the global food price trends. The program supports the Government of Nepal s (GON s) national strategy to maintain and enhance food security. It includes support to the implementation of social safety net measures to maintain access to basic needs (mainly food) among vulnerable households in food insecure districts; and agricultural productivity activities to expedite a supply response through the implementation of measures to raise the yields and consequently the production of staples. 3. The project objectives will change under the additional financing and additional clarifications to the results framework are provided in order to improve measurability of outcomes. B. Background and Rationale for Additional Financing 4. In Nepal, 3.7 million people are currently food insecure. In the south of Nepal, in the Koshi river flood affected areas, 100,000 displaced flood victims returned home in 2009 but land remains highly silted and agriculture productivity will take time to recover. The country has experienced a series of droughts in food insecure areas and an erratic monsoon, which has also affected neighboring, food exporting countries, is causing higher concerns for Nepal s food 1

6 security. During the past 18 months the price of staple commodities has increased by up to percent. While subsidized fuel costs are a heavy burden on the country, the cost of transportation remains high especially for food insecure areas and as a result of continuing transportation and political strikes. Nepal is also experiencing an alarming trend of increasing child wasting rates, which have increased from 9.6% in 2001 to 14.9% in 2006 and 17.4% in Malnutrition remains high, 39 percent of children under five years of age are underweight and almost half (49%) suffer from stunting. Nepal s national annual food price inflation remains about 16 percent. Given that Nepal s poorest households spend more than 75 percent of their income on food, high food prices will continue to erode the recent gains made in poverty alleviation. This series of crises and the direct impact on the poor justify the use of Crisis Response Window Resources. 5. Nepal has also been affected by the global financial and economic crisis, which is having a delayed impact on Nepal s economy and is exposing its structural weaknesses. The most important channel through which the global crisis has impacted Nepal has been the slowed growth in remittance flows. The growth in remittances from Nepali workers abroad has slowed from over 30 percent during the fiscal years 2007/08 and 2008/09 to 12 percent in 2009/10. As the growth in remittance flows has declined, revenue collection is being affected through a slowdown in import tax and VAT collection. This decline in revenue limits the authorities' ability to respond to the poverty and social impacts of the financial and food crises. This series of crises and the direct impact on the poor justify the use of Crisis Response Window Resources. C. Project Performance and Proposed Changes Project Performance to Date 6. The project development objective of the ongoing Social Safety Nets Project is to ensure access to food and basic needs for vulnerable households in the short term in food insecure districts. The Social Safety Nets Project primarily supports a partnership between the Government of Nepal and the World Food Program to bring urgent help to food insecure areas by providing food and cash for work 1. By facilitating this partnership, the Bank has emphasized the need to build country systems to respond to vulnerable areas by increasing the focus on agriculture production and safety net responses where needed. Since country systems remain weak, the project also provides support to build capacity and improve monitoring and response by Government agencies. 7. The Social Safety Nets project currently covers 28 chronically food insecure districts including the districts of Sunsari and Saptari affected by the Koshi floods. Project implementation started in September 2008 and will end by September 30, 2010, unless extended 2. There is clear evidence that the food and cash for work programs being carried out under the project are having immediate impacts on the lives of communities. Communities have reported multiple benefits which include establishment of short term food security, local employment opportunity resulting in reduction in seasonal out-migration for the season, increased income mainly through vegetable production, and structural byproducts such as roads that are providing access to market and other institutions. Based on program monitoring 1 The work refers here to works that are focused on asset creation. 2 The Government will be requesting an extension of this date to coincide with the closing date of the additional financing. 2

7 between November 2008 and June 2009, 94 percent of beneficiaries reported an increase in food security and an average of 5.5 months of food sufficiency; 52 percent of respondents reported eating more meals a day; 45 percent reported an increase in the variety of food consumed and 30 percent reported eating larger meals. 8. All funds allocated for food for work programs have been exhausted. Total disbursements are USD 0.53 million from the IDA credit, of which USD 0.52 million are against the initial deposit to the special designated account, USD11.20 million from the IDA Grant, and USD 5.0 million from the FCRP Trust Fund, fully disbursed. Approximately 4.6 million USD remains undisbursed. Overall, progress towards the Development objectives of the project is considered satisfactory while overall Implementation Progress is considered moderately satisfactory. 9. Under the NFCRP, additional financing provided to the irrigation project (IWRMP) has increased the number of small scale irrigation schemes being provided to small holders, particularly in areas which are remote and food insecure. Sites have been identified and work has started in some areas through community participation and access to small grants. Noting that there has been slower progress made in increasing irrigation access in very remote and food insecure districts such as in the Karnali zone, an increased focus of such sub-projects in the Karnali zone has been agreed to (under the IWRMP and the Karnali Irrigation Program) by the Department of Irrigation (DoI) and will complement the activities of this proposed additional financing. Financing for seed multiplication by communities has also been made available under the IWRMP and will help in improving the availability of productive seed at the community level but this activity has yet to start. 10. Project performance of the Social Safety Nets Project has been satisfactory, with the following results. Impacts: The project has employed 168,263 workers through food/cash for works programs, providing food for approximately 940,000 beneficiaries across 28 food insecure districts. Based on program monitoring between November 2008 and June 2009, 94 percent of beneficiaries have reported an increase in their food security. Project schemes include small scale irrigation and drinking water schemes, construction/rehabilitation of community buildings, wooden bridges, improved market structures and widening of rural roads. About 118 km of rural roads have been constructed, employing more than 38,000 people. Overall, 51,000 households were assisted by the food for work programs, helping them improve food sufficiency levels for an additional months. Post-flood recovery projects in Saptari and Sunsari have supported over 7,500 families through the recovery and rehabilitation projects of flood-damaged infrastructures and through vocational and farm based training. An additional 29,300 farming households have been assisted by the fertilizer and seed transport program for remote districts. Nutrition: Given the alarmingly high rates of anemia and micronutrient deficiencies among children in Nepal, the project supports the provision of multiple micronutrient powder (MNP) with essential vitamins and minerals for children aged 6-59 months, across.. Technical support for awareness raising, training activities and monitoring has been financed by the project while Dutch State Mines provided an in-kind donation of the product. The program has reached 93% of eligible children in its pilot phase. Under the micronutrient intervention, advocacy meetings with district stakeholders have been held, along with trainings for health staff, distributors of micronutrient powders, Female Community Health 3

8 Volunteers (FCHV) and mothers. More than 850,000 sachets (equivalent to a two-month ration) of micronutrient powder have been distributed to over 12,000 children aged 6-59 months. Safeguards and quality: Environmental and social safeguard compliance assessments have been completed for nearly 100 sub-projects in 18 districts, mostly in the Mid and Far West regions of Nepal. The assessment process has reviewed 10 types of infrastructures, including schools, irrigation canals, rural roads and foot bridges, for compliance with technical, social, environmental and health and safety standards. This assessment as well as implementation support missions during the parent project revealed minor environmental issues, impacts of which were limited to the work vicinity arising mainly from community dry-road construction activities. Communities used labour-based methods and hand-tools in the construction works. The client has responded positively in taking remedial actions on environmental mitigation works, even if these were minor. During the parent project, tools such as environmental screening and preparation of EMP were introduced to manage the small-scale impacts, although national environmental requirements exempt these small-scale community activities from formal environmental investigations. The implementers are now aware of the screening, EMP and independent monitoring requirements under this project. The timely and effective use of the environmental screening and EMP preparation, training and capacity building at community level and independent monitoring and support will continue to be strengthened. Donor coordination: Various implementing partners are supporting food/cash for assets schemes, and the financing provided under this project has leveraged both financing and technical support. Rapid response under the project has enabled the Government and development partners to respond to areas of chronic food insecurity as well as to areas impacted by devastating floods. Long term impacts: Aside from the short term benefits of receiving food and/or cash during a period of high vulnerability, site visits suggest that longer term benefits are being supported through a) better connectivity to markets due to track opening/road widening, b) skills training, and c) agriculture and income generating sub-projects such as small market infrastructure, improved storage and fish ponds. 11. Rationale for Additional Financing: While the project has met short term needs of food insecure communities and has helped build some critical infrastructure, the continuing chronic hunger, malnutrition and high food prices in these areas requires additional support both for food and for the production of nutritious food within accessible areas. An enhanced pilot program on nutrition is proposed to bring particular focus on this critical issue. In order to bring about a structural change to the situation, the additional financing will also increase efforts to improve the Government s ability to respond to these types of chronic situations. The World Bank is well placed to support the GON to provide this balanced response both in the short and medium term, as well as help meet short term financing needs. On-going investments in the agriculture and social protection sectors also provide opportunity to support these sectors in the longer term. The objectives of the project, both protecting core spending for the poor and the longer term development of the sectors, are consistent with Crisis Response Window objectives and the Global Food Crisis Response Program of the World Bank. 4

