Document of The World Bank FOR OFFICIAL USE ONLY Report No: 86306-AZ INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT PAPER ON A PROPOSED ADDITIONAL LOAN IN THE AMOUNT OF USD 50 MILLION TO THE REPUBLIC OF AZERBAIJAN FOR THE SECOND RURAL INVESTMENT PROJECT June 18, 2014 Social Development Unit Sustainable Development Department Europe and Central Asia 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. CURRENCY EQUIVALENTS (Exchange Rate Effective December 1, 2013) Currency Unit = Azerbaijani New Manat AZN0.78 = USD1 USD1.28 = AZN1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AF Additional Financing ARS Azeri Road Service AZN New Azerbaijan Manat AzRIP Azerbaijan Rural Investment Project CIG Common Interest Group CPS Country Partnership Strategy DA Designated Account DO Development Objective EMF Environmental Management Framework EMP Environmental Management Plan FM Financial Management FY Fiscal Year GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IFI International Financial Institutions IFR Interim Un-audited Financial Report IGA Income Generating Activity IP Implementation Progress ISR Implementation Status Report MP Micro-Project OM Operational Manual ORAF Operational Risk Assessment Framework PAD Project Appraisal Document PAT Project Assistance Team PDO Project Development Objective PMU Project Management Unit PP Procurement Plan RF Results Framework RGAC Regional Grant Approval Committee ROO Regional Operations Office SAAC State Agency for Agricultural Credits VAT Value Added Tax Vice President: Laura Tuck Country Director: Henry G. Kerali Country Manager Larisa Leshchenko Sector Manager: Elisabeth Huybens Task Team Leader: Daniel Owen AZERBAIJAN SECOND RURAL INVESTMENT PROJECT ADDITIONAL FINANCING CONTENTS Project Paper Data Sheet Project Paper I. Introduction 1 II. Background and Rationale for Additional Financing 2 III. Proposed Changes 6 IV. Appraisal Summary 10 Mandatory Annexes 1. Revised Results Framework and Monitoring Indicators 16 2. Operational Risk Assessment Framework 22 3. Technical Annex – Summary of investments 26 4. Procurement Plan 31 5. Economic Analysis – Summary Table 35 6. Map 38 AZERBAIJAN SECOND RURAL INVESTMENT PROJECT ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Henry G. Kerali Sectors: Other social services (40%); Sector Manager/Director: Elisabeth Rural and inter-urban roads and Huybens/ Laszlo Lovei highways (30%); general water, Team Leader: Daniel Owen sanitation and flood protection sector Project ID: P147861 (30%) Expected Effectiveness Date: Themes: Rural services and September 30, 2014 infrastructure (40%); participation and Lending Instrument: Specific civic engagement (35%); gender Investment Loan (10%); social inclusion (10%); rural Additional Financing Type: non-farm income generation (5%) Environmental category: Partial Assessment Expected Closing Date: September 30, 2018 Joint IFC: No Joint Level: Basic Information - Original Project Project ID: P122944 Environmental category: Partial Assessment Project Name: Second Rural Expected Closing Date: September 30, Investment Project 2017 Lending Instrument: Specific Joint IFC: Investment Loan Joint Level: AF Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: IBRD Flexible Loan with fixed-spread repayable in 16 years, including a grace period of 4 years. AF Financing Plan (USD mln) Source Total Amount (USD mln) Total Project Cost: 86.47 Co-financing: Borrower: 30.00 Communities: 6.47 Total Bank Financing: IBRD 50.00 IDA New Recommitted Client Information Borrower: Republic of Azerbaijan Responsible Agency: State Agency of Agricultural Credits, Ministry of Agriculture, Government House, AZ1000, Baku, Azerbaijan Contact Person: Mr. Soubhan Asgerov. Project Director Telephone No.: 994-12-934693 Email: subhan@azrip.org AF Estimated Disbursements (Bank FY/USD million) FY 2015 2016 2017 2018 2019 Annual 14.56 14.15 14.02 5.27 2 Cumulative 14.56 28.71 42.73 48.00 50 Project Development Objective and Description Original project development objective: The overall project objective is to improve access to and use of community-driven rural infrastructure and expand economic activities for rural households. Revised project development objective: No change. Project description: The AzRIP project is a multi-sector investment loan. AzRIP-2 AF is designed to extend delivery of community rural infrastructure micro-projects to two new Rayons, while providing additional infrastructure support to existing communities; to scale up the livelihood pilots, and; to launch a pilot connector roads initiative, engaging with clusters of communities and enhancing rural road connectivity. The original project and additional financing collectively finance activities under three components to achieve the Project Development Objective: Component A: Rural Community Infrastructure and Livelihoods This component supports demand-driven micro-projects in social and economic rural infrastructure and livelihoods, including basic economic and social investments such as rehabilitation of local roads, potable water systems, irrigation infrastructure, electricity and school and clinic rehabilitation and construction, based on priority needs identified by communities. Component B: Technical Assistance for Rural Infrastructure and Livelihoods This component provides technical support for micro-project implementation and for livelihood support services. Component C: Project Management and Results Monitoring This component covers the administrative and operational project implementation and management costs, including Impact Evaluation. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [X]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [X] No Forests (OP/BP 4.36) [ ]Yes [X] No Pest Management (OP 4.09) [ ]Yes [X] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [X] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [X] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [X] No Safety of Dams (OP/BP 4.37) [ ]Yes [X] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [X] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [X] No Is approval of any policy waiver sought from the Board (or [ ]Yes [X] No MD if RETF operation is RVP approved)? Has this been endorsed by Bank Management? (Only applies [ ]Yes [X] No to Board approved operations) Does the project require any exception to Bank policy? [ ]Yes [X] No Has this been approved by Bank Management? [ ]Yes [X] No Conditions and Legal Covenants: Financing Agreement Description of Condition/Covenant Date Due Reference Schedule 2, Section I, A Institutional arrangements Throughout the project Schedule 2, Section I, C Implementation arrangements related to Micro- Throughout projects the project Schedule 2, Section I, D Safeguards provisions Throughout the project AZERBAIJAN SECOND RURAL INVESTMENT PROJECT ADDITIONAL FINANCING I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional loan in the amount of USD50 million to the Republic of Azerbaijan for the Second Rural Investment Project (AzRIP-2; P122944, Loan IBRD-81890). The proposed Additional Financing (AF) will extend Project implementation by one year to September 30, 2018. The AF was requested by the Government of Azerbaijan in a formal letter dated January 16, 2014. 2. The proposed AF will scale up AzRIP in order to enhance the impact of a well- performing project. The proposed additional financing meets key criteria of suitability and relevance. Ratings under the current project for implementation progress and development objectives have been consistently Highly Satisfactory and Satisfactory respectively since Project inception. The Project performance and impact to date has been consistent with expectations set out in the Project Appraisal Document. Proposed scaled up activities are consistent with the PDOs, and are strategically aligned with the objective of the FY11-14 Country Partnership Strategy to support upgrading growth-supporting infrastructure and improving municipal services. Implementation arrangements under the aegis of a strong performing Project Management Unit (PMU) will not be changed and no changes are envisaged for the Environmental Safeguards Category and Procurement and Financial Management arrangements. Overall, implementation capacity and project arrangements are suitable to the magnitude and scope of the expanded activities. AzRIP uses a Community-Driven Development approach and provides block grant financing to poor rural communities to invest in public goods using an open menu system, with communities determining their own choice of local investment priorities. The program is built around a facilitated participatory sub-project planning and implementation process, supported by regional Project Assistance Teams (PATs) and by Local Government – municipal and regional and local Executive Committees (ExComm). 3. The original Development Objective “to improve access to and use of community-driven rural infrastructure and expand economic activities for rural households” remains relevant. The AF will finance additional scope of works under the existing framework of support, scaling up the project’s coverage to include additional communities in two new rayons; providing resources to expand the productive investments for rural livelihood support, and; piloting a progression in support to rural roads rehabilitation by shifting from individual community support to working with community clusters on larger inter-community designs for rural road connectivity. The project Results Framework has been revised to reflect both the expanded activities and, based on implementation experience, to refine and sharpen the original performance indicators. 4. The proposed investments do not go beyond the original objectives of the project, but would allow access to project benefits by an increased number of people. The proposed AF would also finance additional costs associated with project management related to a new zonal office and field staff for the expanded coverage of the Project in two new rayons. All additional 1 activities will be financed by the proposed AF loan, with Government and community co- funding. No multilateral or bilateral agencies will co-finance the project. II. Background and Rationale for Additional Financing in the amount of USD50 million Consistency with the Country Partnership Strategy (CPS) 5. This AF is included in the Azerbaijan CPS Progress Report FY11-14 (Report Number: 776829-AZ) and is fully consistent with the CPS Strategic Objectives to (i) build a competitive non-oil economy; and (ii) improve municipal and rural services (CPS FY11-14; Report Number: 56246-AZ). The Project contributes directly to Outcome 3 “Improved access to rural infrastructure” under the CPS Results Area 4 “Strengthening Municipal and Rural Services”. 6. The proposed AF primarily targets the population of rural areas and addresses their infrastructure deficits as well as their mobility challenges. Delivery of basic public infrastructure such as rural roads, potable water, education and health facilities, and infrastructure essential to rural livelihoods, such as drainage and tertiary irrigation, is a critical ingredient to both reducing poverty and promoting shared prosperity in Azerbaijan. The AF will continue to contribute to gender equity through its close attention to inclusion and empowerment. It will continue to strengthen governance and accountability through its participatory planning, implementation and monitoring and evaluation processes with community groups and local government offices and its track record of transparency, social accountability instruments, broad civic engagement, and public dissemination of results from local investments. Country and Sector Context 7. In recent years, Azerbaijan has continued its path of economic growth and poverty reduction. Growth has averaged 13.1 percent from 2004-2012. Poverty levels have dramatically reduced from 49 percent in 2001 to 6 percent in 2012. However, these achievements mask large regional disparities, and disparities between urban and rural areas. According to the State Statistics Committee, the population is 9.296 million (2012), of which 47 per cent are living in rural areas. Seventy per cent of the poor in Azerbaijan are from rural areas. 8. Lack of access to quality local infrastructure, including water supply and sanitation infrastructure and local roads, can restrict the dividends from growth. Inadequate road infrastructure serves as a barrier for rural populations to access services and markets. Access to water in rural areas is also a challenge. Azerbaijan inherited a relatively extensive water supply system from the former Soviet Union. As a result, 95 percent of the population in Baku and 83 per cent of those living in secondary cities and small towns are connected to piped water. However, centralized piped water supply systems are rare in rural areas, where less than 33 per cent of the population has a piped water supply. Access to sanitation is also problematic in rural areas. Water treatment facilities are sometimes dysfunctional or lacking completely. 