Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 48224-AF

EMERGENCY PROJECT PAPER

ON A

PROPOSED ADDITIONAL GRANT

IN THE AMOUNT OF SDR 50.9 MILLION (US$75.0 MILLION EQUIVALENT)

TO

THE ISLAMIC REPUBLIC OF AFGHANISTAN

FOR

SECOND EMERGENCY NATIONAL SOLIDARITY PROJECT

April 14,2009

Sustainable Development Department Agriculture and Rural Development Sector Afghanistan Country Management Unit South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I ts contents may no t be otherwise disclosed without Wor ld Bank authorization.

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Afn ANDs

ARTF

BG CAO CDC CDP DAB

ERR ESSMF

FM FP

Vice President Country Director

Sector Director Sector Manager

Task Team Leader

CURRENCY EQUIVALENTS

(Exchange rate i s Kabul based open market buying rate effective April 9,2009)

Isabel M. Guerrero Nicholas J. Krafft John H. Stein Adolfo Brizzi Qazi Azmat IsdSusanne Holste

Currency Unit = Afghani Afghani 1.00 = US$0.019

US$1 .OO = Afghani 5 1 .O

GOVERNMENT FISCAL YEAR March 21 -- March 20

ABBREVIATIONS AND ACRONYMS

Afghanis Afghanistan National Development Strategy Afghanistan Reconstruction Trust Fund

Block Grant Control and Audit Office Community Development Council Community Development Plan Da Afghanistan Bank

Economic Rate o f Return Environmental and Social Safeguard Management Framework Financial Management Facilitating Partner

GOA H C D

IDA

I S N NSP M&E M I S MRRD

MSC

MTR PDO

Government o f Afghanistan Human Capital Development

International Development Association Interim Strategy Note National Solidarity Program Monitoring and Evaluation Management Information System Ministry o f Rural Rehabilitation and Development

Management Support Consultant

Mid- Term Review Project Development Objective

.. 11

FOR OFFICIAL USE ONLY

TABLE OF CONTENTS

PROJECT PAPER DATA SHEET1

I. INTRODUCTION ............................................................................................................ 1

11. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING ................ 1

111. PROPOSED CHANGES .................................................................................................. 5

N. IMPLEMENTATION ARRANGEMENTS ................................................................... 5

V. CONSISTENCY WITH THE INTERIM STRATEGY NOTE .................................... 7

VI. UPDATE OF THE ECONOMIC ANALYSIS ............................................................... 7

VII.

FINANCING .................................................................................................................................. 8

FINANCIAL TERMS AND CONDITIONS FOR THE ADDITIONAL

ANNEXES .... ...... . .. ... . ........ . .. . ...... . ........ . ...... ........... . ........... . .. ... . ...... .... .... . ...... 9

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

... 111

Project Paper Data Sheet

Recipient IDA Others Total

Date: April 14,2009 Country: Afghanistan Project Name: Second Emergency National Solidarity Project Additional Financing Project ID: P112869

-

0.0 0.0 0.0 70.0 5 .O 75.0 0.0 0.0 0.0

70.0 5.0 75.0

Team Leader: Qazi Azmat Isa/Susanne Holste Sector Managermirector: Adolfo Brizzi/John H. Stein Country Director: Nicholas J. Krafft

Environmental Category: B

Recipient: Islamic Republic o f Afghanistan Responsible agency: Ministry o f Rural Rehabilitation and Development

Current closing date: September 30, 2009 Revised closing date: SeDtember 30.201 1

s from Bank policies? ,

Revised project development objective/outcome The project development objective remains the same: to strengthen community level

governance in Afghanistan and to improve the access of rural communities to social and productive infrastructure and services by supporting certain components of the Recipient’s National Solidarity Program.

Does the scaled-up or restructured P project trigger any new safeguard policies? N/A

[ ] Loan [I Credit [X ] Grant For Loans/Credits/Grants:

For Additional Financing

Total Bank financing SDR 50.9 mill ion (US$75 million) Proposed terms: Standard IDA Grant terms.

