Document of The World Bank FOR OFFICIAL USEONLY ReportNo: 28656-CO PROJECTAPPRAISALDOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OF US$30MILLION TO THE REPUBLICOF COLOMBIA FORA PEACEAND DEVELOPMENTPROJECT INSUPPORTOFTHEFIRSTPHASEOFTHE! PEACEAND DEVELOPMENTPROGRAM May 18,2004 Colombia and Mexico Country Management Unit Environmentally and Socially Sustainable Development Unit LatinAmerica andthe Caribbean Region This document has a restricteddistribution and may beused by recipients only inthe performance of their officialduties. Its contents mav not be otherwise disclosed without World Bank authorization. CURRENCY EQUIVALENTS (ExchangeRateEffective {Date}) Currency Unit = ColombianPeso (Co$) 1Co$ = US$2,731.79 US$ = C0$0.00036606 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AOP Annual Operation Plan APL Adaptable ProgramLoan BANCOLDEX Banco de Comercio Exterior de Colombia CAS Country Assistance Strategy CDD Community DrivenDevelopment CONPES National Council on Economic and Social Policy (Consejode Politica Econdmicay Social) DNP NationalPlanningDepartment (DepartumentoNucional de Planeacidn) EA EnvironmentalAssessment FINAGRO Agricultural Sector Financial Fund(Fondopara el Financiamiento del Sector Agropecuario) GOC Government of Colombia IDP Internally DisplacedPeople IPDP Indigenous Peoples Development Plan MMI Magdalena Medio RegionalDevelopmentProject (LILI) MMI1 Second Magdalena Medio Regional DevelopmentProject (LIL1I) NDP National Development Plan(Plan Nacional de Desarrollo) NGO Non Governmental Organization PCU Project Coordination Unit PDP Peace and Development Program PL Peace Laboratory PO Partner Organization RSS Social Solidarity Network (Redde Solidaridad Social) SA Special Account SIIF Integrated Financial Information System (SistemaZntegrado de Informacidn Financieru) SISBEN System for Identification and Selection of Beneficiaries (Sistemade Identificucidn y Seleccidnde Beneficiarios) SNAIPD National System for Integrated Services for DisplacedPopulations (SistemaNacional deAtencidn Integral a la Poblacidn Desplazada) TU Territorial Unit Vice President: David de Ferranti Country Director: Isabel Guerrero Sector Director: John Redwood Task Team Leader: Jairo A. Arboleda FOROFFICIAL USEONLY COLOMBIA PeaceandDevelopmentProject CONTENTS Page A . STRATEGIC CONTEXT AND RATIONALE ......................................................................... 1 1 . . Co u n t j and sector issues ........................................................................................................ 1 2. Rationale for Bank involvement ............................................................................................... 3 3. Higher level objectives to which the project contributes ............................................................ 4 B . PROJECTDESCRIPTION ...................................................................................................... 4 1. Lending instrument ................................................................................................................ 4 2. Program objective and Phases ................................................................................................. 4 3. Project development objective and key indicators ..................................................................... 5 4. Project components ................................................................................................................ 6 5. Lessons learned and reflected in the project design ................................................................... 8 6. Alternatives considered and reasons for rejection ...................................................................... 9 C. IMPLEMENTATION ............................................................................................................ 10 1. Partnership arrangements ...................................................................................................... 10 2. Institutional and implementation arrangements .......................................................................10 3. Monitoringand evaluation of outcomes/results ....................................................................... 11 4. Sustainability ....................................................................................................................... 13 5. Critical risks and possible controversial aspects...................................................................... 14 6. Loadcredit conditions and covenants .................................................................................... 14 D. APPRAISALSUMMARY ...................................................................................................... 15 1. Economic and financial analyses ........................................................................................... 15 2. Technical............................................................................................................................. 16 3. Fiduciary ............................................................................................................................. 16 4. Social .................................................................................................................................. 18 5. Environment ........................................................................................................................ 19 6. Safeguard policies ................................................................................................................ 20 7. Policy Exceptions and Readiness ........................................................................................... 21 This documenthasa restricteddistributionandmay be usedby recipients only in the performance of their official duties I t s contents may not be otherwise disclosed . without World Bank authorization . Annex 1:Country and Sector or ProgramBackground .......................................................... 22 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies ..................26 Annex 3: Results Framework and Monitoring ......................................................................... 27 Annex 4: DetailedProject Description ...................................................................................... 31 Annex 5: Project Costs................................................................................................................ 35 Annex 6: ImplementationArrangements .................................................................................. 36 Annex 7: Financial ManagementandDisbursement Arrangements ...................................... 39 Annex 8: Procurement ................................................................................................................ 43 Annex 9: Economic andFinancialAnalysis .............................................................................. 48 Annex 10: SafeguardPolicy Issues ............................................................................................. 51 Annex 11:Project Preparation and Supervision ...................................................................... 62 Annex 12: Documentsinthe Project File .................................................................................. 63 Annex 13: Statement of Loansand Credits ............................................................................... 64 Annex 14: Country at a Glance .................................................................................................. 66 COLOMBIA PEACEAND DEVELOPMENT PROJECT (1ST PHASE) PROJECT APPRAISAL DOCUMENT LATINAMERICA AND CARIBBEAN LCSEO Date: May 11, 2004 Team Leader: Jairo A. Arboleda Country Director: Isabel M.Guerrero Sectors: General agriculture, fishing and Sector Director: JohnRedwood forestry sector (30%);0ther social services (30%);Law andjustice (20%);Adult literacyhon-formaleducation (20%) Themes: Conflict prevention andpost-conflict reconstruction (P);Participation and civic engagement (P);Other public sector governance (S) Project ID: PO51306 Environmental screeningcategory: Partial Assessment LendingInstrument: Adaptable Program Loan For Loans/Credits/Others: Total Bankfinancing (US$m.): 30.00 Borrower: Republic of Colombia Ministerio de Hacienda y CrCdito Pdblico Carrera 7A No. 6-45, BogotB, D.C. - Colombia Tel: (57 1)297 13 10 Responsible Agency: Redde Solidaridad Social Calle 7 No. 6-54, BogotB, D.C. - Colombia Tel: (57 1)596 08 00 Ext 7112 Fax: (57 1)596 08 00 Ext 7041 IFY 1 2005 I 2006 I 2007 1 0 I 0 I 0 I 0 I 0 1 0 Annual 7.64 11.2C 11.14 0.od 0.0c 0.od 0.oc 0.oc 0.01 Cumulative 7.64 18.82 30.0C 0.oc 0.oc 0.oc 0.oc 0.oc 0.01 Does the project require any exceptions fromBank policies?Ref. PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes EIN0 I s approval for any policy exception sought from the Board? [ ]Yes [ IN0 Does the project include any critical risks rated "substantial" or "high"? Ref. PAD C.5 [XIYes [ ]No Does the project meet the Regional criteria for readinessfor implementation? Ref. PAD 0.7 [XIYes [ ]No Project development objective Ref. PAD B.2, TechnicalAnnex 3 The objective of the Project is to assist vulnerable, low-income anddisplacedpopulations in ruralandurbancommunities inthe conflict affectedregion inorder to reducethe riskof their exposure to conflict and mitigate the negative impact of possible derived effects. The project assumes that buildingassets i s a measurethat contributes to mitigate the risk of displacement, andthat restoring a basic safety net to displacedfamilies i s afirst step intheir social and economic stabilization. However, the project does not address directly the problemof conflict and violence but supports people to reduce and mitigate the risk of conflict and violence. Project description [one-sentence summary of each component] Ref. PAD B.3.a, Technical Annex 4 Component A: Developing Social, Economic andEnvironmental Assets inPriority Areas; Component B: Supportfor Displaced Families inthe Process of Return and Relocation; Component C: Strengthening Institutions and Governanceat the Local Level; Component D: Project Management, Monitoring and Evaluation. Which safeguardpolicies are triggered, if any? Ref. PAD 0.6, TechnicalAnnex 10 Environmental Assessment (OP/BP/GP 4.01) Natural Habitats (OP/BP 4.04) PestManagement (OP 4.09) Indigenous Peoples (OD 4.20, beingrevised as OP 4.10) Significant, non-standard conditions, if any, for: Ref. PAD C.7 Boardpresentation: June 10.2004 Loan effectiveness: (a) The Operational Manualfor the Project has been issued and adoptedby the Borrower and approved by the Bank; (b) The Monitoring andEvaluation Systemfor the Project has been adoptedby the Borrower and approved by the Bank; (c) The Project Coordination Unit (PCU) for the Project has been established, and duly staffed in a manner satisfactory to the Bank. Covenants applicable to project implementation: A. STRATEGIC CONTEXTAND RATIONALE 1. Country andsector issues Conflict and Violence There i s clear consensus among Colombian citizens of all walks of life that the current state of insecurity and violence that prevails in most of the country i s unacceptable. It has resulted in a poor quality of life, and has created a poor investment climate, a serious obstacle to economic growth and employment generation and, many would argue, a threat to the social fabric and very survival of Colombia as a nation. In Colombia, large segments of the population have suffered the consequences of violence even when they have not been its direct targets. Thousands of families have been displaced from their homes and farms by violence, kidnapping, robbery and threat of these crimes. Others are in a vulnerable situation due to the weakened economy and the threat of violence. Building sustainable peace and development requires the existence of a social fabric in which there are production, exchange, and institutions with defined social roles and a minimumof trust. Unless these features are enhanced, peace would be elusive. Colombia's long-standing internal armed conflict has increased in severity since the 1960s, and rates of violence have intensifiedsignificantly since 1996. From 1970to 1991, homicide rates tripled, and despite a 20% decrease between 1992 and 2000 (due to a decrease in the three largest cities'), Colombia's homicide rate remains three times higher than Brazil's or Mexico's. In fact, worldwide, Colombia's homicide rate i s surpassedonly by that of El Salvador. Multiple studies have attributed Colombia's high homicide rate to the intensity of illegal drug trade activities and it's interaction with the activities of illegal armed groups. Similarly, extortion, kidnapping, car theft, and armed robbery rates have continued to grow throughout the 1990s, leading Colombia in 1997 to a remarkable household victimization rate of more than 35 %. Violence generates increasing social costs and demands substantial public resources. Public expenditure on security and justice tripled as a share of GDP during the last decade, and the trend has accelerated since 2000. On the social side, estimates of the conflict-related loss of human capital are estimated at least 1% of GDP, and investment, educational and labor-market opportunities are severely limited in an atmosphere of violence and insecurity. Healthcare costs likewise are affected, and the WHO estimates that violence-related healthcare costs represent 5 % of Colombia's GDP. Poverty and Vulnerability Social indicators mirrored changing economic conditions, worsening after 1995. The trend of employment, decreasing since 1990, reversed itself in 1995; poverty and extreme poverty increased substantially; labor and household incomes fell, while coverage rates of the main social services stagnated or decreased. Urbanunemployment went from 7.6 to 20.5% duringthe secondhalf of the 1990s, doubling the historical rate and reaching the highest level ever recorded. Rural unemployment, although lower that inurbanareas, escalatedsince 1995.Between 1978 and 1988, unemploymentincreased from 1.5 to 4.6%, remained constant thereafter, and more than doubled once again in 1999, reachingan alarming 10.9%. By 2002 ruralunemployment peaked at 12.3% and has been slowly decreasing since then to reach 9.5% in the last quarter of 2003. Clearly, reducing unemployment i s difficult in the absence of higher economic growth rates and lower violence indicators. Two key aspects that influenced the evolution of production In fact, from 1990 to 1997 homicides appear to affect greater areas of the country. While homicide rates have decreased in BogotB, Cali, and Medellin (where they still remain more than double the national average), they have increasedin areas once consideredless dangerous. 1 and, more generally, welfare inrural areas were the structural reforms of the beginning of the 1990s and the increased severity of the internal conflict andits associatedspur of activities relatedto illicit crops. Notably, rising unemployment affected the youngest, the least educated and the poorest population segments more severely. For example, the unemployment rate (UR) for young people (ages 16-24) was 25% to 50%, depending on location. The UR for persons with low or intermediate education levels increased more than that for the highly educated. And after 2000, URs among the poor were more than double those among the non-poor. Wages have also been falling since 2000, with household incomes declining on average 15%, with the income inpoorest households declining at faster rates. Consequently, the late 1990s also saw a significant worsening in poverty. While between 1978 and 1995, poverty rates had been continuously decreasing at close to 1.5% per year, 1999 rates were close to those of 1988, and initial observations for 2000-2003 suggest the situation has not improved. The increase in poverty rates has been especially profound in urban areas. In rural areas, where dramatic improvements hadbeen observed inthe 1980s, the situation stagnatedduringthe 1990s.The result i s not only more poor people, but also deepening poverty, as evidenced by both the increase of extremely poor people and the rising the squared poverty gap (P2), which climbed 22% between 1995 and 1999. (For additional details, see Colombia Poverty Report, 2002). Violence, Poverty and Displacement One key factor contributing to the increasing poverty rate i s the displacement of populations from armed conflict areas. Despite the difficulty in estimating the number of displaced persons, official Government of Colombia (GOC) records indicate that there are almost 2,000,000 internally displaced people (IDP) nationally. Approximately 51 % of those displaced are women, 49 % are under 18 years old, and about 14 % are indigenous and Afro-Colombians. Overwhelmingly, 90 % of IDP come from rural households, where their main income source had come from agricultural activities. Rates of displacement have recently risen markedly, averaging 326,000 per year between 2000 and 2002, with a drop in 2003 (187,0OO), attributed to the GOC's "Democratic Security" policy. Nonetheless, violence-related displacement remains a significant and important factor affectingpoverty. The IDP have tended to migrate to more urban areas either to the departmental centers to stay close to their land, or to larger urban areas, such as BogotB, Medellin, Barranquilla, and Cartagena, fueling urban poverty growth. A survey of 200 IDP in BogotB, Medellin, and Cartagena suggests that households relocating to departmental urban or periurban centers may be undertaking "preventive displacement" as they predict an escalation of conflict at the local level. Those heading to larger and more distant cities may be trying to escape direct threats to their