9 Proposed Changes to Original Project and Components 12. Project Objectives and Scope: The Nepal Food Price Crisis Response Program Goal remains unchanged: To address the short and medium term implications of the global food crisis for the country by improving access to food and strengthening agricultural production, particularly for food insecure districts and smallholders. The original project development objective of the Social Safety Nets Project is to ensure access to nutritious food and basic needs for vulnerable households in the short term in food insecure districts. The project development objective of the proposed Additional Financing for the Social Safety Nets Project is to enable Government to improve access to nutritious food for highly food insecure households in the short term and to create opportunities for improved agriculture production in food insecure districts. The new PDO will apply to remaining funds under the parent project and to the additional financing. 13. Proposed project activities for the Additional Financing will support the Government s Food Security Response Program and will incorporate lessons learned from on-going project activities. In particular, the additional financing will scale up interventions focused on agriculture production and nutrition. The project will also support the strengthening of existing social safety nets systems within GON. The proposed implementation period will extend from May 2010 through September The additional financing will be applied to the following components. 14. Component 1 : Improving access to nutritious food for vulnerable populations 15. Sub-component 1a) Public works programs - Scale up agriculture focused activities (approximately USD 35.8 million): Food and cash for work programs which operate in selected districts will continue and will increase the use of cash for work as well as nutritional outreach in highly vulnerable districts. 16. The initial phase of the project suggested that the focus of the RCIW/Public Works Program on road building in general does not address food insecurity problems although it does provide food supplements where these are urgently required. Other activities supported by the project, such as the repair or reconstruction of schools, health clinics, small irrigation schemes, water harvest tanks to improve agricultural production help create alternative livelihoods and short-term employment opportunities. In areas where the road works were clearly focused on linking communities to market these also had a positive outcome related to improving access to food or income. 17. Focus on Agriculture production: Based on assessments of the initial phase of the project, it is proposed that agriculture focused sub-projects under this emergency support should be increased in order to help remote communities grow food at the local level and reduce dependency on outside support. Current experience from other IDA financed projects such as the Poverty Alleviation Fund, as well as some of the interventions financed by the Social Safety Nets Project suggests that this approach provides rapid returns to vulnerable households and might be more suitable for longer term local food security. The proposed additional financing would therefore focus livelihoods programs on agriculture and increase cash for work rather than food for work in areas where food availability is not a constraint. A combined food-and-cash for work program has been financed by the SSNP and implemented by WFP s Cooperating Partner, GTZ in two districts in the Mid-Western region of Nepal: Rolpa and Rukum. Recipients received 5

10 50 percent of their wage in food and the other 50 percent in cash. Findings from WFP monitoring reports on combined food-and-cash and cash transfers activities in 10 districts financed by SSNP and other sources confirm that while a high percentage (64%) of the cash is spent on food, the use of cash for work can additionally increase the ability of these households to spend on education, purchase non-food items as needed and increase their overall purchasing power. Cash for work programs will be scaled up in districts where market linkages are stronger (transport to and from markets on roadways is available) and where food is available at the local level and can be purchased relatively easily. 18. The types of activities to be supported under the public works program to be implemented through the Government s Subsidiary Grant Agreement (SGA) with WFP will include: Fish ponds, Small scale irrigation, Water Harvesting Tanks, Livestock shed improvements, Fruit and vegetable farming and market access together with necessary training and technical assistance. These activities will be carried out in coordination with MoAC and extension agents. Communities in areas where roads and trails are being built would be supported to take advantage of these link roads/trails to built synergies and maximize development impact. Local procurement of food and local grains will be emphasized where possible. As in the past, the program will budget for environment and social management plans and mitigation of possible impacts of public works. Through this support it is expected that food security will be improved for over 90,000 food insecure households. 19. Focus on Gender issues: Since half of the direct beneficiaries of RCIW/Public Works Program are women, with many likely to be of reproductive age, it is critical that participation in a work fare program such as RCIW/Public Works Program improves their economic status but also does not harm their health status. This is especially important for underweight women who may be expending more energy than is healthy for them (and thus increasing the likelihood of giving birth to low-birth weight babies). Care should also be given to avoid creating barriers to breastfeeding as a result of the food for work. The program will therefore ensure that pregnant or nursing women who are participating in public work programs receive access to food/cash but additional safeguards to be applied may include ensuring that wages for women are equal, their access to participation is not hindered and that the infrastructure they work on is appropriate. Managing road side crèches can be considered as participation in the public works program and could, for example, be activities delegated to pregnant or nursing mothers to ensure that they are counted as participants of the program. 20. Scale up Micronutrient Supplements: Piloting of micronutrient supplements under the SSNP has provided an effective entry point to engage with care givers in poor households on innovations to improve their health and nutrition status. Activities such as health and education awareness communications, and involvement of health activists and community resource persons have been found to be effective. Micronutrient Powder (MNP) distribution has been rolled out in17 districts including Rukum, Jumla, Dolpa, Mugu, Humla, Kalikot, Bajhang, Bajura, Rolpa, Dadeldhura, Doti, Jajarkot, Baitadi, Kailali, Darchula, Sindhuli and Udaypur. 21. However, malnutrition remains a serious problem in Nepal and while public works programs will help improve access to food for participants in those programs, pregnant women and young children remain a highly at risk population. According to the 2006 Nepal Demographic and Health Survey (2006 NDHS), 39 percent of children under five years of age were underweight and almost half (49%) suffered from stunting. The survey estimated infant mortality rate at 48 per 1000 live births during the 5 years preceding the survey. Evidence shows 6