Financing Plan (US$ million) Source I Local 1 Foreign I Total

I. Introduction

1. This Project Paper seeks approval o f the Executive Directors to provide an additional grant in an amount o f SDR 50.9 million’ (US$ 75.0 mill ion equivalent) for the Afghanistan Second Emergency National Solidarity Project (NSP 11) (P102288), which i s currently supported by IDA Grant H261-AF (US$ 120 mill ion equivalent). Upon the Board’s approval o f the additional grant, the closing date o f Grant H261-AF would be extended by two years.

2. The proposed additional financing would help finance a funding gap and enable completion o f original project activities. There would be no changes to the project’s development objectives, results framework and key outcome indicators, and implementation arrangements. As the project i s to reach more rural communities than originally envisaged, the project’s impact will be enhanced. This project i s co-financed by the Afghanistan Reconstruction Trust Fund (TF90205) and bi-lateral funding from ten donor countries.

11. Background and Rationale for Additional Financing

Background

3. The National Solidarity Program (NSP), one o f the most successful priority programs, was launched by the Government o f Afghanistan (GOA) to support governance building and rural infrastructure rehabilitation. The project development objective i s to strengthen community level governance in Afghanistan and to improve the access o f rural communities to social and productive infrastructure and services by supporting certain components o f the Recipient’s National Solidarity Program. The program finances: (i) community mobilization, empowerment and capacity building; (ii) block grants to communities to implement sub-projects for reconstruction and development; and (iii) program implementation management support, including program monitoring and evaluation.

4. The program was f i rst piloted as a component under the Emergency Community Empowerment and Public Works Project funded by IDA grant H009 (closed on December 3 1 , 2004) and subsequently received funding support o f three IDA grants (H072, H174, H209), an ARTF grant (TF 53939) and a JSDF grant (TF 54367); the five grants closed on March 31, 2007, with total disbursement o f US$ 388 million.

5. On account o f the satisfactory performance o f the program in achieving i t s development objectives and the critical need to ro l l out the program to all rural communities, a second phase o f the program for a three-year implementation period, i.e., NSP 11, was prepared in 2006 with support o f the GOA and the donor community. The development objectives and program content o f NSP I1 remain the same as those for the f i rst phase. NSP I1 i s to reach an estimated additional 4,318 villages and provide continued support to the 17,222 communities mobilized in the first phase, with an estimated program cost o f US$ 526 million. To support the NSP 11, an IDA Grant o f SDR 81.2 mill ion (US$120 mill ion equivalent) was approved on December 7, 2006 and became effective May 15, 2007. Donor support for NSP I1 has been largely channeled through the ARTF with some additional bi-lateral funding. On May 27, 2007, ARTF grant TF 90205 for NSP I1 was approved, signed and became effective; since then, cumulative funding allocations to TF 90205 totaled US$ 3 1 1.5 mill ion as o f December 3 1 , 2008. Both IDA grant H 261 and TF 90205 have a current closing date o f September 30,2009.

To be calculated using the SDR rate as o f the last day o f the month preceding negotiations

1

Program Performance

6. Progress (IP) ratings have consistently been Satisfactory.

Since the start o f the NSP 11, it ’s Project Development Objective (PDO) and Implementation

7. The second phase o f the program has brought the following achievements: 4,864 additional communities mobilized and 4, 448 additional Community Development Councils (CDCs) have been democratically elected and 4,242 Community Development Plans (CDPs) have been prepared; 22,84 1 sub-projects have been approved and 15,761 sub-projects have been completed. The majority o f the sub- projects are for drinking water supplies, village roads, and irrigation infrastructure. U S $ 272.7 mill ion has been disbursed as block grants directly to the communities. About 11,738 CDCs mobilized in the first phase o f the program continue to receive support in the current phase while 6,715 CDCs have completely utilized their block grant allocations. The program i s now running in 359 districts out o f a total 398 in all 34 provinces in the country and has reached over 17 mill ion rural people.

8. To date, the program has seen the formation o f 22,618 CDCs, exceeding the target o f 21,600. The reason i s the strong demand from remaining communities in districts which were already mobilized during the f i rs t phase o f the program and a more active engagement in the less secure areas o f the country.