lives. IDPare highly vulnerable and at risk. As IDP numbers have increased, the limited absorptive capacity of the urban sector has left these vulnerable groups at risk. Their agricultural skills have little value inurban labor markets, and IDP are consequently very likely to be unemployed. Affordable housing choices are often limited to urban slums or spontaneous settlements, with poor access to public services. The combination of major economic losses, psychological hardship, and other strains on household structure (disintegration of families, single-parent households, etc.) put their members at risk of resorting to begging, prostitution, and delinquency, ultimately falling into a circle of extreme poverty. Government Policy and Program Strategy The GOC has designed a comprehensive policy to fight poverty, address increasing violence and displacement, and tackle displacement-related effects on the welfare of vulnerable and displaced populations. Specifically, the GOC policy aims to minimize displacement and assist displaced people 2 through targeted regional development interventions that: (i) vulnerability to violence, and thereby reduce prevent displacement; (ii)return displaced families to their home communities or relocate them elsewhere; and (iii)consolidate democratic governance within the regions. A key strategy of the government policy, presentedinthe National Development Plan(NDP) 2002-2006, i s the promotion of regional development programs so as to strengthen governance and democracy and to promote social equity in deprived and conflict-affected regions. These regional programs, focus on three integrated components: (a) productive investments and income generation; (b) institutional and community strengthening; and (c) construction and improvement of social and physical infrastructure. The NDPcalls for these programs to be implementedas "Peace and Development Programs" (PDPs), led by local associations formed of civil, church, business, and NGO representatives, or as EU-funded Laboratorios de Paz, all in close partnership with government and state institutions. Both models are largely inspiredby the Bank-financedMagdalena Medio Regional DevelopmentProgram (MMRDP). The PDPs are regional development initiatives promoted by local Corporations or Associations formed by civic, church, business and NGO leaders in several regions of Colombia, most of them inspired in the approach of the Magdalena Medio Regional Development Program. The PL i s the main strategy of the EU to reduce conflict and violence and promote reconciliation among Colombians. The three strategic axes of the PL are: a culture of peace, respect for human rights and a life with dignity; the strengthening of democratic governance through citizens' participation; and sustainable socio-economic development. The GOC has chosen five regions in which to implement Phase Iof the Project, to receive specific displacement-mitigating interventions. These areas were selected based on high poverty rates, displacement intensity (number of expulsed IDP per 100,000 inhabitants), displacement pressure (number of received IDP per 100,000 inhabitants), absolute numbers of expulsion and reception of IDP, thematic and geographical linkages with European Union-funded "Laboratorio de Paz areas and the presence of " strong PDPs. These regions include Magdalena Medio, Oriente Antioquefio, Alto Patia-Macizo Colombiano, Norte de Santander, and Montes de Maria. 2. Rationalefor Bank involvement The project involves the scaling up of the model used in the MMRDP, funded through two Bank L I L s from 1998 through 2004. This pilot experience was so successful that it i s now being funded and replicated by the EU (through the Laboratorios de Paz program) and serves as the basis of the GOC's NDP strategy. The `Bank's intensive, long-term involvement in the project and sector make it uniquely positionedto continue with support. Specifically, through the MMRDPexperience, the Bank has formed a close partnership with the GOC and civil society organizations on issues of social development, specifically those related to the design and implementation of the proposed project. This local experience can be augmented by the Bank's considerable international experience in Community DrivenDevelopment projects (CDD). Based on lessons learned from these projects, the Bank has a comparative advantage in the design and supervision of CDD projects. The Bank also has considerable experience inconflict and post-conflict situations invarious regions including such countries as Sri Lanka, Indonesia, Timor, and several countries in Africa. Among the important lessons learned from these experiences i s the need to promote confidence-building activities in conflict-affected areas so as to rebuild the economic, institutional and social linkages that are important to mitigate or reduce the consequences of violence. The CDD experience has also shown the importance of empowering communities to make decisions regarding their own welfare, and the need to develop inclusive decision- making mechanisms. 3 3. Higher level objectives to which the project contributes The comprehensive program that the Project supports i s a key part of the NDP. Two key policy components of this program are attention and prevention of forced displacement and the strategy to support alternative development programs (specifically those led by corporations and foundations implementing Peace and Development Programs - PDPs -,and the Laboritorios de Paz) in deprived and conflict zones. Specifically, the program centers on three key policy components: preventing displacement; generating appropriate conditions for sustainable re-establishment (return or relocation); and strengthening of the National System of Integrated Services for Displaced Populations (Sistema Nacional de Atencidn Integral a la Poblacidn Desplazada- SNAIPD). Ultimately, the program aims to generate the social and economic conditions that may reduce the population's vulnerability to conflict- related violence, increase democratic governance, and strengthen institutions. I t seeks to improve the quality of life of vulnerable communities and permit the sustainable social and economic stabilization of families displaced by violence. The Colombia CAS' overarching development objective i s to support the GOC's efforts to achieve sustainable economic development as a condition to buildnational reconciliation and lasting peace. One of the elements to support this strategy i s to scale-up the lessons learned from on-going activities in Colombia, which demonstrate that CDD initiatives can be accomplished in conflict-affected regions, bringingsignificant social andeconomic benefits. These benefits include increased social capital, greater capacity of community organizations and local NGOs to influence public affairs, and tangible economic and social benefits for poor populations. The Project supports the GOC's plan through assistanceto local peace and development initiatives infive selected conflict-affected regions to build social capital, create social and economic opportunities among residents of poor communities, and facilitate the reestablishment of internally displaced families into municipalities. B. PROJECTDESCRIPTION 1. Lendinginstrument The GOC has requested a $30 million loan for the first phase of an APL, estimated at $60 million over a sevenyear period, and allocated about 12%of the loan amount inthe FY04budget. The Bankagreed that an APL was an appropriate instrument given the long-term objective of the government program and the need to expand the intervention gradually. The sector and program issues and the government policy and program are clearly outlined in CONPES (Consejo de Politica Econdmica y Social) Document 3278, approved on March 15,2004 which authorized the government to request a loan for Phase I. 2. Program objective andPhases This Project is the first of a two-phase APL that aims to reduce the vulnerability of low-income and displace population in conflict-affected regions of Colombia. Phase Iwould do so by supporting the scaling up of the Magdalena Medio Peace and Development Program to four additional conflict-affected regions of Colombia, while consolidating the program in the Magdalena Medio region. Phase I1 i s expected to (i) consolidate and strengthen the social, economic and institutional gains of the additional regions of Phase Iand (ii) expand the scope of intervention into 2 to 3 new regions of Colombia. The triggers for moving to PhaseI1are as follows (based on output indicators of the Results Framework): 4 1. Sixty percent of community subprojects supportedby the Projectare incorporatedinto municipal IntegratedMaster Plans (PlanIntegral Unico)and have co-financing external to the Project; 2. At least 70 % of the total number of returned families servedby the Project remain inthe regions; and 3. Financial and procurement audits of organizations implementing PDSs - called partner organizations inthe project - are satisfactory and 70% of community organizations implementing subprojects -called beneficiary entities inthe project - follow OperationalManual Procedures. When two thirds of the loan resources have been disbursed, having achieved the trigger indicators, Phase 11of the loanmay beappraised. These trigger indicators are each linked to key objectives and components of the Program. Indicator (1) shows the capacity of community organizations to formulate subprojects, the responsiveness of public institutions to citizens, and the increasing influence of organized citizens in public affairs; indicator (2) shows the contribution of the Project to the reestablishment of previously displaced families; indicator (3) shows the capacity acquired by partner organizations and beneficiary entities to promote and implement community driven subprojects and programs following (World Bank) norms and procedures. Long term indicators usedto evaluate the impact of the Program(phase I& 11)include: e Lower annual incidence of net displacements in the regions served by the Project as the share of nation-wide annual net displacements, adjusted by violence indicators; e Reduced difference between the percentage of Component A beneficiaries displaced and the percentage of SISBEN persons displaced inthe regions servedby the Project; e The number of persons benefitingfrom Component B as a share of the total number of persons in the registry of displaced population in the region ina given time-period has risen; and e Rising percentage of co-financing of project activities (Components A, B and C) by local and regional actors (i.e. not from the Project accounts). 3. Project development objective and key indicators The project development objective of Phase Ii s to assist vulnerable, low income and displaced populations in rural and urban communities in the conflict-affected regions in order to reduce the risk of their exposure to conflict and mitigate the negative impact of possible derived effects. The project assumes that building assets i s a measure that contributes to mitigate the risk of displacement, and that restoring a basic safety net to displaced families i s a vital first step in their social and economic stabilization. The Project will not finance activities related to the armed conflict or conflict related violence, however it provides the support necessary for people to reduce and mitigate the risk of conflict andviolence. The Project i s basedon the following three premises. First, populations with greater social, economic and environmental assets are less likely to choose to displace themselves when they perceive the risk of exposure to conflicts because they have more means to mitigate the potential negative impact of that * SISBEN i s the Beneficiary Identificationand Selection System of Beneficiaries, a means test measure used by GOC to classify the population in6 strata based on their socioeconomic condition. SISBEN Iand I1are the lowest strata of the system. 5 exposure. The validity of this assumption has been proven by the success of the two Magdalena Medio LILs, as well as the EU-funded Peace Laboratory Program. Second, displaced populations, having already lost such assets, would require a temporary safety net to prevent further deterioration of their living conditions before they can start re-engaging themselves to build new assets. Third, responsible governance through broad-basedparticipation tends to deter the occurrence of conflict-driven violence, as indicatedby the MagdalenaMedio I Peace Laboratoryexperiences. The Project will support a) social, economic and environmental development initiatives driven by community priorities and implemented by them with the support of the respective organizations implementing PDPs in each of the five priority areas; b) a reestablishment package intended to provide returned or relocated displaced families with a basic safety net (food security, basic sanitation and home improvements, support for productive activities) while they establish themselves in the municipalities of the target regions; and c) the enhancement of the implementation capacity of the Territorial Units of the GOC's Social Solidarity Network (RSS), the territorial committees of the SNAIPD, and the organizations implementingPDPs. Key performance indicators andtargets3include: (a) At least 60 9% of target beneficiaries of Component A benefit from social, economic or environmental subprojects financed by the Project; (b) At least 80 % of the targets are met in food security, basic sanitation and productive subprojects for returned or relocatedfamilies; (c) Organizations implementing PDPs attain at least 60% of their respective targets for capacity improvement (based on their score in the Index of Program Capacity IFC)4between time 1 (baseline) and time 2 (end of secondyear of the Project); (d) Community Organizations implementing subprojects reached at least 60% of their respective targets for capacity improvements (based on their score in the Index of OrganizationalCapacity IOC5)between time 1(baseline) and time two (end of second year of the Project). 4. Project components The primary beneficiaries of the project will be poor and vulnerable populations inthe five conflict-prone regions, who: (a) may find themselves displaced in the near future; and (b) have already been displaced into a different locality, and are trying to re-establish themselves in the new location or to return to their original location. The secondary beneficiaries will be those who include or surround the primary beneficiaries and provide them with social and economic mechanisms to mitigate, cope with and deter the riskof beingexposedto violence and other negative consequencesof conflicts. These includecommunity organizations, associations of small producers or micro-enterprises, partner organizations implementing PDPs, andmembersof the territorial committees of the SNAIPD, including the RSS. Components A and B have been defined on the basis of the populations served, that is, low-income and vulnerable residents of the regions (Component A) and displaced families that return to their place of origin or relocate to the target regions (Component B). The activities of Component A and B are similar, but the target beneficiaries are different. Project staff ineachregion will ensure that traditionally excluded These may be refined when the full M&Eplan i s producedand or during mid term evaluation. The IPC i s a tool developed during project preparation to assess the capacity of local organizations. Organizations receive a "score" anddevelop improvement targets against this baselinescore. The OIC, a tool for assessingcapacity of community groups was developed, validated and usedwith good results inthe Peasant Enterprise Zones Project 6 groups such as indigenous peoples, afro-Colombians, female heads of household and the most isolated communities access Project benefits. To this end, the monitoring and reporting procedures will report how these groups are benefiting. The project components are: Component A: Developing Social, Economic and EnvironmentalAssets in Priority Areas. US$10,627,364 Carrying out of investments inpriority areas for purposes of, inter alia: 1. Promoting the production of basic staple food crops for self consumption, to benefit around 40,000 low- income families. 2. Generating employment opportunities through farm and non-farm productive services and small business activities to benefit around 10,000 low-income families. 3. Enhancing the social network in priority areas to benefit around 9,000 low-income families to: (a) facilitate the access of vulnerable and low-income populations to basic social services; (b) promotejob opportunities for youth; (c) improve housing and sanitary conditions for low-income families; (d) promote a culture of peaceful co-existence among populations of priority areas in the context of regional development and the sense of belonging. 4. Developing social andeconomic activities to protect the environment. Component B: Support for Displaced Families in the Process of Returnand Relocation US$10,822,636 Carrying out of investments inthe conflict affected regions for purposes of, inter alia: 1. Promoting the production of basic staple food crops for self consumption, to benefit around 8,000 displaced families. 2. Facilitating the access to public health andeducation services to displaced populations. 3. Developing social andeconomic opportunities for about 17,000 families as they begin to stabilize. 