Document of The World Bank FOR OFFICIAL USE ONLY Report No: 77335-LA RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF TECHNICAL ASSISTANCE FOR CAPACITY BUILDING IN THE HYDROPOWER AND MINING PROJECT IDA GRANT No. H539-LA AND AUSAID GRANT No. TF099572 (BOARD APPROVAL DATE: JANUARY 12, 2010) TO THE LAO PEOPLE’S DEMOCRATIC REPUBLIC MAY 4, 2013 East Asia and Pacific Region 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. i ABBREVIATIONS AND ACRONYMS CA Concession Agreement DEB Department of Energy Business DEM Department of Energy management DEPP Department of Energy Policy and Planning DGM Department of Geology Management DOM Department of Mines DoP Department of Personnel EIs Educational Institutions GoL Government of Lao PDR MEM Ministry of Energy and Mines MOF Ministry of Finance MPI Ministry of Planning and Investment MTR Mid-Term Review NPSH National Policy of Sustainable Hydropower PDO Project Development Objective SDR Special Drawing Rights Regional Vice President: Axel van Trotsenburg Country Director: Annette Dixon Sector Manager: Julia M. Fraser Task Team Leader: Sombath Southivong ii LAO PEOPLE'S DEMOCRATIC REPUBLIC TECHNICAL ASSISTANCE FOR CAPACITY BUILDING IN THE HYDROPOWER AND MINING PROJECT P102398 CONTENTS Page A. SUMMARY ........................................................................................................................... 1 B. PROJECT STATUS .............................................................................................................. 1 C. PROPOSED CHANGES ...................................................................................................... 1 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................. 6 iii TECHNICAL ASSISTANCE FOR CAPACITY BUILDING IN THE HYDROPOWER AND MINING PROJECT RESTRUCTURING PAPER A. SUMMARY The proposed changes to the Project (IDA Grant No. H539-LA and AusAID Grant No. TF099572, P109736) include: (i) modifications to the scope of project components as defined in Schedule 1 of the Financing Agreement; (ii) revisions to the project Results Framework; and (iii) addition of selection under a fixed budget (FBS) and direct contracting as procurement methods. Additional changes affecting only IDA Grant No. H539-LA, include: extension of closing date and reallocation of IDA Grant proceeds. These changes are proposed to address extensive delays caused by a combination of complex project design and diffused responsibility for implementation, to better align project activities with redefined sector priorities, and to correspond to current implementing agencies’ capacity for implementation. The changes will ensure the successful completion of the project and the achievement of the Project Development Objective (PDO), which remains highly relevant. B. PROJECT STATUS Disbursement as of May 3, 2013 has reached US$ 2.35 million of IDA (equivalent to 29% of the Grant amount), and US$ 0.8 million (30%) of the AusAID Trust Fund. Progress towards achievement of the Project Development Objective and implementation progress are both rated moderately unsatisfactory, primarily due to implementation delays caused by a combination of complex project design, with many implementing departments involved, and the organizational restructuring of key agencies (Ministry of Energy and Mines and Ministry of Natural Resources and Environment) initiated after project effectiveness. The reorganization resulted in a redefinition of departments’ mandates and priorities, diverted attention away from project implementation, and required time to clarify and agree on how project components would align to the new Ministries’ structures. A Mid-Term Review (MTR) was undertaken from January 14 to 25, 2013 to take stock of project progress to date. The MTR concluded that the project remains highly relevant to government needs and is fully aligned with the current Country Partnership Strategy, and recommended that the project be restructured to address implementation challenges. The MTR also noted that implementation has improved in the past months and that Government is fully committed to the achievement of project objectives. The project is in compliance with all legal covenants and audit requirements. C. PROPOSED CHANGES Results/Indicators 1 The Results Framework has been revised to: (i) reflect the change in sector context and priorities; (ii) ensure alignment to the restructured project; (iii) better capture the actual impact of the project in the revised timeframe; and (iv) ensure the feasibility for data collection for results monitoring. The proposed revision includes the PDO indicators, intermediate outcome indicators, and targets. The revised Results Framework is reflected in Annex 1. The modifications will not affect or alter the PDO. Components The proposed changes include consolidation of components and streamlining of activities and are necessary to fully align project activities with government priorities, to define clear responsibilities for implementation and results under fewer departments, and to ensure that retained activities have a high impact on the sectors’ agenda and match current implementation capacities. (a) Consolidating Component 