9. NSP I1 has made important contributions to the formation o f social capital and governance in the communities. The CDCs are elected through secret ballots and are generally made up o f a broader representation o f the village constituencies than the traditional shuras. 3 5% o f all CDC representatives are women and 47% o f women confirm their participation in decision making. Moreover, 2 1% o f women are active in development activities outside the NSP. The participation o f women in village l i f e represents an important transformation in a society where women are largely absent from public fora. 89% o f men and 77% o f women rated CDCs as being the main decision making bodies that address critical development needs. CDC representatives receive training in office bearer duties, book keeping, and accounting. Most Facilitating Partners (FPs) focus on conflict resolution and prevention skills during the early phase o f community mobilization and many villagers have attested to the importance o f such activities in the war torn communities. Facilitating partners are national and international NGOs which are very important for the successful implementation o f the NSP. The partners have often worked under difficult conditions, including operational bottlenecks, which wil l have to be overcome as the program moves forward.

10. Legal compliance. The project i s in substantial compliance with legal covenants. As o f the last Implementation Status and Results Report in September 2008, the project was in partial compliance with several legal covenants but significant progress has been made towards full compliance since then. The contract performance assessments o f the Facilitating Partners and the Management Support Consultant are near completion and the draft reports were received in March 2009. An action plan to ensure full compliance o f legal covenants has been developed and i s attached in Annex 1. The evaluation o f the Facilitating Partners assessed the relevance, effectiveness, and efficiency o f the FPs in implementing the NSP program. The evaluation found that the majority o f FPs have a satisfactory financial management system in place to ensure that the funds are used for the purposes intended. The NSP has been important in social transformation in the communities but increased participation by women was seen as the most difficult issue. The FPs can help achieve this but would require further resources. The assessment recommended amongst other points a better documentation and knowledge sharing o f the wide ranging innovations the FPs have introduced.

1 1. Fiduciary compliance. The November 2008 supervision mission noted improvements in the project’s fiduciary compliance. The project has an overdue audit report for Afghan solar year 1386 (ending on March 20 2008) due for submission to IDA by September 22 2008. The annual external audits

2

for all IDA and ARTF funded operations in Afghanistan are carried out by the Auditor General (Control and Audit office) with the support o f a firm o f public accountants selected through international competitive bidding for a period o f 3 years at a time. Selection o f the audit firm for the period o f SY 13 86- 13 88 encountered considerable delays, causing a shift o f the timetable for completing all project audits for SY 1386 by June 30, 2009. On account o f the concrete arrangement and timetable in place for completing the audits for SY 1386, IDA granted on December 19, 2008 a waiver o f BP 10.02 remedies in regard to delaying the presentation o f new operations and extending closing dates for ongoing operations. There are no other unresolved major financial management issues.

A. Block grants

12. The recent Financial Management (FM) review concluded that the project’s current FM arrangements are considered adequate. Procurement and safeguards management have improved and the current arrangements are also considered adequate. Steps have been taken recently to strengthen FM including budgeting, reconciliation o f block grant disbursement to CDCs, and the recruitment o f a professionally qualified accountant in the NSP Finance team, creation o f an Audit unit within the MRRD to carry out independent internal audits and facilitate external audits. MRRD i s implementing an action plan to bring financial and procurement management performance to fully satisfactory level. This action plan i s attached in Annex 2.

Original cost NSP I1 revised Difference In % o f original estimates

Rationale for Additional Financing

13. The November 2008 IDA supervision mission reviewed the overall implementation progress o f the program and the pending program activities and commitments, and re-assessed the NSP I1 financing requirements v i s - h i s the amounts o f funding support secured to date. Compared to the original NSP I1 program costs estimate o f US$526 mill ion when the IDA grant H 261 was approved, the revised program costs are estimated to be about US$ 704 million. The difference comprises (a) an increase o f US$ 110 mill ion under the block grants component; (b) an increase o f

Project Cost Table by Component

B. FP community facilitation & CDC capacity development

*The school window sub-component financed the construction o f schools at the district level. These activities are being handed over to the Ministry o f Education.

3

**It i s proposed to combine original component B “FP Community Facilitation” and Component C “CDCs Capacity

***The institute has been established in MRRD but it was decided to seek financing outside the NSP. Development” because the activities are interwoven and supported by the same FPs.