4. Providing basic sanitation to ensure that around 6,000 displacedreturning households have at least a minimumacceptable access to safe water, sanitation andbasic housingconditions. Component C: strengthening Institutions and Governance at the LocalLevel US$5,589,961 1. Strengthening of the institutional capacity of partner organizations and Territorial Units of the RSS through, inter alia: (a) provision of technical assistance and training to management and administration teams for the purposes of developing better procurement and financial management systems; and (b) provision of technical assistance, training and equipment to management teams for the purposes of enhancing their capacity to promote community-led social, environmental and economic-financial activities. 7 2. Strengthening of the institutional capacity of SNAIPD by partner organizations, through, inter alia: (a) provision of technical assistance and trainingto management teams in its territorial committees to design and implement Integrated Master Plans; and (b) provision of technical assistance and training to management and administration teams for the purposes of enhancing their programs of assistance to displaced populations. Component D:Project Management. Monitoring and Evaluation US$1,764,495 Provision of support for overall Project coordination, evaluation, supervision and implementation, including, inter alia: (1) the strengthening of the capacity of the PCUto comply with its responsibilities as described inAnnex 6; (2) the provision of training to PCU staff to enhance their knowledge on Bank's procurement and financial managementpolicies and procedures; (3) the carrying out of audits acceptableto the Bank as described inAnnex 7; (4) the carrying out of Project studies, including, inter alia, performance reviews and impact evaluations; and (5) the implementationof aprogramto monitor andevaluate the carrying out of the Project. The eligibility criteria for community-led subprojects in Components A and B are: (i) the proposal arises from a participatory process agreedupon at the community level such as the citizens nucleo of Magdalena Medio, the participatory planning nucleos of Prodepaz Corporation in Antioquia or the mesas de trabajo (working groups) coordinated by the RSS; (ii) implementation i s the responsibility of a community the organization or association of producers; (iii)the proposed subproject i s linked or relatedto the respective Integrated Master Plan, Municipal Development Plan or Indigenous Life Plan; (iv) the subproject is feasible according to technical, environmental and financial criteria; (v) the community organization contributes in cash or kind to co-finance the initiative; (vi) the proposal presents a description of gender issues; and (vii) the organization demonstrates transparency of budgeting and accounting for the use of funds. 5. Lessons learned andreflected inthe project design CDDOperational Model in conflict-affected regions The operational model tested and validated duringthe two L l L s in the MMRDPcomprises the following basic elements: (i) it is sustainedby a change agent (such as the organizations implementing PDPs inthe case of the Project) with high credibility among all the stakeholders; (ii) it is based on community and individual participation in decision-making about the community's development, and establishes specific mechanisms for this participation (e.g., the citizens nucleos, the mesas de trabajo); (iii) the methodology upon which it i s based takes into account the capacity and `initial state' of the citizens, initiating the learning and capacity building of community organizations based upon this capacity and state so that local citizens are able to take charge of their own development. Further, it recognizes and supports existing organizations and previous experiences in these communities; (iv) it encourages communities to define a long-term development strategy for their community, municipality and region, while supporting 8 "learning by doing" around more concrete andimmediate goals and actions; (v) the change agent operates in a decentralized manner; (vi) the change agent's staff act consistently inaccord with defined values of respect, transparency, autonomy, and defense of the public interest; and (vii) it maintains close monitoring and analysis of the sociopolitical situation allowing the adaptation to a changingenvironment. Structureand strategy One of the lessons learned regarding the organizational structure i s that the Operational Manual and its stated criteria for productive sub-projects proved a sufficient filter for the feasibility of subprojects when applied by the MMPDP's technical teams at the ground level. This suggests the need to maintain a decentralized operation close to the beneficiaries and to further strengthen capacity in the field. However, particularly in the case of less experienced programs, caution must be exercised. Field-level organizations will vary enormously in their capacities and most will still require, at least initially, strong strategic guidance (e.g., which projects to undertake and how), technical advice (e.g., agronomic, marketing, environmental), and organizational (e.g., management, information systems, monitoring and evaluation) support. Division of labor Another lesson learned was the need for combining the promotional, motivational, organization building, resource management and monitoring and evaluation capacities of organizations implementingPDPs with the more technical and business skills of different types of organizations. For example, productive subprojects benefit from greater rigor and more up-front analysis - especially for more complex ones. This kind of rigorous support will likely have to come from specialized organizations (Le., Ministry of Agriculture and Rural Development, Trade Associations, SENA, FAO, Centros Provinciales de Gestidn Empresarial, a Business Development Services office). These organizations can be strengthened by working closely with representatives from similar organizations, instead of relying upon their own staff for these skills. Partnership The GOC recognizes the importance of working in association with a trusted third-party, thus contributing to strengthening State presence at the local level. This requires working in partnership - a new way of working for most locally active agencies. This new working model requires agreement among participants on shared objectives, complementary contributions, sharing of risks, and recognition and respect for the different perspectives andobjectives of each partner. The project will use these lessons as a reference, recognizing that the conditions in each region and even each municipality are context specific. 6. Alternatives considered andreasonsfor rejection Among the alternatives considered for the project design was a project led by government agencies. This alternative was not chosen, based upon experience from the Magdalena Medio. This experience showed that intermediate and community organizations have considerable talent, enthusiasm, and social cohesion, which, if properly managed, could be drawn upon using a decentralized design model emphasizing the participation of local NGOs in partnership with key local and central government agencies. Inthe case of Magdalena Medio, this decentralized model was found to be more effective than intervention by government agencies alone. A secondalternative considered was a design similar to that of the proposed project, but implementedin a single, five-year phase. This was not chosen as the GOC recognizes that the 9 project's goals will only be achieved over a longer period, under a gradual and adaptive strategy. The APL format allows the Borrower to consider a long-term time horizon. The triggers for movement into the later phase also create an incentive for high-quality implementation since future project support will depend on successful achievement of the triggers. C. IMPLEMENTATION 1. Partnershiparrangements The Project buildsupon a close partnership betweenthe GOC, regional civil society organizations and the Bank on issues of social development in conflict areas. With this basis the Project brings together the complementary efforts of RSS, the regional organizations, the EU and the Bank into a focused overall strategy. The government contributes to policy direction, resources, monitoring and supervision of operations. The partner organizations (each a consortium of civil society organizations with two to five years of experience in participatory development) provide a presence in each region, local knowledge, strong reputation as associations of business, church and civil leaders recognized by local stakeholders, linkages with communities, local governments and national and international organizations. The Bank brings global knowledge in CDD and social interventions in conflict and post-conflict situations, and it has a comparative advantage inthe design and supervision of projects. A partnership with the Laboratorios de Paz (Peace Laboratories; PL) financed by the EU is a special feature of the Project. This i s part of the government strategy6 to seek synergy and complementary actions between Bank- and EU-financed interventions. Both the Bank and the EU project will work complementarily in at least four of the five regions. About five million project dollars used for incremental field staff costs of partner organizations, and subproject funding will be considered counterpart funds for the PL. Inturn, funds spent by the PL inthe same region will be considered project counterpart funds and accounted for in annualPL audits. This will be the case especially in Component A in which Bank resources will finance association development and pre-investment of productive projects, whereas the PL will finance community infrastructure, larger investments and the promotion of a humanrightsculture. 2. Institutionalandimplementationarrangements NationalLevel. The Project will be implementedover a period of three years under arrangements similar to those that proved effective during the implementation of the first and second Magdalena Medio Regional Development LILs. The RSS i s the government agency responsible for the Project; it will execute and manage the loan through a Project Coordination Unit (PCU) based at the central level. The main functions of the PCUare outlined inAnnex 6. A National Technical Committee (NTC) presided by the RSS and composed by the National Planning Department (DNP), and one representative of the partner organizations implementing PDPs, will oversee the Project as well as play a role in orienting and coordinating efforts towards an integratedand consistent program. Representatives from the European Union Delegation, the Bank, and other partner organizations could be invited to participate in the NTC meetings. DNP will assume the Technical Secretariat of the NTC, and will play an important role coordinating the Project's evaluations and This strategy i s outlined inthe GOC's March 2004 document submitted to the Consejo Nacionalde Politica Econ6micay Social (Conpes), the government body that approves all investments. The document sets forth the poverty and sector issues, specifying the project's relationship to government policies addressingthose issues. 10 overseeing the Project's overall performance among other governmental initiatives being implemented at the territorial level (see functions of the NTC inAnnex 6). Regional level. At the regional level the Project will be carried out by partner organizations (POs) operating in each region. The POs will work in close coordination with the territorial units (TUs) of the RSS and the SNAIPDs in the promotion of subproject activity and the monitoring of their implementation, following the norms and procedures of the Operations Manual. Ineach case, there will be an ad hoc technical committee formed by the PO, the representative of the RSS in the region and the staff of the PCU responsible for the supervision of the region to prepare the Regional Annual Operation Plans. The RSS (at the national level) will enter into subsidiary agreements with each PO. The detailed terms of the Project's implementation arrangements will be spelled out in subsidiary agreements, satisfactory to the Bank, which are to be entered by the RSS and each PO implementing the Project at the regionallevel. Local level. The POs responsible for the implementation of the Project, or the social organizations designated to fulfill a similar role in the respective region, will provide guidance and technical advice to local organizations in the formulation of initiatives and subprojects. Each will enter into agreements with producer organizations and/or with other community-based organizations (beneficiaries entities) to transfer the Project funds as grants, for the execution of subprojects at the local level. The Operational Manual will set out the groundrules for approving andimplementingcommunity subprojects. Implementation Mechanism. Annual Operation Plans, Regional Annual Operation Plans, Semi-annual Monitoring and Evaluation Reports, mid-term and final evaluations by an independent entity, and Operational Manual will be put in place. The Project will coordinate with the European Union Peace Laboratories in those Regions where the two coincide and, to the extent possible, will harmonize procedures that meet the requirements of bothdonors. 3. Monitoring andevaluation of outcomeshesults An integratedtechnical and financial monitoring andevaluation (M&E)planwill be developed to provide timely information for project coordination, monitoring, decision making, and evaluation. The M&E system will have three distinct but linked levels: central level PCU (executing agency), regional level (POs), and local level (beneficiary entities). Each level will have their own M&E responsibilities, information resources, procedures and uses. At the national and regional levels, there will be monitoring andevaluation specialistsresponsible for managing the system. At the national level, the PCU will consolidate semi-annual implementation progress reports based on annual regional operational plans (POA), documenting (i) the overall activities implemented and actions undertaken, including the use of resources to strengthen RSS' UT (Territorial Units) and SUR (the UnifiedRegistry System established by the government to register the displaced families); (ii) progress against project objectives, activity schedules, time and costs, and (iii) how specific population groups have benefited, including indigenous peoples, afro-Colombians, women heads of household and the most isolated communities. Other reports produced at the national level include (i) financial management reports (FMR), (ii) procurement plan progress reports, in compliance with WB requirements as well as those of GOC's control institutions; and (iii) project counterpart financing by Peace Laboratories. At the regional level, an integrated technical, financial and administrative information system will operate ineach of the five POs. The system is expected to produce : (i) implementation reports on each of the components in the POAs, including percent of activities implemented, time and costs, compared with other community subproject implementation plans and schedules; and (ii)activities executed 11 (number, costs, time, beneficiaries) to strengthen the capacity of POs and committees of SNAIPD at the regional and local levels. This regional information system will provide feedback to local communities and organizations, will provide information on benefits to the particular population groups listed above, will channel technical and financial information to RSS's UT and PCU, and will support public dissemination efforts. At the local level, beneficiary community groups and associations will monitor progress in the implementation processes(e.g., technical, administrative and financial) andthe results of their community subprojects, (including monitoring of environmental performance for productive subprojects). POs will supervise communities' self-assessment, where each community rates its capacity to prepare, implement and monitor plans and subprojects under their responsibility7and track their improvement over time. Simple andpreviously tested instruments will beused, as a meansto enhance their management capacity. Results Monitoring. The monitoring of results, as per Annex 3, will be done at the regional and national levels. Reporting on Component A, which focuses on asset buildingfor poor communities vulnerable to displacement, will be done annually based on: (i) information provided by the Registry of Displaced Population on displaced individuals and households in the regions served by the Project, and (ii) SISBEN, System for Identification and Selection of Beneficiaries (Sistema de Zdentificacidn y Seleccidn de Beneficiarios). These sources will provide socioeconomic data, particularly on vulnerable groups in all municipalities includedinthe Project. Reporting on Component B, the return and relocation of vulnerable families, will be done every six months based on information provided (i) by RSS' Registry of Displaced Population on voluntary return and relocation of conflict-induced displaced households in the regions served by the Project, and (ii) by the National Planning Department (DNP) Justice and Security Unit, which maintains an updated system on conflict relatedviolence at the regionaland local levels. Progress related to Component C, strengthening institutions and governance at the local level, will be reported annually based on information provided by POs and beneficiary entities on project co-financing, on the scores on the IPC and IOC, and on the audit reports of the Peace Laboratory 11financed by the European Union. Baseline and Impact Evaluation. The Project will establish baseline data for the following variables: intensity and pressure of displacement by municipality, level of violence by municipality, density of community organizations by municipality (number and membership), score of community organization on IOC, number of displaced families registered in SUR per target region, number of SISBEN households by municipality. This baseline will be used as a reference to measure progress and to evaluate the results and impact of the Project. Phase Ievaluation of the project will be carried out inyear 2.5. As it will be too early to measure program impact, the evaluation will focus on inputs and outputs and early indicators of outcomes or trends. Evaluation of Phase I1 will focus in particular on two main outcomeshmpacts the reduction of displacement and vulnerability and the socioeconomic stabilization of previously displaced families. Coordination. The PCU, together with the National Planning Department (DNP) will ensure that the Project's M&E system i s integrated into the GOC's Information System (SIGOB) and the 100 strategic assessments. This will avoid duplication, strengthen capacity and allow dissemination of the Project's main lessons, as well as coordination with other governmental institutions operating in the Project This approach includes a lesson learned derived from the implementation of Magdalena Medio Peace and Development ProgramLIL2as to include "formative monitoring" local M&S systems. 