DOCUMENTS AMENDMENT NO 1 TO THE ADMINISTRATIONAGREEMENT FOR EUROPEAN UNION CONTRIBUTIONS, AS REPRESENTED BY THE COMMISSION, TO THE TRUST FUND FOR THE PROGRAMMA TIC TRUST FUND FOR WORLD BANK KNOWLEDGE AND AD VISORY SERVICES IN PURSUIT OF THE OBJECTIVES OF THE EUROPE2020 AGENDA (WORLD BANK TF NO TFO 71818 AND EUROPEAN COMMISSION TRUST FUND NO CCI2011CE160AT105) EUROPEAN COMMISSION, Directorate General for Regional and Urban Policy Directorate General for Employment, Social Affairs and Inclusion B-1049 Brussels Belgium of the one part, and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT of the other part, have agreed as follows: The provisions of Administration Agreement for European Union Contributions, as represented by the Commission, to the Trust Fund for the Programmatic Trust Fund for World Bank Knowledge and Advisory Services in Pursuit of the Objectives of the EUROPE2020 Agenda ("Program") (World Bank TF No TF071818 and European Commission Trust Fund No CCI201 1CE160ATI05) concluded between the Commission and the International Bank for Reconstruction and Development on December 21, 2011 are hereby amended and restated as per the Annex attached to this amendment letter. In particular, the End Disbursement date for the Contribution related to the Poverty Mapping will be extended to 31 August 2014 with a new timeline for the delivery of the outputs. This amendment shall enter into force on the later date of signature by the Parties. For the International Bank For the European Commission For Reconstruction And Development Name Mamta Murthi Name Rudolf Niessler Title Country Director Title Director DG REGIO Signature Signature , Date Z- tO -L ( Date For the European Commission Name Andriana Sukova-Tocheva Title Director DG EMPL Signature Date ADMINISTRATION AGREEMENT FOR EUROPEAN UNION CONTRIBUTIONS, AS REPRESENTED BY THE COMMISSION, TO TRUST FUNDS World Bank Group Trust Fund No TF071818 for the Programmatic Trust Fund for World Bank Knowledge and Advisory Services in Pursuit ofthe Objectives of the EUROPE2020 Agenda ("Program ) European Commission Trust Fund No CCI2011CE160ATIO5 ABAC Contracts No N 30-CE-0470518/00-33 Article 1 Subject Section 1.01. In pursuance of: - 1. the Trust Funds and Cofinancing Framework Agreement between the European Union, represented by the Commission of the European Union (the "Commission"), and the International Bank for Reconstruction and Development ("IBRD"), the International Development Association ("IDA"), and the International Finance Corporation ("IFC") (collectively, the World Bank Group) dated March 20, 2009 (the "Framework Agreement"). - 2. this Administration Agreement for European Union Contributions to a Programmatic Trust Fund for the EU 2020 Knowledge and Advisory Services (TFO71818)(collectively referred to in this Agreement as the "Contribution") whereby the Commission agrees to make Contributions available to the IBRD (collectively referred to this Agreement as the "Contributions") for the purpose of carrying out the Program for World Bank Knowledge and Advisory Services in Pursuit of the Objectives of the EUROPE2020 Agenda to be carried out under the Programmatic Trust Fund ("the Program"); The Commission hereby agrees to make available an original Contribution for an amount referred to in Section 3.02 (the "Poverty Mapping" or "PM" Contribution"), and to be administered by the IBRD under the Program for the purpose of availing technical assistance to develop a set of small-area poverty maps for each of the EU Member States to provide estimates of poverty for small sub-national geographic areas and help identify which small areas are most likely to be among those with the highest levels of poverty in each Member State, as set out in detail in Annex L.A of this Agreement (the "PM Activities"). Section 1.02. The Contribution shall be used exclusively for the purposes set out in Annex I which includes a Description of the specific PM Activities as well as, where required, the expenditures eligible for financing from the Commission, and the relevant indicators. Section 1.03. The IBRD shall administer the Contribution in accordance with the provisions of: - the Framework Agreement; - this Administration Agreement and; - the attached General Conditions applicable to European Union Contributions to Trust Funds (the "General Conditions"). Section 1.04. The Contribution is provided under Joint Management for all purposes of this Administration Agreement. Section 1.05. The Program is not a Multi-Donor Trust Fund for all purposes of this Administration Agreement. Section 1.06. The Trust Fund is not an Exceptionally large Trust Fund for the purposes of Section 16.03 of the General Conditions. Article 2 Entry into force and Implementation Period Section 2.01. This Administration Agreement shall enter into force when the last of the two Parties signs and will remain in force until the End Date. Section 2.02. Expenses financed under the PM Contribution must be incurred after the date following that on which the last of the two parties signs. Section 2.03. (a) It is expected that the Contributions will be fully utilized in accordance with the provisions of this Administration Agreement by December 31, 2016 ("End Disbursement Date"). The End Disbursement Date can only be modified with the agreement of both Parties pursuant to Article 9 of the General Conditions. (b) It is expected that the PM Contribution will be fully utilized in accordance with the provisions of this Administration Agreement by August 31, 2014 ("End Disbursement Date of the PM Contribution"). The End Disbursement Date of the PM Contribution can only be modified with the agreement of both Parties pursuant to Article 9 of the General Conditions. Section 2.04. The IBRD shall only disburse the PM Contribution for the purposes of this Administration Agreement after the End Disbursement Date with the prior written agreement of the Commission. Article 3 Amount of the Contribution Section 3.01 The budget of the Program and PM Activities is set out as estimated in Annex III. Section 3.02 The Commission undertakes to finance the amount of one million two hundred thousand Euros (EURI,200,000) as set out in Annex III for the PM Activities. Section 3.03 Indirect Costs under this Administration Agreement shall not exceed 7% of the final amount of eligible Direct Costs of the Contribution. The IBRD may, following deposit of the Contribution by the Commission, deduct from each Contribution of the Commission and retain for the IBRD's own account an amount equal 6% of the Contribution. The final amount that the IBRD is entitled for Indirect Costs shall be adjusted to the actual disbursed amounts of the Contribution in accordance with Articles 14 and 17 of the General Conditions. Section 3.04 Staff costs for preparation and carrying out of activities under the PM Activities will be charged to the trust fund on an actual basis, and as a Direct Cost provided they comply with Section 14.01 of the General Conditions and within the limits of Annex III. The following categories of costs shall be considered eligible under this Administration Agreement provided they comply with Section 14.01 of the General Conditions: For Bank Executed Components: (i) staff costs; (ii) consultant services; (iii) travel expenses; (iv) translation services; (v) training and workshop costs; and (vi) incremental operating costs. Article 4 Payment schedule and Reporting Section 4.01. Payments will be made in accordance with Article 15 of the General Conditions, and in accordance with the following payment schedule: Advance payment 50% EUR 600,000 Intermediate payment 40% JEUR 480,000 Final payment 10% EUR 120,000 (subject to the provisions of the General Conditions). The Contribution funds shall be maintained in EUR. Section 4.02. Narrative progress report(s) and financial information shall be provided consistent with Article 2 of the General Conditions, and in accordance with the following schedule: - a narrative progress report shall accompany every request for a further settlement. A final narrative report shall be forwarded to the Commission within six (6) months after the date referred to in Section 2.03 (b) of this Agreement; - the progress financial information at the Program level shall be made available via the Bank's Trust Funds Donor Center secure website following the signature of this Administration Agreement. The final financial information at the Program level shall be made available via the Bank's Trust Funds Donor Center secure website within six (6) months after the End Disbursement Date. Section 4.03. For the purposes of Section 2.03 of the General Conditions a schedule of anticipated activities shall be provided with each report. Article 5 Communications and addresses Any communication relating to this Administration Agreement shall be in writing, shall state the number and title of the trust fund, and shall use the following addresses. Payment requests and attached reports, including requests for changes to bank account arrangements pursuant to Section 9.02 of the General Conditions, shall be sent to: For the Commission: For the advance payment Directorate General for Employment, Social Affairs and Inclusion Payment request European Commission Directorate General for Employment, Social Affairs and Inclusion Unit El - ESF Legislation and policy, Financial Engineering SPA3 02/055A 1049 Brussels - Belgium For the attentions of: Thomas Bender, Head of Unit. For the intermediate and the final payments Directorate General for Regional policy Payment requests and attached reports European Commission Directorate General for Regional Policy Greffe Financier REGIO CCI 2011CE160ATIO5 BU29 1049 Brussels - Belgium Copies of the documents referred to above, and correspondence of any other nature, shall be sent to both: Directorate General for Regional policy European Commission Directorate General for Regional Policy BU5 3/041 1049 Brussels - Belgium For the attentions of: Rudolf Niessler Director Directorate B Policy And Directorate General for Employment, Social Affairs and Inclusion European Commission Directorate General for Employment, Social Affairs and Inclusion Unit El - ESF Legislation and policy, Financial Engineering SPA3 02/055A 1049 Brussels - Belgium For the attentions of: Manuela Geleng, Head of Unit. For the IBRD: Mamta Murthi Country Director, ECCU5 The World Bank Article 6 Annexes Section 6.01. The following documents are annexed to this Administration Agreement and form an integral part thereof: Annex I: Description of the Program. Annex I.A: Description of the PM Activities. Annex II: General Conditions applicable to European Community Contributions to Trust Funds. Annex III: Indicative Budget for the Program and PM Activities. Section 6.02 In the event of a conflict between the provisions of the Annexes and those of this Administration Agreement, the provisions of this Administration Agreement shall take precedence. In the event of a conflict between the provisions of Annex II and those of the other Annexes, the provisions of Annex II shall take precedence. Article 7 Other conditions applying to the Program Section 7.01 The following exceptions from the General Conditions shall apply: (a) For the purposes of this Administration Agreement, the term "Project" in the General Conditions shall be read as referring to the "Program" as defined in Section 1.01 of this Agreement. (b) Furthermore, for the purpose of Article 2 of the General Conditions it is agreed that financial reporting will be provided at the Program level and shall include information classified by expenditure type for the entire Program. Narrative progress report shall include information classified at the activity level (including unaudited financial information) related to the PM Activities to be carried out under Annex L.A of this Agreement. (c) For purposes of Section 15.01 of the General Conditions, the term Contribution shall be deemed to refer to the PM Contribution. (d) For the purposes of Sections 2.07, and 17.03 of the General