US$ 61 mill ion under the community facilitation and capacity building component; (c) an increase o f US$ 10 mill ion under the program management component; and (d) a decrease o f US$ 3 mill ion under the Afghanistan Institute for Rural Development component. The table below shows the revised costs by component and the original costs estimates (in US$ million).

14. The original funding requirements for block grants to communities turned out to be considerably underestimated due to (i) the equity considerations (outreach to the entire country) as well as demand o f rural communities for a rapid roll-out o f the program; and (ii) an increase in the average amount o f block grant per community from US$26,000 to US$32,800 due to increased number o f households as displaced people returned to their villages and number o f families were better established. The cost increase for the community facilitation and capacity building component are attributable to: (i) greater community facilitatiodcapacity building efforts required than originally budgeted for, and (ii) unpredictable and delayed releases o f funds from ARTF precipitated by the actual f low o f donor contributions paid into the ARTF and bilateral donors for NSP I1 slowed the pace o f facilitation and subproject implementation and increased the costs o f contracts for Facilitating Partners (FPs) as they are unable to adjust their staffing strengths in the field. Finally, the deteriorating security situation has resulted in more frequent suspensions o f program activities in certain areas where the program i s operating, thereby increasing the program delivery costs.

15. Based on the revised program costs and the actual funding support secured to date, there i s a funding gap o f approximately US$ 264 million, o f which US$ 138 mill ion i s being sought from ARTF. The proposed additional IDA financing o f US$ 75 mil l ion will help close the funding gap while funding from bilateral donors will be sought to meet the remaining balance. This, together with the proposed two year extension o f the grant closing date for H 261 and TF 90205 will enable the completion o f NSP I1 activities.

16. The proposed additional financing i s crucial to enable a well-performing national priority program to continue i t s implementation and achieve its development objectives and outcomes. Presently, 24 percent o f the total number o f communities contracted have fully utilized their block grant allocations. While this achievement i s lower than could have been anticipated at this point, this i s not due to lack o f interest by the communities but rather due to delays in payment o f block grants. The reasons for this include unavailability o f donor funding and operational delays. Preparation for the third phase o f the program (NSP 111) i s expected to begin soon and would focus i.a. on completing the roll-out o f the program to all accessible communities and on recurrent block grants to and consolidation o f existing Community Development Councils. Preparation o f the third phase will also include a review on the sustainability o f the CDCs and their role in the sub-national governance agenda o f Afghanistan. The task team, in consultation with the Client fe l t that it would make more sense to develop a new operation for this next stage rather than for completing current commitments. The proposed additional financing will enable the GOA to fulfill commitments made to the communities. In many villages, NSP i s the only government program delivering results on the ground.

17. Additional financing i s considered to be the most suitable instrument to help close the identified funding gap based on the projections o f further ARTF funding support for NSP I1 in the coming years and difficulties in securing sizable bi-lateral donor support outside the ARTF for NSP 11. As part o f the review o f the NSP I1 implementation, discussions with MRRD and donors are ongoing to examine how community level governance structure as developed under the NSP can be sustained and strengthened to enable CDCs to play a central role in demand-driven rural development and poverty reduction in

4

Afghanistan. Moving forward in that direction would likely call for a re-calibration o f program’s development objectives, program contents, results framework and implementation arrangements. For this reason, there i s a shared view with MRRD that future support would be most suitably delivered through a new lending operation.

18. as well as implementation arrangements remain the same.

The Project’s development objective, program design, results framework and outcome indicators,

111. Proposed Changes

19. This project paper seeks approval for an additional financing o f U S $ 75 million. Upon the Board’s approval o f the additional grant, the closing date o f Grant H261-AF would be extended by two years. The project’s development objectives, program design, results framework and outcome indicators, and implementation arrangements remain the same. Project activities pertaining to Community Facilitation (Component B) and Capacity Building o f CDCs (Component C) wil l be merged because their implementation i s interwoven and supported by the same FPs. As the program i s rolled out to more rural communities than originally envisaged, the program’s impact will be enhanced and the target o f formation o f CDCs at the end o f NSP I1 implementation i s revised from 21,600 to 22, 6 18.