11 that there is a critical window of opportunity from pre-pregnancy to 2 years of age when most of the damage from malnutrition occurs (in terms of growth, cognitive development, survival, etc.) and that much of this damage is irreversible later in life. The provision of MNP addresses nutritional deficiencies in that critical window (they are provided with a particular focus on children 6-59 months). The conclusions of a recent assessment carried out through household monitoring shows a high rate of compliance with MNP use by mothers/care givers of beneficiary target children. Promotion and counseling activities will continue to ensure an increased level of awareness among the communities and the beneficiaries about the benefits and proper usage of MNP as well as related nutrition issues such as adequate complementary feeding practices and exclusive breastfeeding. Provision of MNP to households would therefore continue through the MLD/WFP public works programs. 22. Sub-Component 1 b) Health and Nutrition (H&N) pilot - Community Challenge Fund months (approximately USD 2.5 million): In addition to household food availability (addressed through other components of the project), this program will address specific behaviors related to women s food consumption and care during pregnancy. These are significant factors which hinder women from gaining appropriate amounts of weight during pregnancy (possibly causing intra-uterine growth retardation of the foetus), breastfeeding and complementary feeding of children and limit the ability of women to feed young children properly. These behaviors result in high levels of malnutrition for women and young children. The additional financing proposes that the nutrition pilot started in the original project with the distribution of micronutrient powders will be expanded to address behavioral factors that cause malnutrition. The project will therefore pilot a community challenge fund in a few districts to build capacity within community-based organizations to effect behavior change for improved maternal and young child nutrition. This approach is innovative and will be supporting the broader South Asia Food and Nutrition Security Initiative (SAFNSI). 23. The community challenge fund (CCF) will work through the Poverty Alleviation Fund (PAF) using its established financial management arrangements to provide funds to community groups, using beneficiary eligibility criteria and implementation modalities determined by MoLD. The CCF would be piloted in 2-3 food insecure districts, with regular monitoring and robust randomized evaluation to determine whether the approach should be later scaled-up. The CCF would approve competitive grants with the goal of improving measurable outcomes related to weight gain. Key features of the CCF will include: i) focus on outcomes; ii) results-based financing (a grant for improvements in the outcome indicator(s); iii) third party evaluation of results (to get independent assessment of results on which the grant would be paid) and ; iv) provision of TA to the community based organizations as required by the design of the randomized evaluation. It is expected that an implementation agreement will be signed between MoLD and the PAF, which will spell out details of the implementation modalities. 24. Groups eligible to compete for CCF grants would include community based groups and other non-governmental organizations. Because community groups often work specifically with marginalized members of communities, it is anticipated that working with them may not only increase available capacity at community level for improved nutrition, but may also help improve the health status of women and children from excluded groups. In particular, established women s groups at the community level will be eligible for the challenge fund. 25. Prior to the implementation of this sub-component, the design and implementation arrangements will need to be finalized. The World Bank will provide technical assistance under 7

12 a parallel nutrition trust fund to complete the implementation arrangements for this challenge fund. A time line consisting of (i) sampling, (ii) baseline, (iii) information on challenge funds, (iv) information on nutritional interventions, (v) endline and (vi) analysis will be developed and the pilot will be run as a randomized evaluation. The costs for completing this evaluation are included in the allocation provided for this sub-component. 26. Subcomponent 1c: Strengthening Safety Net Systems (approximately USD 3.5 million): If Government is to be able to respond more effectively to both chronic poverty, and crisis-induced shocks on the vulnerable, more effective systems are required for the existing safety net programs. The initial phase of this project included support for a detailed assessment of existing cash transfer programs. The focus of the analysis is to identify actions MoLD can take to strengthen current programs, including improved transfer targeting, program administration, record keeping and payment mechanisms. The analysis will be completed by September The additional financing to this sub-component will build on the analysis and will support the Government to achieve two broad objectives: (i) increasing the efficiency and effectiveness of delivery of the cash transfer and public works programs and (ii) increasing the accountability in the management and administration of these safety net programs at both central and local levels. 28. MoLD implements two of Nepal s principal safety net programs, the cash transfer and public works programs. At present there are more than 905,000 beneficiaries of the cash transfer program, almost double the number of beneficiaries that the program had in Making sure that benefits reach the most vulnerable populations, and establishing effective payment and distribution systems, are vital for the sustainability of safety nets programs. Most of the targeting systems used in Nepal are a combination of geographical and categorical approaches. The correlation of these targeting approaches with poverty and therefore the ability of the programs to alleviate poverty and help respond to shocks is perhaps less than what could be expected. For example, under the expanded Single Women/Widow s Allowance program, less than 30 percent of the eligible are considered poor. Among a small survey of participants in the food-for work programs, some share of benefits goes to non-poor households. These examples suggest the potential for a much greater impact on reducing the effect of shocks and chronic poverty if a greater share of safety net benefits were targeted to the poor. 29. Furthermore, as the trend toward decentralization intensifies, it will be critical to ensure that local government at all levels has the capacity to delivery and manage a wider array of programs, and that MoLD has an increased capacity to monitor and set policy. Improving the efficiency and accountability of cash flow and management of safety net programs is key to generate lessons that can be transferred and applied at decentralized levels in new federal structures. 30. There are five primary activities under this sub-component: (i) an analysis of public workfare programs, including both food- and cash-for-work. Recommendations from the analysis will address geographic targeting of projects and content of activities, skill and management requirements, wage setting and contracting practices, record keeping and payment systems. (ii) design and implementation of a Management Information System (MIS) for social protection programs within MoLD including cash transfers and public workfare, beneficiary records and relevant program costs. (iii) introduction of a grievance mechanism for social 8

13 protection programs within MoLD will also be introduced, with data on grievance addressal linked to the MIS; (iv) implementation of a beneficiary registry database in project districts containing an electronic record of all individuals receiving benefits, amounts paid and expected and core socioeconomic information; (v) introduction of a benefit payments system in the same districts, including direct transfer of benefits into individual checking accounts, and possibly the use of smart cards to record personal identification information and biometrics as well as program eligibility and amount verification. IDA will not be financing the cash transfers, but only the system strengthening. 31. The administrative and delivery improvements are designed ultimately to improve the experience of beneficiaries in receiving their benefits, ensuring transparent distribution and monitoring of benefits, and improving the efficiency and cost of cash transfer programs. The design of an improved targeting system, beneficiary database and MIS system will be developed in the first year of the project. Implementation of the improved targeting system, MIS and payment system will be piloted in food-insecure districts served by the project in the second and third year of the project. Significant training and institutional support will be provided for each VDC, municipality and district level office in the selected districts as well as the central level of MoLD itself. International consultants will be used only where local capacity is lacking. The funds in this component will be complemented by grant and other donor resources including the Rapid Social Response Trust Fund managed by the World Bank. All activities under this component will be closely coordinated with ongoing donor efforts supporting social protection, including through the social protection pilot on education which is being developed under the LGCDP (Local Governance and Community Development Program), ADB s upcoming projects on the child grant and legal identity and DFID TA being provided to the MoLD. 32. Component 2: Support for seed and fertilizer (approximately USD 5.5 million) 3 : For many years, the Government of Nepal has pursued a program to supply chemical fertilizers and improved seeds at subsidized prices to farmers in remote areas (mountain and hills) where the transportation network is either weak or non-existent. The program has subsidized transportation costs of these inputs from road head to the district headquarters. The SSNP supports this program but (i) establishes an independent monitoring system to verify that distribution is effective and meets the criteria for benefits to reach the poor; and (ii) establishes several distribution centers within a district so that the farmer has to travel lesser distance for transporting the inputs from distribution center to the his/her farm than under the arrangement where district headquarters was the only point of input distribution. The SSNP also supports the distribution of organic fertilizer wherever possible. The transportation subsidy for seeds covers the main cereal crops and potatoes. 33. A significant constraint identified in the implementation of component 2 activities has been the availability of improved seeds and fertilizer. While it is proposed that financing for seed and fertilizer transport to remote districts and for monitoring of the program will continue under this component, recent reviews of the program suggest significant room for improvement in targeting and ensuring access to fertilizer and seeds for marginalized groups. Some districts also do not receive any inputs since the transportation cost is actually higher than the rates set by the Government. A comprehensive review of the subsidy program to scale back and re-focus the 3 A detailed report on breeder seeds and a draft cost table for activities related to this component has been prepared and will be finalized within a month of negotiations. 9