Conditions, the reference to Section 2.03 of the Agreement, shall be read as referring to Section 2.03 (a) of the Agreement. For the purpose of Sections 2.06, 14.01 and 16.06 of the General Conditions, reference to Section 2.03 of the Agreement, shall be read as referring to Section 2.03 (b) of the Agreement. This agreement is drawn up in four originals, three for the Commission and one for the World Bank Group entity. For the European Union, represented by the For the International Bank for Reconstruction Commission of the European Communities and Development Name: Andriana Sukova-Tosheva Name: Dirk Reinermann Position: Director Position: head of the ECA Unit Brussels Signature: signed Signature: signed Date: 21-12-2011 Date: 21-12-2011 For the European Union, represented by the Commission of the European Communities Name: Rudolf Niessler Position: Director Signature: signed Date: 21-12-2011 ANNEX I OF THE ADMINISTRATION AGREEMENT Program description 1. Rationale and Scope of the Programmatic Trust Fund The European Commission and the World Bank share a common vision of building competitive and sustainable economies and in reducing poverty and social exclusion - goals of the Europe 2020 Agenda which is built on three pillars of smart, green and inclusive growth. To date, the cooperation between the EC and the Bank has been largely indirect, with the World Bank engaging directly with individual European countries on projects that are financed by the governments in whole or in part by EU- origin resources, such as the Structural Funds, the Rural Development Fund or the Instrument for Pre-Accession Assistance (IPA). This experience has deepened the mutual appreciation for the complementary competencies of each institution. The European Commission and the World Bank agree that more direct interaction would be beneficial to both institutions and through them to the countries. This applies particularly to the provision of analytical, advisory and knowledge services and technical assistance. The Commission has also expressed an interest in ensuring that the World Bank provides technical assistance to (a) develop a set of small-area poverty maps for each of the EU Member States to provide estimates of poverty for small sub-national geographic areas and help identify which small areas are most likely to be among those with the highest levels of poverty in each Member State and (b) assess the Europe 2020 poverty reduction and social inclusion targets. There is good reason to anticipate that the EC and the World Bank will continue to collaborate on a number of themes under all three pillars of the Europe 2020 Agenda during the remaining years of its implementation. This Programmatic Trust Fund is set up with the express purpose of allowing the European Commission to avail itself of the World Bank's analytical and policy capacity in fulfilling the goals ofEurope 2020. 1 ANNEX L.A OF THE ADMINISTRATION AGREEMENT Description of the PM Activities to the carried out under the Program and the PM Contribution In the framework and in line with the Program and Europe Agenda 2020, the objective of the PM Activities is to develop a set of small-area poverty maps for each of the EU Member States to provide estimates of poverty for small sub-national geographic areas and help identify which small areas are most likely to be among those with the highest levels of poverty in each Member State. 1. Specific activities to be carried out under this Project as part of the Program The European Union's Regional Policy is supported by Structural Funds, with a new seven-year budget cycle starting as of January 2014. To help Member States target this future budget most efficiently to the neediest regions inside the countries, the European Commission (particularly the Employment, Social Affairs and Inclusion -DG EMPL - and the Directorate General for Regional policy -DG REGIO) would like to develop a set of small-area poverty maps for each of the EU Member States. These maps will provide estimates of poverty for small sub-national geographic areas-such as a district or municipality' -and help identify which small areas are most likely to be among those with the highest levels of poverty in each Member State. These poverty maps can not only help guide allocations of European Structural Funds, but can also be of use for decision making and policies at the national and sub-national levels in each of the Member States. The European Commission and the World Bank have agreed that the small area poverty mapping analysis will be carried out in two phases which are both part of this project. The first phase will consist of a pilot study to test alternative analytical methodologies. The pilot study is designed to address the questions raised by the European Commission concerning the most appropriate methodology for small-area poverty estimation in the Member States. The second phase of the poverty mapping analysis (which can take place only after the approval by the European Commission of the methodology tested in the pilot phase) is for the World Bank to apply the agreed upon methodology to construct small-area poverty maps for each of the EU Member States that acceded the Union in or after 2004 (with the exception of Cyprus and Malta). The European Commission will establish separate contracts with European researchers to construct poverty maps for the other EU Member States using the same methodology. 2. Pilot phase: Assessment of the small-area poverty mapping methodologies (Bulgaria case study and Denmark validation of methodology) (i) Provision of a technical report describing the relative performance of the different small area estimation (SAE) methodologies, considering the consistency of the point estimates, the precision of the estimates, the practicality of implementation and compared to the true data values considering the accuracy of the point estimates and the precision of the estimates. The small areas for poverty estimation are NUTS3 (Nomenclature of Territorial Units for Statistics), LAU1 (Local Administrative Unit), and in some cases LAU2. LAU1 and LAU2 were formerly designated NUTS4 and NUTS5. 2 (ii) Preparation of a brief report that assesses the performance of the different estimation methodologies tested in a non-technical manner, referring technical matters to the individual technical reports for each component. The report will also provide a recommendation for the most appropriate methodology to use in the EU context. (iii) Provision of draft maps on the Bulgarian and Danish cases, based on the agreed methodology. To this effect, the World Bank will conduct a thorough assessment of the alternative methodologies for small area estimations of poverty suggested by Eurostat in Bulgaria at the local level. In particular, the assessment will compare the methodology usually employed by the Bank (the Elbers, Lanjouw, Lanjouw method, or ELL) with the main alternative proposed by Eurostat, which is the Empirical Bayes, or EB. The pilot will also test alternative approaches to modeling intra-cluster correlation. As part of the Bulgaria pilot exercise, the Bank will model the random effects both at the cluster level and at the domain level, and investigate the impact on the small area estimates and their standard errors. In addition to providing an assessment for the specific cases of Bulgaria, the pilot will examine the EU-SILC survey sampling designs for other new Member States in order to make a preliminary assessment of the likely difference in precision between the ELL and EB approaches in those countries. The Bank will also incorporate a validation study of poverty mapping based on Danish administrative data following a similar approach to that used by Elbers, Lanjouw and Leite (2008) in their validation study ("Brazil within Brazil: Testing the Poverty Map Methodology in Minas Gerais"). The true values of income and poverty for small areas will be calculated directly from the data, which covers all households and individuals in Denmark. Pseudo-surveys will then be constructed by drawing samples of households from the administrative data, with the sample selection respecting sampling designs that resonate with existing household surveys in Europe (such as the EU-SILC surveys). Small area poverty levels will then be estimated from the pseudo-surveys, using the ELL and EB methods, including the same range of assumptions concerning the location effect. Finally, the estimates and associated confidence intervals of each method will be assessed with respect to their ability to accurately "predict" the true value from the administrative data with adequate precision. The review of the results of the pilot phase will be assessed by the project Steering Committee on the basis of the "Small Area Estimation of Poverty (Poverty Mapping) - Pilot Phase" (version of 14 November 2011) and attached in the Attachment to this annex). 3. Second phase: Rollout of small area poverty mapping in new EU Member States Subject to the conditions set out in Annex III of this Administration Agreement, the World Bank will carry out the second phase of this Project. The second phase would comprise the following activities: (i) A set of training workshops carried out with the national statistical institutes of the new EU member states. The objective of these workshops is to transfer skills in small area poverty estimation to the analysts in the national statistical institutes. Two workshops are planned for each country, with the possibility of convening two to four countries at the same workshop to encourage peer learning. (ii) Consultations with potential users of the small area poverty maps. The objective of these consultations is twofold. The first is to raise awareness of the existence of the poverty maps and how 3 they may be used to inform decision making about policies and programs. The second is to provide feedback from local experts on the accuracy of the poverty maps, based on their knowledge of the areas in question. The consultations will take place throughout the second phase. (iii) Completion of a report containing small area estimation poverty maps for each of the new EU member states. Maps for each member state will be produced using the methodology agreed at the end of the first phase of activities, and show the at risk of poverty rates and at risk of poverty density at the NUTS3 level or below. The technical assistance in the second phase will be done in close coordination with numerous organizations, to help achieve the multiple objectives of ownership and widespread adoption of the poverty maps within the Member States and at the EU level, consistency and comparability of maps across Member States, and transfer of skills to national statistical institutes and other stakeholders. Inception missions will be made as soon as possible to each of the new Member States and the European Commission, with the intent of gaining high-level endorsement of the work and cultivating the audience who are best-placed to use the poverty maps. Early in the second phase, national steering committees will be established in each of the new member states to ensure engagement with a broad array of stakeholders and ensure that the poverty mapping is more than a technical exercise. The technical aspects of the analysis will be undertaken in partnership with the national statistical institutes. This will require coordination of activities across different units of each NSI, such as the census department, the household survey department, the cartographic department, and other units. The planned training sessions will be preceded by intensive preparatory work by the NSIs and the World Bank. Much of the poverty map production itself will occur during the training sessions, which will focus on transferring skills to staff of the NSIs, with the possibility of including analysts from other organizations as appropriate. After technical vetting of the maps, consultations will be held with stakeholders in the Member States and the European Commission to get feedback on the maps, including prospects for combining the maps with other geo-referenced data and using the information in policies and programs. These consultations will be followed by a round of revisions of the poverty maps, with most of the revisions taking place during a second round of training sessions, which will be followed by a second round of consultations. 