9. Improving rural livelihoods is also essential to promoting shared prosperity in Azerbaijan. Although oil drives high rates of growth, the oil sector represents only 1 percent of total employment. On the other hand, agriculture accounts for only 6 per cent of GDP, but it provides employment for roughly 39 per cent of the workforce and generates two-fifths of household incomes in rural areas. 2 10. Development of infrastructure and support to non-oil livelihoods is a priority for the Government of Azerbaijan. Azerbaijan’s development strategy, “Azerbaijan: Vision 2020” builds on the country’s latest socio-economic achievements and provides a framework for its transition from a traditional economy to a knowledge-based, competitive and diversified economy. The Government’s commitment to balanced development that pays proper attention to the development of regions and rural areas is reflected in its State Program for Socio-Economic Development of the Regions of Azerbaijan. 11. Donor-led consultations on a range of development issues aligned with priorities articulated in the Vision 2020 strategy, revealed broad citizen prioritization of the development of infrastructure at the local level, and especially the infrastructure that can help provide access to services, markets, jobs and transportation hubs. The desire of citizens to participate in development was also strongly emphasized in consultations. Barriers to participation were described as particularly strong in rural areas and among vulnerable groups. Project performance 12. The original IBRD Loan in the amount of US$30 million was approved by the World Bank on July 5, 2012 and signed on October 19, 2012. The loan became effective on December 4, 2012. AzRIP-2 was a repeater project, building on a proven AzRIP design and institutional and implementation mechanism, and established around a similar yet enhanced PDO and project design. The Project is on track to achieve its Development Objective through provision of grants to finance demand-driven micro-projects in rural infrastructure; provision of training and services to support micro-project development by enhancing the capacity of local stakeholders in program development; building opportunities for rural employment and livelihood support services, and; supporting project management capacity in the Project Management Unit and its Regional Operations Offices. 13. AzRIP directly addresses Azerbaijan’s rural infrastructure attrition, and corresponds to the high priority attached by Government to infrastructure provision, including power supply, irrigation investments and local roads crucial for development. The Project complements the State Program on Regional Development and has generated replicable models for effective and efficient delivery of smaller scale public investment. Six hundred eligible communities in 56 rayons are being serviced under AzRIP-2 and an estimated 1,500,000 community members are expected to benefit from infrastructure investments. AzRIP-2 extended rural infrastructure provision to 11 un-serviced Rayons (in the North and in Mugan-Salyan Zone). Rural communities in the 45 existing rayons served under the original AzRIP and AzRIP-AF benefit from second generation community infrastructure and livelihood support services. 14. The original project finances activities under three components which include: 15. Component A - Rural Community Infrastructure. This component finances demand- driven micro-projects in rural infrastructure. Micro-projects eligible for finance through Project proceeds increase access to, and quality of local economic and social infrastructure, such as roads, rural water supply, irrigation, schools, clinics and markets. Costs supported from the project include identification, design, construction, rehabilitation, and initial operation and maintenance of the micro-projects. Investments include basic economic (e.g., rehabilitation of secondary roads, potable water systems, irrigation infrastructure, electricity transformers) and social (e.g., school and clinic rehabilitation and construction) infrastructure, based on priority 3 needs identified by communities. The Project targets rural communities (greater than 1,000 and less than 10,000 people with smaller communities open to clustering with neighboring communities to achieve scale) in regions that meet established selection criteria and have a higher relative incidence of poverty. The average size of micro-projects is US$70,000, while projects over US$85,000 require prior review. Current micro-project cycle procedures include local governance arrangements involving local authorities, sectoral line ministry representation in project screening and approval, and public and private sector linkages for operation and maintenance. Three categories of micro-project grants are supported under Component A: (i) micro-projects in previously un-serviced rayons which meet eligibility criteria set out in the OM; (ii) second generation micro-projects in active AzRIP communities with high performance ratings from previous micro-project implementation and which meet eligibility criteria set out in the OM, and; (iii) micro-projects submitted by Common Interest Groups supported under the pilot scheme in Component B which meet eligibility criteria as established in the OM. 16. Component B - Technical Assistance for Rural Infrastructure. The objective of this component is to enhance the capacity of local stakeholders, including community groups, local authorities, Regional Grant Approval Committees, Project Assistance Teams and staff in the Regional Operations Offices in micro-project program development. It also provides technical assistance for pilot livelihood support initiatives. Stakeholder capabilities in functions of contracting, procurement, financial management, and participatory monitoring and evaluation are being strengthened. Livelihood support services are being piloted in six communities selected among communities that successfully implemented economic infrastructure projects under AzRIP and meet eligibility criteria described in the OM. Livelihood support services include mobilization and organization of Common Interest Groups, identification of income generation activities, preparation of business plans and training in business management for community group members. 17. Component C - Project Management and Results Monitoring. This component supports the administrative and operational project implementation and management functions, including overheads of the Project Management Unit (PMU), four Regional Operations Offices (ROOs) and their associated support staff, project outreach, and support to Regional Grant Approval Committees (RGACs). AzRIP-2 includes regular and rigorous project monitoring and evaluation using mixed quantitative and qualitative methods and results based, gender disaggregated indicators implemented on multiple levels – project, rayon and community. AzRIP-2 also incorporates intensive efforts of physical verification of works and technical aspects of sub-project implementation. 18. Project results to date have been consistent with and far surpassing projections set out in the AzRIP-2 Project Appraisal Document. In a little over a year since project effectiveness, over 50% of the planned rural infrastructure micro-projects under AzRIP-2 have been completed or are under implementation, reaching a total of over 880,000 beneficiaries, half of whom are female. To date, 215 community micro-projects (MPs) have been completed, and a further 104 are under implementation. The project has been consistently rated Satisfactory on DO and Highly Satisfactory on IP since project launch. The Government’s commitment to the project remains strong. 19. Evaluation lessons: Impact evaluation findings from the first phase of AzRIP demonstrate a significant economic boost as a result of project interventions, and improvements in financial security resulting from asset value, service enhancements and increases in on-farm 4 and off-farm income. Surveys have indicated that mobility has improved, with travel times to schools and markets reduced by 47 percent and 26 percent, respectively, as a result of the rehabilitation of rural roads. Primary school enrollment has increased by 25 percent since school rehabilitation. Livelihoods have also improved significantly. The rehabilitation of irrigation systems, reaching over 700,000 people, has increased average productivity by roughly 30 percent and added more than US$1 million to the value of production in project areas. In villages where roads have been rehabilitated under the project, 78% of farm products are brought to markets in nearby towns by farmers themselves (compared with 18% in non-project areas) and farmers are selling their produce at their farms at 20% higher prices. 20. Over the lifespan of AzRIP, 368 MPs have been included in ex-post evaluations. Of this sample, 157 were 6 month ex-post evaluations, 142 were 12 month and 69 were 24 month ex- post evaluations. Results indicate that rehabilitated infrastructure is fully functional, rated as either excellent or good. The communities subject to the ex-post evaluation demonstrate better mobilization and increased interaction within their community and with local Government. Community Groups that have been formed and trained through the project’s social mobilization and capacity building efforts have sustained their purpose and function, abiding by their sustainability and environmental plans. 35% of evaluated communities reveal evidence of additional rehabilitation initiatives within the same community with the support of the municipality, ExCom and community contributions. 21. 333 out of 642 community micro projects implemented under AzRIP consist of rehabilitation or repair of intra-community roads. Total length of the roads rehabilitated under these projects is 2,006 km and the total financing amounts to US$17.56 million. Total beneficiaries equate to 1.7 million people. The obtained NPV is equal to 186 million AZN (approximately USD 238 million), indicating obvious economic viability. 22. The project is in compliance with all legal covenants entered into under the Loan Agreement IBRD-81890-AZ. The fiduciary management system is satisfactory, and there are no pending financial audit reports. Auditors issued an unqualified opinion for the latest audited project accounts covering the period ending December 31, 2012. The audited accounts for the period ending December 31, 2013 will be available in June, 2014. Safeguards compliance for Operational Policy (OP)/Bank Procedures (BP) 4.01 (Environmental Assessment) is satisfactory. There are no unresolved environmental, social, or other safeguard issues as confirmed during the latest project implementation support mission completed in February, 2014. Rationale for Additional Financing 23. There is high demand for AzRIP service provision and keen interest from Government to increase the geographical coverage, to expand the livelihoods component, and to add a pilot on local connector roads infrastructure. Disbursements under the Loan as of March 24, 2014 stand at a ratio of 53%. 24. AzRIP-2 AF would comprise three sets of activities - one to extend delivery of community rural infrastructure to 2 new rayons in Karabagh zone (Agdam and Fusuli), while providing additional infrastructure support to existing communities; the second to scale up the livelihood pilots; and the third to pilot a connector roads concept. This pilot component will engage with clusters of communities and focus on local connecting roads. AF support to scale-up 5 these local development initiatives are expected to enhance the overall impact of investments and expand access to project benefits to reach a larger number of rural dwellers. Alternatives to Additional Financing 25. The Government has prioritized the upgrading of services and improvement of growth- supporting infrastructure. However, demand continues to outstrip supply relative to rural infrastructure needs. The Government has placed a high priority on continuing its ongoing collaboration with the Bank in the sector and has submitted a request for AF. III. Proposed Changes 26. The AF would support expansion of community rural infrastructure investments to 2 new rayons, additional infrastructure support to existing AzRIP communities, new initiatives on joined-up rural road rehabilitation working with clusters of communities, and the scaling-up of current pilot livelihood initiatives. Community rural infrastructure investments would include repeated treatments in participating communities, as is currently being practiced under AzRIP-2. Growing evidence from random assignment impact evaluations suggests such repeated treatments are critical to gainfully attacking poverty. 27. Current implementation practice has demonstrated very strong demand for further expanding coverage of community infrastructure investments and for follow up investments in participating communities. With the AF, contingent on community demand, it is estimated that a further 670 MPs will be supported, including 20 additional livelihood micro-projects. 10 connector road pilots will also be incorporated in the program. This brings the expected total project portfolio for AzRIP-2, including the AF to 1,270 MPs (including 26 livelihoods micro- projects) and 10 connector road pilots to be supported over the course of the Project. 