1 “Joint Hydropower and Mining Learning Program� by dropping sub-component 1c “Outreach and Information Sharing for Stakeholders� - this change is proposed as readiness for the implementation of this sub-component is not yet in place. No work has been carried out and no funds have been committed under this sub-component 1c. (b) Component 2: focusing project support to activities that are closely aligned with the mandates of MEM’s restructured departments. (c) Consolidating Component 3 “Mining Sector Development� by cancelling further activities under sub-component 3c “Promotion of Mineral Development� - this change reflects alignment to sector’s shift in policy from minerals promotion to inspection. Public information campaign activities under sub-component 3b “Strengthening of Government Oversight Capacity� will be cancelled to concentrate resources and increase the impact of inspection and cadastre management activities. All changes proposed support the achievement of the Project Development Objective. Table 1 below details the proposed changes and rationale. Table 1: Changes per Component Original Proposed Changes Rationale 1. Joint Hydropower and Mining Learning Program (a) Continuing Learning Program No change for Sector Professionals (b) Education Sector Support No change (c) Outreach and Information Dropped With rapid expansion in Sharing for Stakeholders mining and hydropower sectors in the past few years, developing government capacity for management and oversight is urgently needed. Financial and human resources are, on the other hand, limited. The 2 prioritization and sequencing of areas for intervention is therefore critical. Developing the regulatory framework and enhancing capacity for its enforcement will be addressed through this project prior to moving towards outreach and information sharing for a broader audience in later interventions. 2. Hydropower Sector Development (a) Water Resource management Streamlined to: Government is moving and Hydropower Planning: (a) Sub-component name changed to: towards a more systematic Develop the Recipient’s national Hydropower Policy and Planning. approach for hydropower hydropower planning and development, as reflected in management capacity by: (i) Develop the Recipient’s national the establishment of a specific updating the least-cost hydropower hydropower planning and management department for policy and development plan; (ii) designing capacity by: (i) conducting a study on planning (DEPP). It is key for and implementing hydrological the avoided-cost methodology for the future of the sector to data collection and processing hydropower development plan; (ii) support this effort and focus system, including installation of conducting a hydropower issues and on developing capacities for gauge stations along Nam Ou options study on, inter alia, fiscal policy decision-making and River; (iii) designing and updating policy and institutional arrangements; sector planning in a holistic models for cascaded hydropower (iii) designing and implementing manner. The sub-component development planning including hydrological data collection and has been renamed to reflect development planning for Nam Ou processing system, particularly the combined focus on policy River by supporting data designing and updating the model for and planning. Activities collection, analysis and developing hydropower planning at the river basin initially planned for the best practice examples. level. installation of gauge stations at Nam Ou River are no longer to be supported as a developer has taken over these activities. (b) Hydropower Concession No change Management (c) Hydropower Management and No change Implementation of NPSH 3. Mining Sector Development (a) Improvement of Sector No change Governance and Enabling Environment (b) Strengthening of Government (b) Sub-component name changed to: The broader public Oversight Capacity by: (i) Strengthening of Government Oversight information campaigns and implementing and rendering a Capacity and Cadastre Management. awareness raising have been functional monitoring and narrowed in focus in order to evaluation system on exploration Activities (i), (ii), and (iv) remain support mechanisms and and mine operations through unchanged. Original activity (iii) practices for community standardized reporting templates “developing and implementing public development funds. and systems; (ii) reinforcing mine information campaigns to build environment and inspection awareness on laws and regulations in activities to ensure compliance the mining sector� is modified to: with relevant technical, “developing procedures and guidelines environmental and social, for community development funds in occupational health and safety areas affected by mining�. regulations; (iii) developing and implementing public information campaigns to build awareness on 3 laws and regulations in the mining sector; and (iv) strengthening capacities and functions of the cadaster and mine registry office. (c) Promotion of Mineral No further work will be carried out and To correspond with changes in Development. Develop and no further expenditures will be incurred Government policy priorities upgrade MEM’s geological under this sub-component after from promotion to inspection. information base by: (i) expanding countersignature date of the the availability of geo-science and Amendment to Financing agreement. mining information; (ii) provision of training in geological mapping techniques of one geological prospective area; and (iii) upgrading an existing geological testing laboratory, including acquiring laboratory equipment. 