4. Governance A Scientific Steering Committee to be established by not later than one month from the signing of this Administration Agreement, under terms and conditions satisfactory to the European Commission and the World Bank, will oversee and guide the technical aspects of the pilot phase of the Project, any other follow up activities under the same and approve the Project reports and deliverables. The Scientific Steering Committee will include senior staff from Directorate General for Regional Policy, Directorate General for Employment, Social Affairs and Inclusion, Eurostat, the World Bank and up to four participants to be appointed from members of the academic circles and national statistics offices. The Scientific Steering Committee will be chaired by the Director in the Directorate General for Employment, Social Affairs and Inclusion responsible for Analysis and Evaluation and co-chaired by the Director in Directorate General for Regional Policy responsible for Policy coordination. 4 ATTACHMENT 1 Small Area Estimation of Poverty (Poverty Mapping) - Pilot Phase The World Bank November 14, 2011 1. Introduction The guidance provided in this attachment will assist the Steering Committee assess the review of the results of the pilot phase. The European Union's regional policy is supported by Structural Funds, with a new seven-year budget cycle starting as of January 2014. To help Member States target this future budget most efficiently to the neediest regions, the European Commission (particularly DG EMPL and DG REGIO) would like to develop a set of small-area poverty maps for each of the EU Member States. These maps will provide estimates of poverty for small sub-national geographic areas-such as a district or municipality2-and help identify which small areas are most likely to be among those with the highest levels of poverty in each Member State. These poverty maps can not only help guide allocations of European Structural Funds, but can also be of use for decision making and policies at the national and sub-national levels in each of the Member States. In light of the European Commission's and the World Bank's mutual interest in reducing poverty and social exclusion, and the World Bank's extensive experience in developing poverty maps, the two institutions entered into discussions on cooperating to construct small area estimation (SAE) poverty maps for the new EU Member States. Subsequent to the World Bank's submission of a proposal to the European Commission in September 2011, a number of methodological follow-up questions were raised. To address these, the World Bank and the European Commission agreed that the Bank would conduct a pilot study on small area poverty estimation in Bulgaria, before proceeding to construct small area poverty maps in other Member States.4 The World Bank team believes that the pilot study can address the key items that were raised by the European Commission following the submission of the initial proposal. In particular, the pilot is designed to address the questions raised regarding the identification of an appropriate methodology for small area poverty estimation in the Member States. 2 The small areas for poverty estimation are NUTS3 (Nomenclature of Territorial Units for Statistics), LAU1 (Local Administrative Unit), and in some cases LAU2. LAU1 and LAU2 were formerly designated NUTS4 and NUTS5. The Member States covered by this proposal are Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, and Slovenia. Croatia may also be added following its accession. Two Member States that acceded to the EU in 2004, Malta and Cyprus, are not covered by this proposal. It is planned that poverty maps for other EU Member States will be constructed under a separate project to be coordinated by ESPON (Espon Applied Research Project 2013/1/24). 4 Bulgaria was selected as the pilot country for several reasons, the most prominent being that its microlevel census and EU-SILC data are processed and available, and that the National Statistical Institute is keen to construct a new poverty map to update and complement the poverty map developed with World Bank support using their 2001 census. 5 In addition to addressing the methodological questions through the Bulgaria pilot work, the World Bank team also requests the European Commission to consider supporting a validation component using comprehensive administrative data on incomes in Denmark, to be undertaken by the World Bank team in collaboration with Danish researchers. The team recently learned of these Danish data, which, as highlighted below, provide a rare opportunity to compare the estimates produced by alternative SAE methodologies with known, direct measurements of income and poverty. Similar validation studies have been carried out in Brazil and Mexico, but this would be the first time to do such a validation exercise in a European setting. As such, this component would add additional external validity to the Bulgaria findings and provide additional cross-validation of the small area estimations with directly observed poverty measures. The remainder of the proposal outlines the objectives, methodology, institutional arrangements, schedule, outputs, and budget for the pilot study, including both the Bulgaria and Denmark components. 2. Objectives of the Pilot Study The principal objective of the pilot study is to provide a systematic evaluation of available small area poverty estimation methods, so that DG EMPL, DG REGIO, Eurostat, and the World Bank may come to an agreement about the approach that will be used for small area estimations of poverty in the other EU New Member States. It will provide a basis for comparing the Elbers, Lanjouw and Lanjouw (ELL) method that is usually employed by the World Bank with alternative approaches, particularly the Empirical Bayes (EB) approach. The different methodologies will be scrutinized for quality, margin of error of estimators, availability of data necessary to perform the computations, and finally timing and cost. In addition to comparing across the ELL and EB approaches, comparisons will be made with respect to alternative choices and assumptions that may be made within each approach, such as specifying the level of aggregation for the "location effect", or correlation among households within a small area or cluster. The proposed companion Danish validation study is a unique opportunity not only to compare estimation methods with each other, but also to compare them with the known, true values of the poverty levels in a European country. The validation study will explore the same alternative methodologies to produce a range of poverty estimates and confidence intervals, and then compare those with the income data collected by Danish authorities. Further details of the comparison of methods are described in the Methodology section of this proposal. In response to the World Bank's proposal in September, DG EMPL, DG REGIO, and Eurostat prepared a brief proposal listing ten items that should be included in the pilot study in Bulgaria. After seeking clarification on some of the items and careful consideration we believe that the Bulgaria pilot study can address most of the items. These ten items, and a brief response to each item, follow below. Where appropriate, the responses also reflect the meeting between the European Commission and the World Bank that took place on November 7, 2011 to reach agreement on the work program. The European Commission asked the World Bank to: a) Clearly define the research problem and outputs that can be adequately addressed in this context (sensitivity analysis). The focus should not be on producing reliable estimates ofpoverty in small 6 areas, but to identify those small areas which likely to be among the areas with the highest levels ofpoverty in the country. Response: Agreed by both parties. b) Estimate the probability of poverty (or low welfare) in small areas using small area estimation techniques. This would mean estimating a number of dimensions of poverty or issues related to poverty (including un/employment and education). If feasible, it should also include the three dimensions included in the 2020 at risk ofpoverty or exclusion rate. Based on these dimensions, a scoreboard or composite risk indicator could be constructed to estimate the probability ofpoverty. Response: Many of these indicators, particularly employment status and educational attainment, can be calculated with high precision directly from the census itself, so there is no need to produce model-based estimates for them. The national statistical institutes are capable of producing and mapping these statistics for their respective countries. Therefore World Bank technical assistance may not be required to produce these figures, and published figures could be used. In cases where an NSI does not report the statistics, or does not report the statistics at the level of aggregation needed, the World Bank team agrees to produce these statistics as part of the small area poverty estimation work program. As agreed by the European Commission and the World Bank at the meeting on November 7, 2011, the World Bank team will examine non-monetary definitions of consumption, such as education and employment indicators. These would be compared with the monetary poverty measures, but no attempt will be made to combine the various dimensions into a single composite indicator. The World Bank will not produce estimates for the Europe 2020 severe material deprivation indicator, as attempts by several European researchers and a World Bank team have shown it is extremely difficult to specify a satisfactory prediction model for this indicator. Related to the topic of non-monetary indicators, during the November 7 meeting the Commission also raised the question of differing costs of living within a Member State, and the effect of that on measured poverty. The World Bank team agrees that spatial and temporal cost of living differences are important for poverty measurement, and routinely takes this into account when calculating poverty lines or real income/consumption in individual countries. The EU-SILC does not have the price data necessary to make cost of living adjustments, and that information is not generally collected even in the countries that conduct Household Budget Surveys. The World Bank team agrees to look into possibilities for incorporating cost of living differences, possibly using EU-SILC data on housing costs. At this stage, however, the quality and completeness of such data is unknown, and the World Bank team cannot commit to incorporating cost of living differences within Member States in the poverty analysis. c) Determine the actual range of applicability of these methods for small area estimates using the quality standards developed in the ESSnet on small area estimation (to be available by the end of 2011). Response: The quality standards have not been finalized, but the available preliminary information on the standards provided by Eurostat indicates that there is high degree of overlap between the ESSnet5 quality standards and standard practices employed in poverty mapping by the World Bank. Therefore this is easily incorporated into the pilot. d) Benchmark the WB approach with current best methods for small area estimation based on micro data in their usual domain ofapplicability s ESSnet is a grouping of European statistical organizations that works to leverage synergies to harmonize and disseminate best practices in the European Statistical System (ESS). 