12 regions. This coordination falls under DNP's overall responsibility for evaluation of the Peace and Development Programof the government. A complete Monitoring and Evaluation (M&E)plan will be designed after approval, once project staff are in place. The plan will be developed through a series of open planning meetings with main stakeholders and will be tested and adjusted during the first several months of implementation. The ...... (M&E)planwill includethe following items mainusers of M&E information andtheir specific information needs matrix of M&Eneeds disaggregatedby data user, data collector, collection methods and frequency, information source, use, and format list of M & Eteam members and their responsibilities annual implementationschedule plans for the completion of an evaluation baseline for the project scheduleof project reports, assessments (self and external) and evaluations budget and institutional arrangements for M&E activities agreed on performance indicators' (refined from PAD) . 4. Sustainability The Project i s highrisk becauseof the internal conflict that affects the selectedregions. However, several factors would contribute to the sustainability of project impact, including institutional support, the credibility of key partners, the buildingof long-term capacity and low fiscal risk. First,there is anincreasinginstitutionalization of the GOC's efforts to support the poor andthe vulnerable populations. The establishment of SNAIPD, the requirement of territorial authorities to allocate resources and to develop and implement Integrated Master Plans with a high degree of broad participation, the allocation of approximately US$40 million for the financing of farm and non- farm productive and small- scale business activities for vulnerable populations through FINAGROand BANCOLDEX, for example, are factors raising the probability of medium to long-term sustainability of the Project and its impact not only from an institutional point of view but also a financial point of view. One additional contributing factor to this is the strong interest and the level of support rendered by international organizations including the Bank, the EUand the UNsystem. Second, the project builds on the extraordinary commitment and credibility of the members of POs (i.e., civil and business leaders and church groups). Although past Bank support of peace initiatives in Colombia has been limited to the two L I L s in Magdalena Medio, the network of 15 organizations implementing PDPs have been courageously active, persistent and successful for several years in closely supporting vulnerable populations in their respective region, despite the conflict and violence. Needless to say, these organizations have gained a high level of trust from the communities and from all interested stakeholders, and thus their continued presence and contributions are two of the most critical success factors. Third, the expected success of the project based on the lessons of the Magdalena Medio LILs and other non Bank related experiences. Asset building (Component A), provision of a temporary safety net (Component B) and improved governance and the creation of capacities that last long (Component C) in combination, not in isolation, would increase the chance of the long-term sustainability of the Project. * The M&E plan will include indicators to assess social cupitulfomation e.g. changes inthe degree of trust among community members or evidenceof changes in capacity for community action. Indicators will also be developed to track project impact on displaced women and women in female headedhouseholds. 13 The chance of success i s reasonable, given the validity o f the Project's operational model, proven to be successful through the experience and partnership o f the Government, civil society and the Bank in the last five years. Lastly, the fiscal sustainability would not be a major concern, given that the Project consumes only a very small percentage o f the Central Government's fiscal resources, and that no activity will demand recurrent costs. 5. Critical risks and possible controversial aspects Outputsto Objective RiskRating RiskMitigationMeasure Armed conflict may interfere H (a) presence of credible leaders (church, business, NGOs, with project activities. international community) such as those of the POs that will be partnersof RRS; and (b) systematic citizen involvement together with local and national institutions, proven effective for residents to resist peacefully; Fiscal constraints may delay H (a) constantmonitoringof central budgetprocessby project and Bank the flow of funds staff; (b) ongoing communication by key project leaders with budget staff from DNP, RSS, and Finance, and (c) a communications strategy to regularly provide the general public and high levels of government with information on project achievementsand lessons; Security of project staff and M The Government presentedto the Bank an outline of the scheme to community leaders assure the security of Project staff. The scheme would use data and analysis from the Comite` Inter-lnstitucional de Alertas Tempranas (Interinstitutional Early Warning Committee) that continuously collects, analyzes and disseminates data pertaining to the risk of violence in the country, by municipality. The PCU will develop the necessary capacity, contacts and communication links and carry out the contingency planning early in the implementation period. In the event of the declaration of a "high alert" by this Committee or specific threats to the staff, the PCU will undertake such measures as temporary suspension of project activities andlor evacuation of Droiectstaff and their families to a safe dace. Capture of Project resources M Mitigating measures for the capture of resources are: (a) direct by armedgroups in conflict involvement of RSS through the PCU and territorial units; (b) the public, participatory, transparentand highly accountable management of the Project in each region; (c) the communication strategy to make the project very visible and supported by national and international organizations (d) evidence from previous experience of Magdalena Medio Project is that this has not occurred. Lack of experienceof RSS, M The Magdalena Medio experience demonstrates, however, that early local governments, and and adequate training as well as a clear and friendly operations partnerorganizationswith manual can prevent these problems. Training on procurement has Bank policies procedures. already started. The project will be carried out in a context o f unpredictable on-going conflict. Although the government policy and the POs provide a solid approach, nonetheless the peaceful coexistence orientation o f the Project may be criticized by both sides of the conflict, to the extent that Project participants do not take sides, particularly in a context o f high polarization. Existing evidence suggests however, that as long as those communities are able to demonstrate that they do not favor or criticize any o f the sides in conflict, andthat solid partnerships with local authorities that improve local democratic governance are promoted, it is less likely that they become a target of the armed actors. 14 6. Loadcredit conditionsand covenants (a) The Operational Manual for the Project has been issued and adopted by the Borrower and approved by the Bank; (b) The Monitoring andEvaluation System for the Project has been adopted by the Borrower and approved by the Bank (c) The Project Coordination Unit (PCU) for the Project has been established, and duly staffed in a manner satisfactory to the Bank. D. APPRAISAL SUMMARY 1. Economicandfinancialanalyses There are compelling reasons to promote this type of project due to the enormous direct and indirect economic costs of highvulnerability to violence. On the social side, estimates of the conflict-related loss of human capital are estimated at least 1% of GDP, and investment, educational and labor-market opportunities are severely limited in an atmosphere of violence and insecurity. Healthcare costs likewise are affected, and the WHO estimates that violence-related health care costs represent 5% of Colombia's GDP. Annex 9 contains an assessment of several productive subprojects implemented under the Magdalena Medio LE. A team of consultants prepared an analysis of the financial viability of five of these subprojects, including oil palm, manioc, miniature bananas, cocoa, and pottery. The results of this study would be used to screen, design and monitor subprojects financedunder Component A of the Project. The following are initial findings from a cost-benefit analysis of those five productive subprojects. Each indicative of those to be financed under the proposed Project. Table 1 provides a summary of Internal Rates of Return (IRR) andNet PresentValue (NPV). A ten-year time horizon i s appliedinthe analysis. Table 1Summary of Economic Analysis In US Dollars All IRRs are satisfactory and exceed the cost of capital. Additionally, the financial viability of these subproject investments i s shown to be robust under conditions of increased costs (Scenario 1) or decreasedrevenues (Scenario 2). 15 On the fiscal side. it is estimated that the fiscal impact of this project i s negligible. The operation i s planned to disburse a total of $30 million over a period of 3-4 years, starting with approximately $3 million in the second semester of the current calendar year (FY05). Taking into account that the budgeted expenditures of the Central Government (CG) total about $27.5 billion for 2004, the execution of the operation represents about 0.01% of the total budget. This calculation takes only into account CG budget. Ifthe decentralized sector's budget is used as well (i.e. the consolidated public sector expenditures) the figure i s even lower. The effect of the operation on the country's total indebtedness (i.e. inthe total stock of debt) i s also very small. The amount of the operation would be reflected in less than 0.01% growth of the total stock of external debt of the Colombian central government. Thus, it i s estimated that interest payments will rise by a very low percentage as a direct consequence of the implementation of this operation. 2. Technical Duringpreparation and the initial stage of the implementationtechnical analysis will be done to develop intervention strategies in priority sectors, in particular those associated with Component A. Each PO would be required to analyze the socio-economic context and the potential for economic or enterprise development in its region, which will require conducting a regional sectoral analysis. On the basis of such sectoral analyses, strategic plans can be developed with community leaders to help see that resources are focused on targeted areas so as to maximize the potential benefit while ensuring efficiency of allocations. A good analysis can serve to identify opportunities, identify potential clusters, and quite possibly even reduce the number of small studies that individual entrepreneurs in the region might subsequently require. Inaddition, the technical feasibility of sub-projects (Components A and B) will be analyzed as part of the decision-making process of awarding funds. This i s reflected in the eligibility criteria for project processing and will be incorporated into the Operational Manual. 3. Fiduciary 3.1. Procurementissues The Bank's Procurement Specialist visited the RSS and one of the POs. Although the assessment of other POs will take place before project implementation, the assessment concluded that while the capacity of the institutions visited needs strengthening, those institutions have adequate existing capacity to manage project procurement. The RSS has some procurement experience under Bank norms through the two grants it currently manages: a JSDF grant of US$ 2,500,000 and a Post Conflict Fund grant of US$800,000. The Magdalena Medio Peace and Development Corporation has five years of Bank procurement experience. A PCUlocated in the RSS will be responsible for procurement of some central activities, namely goods, evaluation and audits, as well as its own staffing. Procurement activities for the remainingcomponents will be conducted by the partner organization selected: CONSORNOC, CDPMM, ASOPATWCRIC, Fundaci6n Montes de Maria, and PRODEPAZ. Procurement under community sub- projects will be carried out by community organizations or associations following the guidelines of the Operational Manual. Based on the above considerations, along with the existing national capacity, staff to be involved inBank- funded procurement will be trained on Bank procurement procedures prior to project initiation. These training activities have been ongoing so as to ensure that such staff will be familiar with Bank 16 procurement principles and to create the necessary communication channels between these staff and the BankProcurementSpecialist. 3.2. FinancialManagementissues The Bank's Colombia FMteam assessed the financial management capacity of the RSS, and visited two of the Partner Organizations (PO) implementingPDPs.The FMassessment concludedthat the institutions involved have substantial capacity to manage project finances, and that this capacity should be strengthened under the program. The recommendation was made to utilize the existing capacity, rather than channeling funds or project FMresponsibilities through outside agencies. Therefore the assessment gave importance to the establishment of mechanisms for the RSS to oversee and manage the activities handled by the POs, such as internal reporting, information systems, and audit. The RSS and POs are considered to have sufficient capacity to manage project funds, but close supervision, especially in the early years, i s recommended. The financial management in this project centers on the fact that most project financial management will take place inthe five POs, each of whom will receive transfers of funds from the RSS. While the POs are considered to have reasonablecapacity to manage funds, the project include mechanisms for oversight by the RSS central and regional offices, such as project information systems, reporting, and audit. The project will utilize existing financial management arrangements, although some project-specific mechanisms will have to be put in place in order to address the management aspects considering the multiple entities involved. Counterpart funds are considered to come primarily from the European Union's financing of the Peace Laboratories, but the government will also provide a small share. While it was considered too cumbersome to integrate the accounting/reporting!auditing of the PL activities with that of the activities financed by the Bank and RSS, there will be substantial collaboration between the Bank and EUteams. POs will be expected to freely share the financial reports of each activity (i.e. the PL and the Bank- financed project) with representatives from each donor, and site visits will be coordinated so as to minimize the effort required from the POs in hosting donor visits. As an additional verification of counterpart funding provision, the loan agreement will require that the audit reports for the PL be provided to the Bank, so that the financial volume of this program - which exceeds the size of the Bank project - can be verified. EU staff will also be welcome to read andor receive the audit report of the Bank-financedproject. The design of this project incorporates the principles of the Bank's initiative to redefine eligibility for Bank financing. This policy was approved by the Bank`s Board of Directors on April 13, 2004.. The Board, in approving the policy, required that the Country Financing Parameters ("the parameters") be approved by the Regional Vice President before any project in a country could incorporate the initiative. For this reason, the country parameters for Colombia have been prepared in parallel with the preparation of this project, and they are expected to be submitted for RVP approval prior to the submission of project documents to the Board. At appraisal, the GOC had not yet met two of the four requirements agreed with the Bank for the establishment of Special Accounts (SAs) inthe centralbank. These were to establish a direct payment (to providers) mechanism via the government's Integrated Information System (SIIF), and to enable payments in foreign currencies. The automated payment system was to be piloted on existing Bank projects, but this pilot was to only include local currency payments, and as of appraisal, the launching of the pilot's implementationwas delayed. The resolution of the issue i s critical to maintain project flow of funds, since the alternatives such as government pre-financing or the employment of an outside agencyhank to manageproject funds, are costly and could slow project implementation. 