The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) REPORT NO.: RES35785 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT APPROVED ON MAY 1, 2012 TO REPUBLIC OF MOLDOVA,MINISTRY OF FINANCE AGRICULTURE EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Satu Kristiina J. Kahkonen Senior Global Practice Director: Juergen Voegele Practice Manager/Manager: Julian A. Lampietti Task Team Leader: Anatol Gobjila The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) ABBREVIATIONS AND ACRONYMS AF Additional Financing FSA Food Safety Agency FY Fiscal Year GEF Global Environment Facility IDA International Development Association IMF International Monetary Fund IP Implementation Progress MACP Moldova Agriculture Competitiveness Project MARDE Ministry of Agriculture, Regional Development and Environment PDO Project Development Objective SLM Sustainable Land Management US$ United States Dollar XDR Special Drawing Rights The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) BASIC DATA Product Information Project ID Financing Instrument P118518 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 01-May-2012 30-Jun-2019 Organizations Borrower Responsible Agency Ministry of Agriculture and Food Industry,Ministry of Republic of Moldova,Ministry of Finance Agriculture and Food Industry Project Development Objective (PDO) Original PDO The Project Development Objective is to enhance the competitiveness of the agro-food sector by supporting the modernization of the food safety management system, facilitating market access for farmers, and mainstreaming agro- environmental and sustainable land management practices. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-58580 07-Jul-2016 08-Jul-2016 20-Dec-2016 30-Jun-2019 10.00 2.16 7.78 IDA-56390 19-May-2015 21-May-2015 07-Jul-2015 31-May-2019 12.00 9.71 2.41 IDA-50950 01-May-2012 28-May-2012 20-Sep-2012 31-May-2019 18.00 16.39 .01 TF-14946 15-Nov-2013 15-Nov-2013 15-Nov-2013 30-Jun-2016 2.11 2.26 0 TF-12145 28-May-2012 28-May-2012 20-Sep-2012 31-May-2019 4.44 4.44 0 The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status 1. Since approval in 2012, the Moldova Agriculture Competitiveness Project (MACP) has successfully implemented a wide range of activities which laid the foundations for enhancing the technical functionality of the country’s Food Safety Agency (FSA) and its key divisions, improving the marketability and market integration of horticultural producers through productive partnerships, and promoting sustainable land management (SLM) practices and climate resilience. Additional activities aimed at providing compensatory grants to fruit producers affected by a Russian trade ban in 2014 have also been implemented successfully. Major milestones have been achieved across all areas of the project’s interventions, as attested by achievement and over-achievement of all Project Development Indicators (PDO) and all but one intermediate outcome indicators on food safety, enhancing market access and sustainable land management activities. 2. The project is currently rated Satisfactory for both PDO and Implementation Progress (IP), has been in such standing for the past twenty-four months, and has never been rated less than Moderately Satisfactory for either ratings. Based on the project’s achievement of the PDO and Intermediate Outcome indicators it can be argued that the PDO has essentially been achieved. The project’s procurement and financial management arrangements remain adequate. The project is in compliance with reporting and auditing requirements, and there are no overdue audits or any other outstanding financial management issues. 3. However, while the Government of Moldova has generally provided constructive and timely support in sustaining the project’s IP, there have been several instances in which governance, and more specifically political factors have contributed to delays in implementation, a deceleration of disbursements and even loss of thematic focus. The major such factors were the lengthy public sector reform implemented in 2017-2018, including a complete overhauling of the former Ministry of Agriculture and Food Industry1, new staff and leadership of the newly established Ministry of Agriculture, Regional Development and Environment (MARDE), changes in the leadership of the country’s Food Safety Agency in late 2018, and to some extent political processes related to the parliamentary elections campaign towards the end of 2018 beginning of 2019. 4. In addition to governance factors, capacity problems related to the ability of small-scale contractors to deliver effectively on the project’s civil works contracts, mainly on the rehabilitation of the Balti and Cahul laboratories, have led to the need for the limited extension of the project’s IDA Credit 56390 (scheduled to be closed on May 31, 2019). Lack of proficient and effective small-scale construction companies which can complete works on schedule is a well- known problem in the country, and despite the project’s management unit strenuous and scrupulous monitoring of the realization of works, as well as the pro-active oversight by the FSA, delays have occurred both in Balti and Cahul. 