7 Response: The "best" method depends in large part on the extent to which the explicit and implicit assumptions of the methodology conform to the available data. The objective of the proposed pilot is to determine which methodology, or perhaps synthesis of methodologies, are most appropriate for the specific task of mapping poverty at the NUTS3 and LAU1 levels in Bulgaria and the other new Member States. e) Assess the cost and benefits of using small area based estimation based on area aggregates instead of individual level data in terms of quality, margin of error, availability of data, timing and cost Response: There are two elements to consider, (a) the accuracy and precision of the area- and micro-level estimates, and (b) the costs of producing those estimates. In the meeting on November 7 it was clarified that the EC is interested in this question especially because of the timing of processing the census data. If some census offices do not have the micro-data available in time for small area poverty estimation it may be necessary to use area-level models. Also during the meeting the World Bank team explained that the micro-level models will incorporate area-level regressors as well. This is standard practice in the World Bank as it helps to improve the explanatory power of the models and reduce the mean squared error. The area-level data in the micro models may come from the survey, aggregations of micro-data from the census, or any published or administrative data that is adequately geo-referenced. In response to the Commission's desire to explore this trade-off, the World Bank team proposes estimating area-level models in addition to micro-level models. For the area-level models we would either do the aggregations from the micro data, or use the results published by the respective NSI, which should be identical. The World Bank team will compare the point estimates and standard errors of the area- and micro-level models. On the cost side, the World Bank team will provide estimates of the costs of each approach. The World Bank team explicitly does not propose reaching a conclusion on whether area-level or micro-level models are more cost-effective. This would require putting a monetary value on the incremental accuracy and precision of the better estimates, which the World Bank team believes is beyond the scope of this pilot. j) Analyse the changes in the geographical concentrations of poverty in Bulgaria between 2000 and 2010 Response: We request that this item be deferred to the post-pilot phase. In the context of this pilot, comparing the changes over time would require reconstructing the 2001 Bulgaria poverty map with each of the alternatives being compared in the pilot. As Bulgaria is unique among new Member States for having an earlier SAE poverty map, it is not clear to us that this duplication of effort (that is, constructing multiple alternative maps for 2001 as well as 2011) will be sufficiently informative with regards to the choice of methods for constructing SAE poverty maps in other EU Member States to justify the cost. We do believe it will be a useful area of inquiry after agreement is reached on methodology and poverty maps are constructed for each Member State. g) Undertake a cost-benefit analysis of the WB approach for tracking areas which are likely to undergo poor living conditions in comparison with area level models. Response: A formal cost-benefit analysis is beyond the scope of this pilot, but the pilot will explore the trade-offs involved. See also point (e) above. h) Provide an overview of census data availability for the countries concerned (distinguishing between micro data and area aggregates) Response: As agreed by the European Commission and the World Bank team at their meeting on November 7, the World Bank team will provide a first draft of the overview of census data availability by November 18. A complete inventory with the latest information available from the national statistical institutes of the new Member States will be included in the first draft of the pilot study report, as well as the final version of the report. i) Provide an overview of other sources of data (administrative...) that could be used to improve the small area estimations Response: Agreed by both parties. Indeed, such external data sources are routinely incorporated in the SAE poverty maps in which the World Bank is involved. j) Set up a Scientific Steering Committee with the participation of DG REGIO, DG EMPL, Eurostat and external independent experts from NSIs and/or academia. The Committee will steer the work of the pilot study and future project. Response: Agreed by both parties. Suggestions about possible members of the Scientific Steering Committee are included in the section of the proposal on Institutional Arrangements. 3. Analytical Methodology Bulgaria pilot study In Bulgaria, the most relevant small areas for poverty estimates are the 264 municipalities, or obshtini (LAUl). It may also be worthwhile to estimate poverty at a more aggregated level for the 28 districts (NUTS3). The underlying approaches of the ELL and EB methods are remarkably similar. They differ primarily in their assumptions about the proportion of small areas ("domains" in the EB literature) that are covered in the household survey that contains the welfare measures of interest, such as income and poverty, and in their treatment of correlation within small areas. For the pilot test, we propose extending the ELL method so that it accommodates the EB approach, or more specifically, what Molina and Rao call the "Census EB" approach, which adapts the original EB approach to common data constraints. The World Bank team proposes adapting the PovMap software so that it will produce both ELL and Census EB results. The extension will thus use the Census EB's "Best Linear Unbiased Predictor" (BLUP) for domains that have been sampled by the household survey. This can be achieved without having to link census and survey at the unit record level. The "nesting" of ELL and Census EB models in this way greatly facilitates the comparison and helps ensure that we are only varying the relevant parts. (a) The extended version of ELL that takes advantage of empirical BLUPs will be implemented and fully tested as part of the pilot. For comparison purposes, the original ELL approach will also be implemented, so as to have an accurate evaluation of both ELL and Census EB. At present neither the ELL nor the Census EB methods take account of informative sampling. The pilot study will examine the extent to which this is relevant for data being used, and if it is relevant, explore ways to take informative sampling into account to avoid bias in the estimates. (b) For domains that have not been sampled by the survey, the original ELL approach and the Census EB will in fact be equivalent. Only for domains that have been sampled by the survey can statistical precision be gained by using the available household data for identifying the random effects as well as for estimation of the model parameters. This optimal use of information 9 'tightens' the distribution from which the random effects are drawn and thereby lowers the mean- squared-error, improving the precision of the estimates for these domains. (c) Both ELL and Census EB methods include the error due to the estimation of the model parameters in the mean squared error (MSE). However, in the standard implementations of each approach the method for incorporating this error component differs. Whereas the Census EB approach re- estimates the parameters via bootstrap, the standard ELL approach draws coefficients from the distribution of the parameters, as captured by the coefficients variance-covariance matrix. In related work on survey-to-survey imputation, World Bank have used both approaches for estimating model error, and found that the two approaches give nearly identical results. The World Bank team is open to using either method for estimating the model error component of the mean squared error for the pilot phase. At present the World Bank's PovMap software uses the variance- covariance matrix approach, which is computationally faster. The World Bank team will investigate the feasibility of modifying the PovMap software to accommodate the bootstrap approach, and consider making such a change if the results of the pilot show that it is warranted. (d) In our experience, having adopted ELL in over fifty low- and lower-middle income countries over the past ten years, the share of domains that are sampled by surveys typically ranges between 5% and 25%. This means that for many developing countries, especially those where the share of sampled domains is on the lower side, the difference between ELL and Census EB is expected to be small. For richer nations the sample coverage of domains tends to be larger, so that the precision gained by using Census EB estimates is also expected to be larger. (e) How much emerging economies such as the new Member States of the European Union will benefit from adopting EB estimates remains an empirical question. We will, in addition to testing this in detail as part of the pilot, examine the EU-SILC survey sampling designs for other new Member States in order to make a preliminary assessment of the likely difference in precision between the ELL and EB approaches in those countries. Comparing the Impact of Modeling the Location Effect at Varying Levels of Aggregation The intra-cluster correlation or "location effect" may be modeled at different levels of aggregation. In the EB literature it is commonly modeled at the domain level, which in Bulgaria would be the municipality. Applications of the ELL approach often estimate the random effects at the sample cluster level (smaller than the domain, or municipality) and then apply them at the domain level. This yields conservative estimates of statistical precision when the random effects do not act at the domain level. As part of the Bulgaria pilot exercise, we will model the random effects both at the cluster level and at the domain level, and investigate the impact on the small area estimates and their standard errors. Denmark validation study The proposed validation study based on Danish data will follow a similar approach to that used by Elbers, Lanjouw and Leite (2008) in their Brazilian validation study. The true values of income and poverty for small areas will be calculated directly from the data, which covers all households and individuals in Denmark. Pseudo-surveys will then be constructed by drawing samples of households from the administrative data, with the sample selection respecting sampling designs that resonate with existing household surveys in Europe (such as the EU-SELC surveys). Small area poverty levels will then be estimated from the pseudo-surveys, using the ELL and EB methods, including the same range of assumptions concerning the location effect. Finally, the estimates and associated confidence intervals of each method will be assessed with respect to their ability to accurately "predict" the true values from the administrative data with adequate precision. 10 The core objective of a validation study is comparing the estimate (predictor) of a variable with the true value of the variable, for the same point in time. Thus the validation requires the variable of interest and the regressors for the estimate to come from the same source; it is an inherent characteristic of the validation method. Although some may argue that the validation design is not realistic, it is the only way to compare the estimated values with the true values for the same point in time. Most important, the validation design overcomes the major limitation of any study that uses different sources (i.e., the vast majority of poverty mapping studies), namely, that if different sources are used there is no way to compare the estimated values with the true values. Assessment of the Methodologies Tested in Bulgaria and Denmark In addition to assessing the statistical properties of the different methodologies, the World Bank team will consult with local experts on the relevance and validity of different poverty maps that are produced. Recognizing that local experts will have differing viewpoints about the specific results for several hundred small areas, the World Bank and the European Commission agreed that it would not be a requirement that the maps receive universal acceptance by all local experts. After assessing the results of the Bulgaria and Denmark pilot studies, the World Bank team will make a recommendation for the method to be used for small area poverty estimation across the EU Member States. The World Bank and the European Commission agreed at their meeting of November 7 that the recommendation will balance multiple criteria, including not only precision, but also robustness across different countries and measures, and the technical complexity of estimation. 