14 program has therefore been recommended and will be supported under this component, including the design of a voucher scheme for poor farmers and farmer sensitization on the proper use of fertilizer. In some districts, such as Humla, where the demand for organic inputs is growing, alternative schemes such as composting will need to be promoted and scaled up. Approximately 1.5 million USD of the additional financing will be used to continue the support to the transport subsidy program and to monitor and improve its outcomes. 34. While fertilizer supply constraints are difficult to address and will require regional level solutions, improved provision of good quality source seeds can be addressed within Nepal. Improved seed is the basic requirement for farmers to increase productivity, income, competitiveness and to reduce the risks and uncertainty of climate change. Improved varieties are generated primarily through a plant breeding program. In Nepal, the Nepal Agriculture Research Council (NARC) and the private sector have identified a number of crop varieties that have higher yield potential, increased insect and disease resistance and superior nutritional and other quality requirements. Private Seed Companies are not yet developed enough to invest in research and development activities. Seeds of improved varieties increase yield by 15-20% and in some cases where the improved varieties are replacing old and obsolete varieties being cultivated, the yield increase is 40-50%. 35. Breeder and foundation seeds are produced by NARC and the Seed Board of Nepal has also permitted 14 private sector companies to produce foundation seeds from breeder seeds obtained from NARC institutions. The foundation seed is then used to produce certified/ improved seeds by the National Seed Company and other private companies. One of the main constraints is the non availability of genetically pure breeder and foundation seed that can be used for further multiplication and distribution to farmers, particularly in remote areas. However, meeting the demand of breeder and foundation seed is constrained by poor capacity and resources and inadequate monitoring. Short supply of these seeds results in the inadequate supply of commercial seed of improved varieties. 36. To overcome this chronic problem, three steps are proposed. As a first step, support will be provided to NARC which has the primary responsibility for making genetically pure breeder and foundation seeds available for further multiplication. NARC will identify varieties with better nutritional qualities which can partially offset the impact of climate change which will be suited for the project area and make immediate arrangements to produce breeder / foundation seeds in agreed quantities in the coming season. The program will need to ensure that breeder and foundation seed production supports the seed production chain rather than being sown directly for production of commercial crops 4. Special attention will be given for varieties particularly suitable for the Karnali region and other hard hit areas although the program will also support the production of improved maize, rice and wheat varieties which are grown in productive areas of the country and are critical to improve cereal production overall. The Division of Botany of the National Agriculture Research Council has done pioneering work in identifying rice varieties suitable for Karnali region. Shortage of Breeder and foundation seeds in Nepal has resulted in the coverage of only about 5% of the cultivated area by certified/improved seeds (breeder and Foundation seed production in was 31.7 tons and 429 tons respectively). It is proposed that that at least 25% of the cultivated area should be 4 A mechanism has to be devised to check the use of foundation seed since reviews of the section suggest that foundation seed purchased/supplied does not undergo seed multiplication chain but it is consumed. Seed buy-back programs that provide an incentive to farmers to sell seed that they produce could help. 10

15 covered by certified/improved seeds during the project period for which 340 tons of Breeder and 3313 tons of Foundation Seeds shall be needed. 37. Secondly, the project will assist NARC in developing a sustainable breeder and foundation seed production system to meet the national requirement of breeder seeds, foundation seeds and commercial seeds on a continuing basis. This could be done by improving infrastructure for production, processing, quality assurance, bagging and storage of seeds. For this NARC will identify 1-2 station in each of the three main agro-ecoregions (terai, mid hills and mountain regions) to produce breeder and foundation seed to meet the specific demand of that region for food crops, including the promotion of indigenous crop production in mid-hills and mountain districts. NARC will develop detailed action plans with specific items required with cost estimates for each of the three stations, for seed multiplication, processing, grading, treating, packaging, storage and sale/distribution on a sustainable basis. Such facilities are currently available on a very limited scale and in some cases have become obsolete. NARC will also provide training to private sector on production of breeder, foundation and commercial seeds. A training manual and seed production manual shall also be prepared. Adequate seed quality testing facilities are available in Nepal and do not require additional investment. 38. Thirdly, to ensure a functional and sustainable seed production and supply system, the project will identify and support critical needs of other players in the chain e.g. producers of commercial seeds and suppliers in private sector. On farm demonstrations to increase demand for the quality seeds are also required. In addition, the institutions supported by the program will need to develop mechanisms to invest in the upkeep of facilities and operating costs. Foundation seeds produced under this project support can be made available to farmers and community groups through the International Maize and Wheat Improvement Center (CIMMYT) supported community seed multiplication programs, District Level Seed Sufficiency Program (DISSPRO) and other on-going efforts to increase seed availability at the farm level. This investment will be complementary to the support already provided under the IDA financed Irrigation and Water Resources Management Project (IWRMP) for community multiplication of seeds which is focused on increasing the multiplication of seeds by communities in order to improve seed replacement levels and contribute to improvements in productivity. Production and distribution of seeds must be monitored and evaluated to ensure that these efforts result in increased availability of improved seeds at the farm level. There will be a mid-term evaluation of production and distribution of seeds to ensure that these efforts result in increased availability of improved seeds at the farm level. Approximately 3.5 million USD will be allocated for this breeder/foundation seed production and distribution support. 39. The component will provide technical assistance to support the review and analysis of proposed food and nutrition security programs under the Ministry of Agriculture and Cooperatives, including identifying options for improved livestock services and breeds, dairy and pulses and developing a National Food Security and Nutrition Plan. Approximately 500,000 USD is expected to be used to support this planning and related analytical work. 40. Component 3: Project coordination and monitoring and evaluation (approximately USD 500,000). Project coordination and beneficiary assessments will continue to be financed under this component and the additional financing will add USD 500,000 to the remaining allocation in the original project. Independent monitoring and beneficiary assessments will be increased to evaluate the impacts of all three earlier components of this project. Food and Nutritional Awareness programs can be carried out to improve household level understanding of 11

16 food safety and nutrition. Project Coordination will ensure adequate budget is provided as required for the preparation and implementation of environmental and social management plans as required. 41. A significant weakness in the management of the current project is that there is no crosssector coordination provided by a project steering committee or the national planning commission. The project will need to make a greater effort in ensuring more cross sector coordination and strong leadership must be provided by the implementing agency. The management of the overall project will therefore be elevated to the Joint Secretary level within the Ministry of Local Development, with this Joint Secretary responsible as the Project Director and Head of the Project Implementation Team (PIT). The PIT will include a Project Manager from MoLD who is responsible for component 1; a Project Manager from MoAC who is responsible for component 2; 2 Accounts/Finance Officers; a Procurement Officer; a Monitoring and Evaluation Officer; a Project Engineer; a Social Protection Officer; and a WFP representative. Component 3 will be jointly implemented, with MLD as the lead agency. Procurement plans and Implementation Progress Reports (which include Financial Management Reports) need to be reviewed by the PIT prior to submission to the association. These plans and reports also need to be submitted to the Project Steering Committee. The PIT will meet bimonthly or more frequently as needed. 42. A Project Steering Committee (PSC), chaired by the Secretary of MLD will be constituted and will be responsible for overseeing the overall performance of the project. The Joint Secretaries of the National Planning Commission (NPC), Ministry of Finance (MoF), MoAC, Ministry of Health and Population (MoHP), Ministry of Commerce and Supplies (MoCS), MoLD/Project Director, and the Director General, Department of Agriculture will be members of the PSC. The Project Manager from MoLD will work as Member Secretary of the PSC. Procurement plans and Implementation Progress Reports (which include Financial Management Reports) need to be reviewed by the Project Steering Committee.. The PSC will meet on a trimester basis and will ensure that there is adequate reporting of project activities and achievements to the High Level Food Security Monitoring committee at the National Planning Commission (NPC). The High Level Food Security Monitoring Committee meets on a monthly basis and includes representation at the Secretary level from the Ministry of Local Development, Ministry of Agriculture and Cooperatives and Ministry of Health. Eligibility for Processing under OP/BP The proposed project would help address food insecurity for highly vulnerable populations who have been hit hardest by inflation and by climatic variability. The Government of Nepal has made renewed efforts to address food insecurity, vulnerability and nutrition and has expressed its intention to strengthen Government systems to address chronic food insecurity. The rapid delivery of assistance require the use of flexible procedures that help us build on past success and stem a backward slide in progress made under efforts by the Government, the World Food Program and other partners who have been supporting food insecure populations. Since these challenges need to be addressed urgently, the OP/BP 8.0 guidelines are considered to be appropriate in this operation. The use of Crisis Response Window (CRW) resources in this project will be consistent with CRW objectives and countries are encouraged to give priority to protecting core spending, including safety nets and agriculture. Rapid delivery of assistance is also a positive factor. The proposed project is also consistent with the Global Food Crisis Response Program (GFRP). 12

