Document of The World Bank Report No: 62731-KZ RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE AGRICULTURAL COMPETITIVENESS PROJECT LOAN NO. 4774 KZ April 28, 2005 IN THE INITIAL AMOUNT OF US$ 24.0 MILLION AND A RESTRUCTURED AMOUNT OF US$ 14.7 MILLION TO THE REPUBLIC OF KAZAKHSTAN October 27, 2011 ABBREVIATIONS AND ACRONYMS ACP – Agricultural Competitiveness Project CGS – Competitive Grant Scheme ICR – Implementation Completion Report KZT – Kazakhstan Tenge NRL – National Reference Laboratory RVL – Republican Veterinary Laboratory Vice President: Philippe Le Houerou Country Director: Motoo Konishi Sector Director: Peter D. Thomson Sector Manager: Dina Umali-Deininger Task Team Leader: Sandra Broka 2 3 Restructuring Status: Draft Restructuring Type: Level two Last modified on date: October 27, 2011 1. Basic Information Project ID & Name P049721: AGRIC COMPETITIVENESS Country Kazakhstan Task Team Leader Sandra Broka Sector Manager/Director Dina Umali-Deininger / Peter D. Thomson Country Director Motoo Konishi Original Board Approval Date 04/28/2005 Original Closing Date: 07/30/2010 Current Closing Date 06/30/2012 Proposed Closing Date [if applicable] N/A EA Category F-Financial Intermediary Assessment Revised EA Category F-Financial Intermediary Assessment-Financial Intermediary Assessment EA Completion Date 05/31/2003 Revised EA Completion Date N/A 2. Revised Financing Plan (US$) Source Original Revised BORR 46.80 37.90 IBRD 24.00 14.70 ZBEN 12.30 12.30 Total 83.10 64.90 3. Borrower Organization Department Location Ministry of Finance Kazakhstan 4. Implementing Agency Organization Department Location Ministry of Agriculture Foreign Relations and Kazakhstan Investments 4 5. Disbursement Estimates (US$m) Actual amount disbursed as of 10/17/2011 14.40 Fiscal Year Annual Cumulative 2011 0.00 14.40 2012 0.30 14.70 Total 14.70 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select N from the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The project’s development objective is to increase the competitiveness of the agricultural sector in Kazakhstan. To achieve this objective, the project would facilitate access to markets by supporting measures to improve the quality and safety of agricultural products, enhance access to information, and harmonize standards. It will also help to increase the quality, quantity, and relevance of applied agricultural research and facilitate transfer of knowledge to farmers. 7b. Revised Project Development Objectives/Outcomes [if applicable] N/A 5 KAZAKHSTAN AGRICULTURAL COMPETITIVENESS PROJECT P058015 CONTENTS Page A. SUMMARY................................................................................................................ 6 B. PROJECT STATUS.................................................................................................. 6 C. PROPOSED CHANGES .......................................................................................... 7 ANNEX 1: RESULTS FRAMEWORK AND MONITORING .................................... 8 6 AGRICULTURAL COMPETITIVENESS PROJECT RESTRUCTURING PAPER SUMMARY 1. This Restructuring Paper seeks approval for the partial cancellation of loan funds for the Agricultural Competitiveness Project (ACP), and to make changes to the Performance Monitoring Framework. The main reason for the cancellation of funds, as requested by the Borrower on June 17, 2011, is the decision to postpone the construction of the National Reference Laboratory (NRL). The proposed cancellation would amount to US$9,300,000 from the original amount of US$24,000,000, from the Loan Categories Unallocated (US$1,000,000), Civil Works (US$5,300,000), and Goods (US$3,000,000). PROJECT STATUS 2. The project was approved on April 28, 2005. The objective of the project is to increase the competitiveness of the agricultural sector in Kazakhstan. Initially, the project was affected by start-up delays but since early 2009 has shown satisfactory progress and results almost in all components. Progress towards achievement of the project development objective is rated moderately satisfactory. Due to a temporary slowdown in loan disbursement, the implementation progress rating was downgraded to moderately unsatisfactory in December 2010. Total disbursements to date amount to US$36.5 million, of which US$13.2 million was financed from the World Bank loan, and US$23.3 million from counterpart funds, higher than originally planned, demonstrating a strong commitment to the Project by the Borrower. 3. The project is very close to fully achieving its main outcome indicator targets and objective. Furthermore, a survey is underway to evaluate the project outcomes, quantify the project’s contribution to the overall increase in competitiveness of the agricultural sector, and confirm achievement of the fourth objective in terms of beneficiary satisfaction. Despite the delay in completing the NRL, the third objective of improving testing of agricultural products would also be achieved due to other activities supported by the project in this area. 4. The project underwent a level two restructuring in July 2010 to extend the loan closing date from July 31, 2010 till June 30, 2012 in order to allow already-approved grants under implementation and financed from the loan (Part C 2(iii) of the project) sufficient time to fully disburse, and to complete design of a new building for the National Reference Laboratory in Part A.2 of the Project Description (Schedule 2 of the Loan Agreement) (National Reference Laboratory). 5. Financial Management Status. The project has no significant financial management issues. The project audit report for 2010 provides an unqualified (clean) opinion. It has been reviewed by the Bank’s FMS and deemed satisfactory. 7 PROPOSED CHANGES 6. Partial Cancellation of Project Funds. As part of the first restructuring in 2010, it was agreed that due to the significant delays experienced during the procurement process for the design of the NRL, actual construction would not be feasible by the project’s closing date, and the Borrower was required to decide on the need and/or allocation of the surplus funds. Through a letter from the Ministry of Finance dated June 17, 2011, the Borrower confirmed the decision to complete design of the NRL but postpone the construction phase of the laboratory and requested the cancellation of funds. 