4. Institutional Arrangements The European Commission has proposed as Andrea Saltelli (Joint Research Centre), Isabel Molina (Universidad Carlos III de Madrid), and an expert from one of the national statistical institutes as members of the Scientific Steering Committee. The World Bank accepts these proposed members. The European Commission has agreed that the World Bank team may propose additional members of the SSC, likely from academia. The pilot study will be done in cooperation with the Bulgaria National Statistical Institute. The World Bank has already been in communication with NSI regarding the poverty mapping project, and NSI has committed to pursuing the pilot project and subsequent small area poverty estimation. The World Bank team will be co-managed by Benu Bidani (Sector Manager, Europe and Central Asia PREM Network) and Peter Lanjouw (Research Manager, DEC Poverty and Inequality Group). Core team members are (1) Kenneth Simler (Senior Economist, ECA PREM), (2) Katarina Mathernova (Senior Advisor for Europe and Central Asia and on Roma), and (3) Joost de Laat (Senior Economist, Human Development Network). In addition, the team will draw on the expertise of World Bank staff in the DEC Poverty and Inequality Group, the ECA Poverty Reduction and Economic Management Network (PREM), and the ECA Human Development Network. 11 Outputs and Timeline Output Timeline Initiation of pilot study February 2012 Preparation of draft methodology note and presentation to Steering Committee April 2012 Presentation of revised methodology note and preliminary pilot study results to Steering Committee July 2012 Presentation of pilot study results to Steering Committee November 2012 Technical workshop for World Bank poverty mapping team and counterparts from national statistical institutes November 2012 Estimation of small area poverty maps in other new EU Member States (phased in each country depending on data availability and status of October 2012 - April cooperation agreements with national authorities) 2014 Consultations with authorities in new Member States on the initial poverty mapping results (phased in each country depending on data availability and November 2012 - April status of cooperation agreements with national authorities) 2014 Presentation of initial poverty maps to Steering Committee and desk officers from DG Regio and DG Employment April 2013 Presentation of poverty maps to senior management of DG Employment and DG Regio October 2013 Dissemination of poverty map results in Member States (phased as maps November 2013 - June are finalized for each Member State) 2014 Refinement of maps for which new or more complete data are available January - June 2014 12 AGREEMENT GENERAL CONDITIONS APPLICABLE TO EUROPEAN UNION CONTRIBUTIONS TO TRUST FUNDS GENERAL PROVISIONS TO THE ADMINISTRATION AGREEMENT ARTICLE 1 General obligations of the World Bank Group entity Section 1.01. The World Bank Group entity may, according to the Description of the Project in Annex I, execute the funds directly or may provide them to a Recipient for execution in accordance with the World Bank Group entity's policies and procedures. Section 1.02. In case of a BETF, the World Bank Group entity shall carry out the Project in accordance with the Administration Agreement, including the Description of the Project contained in Annex I, and in accordance with the World Bank Group entity's policies and procedures. The World Bank Group entity shall report on the indicators specified in the Description of the Project. Section 1.03. In case of a RETF, the World Bank Group entity shall be responsible, as administrator on behalf of the Commission, for making arrangements to ensure that the Contribution is used only for the purposes for which it was granted, with due attention to considerations of economy and efficiency. For this purpose, the World Bank Group entity shall monitor, evaluate, report and, where applicable, provide technical assistance, in accordance with the Administration Agreement, including the Description of the Project contained in Annex I, he Grant Agreement and the World Bank Group entity's policies and procedures. The World Bank Group entity shall report on the Indicators specified in the Description of the Project. The World Bank Group entity shall enter into a Grant Agreement with the Recipient for the provision of such funds to the Recipient for the purposes set forth in the Administration Agreement. Grant Agreements may be entered into up to the maximum amount of the contributions that all donors including the European Union intend to make available in the Administration Agreement(s). The World Bank Group entity shall provide a copy of the Grant Agreement to the Commission. The World Bank Group entity shall be solely responsible for the administration of such Grant Agreement and shall carry out such administration in accordance with its applicable policies and procedures without prejudice to Section 1.06. Section 1.04. The World Bank Group entity will be responsible only for performing those functions specifically set forth in the Administration Agreement, in these General Conditions, unless agreed otherwise with the Commission, and in case of a Multi-Donor Trust Fund, of the relevant Resolution or the Standard Provisions or the Terms and Conditions, and will not be subject to any other duties or responsibilities to the Commission, including, without limitation, any duties or obligations that might otherwise apply to a fiduciary or trustee under general principles of trust or fiduciary law. Nothing in the Administration Agreement, in these General Conditions, and in case of a Multi-Donor Trust Fund, in the relevant Resolution or the Standard Provisions or the Terms and Conditions, will be considered a waiver of any privileges or immunities of the relevant World Bank Group entity under its Articles of Agreement or any applicable law, all of which are expressly reserved. Section 1.05. The World Bank Group entity shall take measures to prevent irregularities, fraud, corruption or any other illegal activity in the management of the Project in accordance with its policies and procedures. In accordance with applicable World Bank Group policies and procedures, including those pertaining to protection of confidential information and the integrity of the investigative process, the World Bank Group entity shall keep the Commission informed of the progress of any formal World Bank Group entity investigation concerning the misuse of funds provided under this Administration Agreement and will report to the Commission without delay the conclusions of such findings as well as measures taken to address the fraud and corruption consistent with its policies and procedures on anti-corruption. 1 In accordance with the World Bank Group's policies and procedures, the World Bank Group entity shall, for BETFs, terminate contracts with Beneficiaries and, for RETFs, terminate the Grant Agreement or the financing to the Recipient for contracts with Beneficiaries, when either the Beneficiaries and/or the Recipient have been found by the World Bank Group entity to have been involved in fraud or corruption in connection with this trust fund financed by the Commission. In such cases, the World Bank Group entity shall apply its applicable policies and procedures in consultation with the donor(s) to recover the ineligible expenditures. Section 1.06. The World Bank Group entity undertakes to ensure that the principles set forth under Section 1.05, and Articles 4, 5, 6, 10, 14 and 16 of these General Conditions also apply to the Recipient and, where applicable, to Beneficiaries involved. The World Bank Group entity shall indicate to the Recipient in the Grant Agreement the possibility that the Commission may adopt measures vis-A-vis the Recipient, should the latter not reimburse the World Bank Group entity under Section 1.05. ARTICLE 2 Obligations regarding financial information and narrative reports Section 2.01. The World Bank Group entity shall provide the Commission with information on the progress and results of the Projects financed under the Contribution. To that end the World Bank Group entity shall prepare narrative progress report(s) and a final report containing information set forth in Section 2.03 and 2.04. The World Bank Group will also provide the Commission with progress and final financial information regarding the Project. The narrative report(s) as well as the financial information shall cover the entire Project described in the Administration Agreement regardless of whether or not the Project is entirely financed by the Commission. Section 2.02. The World Bank Group entity shall send to the Commission narrative progress report(s) and make available progress financial information in accordance with the provisions below. Every report and information shall include all Project activities for the period covered. The financial information will be made available via the Bank's Trust Funds Donor Center secure website. Section 2.03. The narrative progress report(s) shall provide for comparison of the objective(s) of the trust fund, the results expected and obtained and the budget details for the Project. The level of detail in the narrative report(s) should match that of the Description of the Project and of the indicative budget of the Project. The narrative reports should include: - Summary and context of the Project; - Activities carried out during the reporting period (i.e. directly related to the description of the Project and activities foreseen in this Administration Agreement, including information on the measures taken to identify the European Union as source of financing); - Difficulties encountered and measures taken to overcome challenges; - Changes introduced in implementation, including changes in the procurement plan pursuant to Section 10.01; - Achievements/results by using indicators specified in the Description of the Project contained in Annex I; - Work plan or schedule of Project activities (as described in the Administration Agreement) for the following period. If the report is sent after the end of the period covered by the preceding work plan or schedule, a provisional work plan or schedule shall be submitted before the end of the period covered by the preceding work plan or schedule. The progress financial information shall provide for a history of contributions received and the expenditures. It shall allow the Commission to assess whether the incurred expenditures generally comply with the Administration Agreement. Section 2.04. The final narrative report shall contain the above information (excluding the future workplan or schedule of Project activities) covering the entire Project implementation, information on the visibility measures taken to identify the European Union as a/the source of financing, details on the 2 transfers of assets mentioned in Section 7.02 if relevant, and information on the final procurement plan mentioned in Section 10.01. The final financial information shall provide for a history of the contributions received and the expenditures. It shall allow the Commission to assess whether the incurred expenditures generally comply with the Administration Agreement. Section 2.05. The reports shall be presented in English. Section 2.06. The narrative progress