17 4. Social The worsening conflict-related violence and the resulting displacement, along with the associated negative effects on economic growth and opportunities, have a very high social cost for all Colombian households and the society as a whole. The current armed conflict has been described as a "war against society" where a generalized state of violence prevails and the majority of citizens are in effect held hostage by the various armed groups. The State has worked hard to protect people and property, but illegal m e d actors have moved into many of these areas and now exercise authority. Municipalities have become a key arena for the armed struggle, making it very difficult in many parts of Colombia for citizens to exercise their rights and for local governments to carry out their responsibilities. As a result, there has been a loss of sovereignty of municipal administrations and a growing number of displaced persons. While all Colombians have been affected by violence, the rural population in general - especially women, youth, and ethnic minorities - have been most affected. For those remaining inconflict areas, the impact of the armed conflict has been dramatic. Many landowners do not have physical access to their land or are unable to make full use of its productive potential. A large number of others have fled the violence. Women and their dependent children living inrural areas are the group most affectedby displacement due to the armed conflict. Indigenous communities have been disproportionately affected by armed conflict throughout the country. Furthermore, violence has eroded social capital by reducing trust and cooperation within formal and informal social organizations and among their members. The importance of social capital relates to its recognized contribution to sustainable development and the evidence that the size and density of social networks and institutions, and the nature of interpersonal interactions, significantly affect the efficiency and sustainability of development processes (Putnam 1993). A 2001 study (Fajnzylber et al. 2002) provides empirical evidence showing a strong negative relationship between violent crime and social capital across several countries. By the same token, results from the MagdalenaMedio region have shown that responsible governance through broad-based participation tends to deter the occurrence of conflict- driven violence, and that populations with greater social, economic and environmental assets are less likely to choose to displace themselves when they perceive the risk of exposure to conflicts because`they have more means to mitigate the potential negative impact of that exposure. Evidence for other parts of Colombia i s consistent with this, with higher levels of participation in community groups in less violent areas andlower levels in more violent areas (Cuellar de Martinez 1997). Participation in Project Design and Implementation. The Project has been prepared using a partnership approach between the government, civil society organizations, community groups and the Bank. During Project preparation the Red PRODEPAZwas a key partner. This i s a network of fifteen non-governmental entities, each of them formed by church, academic, business, NGO's and local organizations engaged in participatory regional development activities. Red PRODEPAZ has actively participated from identification in each of the missions to prepare the Project. As a result of their involvement in this process, agreement was reached about the selection of its members in each of the targeted regions as the main counterpart to the Social Solidarity Network to implement the Project. In each of the five regions, consultations have taken place with all members of the respective Corporation or Association managing the PDPs with community leaders representative of the beneficiaries of these programs about the objectives, content and strategy of the Project. The minutes of these meetings describing the agenda, the number and type of participants and the mainconclusions of the consultation in each region are available inthe project file. Duringimplementation, members of the RedPRODEPAZwill be the partners of the RSS to carry out the project in each region. As indicated above regarding the eligibility criteria for sub-projects, the role of 18 community organizations, associations of producers and other organized groups will be central. The project design centers on the implementation of local development initiatives, developing through the sustained participation of local stakeholders (community groups, small producers, indigenous groups, civil society and the public sector). Project interventions promote public participation inall project stages, with stakeholders playing key roles inimplementation, monitoring and evaluation. Given the social nature of the project design, social impacts are key components of the project's overall monitoring. Buildingthe capacity of local organizations and institutions, as well as building assets, including social capital, i s at the heart of the Project. This i s a good example of a search for opportunities, security and empowerment. A poverty assessment is being carried out in each of the regions to assess the specific conditions of poverty and vulnerability and to identify the groups that require priority attention. Inparticular indigenous peoples, afro-Colombians according to requirements of Law 70, female heads of households, youth at risk andisolated communities. 5. Environment The project aims to reduce the vulnerability risk of conflict-afflicted populations, including internally displaced families returning to their place of origin, through: (i) the creation of social capital; (ii) building social, economic, and environmental opportunities among residents of poor communities; and (iii) facilitating the reestablishment of internally displaced families into municipalities. Project activities aim to enhance the livelihoods of conflict-affected poor populations in part through the establishment of community-designed and community-led subprojects. These subprojects are intended to generate income or new employment opportunities for approximately 17,000 families through farm and non-farm productive and small business activities. The specific types of subprojects to be supported are being evaluated as part of project preparation, but based upon the experience of the two, Bank-financed Magdalena Medio LILs, are expected to be primarily agricultural activities. The Project also includes activities to promote the development of subprojects that target the protection and sustainable use of environmental assets, such as watershed management, land conservation, and sustainable use of natural resources. Additionally, the Project includes activities to improve access to social services, such as increasing opportunities for education, work, and income to youth and home improvements and basic sanitation for about 8,000 households. The project will be implementedusingan environmental framework that includes screening procedures to ensure productive subprojects are environmentally appropriate and that mitigatory measures are taken to offset any identified potential impact. The project design includes adequate capacity buildingmeasuresto ensure adequate screening, environmental promotion, and monitoring at the regional and central levels. This framework is summarized inAnnex 10. The environmental framework described in Annex 10 outlines the procedures for identifying and mitigating potential environmental impacts of proposed interventions, and incorporating environmental awareness into Project-sponsored development plans (Annual Operation Plans) for each region. This includes: (i) procedures adequate to deal with any potential subproject in each area; (ii) ex-ante ensuring project design includes monitoring of direct, indirect and cumulative impacts; (iii) assuring that sufficient capacity exists at the regional and central levels to implement the procedures; (iv) promoting technical assistanceto mainstreamenvironmental considerations into the design andimplementationof subprojects; and (v) encouraging specific activities to protect and enhance environmental assets. 19 6. Safeguardpolicies SafeguardPolicies Triggered by the Project Yes N o EnvironmentalAssessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [XI 11 Pest Management (OP 4.09) [XI [I Cultural Property (OPN 11.03, beingrevised as OP4.11) [I [ XI Involuntary Resettlement (OP/BP 4.12) [I X I Indigenous Peoples (OD 4.20, beingrevised as OP 4.10) X I [I Forests (OP/BP 4.36) [I [ X I Safety of Dams (OP/BP4.37) 11 [ XI Projects inDisputedAreas (OP/BP/GP 7.60) [I [ X I Projects on InternationalWaterways (OP/BP/GP 7.50) [I [ X I Safeguard screening category of the project: S2. Environmental screening category of the project: B The key safeguard policy issues raised by the project relate to ensuring the environmental appropriateness and oversight of productive subprojects included inComponent A, and ensuring that project benefits are extended to indigenous populations who live within three of the principal project areas. These issues are being addressedthrough the EnvironmentalFramework and Indigenous People's Framework including in Annex 10. Environmental Assessment In accordance with OP 4.01, EA was undertaken to identify the potential impacts associated with the types of subprojects envisioned for the Project, and develop appropriate mitigation measures to offset those impacts. EA results were used to develop an environmental management framework that outlines procedures for identifying the potential presence and location of critical natural habitats (as defined by OP 4.04), and ensuring screening procedures prevent the approval of any subprojects that could negatively affect those areas. Additionally, the Environmental Management Framework includes stipulations for enhancing environmental management capacity of local and central level implementing agencies, so as to ensure that the five POs adequately apply the environmental procedures. The environmental procedures call for the PO to support local organizations to secure any necessary environmental licenses. Further procedures are included to identify and offset any cumulative impacts arising from the implementation of multiple small-scale projects over the project areas. Additionally, the EA sets forth procedures to address pest management issues through promoting the minimal use of approved pesticides within the context of an Integrated Pest Management approach. Consultation of beneficiaries is being undertaken as part of EA development, and the EA has been made publicly available locally and through the InfoShopprior to project appraisal. Indigenous Peoples. As the project areas include indigenous territories (resguurdos), communities and indigenous beneficiaries within four of the five areas (Cauca, Norte Santender, Antioquia and Montes de Maria), an indigenous Peoples Development Framework was prepared in accordance with OD 4.20. The Framework (summarized in Annex 10) describes the legal framework for indigenous people in Colombia, the situation of indigenous people in general and in the specific areas targeted by the project. It also outlines the steps to be taken to ensure that the Project benefits indigenous peoples inthe target regions in a culturally compatible manner. The IPDF sets forth specific recommendations regarding the form and level at which project interventions can be directed in each region. The IPDFrecommends that Project- sponsored activities take into account the Planes de Vidu (where available) developed by ethnic groups in those areas where they exist, and consider supporting the implementation of some portion of these plans consistent with project objectives, or supporting their development if the ethnic group does not have it. 20 7. Policy Exceptions and Readiness The project complies with all applicable Bank policies and there are no policy exceptions requiring management approval. A &dL< Jairo Arboleda John Redwood 1 TaskTeamLeader Sector Director 21 Annex 1:Countryand Sector or ProgramBackground COLOMBIA: Peace andDevelopmentProject Colombia's long-standing internal armed conflict has increased in severity since the 1960s' and rates of violence have intensified significantly since 1996. From 1970 to 1991, homicide rates tripled, and, despite a 20 % decrease between 1992 and 2000 (due to a decrease in the three largest cities): Colombia's homicide rate remains three times higher than Brazil's or Mexico's. In fact, worldwide, Colombia's homicide rate is surpassedonly by that of El Salvador. Similarly, extortion, kidnapping, car theft, and armed robbery rates have continued to grow throughout the 1990s, leadingColombia in 1997 to a remarkable household victimization rate of more than 35 %. Multiple empirical studies have sought to explain the determinants of homicide and crime in Colombia, testing five alternative hypotheses: (1) illegal drug trade; (2) impunity; (3) the presence of illegal armed groups (guerrillas and paramilitaries) that have taken over traditional governmental roles in parts of the country; (4) povertyhcome inequality; and (5) the possibility that Colombia's decades of internal strife have created a population that i s innately more "violence-prone." The high homicide rates prevalent in Colombia today seem to be caused by two factors: the drug trade, coupled with the presence of illegal armed groups. Shnchez and NGiez (2000) performed a comprehensive test of these alternative hypotheses with the best crime datasets available across different municipalities inColombia. Their main findings indicate that socioeconomic variables suchas inequality, poverty, politicalexclusion, andlack of education contribute to the crime rate. Despite regional and rural urban variations, jointly they explain only 6-12 % of the total variability in the homicide rate. The rest of the sample variability (nearly 90 %) i s explained primarily by the intensity of illegal drug-trade activities and its interaction with the activities of illegal armed groups. According to Levitt and Rubio (2000)' these findings are consistent with international evidence showing positive covariance between homicide rates and periods of intense illegal drugtrade. Violence generates increasing social costs and demands substantial public resources. Public expenditure on security and justice tripled as a share of GDP during the last decade, and the trend has accelerated since 2000. On the social side, estimates of the conflict-related loss of human capital are estimated at least 1% of GDP, and investment, educational, and labor-market opportunities are severely limited in an atmosphere of violence and insecurity. Healthcare costs likewise are affected, and the WHO estimates that violence-related healthcare costs represent5 % of Colombia's GDP. Social indicators mirrored changing economic conditions, worsening after 1995. The rising employment rate, evident since 1990, reversed itself in 1995; poverty and extreme poverty increased substantially; labor andhousehold incomes fell, while coverage rates of the main social services stagnatedor decreased. Figure 1shows that urban unemployment went from 7.6 to 20.5 % during the second half of the 1990s' doubling the historical rate and reaching the highest level ever recorded. Clearly, reducing unemployment i s difficult inthe absence of higher economic growth rates. Notably, rising unemployment affected the youngest, the least educated and the poorest population segments more severely. For example, the unemployment rate (UR) for young people (ages 16-24) was 25 to 50 %, depending on location. The UR for persons with low or intermediate education levels increased more than that for the highly educated. And after 2000, URs among the poor were more than In fact, from 1990 to 1997 homicides appear to affect greater areas of the country. While homicide rates have decreased in BogotB, Cali, and Medellin (where they still remain more than double the national average), they have increasedin areas once consideredless dangerous. 