17 Consistency with Country Strategy (CAS or ISN) 44. The proposed activities are consistent with the current Interim Strategy Note (ISN) and with the country s 3 year interim plan (TYIP). This project has benefited from on-going nonlending technical assistance (NLTA) to support GON s Social Protection system. The social protection NLTA combines social protection program assessments, technical assistance to central and local tiers of government to improve data for implementation and evaluates existing social protection programs and advisory support to central government as it develops its active labor market programs, amendments to social protection program eligibility and targeting mechanisms, and social care services and related implementation mechanisms. 45. The project also complements agribusiness development through farmer based organizations and value chain development and builds on activities under the on-going irrigation project by providing support for complementary inputs such as seed. Taken together, these agriculture programs can address the needs of small scale farmers both with regard to supporting their basic production and consumption requirements and more efficient market integration to take advantage of higher prices and niche markets. 46. An enhanced focus on nutrition helps leverage efforts under the Health and Education SWAps while providing an opportunity for the country and the development community to learn from what might be scalable interventions in this area. D. Appraisal of Project Activities 47. Economic: The benefits from the proposed program are the mitigation of the worst effects of food shortages and price increases on the poorest households through the rapid adoption of responses that will have immediate to medium term effects, which is consistent with the objectives of IDA s Crisis Response Window. To mitigate the impacts of the financial and food crisis, the project will focus on strengthening of social protection systems, human nutrition and promotion of rapid responses in food supply chains, including food production at the local level. The combination of social protection and productivity-enhancing interventions will support objectives of alleviating food insecurity and start addressing the longer-term food availability concerns, while support for nutrition and development of more effective and efficient safety nets can help reduce the social and economic costs of instability and reduce adverse welfare impacts of both exogenous shocks and reforms on the poor. 48. Financial Management: Financial management arrangements will remain largely the same as described in the Emergency Project Paper. The majority of funds has been disbursed through the Subsidiary Grant Agreement with the WFP and is therefore subject to the financial reporting requirements agreed to between the World Bank and the WFP. The WFP has submitted an annual Standard Progress Report as required and monthly physical monitoring reports on an informal basis. The additional financing will continue to use a Subsidiary Grant Agreement with the WFP for the implementation of public work programs which reduces fiduciary risks overall for the project. The Community Challenge Fund guidelines will be prepared prior to disbursements under this category. 49. Neither implementing agency, MoLD or DOA adequately maintains basic program ledgers and books of accounts related to their direct expenditures and overall financial 13

18 management arrangements in both implementing agencies remain weak. With the deployment of accounts staff in both agencies, an improved maintenance of ledgers and books of accounts is expected. Overdue Implementation Progress Reports have now been submitted and the first audit report has been submitted. 50. Procurement: All goods, works and services under the additional financing of the project will be procured in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 and revised in October, 2006 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers'' dated May 2004 and revised in October, 2006 (Consultancy Guidelines). All other requirements related to procurement remain the same as in the Financing Agreements for the SSNP dated November 2, 2008 with one addition. Given that NARC is the only institution in Nepal that has the capability to identify and produce the optimal varieties of breeder seeds of various crops, GON shall utilize the services of NARC on a single source basis for the production of breeder seeds required under the seed support activity under component 2. While there have been delays in the submission of procurement plans, there are no significant issues related to procurement at present. 51. Environmental Safeguards: The additional financing activities will continue to use the Environmental Screening and Guidelines for the Environmental and Social Management Plan prepared and used in the original project. The environmental concerns are related to small-scale community infrastructure construction works. Highly significant environmental impacts are unlikely as indicated by the ongoing operation. The minor and site specific issues such as those that arise from disposal of excess construction wastes, disruption to existing community infrastructure such as irrigation channel or community water tap etc., can be easily addressed through the effective use of the existing screening and environmental management guidelines. Additional financing will emphasize timely screening, Environment Management Plan (EMP) preparation and budget allocation for mitigation works, orientation/ training and monitoring as required. 52. OP7.50 (International Waterways) policy is not triggered because the project financing will only support investments for abstraction of water from locally confined aquifers or small streams and springs and hence will not have any impact on international water. 53. Social: The proposed project will strategically target the poorest and the most vulnerable communities who are either left out or have now become very vulnerable due to adverse impact of global food and financial crises. An analysis of the targeting used in the public works programs supported by the initial phase of this project suggests that geographical targeting is a fairly effective tool to reach vulnerable groups but that more attention needs to be paid to reaching women and socially excluded populations. The project design addresses these findings. 54. Governance and Accountability: The project activities will continue to carry out beneficiary assessments. Social audits of project activities will be continued and a website will be maintained by the project which will post all procurement details of the project and updates on project activities. A draft Governance and Accountability Plan has been prepared (Annex 4). 14

19 E. Expected Outcomes 55. The expected outcomes of the program are to : (a) enable Government to improve access to nutritious food for highly food insecure households in the short term and (b) to create opportunities for improved agriculture production in food insecure districts. The current food insecurity assessment suggests that 1.6 million people in 22 districts are highly to severely food insecure and require assistance. The targeting is based on a compilation of indicators including food availability (food consumption score) and vulnerability (coping index), carried out by WFP and the MoAC. 56. The following 22 districts will be considered as priority 1, based on current information regarding food insecurity: Achham, Baitadi*, Bajhang*, Bajura, Dadeldhura*, Dailkeh, Darchula, Dolpa, Doti, Humla, Jarjarkot, Jumla*, Kalikot, Mugu, Rolpa*, Rukum*, Banke, Kailali, Udayapur, Saptari, Sindhuli and Sankhuwasabha. Priority 2 districts include Salyan, Pyuthan, Khotang and Makwanpur, where work will be carried out in pockets noted to be food insecure based on the food availability and vulnerability data currently available. In the districts with an asterix*, there is a possibility of providing cash transfers in parts of the district with good market access. Food for assets would still be required in the most remote parts of many districts, particularly in areas far from functioning markets and the road network. Public works schemes will be implemented in selected VDCs of the priority districts based on vulnerability and food availability data and a detailed work plan will be included in the operational agreement between MLD and the WFP. 57. Results frameworks and M&E arrangements are described in Annex 2. No significant change will occur in the results framework for the project but new outcome indicators will be added on nutrition and seed support activities. Monitoring and oversight of the Government s overall food crisis response program will be carried out by the Ministry of Local Development together with the Ministry of Agriculture and Cooperatives through the DoA. WFP monitoring data will provide input to progress indicators related to food insecurity. F. Benefits and Risks 58. No additional risks are associated with the additional financing. However coordination mechanisms need to be strengthened to address weaknesses under the current implementation arrangements. The active involvement of the NPC s High Level Task Force for Food security Monitoring is expected to help address this concern. While the project presently works through MoLD and through the GON's present district configuration, the WFP VAM system identifies food insecure areas to the VDC level, and thereby allows the project to identify food insecure areas at lower geo-political levels than districts. As a result, geographical targeting can easily be translated into a new federal configuration, should new levels of government be introduced during the project period. The safety nets systems strengthening activities are focused at various levels of Government and should therefore be easily transferable to different state/federal level should such a change be required during project implementation. G. Financial Terms and Conditions For the Additional Financing 59. The proposed additional financing will be financed as an IDA grant/credit with standard terms for Nepal. 15

20 H. Policy exceptions and readiness 60. An exception to OP/BP 6.00 for allowing food expenditures under the proposed project through the World Food Program has been endorsed by the Bank s management. A policy waiver request regarding fraud and corruption clauses of the Bank s Procurement Guidelines and Consultants Guidelines; right to inspect and audit clauses of the Bank s Procurement Guidelines and Consultants Guidelines; and application of the Bank s Procurement Guidelines and Consultants Guidelines for the Subsidiary Grant Agreement (SGA) between WFP and the Government of Nepal have been endorsed by the Bank s management and approval for this policy waiver is sought from the Board. The same policy exception and waiver were provided under the parent project. The signing of the SGA between the Government and WFP is a condition of effectiveness of the additional financing. 16