7. Amendments to the Loan Agreement. In order to comply with this request Part A.2 (i) Schedule 2 of the Loan Agreement would be amended to delete the sentence “including construction of a new building for laboratory and provision of equipment and training�, and Schedule 1 of the Loan Agreement would be amended to reflect the cancellation of the corresponding amount of US$ 9.3 million (details in Annex 2). 8. Revisions to the Results Framework. The proposed restructuring would also include revisions to the Project’s indicators to improve the clarity of the indicators and their targets, as well as to correct inconsistencies in the original project documentation. To ensure consistency with the PAD, the changes to the Results Framework would also be reflected in the revised version of the Supplemental Letter. The draft revised Supplemental Letter on Performance Monitoring Indicators is attached as an Annex to the Notification to the Borrower on Partial Cancellation. 9. Project Costs will change as follows: Project Costs (US$m.)* Components/Activities Current Proposed Quality and Safety Management of Agricultural 29.3 14.0 Products Agricultural Marketing 6.7 4.4 Applied Agricultural Research and Extension 28.9 27.8 Institutional Development and Agricultural Policy 5.9 6.4 Total 70.8 52.6 * The Project Costs exclude contributions by Beneficiaries 10. The Loan Expenditure Categories (Schedule 1 to the Loan Agreement) will be modified as follows: Expenditure Category As Per Loan Amended (US$) Agreement (US$) (1) Works 5,300,000 0 (2) Goods 6,700,000 3,700.000 (3) Grants 11,000,000 11,000,000 (4) Unallocated 1,000,000 0 TOTAL 24,000,000 14,700,000 8 ANNEX 1: KAZAKHSTAN: AGRICULTURAL COMPETITIVENESS PROJECT Results Framework and Monitoring Project Development Objective (PDO): The project’s development objective is to increase the competitiveness of the agricultural sector in Kazakhstan. To achieve this objective, the project would facilitate access to markets by supporting measures to improve the quality and safety of agricultural products, enhance access to information, and harmonize standards. It will also help to increase the quality, quantity, and relevance of applied agricultural research and facilitate transfer of knowledge to farmers. Revised Project Development Objective: N/A D=Dropped Cumulative Target Values** Core C=Continue PDO Level Results N= New Unit of Data Source/ Responsibility for Baseline Frequency Indicators* R=Revised Measure YR 1 YR 3 YR 5 YR 7 Methodology Data Collection Indicator One: R Number 0 - 1,200 2,400 2,400 Annual Official Independent Number of farmers with evaluation statistics and consulting increased income compared starting on the survey starting company with 2005 levels. second year on the second year Indicator Two: R $ US 774 795 820 1,400 Annual Official Coordination Value of agricultural mln evaluation Statistics Center exports, including livestock starting on the products, rises compared second year. with 2005. Indicator Three: R % 10 15 30 30 Annual Survey Independent Increased proportion of evaluation starting on the consulting agricultural products that starting on the second year company are tested and that meet second year. international standards for quality and safety. Indicator Four: C % 0 - 10 20 20 Annual Survey Independent Satisfaction of potential evaluation starting on the consulting direct and indirect starting on the second year; company beneficiaries of the project. second year. measured as a % of surveyed project beneficiaries - 10 - Indicator Five: D Number Total - 2,000 3,500 6,000 Annual Survey Independent Increased profitability of number of evaluation starting on the consulting farms, particularly small farms in starting on the second year company and medium-sized farms. project area: second year At least 10 percent of farms 120,000 in project area increase profitability. INTERMEDIATE RESULTS Intermediate Result (Component One): Capacity to certify quality and safety of agricultural products increased Revised Intermediate Result (Component One): N/A Intermediate Result indicator C Number 0 1 4 7 7 Semiannual Project Component One: monitoring coordinator Seven technical regulations, and reporting each consisting of a number of individual standards, are harmonized. Intermediate Result indicator R Number 0 2 31 60 60 Semiannual Project Component Two: monitoring coordinator 60 laboratories are and reporting equipped according to international accreditation standards. Intermediate Result indicator D Number 0 2 31 90 90 Semiannual Project Component Three: monitoring coordinator A total of 90 laboratories and reporting receive international accreditation(2 national, 9 at oblast level, 60 at rayon level, and 19 private). Intermediate Result (Component Two): Market-oriented infrastructure strengthened. Revised Intermediate Result (Component Two): N/A - 11 - Intermediate Result indicator R Number 0 10 80 120 140 Semiannual Project Component One: monitoring coordinator At least 140 market- and reporting oriented subprojects implemented under the CGS. Intermediate Result (Component Three): Efficiency of agricultural applied research and technology transfer increased Revised Intermediate Result (Component Three): N/A Intermediate Result indicator R Number 0 20 300 600 600 Semiannual Project Component One: monitoring coordinator 600 applied research and and reporting extension subprojects implemented under the CGS Intermediate Result indicator C Number 0 - 12 40 40 Semiannual Project Component Two: monitoring coordinator At least 40 scientists under and reporting age of 40 receive advanced education. Intermediate Result (Component Four): Institutional structure to implement project activities established Revised Intermediate Result (Component Four): N/A Intermediate Result indicator N Number 0 2 6 10 10 Semiannual Project Component One: monitoring coordinator Governing Board, and reporting Coordination Center, and the roster of independent peer reviewers established and operating, as demonstrated through minutes of the meetings. Intermediate Result indicator D Number 0 2 6 10 14 Semiannual Project Component Two: monitoring ccordinator Governing Board meets at and reporting least every six months as shown by the minutes. - 12 -