4. Project Administration and Management Project Secretariat to support the No change implementation of the project Reallocation Unspent proceeds for the preparation advance will be reallocated to Category (1) under IDA Grant No. H539-LA. The description to Category (1) will be amended slightly to reflect that no further work on promotion of mineral development, Part 3(c), will be carried out following the restructuring. This same change to the category description will be made to the AusAID Grant No. TF099572. The revised allocatiaon of proceeds table for the IDA Grant is shown below. . Category of Expenditure Allocation (SDR) Percentage of Financing Current Revised Current Revised Current Revised (1) Goods, (1) Goods, Civil 4,680,000 4,852,360 100% 100% Civil Works, Works, Consultants’ Consultants’ Services, Services, Training and Training and Workshops, Workshops, and and Incremental Incremental Operating Costs Operating under all Parts Costs of the Project, except for Part 3 (c) of the Project for expenditures incurred after the countersignature date of the Letter of Amendment (2) Refund of 320,000 147,640 Payable Preparation pursuant to Advance section 2.07 Refinancing Preparation 4 Advance of the General Conditions, Financing Agreement Total 5,000,000 5,000,000 Procurement Selection under a fixed budget (FBS) and direct contracting are added as additional procurement methods under Schedule 2, Section III of the Financing Agreement given that a few consultancy services are simple and precisely defined and some of the equipment to be procured needs to be compatible with existing equipment or proprietary and is obtainable only from one source. Closing date The closing date of the IDA Grant No. H539-LA will be extended from September 30, 2014 until September 30, 2015. Given the initial delays, the proposed extension is necessary to ensure adequate time for the implementation of the planned technical assistance contracts, in particular key larger packages for the development of the cadastre management system, update of the National Policy for Sustainable Hydropower (NPSH), and the regulation for its implementation. The Ministry of Energy and Mines has put in place action plans to complete the Project by the newly proposed closing date. This will be the first extension of the Project. The original closing date for the TF-99572 of March 1, 2014, will be maintained at the request of AusAID. 5 ANNEX 1: Results Framework and Monitoring Revisions to the Results Framework Comments/Rationale for Change PDO Current (PAD) Proposed Increase human capacity No changes are proposed The current PDO is relevant and and improve the achievable performance of government oversight institutions for the hydropower and mining sectors PDO indicators Current (PAD) Proposed change Revised to: Number of qualified Increased number of trained Changed to better reflect direct impact specialists and skilled national human resources in the of project intervention workers as a result of mining and hydropower sectors support to learning program within the public sector and from and educational institutions higher and technical educational institutions (EIs) Revised to: Increased incidence of Enhanced institutional capacity Indicator changed to measure direct compliance with CAs and for the planning, management, impact of institutional strengthening the NPSH; enhanced and monitoring of hydropower and capacity building activities for the capabilities in data plants hydropower sector collection and development planning to serve the needs of the hydropower sector Increase in the quality of Revised to: investments through use of Increased percentage of mining Indicator change to reflect streamlined standardized mining inspections performed through activities on mining and stronger focus investment agreements, the use of improved systems and on oversight through enhanced improved title issuance and procedures capacity for inspection. enhanced enforcement of obligations through vigorous inspections Intermediate Outcomes Intermediate Results indicators Current (PAD) Proposed Current (PAD) Proposed change* Comments/ Rationale change* for Change Joint Learning Program Component Improved Revised to: Cross cutting Revised to: Revised to reflect the knowledge and Improved training courses: Number of GoL end-target value skills of knowledge and contract personnel trained and professionals in skills of GoL management, applying the acquired sector related personnel in financial knowledge and skills in subjects hydropower analysis and cross-cutting areas such and mining accounting, as contract sector related environmental management, financial subjects, and social analysis and 6 resulting in management accounting, improved work environmental and