21 Annex 1: Food Security and Monitoring Arrangements NEPAL: Additional Financing for the Nepal Social Safety Nets Project 1. The weakness in the management of the current project is that there is no cross-sector coordination provided by a steering committee or the national planning commission. The project implementation arrangements will therefore make a greater effort in ensuring more cross sector coordination and strong leadership will be provided by the implementing agency. 2. The management of the overall project will therefore be elevated to the Joint Secretary level within the Ministry of Local Development, with this Joint Secretary responsible as the Project Director and Head of the Project Implementation Team (PIT). The PIT will include a Project Manager from MoLD who is responsible for component 1; a Project Manager from MoAC who is responsible for component 2; 2 Accounts/Finance Officers; a Procurement Officer; a Monitoring and Evaluation Officer; a Project Engineer; a Social Protection Officer; and a WFP representative. Component 3 will be jointly implemented, with MLD as the lead agency. Procurement plans and Implementation Progress Reports (which include Financial Management Reports) need to be reviewed by the PIT prior to submission to the association. These plans and reports also need to be submitted to the Project Steering Committee. The PIT will meet bimonthly or more frequently as needed. 3. A Project Steering Committee (PSC), chaired by the Secretary of MLD will be constituted and will be responsible for overseeing the overall performance of the project. The Joint Secretaries of the National Planning Commission (NPC), Ministry of Finance (MoF), MoAC, Ministry of Health and Population (MoHP), Ministry of Commerce and Supplies (MoCS), MoLD/Project Director, and the Director General, Department of Agriculture will be members of the PSC. The Project Manager from MoLD will work as Member Secretary of the PSC. Procurement plans and Implementation Progress Reports (which include Financial Management Reports) need to be reviewed by the Project Steering Committee. The PSC will meet on a trimester basis and will ensure that there is adequate reporting of project activities and achievements to the High Level Food Security Monitoring committee at the National Planning Commission (NPC). The High Level Food Security Monitoring Committee meets on a monthly basis and includes representation at the Secretary level from the Ministry of Local Development, Ministry of Agriculture and Cooperatives and Ministry of Health. 4. WFP will continue to provide data from its Vulnerability Assessment Mapping and will continue to support the MoAC in strengthening local capacity for food security monitoring. 5. Independent monitoring and beneficiary assessments will be emphasized to evaluate the impacts of all three earlier components of this project. The nutrition pilot will need independent assessment to determine if community organizations are meeting outcomes prior to performance grants being sanctioned to them. This assessment will be carried out by a skilled third party. 17

22 18 Annex 2: Results Framework and Monitoring NEPAL: Additional Financing for the Nepal Social Safety Nets Project PDO Project Outcome Indicators Use of Project Outcome Information Current Proposed Current Proposed Current Proposed To ensure that vulnerable households meet their requirements for food and basic needs Improved access to food for poor households and vulnerable groups Dropped Track welfare impact No change Enable Government to improve access to nutritious food for highly food insecure households in the short term and to create opportunities for improved agriculture production in food insecure districts. Household food consumption score above baseline of 42 for poor and food insecure households in food insecure districts Number of households benefiting from assets created for agriculture production activities Direct and indirect project beneficiaries (number), of which female (percentage) 5 Improve targeting for input support 5 IDA Core Indicator

23 19 Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Current Proposed Current Proposed Current Proposed 1. Address immediate food and basic needs of vulnerable populations participating in food/cash for work program Food consumption increases in the households participating in food/cash for work programs % of targeted households reporting increased ability to meet their food and basic needs # of days of food/cash for work per % of targeted households reporting increased ability to meet their food needs No change Track impact of food/cash for work program No change 2. Targeted remote districts maintain access to fertilizer No change 3. Challenge fund successful in increasing health and nutritional status of pregnant women, and children in implementation areas household per annum Maintain or increase current level of fertilizer availability in remote districts Improved targeting of small holder farmers for fertilizer use in remote districts No change Improved monitoring and assessment of fertilizer/seed transport subsidy to remote areas Number of challenge fund recipients successful in improving nutritional outcomes (assessed through independent evaluation process) Track access to fertilizer in remote areas Determine efficiency of fertilizer transport subsidy program in reaching poor farmers/develop alternatives No change Determine effectiveness of challenge fund

24 20 Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Current Proposed Current Proposed Current Proposed 4. Constraints to production of breeder and foundation seed addressed 80% of estimated improved capacity achieved Track improvements 5. Satisfactory project implementation Satisfactory beneficiary scorecards/assessments 80% Satisfactory beneficiary scorecards/assessments Assess satisfaction with project with a participatory beneficiary assessment Verify transparency in the use of project funds with wider community No change

25 Annex 3: Disbursement Schedule NEPAL: Additional Financing for the Nepal Social Safety Nets Project Category Amount of the Credit Allocated (Expressed in SDR) Amount of the Grant Allocated (Expressed in SDR) Percentage of Expenditures to be Financed (Inclusive of Taxes) (1) Goods, works and services under Part 1(a) of the Project (2) Goods and services under Part 2 of the Project 7,880,000 16,120, % 3,620, % (3) Goods and services under Parts 1(c) and 3 of the Project and Incremental Operating Costs under Part 3 of the Project 2,195, % (4) Performance Grants under Part 1(b) of the Project 1,650, % of amounts disbursed TOTAL AMOUNT 15,345,000 16,120,000 21

26 Annex 4: Governance and Accountability Action Plan (GAAP) NEPAL: Additional Financing for the Nepal Social Safety Nets Project A. Goal and objectives 1. The main goal of the GAAP for the Social Safety Net (SSN) Project is to contribute to strengthening transparency and accountability within the MoLD and MoAC, particularly as relevant to the implementation of the SSN activities. As such it builds on existing mechanisms within MoLD and MoAC. The project already conducts beneficiary assessments, uses disclosure boards and plans for the development of MIS in MoLD. 2. A Governance and Accountability Action Plan (GAAP) for the SSNP has been developed. The proposed demand side activities will complement the fiduciary and institutional arrangements of the project. 3. The GAAP will pursue the following objectives: a. To improve information management and communication b. To strengthen the feedback mechanisms between beneficiaries and GON c. To ensure resources allocated are spent for the intended purposes and directed to the intended beneficiaries of the project 22

27 B. Action Plan Objectives Activities Key Indicators Timeline To improve information management and communication about project Development of a new and enhanced communication strategy on project activities which also ensures compliance with Right To Information (RTI) Communication Strategy finalized Regular and timely public disclosure activities through MLD and MoAC website, radio(national and local)/tv, newspaper RTI mechanism designed; Staff nominated to focus on RTI; Report on disclosure procedures implemented in the annual progress report By Dec 2010 Web sites of MLD and MoAC disclose SSNP details and updates Disclosure boards at community and district level (including seed/fertilizer delivery schedule) Websites disclose details Websites updated monthly reflecting inputs from MLD s MIS and MoAC s monitoring data 80% project sites have disclosure boards Regularly after June 2010 Initiated in May 2010 MIS for beneficiaries of public works enhanced Monitoring data on fertilizer/seed delivery regularly collected and analysed Training of MLD staff on use of enhanced IS MLD and MoAC website updated regularly to reflect MIS information and monitoring data on fertilizer/seed delivery By December

28 Objectives Activities Key Indicators Timeline Complaints/grievance handling mechanism established for project Grievance mechanism established; Project staff receive training on grievance mechanism At least 75% of complaints addressed in time Established by June 2010 Beneficiary assessment Completion of two BAs ; satisfaction level of 80% level By Dec 2011 To ensure resources allocated are spent for the intended purposes and directed to the intended beneficiaries of the project Third party monitoring of processes Public audits at district and national level Annual with different sample sites each time Public audits held in at least 75% of working districts Annual starting by March 2011 Annual starting by March 2011 Ministry organized forums/workshops for district level staff include learning and sharing session on SSN implementation and monitoring At least 2 sessions a year held with district teams Regular 24