28. The AF would finance a program of community infrastructure MPs in 2 new rayons, Agdam and Fizuli, bringing the total number of rayons serviced under the Project to 58. Preliminary implementation forecasts indicate AzRIP mobilization and support to 44 communities in Agdam and 22 communities in Fizuli, based on the same principles for eligibility criteria as currently apply. Out of the 670 additional MPs to be supported under the AF, 78 are expected to be located in the new rayon coverage areas. 29. In Agdam, it is projected that 40 single MPs will be serviced plus 8 second treatments and 4 third treatments over the lifespan of the Project (52 MPs total), following a calculated ratio of new, repeat and third round treatments of 70:20:10. For Fizuli, it is projected that 20 MPs, 4 second and 2 third treatments (26 total) will be financed. 30. Expanding and scaling up the livelihoods support is in line with expressed client demand, from Government and local communities. The next phase of support will further diversify the portfolio of livelihood micro-projects. The AF will build on livelihood support initiatives which are being piloted under AzRIP-2 in six communities. Expanding and scaling up the livelihood support is justified through strong demand from communities and Government for livelihood and income generation investments. The AF phase of the Project would continue the livelihood work to promote inclusive economic growth with a strong focus on social inclusion. 6 31. The specific activities that will comprise the livelihood support services will include: (i) provision of technical support for communities to identify income generation opportunities and prepare livelihood micro-project proposals for funding under the project’s grant facility, and (ii) investment support for communities through financing of livelihood micro-projects. 32. Technical support for communities would include mobilization and organization of Common Interest Groups (CIGs), identification of most opportune and competitive income generation activities, preparation of livelihood micro-project proposals (business plans) and training in business management for CIG members. The Project would contract national consultants (Community Business Specialists) with experience in outreach/mobilization activities and expertise in rural economic opportunities, including agribusiness. These Community Business Specialists will assist community members interested in cooperating as partners to get mobilized around common economic interests such as agricultural enterprises or off-farm income generation activities, identification of potentially viable sub sectors/areas/activities and preparation of business plans for financing. 33. The Project would expand funding of income generation activities to an additional 20 communities. It is suggested that the new livelihood micro-projects under the AF be distributed equally between the 4 AzRIP operational zones (the current North, Northwestern and Mughan Salyan zones plus a new AF zone of Karabagh – see Annex 3) to ensure maximum diversity. As under the original AzRIP-2, income generating activities will be identified based on diagnostic work conducted during the community participatory planning process and will respond to real needs and community’s economic challenges. Activities are to be selected based on the following key principles: (i) economic viability, market demand, technological suitability and sustainability of investments; (ii) social equity and distribution of benefits to respective communities and CIG members; (iii) demonstration effect and replicability; (iv) CIG contribution and ability of potential beneficiaries to generate co-financing; (v) compliance with the project’s EMP; and (vi) management competence for technical capacity to implement the livelihood micro-project. 34. Grant financing for income generation activities would include: (i) economic infrastructure with clear public goods elements that would raise income potential and/or can be shared by many people (small-scale irrigation system, market facilities, etc.); (ii) innovative technologies with a clear demonstration effect; (iii) investments with direct impact on food safety, public health and nutrition, and pollution; and (iv) critical supply chain infrastructure that would be risky for communities at full cost. Public good characteristics of potential income generation activities would warrant grant financing of at least part of the investments. Livelihood micro-projects may include on-farm infrastructure (e.g. storage and cooling facilities, livestock watering points), off-farm infrastructure (e.g. milk processing, vegetable packaging) and non- farm infrastructure (e.g. carpet weaving looms and honey production machinery and storage). The success of these initiatives will depend upon existence of market demand for the selected products and therefore assessment of market trends for the potential investments should be a key principle underlying the selection of activities. 35. The PMU would need to engage additional staff to support the expanded livelihoods component. It was agreed to hire community business specialists for PATs in each of 4 AzRIP zones. Detailed criteria for selecting communities and specific livelihood micro-projects to be targeted by the Project and operational details, including technical specifications of the livelihood projects will be elaborated in the Operational Manual. The Manual will be further 7 amended to incorporate lessons learned from the implementation of the current pilot livelihood projects and procedural changes proposed under the AF. 36. Due to price increases, there is cause for reviewing the current ceiling applied to financing the livelihood micro-projects. It is proposed to increase the ceiling to US$160,000 for the Additional Finance livelihood micro-projects. 37. The connector roads pilot will target areas where communities have successfully implemented an intra-community road rehabilitation project and where the connector road (between communities or linking communities to rayon centers or highways) falls under the jurisdiction of the municipality, rather than the Azeri Road Service. The additional scope of work to support pilot investments in local connector roads do not go beyond the current objectives of the project, but would engage with clusters rather than individual communities and allow extended distribution of project benefits whilst addressing a key mobility and service and market access concern. These pilots would also serve to enhance the Project’s contribution to the shared prosperity agenda. The connector roads will be gravel, graded roads and not asphalt. Boundary sections will be identified for O&M purposes and one leading municipality will be selected as the tranche release signatory for disbursement. Local roads are a key strategic priority for the Government and these connecting roads are likely to be those at the margins of priority roads for State financing, given the expansive demand. 38. Technical details of connector road rehabilitation will include carriageway provision width of 8 meters (6m carriageway and 2x 1m hard shoulders/verge) and pavement construction at a higher level of provision from that currently utilized on the community roads. Since the connector roads may subsequently be asphalted by Government, the unbound layers are to be constructed to an acceptable standard - an embankment should be formed of well compacted layers (150mm thickness) of suitable material to a height well above the water table. The final layer should be aggregate road base (or similar) and some form of temporary surface dressing will be required to protect the pavement until it is asphalted. Provision of side ditches and cross- carriageway culverts will need to be provided and maintained, and, as is standard AzRIP practice, careful attention will be given to operations and maintenance of these roads, since several communities will be involved. 39. It is expected that 10 clusters of minimum 3 communities and maximum 6 will be selected to participate in this pilot in the localities of Beylagan, Neftchala, Saatli, Sabirabad and Aghjabedi in Mughan Salyan zone and other areas as yet unidentified in Lower Shirvan and Northwestern zones, likely to be Aghdash, Barda, Tar-tar and Goramboy. For the pilot connector roads, mountainous areas and lower areas affected with salinity will be avoided for technical practicality reasons. 40. Direct beneficiaries of the project include households in rural communities in the 2 new rayons in which AzRIP-2 AF will extend service coverage (Agdam and Fusili) who will benefit from community mobilization and access to improved rural infrastructure and households in the existing areas of AzRIP operations in a further 56 rayons nationwide. It is expected that in total under the AF, 650 eligible communities in 58 rayons will be serviced with community micro- projects. A further 20 communities will benefit from livelihood micro-projects (expected to benefit 250,000 individuals) and 10 cluster projects for connector roads will engage an additional 30 communities. It is estimated that 3.5 million community members will benefit from these infrastructure and livelihood investments, representing coverage of approximately 75% of the 8 rural population of Azerbaijan. A further 20,000 people will benefit from community training, cross visits, seminars and conferences. 41. The overall project design has proven to be robust and has demonstrated its suitability for efficiently and effectively delivering results on the ground. The scaling-up will not trigger new safeguard policies. The AF will finance costs associated with additional activities under Component A “Rural Community Infrastructure and Livelihoods”, Component B “Technical Assistance for Rural Infrastructure and Livelihoods”, and Component C “Project Management and Results Monitoring”, but would not require significant changes to the project design. Additional activities under Component A include expansion in coverage and number of Community Projects in infrastructure. Additional activities under Component B comprise the expanded support to livelihood initiatives. Under Component C, additional funds would be allocated to cover project management costs for a new regional office to support implementation in new coverage areas. 42. Implementation arrangements, with a well-performing PMU in SAAC within the Ministry of Agriculture, will not be changed. No changes are required in either the Environmental Safeguards Category or in the arrangement for procurement and financial management. The Results Framework will be revised to introduce sector core indicators. 43. Results indicators. The current results indicators were designed to assess the increase in access to and use of infrastructure, the change in access to markets and basic social services through improved rural infrastructure, and improved economic opportunities for rural households. The key performance indicators have been reviewed and revisions to the RF are proposed to reflect the expanded scope of the rural community infrastructure and livelihoods component, including the provision of additional infrastructure support to existing communities and addition of 2 new rayons, the scaling up of the livelihood pilots and the connector roads pilot. The RF has been finalized during appraisal. The revised RF includes a new project outcome indicator to measure the economic impact of the livelihood micro-projects as well as four new intermediate results indicators to track the expanded livelihood activities and the connector roads pilot (see below). All other indicators will either remain the same (if measured in percentages) or have revised targets which take into account the expansion of AzRIP-2 rural infrastructure activities. Seven intermediate indicators to measure social capital will be dropped from the RF but will continue to be tracked by AzRIP. A summary of the revisions of the targets for the original result indicators is provided in Annex 3. 44. The baseline survey for the impact evaluation was completed in August, 2013, and a complementary baseline will be established for the livelihood and connector road activities. In light of the accelerated progress of AzRIP-2, the mid-term impact evaluation will be completed by August, 2014, and the end-term evaluation will take place in 2016. 