20. Allocation o f the proceeds o f the proposed additional funding i s as follows:

Component

I. Grants for communitv sub-moiects 2. Community facilitation & sub-project preparation and capacity building o f community development councils 3. Implementation and management support Total

Amount o f the Grant Allocated (US$ million)

52.1 17.6

75

% of Grant

69.5% 23.5%

7% 100%

21. Disbursement from the proposed additional grant would be from a single disbursement category covering goods, works, consultants’ services, training, Block Grants and Incremental Operating Costs* for the Project. “Incremental Operating Costs” means the incremental expenses incurred on account o f Project implementation and management, including the operation and maintenance o f vehicles, office supplies, communication charges, insurance costs, office administration costs, banking charges, utility charges, domestic travel and per diem allowances, but excluding salaries o f the officials o f the Recipient’s civi l service.

IV. Implementation Arrangements

22. Activities under the proposed additional financing would be carried out using the existing implementation arrangements. MRRD would continue to have the overall responsibility for program implementation. The NSP management under MRRD guidance would continue to carry out core functions for policy and strategy development and application, coordination with other ministries, resource mobilization, management o f relations with FPs, appraisal, approval and processing o f

5

subprojects, engineering support for sub-projects, monitoring and quality assurance, and training and capacity development at central, regional and provincial levels.

23. The Management Support Consultant employed by MRRD for the NSP I1 i s responsible for consolidated financial management, Block Grant Management and Management Information System (MIS) operations. Most o f the remaining operational functions are now handled directly by NSP national staff except M&E, FP Management, procurement, and technical support where limited technical assistance i s s t i l l provided by the Management Support Consultant. The NSP national staff has greatly improved their technical skills and capacity to carry out the program activities through their engagement in the program and training over the past years. The current implementation arrangements are satisfactory.

24. Procurement: Procurement under the proposed additional financing would be done in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” (dated May 2004; revised October 2006); “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” (dated May 2004; revised October 2006); and the provisions stipulated in the Financing Agreement. The World Bank’s Standard Bidding Documents, Requests for Proposals, and Forms o f Consultant Contract will be used. In case o f conflictlcontradiction between the World Bank’s procurement procedures and any national ru les and regulations, the World Bank’s procurement procedures will take precedence.

V. Consistency with the Interim Strategy Note

25. Because o f the post-conflict nature o f the country, IDA has not prepared a CAS for Afghanistan. An Interim Strategy Note (ISN) was approved by the Board in May 2006 and a new I S N i s scheduled for Board presentation in June 2009. The NSP I1 and the proposed additional financing are fully consistent with the current and the new ISN, in particular with the pillar o f promoting growth o f the rural economy and improving rural livelihoods, which include activities that deliver community infrastructure and improved services. The proposed additional financing would help the Government toward achieving i t s rural development benchmarks o f the Afghanistan National Development Strategy (ANDs). It would also provide a clear signal o f IDA’S continued support for the Government’s broad development efforts, especially for the need to better target benefits towards poor rural communities.

VI. Update of the Economic Analysis

26. At project appraisal the economic analysis showed that NSP sub-projects would have an overall economic rate o f return (ERR) o f about 38.2 percent NSP would also have significant but non- quantifiable impact in i t s contribution for building community level governance throughout Afghanistan. Delivery costs were considered in line with international experiences o f CDD projects.

27. The most recent economic analysis o f NSP done in July 2008 found that economic rate o f returns o f the sub-projects are high. The overall ERR i s 18.9% for all sub-projects across four sectors: irrigation 24%, power 19%, water supply 20%, and roads 16.5%. The sub-projects provided 1.9 mill ion labor days during construction and generated an additional employment potential o f 470,000 labor days annually. Investments in irrigation are shown to have an important equity impact with smaller irrigation projects (Afn 0.5 to 1 million) having ERRS o f over 30% and benefiting more families. Although the ERR from the recent analysis i s less than the project appraisal estimates, it i s evident that the project i s s t i l l economically justified.