29 A. Background Annex 5: Financial Management and Disbursement Arrangements NEPAL: Additional Financing for the Nepal Social Safety Nets Project 1. Lessons on Financial Management learned during the implementation of the Social Safety Nets Project (SSNP), will be applied to the proposed additional financing with an overall objective to improve the overall governance of the program and financial accountability. Financial management in the ongoing Project has been unsatisfactory. Although this has been flagged on a regular basis, there have been little improvements in the performance. The trimester progress reports including financial monitoring reports have not been submitted. The audit report for the first year FY2008/09 is overdue, and a warning letter was issued by the Bank on February 11, There was no dedicated accounts staff in the Project for a long time as a result of which basic ledgers that were required have not been satisfactorily maintained. Information flow from the World Food Program (WFP) to the implementing agency, Ministry of Local Development (MoLD) was not effective. The Disbursement condition related to Category 2 (payments for transportation of fertilizer and seeds) became effective on December 1, Under the additional financing, Food/Cash for Work Programs will continue to be implemented through the WFP. Access to fertilizer and seeds by farmers in remote areas will be implemented through the Ministry of Agriculture and Cooperatives (MoAC), and programs to strengthen safety net systems will be implemented through the MoLD. Disbursements under the Community Challenge Fund will be conditional on the completion of operational guidelines satisfactory to the Association. The successful model adopted in the ongoing Poverty Alleviation Fund (PAF) Project using similar financial management arrangements which allow cash flow directly to the communities will be adopted. The additional financing will make a provision to support the Nepal Agricultural Research Council (NARC) in developing a sustainable breeder and foundation seed production system. NARC is a government supported autonomous body with primary responsibility for producing genetically pure breeder seeds. NARC also produces foundation seeds. A Memorandum of Understanding (MOU) is expected to be signed between MoAC and NARC for institutional support to NARC. Similarly an implementation agreement is expected to be signed between MoLD and PAF for the implementation of the program under the community challenge fund. B. Country Fiduciary Environment 3. The Nepal Country Financial Accountability Assessment (CFAA) that was conducted jointly by the Government of Nepal (GON) and IDA in 2002 and subsequently updated in 2005, concluded that the failure to comply with the impressive legal and regulatory fiduciary framework makes the fiduciary risk in Nepal High, but the risk is similar to that in most developing countries. The situation has not significantly changed. The Public Financial Management (PFM) Review (May 2007) has reaffirmed that the PFM system in Nepal is well designed but unevenly implemented. The PFM benchmarks established in 2008 based on the Public Expenditure and Financial Accountability (PEFA) framework led by the government with technical assistance of the World Bank have endorsed the continuing high fiduciary risk with several PFM indicators rated at low scale. Joint DFID and World Bank progress review carried out in September 2008 and later in February 2009 have revealed little progress on 25

30 implementation of PEFA Action Plan. Some of the prevailing country level risks include deteriorating control environment, insufficient monitoring, increased threat of collusion and intimidation to bidders, weakening oversight agencies with the absence of institutional leaders which include the Auditor General and the Chief Commissioner of the CIAA have a wider impact on the country s accountability environment including at the sectoral or project level. 4. While these challenges prevail, improving overall financial accountability framework remains a high priority of every government in transition. Frequent transition of political leadership in the government and transfer of key staff involved in the PFM reform has been the main cause of slow movements in accelerating PFM reforms as envisaged by PEFA Action Plan. Some of the actions undertaken during challenging transition period such as, promulgation of the Public Procurement Act and Public Procurement Regulations in 2007, amendment of the Financial Administration Regulations in 2007, and the self-assessment of various PFM Indicators as per PEFA Guidelines in 2007 are some examples of government s continued commitments. Implementation of these frameworks through an integrated PFM reform package through a set of mutually supportive actions that are realistic and can generate positive impacts is critical to mitigate fiduciary risks. Such a package has been reflected in the PFM Strategy Document prepared by the government. A high level steering committee chaired by the Finance Secretary provides necessary forum for close monitoring on implementation with continuation of collaborative support from development partners. C. Adequacy of Fiduciary Arrangements 5. The major share of the expenditures under the ongoing Project was implemented through the WFP under the governance arrangements of the WFP. Almost all amounts allocated for Food/cash-for-work programs have been disbursed responding to emergency circumstances of food deficiencies in remote and food insecure districts. Experience gained through the implementation of the ongoing SSNP reveals the need for improving governance arrangements and mitigating high risks associated with financial management. There will be an increased focus on governance and accountability both by the government and the Bank, increased demand for alternative assurance arrangements such as, third party monitoring, disclosure practice at the community level, arrangement for performance audit through the Office of the Auditor General (OAG) and arrangements for third party verification from time to time by the Bank on specific technical areas and close monitoring on procurement management are the basis for increased comfort on fiduciary arrangements. Coordination between MoLD and WFP and between MoLD and MoAC will also be improved. Further, the proposed GAAP is expected to deeply embed the governance and accountability agenda into the program. 6. Implementation arrangements will basically remain unchanged. However, to ensure better integration and to increase attention at the national level, the focus will be on improving crosssector coordination and project management through a Project Steering Committee and a more representative Project Implementation Team. Details are provided in Annex 1. Staff resources in the Project Implementation Team will be strengthened with the assurance of 2 dedicated Accounts/Finance Officer to be deployed for the purpose of project management. Additional human resources as required will be hired from time to time. With these initiatives, the proposed financial management arrangements will be adequate to manage the additional financing. 26

31 D. Financial Management and Disbursement Arrangements 7. Financial Management Arrangements: Financial management arrangements as described in Annex 4 of the Emergency Project Paper of the original Social Safety Nets Project will prevail for the additional financing with a strong emphasis on improved program implementation and coordination arrangements, implementation of GAAP and close oversight and monitoring both by the Government and the Bank. With regard to staffing related to financial management, it has been agreed with the MoLD that a dedicated Accounts Officer and an Accountant will be deployed for the Project which will be confirmed at negotiations. Additional technical resources will be outsourced as and when required. Further, the MoLD will improve coordination with the WFP and the MoAC to ensure timely reporting. Regular progress meeting of the Project Steering Committee to be chaired by the Secretary of the MoLD and will be organized on a trimester basis.. For the purpose of additional financing, the following financial management improvement plan has been agreed upon: Financial Management Improvement Action Plan Action Responsibility Completion Date MoLD April 30, 2010 DOA 1. Prepare a detailed annual work program and budget (including food/cash for work program) for FY2010/11 and submit to NPC and MOF for approval. 2. Assign a separate identifiable budget line in the Red Book for Support for Seeds and Fertilizer for DOA component for FY2010/ Request OAG/N to carry out the performance audit for SSNP during FY2011/12. MoAC/DOA MOF May 31, 2010 MoLD September 30, 2010 Other program related actions which will impact financial management are as follows: Action Responsibility Completion Date 1. Subsidiary Grant Agreement signed between WFP and MLD Effectiveness condition 2. Prepare and finalize the Operational Guidelines for implementing the Challenge Fund and submit to IDA for review. MOF MoLD WFP IDA MoLD Disbursement Condition for Challenge Fund 8. Financial Reporting: In the ongoing SSNP, the Project has submitted one progress report for the third trimester of FY2008/09 and the first trimester report of FY2009/10. Report submission has been delayed although MoLD is expected to submit the Implementation Progress Report (IPR) on a trimester basis which also includes the Financial Monitoring Report. Due to lack of finance staff for the first few months and later due to lack of dedicated staff, the MoLD was not able to produce the progress reports on time. Expenditures incurred under the additional financing will be integrated into the current agreed format of the IPR and will be submitted within 45 days of the end of each trimester. MoLD will hire consultants to complete this task as needed. Further, the level of coordination that was required between the MoLD, WFP and MoAC was also not effective. The Project Team at MoLD has recently been changed and a strong commitment to implement the program is seen. MoLD and WFP have discussed ways in which to improve their reporting relationship. It has been agreed that WFP will be part of the 27