9 New Project Outcome Indicators Indicator Target Percentage change in household 35% income from livelihood activities New Intermediate Results Indicators Indicator Target Number of beneficiaries from 250,000 livelihood activities Percentage of livelihood micro- 90% projects that are ongoing and commercially viable Traffic volume on rural 300 connector roads (average number of vehicles per day) Total number of members in 225 community Common Interest Groups 45. Funds allocation. The financing allocation for the AF is USD 50 million. The Government and communities’ contribution of USD 36.47 million will cover local community contributions, VAT, 100% of Micro-projects in Nakhchivan in addition to a select number of Micro-projects in other zones. A proposed financing allocation by component for the AF is presented below: AF funds allocation under IBRD loan by component (USD million) Component Original cost Changes with AF Revised cost 1. Rural Community 21 32.6 60.07 Infrastructure and Livelihoods 2. TA for Rural Infrastructure and 3.1 6.2 9.3 Livelihoods 3. Project Management and 5.9 11.2 17.1 Results Monitoring Total 30.00 50.00 86.47 IV. Appraisal Summary 46. Implementation arrangements. The project will continue to reside under the general management of the State Agency for Agricultural Credits (SAAC) in the Ministry of Agriculture. Responsibility for the day-to-day management and administration will be delegated to the PMU which will be maintained within the structure of the SAAC. The PMU functions will include procurement, financial management and disbursement, ensuring project compliance with the 10 Operational Manual (OM) and the World Bank safeguards, monitoring and evaluation, and reporting. The PMU has extensive experience with World Bank-financed operations. Its successful implementation of AzRIP and AzRIP-2 is justification for using the existing project implementation arrangements, including management structure, for the AF. 47. The PMU will maintain core staff, including the Director, Deputy Director, ROOs, PAT staff including engineers, trainers and facilitators, procurement, financial management, environmental, legal, M&E, MIS and community development staff, and quality control personnel. The PMU has developed the necessary experience and competence to manage core operational and administrative functions which would allow for a smooth and seamless transition into the AF from the current Project. 48. SAAC maintains the Working Group which was established with the primary objective to review and adjust the policies and procedures outlined in the OM to effectively meet the project needs. The Working Group is also tasked to review community projects in excess of US$100,000. The Working Group consists of relevant representatives from the Ministry of Economic Development, Ministry of Agriculture, the Parliamentary Commission on decentralization and municipal development, chairpersons of RGAC and a member of civil society. Revision of thresholds for MP review is currently under discussion. 49. The PMU will be supported by five Regional Operations Offices (ROOs) in Mughan- Salyan (Sabirabad), North (Ismayilly), Northwestern (Goychay), Karabagh (Agdam) and Nakhchivan and 4 sub-offices in Gakh, Gouba (Northern zone), Masalli (Mughan -Salyan) and Tovuz (Northwestern). The ROOs accommodate the Project Assistance Team (PAT), the Regional Grant Approval Committees (RGAC) and support and monitor the operations of PAT and facilitate the meetings of regional micro-project grant approval committee. PATs act as the service provider for operational zones and coordinate all aspects of community mobilization, training, advising on procurement and providing technical assistance to communities in the preparation of CP proposals. 50. The Project Assistance Team (PAT) located in each of the ROOs will comprise a PAT Team Leader, PAT Prime Trainer, Senior Mobilizer and Procurement Officers. The PAT office in Masalli will accommodate a team of 7 (2 trainers, 3 mobilizers, Community Business Mobilizer and engineer) furnishing technical assistance to each of the ROOs. Technical Design Companies will be reintegrated in the AF, to liaise between PMU/ROO and Government Agencies on infrastructure design, alignment with specifications and standards and support to community planning and implementation. PAT engineers will continue preparing the Technical Packages for infrastructure MP proposals in collaboration with Community Groups. Once the proposal meets the evaluation criteria through Desk Appraisal, the ROO will pass the Technical Package to a Technical Design Company to ensure compliance with the 91 Government Standards, submit for approval by the licensed project institute and the Government Price Regulations Agency, under the remit of the Ministry of Emergencies. Approved Technical Packages will be submitted to the RGACs for clearance. 51. Technical appraisal. Project investments will be based on appropriate technology for the infrastructure needs of local communities, the majority of which have already been tested and validated through engagement with AzRIP. Over the course of AzRIP implementation, the technical quality of the completed infrastructure works has improved significantly and ex-post evaluations and the operational audits of completed micro-projects have indicated that 11 construction and engineering works are satisfactory and infrastructure assets are sustainable and functioning long after sub-project closure. The preparation of each community infrastructure micro-project is to be supported by a Technical Design Company hired by the PMU for each operational zone to ensure that technical norms and standards are adhered to. The Technical Design Companies and PMU engineers are to support preliminary designs of each project, comparing technical and costing feasibility of alternative designs, preparing technical documentation packages, environmental standards, as well as the preparation of implementation monitoring and sustainability plans. Furthermore, a maintenance plan designed to ensure the sustainability of the micro-project after its construction must be presented by the community before the project is approved. With the AF, these practices will be scaled up to new project areas and the OM will address in detail additional technical norms and standards for project preparation, implementation, as well as operation and maintenance for both rural community infrastructure, including the connector roads pilots and the expanding portfolio of livelihood micro-projects. Regular internal and external technical audits will be undertaken to ensure construction meets the required technical standards. 52. The Project will scale up AzRIP-2 both geographically into currently un-serviced communities in two rayons and vertically through the scaling up of pilot livelihood micro- projects, through second and third generation institutional support in current AzRIP active project areas, and through launching of a cluster community pilot on connector roads. The Project has three components. 53. Component A - Rural Community Infrastructure and Livelihoods. This component will finance demand-driven micro-projects in rural infrastructure and livelihoods. Infrastructure micro-projects eligible for finance through Project proceeds would increase access to, and quality of local economic and social infrastructure, such as roads, rural water supply, irrigation, schools, clinics and markets. Costs to be supported from the project include identification, design, construction, rehabilitation, and initial operation and maintenance of the micro-projects. Potential investments include basic economic (e.g., rehabilitation of secondary roads, potable water systems, irrigation infrastructure, electricity transformers) and social (e.g., school and clinic rehabilitation and construction) infrastructure, based on priority needs identified by communities. The Project will target rural communities (greater than 1,000 and less than 10,000 people with smaller communities open to clustering with neighboring communities to achieve scale) in regions that meet established selection criteria and have a higher relative incidence of poverty. The average size of infrastructure micro-projects will be increased in the AF from US$ 85,000 to US$ 90,000 given commodity price increases and inflation. Projects over US$ 100,000 will require prior review. Current micro-project cycle procedures will be maintained in the new Project, including local governance arrangements involving local authorities and sectoral line ministry representation in project screening and approval and public and private sector linkages for key operation and maintenance medium-term projections. Grant financing for livelihood micro-projects would include economic infrastructure with clear public goods elements (i.e. tertiary irrigation, market facilities, etc.), innovative technologies with a clear demonstration effect and critical supply chain infrastructure. These micro-projects may include on-farm infrastructure, such as storage facilities; off-farm infrastructure, such as milk processing; and non-farm infrastructure (e.g. carpet weaving looms and honey production machinery). The ceiling for livelihood micro-project grants will increase in the AF from US$ 120,000 to US$160,000. 12 54. Four categories of micro-project grants will be supported under Component A: (i) micro- projects in previously un-serviced rayons which meet eligibility criteria set out in the OM; (ii) second and third generation micro-projects in active AzRIP communities with high performance ratings from previous micro-project implementation and which meet eligibility criteria set out in the OM; (iii) pilot connector road projects with clusters of communities, and; (iv) livelihood micro-projects submitted by CIGs after successful completion of mobilization and training. 55. Component B - Technical Assistance for Rural Infrastructure and Livelihoods. The objective of this component is to enhance the capacity of engaged local stakeholders, including community groups, local authorities, Regional Grant Approval Committees, Project Assistance Teams and staff in the Regional Operations Offices in micro-project program development and to provide technical assistance for pilot livelihood support initiatives. Stakeholder capabilities in functions of contracting, procurement, financial management, and participatory monitoring and evaluation will be strengthened. Livelihood support services will be expanded from the current six pilot communities to an additional 20 communities comprising 4 in each of 5 project zones. Livelihood support services will include mobilization and organization of common interest groups (CIGs), identification of income generation activities, preparation of business plan proposals, and training CIG members in business management. 56. Component C - Project Management and Results Monitoring. This component will finance the administrative and operational project implementation and management costs, including overheads of PMU professional staff, as well as PMU and five Regional Operations Offices and their associated support staff, project outreach, and support to Regional Grant Approval Committees. The AF will continue the current practice of regular and rigorous project monitoring and evaluation using mixed quantitative and qualitative methods and results based, gender disaggregated indicators implemented on multiple levels – project, rayon and community. The AF will also maintain the intensive effort of physical verification of works and technical aspects of sub-project implementation. 57. Economic analysis. Economic benefits of community infrastructure are expected to be significant and Cost Benefit analysis of a sample of AzRIP-financed local infrastructure investments is presented in Annex 5. Irrigation projects are estimated to be the most economically beneficial community infrastructure projects, with an average net present value estimated at US$14.6 million from analysis conducted in 2010. The average net present value of road rehabilitation projects is estimated at US$1.03 million. Benefits from livelihoods activities are likely to come from several sources: (i) increases in income; (ii) increases in productive investments; (iii) greater skills for those participating in activities; (iv) lower cost of goods produced in the communities; and (v) increased links with markets. 58. Procurement. Procurement functions under the current project are rated as satisfactory. The Procurement unit of the PMU is headed by a qualified and experienced procurement manager, and procurement assistant and the five zones are supported by one senior procurement officer and three procurement officers. The most recent procurement post review was carried out along with the Chamber of Accounts of Azerbaijan in February 2014. The report is being finalized. No major issues other than recommendations to see the possibility of wider participation of bidders for small value (less than US$ 100,000) civil works contracts for micro- projects. Procurement Risk Assessment was carried out for the project using PRAMS which has been updated. Procurement under the AF shall follow the Bank’s "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 2011, and "Guidelines: Selection and 13 Employment of Consultants by World Bank Borrowers" dated January 2011 and Guidelines On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants dated October 15, 2006 Revised January 2011. PMU has prepared a draft Procurement Plan (PP) for the AF. Due to the nature of the micro-projects, a detailed procurement plan cannot be prepared at this stage. The detailed procurement plan will evolve as and when the micro-projects are identified. Proposed additional financing will be used to finance: (i) 650 additional community infrastructure micro-projects; (ii) 20 livelihood micro- projects; and (ii) 10 connector roads projects to cover around 150 km. In addition, the AF will support the related technical assistance for implementation of the above. The project operation manual will be updated as required to detail the procedure for implementation of the livelihood micro-projects. The draft final Procurement Plan, agreed with the Borrower during Appraisal, will be finalized during negotiations. 