22 double those among the non-poor. Wages have also been falling since 2000, with household incomes declining on average about 15 %, with the income inpoorest households declining at faster rates. Figure 1:Unemployment, GDP and Central Government Deficit 25.0 8.0 6.0 20.0 4.0 2.0 15.0 0.0 10.0 -2.0 4.0 5.0 -6.0 -8.0 0.0 -10.0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: DNPandDANE Notes: 1991-2000 (7 mayor urban areas); 2000-2003 (13 mayor urban areas).The break in the unemployment series correspondsto the changeinmethodologyof the householdsurvey. The late 1990salso saw a significant worsening inpoverty. While between 1978 and 1995, poverty rates had been continuously improving at close to 1.5 % per year, 1999 rates were close to those of 1988, and initial observations for 2000-2003 suggest the situation has not improved. The rise in poverty rates has been especially profound inurban areas. Inrural areas, where dramatic improvements had been observed in the 1980s, the situation stagnatedduringthe 1990s. The result is not only more poor people, but also deepening poverty, as evidenced by both the increase of extremely poor people and the risingthe poverty gap (P2), which climbed 22 % between 1995 and 1999. One key factor contributing to the worsening poverty rate i s the displacement of populations from areas of armed conflict. While data on the number of displaced people i s not always reliable, official reports account for 2,000,000 internally displaced people (IDP). Numbers of IDP have risen markedly, with rates averaging 285,000 per year between 2000 and 2003. About 51 % of the displaced are women, 49 % are under 18 years of age, and about 13 % are indigenous communities and Afro-Colombians. Overwhelmingly, they are from rural households (90 %), whose main source of income had come from agricultural activities. The IDP have tended to move to the departmental centers to stay close to their land, or to migrate to larger urban areas, such as BogotA, Medellin, Barranquilla, and Cartagena, fueling urban poverty growth. A survey of 200 IDP in Bogoth, Medellin, and Cartagena suggests that households relocating to departmental urban or periurban centers may be undertaking "preventive displacement" as they predict an escalation of conflict at the local level. Those heading to larger and more distant cities may be trying to escape direct threats to their lives. The increasing numbers of IDPcoupled with the limited capacity of the urban sector to absorb them have left these vulnerable groups at risk. Because their agricultural skills have little value in urban labor markets, IDP are very likely to be unemployed. In addition, limited to urban slums or spontaneous settlements, IDP face inadequate housing options and poor access to public services. The combination of major economic losses, psychologicalhardship, and other strains on household structure (disintegration of families, single-parent households, etc.) put their members at risk of resorting to begging, prostitution, and delinquency, ultimately falling into a circle of extreme poverty. The well being of children of IDP 23 households i s of special concern, as food security in those households i s jeopardized and educational opportunities shrink. The full economic and social effects of forced migration are not well known. One effect may be the concentration of landholdings in the "expulsion" areas and the increasing weakness of property rights for any kind of real assets. This, in turn, gives rise to perverse efficiency effects on the remaining rural population through its obvious discouragement of private investment. Another effect may be the creation of a new, highly vulnerable group of returnees or relocated IDP who may not be able to come back to their original income-earning strategies owing to the loss of assets or household members. On the other hand, rural population loss could possibly lead to local labor shortages and, thus, risingwages. In response to the sectoral issues described here, the Government of Colombia (GOC) has designed a comprehensive policy to fight poverty, address the increasing incidence of violence and displacement, and tackle displacement-related effects on the welfare of vulnerable anddisplaced populations. The goal i s to minimize displacement and assist displaced people through targeted regional development interventions that: (i) reduce vulnerability, and thereby prevent displacement; (ii) re-establish or relocate displaced families to their source communities; and (iii) consolidate democratic governance within the regions. A key strategy of the government policy, aimed to strengthen governance and democracy and to promote social equity in deprived and conflict-affected regions, i s the promotion of regional peace and development programs (PDPs). These programs focus on three integrated components: (i) productive investments and income generation; (ii) institutional and community strengthening; and (iii) construction andimprovementof social and physical infrastructure. A central element of this general strategy outlined inthe NationalDevelopment Plan(NDP) 2002-2006is the implementationof the Peaceand Development Program (the Project) and the Laboratorios de Paz. The Peace and Development Project aims to draw upon the lessons learned from Magdalena Medio Regional Development L I L s and expand the experience to four new regions affectedby conflict. The five project areas (Magdalena Media, Oriente Antioqueiio, Alto Patia-Macizo Colombiano, Norte de Santander and Montes de Maria) have been particularly affected by violence and displacement, and are also below the national average for many social outcomes, as shown in figure 2 of Annex 1. These regions additionally suffer from higher poverty rates than most of the country. Poverty indexes (NBIand ICV) show the difference between these regions and the national average, especially for the Montes de Maria, Magdalena Medio, and Alto Patia-Macizo Colombiano regions. These aggregate regional numbers obfuscate significant internal heterogeneity, as these regions contain many of the poorest and least developed municipalities inthe country. 24 Figure2: SocialIndicatorsfor TargetedRegionsvs. NationalAverage -m .. .. . O B UnsatisfiedBasicNeeds Qldity dLifeIndex a4 1 I Source: DNP The Project includes four components to support the GOC's strategy. Component A, Construction of Social, Economic and Environmental Assets, will finance productive projects in target communities so as to reduce the vulnerability of the residents to displacement. Component B, Return or Relocation of IDP, comprises activities to support the re-establishment or relocation of IDP to their source communities. Component C, Local Institutional Strengtheningand Improvement of Governance,aims to enhance local institutional capacity to govern. And Component D, Program Monitoring and Evaluation, provides important information to evaluate and improve the overall project impact. 25 Annex 2: Major RelatedProjects Financedby the Bank andor other Agencies COLOMBIA: PeaceandDevelopment Project Sector Issue Project Latest Supervision (PSR) Ratings (Bank-financed Projects only) Bank-financed Implementation Development Progress (IP) Objective (DO) Agriculture I Rural ProductivePartnershipsSupport S S Development Project (FY03) Education CundinamarcaEducation Quality S Improvement Project (FY04) Rural Education Project (FYO1) us Environment SierraNevadade Santa Marta SustainableDevelopment Project (FYOO) S S Human Development Youth Development Project (FY99) S S Social Development MagdalenaMedio Regional DevelopmentProject Phase I(LIL) (FY98) HS PeasantEnterpriseZones DevelopmentProject (FY98) S SecondMagdalenaMedio Regional DevelopmentProject (LIL)(FY02) S JSDF Grant for Integration of Internally Displaced People (FYO1) S PostConflict Grant for the Protection of Patrimonial Assets of Colombia's Internally Displaced Population (FY03) S S ESW: Colombia Land Policy in Transition (January, 2004) Other development agencies EuropeanUnion Peace Laboratories Iand I1 UNDPCo102027 Support to RedProdepaz 26 Annex 3: Results Framework and Monitoring COLOMBIA: PeaceandDevelopmentProject PDO icat Use of Outcome Information For the APL (I& 11) To reduce the vulnerability of Lower annual incidence of net Growing or flat trend of the low income and displaced displacements inthe regions served share: populations affectedby conflict by the Project as the share of Ifvulnerability is intensifyingor inColombia. nation-wide annual net remaining significant inProject displacements, adjusted by violence regions, consider scaling-up of indicators '. Project activities inAPL I1rather thancoverage expansion to other Note 1. regions. Also consider scaling- Net displacementis defined as the registered numberof personsleavingthe regionminus up of Component B. registerednumberof personreturningto the sameregionafter havingbeingdisplaced. Declining trend of the share: Note2. Ifvulnerability is significantly Examplesof violence indicators are numberof declining inProject regions and incursions, kidnappingandhomicideswithin the regioninquestion. increasingelsewhere, consider orienting additional resources to areas where vulnerability i s intensifying, as well as taking measures to ensure sustainability For this Proiect (APL I) of project impact in the regions originally served by the Project. To assist vulnerable, low-income anddisplaced populations in Ifprojecthasnosuccessin rural andurbancommunities of reducing vulnerability, examine five conflict-affected regions the Project's conceptual design with means to reduce the risk of and operational schemes. their exposure to conflict and Dependingon the findings, APL mitigate its negative impact. I1may requiremajorredesigning. Component A: Component A: Component A: Developing Social, Economic At least 60 % of target beneficiaries If20 % of subprojectsunder andEnvironmental Assets in of Component A benefit from implementation inthe five Priority Areas social, economic or environmental regions have outside financing, subprojects financed by the the Component i s likely to be Project; working well. However, a low number of subprojects or slow implementation would require increasedefforts in subproject preparationand supervision. Examine the following options: (a) Assistance to subproject preparationmay be insufficient; strengthen support to community 27 and producer organizations; (b) Appraisalmay not be thorough, and approving non- viable projects. Review the appraisal procedures and make necessary revisions; (c) Subproject supervision may require strengthening. Component B: Component B: Component B: Support for Displaced Families At least 80 % of the targets are met Ifthe percent oftarget support inthe Process of Returnand infood security, basic sanitation for returned or relocated families Relocation and productive subprojects for i s acceptable (20% of target in returned or relocated families the first year) the component i s likely to be working well; Ifthepercentisnotacceptable (less than 10%inthe first year) identify reasonsfor result; change strategy for better incentives or promotion of return or relocation; or consider scaling- down of the Component. Component C: Component C: Component C: ~Strengthening Institutions and POs attain at least 60% of their Increasingscore compared with Governance at the Local Level respective targets for capacity baseline shows satisfactory improvement (based on their score capacity of promotion and in the Index of Program Capacity implementation of Project. If IPC)" between time 1 (baseline) score i s low review capacity and time 2 (end of second year of buildingplan, and the constraints the Project). that affect implementation. If Community Organizations problem persists consider implementing subprojects reached changing implementing at least 60% of their respective organizations. targets for capacity improvements (based on their score inthe Index of Organizational Capacity IOC' '1 between time 1(baseline) andtime two (end of second year of the Project). Component D: Component D: Project Management, Level of Implementation of Annual Monitoring andEvaluation Operation Planineach of the five I Project regions. loThe IPC is a tool developed during project preparation to assess the capacity of local organizations. Organizations receive a "score" and develop improvement targets against this baseline score. l1The OIC, a tool for assessing capacity of community groups was developed, validated and used with good results inthe PeasantEnterprise Zones Project 28 The outcome of the Project, estimated decrease innet displacements attributable to the project will be determined via two types of econometric modeling: a. Estimation of an econometric model of the determinants of displacement at the municipal level, including both participating and non-participatingmunicipalities in the study. The estimated percentage decrease in displacement attributable to the project for a municipality is calculated as the predicted level of displacement minus the actual level of displacement, divided by the predicted level. As a whole, the project has a positive impact on displacement if participating municipalities as a group tend to have predicted levels above actual levels, while non-participating municipalities have actual levels at or above predicted levels. b. Estimation of ARIMA models (interrupted time series) to examine whether there is a structural break in the displacement trend during the years of the project. This analysis would need to be undertaken for both participating and non-participating municipalities, in order to determine whether participating municipalities were more likely than non- participating municipalities to have structural breaks to lower levels of displacement. 29 a2 Q m 0 0 0 Annex 4: Detailed Project Description COLOMBIA: Peace andDevelopmentProject This Project is the first of a two-phase APL that aims to reduce the vulnerability of the low-income and displaced population affected by internal conflict in Colombia. Phase Iwould do so by supporting the scaling up of the successful Magdalena Medio Peace and Development Program to four additional conflict-affected regions of Colombia while continuing the support to the Magdalena Medio region. Phase I1i s expected to consolidate the social, economic and institutional gains of the regions of Phase I, and expand the scope of intervention into other conflict-affected areas of Colombia. The five target regions have been selected based on the level of poverty, intensity and pressure of displacement, and strategic relevance for government policy, in particular the importance of the Magdalena Medio model and the synergy with the Peace Laboratories. The EUestablished Laboratory Iin Magdalena Medio for about EU 34.7 million; Laboratory I1is being established in three of the four new regions of the Project for about EU 33 million. Laboratory I11will be established in the near future under analogous policy guidelines. The Project will be implemented within the context of the Government's policy and operational framework. Key actors in this framework include the RSS of the Government, several partner organizations run by NGOs and church groups, and local (municipal, district and departmental) authorities. In addition, the Project will be implemented in close collaboration and coordination with the EU-funded First and Second Peace Laboratory Programs, the latter five-year project expected to commence inthe 2"dquarter of 2004. The primary beneficiaries of the project will be poor and vulnerable populations inthe five conflict-prone regions, who: (a) may find themselves displaced in the near future; and (b) have already been displaced into a different locality, and are trying to re-establish themselves in the new location or to return to their original location. The secondary beneficiaries will be those who include or surround the primary beneficiaries and provide them with social and economic mechanisms to mitigate, cope with and deter the risk of being exposedto violence and other negative consequencesof conflicts. These include community organizations, associations of small producers or micro-enterprises, partner organizations, municipal public entities, and the RSS. The Project i s basedon the following three premises. First, populations with greater social, economic and environmental assets are less likely to choose to displace themselves when they perceive the risk of exposure to conflicts because they have more means to mitigate the potential negative impact of that exposure. The validity of this assumption has been proven by the success of the two Magdalena Medio LILs, as well as the EU-funded Peace Laboratory Program. Second, displaced populations, having already lost such assets, would require a temporary safety net to prevent further deterioration of their living conditions before they can start re-engaging themselves to build new assets. Third, responsible governance through broad-basedparticipation tends to deter the occurrence of conflict-driven violence, as indicated by the Magdalena Medio / Peace Laboratory experiences. These three premises constitute the foundation of Components A though C, respectively. Detailed Component descriptions are provided below. Descriptionof Components The project will have the followingfour components. Component A: DevelopingSocial, Economic and Environmental Assets in Priority Areas Component B: Support for DisplacedFamilies inthe Process of Returnand Relocation Component C: Strengthening Institutions and Governance at the LocalLevel Component D: Project Management, MonitoringandEvaluation 31 Component A: Developing Social, Economic and Environmental Assets inPrioritv Areas US$ 10,627,364 The objective of the component i s to assist vulnerable and low income populations in rural and urban communities with means to mitigate the negative impact of possible exposures to conflict. The method utilized under this component will be the grant financing of small-scale community subprojects that will facilitate the buildingof social economic and environmental assets at the local level. Eligible subprojects will include the following categories: Food Securitv These types of subprojects will promote the production of basic staple food crops (preferably based on a food crop that is part of an economic activity in the area), for self- consumption and partially for the consumption of other community members, to improve nutrition levels, increase savings, and promote local circuits of food exchange or purchase. Eligible activities will include the acquisition of inputs and small equipment, related technical assistance, and capacity buildingactivities that promote or consolidate community sustainability and sharing of knowledge andexperience. IncomeEmplovment Generation. These subprojects will provide support in strengthening and developing existing and new farm and non-farm productive, service and businesses activities. Eligible activities will include technical assistance and studies, limited acquisition