report(s) shall be submitted at the following intervals: if payments follow option 1 of Section 15.01 of these General Conditions: - a narrative progress report shall be forwarded to the Commission on an annual basis following the signature of the Administration Agreement. - a final report shall be forwarded to the Commission within six (6) months after the End Disbursement Date specified in Section 2.03 of the Administration Agreement. if payments follow option 2 of Section 15.01 of these General Conditions: - a narrative progress report shall accompany each payment request for a further instalment of financing; - a final report shall be forwarded to the Commission within six (6) months after the End Disbursement Date specified in Section 2.03 of the Administration Agreement. Section 2.07. The progress financial information shall be made available pursuant to Section 2.02 following the signature of the Administration Agreement. The final financial information shall be made available pursuant to Section 2.02 within six (6) months after the End Disbursement Date specified in Section 2.03 of the Administration Agreement without prejudice to the obligations set out in Section 16.06 of these General Conditions. Section 2.08. The Commission may request clarification on the narrative or financial information providing the reasons for the request. Such information shall be provided as soon as available but no later than forty-five days (45) days of the request. Section 2.09. In addition to the above mentioned reports, the World Bank Group entity will ensure that other reports, publications, press releases and updates, relevant to the Administration Agreement are communicated to the Commission promptly following their issuance. Other reports may be made available on the Donor Centre secure website. The Commission may request reasonable additional information on a case by case basis, providing the reasons for the request. Such information shall be supplied within forty-five days (45) days of the request and where applicable, the Commission will be provided the website address for the trust fund. The World Bank Group entity and the Commission will endeavour to promote close collaboration and exchange of information on the Project. Section 2.10. The World Bank Group entity shall promptly inform the Commission of any event which, in its opinion, interferes or threatens materially to delay or interfere with the successful implementation of any Project financed by the Contribution. ARTICLE 3 Liability Other than for failure to perform its obligations set forth in these General Conditions, in the Administration Agreement, and in the case of a Multi-Donor Trust Fund, in the relevant Resolution or the Standard Provisions or the Terms and Conditions, the Commission shall not under any circumstances whatever be liable for damages caused either to or by the World Bank Group entity or third parties, during the performance of the Administration Agreement. No claim can be submitted to the Commission for compensation or for restoration of any such damage or loss. The Commission will not be responsible for the activities of any person or third party engaged by the World Bank Group and/or the Recipient as a result of the Administration Agreement, nor will the Commission be liable 3 for any costs incurred by the World Bank Group and/or the Recipient in terminating the engagement of any such person. ARTICLE 4 Conflict of interest The World Bank Group entity undertakes to take necessary precautions to avoid conflicts of interest in accordance with the applicable policies and procedures of the World Bank Group. ARTICLE 5 Disclosure The obligations on confidentiality and disclosure of information are included in Article 10 of the Framework Agreement. ARTICLE 6 Visibility and Transparency Section 6.01. The measures taken to identify the European Union as a/the source of financing are subject to Article 8 and Attachment 4 of the Framework Agreement and will be specified in the Administration Agreement. Section 6.02. With due regard to the World Bank Group entity's applicable rules on confidentiality, security and protection of personal data, the obligations on publication of Beneficiaries shall be governed by Article 9 of the Framework Agreement. ARTICLE 7 Ownership/use of results and equipment Section 7.01. The relevant World Bank Group entity shall own all rights, title and interest to all industrial and intellectual property rights and materials used for and produced by a Project in relation to this Administration Agreement. However the World Bank Group hereby grants the Commission a non-exclusive right to use free of charge and as it sees fit any of these materials produced by a Project provided said use does not thereby breach existing industrial and intellectual property rights and the World Bank Group entity's policies and Article 5 of these General Conditions. Section 7.02. Unless otherwise agreed in the Administration Agreement the equipment, vehicles and supplies paid for by the Contribution shall be transferred to Recipients, local authorities or to the final recipients (excluding commercial contractors) of the activities financed by the trust fund by the end of the Project in accordance with World Bank Group policies on asset management. The documentary proof of those transfers shall be kept for verification along with the documents mentioned in Section 16.06. ARTICLE 8 Participation in Supervision of the Project Section 8.01. Representatives of the Commission shall be invited to participate in Supervision missions, when applicable, led by the World Bank Group entity relating to the Project financed under the Contribution. The World Bank Group entity shall keep the Commission informed of the findings of such missions and regularly provide the Commission with summaries of any reports resulting from such missions. Section 8.02. Notwithstanding the Commission's participation in a World Bank Group entity's Supervision mission, the Commission as a donor may wish to carry out Supervision missions independently at its own cost. Supervision missions by representatives of the Commission should be planned and carried out in a collaborative manner between the World Bank Group entity's staff and the 4 Commission's representatives, keeping in mind the commitment of both to coordination and collaboration for the effective and efficient implementation of the Project included in the Administration Agreement. These missions are to be planned ahead with reasonable notice and procedural matters are to be agreed upon by the Commission and by the World Bank Group entity in advance. The mission will make a draft of its report available to the World Bank Group entity for comments prior to final issuance. ARTICLE 9 Amendment of the Administration Agreement Section 9.01. Any modification of the Administration Agreement, including the Annexes thereto, shall be in writing in an amendment. The request for amendment shall be submitted by either the World Bank Group entity or the Commission one (1) month before the amendment is intended to enter into force, unless otherwise agreed by the World Bank Group entity and by the Commission. Section 9.02. Notwithstanding Section 9.01, changes of address and changes of bank account may simply be notified in writing to the Commission. Changes of bank account must be specified in the request for payment using a financial identification form. ARTICLE 10 Procurement and Grants Section 10.01. If parts of the Project are contracted by the World Bank Group, the relevant procurement plan will be specified in the Description of the Project. If it is not specified therein, the World Bank Group entity will present it to the Commission as soon as it is available. Section 10.02. Unless otherwise agreed by the Parties in writing, the procurement of any goods, works or services and the award of Grants to Beneficiaries by the World Bank Group entity or the Recipient in the context of the Project shall be carried out in accordance with the applicable policies and procedures adopted by the World Bank Group entity, as previously assessed by the Commission. The administration and enforcement of all provisions entered into between the World Bank Group entity and a third party that is financed by the trust fund shall be the responsibility solely of the World Bank Group entity and shall be carried out in accordance with its applicable procedures, except as otherwise specified in this Article 10 and Section 1.06. Without prejudice to the specific procedures and exceptions applied by the World Bank Group entity, the award of Grants to Beneficiaries shall apply the following principles: - No single Beneficiary may receive more than one Grant financed by the European Union for the same activity. For additional activities, a Beneficiary may receive supplemental Grants; - Grants may only cover costs incurred after the date on which the Grant contract with the Beneficiary enters into force; - No portion of any Grant shall be used to provide a direct profit out of the proceeds of the Grant to the Grant Beneficiary unless the objective of the Grant is to reinforce the financial capacity of the Beneficiary; and - Grants may not as a rule finance the entire cost of the activities carried out by the Beneficiary. Section 10.03. The origin of the goods and the nationality of the organisations, companies and experts selected for carrying out activities in the Project shall be determined in accordance with the World Bank Group entity's relevant rules. The World Bank Group entity's policies and procedures on procurement and Grants to Beneficiaries are untied. Section 10.04. The World Bank Group entity shall take into consideration as provided for under the World Bank Group's policies and procedures the following or similar situations as factors for determining qualification or eligibility of: - Beneficiaries that are bankrupt or being wound up, are having their affairs administered by the courts, have entered into arrangement with creditors, have suspended business activities, are the S subject of proceedings concerning those matters, or are in any analogous situation arising from a similar procedure provided for in national legislation or regulations; - Beneficiaries that have been convicted of an offence concerning their professional conduct by a judgment which has the force of resjudicata; - Beneficiaries that have been the subject of a judgment which has the force of res judicata for fraud, corruption involvement in a criminal organisation or any other illegal activity; Beneficiaries that are guilty of misrepresentation in supplying the information required as a condition of participation in the procedure or fail to supply this information; - Beneficiaries that are subject to a conflict of interest. Section 10.05. The World Bank Group entity may be given access whatever its medium (written on paper or stored in electronic form) to the central exclusion database set up and operated by the Commission (the "Central Exclusion Database"). The foregoing shall be applied in accordance with the provisions that may be provided for in Attachment 5 of the Framework Agreement including any condition under which the World Bank Group would communicate to the Commission any judgment rendered after 1 January 2009 which has the force of resjudicata for fraud, corruption, involvement in a criminal organization or any other illegal activity against a Beneficiary receiving funds from a trust fund financed by the European Union. ARTICLE 11 Suspension of the Administration Agreement Section 11.01. The World Bank Group entity may suspend implementation of all or part of the Project in accordance with its policies and procedures including when circumstances make it too difficult or dangerous to continue. It shall inform the Commission without delay and provide all the necessary details should a project be suspended. The Administration Agreement may be terminated in accordance with Section 12.01. If the Administration Agreement is not terminated, the World