1The former Ministry of Agriculture and Food Industry and the former Ministry of Environment, the project’s two Implementing Agencies, were liquidated. A new entity was established, mainly the Ministry of Agriculture Regional Development and Environment. The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) In fact, the construction of the Cahul laboratory is not yet completed, and despite the contract’s expiry on May 30, 2019, completion will likely be pushed back by several weeks. Untimely completion of works has had a cascading impact on the ability of the project to fund procurement of necessary laboratory equipment and furniture, and fund necessary training activities for the newly hired personnel. 5. Finally, in respect to market enhancing activities, which are primarily focused on providing technical and financial assistance to emerging producer groups in the horticulture, milk and honey producing sub-sectors, the project has registered notable successes. However, due to the fact that uptake of these activities is based on demand from farmers, the project was not able to disburse fully the Additional Financing (AF) under the IDA Credit 58580. The factors that impact demand from farmers are outside the control of the project, such as the general business climate, macro-economic and political situation in the country, difficulties in accessing rural financing, and frequent occurrences of lack of sufficient tenure and track-record by individual farmers attempting to establish former producer groups, which negates eligibility for project support. B. Rationale for proposed changes. 6. In a letter from September 12, 2018, the Government of Moldova has requested a relocation of resources from the project’s Component 2: Enhancing market access to Component 1: Enhancing food safety management, and an ensuing extension of the project’s three IDA credits: IDA-50950, IDA-58580 and IDA-56390. In a separate communication from September 12, 2018, the Government of Moldova’s Global Environment Facility (GEF) focal point in the MARDE has provided a letter of endorsement for a proposed additional GEF-funded financing for the project’s Component 3: Enhancing land productivity through sustainable land management2. 7. The rationale for the relocation has been dictated by the dire emerging need for additional capacity at the country’s border crossing points for food safety inspections. The project has already supported the establishment of four border inspection points (BIPs)3, including one with facilities for quarantining live animals. Agro-food products that are exported and imported can only be moved through these four facilities. However, increasing international trade volumes have revealed the need for additional pass-through capacity on both boarders (Romania and Ukraine). An additional argument for more BIPs is the long distances over which produce has to travel to cross the boarders, a problem which is compounded on the eastern border by the Transnistrian conflict. 8. In regard to the extension of closing dates, MARDE has presented a credible and well-structured work plan for the additionally sought implementation period. Over the past several months, the Bank task team together with MARDE the FSA, have fine-tuned the plan, making sure that the additionally proposed activities are well set-up for completion with necessary efficacy and efficiency and under a reasonable timeline. This fine-tuning exercise also allowed the two sides to gauge better the time required for the extension of the project’s three IDA credits. To this end, a determination was made that IDA-50950 will not require any additional extensions and the remaining balance will be fully disbursed by May 31, 2019. For IDA-56390, a determination was made that the credit requires a 2nd albeit shorter than initially requested extension to allow for the completion of the Cahul laboratory, as well as the procurement, delivery, installation of highly sophisticated specialized laboratory equipment for the Balti and Cahul laboratories and the delivery of the required training. Finally, for IDA-58580, which would finance the construction of at least two additional BIPs under Component 1 and the continuation of market enhancing activities under Component 2, a slightly lengthier than originally requested extension would be necessary due to a heavy reliance on small-scale local 2 All IDA and GEF 5 resources originally allocated for the implementation sustainable land management activities under Component 3 have been fully disbursed and properly accounted for. 3 Boarder inspection points were established on the western border with Romania in Leuseni and Giurgiulesti, and on the eastern border with Ukraine in Tudora and Criva. The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) contractors (with unpredictable performance), as well as give the project a longer time horizon for satisfying potential demand from farmers for setting up producer groups and absorbing matching investment grants under Component 2. These proposed adjustments in the implementation timeline have been formulated in a follow-up request from the Government of Moldova dated April 18, 2019. 