6

VII. Benefits and Risks

28. Benefits: The NSP b lock grants are used to build economical ly productive infrastructure and to fo rm social capital and accountability mechanisms in the communities. Returns on NSP outputs are immediate and the evidence suggests that their benefits to villagers are high as stated above.

29. Risks: At appraisal for the NSP 11, the project had been characterized as a high risk-high reward operation. The overal l inherent r i sk and the control r i sk were both rated as high. Based on the implementation experience, the risk mitigation measures in place are generally effective. The security situation, however, continues to worsen. Approximately 37 people work ing on NSP (NSP staff, FP staff, and CDC members) have been k i l l ed since the beginning o f the project. An additional 16 staf f have been kidnapped and f i ve people were attacked or injured. A strategy fo r implementation in high r isk areas has been developed and is currently being pi loted in Kandahar province. If this proves successful, th is strategy wil l be used in other parts o f the country where the security situation m a y deteriorate in the coming months pr io r to the Presidential elections in August 2009.

30. There i s room for further mit igat ing the f inancial and procurement risks. Annex 2 outlines the actions agreed that will further strengthen the N S P f inancial and procurement management, thereby reducing the risks. The overal l program risks and their mit igat ion measures are summarized in the table below.

Risk

Lack o f proper operations and maintenance plans for sub projects by rural communities.

Insufficient technical support to communities during sub project implementation by Facilitating Partners.

Security situation in the country remains fluid which can result in temporary or permanent suspensions o f implementation in certain districts.

The long and harsh winters in Afghanistan result in a short window for sub project implementation which causes delay

Mitigation Plan

Emphasis on developing Operations and Maintenance Plans by the community which identify key people within the community responsible for maintenance o f the sub project. The O&M plan must also provide for community savings that can be used to cover costs o f maintenance.

NSPMRRD to closely monitor FPs to ensure proper technical support i s provided to communities during project implementation and that technical training i s provided for operations and maintenance o f the project.

Though the security i s beyond the control o f th is project, FPs try to minimize these risks by hiring staff locally from the communities they work in. Prior to beginning NSP in any districts, FPs f i rs t meet wi th local power holders to ensure their buy-in from the onset o f the program. In addition, NSP through a series o f consultations wi th project stakeholders, has defined a strategy o f engagement in high risk areas which (i) provides MRRD-NSP, FPs, and their partners with the flexibility to experiment wi th alternative forms o f implementation that are tailored to the local context, (ii) establishes decentralized mechanisms within the NSP program structure that allow local decision-making, rapid sub-project identification and approval, and rapid block grant disbursement, (iii) defines measures to mitigate fiduciary risk inherent to operating in a volatile insecure environment and (iv) establishes a ffamework in which MRRD-NSP, FPs, and communities can evaluate the successes and failures o f alternative implementation approaches and share lessons learned. NSPMRRD i s to ensure that communities receive their block grants prior to working season (May- October) to allow projects to be completed before winter.

7

Risk

in project completion.

The environmental and social safeguard compliance of NSP has so far been rated moderately satisfactory.

The overall procurement risk of the NSP i s moderate. The project includes a large number o f community level sub-projects that are widely spread over the country and wil l be procured by the communities. IDA wil l be unable to carry out procurement reviews of a reasonable sample of sub-projects as would be the case in a normal investment project.

Financial management i s considered a moderate risk.

Mitigation Plan

NSP i s to provide decentralized field level training on environmental and social safeguards to a l l relevant field staff of NSP and FPs, systematic monitoring o f safeguards implementation, develop common NSP approach to encourage ‘community compensation’ of Project affected families and introduce Conflict Mitigation training to a l l field level NSP and FP staff - and link up to understanding of compensation and documentation issues of the Land Acquisition guidelines in ESMF. The operation manual includes clear guidelines and processes to comply with safeguards; NSP has appointed two national focal points for environmental and social safeguard compliance and the recruitment o f international safeguard specialist has just been completed. These officers have overall responsibility for overseeing the implementation o f the Environmental and Social Safeguards Framework and Management Plan.

Procurement administration i s overseen by an international procurement specialist who i s also building in house capacity at the MRRD level. IDA’S procurement team will continue to supervise the procurement administration closely and carry out post-procurement reviews periodically.