of inputs and equipment, skills development, organizational strengthening, and partnership building. The Project will finance this type of subprojects only up to US$lOO,OOO, while subproject beneficiaries will be requiredto contribute a minimumof 10% of the total costs per subproject. It i s expected that not a small share of this type of subprojects will be pre-investment activities leading to financing proposals for the consideration of private as well as private financiers, such as FINAGROand BANCOLDEXthat have allocated about US$40 million to support productive projects for vulnerable populations in high conflict regions of the country. In fact, access to financial and non-financial services will generate a leverage effect and in turn, raise the expected impact and sustainability of the project. Social Network Enhancement and Development of Culture for Development and Peace Subprojects under this category will support community-based initiatives that would: (i) raise awareness and facilitate the access with respect to basic social services such as education and health; (ii)facilitate limited quality enhancement of such services; (iii) facilitate the youth in acquiring skills andjob opportunities; (iv) improve the housing and sanitary conditions based on the guidelines established by the RSS (approximately 2,000 households); and (v) promote the culture of peaceful coexistence in the context of regional development and the sense of belonging. Promotion of activities with a positive impact on the environment. Subprojects under this category will support local educational, training and awareness-raising activities towards environmental sustainability; and subprojects dealing with activities such as watershed management, landscape management, and sustainableuse of naturalresources. Component B: Support for DisplacedFamilies inthe Process of Returnand Relocation US$ 10,822,636 The objective of the component i s to provide a basic temporary safety net and income generation to displaced populations during the initial phase of voluntary relocation into a new area or return to their place of origin. The method utilized under this component will be grant financing of small-scale 32 community subprojects, similar to Component A described inthe above. Eligible subprojects will include the following categories: Food Security These types of subprojects will support the production of basic staple food crops primarily for self-consumption. Eligible activities will include the acquisition of inputsand small equipment, related technical assistance, and capacity building activities that promote or consolidate community sustainability and sharing of knowledge and experience. Access to Health and Education. Subprojects under this category will help beneficiaries access legally entitled basic health and education services. Eligible expenditures will include organization and capacity building of health oversight committees; knowledge, exchange and teacher training on available educational innovations such as New School, SAT (Tutorial Learning System), Accelerated Learning; purchase of learning materials; and small infrastructure to expand or improve classroodhealth center spaces to accommodate the displaced population. Access to Local Social and Economic Opportunities These subprojects will help beneficiaries integrate (re-integrate in case of returning beneficiaries) in the social and economic fabric of the new location. Like Type (ii) Subprojects under Component A, eligible activities will include technical assistance and studies, limited acquisition of inputs and equipment, skills development, organizational strengthening, business partnership building and recovery of social and cultural networks and psychosocial assistance to IDP. Access to Water and Sanitation Subprojects under this category will ensure that displacedreturning households have at least a minimum acceptable access to safe water and sanitation, and housingconditions. Depending on the severity of the living condition, subprojects may support limited home improvements. Detail eligibility criteria and financing conditions for this type of subprojects will follow the guidelines established by RSS. The selection of beneficiaries and the scale of support received by each relocatingheturning families will follow the guideline established by the RSS, Manual de Procedimientospara el Apoyo a 10s Procesos de Retorno de Poblacidn Desplazada Victima del Conflicto Armado, the standardof the Government. Component C: Strengthening Institutions and Governance at the Local Level US$5,589,961 The objective of this component is to develop the capacity of regional leadership of RSS, the POs, local governments, and the territorial committees of the SNAIPD to implement the Project and promote participatory planning and decision making together with responsive public institutions. The strengthening of leadership and public institutions i s geared to enhance their capacity to promote community-led social, environmental and economic activities to benefit poor and vulnerable families living inthe area of influence, as well as to assist the return or relocation of displaced families. Eligible activities will include the following categories: (i) Capacity Enhancement of partner organizations. Incremental staffing, goods, services, learning and technical assistanceneeds of the national RSS and its territorial Units, and POs to implement the project. Special attention will be given to the required training of the staff of the Project Coordination Unit (PCU) and POs in Bank norms and procedures, in particular procurement, financial and safeguard matters. 33 (ii) Strengthening of SNAIPD. Training, technical assistance, diffusion of information, exchanges and special studies neededto enhance the capacity of the members of the Territorial Committees of the SNAIPD to adequately fulfill responsibilities regarding preparation of Integrated Master Plans and the provision of services to the displaced populations. POs will play a central role in developing a bottom-up participatory field strategy intended to empower communities in their relationshipwith the SNAIPD, specially inthe discussion and definition of agreedpriorities. Component D: Project Management. Monitoring.and Evaluation US$ 1,764,495 The objective of the component is to support the establishment of the PCU and the monitoring and evaluation system. The overall functions of the PCU include: Define, monitor and evaluate the annual operational and financial plans Apply the P&D operational manualand procedures Performappraisals and contracting to ensure an adequateuse of financial resources Monitor RSS P&D commitments Update and strengthenthe UnifiedRegistry System (SUR) in selectedregions Conduct project audits Submit periodic financial and technical reports Implement the M&Eand MIS system Coordinate with other programs inthe regions, such as "Peace Laboratories" The component will support the staffing of the PCU (a 8-member team) and two people in each Territorial Unit of the RSS. Two evaluation and policy specialists will be supported in DNP in order to coordinate project evaluations, sectoral articulation and promote region-nation policy dialogues. 34 Annex 5: Project Costs COLOMBIA: Peace andDevelopmentProject Category Amount of the Loan % of Expenditures Allocated to be Financed 1. Goods under Part C andDof the Project 1,800.000 100 (246.OOO) 2. Consultants services, under Part C and D 6,000.000 of the Project (5.848.OOO) 100 3. Training and workshops 800,000 (759.OOO) 100 4. Transfers for subproject under Part A of 10,700.000 the Project (10.627.000) 100 5. Transfers for subproject under Part B of 10,900.000 the Project (10.823.00) 100 6. Operations costs 900,000 (697.000) 100 7. Unallocated 1.ooo.ooo (1,000.000) 100 Total 32,100.000 (30.000.000) Figures in parentheses are the amounts to be financed by the Loan. All costs include contingencies. Costs include counterpartfunds of US$2.1 millionthat will be usedinthe first year. This will be parallel financing. 35 Annex 6: ImplementationArrangements COLOMBIA: Peace and Development Project National Level. The Project will be implemented over a period of three years under arrangements similar to those that proved effective during the implementation of the first and second Magdalena Medio Regional Development LILs. The RSS will be the government agency responsible for the Project. The RSS will execute the Project and managethe loan through a Project Coordination Unit (PCU) basedat the central level. The main functions of the PCU will be to: (i) consolidate, follow-up on, and assess the Annual Operation Plans; (ii) ensure that the Operational and Subproject Manuals are being applied accordingly by the implementing agencies at the territorial level; (iii) arrange for all contractual agreements to be entered between the RSS and the implementing agencies for the execution of the Project at the territorial level, and for other contractual arrangements needed in connection with the RSS monitoring and control responsibilities; (iv) present physical and financial progress reports; and (v) maintain permanent and close coordination and articulation of Project activities with the Peace Laboratories (PLs) at the national level. A National Technical Committee (NTC) presided by the RSS and composed by the National Planning Department (DNP), and one representative of the nongovernmental organizations implementing PDPs, will oversee the Project as well as play a role in orienting and coordinating efforts towards an integrated and consistent program. Representatives from the European Union Delegation, the Bank, and other NGOs implementing PDPs could be invited to participate in the NTC meetings. DNP will assume the Technical Secretariat of the NTC. DNP will also play an important role coordinating the Project's external evaluations and overseeing the Project's overall performance among other governmental initiatives being implemented at the territorial level. The main functions of the NTC will be to: (i) orient and coordinate the Project; (ii) the Annual OperationPlans; (iii) the Project's semi-annual approve assess implementation reports; and (iv) maintain coordination of the Project with the Peace Laboratories and other cooperation programs, as well as with other national investment programs inthe Regions. Regional level. The RSS will execute the Project at the regional level with the support of the POs operating ineach region. Therefore, the decentralized implementation of the Project will be responsibility of these five organizations acting as project implementation units. The PO will work in close coordination with the territorial units (TUs) in the selection of subprojects, the preparation of the Annual Operation Plans, and the monitoring of their implementation, following the norms and procedures of the Field Operations Manual. In each case, they will define the type of partnership arrangement and coordination that i s best for the project, taking into consideration the coordinating, information providing and guidance role of the TUs on behalf of the RSS in each region. The RSS (at the national level) will enter into subsidiary agreements with each PO. The detailed terms of the Project's implementation arrangements will be spelled out in subsidiary agreements satisfactory to the Bank, which are to be entered by the RSS and each PO implementing the Project at the regionallevel. Local level. The POs responsible for the implementationof the Project, or the organizations designated to fulfill a similar role in the respective region, will enter into agreements with producer organizations and/or with other community-based organizations (final beneficiaries of the Project) to transfer the Project funds as grants, for the execution of subprojects at the local level. The Operations Manual will detail the ground rules for approving and implementing subprojects at the local level. Details on the partner organizations, and their respective area of intervention, are the following: 36 PO Regionof Number of Name of the Intervention Departments municipalities PDP covered by the PO CONSORNOC- North-EasternRegion Norte de 15 Corporacidn Nueva of Colombia Santander Sociedadde la Regidn (Provinces of Ocaiia, Nororiental de Colombia Pamplonaand Frontier) CDPMM-Corporacidn MagdalenaMedio Antioquia 29 Programade de Desarrollo y Paz del Region Bolivar Desarrollo y Paz MagdalenaMedio Cesar del Magdalena Santander Medio ASOPATIA-CRIC, Macizo Colombian0 Cauca 25 Asociacidn de Municipios and Alto Patia Nariiio del Patia-Consejo RegionalIndigenadel Cauca FundacMnRed Montes de Maria Bolivar 17 Construccidnde Desarrolloy Pazde Mountains Sucre una Montes deMaria infraestructura de paz desde 10s Montes de Maria PRODEPAZ- Eastof Antioquia Antioquia 23 Programade Corporacidn Programa Desarrollo para Desarrollo para laPaz la Paz del Oriente Antioquefio T= 5 8 109 DNP,CONPESDocument 32 ,March 15,2004 Implementation Mechanisms. Annual Operation Plans, Regional Annual Operation Plans, Semi-annual Monitoring and Evaluation Reports, External Evaluations by an independent entity, and Operational and Subproject Manuals will be put in place. The Project will coordinate with the European Union Peace Laboratories in those Regions where the two coincide (Magdalena Medio, Macizo Colombiano-Alto Patia, Oriente Antioquefio and Norte de Santander) and, to the extent possible, will integrate procedures that meet the requirements of both donors. FZow of Funds. In accordance with the institutional and implementation arrangement described above, funds will flow from RSS to POs andfromPOsto beneficiary entities. allo, Morales, Rio viejo, Simiti. Subregidn deAltiplanos: ElCarmen, ElSantuario,ElRetiro,Guame, L a Unibn, laCeja, Marinilla, 37 Macizo I Cauca: Almaguer*, Balboa, Bolivar, Florencia, La Sierra, LaVega*, Mercaderes, Patia, San - Colombian0 Sebastihn*, Skta Rosa*, Sotari*, Timbio, Sucre (Nariiio, Cauca) Narifio: Arboleda, ElRosario, ElTambo, LaUnibn,Leiva, Policqa, San Lorenzo, San Pablo, San Pedro, Taminango, Cumbitara, Los Andes Provincias de Provincia de Ocafia-Alto Catatumbo:Ocaiia, Abrego, La Playa, Sardinata Ocaiia, Pamplonay Cu'cuta:Corregimiento Agua Clara y ComunaAtalaya Fronterizos (Norte MuniciDiosFronterizos: Bochalema. Chinhcota. Raponvalia. Herr&. de Santander) Provincia de Pamplona:Pamplona, Mutiscua, Silos:Chcota,' Chitagi*, Toledo*. Montes de Mm'a Bolivar: ElCarmenBolivar, San Jacinto, Zambrano, MariaLa Baia, Cbrdoba, SanJuan Nepomuceno, (Bolivar, Sucre) ElGuamo. Sucre: Ovejas, Sincelejo*, San Onofre, Corozal, Los Palmitos*, Chalh, Morroa, Toluviejo, San Antonio de Palmito, Colosb. - General Structure for Project Implementation Agreement World Republic of Colombia-Ministry of Finance 1 /4 Bank ---.-.-_-.-.-. b (Borrower) $ ! I ! ------_--. I NationalLevel ! 00*-* . II//8 \ \ RSS (National Executing Entity) v i,' National \ Technical \I WU> 4 ! Subsidiary Agreement i RSS-Territorial Unit 4-b t l a II Ad-hoc '; i, Regional ! '\,Committee Contractual !! !$ \'.-_--_--- ,/I 0 ! I I I I 38 Annex 7: FinancialManagementandDisbursementArrangements COLOMBIA: PeaceandDevelopmentProject FinancialManagement Country Issues. A Country Financial Financial Accountability Assessment (CFAA) i s currently being carried out for Colombia, and is expected to be completed by June 2004. The critical issues affecting Bank-financed projects include the tight fiscal situation, budget and administrative processes that can cause delays in implementation, and the national chart of accounts which extends to subnational levels of government. At the project level, the Bank i s currently engaged with the government to improve project financial management by: (i) improving the operation of Special Accounts held in the central bank; (ii) decreasing the incentives to employ international cooperation agencies to manage project funds; and (iii) improving and streamliningthe accounting and reporting requirements agreed inNovember 2002 between the Bank and the country's Accountant General and Auditor General's office. Overview. The financial management in this project centers around the fact that most project financial management will take place inthe five POs, each of whom will receive transfers of funds from the Redde Solidaridad Social (RSS). While the POs are considered to have reasonablecapacity to manage funds, the project will include mechanisms for oversight by the RSS central and regional offices, such as project information systems, reporting, and audit. The project will utilize existing financial management arrangements, although some project-specific mechanisms will have to be put inplace inorder to address the management aspects considering the multiple entities involved. FMAssessment. The financial management assessment included visits to the RSS, and to two of the POs. The assessment concluded that the institutions involved have substantial capacity to manage project finances, and that this capacity should be strengthenedunder the program. The recommendation was made to utilize the existing capacity, rather than channeling funds or project FM responsibilities through outside agencies. Therefore, the assessment gave importance to the establishment of mechanisms for the RSS to oversee and manage the activities handled by the POs, such as internal reporting, information systems, and audit. The RSS and POs are considered to have sufficient capacity to manage project funds, but close supervision, especially inthe early years i s recommended. Flow of Funds and Information. Most project activity will be carried out at the level of the POs. The POs will receive periodic transfers from the RSS, andwill then be requiredto report these expenditures to the RSS who will authorize any further advances to the POs in accordance with the criteria (such as a minimumpercentageof the advance to be documented) established for the project and documented inthe Operational Manual. The POs will be accountable for all activities which it will handle, including the community-based subprojects. Periodic disbursement applications should report all expenditures eligible for Bank financing effected duringthe period. For centrally managedexpenditures, the RSS will arrange for payments and will keep records inorder to prepare the Statementsof Expenditures (SOEs) for these disbursement categories. The RSS will integrate the SOEs and related documentation for these expenditures with that of the subprojects -whichwillconsistof StatementsofTransfers (SOTS)showing, amongotherinformation, theamounts advanced to the POs and the extent to which these advances have been documented to the RSS- within consolidated disbursement applications. Direct Payment requests will require separate disbursement applications. 