performance social management. Increased Increased Use of modern Revised to: Revised to capture capacity of capacity of curricula and Number of teachers direct impact of project national mining national teaching aids for and students benefiting activities and hydropower university and NUOL and from educational professionals technical technical courses supported schools to schools, and through curriculum develop better update/development, national human proficiency of teacher training, resources in the teaching staff technical/lab mining and equipment and library hydropower materials. sectors Improved Dropped Establishment Dropped Related activities have information and effective been dropped sharing and operation of public outreach information centers in Vientiane as well as four pilot provinces Intermediate Outcomes Intermediate Results indicators Current (PAD) Proposed Current (PAD) Proposed change* Comments/ Rationale change* for Change Hydropower Component Improved Revised to: Application of Revised to: Reflects changes in quality of data Enhanced National Data Application of avoided scope of activities and capacity for planning Collection and costs methodology in collection and capacity for Processing hydropower processing hydropower System development planning. development Planning to decision making More reliable data from gauge stations at Nam Ou River Improved No change Application of No change institutional internal processes and requirements procedures for and standard CA monitoring procedures for CA monitoring and proficiency of staff to manage contracts Improved Revised to: Update of the Revised to: Revised intermediate processes for Adoption of NPSH and Updated NPSH and outcome better reflects implementation improved action plan for approved action plan revised scope of and monitoring processes its and procedures for its activities in this area of compliance including implementation implementation. 7 of NPSH update of the including NPSH and adoption of action plan for improved its compliance. procedures Number of Dropped Already captured provincial under the indicator offices with above. proficient staff to implement and monitor the action plan Intermediate Outcomes Intermediate Results indicators Current (PAD) Proposed Current (PAD) Proposed change* Comments/ Rationale change* for Change Mining Component Improved No change Adoption of No change Governance of standardized terms the Mining and conditions for Sector mine investment agreements Adoption of mining Revised to: Revised indicator regulations as well Number of mining better reflects scope of as consultation regulations drafted and activity procedures for risk- approved mitigation and benefit-sharing Improved No change Strengthening of Revised to: Revised indicator is Government inspection services Number of annual more specific Oversight of the for exploration and inspections of Sector exploitation exploration and mine activities activities using improved inspection system Strengthening of Revised to: Better reflects scope of mine cadastre office Prospecting/exploration project activities and title issuance and mining development licenses located in a developed cadastral system Enhanced Dropped Expanded access to Dropped Related activities have Promotion and geo-information been dropped Development Field training in Dropped Related activities have applied geology been dropped mapping and upgraded laboratory 8 Project Development Objective (PDO): Increase human capacity and improve the performance of government oversight institutions for the hydropower and mining sectors Revised Project Development Objective: No changes are proposed. D=Dropped Baseline Cumulative Target Values** PDO Level Results Core C=Continue Unit of (original Progress Data Source/ Responsibility for N= New Frequency Indicators* Measure project to Date 2013 2014 2015 Methodology Data Collection R=Revised 2010) Indicator One: R (a) 0 (a) 72 150 250 350 Semi-annual Project Reports, DPO/ EIs Increased number of trained Number Training Records national human resources in civil 0 (b) 2,468 2,870 3,456 3,456 (disaggregated by the mining and hydropower servants gender), Survey sectors within the public of Trainees sector and from higher and (b) technical educational Number institutions (EIs) EIs teachers and students Indicator Two: R Text No TA in place Standard Standard Standard Semi-annual Project Reports DEPP, DEB Enhanced institutional monitoring procedure procedure procedure capacity for the planning, framework for CA for CA for CA management, and for CA monitoring monitoring monitoring monitoring of hydropower compliance drafted and applied in applied in plants personnel 25% of 50% of trained current current hydropowe hydropower r plants plants Indicator Three: R Percent Absence of Procureme Regulation 20% 30% Semi-annual Project Reports DOM Increased percentage of comprehen nt is in and inspections exploration; mining inspections sive progress procedures exploration 30 % performed through the use inspection developed ; 20% exploitation of improved systems and procedures inspections procedures exploitation INTERMEDIATE RESULTS Intermediate Result (Component One): (i) Improved knowledge and