59. Financial Management. The proposed AF would not require changes in the financial management arrangements. Financial Management (FM) functions under the proposed AF, including flow of funds, staffing, accounting, reporting and auditing, will remain under the responsibility of the PMU at the SAAC, as under the original Project. FM arrangements of the original Project have been reviewed periodically as part of project supervision and have been found satisfactory. The last FM review was held in June, 2013 and updated in September, 2013. Sound internal control procedures are in place. The client is in compliance with the financial management covenants: Interim Un-audited Financial Reports (IFRs) have been submitted on a regular and timely basis, the Project audit reports have been received by the due date and the auditor has given an unqualified opinion on the project financial statements with no serious internal control issues in the management letters. The overall FM risk for the Project remains Moderate. 60. Audit arrangements similar to the audit arrangements under the original Project would be adopted for the proposed AF. The audit will be conducted by an independent private auditor in accordance with terms of reference acceptable to the World Bank, and procured by the PMU. The current format and components of the project financial statements will remain the same. The annual audited project financial statements will be submitted to the World Bank within six months after the end of each reporting period. The audited financial statements will be posted on website within one month of the receipt of audited reports from the auditor. In addition, following the World Bank’s formal receipt of the financial statements from the recipient, the World Bank will make them available to the public in accordance with Bank Policy on Access to Information for Bank-financed operations. The cost of the audit would be financed from the proceeds of the Loan. Project management oriented IFRs will be used for the proposed AF monitoring and supervision. Existing IFR formats will be used and the PMU will produce a full set of IFRs every quarter throughout the life of the Project and will submit them to the World Bank no later than 45 days after the calendar quarter end. 61. Disbursement. The proposed AF would follow the flow of funds and disbursement arrangements established under the original Project, i.e., reimbursement, direct payment, advances, and special commitments including the use of Statement of Expenditure procedures. A separate Designated Account (DA) for IBRD funds under the AF Loan would be opened in a commercial bank on terms and conditions acceptable to IBRD. It was agreed to set the Ceiling of Advances to the DA at USD 3 million, so as to ensure quick and efficient disbursements for the proposed Additional Financing. 14 62. Environmental safeguards. The proposed AF will not trigger any new safeguard policies, and the environmental category remains B, since the activities to be supported under the AF are similar to those of the original project, with the changes related mainly to the expanded community investments and scaling up the livelihood support. The original EMPF has been duly updated for the purposes of the AF and disclosed both in-country and in the InfoShop. 63. Social safeguards. No social safeguards are triggered under the AF. The project will not finance activities that will require land acquisition or the displacement of livelihoods or residences. 64. Restructuring of Original Project. The Results Framework has been updated to reflect the expanded scope of the Project. This Level 2 restructuring change will be reflected in an amendment letter to the original loan agreement. 65. Risks. An ORAF is attached to this memo. The project has overall low risk. The main risks pertain to the generic operating environment and are of a political, governance, economic and security nature. The existing PMU will continue to serve as implementing agency and its capacity and systems are strong, including in the areas of procurement and financial management. The potential risk of growing project complexity stemming from the new pilot on connector roads will be mitigated by ensuring that connector roads scope is within the cluster communities’ collective capacity to manage and implement, and that appropriate institutional arrangements for pilot implementation are in place. Social and environmental risks during project implementation are expected to be low given the strong capacity established in the PMU and regional offices. Issues during project implementation related to governance and fraud and corruption could arise from external interference, but are expected to be mitigated by the transparency and accountability mechanisms built into the project, including a well-functioning Grievance Redress mechanism introduced in AzRIP-2 and transparent decision-making practice underscored through community involvement in design and implementation, along with strong monitoring and evaluation procedures. Risks pertaining to quality and sustainability are also expected to be low since the technical quality of infrastructure in AzRIP has been very satisfactory with clear evidence of functioning infrastructure and well-organized plans for operation and maintenance funding. Attention will be paid to the institutional arrangements for scale-up of livelihoods activities with a directed view to sustainability and market value addition. 15 Annex 1: Results Framework and Monitoring COUNTRY: Azerbaijan Second Rural Investment Project – Additional Financing Results Framework Revisions to the Results Framework Comments/ Rationale for Change PDO Current (PAD) Proposed To improve access to, and use of Continued community-driven rural infrastructure and to expand economic activities for rural households PDO indicators Current (PAD) Proposed change* Percentage increase in access to and use Continued of rural infrastructure Percentage of households who are Continued satisfied with the quality of basic rural infrastructure Percentage reduction in travel time to Continued market, hospital, school, safe water source Percentage change in household income Revised Revised to include improved from economic activities disaggregated economic status, based on changes by, in per capita income / consumption • rural infrastructure micro-projects attributable to the livelihood • livelihood micro-projects micro-projects. Revisions to the Results Framework Comments/ Rationale for Change Intermediate Results indicators Current (PAD) Proposed change* Number of community micro-projects Change in end of project target Will include expansion of value community infrastructure and livelihood micro-projects under AF Project beneficiaries Change in end of project target value No. of members in common interest New Indicator for livelihood activities groups Number of beneficiaries from New Indicator for livelihood activities livelihood micro-projects Intended beneficiaries that are aware of Dropped Embedded in mobilization tracking project information and project supported investments (percentage) Number of women in Community Change in end of project target Groups value Traffic volume on rural connector roads New Indication of increased use of rural (average no. of vehicles per day) connector roads – community monitoring Percentage of infrastructure micro- Continued projects where necessary maintenance operations are taking place with community engagement Percentage of livelihood micro-projects New Measured after 1 and 2 years - that are ongoing and commercially shows sustainability of livelihood viable activities Grievances registered related to Continued delivery of project benefits that are actually addressed (no. and percentage) Change in community members who Dropped Collected as part of Project M&E feel they have some influence in but not tracked in results community decision-making processes framework (male/female) 17 Revisions to the Results Framework Comments/ Rationale for Change Change in degree of people’s trust in Dropped Collected as part of Project M&E community groups (percentage) but not tracked in results framework Change in people’s willingness to Dropped Collected as part of Project M&E contribute to community project costs but not tracked in results (percentage) framework No. of trainees in capacity building Change in end of project target activities by kind of activity value (male/female/youth/ minorities/IDPs/municipal/ ExCom) - Community training - Cross visits - Seminars - Conferences No. of villages which hold community- Dropped Collected as part of Project MIS wide meetings organized by but not tracked in results Community Group to discuss public framework matters after project completion. (measured at 6 and 12 months after completion of sub-project) No. of communities with new projects Dropped Collected as part of Project MIS implemented with internal resources but not tracked in results (including activities with municipality framework and ExCom) No. of communities with projects Dropped Collected as part of Project MIS implemented with external resources but not tracked in results framework * Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value 18 REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO): To improve access to and use of community-driven rural infrastructure and expand economic activities for rural households Baseline Cumulative Target Values 4 Original Progress Responsibility 2015 2016 2017 2018 Data Source/ PDO Level Results Indicators 1 UOM 2 Project To Date Frequency for Data Comments Methodology Core Start (2014) 3 Collection (2013) 1. Percentage increase in access IE baseline completed in 3 times to and use of rural infrastructure Randomized Aug, 2013, mid-term during impact planned for Aug. 2014, project % 0 10% 20% 25% evaluation; WWC final survey planned for (baseline, ex-poste 2016. End-project data mid-term, evaluation to come from ex-poste final) evaluation 2. Percentage of households who 3 times Randomized are satisfied with the quality of during impact basic rural infrastructure project % 37% 40% 60% 75% evaluation; WWC As above (baseline, ex-poste mid-term, evaluation final) 3. Percentage reduction in travel 3 times Randomized time to market, hospital, during impact school, safe water source project % 0 10% 30% 48% evaluation; WWC As above (baseline, ex-poste mid-term, evaluation final) 4. Percentage change in 3 times Randomized household income from during impact economic activities % project evaluation; WWC As above 0 10% 16% 23% (baseline, ex-poste - rural infrastructure activities mid-term, evaluation 1 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance – please see http://coreindicators). 2 UOM = Unit of Measurement. 3 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 4 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the “Comments” column. 19 - livelihood activities 0 25% 35% final) Beneficiaries 5 Quarterly Number Project beneficiaries, and annual 0 900,000 1.8 m 2.5 m 3m 3.5 m Project MIS PMU/ROOs project reports % Of which female (beneficiaries) 0 50% 50% Intermediate Results and Indicators Baseline Target Values Progres Unit of Original Data Source/ Responsibility s To 2015 2016 2017 2018 Frequenc Intermediate Results Indicators Measu Project Methodolog for Data Comments Date y Core rement Start y Collection (2014) (2013) Intermediate Result 1: Rural Community Infrastructure and Livelihoods Quarterly Number of community micro- and annual Number 0 215 500 800 1,100 1270 Project MIS PMU/ROOs projects project reports Quarterly Traffic volume on rural connector Community and annual roads (average no. of vehicles Number 60 100 180 250 300 monitoring PMU/ROOs New indicator project per day) groups reports Percentage of infrastructure 6 months micro-projects where necessary and 1 year Micro-project maintenance operations are taking % 0 100% 90% 90% 90% 90% after MP PMU/ROOs evaluations place with community completio engagement n 5 All projects are encouraged to identify and measure the number of project beneficiaries. The adoption and reporting on this indicator is required for investment projects which have an approval date of July 1, 2009 or later (for additional guidance – please see http://coreindicators). 