9. The closing date extension of IDA-58580 will also provide the platform for securing and implementing the additional GEF-funded financing mentioned earlier, which is expected to be fully blended with MACP. The successful implementation of Component 3 has created a positive consensus among stakeholders that its activities should be continued and scaled up. The feedback from farmers was particularly encouraging, as they seek more and more information and opportunities to adopt sustainable land management practices in a country where land is the main productive asset. In this context, MARDE has provided to the World Bank an endorsement letter for a an additional GEF-7 Grant of US$3.4 million to provide additional financing for Component 3. The rationale for scaling up such activities is solidified by impact assessments that revealed demonstrably positive results and externalities on soil quality, land productivity, and alleviation of anthropogenic pressures on productive agricultural/rural ecosystems. The process for securing the additional GEF funding is currently under way, with the PCN having been approved on April 2, 2019, and the package pending endorsement by the GEF Council in June 2019. IDA-56390 IDA-58580 Original purpose AF for Component 5: Compensatory AF for Component 2: Enhancing access to sales support grants markets Prior Restructuring Reallocation of balance from Component Not applicable 5 to Component 1 and ensuing 24-month extension. Date of approval 05.19.2015 07.06.2016 Undisbursed balance US$2.41 million US$7.78 million 10. The outstanding balances on the two IDA credits proposed for extension (total of US$ 10.19 million) would be fully disbursed by FY21 in the following manner: 20 percent in FY19, 50 percent in FY20 and 30 percent in FY21. II. DESCRIPTION OF PROPOSED CHANGES 11. Reallocation. In order to tackle BIP-related capacity constraints problems, the Government has requested a reallocation of resources from Component 2 to component 1 to finance the establishment of BIPs in the north-west (Sculeni) and north-east (Otaci-Unguri), and possibly in the Chisinau International Airport. The proposed reallocation will increase the cost of Component 1 to US$14.7 from US$11.8 million and reduce the cost of Component 2 from US38.34 to US$35.44 million. Component 2 will not have any of its activities eliminated, but simply a downscaling of the matching grants envelope. The corresponding inter-category reallocation represents a transfer of a total of XDR2.1 million from Category 1 and 2 to Category 4. 12. Risk ratings. Political developments and governance issues in 2018 have put a sizeable European Union macro-finance program on hold. Also, in 2018, IMF and World Bank macro support programs were put on hold due to enacted policies on capital and fiscal amnesty. As a result, in 2019, the Government of Moldova will face a significant financing gap with ensuing pressure on macro stability. Parliamentary elections held on February 24, 2019 have further exacerbated political and governance risks, as the newly elected Parliament is tied in a protracted and tedious coalition building process, with prospects for early parliamentary elections in 2019 being rather robust. Based on the above rationale, the Systemic Operating Risk-rating Tool was updated to reflect heightened country risks for Political and Governance and Macroeconomic risk categories (modified from Substantial to High). The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) 13. Closing Date Extensions. For IDA-56390, the proposed extension is for 12 months, from the current closing date of May 31, 2019 to May 31, 2020, for a cumulative extension of 35 months. For IDA-58580, the proposed extension would be for 24 months, from the current closing date of June 30, 2019 to June 30, 2021 (a 1st-time cumulative extension of 24 months. Political uncertainty due to a tied parliament, on hold budget support and significant financing needs in 2019 14. Results indicators. The target for the intermediate outcome indicator on the operationalization of BIPs will increase from the currently achieved 4 BIPs to 6 BIPs. I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Overall Risk Rating ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Enhancing food safety Enhancing food safety 11.80 Revised 14.70 management management Enhancing market access Enhancing market access 38.34 Revised 35.44 potential potential Enhancing land productivity Enhancing land productivity through sustainable land 9.00 through sustainable land 9.00 management management Project Management 2.60 Project Management 2.60 Contingencies 0.40 Contingencies 0.40 Compensatory Sales Support Compensatory Sales Support 6.80 6.80 Grants Grants TOTAL 68.94 68.94 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-50950 Effective 30-Jun-2017 31-May-2019 IDA-56390 Effective 30-Jun-2017 