skills of professionals in sector related subjects; (ii) Increased capacity of national mining and hydropower professionals; (iii) Improved information sharing and public outreach Revised Intermediate Result (Component One): (i) Improved knowledge and skills of GoL personnel in hydropower and mining sector related subjects, resulting in improved work performance; (ii) Increased capacity of national university and technical schools to develop national human resources in the mining and hydropower sectors 9 Intermediate Result R Number None 72 150 250 350 Semi-annual Project reports, DOP indicator One: Number of Training Records GoL personnel trained and (disaggregated by applying the acquired gender), Survey of knowledge and skills in Trainees cross-cutting areas such as contract management, financial analysis and accounting, environmental and social management Intermediate Result R Number None 2468 2870 3456 3456 Semi-annual Project reports, EIs indicator Two: Number of Training Records teachers and students (disaggregated by benefiting from educational gender), Survey of courses supported through Trainees curriculum update/development, teacher training, technical/lab equipment and library materials Intermediate Result D indicator Three: Establishment and effective operation of information centers in Vientiane as well as four pilot provinces Intermediate Result (Component Two): (i) Improved quality of data and capacity for collection and processing; (ii) Improved institutional processes and procedures for CA monitoring; (iii) Improved processes for implementation and monitoring of compliance of NPSH Revised Intermediate Result (Component Two): (i) Enhanced planning capacity for hydropower development; (ii) Improved institutional processes and procedures for CA monitoring; (iii) Adoption of improved processes including update of the NPSH and action plan for its compliance Intermediate Result R Text Avoided- TA is under Draft report Methodology Methodology Semi-annual Project reports DEPP indicator One: Application cost not procurement avoided-cost developed applied for at of avoided costs analysed study least three Power methodology in hydropower Purchasing development planning Agreements (PPAs) Intermediate Result C Text No TA in place Requirements Requirement 6 CAs Semi-annual Project reports DEB indicator Two: Application monitoring and standard s and managed of Requirements and framework procedures for procedures using for CA CA drafted. adopted and requirements standard procedures for CA 10 monitoring and proficiency compliance staff trained and of staff to manage contracts in place procedures R Text Original Works in Draft of Draft of Updated Semi-annual Project reports DEM NPSH in progress updated updated NPSH and Intermediate Result place; no NPSH, action NPSH, implementatio indicator Three: Updated action plan plan and action plan n plan and NPSH and approved action or procedures for and procedures plan and procedures for its procedures its procedures approved by implementation for its implementatio for its National implementa n implementati Committee tion on Intermediate Result (Component Three): (i) Improved Governance of the Mining Sector; (ii) Improved Government Oversight of the Sector; (iii) Enhanced Promotion and Development Revised Intermediate Result (Component Three): (i) Improved Governance of the Mining Sector; (ii) Improved Government Oversight of the Sector Intermediate Result indicator C Text No standard TA in place Standard Standard Standard Semi-annual Project reports DOM One: Adoption of investment investment investment investment standardized terms and agreement agreement agreement agreement for mining template for template template in conditions for mine development mining approved by use investment agreement development MEM drafted Intermediate Result indicator R Number Weak Minerals 2 6 8 Semi-annual Project reports DOM Two: Number of mining mining Law regulations drafted and regulatory updated system approved Intermediate Result indicator R Number Absence of Procurement Procedures for Procedures 19 inspections Semi-annual Project reports DOM Three: Number of annual comprehensi in progress inspection of approved by ve inspection exploration MEM and inspections of exploration procedures and mine used in 12 and mine activities using operations inspections improved inspection system drafted R Percent Inconsistenci The block Prospecting/E 15% of total 30% of total Semi-annual Project reports DOM Intermediate Result indicator es, overlaps system xploration and licenses licenses Four: in developed. Mining located in the located in the Prospecting/exploration and prospection/e Development developed developed mining development licenses xploration cadastral cadastral cadastral located in a developed and mining system system system cadastral system development developed licenses Intermediate Result indicator D Five: Expanded access to 11 geo-information Intermediate Result indicator D Six: Field training in applied geology mapping and upgraded laboratory *Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) **Target values should be entered for the years data will be available, not necessarily annual 12