20 Intermediate Results and Indicators Baseline Target Values Progres Unit of Original Data Source/ Responsibility s To 2015 2016 2017 2018 Frequenc Intermediate Results Indicators Measu Project Methodolog for Data Comments Date y Core rement Start y Collection (2014) (2013) Quarterly Number of beneficiaries from and annual Number 0 0 60,000 60,000 160,000 250,000 Project MIS PMU/ROOs New indicator livelihood micro-projects project reports 1 and 2 Percentage of livelihood micro- years after Livelihood projects that are ongoing and % 0 0 90% 90% 90% 90% WWC New indicator completio evaluation commercially viable n Grievances registered related to Quarterly delivery of micro-projects and annual benefits that are actually % 0 100% 60% 80% 90% 90% Project MIS PMU/ROOs project addressed (percentage) reports Intermediate Result 2: Technical Assistance for Rural Infrastructure and Livelihoods Number of women in Community Quarterly Groups and annual 1,200 from AzRIP-2 Number 0 927 1500 2500 2800 3,175 Project MIS PMU/ROOs project and 1,340 AF reports No. of members in Common Quarterly Number Interest Groups and annual 0 60 60 150 200 225 Project MIS PMU/ROOs New indicator project reports No. of trainees in capacity building (male/female/youth/ minorities/IDPs/Gvnt/ExCom) Quarterly 2,715 and annual 17,000 from AzRIP-2 - Community training Number 0 17,000 37,300 Project MIS PMU/ROOs 2,181 project and 20,300 AF - Cross visits 770 reports - Seminars 812 - Conferences 6,368 21 ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) AZERBAIJAN: Second Rural Investment Project Additional Financing (P147861) Stage: Board Risks . 1. Project Stakeholder Risks 1.1 Stakeholder Rating Low Risk Risk Description: Risk Management: The project is being developed in close collaboration with the Ministry of Agriculture and the Ministry of Economic Development and Coordination and Industry and enhanced communication mechanisms will be put in place to ensure that project implementation performance and results are information broadly disseminated. Additionally, the project will continue to use the indicators developed under AzRIP-2 to measure sustainability and exchange with will disseminate these actively and widely. different Ministries limited Resp: Both Status: In progress Stage: Both Recurrent: Due Frequency: Date: Beneficiary capacity Risk Management: in new rayons to prepare and As with AzRIP-2, efforts will be focused on stimulating community mobilization and strengthening community capacity to implement sub- implement sub- projects. projects may be Resp: Client Status: In progress Stage: Both Recurrent: Due Frequency: weak. Date: 3. Implementing Agency (IA) Risks (including Fiduciary Risks) 3.1 Capacity Rating Low Risk Description: Risk Management: Increased workload The project will allocate adequate budget to secure necessary capacity of the PMU. Implementation activities will be sequenced to ensure associated with that the PMU capacity is not overly strained. implementation of AzRIP-2 and Resp: Client Status: In Progress Stage: Implementation Recurrent: Due Frequency: AzRIP-2 AF may Date: result in exceeding the capacity of PMU Risk Management: staff. Engineering technical guidance to be provided by Transport team in coordination with AzRIP civil engineer. 22 Resp: Client Status: In Progress Stage: Implementation Recurrent: Due Frequency: Capacity to manage Date: and implement connector roads pilots exceeds PMU capacity. 3.2 Governance Rating Low Risk Description: Risk Management: Significant turnover The project has received strong endorsement from the Cabinet of Ministers and the Prime Minister's office, and the task team will continue to and/or political work closely with the State Agency for Agricultural Credits within the Ministry of Agriculture and the Ministry of Economic Development appointments at top and Industry during project implementation to ensure their ongoing support. management levels of MoA, resulting in Resp: Bank Status: Completed Stage: Both Recurrent: Due Frequency: lack of competent Date: management and Risk Management: failure to provide strong leadership, The Bank will need to continue emphasizing the importance of a well governed agriculture sector to the national economy in the course of good governance country dialogue. It will continue work with Government to build support and consensus for governance reforms. and transparent Resp: Bank Status: In Progress Stage: Both Recurrent: Due Frequency: decision making. Date: Community Risk Management: concerns and The project is designed to increase community participation and the capacity of communities to advocate for their priority development priorities are not needs. The AF will continue to support the role of communities in design and implementation, and ensure that the grievance redress sufficiently taken mechanisms built into AzRIP 2 continue and are strengthened as needed. into account. Resp: Both Status: In Progress Stage: Both Recurrent: Due Frequency: Date: 4. Project Risks 4.1 Design Rating Low Risk Description: Risk Management: Growing project The project will continue to enhance the role of communities in design and implementation, and ensure that adequate grievance complexity resulting redress mechanisms exist. from new Design of the connector roads pilot component will be based on comprehensive assessment and implementation will be supported by active component on technical guidance and supervision and AzRIP institutional arrangements. connector roads pilot, and scaling up Resp: Client Status: Not Yet Stage: Implementation Recurrent: Due Frequency: of the number of Due Date: regions the project Risk Management: 23 will cover. Monitor implementation for consistency with guidelines to ensure that clear and transparent criteria are used for beneficiary selection and project screening and approval. Non-transparent Resp: Client Status: Not Yet Stage: Implementation Recurrent: Due Frequency: selection of Due Date: participating grantees Risk Management: The timing of grading and road rehabilitation will be carefully planned, taking into consideration capacity and seasonal factors. Time lags between Resp: Client Status: Not Yet Stage: Implementation Recurrent: Due Frequency: grading (to be Due Date: undertaken by communities) and asphalting (if associated, to be undertaken under the aegis of the Roads Authority) to be procured by the project) of the lifeline roads might require re-leveling before asphalting. 4.2 Social and Rating Low Environmental Risk Description: Risk Management: Proximity of the two If conflict occurs in the vicinity of these two rayons, the Bank and Project team will assess the continued feasibility of activities in these new rayons (Agdam areas, or may recommend community mobilization or sub-projects designed to build community resilience to conflict. and Fuzuli) to the territories affected Resp: Both Status: Not Yet Stage: Implementation Recurrent: Due Frequency: by the Armenian- Due Date: Azerbaijan conflict. Risk Management: Risk that sub- Regarding inclusion of women and marginalized groups, the project will have a continued emphasis on inclusion of all relevant social groups projects benefit a and robust grievance redress mechanisms. The project has up to now been very successful in increasing the empowerment of women and small number of ensuring the participation of vulnerable groups. people and exclude Resp: Both Status: In Progress Stage: Both Recurrent: Due Frequency: women and Date: vulnerable or marginalised Risk Management: groups. AzRIP 1 & 2 supported environmental awareness raising and capacity building activities among both the Regional Offices and potential sub- project beneficiaries. AzRIP-2 AF will continue the same good practice. The project EMP and OM contain clear procedures to be Potential risk related implemented for each sub-project. 24 to involuntary Resp: Client Status: Not Yet Stage: Both Recurrent: Due Frequency: resettlement or land Due Date: acquisition. Risk Management: Communities may The Environmental Specialist will continue close environmental monitoring of sub-projects and will provide support and guidance to fail to follow community beneficiaries. Potential land acquisition will be screened through questions in the EMF checklist as per AzRIP 1& 2. environmental Resp: Client Status: In Progress Stage: Both Recurrent: Due Frequency: requirements during Date: sub-project implementation due to insufficient capacity or lack of understanding. 4.3 Program and Rating Low Donor Risk Description: Risk Management: No dependence on other donors. Resp: Status: Stage: Recurrent: Due Frequency: Date: 4.4 Delivery Monitoring and Rating Low Sustainability Risk Description: Risk Management: Livelihood activities Enhancement of PMU capacity to handle livelihoods component, and continued emphasis on capacity building and accountability, local unable to be responsibility and empowerment, partnerships and continual technical support designed to focus on sustainability of local initiatives. sustained after project completion. Resp: Client Status: In Progress Stage: Both Recurrent: Due Frequency: Date: Inadequate O&M Risk Management: arrangements, leading to lack of Continued support for developing adequate standardized maintenance contracts and ongoing M&E, including capital improvement plans and sustainability of longer-term maintenance schedules. The project will further strengthen capacity of participating communities to take responsibility for O&M small scale of rehabilitated infrastructure. infrastructure. Resp: Client Status: In Progress Stage: Both Recurrent: Due Frequency: Date: 25 Annex 3: Technical Annex Description of AF investments 1. Objective: The Project Development Objective is to improve access to and use of community-driven rural infrastructure and expand economic activities for rural households. This would be achieved through: (i) the provision of grants to finance eligible demand-driven micro-projects in rural infrastructure and livelihoods; (ii) the provision of training and consultants’ services to support micro-project development by enhancing the capacity of engaged local stakeholders in all aspects of micro-project program development; (iii) building opportunities for rural employment and livelihood support services through the provision of training and consultants’ services to carry out livelihood support services; and, (iv) supporting project management capacity at the Project Management Unit (PMU) and its Regional Operations Offices (ROOs) for the purposes of effective management, implementation and monitoring and evaluation of Project activities. 2. This Additional Financing has a total investment cost estimated at US$ 86.47 million, of which US$ 50 million will be financed by IBRD. The Project has three components: Component A - Rural Community Infrastructure and Livelihoods 3. Four categories of micro-project grants will be supported under Component A: (i) micro-projects in previously un-serviced communities in two new rayons which meet eligibility criteria set out in the Operational Manual (OM); (ii) second and third generation micro-projects in active AzRIP communities with high performance ratings from previous micro-project implementation and which meet eligibility criteria set out in the OM;; (iii) pilot connector road projects with clusters of communities, and; (iv) livelihood micro- projects submitted by CIGs after successful completion of mobilization and training. 4. The current AzRIP provides investments in demand-driven micro-projects to eligible communities in five regions (Mughan-Salyan, Lower Shirvan, Nakhchivan, North and North West). This component will extend coverage and provide funding for demand-driven micro-projects in rural infrastructure in two new rayons in Mugan-Salyan zone and the creation of a new ROO for the Karabagh zone. The average size of the infrastructure micro projects will be US$ 90,000, while micro-projects valued at over US$ 100,000 will require prior review by the Working Group. Micro-project expenses eligible for financing from the project include identification, design, construction and rehabilitation of the investment. Potential investments, based on priority needs identified by communities include, inter alia, rehabilitation or construction of: • Potable water systems • Irrigation infrastructure • Sewerage and drainage systems • Secondary roads and small bridges • Small-scale local electricity distribution • Primary schools and kindergartens • Health centers • Community centers • Parks • Market places 5. This component will support costs related to the identification, design, construction, rehabilitation, and initial operation and maintenance of the investment. Beneficiaries are required to share the cost of the 26 investment and to ensure the availability of funds for O&M after the grant funding has been completed. Micro- projects require a minimum community contribution of 10% of the investment cost, of which at least 2% must be in cash. 6. The ceiling for livelihood micro-projects will be US$160,000. Grant financing will including economic infrastructure with clear public goods elements, innovative technologies with a clear demonstration effect and critical supply chain infrastructure, as laid out in component B below. Potential investments may include: • Tertiary Irrigation • Market Facilities • Storage Facilities • Milk Processing • Carpet Weaving Looms • Honey Production Machinery 7. The project targets newly eligible rural communities and communities in existing project coverage areas in 58 rayons across the country (2 new rayons and 56 rayons served under AzRIP-2). As depicted in the table below, these comprise the North zone rayons of Aghsu, Balakan, Gabala, Gakh, Gobustan, Guba, Gusar, Ismayilli, Khachmaz, Oghuz, Shaki, Shamakhi, Zakatala, Absheron, Khizi, Shabran and Siyezen and; North West zone rayons of Aghstafa, Barda, Dashkasan, Gadabay, Goranboy, Khanlar, Qazakh, Samukh, Shamkir, Tartar and Tovuz; Lower Shirvan zone rayons of Aghdash, Goychay, Hajigabul, Kurdamir, Ujar, Yevlakh and Zardab and Yevlakh; Mughan Salyan zone rayons of Bilasuvar, Imishli, Jalilabad, Neftchala, Saatly, Sabirabad, Salyan, Aghjebedi, Astara, Beylagan, Lenkaran, Lerik, Masalli, Yardimli and new rayons of Agdam and Fuzuli; Nakhchivan zone rayons of Babek, Julfa, Kengerli, Ordubad, Sadarak, Shahbuz and Sherur. Micro-projects in Nakhchivan are to be fully financed by Government funds. Other zones are eligible for IBRD financed micro-projects. AzRIP Operational zones North zone North West zone Lower Shirvan zone Mughan Salyan Garabagh zone Nakhchivan zone zone 1 Aghsu Aghstafa Aghdash Bilasuvar Agdam Babek 2 Balakan Dashkasan Goychay Imishl Fuzuli Julfa 3 Gabala Gadabay Hajigabul Jalilabad Barda Kengerli, 4 Gakh Goranboy Kurdamir Neftchala Tartar Ordubad 5 Gobustan Khanlar Ujar Saatly Aghjebedi Sadarak 6 Guba Qazakh Yevlakh Sabirabad Beylagan Shahbuz 7 Gusar Samukh Zardab Salyan Sherur 8 Ismayilli Shamkir Astara 9 Khachmaz Tovuz Lenkaran 10 Oghuz Lerik 11 Shaki Masalli 12 Shamakhi Yardimli 13 Zakatala 14 Absheron 15 Khizi 16 Shabran 17 Siyezen 8. These rayons will benefit from mobilization and access to improved infrastructure and livelihood support services. Households and individuals from well-performing micro-projects in the 56 existing rayons 27 served under AzRIP will benefit from second and third generation community infrastructure and livelihood support services. 