31-May-2019 31-May-2020 30-Sep-2020 IDA-58580 Effective 30-Jun-2019 30-Jun-2021 30-Oct-2021 TF-12145 Effective 30-Jun-2017 31-May-2019 30-Jun-2016, 08- TF-14946 Closed 30-Jun-2015 Nov-2016 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-58580-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: G,W,non-CS,CS(inc.AUD),TR,OC,P B1,D 1,400,000.00 333,493.08 1,000,000.00 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Matching Inv. Grants for Part B.2 5,700,000.00 1,011,507.76 4,000,000.00 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Matching Inv. Grants for Part C.2 0.00 0.00 0.00 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: G,W,Non-CS,CS,TR,OC for P A,C1,C3 0.00 0.00 2,100,000.00 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: Comp. Sales Sup. Grants for Part E 0.00 0.00 0.00 100.00 100.00 Total 7,100,000.00 1,345,000.84 7,100,000.00 OPS_DETAILEDCHANGES_SORT_TABLE SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance  High Macroeconomic  High Sector Strategies and Policies  Moderate Technical Design of Project or Program  Low Institutional Capacity for Implementation and  Low Sustainability The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) Fiduciary  Low Environment and Social  Low Stakeholders  Moderate Other Overall  Moderate . The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) . Results framework COUNTRY: Moldova MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT Project Development Objectives(s) The Project Development Objective is to enhance the competitiveness of the agro-food sector by supporting the modernization of the food safety management system, facilitating market access for farmers, and mainstreaming agro-environmental and sustainable land management practices. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Enhance competitiveness through modernization of the food safety system Completion of targeted food safety actions for 0.00 20.00 50.00 85.00 100.00 100.00 approximation to EU SPS requirements (Percentage) Enhance competitiveness through facilitation of market access Increased sales (domestic and exports) of high value crops by targeted 0.00 0.00 10.00 20.00 35.00 50.00 50.00 partnerships that receive investment support grants (Percentage) Stabilized levels of production of apples, plums and grapes among 100.00 85.00 beneficiaries of compensatory grants (Percentage) The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Enhance the competitiveness of the agro-food sector by mainstreaming agro-environmental and sustaina Increased on-farm area benefitting from sustainable land management practices 0.00 1,000.00 3,000.00 6,000.00 8,000.00 10,000.00 10,000.00 supported by the project (Hectare(Ha)) Increased area protected by robust anti-erosion shelterbelts rehabilitated 0.00 5,000.00 10,000.00 10,000.00 10,000.00 5,000.00 50,000.00 under the project (Hectare(Ha)) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Enhancing food safety management Food safety agency is The Food agency is Building rehabilitated; Software developed and Food safety agency is Food safety agency is Agency staffed. functional (Text) presently not functional Equipment procured. installed. functional. functional Number of laboratories compliant with standards for 0.00 0.00 0.00 1.00 2.00 2.00 international accreditation (Number) Action: This indicator has been Revised The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 Operational Border Inspection 0.00 0.00 2.00 2.00 4.00 6.00 Points (Number) Action: This indicator has been Revised Enhancing market access potential Capacity for post-harvest handling created in targeted 0.00 0.00 5,000.00 20,000.00 25,000.00 30,000.00 productive partnerships. (Metric ton) Productive partnerships created with project support 0.00 0.00 5.00 15.00 20.00 50.00 (Number) Enhancing land productivity through sustainable land management Analytical solutions for site- Analytical options ready Analytical options ready Analytical options ready Analytical options ready specific SLM technologies Limited analytical work Analytical options ready for application by for application by for application by for application by developed and disseminated exists to date for application by farmers. farmers. farmers. farmers. farmers. (Text) Mechanized mobile squads are 0.00 2.00 2.00 2.00 2.00 2.00 operational (Number) Anti-erosion shelterbelts 0.00 500.00 1,000.00 1,500.00 2,000.00 2,000.00 rehabilitated (Hectare(Ha)) Project Management Grievance mechanism Grievance mechanism No grievance mechanism established (Text) established Published report on the No report Report published functioning of the grievance The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 mechanism, including resolution rates (Text) Compensatory Sales Support Grants Amount provided as compensatory grants 0.00 7,000,000.00 (Amount(USD)) Beneficiaries of job-focused 0.00 5,000.00 interventions (CRI, Number) Beneficiaries of job-focused interventions - Female (CRI, 0.00 1,000.00 Number) IO Table SPACE The World Bank MOLDOVA AGRICULTURE COMPETITIVENESS PROJECT (P118518)