Bank Group entity shall endeavour to minimise the duration of the suspension and may resume implementation of the Project once the conditions allow, and shall inform the Commission accordingly. Section 11.02. Upon removal of the suspension, the implementation period of the Administration Agreement shall be automatically extended by an amount of time equivalent to the duration of the suspension. This is without prejudice to any amendments to the Administration Agreement which may be necessary to adapt the Project to the new implementing conditions. ARTICLE 12 Termination of the Administration Agreement Section 12.01. If, at any time, either party believes that the purposes of the Administration Agreement can no longer be effectively or appropriately carried out, it shall consult the other party. The Administration Agreement may be terminated at the initiative of either party by giving the other party three (3) months' prior written notice to cancel all or part of the Commission's pro rata share of any remaining balance of the Contribution funds that is not committed pursuant to any agreements entered into between the World Bank Group entity and any consultants and/or other third parties for the purposes of the Administration Agreement prior to the receipt of such notice, including the Grant Agreement[s]. The World Bank Group entity shall return such cancelled balance to the Commission including any investment income in accordance with Article 18. Section 12.02.Where the World Bank Group entity: - fails, without justification, to fulfil any of the obligations set out in Sections 1.02 and 1.03 incumbent on it, including the presentation of a final narrative report and/or making available final financial information within the deadlines laid down in Sections 2.06 and 2.07, after being given notice by letter to comply with those obligations, still fails to do so or to furnish a satisfactory explanation within 6 thirty (30) days of sending of the letter; and, in case of narrative progress reports, after failing to provide, together with a satisfactory explanation, a summary of the state of the progress of the Project; - fails to comply with Section 1.05 or Article 4; - provides false reports or makes false or incomplete statements to obtain the Contribution provided for in the Administration Agreement; - commits financial irregularities or is guilty of grave professional misconduct; - undergoes legal, financial, technical or organisational change that is likely to substantially affect negatively the Administration Agreement or to call into question the decision by which a direct financial contribution is awarded to the World Bank Group by the Commission following a Call for proposals; After prior consultation with the World Bank Group entity the Commission may terminate the Administration Agreement. In that event the Commission may request full or partial repayment of any amounts that should have not been considered eligible, after allowing the World Bank Group entity to submit its observations. Section 12.03. Prior to or instead of terminating the Administration Agreement as provided for in Section 12.02, the Commission may suspend payments or (exceptionally) the eligibility of expenses as a precautionary measure, informing the World Bank Group entity immediately. Section 12.04 This Administration Agreement shall be automatically terminated if no payment has been made by the Commission within three (3) years of its signature. ARTICLE 13 Dispute resolution Section 13.01. The Parties shall endeavour to settle amicably any dispute or complaint relating to the interpretation, application or fulfilment of the Administration Agreement, including its existence, validity or termination. In default of amicable settlement, any party may refer the matter to arbitration in accordance with the Permanent Court of Arbitration Optional Rules for Arbitration Involving International Organisations and States in force at the date of the Administration Agreement. Section 13.02. The language to be used in the arbitral proceedings shall be English. The appointing authority shall be the Secretary General of the Permanent Court of Arbitration following a written request submitted by any party. The Arbitrator's decision shall be binding on all parties to the arbitral proceedings and there shall be no appeal. Section 13.03. Nothing in the Administration Agreement shall be interpreted as a waiver of any privileges or immunities accorded to any party hereto by its constituent documents or international law. FINANCIAL PROVISIONS TO THE ADMINISTRATION AGREEMENT ARTICLE 14 Eligible costs Section 14.01. To be considered eligible as Direct Costs under the Administration Agreement costs must: - be necessary for carrying out the activities financed by the trust fund, fall within the scope of the Administration Agreement, and comply with the principles of sound financial management, in particular value for money and cost effectiveness; - have actually been incurred after the date specified in Section 2.02 of the Administration Agreement and before the End Disbursement Date specified in Section 2.03 of the Administration Agreement; - be recorded in the World Bank Group or Recipient's accounts, be identifiable, backed by originals of supporting evidence and verifiable pursuant to the provisions on the verification provision set out in Section 16.07. 7 Section 14.02. Subject to the above and without prejudice to Section 14.04, the following Direct Costs related to the activities of the trust fund of the World Bank Group entity, or its Recipient may be eligible provided they are consistent with the World Bank Group entity's policies: - the cost of staff, including those at headquarters, assigned to the activities funded by the trust fund, corresponding to salaries and other benefits costs; - travel and subsistence costs for staff and consultants; - cost of purchase or lease for goods and services (including consultant services, transport, storage and distributing, lease of equipment, etc.); - costs directly arising out of, or related to, distributing consumables, supplies and communications; - expenditure on contracting (including works); - the proportion of field office costs that corresponds to the amount of activity directly attributable to the activities financed by the trust fund or to the proportion of the amount deposited by the European Union; - media workshops, conferences, meetings and other costs including dissemination of information, translation, reproduction, publication; - training; - Supervision/project management activities, project preparation activities, and specific reporting for the needs of the Commission; - financial service costs (in particular bank fees for transfers) and insurance; - costs related to carrying out visibility activities. Section 14.03. The following costs of the World Bank Group entity or its Recipient shall not be considered eligible: - expenditures and provisions for possible future losses or debts; - interest owed to any third party; - items already financed from other sources; - purchases of land or buildings; - currency exchange losses; - taxes, duties and charges (unless the World Bank Group entity or the Recipient is not able to reclaim them and if allowed by the applicable regulatory provisions of the European Union). Section 14.04. In order to assist in the defrayment of the costs of administration and other expenses incurred by the World Bank Group entity in administering the trust funds provided to it hereunder, a fixed percentage of Direct Costs, not exceeding 7%, may be deducted from each Contribution and retained as Indirect Costs by the World Bank Group entity. The 7% includes any set up fee that the World Bank governing bodies' decision may establish. Indirect Costs are eligible provided that they do not include Direct Costs specifically charged including preparation and supervision costs. Where the administrative costs charged by the World Bank Group exceed 7%, the World Bank Group entity may recover the balance as Direct Costs, subject to meeting the requirements governing direct eligible costs referred to in Section 14.01. Indirect Costs shall not be eligible where the Administration Agreement concerns the financing of a Project where the World Bank Group entity is already receiving funding for its functioning from the European Union during the same period in question. ARTICLE 15 Payments Section 15.01. Payment schedule is set out in Article 4 of the Administration Agreement and follow one of the options below. - Option I will be applicable in case of Single Donor Trust Funds or Multi-Donor Trust Funds where the trust fund has an anticipated duration of one year or less: An advance payment, representing 100% of the total Contribution referred to in Section 3.02 of the Administration Agreement shall be payable by the Commission within fortyfive (45) days following receipt of the Administration Agreement signed by both Parties and receipt by the Commission of a payment request conforming to the model agreed between the Parties. - Option 2 will be applicable in case of Single Donor Trust Funds or Multi-Donor Trust 8 Funds where the trust fund has an anticipated duration of more than one year: An advance payment representing 50% of the total Contribution referred to in Section 3.02 of the Administration Agreement shall be payable within forty-five (45) days following receipt of the Administration Agreement signed by both Parties and receipt by the Commission of a payment request conforming to the model agreed between the Parties. One or several intermediate payments representing X% of the total Contribution referred to in Section 3.02 of the Administration Agreement and specified in Section 4.01 of the Administration Agreement, shall be payable within forty-five (45) days of approving the narrative progress report and the financial information provided the payment request is accompanied by written confirmation that 50% of the total funds received to-date by the trust fund have been subject to a Commitment. A final payment representing 100-(50 + X)% of the total Contribution referred to in Section 3.02 of the Administration Agreement and specified in Section 4.01 of the Administration Agreement, shall be payable within forty-five (45) days following receipt by the Commission of a payment request accompanied by written confirmation that (50 +X)% of the total funds received to-date by the trust fund have been subject to a Commitment. Section 15.02. Narrative progress reports and the up to date financial information shall be deemed approved if the Commission has not reacted within forty-five (45) days of receiving the narrative progress report. If the Commission does not intend to approve a narrative report and/or financial information, as submitted or made available, it shall revert to the World Bank Group entity specifying the additional information it requires in accordance with Section 2.08. The deadline for approving the narrative report and financial information shall be suspended pending the receipt of the requested information. If the Commission deems that a payment request cannot be met, it shall revert to the World Bank Group entity with a request specifying the additional information it requires within the forty-five (45)-day payment period. The payment period shall be suspended pending the payment request being made available in accordance with Section 15.01. Approval of a report does not imply recognition of the regularity, authenticity, completeness and correctness of the declarations and information contained therein. Section 15.03. All payments shall be made in Euro, to the following bank account: Bank of America NT and SA Main Branch P.O. Box 407 1 Alie Street London El 8DE United Kingdom Swift Bic Code: BOFAGB22 Account Number: 165050-62952017 IBAN Number: GB37BOFA16505062952017 Or to any other bank account pursuant to Section 9.02. When making deposits pursuant to this Section 15.03, the Commission will instruct the bank with which the deposit is made to include in its payment details information (remittance advice) field of its SWIFT payment message information indicating the amount and date of the deposit, the name and World Bank reference number of the trust fund for which the deposit is made (as set forth in the Administration Agreement), the Conmiission internal reference number (as set forth in the Administration Agreement), name of the project for which the funds are intended, name of the Commission's department responsible for the trust fund, date of the Administration Agreement or amendment. The Commission will also send a copy of its instruction to the IBRD's Trust Funds Division via e-mail using address "TFremitadvice@worldbank.org or via fax utilizing fax number 1- 202-614-1315. 