9. The size of the communities should be greater than 1,000 and less than 10,000 people, but smaller communities can cluster with neighboring communities to achieve scale, in regions that meet established selection criteria and have a higher relative incidence of poverty. The AF will support an additional 670 micro-projects (including 20 livelihood micro-projects), bringing the total under AzRIP-2 to 1,270. 10. ROOs shall launch a promotion and outreach campaign, disseminate requests for infrastructure micro- project proposals and assist in the preparation of micro-project proposals. Investments will be identified by beneficiaries, prioritized through local participatory planning processes, and appraised according to technical, financial, social, economic, institutional and environmental criteria set out in the OM. ROOs shall appraise and evaluate infrastructure micro-project proposals based on the following: (i) impact on the community; (ii) institutional capacity to implement the service intended by the micro-project; (iii) financial viability; and (iv) technical and environmental safety. For the eligible livelihood micro-projects, a detailed operational manual will be prepared detailing procedures and criteria for approval and implementation. Component B - Technical Assistance for Rural Infrastructure and Livelihoods 11. This component will fund technical support services for micro-project implementation and pilot livelihood support services. Technical assistance for rural infrastructure will enhance the capacity of engaged local stakeholders including communities, local authorities, RGACs, PATs and staff in the ROOs in all aspects of micro-project program development. Stakeholder capabilities in functions of contracting, procurement, financial management and participatory monitoring and evaluation will be strengthened. 12. The sub-component on Livelihood Support Services will scale up the current pilot livelihood program under implementation. Eligibility for livelihood support will include prior successful implementation of an AzRIP community infrastructure micro-project. Further community selection criteria include spatial targeting (by agro-ecological zones - highlands, upland-rainfed, and lowlands) and willingness and commitment to organize Common Interest Groups (CIGs) focused on income generation activities. Other criteria will include: (i) social capital: level of social cohesion, number of groups/SHGs, ethnic group, motivation to cooperate, address needs of vulnerable groups; (ii) public infrastructure and access to services, roads, electricity, etc; (iii) technical capacity to manage and ability to deliver project; (iv) economic status including average income, financial assets, natural resource base; (v) market opportunities and existence of high value market chains and opportunities, exploitable natural resources and access to market information, and; (vi) innovative income- generating activity (IGA): seeking diversity of activities; clarity of ideas; capacity to reach maximum number of beneficiaries. Once selected, communities will be eligible for the following services: a. Mobilization and Organization of Common Interest Groups: Mobilization will include a participatory diagnosis of a community’s livelihood challenges to generate information on existing and potential on-farm and off-farm income generating activities, and opportunities and constraints to realizing those opportunities. CIGs will be composed of people with a common economic interest (e.g. dairy producers, handicraft workers, beekeepers). A particular emphasis will be placed on supporting CIGs that include or are exclusively composed of women and youth. Mobilization teams will assess progress in group formation, provide training on group dynamics, and facilitate the process of identifying income generating activities. b. Identification of Income Generating Activities: Income generating activities will be identified based on diagnostic work and will respond to real needs identified by the community. Key principles 28 underlying the selection of activities should include their potential to: (i) be people centered and participatory; (ii) be socially, environmentally and economically sustainable in the long term; (iii) partner with other private sector actors, and; and (iv) empower vulnerable community members such as youth and women. When identifying specific investments necessary for implementing the IGA, priority should be given to fixed assets that are technically feasible and within the competence of the CIG to realize. Potential investments may relate to farm-based activities (e.g. agricultural machinery and equipment, poultry incubators and fodder processing); off-farm activities (e.g. milk processing facilities); and non-farm activities (e.g. carpet making looms, honey production equipment). An economic feasibility analysis will be required for identified IGA proposals. The capacity of different IGAs to generate sustainable incomes for the maximum number of people within the business group and the wider community needs to be addressed comprehensively. c. Business Plan Preparation: Once activities have been identified, training and advisory services will be provided around the preparation of business plans. This support will include market analysis, procurement planning, financial analysis and planning, implementation planning and human resource and organization/management planning. d. Formalizing CIG Status: The PMU will also provide legal support to CIGs in formalizing their status as limited liability companies or cooperatives under the recent legislative change. Once registered, CIGs can open a bank account for depositing income generated by the CIG. e. Training and Technical Support: CIG members will also benefit from training and advisory support on implementing their selected IGA. Topics covered will include basic book-keeping, management principles, as well as technical topics relevant to the activity selected. 13. At the end of the mobilization and training process, CIGs may be eligible to submit their IGA business plan as a micro-project proposal for support under Component A. All micro-project proposals will have to contribute 20% to the overall cost of establishing the IGA, at least 10% of which must be cash. Further details on this sub-component will comprise a dedicated operational manual prepared for the livelihoods pilots prior to launch of the pilot program. Component C - Project Management and Results Monitoring 14. This component will finance the administrative and operational project implementation and management costs, including overheads of Project Management Unit (PMU) professional staff as well as PMU and Regional Operations Office (ROO) support staff, project outreach and support to Regional Grant Approval Committees (RGACs). 15. Management responsibility for AzRIP-2 AF will remain under the State Agency for Agricultural Credits (SAAC) within the Ministry of Agriculture. The Project is managed by a PMU located in Baku and five decentralized ROOs in the selected project regions. The project will be managed with an OM that will provide the PMU the authority and operational guidance needed to deliver and account for funding, provide for institutional capacity building, and supervise implementation of selected micro-project by recipients. The ROO staff will be guided by the procedures in the OM to work with eligible communities, to assist them in identifying and developing micro-project proposals and in seeking approval from the RGACs. The ROOs will then prepare cooperation agreements with the grant recipients for implementing the MPs that have been approved by the RGACs. The recipients will implement their MPs under the supervision and with the institutional support of the ROOs. The ROOs will monitor and report on a step-by-step basis on the process and decisions made in the micro-project cycle and keep detailed records in the Management Information System (MIS). 29 16. Evaluations will also include qualitative and participatory evaluation analysis, which will allow ROOs, the PMU, the Government, the Bank and other donors to have regular updates of the progress of the program. The PMU and the ROOs will use the MIS and M&E results to continuously improve project management. In addition, a randomized impact evaluation will be continued under the AF. 30 Annex 4: Procurement Plan AZERBAIJAN: Second Rural Investment Project – Additional Financing Second Rural Invesment Project _ Date: April 16, 2014 Additional Funding PMU Director: Subhan Asgerov TTL: Daniel Owen Total Project Cost: USD 86,600,000 Proc. Specialist: Aybeniz Hajiyeva-Isgandarova Operations Officer: Rufiz Chiragzade PAS: Deepal Fernando Program Assistant: Vusala Asadova Amendme Days Execution Type-Category Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Plan / Actual Reception nts Prior / Short No Estimated Actual Contr. of Proposal (Amount, Comments Not Selection Post Listing/RFP No Invitation Technical Final Objection to Contract Procurement Ref. # Cost (USD) (USD) incl Type Ad of EOI Expressio Submissio No Objection Start Completion Date and Notes (Consultant e# Method Revie submssion Objection for RFP Evaluation Evaluation Sign Signature incl VAT VAT LS / TB n of n reason Name) w to the Bank Contract Interest should be indicated 1 4/17/2014 12:03 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 A - Community Rural Infrastructure Technical Design Services CS-16 1,818,000 Technical Design for North zone CS-16.1 303,000 130,000 CQS LS Prior 1-Oct-14 14 15-Oct-14 5 20-Oct-14 6 26-Oct-14 5 31-Oct-14 28 28-Nov-14 15 13-Dec-14 2 15-Dec-14 0 15-Dec-14 12 27-Dec-14 5 1-Jan-15 contract 90,000 Post extension contract 83,000 Post extension Technical Design for Lower-Shirvan zone CS-16.2 303,000 130,000 CQS LS Prior 1-Oct-14 14 15-Oct-14 5 20-Oct-14 6 26-Oct-14 5 31-Oct-14 28 28-Nov-14 15 13-Dec-14 2 15-Dec-14 0 15-Dec-14 12 27-Dec-14 5 1-Jan-15 contract 90,000 Post extension contract 83,000 Post extension Technical design for North-West zone CS-16.3 CS-16 303,000 130,000 CQS LS Prior 1-Oct-14 14 15-Oct-14 5 20-Oct-14 6 26-Oct-14 5 31-Oct-14 28 28-Nov-14 15 13-Dec-14 2 15-Dec-14 0 15-Dec-14 12 27-Dec-14 5 1-Jan-15 contract 90,000 Post extension contract 83,000 Post extension Technical design for Nakhchivan zone CS-16.4 303,000 130,000 CQS LS Prior 1-Oct-14 14 15-Oct-14 5 20-Oct-14 6 26-Oct-14 5 31-Oct-14 28 28-Nov-14 15 13-Dec-14 2 15-Dec-14 0 15-Dec-14 12 27-Dec-14 5 1-Jan-15 contract 90,000 Post extension contract 83,000 Post extension Technical design for Mugan-Salyan zone CS-16.5 303,000 130,000 CQS LS Prior 1-Oct-14 14 15-Oct-14 5 20-Oct-14 6 26-Oct-14 5 31-Oct-14 28 28-Nov-14 15 13-Dec-14 2 15-Dec-14 0 15-Dec-14 12 27-Dec-14 5 1-Jan-15 contract 90,000 Post extension contract 83,000 Post extension Technical design for Garabagh zone CS-16.6 303,000 130,000 CQS LS Prior 1-Oct-14 14 15-Oct-14 5 20-Oct-14 6 26-Oct-14 5 31-Oct-14 28 28-Nov-14 15 13-Dec-14 2 15-Dec-14 0 15-Dec-14 12 27-Dec-14 5 1-Jan-15 contract 90,000 Post extension contract 83,000 Post extension B - Technical Assistance to Rural 4,185,700 Infrastructure Contract Project Assistance Team (PAT) 2,585,700 extension PAT Leader CS-14.1 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Senior Mobilizer CS-14.2 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Prime Trainer CS-14.3 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Senior Procurement Officer CS-14.4 CS-14 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Procurement Officer (6) CS-14.5 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Engineer (6) CS-14.6 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Community Business Mobilizer (6) CS-14.7 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Trainers (10) CS-14.8 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Mobilizers (15) CS-14.9 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 PAT Office Manager CS-14.10 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Consultants on Cost Benefit Analysis, Gender Mainstreaming and Research CS-15 CS-15 560,000 IC LS Prior (several) Customs Software (FMS, MIS, M&E) CS-17 CS-17 40,000 IC LS Post development/upgrade (several) International Consultants (several) CS-18 CS-18 150,000 IC LS Post Contract Monitoring and Evaluation CS-19 CS-19 620,000 LS Prior 1-Sep-14 2 3-Sep-14 5 8-Sep-14 1118 30-Sep-17 Extension Consultants for Operational Review of MPs (Procurement, Engineer, CS-20 CS-20 230,000 IC LS Post Livelihood) 31 C - Project Management and Results 3,842,000 Monitoring Contract PMU Individual Consultants 1,461,100 extension Project Director CS-11.1 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Deputy Director,Community Development and Capacity CS-11.2 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Enhancement Manager Procurement Manager CS-11.3 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 MIS Specialist CS-11.4 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Finance Manager CS-11.5 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Monitoring and Evaluation Specialist CS-11.6 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Communication Specialist CS-11.7 CS-11 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Senior Engineer CS-11.8 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Environmental Specialist CS-11.9 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Public Relations Consultant CS-11.10 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Lawyer CS-11.11 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Community Development Assistant CS-11.12 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Capacity Enhancement Assisant CS-11.13 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Procurement Assistant CS-11.14 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Investment Costs Accountant CS-11.15 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Operating Costs Accountant CS-11.16 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Office Manager CS-11.17 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Contract ROO Individual Consultants 2,200,900 extension Program Specialist (5) CS-11.18 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Community Development Officer (5) CS-11.19 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 MIS Officer (5) CS-11.20 CS-11 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Monitoring and Evaluation Officer (5) CS-11.21 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Inform/Communic. Officer (5) CS-11.22 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Office Manager (5) CS-11.23 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Technical Controller (5) CS-11.24 TB Post 1-Jun-14 0 1-Jun-14 1217 30-Sep-17 Audit CS-21 CS-21 180,000 LCS LS Prior 1-Sep-15 14 15-Sep-15 7 22-Sep-15 31 23-Oct-15 20 12-Nov-15 14 26-Nov-15 12 8-Dec-15 10 18-Dec-15 5 13-Dec-15 4 17-Dec-15 654 1-Oct-17 Total Consultants 9,845,700 32 Second Rural Invesment Project _ Additional Date: April 16, 2014 Funding PIU Director: Subhan Asgerov TTL: Daniel Owen Proc. Specialist: Aybeniz Hajiyeva-Isgandarova Operations Officer: Rufiz Chiragzade PAS: Deepal Fernando Program Assistant: Vusala Asadova Days Execution Plan vs./ Actual Type-Category Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Contract Prior / Note Est. Cost Actual (USD) Proc. Submission No Bid Evaluation No Contract Contarct Supplier/Contractor's Amount physical Payment to Comments/ Name of Assignment/Contract Procurement Ref. # Post Invitation Start Completion # (USD) incl. VAT incl. VAT Method to the Bank Objection Opening & Recomm. Objection Award Siganture Name (USD) incl. progress% vendor % Notes Review VAT 1 4/17/2014 12:28 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 A- Community Rural Infrastructure Microproject Grants (during the entire project life) 60,802,800 CPP Post Microprojects in North zone - 130 W-1.1 CPP Post Microprojects in North-West zone - 130 W-1.2 CPP Post Microprojects in Nakhchivan zone - 50 (NBF) W-1.3 W-1 CPP Post Microprojects in Garabagh zone - 150 W-1.4 CPP Post Microprojects in Mugan-Salyan zone - 130 W-1.5 CPP Post Microprojects in Lower-Shirvan zone - 80 W-1.6 CPP Post C- Project Management and Results Monitoring G-1.1 PMU 20,000 1-Aug-14 11 12-Aug-14 5 17-Aug-14 4 21-Aug-14 2 23-Aug-14 4 27-Aug-14 10 6-Sep-14 Office Equipment (multiple) G-1 Shopping Post G-1.2 ROOs 45,000 1-Aug-14 11 12-Aug-14 5 17-Aug-14 4 21-Aug-14 2 23-Aug-14 4 27-Aug-14 10 6-Sep-14 G-2.1 PMU 55,000 1-Sep-14 11 12-Sep-14 5 17-Sep-14 4 21-Sep-14 2 23-Sep-14 4 27-Sep-14 10 7-Oct-14 Office Furniture (multiple) G-2 Shopping Post G-2.2 ROOs 40,000 15-Sep-14 11 26-Sep-14 5 1-Oct-14 4 5-Oct-14 2 7-Oct-14 4 11-Oct-14 10 21-Oct-14 G-3.1 PMU 110,000 25-Sep-14 11 6-Oct-14 5 11-Oct-14 4 15-Oct-14 2 17-Oct-14 4 21-Oct-14 10 31-Oct-14 IT Equipment (multiple) G-3 Shopping Post G-3.2 ROOs 40,000 15-Oct-14 11 26-Oct-14 5 31-Oct-14 4 4-Nov-14 2 6-Nov-14 4 10-Nov-14 10 20-Nov-14 G-4.1 PMU 15,000 15-Aug-14 11 26-Aug-14 5 31-Aug-14 4 4-Sep-14 2 6-Sep-14 4 10-Sep-14 10 20-Sep-14 Audiovisual Equipment (multiple) G-4 Shopping Post G-4.2 ROOs 50,000 15-Aug-14 11 26-Aug-14 5 31-Aug-14 4 4-Sep-14 2 6-Sep-14 4 10-Sep-14 10 20-Sep-14 G-5.1 PMU 25,000 15-Sep-14 11 26-Sep-14 5 1-Oct-14 4 5-Oct-14 2 7-Oct-14 4 11-Oct-14 10 21-Oct-14 Communication Equipment (multiple) G-5 Shopping Post G-5.2 ROOs 70,000 20-Oct-14 11 31-Oct-14 5 5-Nov-14 4 9-Nov-14 2 11-Nov-14 4 15-Nov-14 10 25-Nov-14 G-6.1 PMU 468,000 1-Oct-14 14 15-Oct-14 3 18-Oct-14 30 17-Nov-14 10 27-Nov-14 14 11-Dec-14 10 21-Dec-14 5 26-Dec-14 2 28-Dec-14 30 27-Jan-15 Vehicles G-6 NCB Prior G-6.2 ROOs 70,000 1-Oct-14 14 15-Oct-14 3 18-Oct-14 30 17-Nov-14 10 27-Nov-14 14 11-Dec-14 10 21-Dec-14 5 26-Dec-14 2 28-Dec-14 30 27-Jan-15 Public Awareness Program (multiple) G-7 G-7 140,000 Shopping Post Office Renovation (multiple) W-2 W-2 80,000 Shopping Post 1-Sep-14 11 12-Sep-14 4 16-Sep-14 3 19-Sep-14 2 21-Sep-14 4 25-Sep-14 20 15-Oct-14 Total Microproject Grants 60,802,800 Total Goods and Works 1,228,000 Total Beneficiary Cost for Microproject Grants 6,150,000 33 Second Rural Invesment Project Date: April 16, 2014 _Additional Funding PIU Director: Subhan Asgerov TTL: Daniel Owen Proc. Specialist: Aybeniz Hajiyeva-Isgandarova Operations Officer: Rufiz Chiragzade PAS: Deepal Fernando Program Assistant: Vusala Asadova Days Execution Plan vs./ Actual Type-Category Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Days Interval Review No Months Estimated IBRD+IDA Selection/ by Adverti- Technical No No Final Objection Contract Name of Assignment/Contract Procurement Ref. # Cost/Actual Financing Procure Bank TORs sement Submission Evaluation Interviews Start Completion NOTES Objection Objection Evaluation to Sign Signature (USD) (USD) Method Prior / Invitation +Shortlist Contract Post 1 4/17/2014 12:28 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 TRAINING AND Operating Costs Overseas Training 180,000 Local Training 1,200,100 Community Exchage Networking 540,000 Operating Costs 6,203,400 Total Training and OC 8,123,500 34 Annex 5: Economic Analysis AZERBAIJAN: Second Rural Investment Project – Additional Financing Annex 5: Economic Analysis AZERBAIJAN: Second Rural Investment Project – Additional Financing Community Infrastructure 1. In 2010, an ex-post benefit analysis of AzRIP-supported micro-projects was carried out. This analysis was updated in 2014 using current prices. The analysis included a sample of 18 projects from three regions (Lower Shirvan, Mugan-Salyan, and Nakhchivan) and included two road rehabilitation projects, two clinic renovation projects and two potable water projects in each region. The findings of the cost benefit analysis demonstrate a positive economic return from the micro-project investments. The table below summarizes the results of this analysis. Ex-Post Cost Benefit Analysis of a Sample of 18 Micro-Projects Project Project Cost Project Benefit Net Present Budget Number of Type Stream Stream Value Beneficiaries Average 39,979.33 190,734.61 150,755.28 34,154.80 1,598.75 for four potable water projects Average 54,631.31 13,039,247.35 12,984,616.04 34,154.80 1,270 for two irrigation water projects Average for six 47 978,97 417,649.83 369,670.86 38,282.00 2,860 health post projects Average 36,313 1,688,031.09 1,631,718.09 30,796.70 1,691 for six roads projects *All figures in AZN. 4. Irrigation projects are estimated to be the most economically beneficial community infrastructure projects. The average net present value of irrigation projects was estimated at US$12.9 million. The high value of these projects is associated with the higher returns from increases in agricultural productivity. 5. The average net present value of road rehabilitation projects is estimated at US$1.63 million. The benefits of these projects are calculated based on savings on time and transport costs, including savings on vehicle repairs and use of taxis. The average net present value of potable water projects is estimated at US$150,755. This estimate includes the decrease in infectious diseases attributed to access to clean water, as well as the reduced costs for obtaining clean water. They also include the costs for beneficiaries to maintain the project and to use the services. The estimates do not include environmental impacts, which are expected to be positive. 35 6. The average net present value of health post projects is estimated at US$369,670. This value is based on the savings in time and transport costs of individuals, but does not consider potential improvements in the health of beneficiaries. This means that the value of these projects may be significantly underestimated: the benefits of increased health and life expectancy may not be adequately reflected in beneficiaries’ willingness to pay for increased access to healthcare. Livelihoods 7. Benefits from livelihoods activities are likely to come from several sources: (i) increases in income; (ii) increases in productive investments; (iii) greater skills for those participating in activities; (iv) lower cost of goods produced in the communities; and (v) increased links with markets. An ex-post evaluation of the livelihoods pilots ongoing under AzRIP- 2 will be carried out six months after the completion of the projects. The analysis below reflects the estimated cost-benefit analysis for projects currently being completed under AzRIP-2. Projected Cost-Benefit Analysis of Livelihoods Projects Project Type Project Project Net Budget Number of Cost Benefit Present Beneficiaries Stream Stream Value Incubators 24,216.85 61,111.63 36,894.78 15,000.00 3600 Fodder 36,116.85 48,276.05 12,159.20 26,900.00 2750 Greenhouse 42,233.70 196,464.71 154,231.01 23,800.00 1435 *All figures in AZN. Connector Roads 8. Connector roads are expected to bring about greater benefits, as they will link communities to each other and to rayon centres and highways in each municipality. This will increase access to markets and services, multiplying the effects of connecting single roads. A cost benefit analysis has been conducted made on the basis of the existing set of community road rehabilitation projects supported by AzRIP that connected two communities in Gadabay Rayon: Khar Khar and Samanlig. This 10.5km road passes through Atabey village and benefits a wide population. All of these communities also have increased access to the Gadabay –Samkir road. The net present value of this road is estimated at US$594,000.00 and costs are expected to be recovered by the end of the second year of the project. This net present value considers increases in traffic, savings in time, savings in vehicle repairs and savings in the use of taxis. The costs of maintenance are also considered. 9. An ex-post evaluation of the road connector pilots will be carried out six months after these roads are completed. This evaluation will consider increases in traffic, access to markets, decreased travel time and travel costs, as well as increased access to services for project communities using these roads. 10. The Implementation Completion and Results Report prepared for AzRIP 1 and AzRIP-AF (dated September 27, 2012) presented economic and financial analysis results of the first two phases of the project. The results of ex-post analysis indicated that the micro-project investments were economically viable, with investment returns ranging from 23.7% to 27.1% for non-profit infrastructure investments and 45.8% for irrigation investments. 36 Summary of Ex-Ante and Ex-Post Economic Analysis of AzRIP Micro- Investment Costs NPV EIRR, % project type Ex-ante Potable water USD 79,200 USD 55,872 15.7% analysis Ex-post Road AZN 40,845 AZN 57,400 27.1% analysis Rehabilitation Portable AZN 49,744 AZN 64,200 28.8% Water Health Clinic AZN 39,518 AZN 36,900 23.7% Construction Irrigation AZN 44,900 AZN 95,800 45.8% 37 Annex 6: Map AZERBAIJAN: Second Rural Investment Project – Additional Financing 38