The NSP operational manual also provides step by step procedures to be followed by communities for community procurement. The procurement procedures at the community level have been further simplified. The project wil l continue to provide training on community procurement to FP staff and CDCs.

Several steps have been taken in the last three months to improve FM including budgeting, reconciliation of block grant disbursement to CDCs, the recruitment of a professionally qualified accountant in the NSP Finance team, creation of an Audit unit within the MRRD to carry out independent internal audits and facilitate external audits, as well as technical and financial auditing o f the contracts of MSC and FPs.

VII.

30.

Financial terms and conditions for the additional financing

The proposed additional financing would be provided on Standard IDA grant terms.

8

Annex 1: Action plan for full compliance with legal covenants

a) The Recipient shall, no later than July 31, 2007 conduct a baseline survey of the institutional and social indicators of the project.

b) The Recipient shall, no later than March 31, 2008 carry out a performance evaluation of Facilitating Partners.

c) The recipient shall, no later than March 31,

2008, conduct a technical andfinancial audit of the

contracts of the Facilitating Partners and the Management Support

Consultant

The WE3 contracted a team from Harvard University in September 2008 to design the impact evaluation and manage the baseline survey, including appropriate institutional and social indicators. The main reasons for delay in completion o f the baseline were the fluid security situation throughout the country and the suspension o f work in several areas during the winter period. The external consultant for the evaluation was contracted in late September 2008. The field work has been completed and the draft report was received in late January 2009.

Note: Given that the ‘FP Performance Evaluation’ mentioned above included a component o f financial audit, this covenant has been changed to only include ‘Technical and Financial Audit o f the NSP MSC’. This change was introduced in agreement with IDA.

The external consultant for th is evaluation was contracted in late June 2008. Initial meetings and individual evaluations o f MSC consultant outputs were completed by July 2008. Written interviews on contractual targets and deliverables were completed by September 2008. A presentation on the evaluation process and initial findings were made by the consultant to select Stakeholders in November 2008.

> The consultant to send in the remaining draft reports before April 30,2009 after consolidating NSP and FP comments.

> The final individual reports and the synthesized combined report to be made available by May 15,2009.

> Presentation on the findings/ recommendations o f the final report to NSP stakeholders before end o f May 2009.

> The initial contract with the external consultant for this evaluation was terminated due to non-performance. The evaluation w i l l now be completed by the Client based on the work delivered so far.

Baseline survey completed in September 2008.

May 15,2009

May 15,2009

9

d) The Recipient shall, no later than March 31, 2007, establish a management in formation system in accordance with terms of reference and time plans agreed with the Association.

e) The Recipient shall, no later than June 30 and December 31 of each year cause MRRD to prepare and furnish to the Association, bi- annual reports, monthly expenditure forecasts, and monthly cash pow projections.

The initial plan to outsource the preparation of the revised new MIS for the NSP failed due to lack o f suitable candidates in spite o f numerous efforts to recruit/ hire the same. As such, in agreement with IDA, it was agreed that the NSP MIS Department would handle this work themselves but with additional time required for completion.

Stand alone components for the new MIS have been completed and are functional to various degrees.

The main component remaining to be completed i s the decentralization of data entry with regard to NSP community and subproject information.

NSP produces bi-annual reports. I t also produces monthly and quarterly expenditure forecasts and cash flow projections. I t has been agreed that NSP would refme its forecasting model to better reflect the complexity of operations.

> The M&E module i s expected to be finalized by May 15, 2009.

> The FP module i s expected to be completed by May 15,2009.

> The finalization o f the system for decentralized data entry to be completed by May 15,2009.

> Testing and piloting o f system to be completed by May 30, 2009.

> Recruitment and training of staff to handle the decentralized data entry in 34 PMUs to be completed by June 30,2009.

> Introduce the forecasting model recommended by IDA by April 15,2009.

> Ensure that the h t u r e forecasts and projections are systematically shared with IDA and other donors.

> Use the model to improve NSP's financial situation.

New system to be fully functional by 30" June 2009

Forecasting model was delivered on April 3,2009

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