32 Project Implementation Team and will provide information on a quarterly basis to help prepare the progress reports. As noted in the Subsidiary Grant Agreement, the WFP will prepare Standard Project Reports on an annual basis (the first such report for the additional financing will be provided by March 31, 2011). It has also been agreed that WFP will prepare Interim Consumption Reports every 6 months (the first of such report will be provided by July 31, 2010). 9. Disbursements: Total disbursements as of March 31, 2010 are about US$ million, which is about 72% of the allocated amount. Disbursement arrangements under additional financing will remain same as in the ongoing SSNP that is, based on based on full documentation for contracts above the Prior Review threshold or SOEs. SOE thresholds will also remain unchanged. One category to track the progress on the Challenge Fund will be added as Category 4 and all other categories will remain consistent as per the arrangements in the ongoing project. The same special designated accounts will be used, and the current special designated account threshold will be increased from the current $0.5 million to $1.0 million. 10. Retroactive Financing: To facilitate speedy support to the emergency food crisis response, the Project will allow retroactive financing in the amount of approximately USD 9.6 million for expenditures related to implementation of food for work program that occurred after April 1, The WFP has agreed to pre-finance on behalf of the government on the program scope as will be agreed between GON, WFP and IDA based on this understanding. Until a formal contract is signed, arrangements for this will be discussed during negotiations and recorded in the Minutes of Negotiations. 11. External Audit: An annual audit report of the SSNP including additional financing will be submitted within six months after the end of the fiscal year. The first audit report required under the ongoing SSNP is for FY2008/09. The report was due on January 15, 2010, and was submitted on April 18, Delay in the submission of the audit report in this project has been mainly due to lack of finance staff for some period and the weak capacity of the staff. At the country level, there is an overall delay in the submission of audit reports in the entire portfolio due to weak capacity both on the accounting and auditing side. The absence of leadership in the OAG for more than three years has tremendously affected the capacity of the OAG. This issue has been escalated to the highest level through country management. Expenditures under additional financing will be integrated into the current financial statements. 12. The following audit reports will be monitored in the Audit Report Compliance system (ARCS): Implementing Agency Audit Auditors Audit Due Date MoLD Financial Statements of SSNP including additional financing (by consolidating expenditures incurred by WFP and MoAC) Office of the Auditor General (OAG) 6 months after the end of each fiscal year (January 15 th ) 13. Performance Audit: As an additional assurance arrangement, performance audits will be carried out to measure the performance of the SSNP. Arrangements will be carried out for such audits through the Office of the Auditor General in close collaboration with the implementing 28

33 agencies and the Bank. The first of such audit will be carried out during FY2011/12, and thereafter it will be programmed for every two years interval. 14. Allocation of Financing Proceeds: Disbursement under proposed financing will be made as indicated in Annex B, which indicates the percentage of financing for different categories of expenditures of the project. It is expected that IDA funds will be disbursed over a period of three years. The Closing Date of the financing is September 30, Standard FM related Covenants 15. There are three standard FM-specific covenants: (i) submission of annual audited project financial statements within 6 months after the end of fiscal year; (ii) submission of IPR that includes interim financial monitoring reports each trimester; and (iii) annual work program and budget for each component would be shared with IDA. Supervision 16. Project implementation progress will be closely monitored by MoLD, DOA, WFP, and IDA. IDA will closely supervise project implementation on fiduciary aspects related to financial management until key systems are in place. WFP through its procedures will implement the program with due diligence. The MoLD and DOA will report on project implementation progress through a trimester report, the IPR. The WFP will provide necessary inputs to MoLD for trimester reporting, as stipulated in the Subsidiary Grant Agreement. 17. Key FM fiduciary work includes: (i) ex-post review of financial management arrangements and SOE review; (ii) reviews of implementation progress reports and audit reports and preparing summaries of such reports; and (c) participating in supervision missions and keeping the team informed of FM issues or improvements. Particular attention will be paid to timely and accurate capture of financial information and complete and informative reporting, areas designated as a source of substantial FM risk. The FM rating will be reviewed periodically. Implementation of financial management actions and GAAP will be closely monitored. 29

34 IBRD N E PAL 30 AD D I TI ON AL F I N ANCIN G S OC I AL S AF E TY N E TS PROJ ECT HUMLA DARCHULA C H I N A Darchula PRIORITY 1 DISTRICTS (BASED ON FOOD SUFFICIENCY STATUS) BAJHANG PRIORITY 2 DISTRICTS (BASED ON FOOD SUFFICIENCY STATUS) Chainpur BAITADI Saifaidi MUGU BAJURA MAHAKALI S E T DOTI Mahendranagar A R N A L I INTERNATIONAL AIRPORTS DOMESTIC (PAVED) AIRPORTS Jumla ACHHAM DADELDHURA PRIMARY ALL-WEATHER HIGHWAYS GRAVELLED/EARTHEN ROADS K I Dipayal Dadeldhura JUMLA KALIKOT SELECTED TOWNS AND VILLAGES DOLPA Achham MUNICIPALITIES NATIONAL CAPITAL MUSTANG KANCHANPUR DAILEKH Ataria DISTRICT BOUNDARIES JAJARKOT ZONE BOUNDARIES KAILALI SURKHET B Kailali H E R Jajarkot I RUKUM Birendranagar R BARDIYA A P Salyan Chisapani T MYAGDI Libang Baglung Tulsipur PYUTHAN Tribhuuvannagar BANKE Nepalganj KASKI BAGLUNG Kohalpur Gulariya 28 D H AWA L A G I R I I ROLPA SALYAN Pyuthan Tamghas GULMI I N D I A ARGHAKHANCHI L Koilabas KAPILBASTU Taulihawa U G A N B I Butwal RUPANDEHI Bhairahawa N GORKHA RASUWA Besishahar D A K Dhunche I 28 B A G M A T I Gorkha TANAHU DHADING Bidur Mugling Tansen PALPA M LAMJUNG Pokhara SYANGYA Sandikharka DANG INTERNATIONAL BOUNDARIES MANANG PA RB AT Dhangadhi 30 NUWAKOT KATHMANDU I Naubise Bharatpur NAWALPARASI Parasi Lalitpur CHITWAN Bhimphedi N A R AYA N I Bhikhathori Kodari DOLAKHA SINDHUPALCHWAK KATHMANDU BHAKTAPUR Barhabise Lamosangu LALITPUR Ramechhap MAKWANPUR JANAKPUR PARSA SANKHUWASABHA SAGARMAHA KHOTANG Kalaiya RAUTAHAT SARLAHI Raxaul NEPAL Malangwa Gaur Kilometers To Muzaffarpur 0 25 Bhaduare SIRAHA Siraha Jaleswar Jaynagar 50 Miles TERHATHUM Phidim K O S H I UDAYPUR Dholkebar JanakpurDHANUSHA BHOJPUR Bhojpur SINDHULI MA HOT TAR I Birgunj BARA Dhankuta Dharan Gaighat Lahan SAPTARI PANCHTHAR DHANKUTA M E C H I To Gangtok Ilam ILAM Siliguri Damak SUNSARI Inaruwa MORANG Chandragadhi JHAPA Rajbiraj Bhadrapur BANGLADESH Jogbani This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. I N DI DIA Taplejung OKHALDHUNGA Sindhulimadi To Ghazipur TAPLEJUNG Num RAMECHHAP KAVRE Hetauda SOLUKHUMBU Jiri Dhulikhel Banepa Bhaktapur Biratnagar I N D I A To Purnia To Dinajpur 26 APRIL 2010