9 Section 15.04. In case of Single Donor Trust Funds except as the Commission and the World Bank Group entity may otherwise agree and subject to Section 15.06, any funds so deposited by the Commission shall be maintained in Euro. In case of Multi-Donor Trust Funds, in the event that holding currency of the Multi-Donor Trust Fund is not Euro, the World Bank Group entity, shall convert the funds into the holding currency of the trust fund promptly following receipt of the funds, provided that all the necessary documentation has been received, at the exchange rate applicable to the World Bank Group on the date of the conversion unless the parties agree otherwise in Section 7.02 of the Administration Agreement. In all cases, where the Contribution proves to be insufficient to complete the Project as a result of an exchange rate fluctuation, the Commission will not bear any responsibility for additional financing. Section 15.05. The funds deposited pursuant to Section 15.04 above may be commingled with other trust fund assets administered by any World Bank Group entity, provided they may still be identified as such in the records of the World Bank Group entity but shall be kept separate and apart from the funds of each of the World Bank Group entities. Section 15.06. The World Bank Group entity may exchange any funds held hereunder for other currencies in order to facilitate their administration and disbursement at the exchange rate applicable to the World Bank Group on the date of the conversion unless the parties agree otherwise in Section 7.02 of the Administration Agreement. Section 15.07. LBRD shall, on behalf of the World Bank Group entity, invest and reinvest the funds provided by the European Union hereunder pending their disbursement, in accordance with IBRD's policies and procedures for the investment of trust funds. For Multi Donor Trust Funds and/or Joint Management, IBRD shall credit all income earned on funds received from the Commission from such investment to the trust fund established under this Administration Agreement to be used for the same purposes as the Contribution funds. For Contributions which are not Multi-Donor Trust Funds and/or Joint Management, investment income earned on funds received from the Commission shall be identified as such, and IBRD shall credit such income to the Commission's Donor Balance Account to be reimbursed to the Commission annually upon receipt by IBRD of banking details and authorized instructions from the Commission. Such refund request shall be sent to the attention of the Division Manager, Trust Fund Division, Accounting Department of the World Bank ARTICLE 16 Financial audits and checks Section 16.01. The World Bank Group shall maintain separate records and ledger accounts in respect of the Contributions deposited by the Commission in the trust fund account and disbursements made therefrom. Separate records and ledger accounts shall be kept for each trust fund. Section 16.02. The World Bank Group shall provide to the Commission, within six (6) months following the end of each World Bank Group fiscal year, the annual single audit, comprising (1) a management assertion together with an attestation from the World Bank Group's external auditors concerning the adequacy of internal control over cash-based financial reporting for trust funds as a whole; and (2) a combined financial statement for all cash-based trust funds together with the external auditor's opinion thereon. The cost of the single audit shall be borne by the World Bank Group. Section 16.03. For Exceptionally large trust funds where a financial statement audit is deemed appropriate and necessary, the World Bank will include provisions in the Administration Agreement for the financial statements of the trust fund to be audited (either annually, periodically, or at the completion of the trust fund as agreed with the donor(s)), by the World Bank's external auditors in addition to the Single Audit Report. The costs with respect to such audits will be paid by the trust fund. These audited financial statements will be submitted to the Commission. 10 Section 16.04. If the Commission wishes to request, on an exceptional basis, a financial statement audit by the Bank's external auditors of a trust fund established under an Administration Agreement, the Commission and the Bank will first consult one another as to whether such an external audit is necessary. Following consultation, if the Commission wishes to proceed with the external audit, the Bank will arrange for such an audit. The cost of any such audit, including the Bank's internal costs related to such an audit, will be paid by the Commission. Section 16.05. The Bank will provide the Commission with copies of all financial statements and auditors' reports received by the Bank from the Recipients pursuant to the Grant Agreements. Section 16.06. The World Bank Group entity shall, until at least seven years after the End Disbursement Date of the Administration Agreement: (i) keep financial and accounting documents concerning the activities financed by the European Union hereunder; and (ii) make available to the competent bodies of the European Union upon request, all relevant financial information, including statements of accounts concerning the project or activity financed by the European Union hereunder (whether executed by such World Bank Group entity or by its subcontractor). Section 16.07. In conformity with the European Union financial regulations, the European Union may undertake, including on-the-spot, checks related to the Projects and activities financed by the trust fund. Section 16.08. The foregoing shall be applied in accordance with the verification provisionsprovided for in Attachment 3 of the Framework Agreement. ARTICLE 17 Final amount of the Contribution by the Commission Section 17.01. The total amount to be paid by the Commission to the World Bank Group entity may not exceed the maximum Contribution established by Section 3.02 of the Administration Agreement, even if the overall actual expenditure exceeds the estimated total budget set out in Section 3.01 of the Administration Agreement unless amended in accordance with Section 9.01. Section 17.02 The World Bank Group entity accepts that the Contribution amount shall be limited to the amount required to balance income and expenditure for the Project and that it may not in any circumstances result in a surplus for the World Bank Group entity. Section 17.03. In cases where the Project is not completed by the End Disbursement Date specified in Section 2.03 of the Administration Agreement, the funds that remain unexpended after all Commitments incurred have been satisfied, including investment income will be reimbursed to the relevant Balance Account. Section 17.04. Where the Project is not carried out according to the Administration Agreement and without prejudice to its right to terminate the Administration Agreement pursuant to Section 12.02, the Commission may, after allowing the World Bank Group entity to submit its observations and without prejudice to Article 13, adjust its Contribution pro rata to the actual implementation of the Project on the terms laid down in the Administration Agreement giving three (3) months' prior written notice. ARTICLE 18 Recovery Section 18.01. Upon the completion or termination of the Project for which the European Union has provided funding hereunder, the World Bank Group entity, will refund to the Commission within forty-five (45) days of receiving a written request from the latter any amounts paid in excess of the final amount due for such project (including any investment income not previously reimbursed to the 11 Commission or to the Balance Account). Such refund request with banking details and authorized instruction from the Commission shall be sent to the attention of the Division Manager, Trust Fund Division, Accounting Department of the World Bank. Any refund to the Commission will be done in Euro, unless the Parties agree otherwise, at the exchange rate applicable to the World Bank Group on the date of the conversion unless the Parties agree to another exchange rate in Section 7.02 of the Administration Agreement. In the event the funds are received by the Commission before such refund request is sent, the Commission will issue a refund request acknowledging their receipt. Section 18.02. If the World Bank Group entity fails to repay by the due date, the sum due shall bear interest in accordance with the rules of the Commission. In case of Contributions which are Multi- Donor Trust Funds and/or Joint Management the accrued investment income may be taken into account. Section 18.03. Amounts to be repaid to the Commission may be offset against amounts of any kind due to the World Bank Group entity or the Recipient, after consulting it accordingly. This shall not affect the Parties' option to agree on payment in instalments. Section 18.04. Bank charges incurred by the repayment of amounts due to the Commission shall be borne entirely by the World Bank Group entity. 12 ANNEX III OF THE ADMINISTRATION AGREEMENT PROPOSED INDICATIVE BUDGET FOR THE PROGRAM AND PM ACTIVITIES Proposed Program Indicative Budget Item Staff & Consultant Cost 3,331,005 Travel Expenses 787,035 Translation 106,160 Training costs 81,600 Workshop Costs 131,700 Workshop Participant Travel 59,000 Incremental Operating Costs 15,500 Total Amount 4,512,000 Bank Administration fee (6%) 288,000 Total * 4,800,000 Proposed PM Activities Indicative budget (Euros) Item Staff & Consultant Cost 846,505 Travel Expenses 152,995 Translation 26,600 Training costs 29,000 Workshop Costs 32,400 Workshop Participants Travel 30,000 Incremental Operating Costs 10,500 Total Amount 1,128,000 Bank Administration fee (6%) 72,000 Total 1,200,000 *The total amount of the budget for the Program will be updated from time to time upon IBRD receiving Additional Contributions from the Commission under the framework of the Programmatic Trust Fund. In such cases, the revised and updated total amount of the Program will be deemed to have been agreed by both parties upon signature of any Administrative Agreement(s) for an Additional Contribution without the need to further amend this Agreement or any other Administration Agreement under the Programmatic Trust Fund. - 1- (a) Pilot phase: Assessment of the small-area poverty mapping methodologies (Bulgaria case study and Denmark validation of methodology) Upon the signing of this Administration Agreement, the European Commission shall finance the pilot phase of the Project on the basis of the following budget: Proposed indicative budget (Euros) Item Staff & Consultant Cost 240,000 Travel Expenses 33,374 Translation 1,600 Training costs - Workshop Costs 2,400 Workshop Participants Travel - Incremental Operating Costs 3,000 Total 280,374 (b) Second phase: Rollout of small area poverty mapping in new EU Member States Provided the European Commission confirms in writing that it agrees with the methodology selected by the World Bank to carry out the second phase of the Project: Proposed indicative budget (Euros) Item Staff & Consultant Cost 606, 505, Travel Expenses 119,621 Translation 25,000 Training costs 29,000 Workshop Costs 30,000 Workshop Participants Travel 30,000 Incremental Operating Costs 7,500 Total 847,626