39 The advances to the POs and the financing of the Bank's portion of other costs, will preferably be financed through a Special Account held at the Colombian central bank.'* However, as the required mechanisms for SAs in Colombia were not fully in place at the time of pre-appraisal, other modalities were being explored, including direct payments from the Bank to the POs for the Subprojects. This issue will be resolved prior to project effectiveness so that the appropriate disbursement mechanism can be in place to support project implementation. Information Systems. The government considers it indispensable to have an operating project information system in the RSS, to facilitate project accounting, reporting, and monitoring. The critical modules for such a system are considered to be: procurementkontract monitoring, implementation monitoring including physical progress on subprojects, financial aspects (budget, accounting, and treasury), and reporting. It was agreed during appraisal to study the technical and operational requirements for information management, inthe RSS as well as in the POs, so that an automated system could be in operation no later than the first semester of project implementation. Implementation would need to include substantialtraining at all sites, especially in the weaker POs. For accounting aspects at least, efforts will be made to build on the existing RSS software, SIAFE, which maintains accounts in accordance with current government requirements and could possibly be expandedadapted to include other important functions such as project reporting and contracting. Written Procedures. Project financial procedures will be documented in an Operational Manual, which will define the roles and responsibilities of the RSS, the POs, and other stakeholders. A draft of this manual should be submitted to the Bank before loan negotiations and should include, among other financial procedures: (i) accounting policies and procedures, including basis of accounting and chart of accounts; (ii) the reporting requirements from the POs to the PUC (in RSS); (iii) formats of the consolidated Financial Monitoring Reports for the program; (iv) internal controls including criteria and procedures for processing payments and transfers; (v) records management; and (vi) audit arrangements. The subsidiary legal agreements between the RSS and POs will also document the requirements for reporting and audit and other important financial aspects. Financial Reporting. The PCU will prepare quarterly Financial Monitoring Reports (FMRs) in accordancewith Colombia's Resoluci6n380, which specifies accounting and report formats for all Bank- financed projects. The preparation of these reports will rely heavily on the information provided by the POs, who will be managing most project funds, as well as handling most project procurement and monitoring. The PCU in RSS will therefore need to agree on the format of reporting from the POs, so that it can prepare consolidated reports for project management and distribution to the various stakeholders, including national control entities andthe Bank.I3 Audit. The financial statements of the project will be audited annually by an auditor acceptable to the Bank. This audit will take into consideration any annual financial reviews or audits that might be carried out at the PO level. In addition, in order to verify the total provision of counterpart funding, the Bank will also require that the audit reports of the EU-financed Peace Laboratories be provided to the Bank at the same time they are provided to the EU. l2While the RSS didnot have.accessto the country's Integrated Financial Information System (SIIF) at the time of appraisal, this access was expected to be established during, or before, calendar year 2005. Access to the SIIF would allow the project to have fullaccess to the improvedSA mechanismscurrentlyunderdevelopmentfor Colombiaprojects. l3 At the time of project appraisal, the government and the Bank were engaged in discussions to revise Resolution 380. The format of the FMR for this project will be those contained inthe revised resolution. 40 Financial Management Action Plan. The FM action plan appears below, following section on Disbursements. The priority items are the strengthening of the RSS (including establishment of a PCUto the extent required) and the documentation and agreement on audit and internal reporting procedures. Disbursements Eligibility Initiative. This project incorporates the principles of the recently revised Expenditure Eligibility policy. This policy, approved by the Bank`s Board on April 13, 2004, provides greater flexibility for the Bank to finance some types of expenditures which previously had been considered ineligible. These items include taxes and recurrent costs. For this project, the most important features of the new policy are the financing of taxes, which has allowed the Bank to finance the full amount (100%) of certain expenditures. Counterpart funding will be provided by the govemment in Year 1, and by the EU-funded Peace Laboratories (in a parallel operation) throughout the life of the project. This treatment i s consistent with the Country Financing Parametersfor Colombia, approved by the LCR Regional Vice President on May 13,2004. Special Account. The project will require an advance of loan funds inorder to maintain a smooth flow of funds. This advance would ideally be through a Special Account in the Colombian central bank - however, at the time of appraisal, the government had not yet fully complied with the conditions for establishing such accounts. Assuming compliance i s attained, the account would be established in the central bank and would transfer funds to the RSS upon request from the RSS. If a Special Account cannot be established, an alternative approach will be required (see "flow of funds" in the FM section above). Disbursement Mechanisms and Documentation, including Use of Statements of Expenditure. Loan withdrawal applications will be supported by SOEs for all expenditures not requiring the Bank`s prior review. SOEs as referredto here, include the Statements of Transfers (SOTS)which will demonstrate the transfers made to the POs for the Subprojects to be implementedunder the legal sub-agreements with the RSS. The PCU in RSS will be expected to accumulate all expenditure information and prepare the consolidated withdrawal applications showing expenditures at the central level, and transfers to the Regional Corporations managing the POs. The RSS will establish an internal mechanism for the POs to report their expenditures, and will establish procedures to require the POs to document (Le. report for) a substantial portion of the funds previously advancedto it, before receiving further disbursements from the RSS. The detailed documentation for expenditures made at the PO level will be maintained in PO records, and copies will be maintained inthe RSS. An accounting for these expenditures will be included in the quarterly Financial Monitoring Reports, and both Bank supervision and the project audit will verify that the funds transfer procedures defined inthe OperationalManual are being complied with. EU staff will also be welcome to read and/or receive the audit report of the Bank-financed project.. Counterpart Funding. Counterpart funds are considered to come primarily from the European Union's financing of the Peace Laboratories, but the government will also provide a small share. While it was considered too cumbersome to integrate the accountingheportingauditingof the PeaceLab activities with that of the activities financed by the Bank and RSS, there will be substantial collaboration between the Bank and EUteams. POs will be expected to freely share the financial reports of each activity @e. the Peace Labs and the Bank-financed project) with representatives from each donor, and site visits will be coordinated so as to minimize the effort required from the POs in hosting donor visits. As an additional verification of counterpart fundingprovision, the loan agreement will require that the audit reports for the Peace Lab be provided to the Bank, so that the financial volume of this program (which exceeds the size of the Bank project) can be verified. Since most counterpart funds will be provided as parallel financing, loan financing percentagewill be set at or near 100%. 41 Retroactive Expenditures. The project will be eligible to submit for retroactive reimbursement, documentation for expenditures totaling up to 10% of the loan amount, for eligible expenditures incurred between January 1, 2004 up to the loan agreement signingdate. The project has a budget of about US$3 million for FY04,of which some part is expectedto require retroactive financing. Financial ManagementAction Plan Activitv Responsible Target Date Organization and Staffing Preparation and submission of TORSfor PCU staff or other RSS Prior to Boarddate staff required to strengthen the RSS, to the Bank for non objections. Full staffing of the Project Management Unit and/or staff RSS Prior to effectiveness otherwiserequired in the RSS for project management Participation of Proiect Financial Administration staff in B M RSSPOs Project launching Bank Disbursementand FinancialManagementTraining. Operational Manual Submissionof adraft manual for Bank review. The financial RSS Prior to Board date section should include institutional arrangements, staff functions, accounting policies and procedures, chart of accounts tailored to include project components, disbursement categories and financing source, internal controls, segregation of duties, fixed assets and records management procedures, and report formats. To the extent these cannot be preparedas of the Board date, this should be mentionedinthe draft manual. Provision of commentsand recommendations. I Three weeks prior to BM effectiveness Submission of revised draft to Bank to provide its no- RSS Prior to effectiveness objection. External Audit Preparation of short list and TORSfor audit and submission RSS Prior to effectiveness to Bank and for no-objection. Appointment of external auditors. RSS Within three (3) months of effectiveness Financial Reportingand Monitoring Finalization of format and content of FMRs and procedures RSS Draft included in Ops for data collection and report generation of same. This manual by should include report formats for the POs to send Boarddate. Final information to the PCU. arrangementsprior to effectiveness. FMR format will be inaccordance with the revised versions of Resolution 380 of the Colombia Accountant General's Office Financial Management System Purchase and initial installation of appropriate hardware and RSS Prior to effectiveness software, for project management, including contracting, accounting, reporting, and physical monitoring. This may involve upgradingof existing RSS systems. 42 Annex 8: Procurement COLOMBIA: PeaceandDevelopmentProject A. General Procurement for the proposed project would be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The general description of various items under different expenditure category are described below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementationneeds and improvements ininstitutional capacity. Procurement of Goods: Procurement of Goods for Red de Solidaridad Social (RSS) and Regional Corporations. Identifiable goods contracts to be procured by RSS and selected Regional Corporations will include: hardware, printers, software, consumables, office equipment and other eligible goods. Goods contracts estimated to cost more than $50,000 equivalent but less than $250,000 equivalent, may be procured using National Competitive Bidding (NCB) procedures. Under this method, all the special provisions agreed with the Colombian Government for procurement under Bank-financed loans, grants and credits will apply. The procurement will be done usingBank's Standard BiddingDocuments for all National Standard BiddingDocuments agreed with (or satisfactory to) the Bank. Contracts for goods which cannot be grouped into larger bidding packages and estimated to cost less than US$50,000 per contract may be procured using shopping procedures based on a model request for quotations satisfactory to the Bank. For National Competitive Biddingof goods contracts. the following special provisions will be applied: Goods estimated to cost less than $250,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. Before issuing any invitation to bid, the Borrower shall prepare and furnish or cause to be prepared and furnished to the Bank for approval, appropriate model bidding documents. Once approved by the Bank, the Borrower shall use, or cause to be used, said modelbiddingdocuments, as approved for biddingunder the Project. Any change or departure from the model approved shall require Bank's prior approval. All bidders, irrespective of whether they are foreigners or Colombians, will be treated equally and, particularly, no preference will be granted to any bidder or group of bidders for bid evaluation purposes. Bidders shall be allowed to submit their bids by hand or through the post office or private mailing services. There shall not be any requirement for any bidder to show evidence of the bidder's registration in any public registry, chamber of commerce or similar entity, whether in Colombia or elsewhere, or to appoint a representative domiciled in Colombia, unless and until such bidder i s awarded the corresponding contract. Bids shall be opened in a public meeting to which bidders and their representatives shall be allowed to attend if they so wish. Date, time and place for the opening meeting shall be set forth in the bidding documents. Bid opening shall coincide with, or take place promptly after, the final date and time of the period for bid submission stipulated in the biddingdocuments. Each bid shall be evaluated and the corresponding contract awarded to the responsive bidder who meets appropriate technical and financial standards of capability and whose bid has been determined to be the lowest evaluated bid. Such determination shall be made exclusively on the basis of the specifications, conditions and evaluation criteria stipulated in the bidding documents. If any factor additional to the amount or 43 amounts of each bid i s to be considered in bid evaluation, such factor or factors and the quantified manner on which they will be applied for purposes of determining the lowest evaluated bid shall be precisely stipulated in the biddingdocuments. For purposes of bid evaluation and comparison, the only bid amount or amounts to be used as a factor shall be the bid amount or amounts as quoted in the corresponding bid, including correction of arithmetic errors. The provisions of paragraph2.46 of the Guidelines shall fully apply and, more specifically, bids shall not be disclosed to persons other than the persons officially charged with the task of comparing and/or evaluating the bids while they are performing their official duties, without the corresponding bidder's written authorization. Moreover, bidders shall not be required to provide such authorization as a condition to be entitled to bid. This confidentiality requirement shall apply untilthe award of contract i s notified to the successful bidder. Thereafter, confidentiality of the bids shall be limited to those bid portions for which confidentiality has been specifically requestedby the bidder inquestion. Selection of Consultants: Selection of Consultants by RSS and RegionalCorporations: Firms. Consultants contracts with firms will include support studies; design and supervision; training services, workshops, specialized technical expertise and studies. Contracts with firms may be procured using Quality Based Selection Method. Consultant assignments of specific types as agreed previously with the Bank in the Procurement Plan, may be procured with the use of the following selection methods: (i) Quality Based selection -QBS-; (ii) Selection under a Fixed Budget -SFB-; (iii) Cost Least Selection -LCS-; (iv) Selection Based on Consultants' Qualifications -CQ (for contracts estimated to cost below US$lOO,OOO equivalent); and, exceptionally, with Bank's prior No Objection (v) Single Source Selection -SSS. Individuals. Individual consultants will be hired to provide specialized technical advisory services in various fields and project support, and selected in accordance with the provisions of paragraphs 5.1 through 5.3 of the Consultant Guidelines, or may be procured on a sole source basis in accordance with paragraph 5.4 of the Consultant Guidelines (with prior No Objectionby the Bank). TraininP for RSS and Regional Corporations. The plan and budget for training and workshop activities will be reviewed and approved by the Bank annually. "Training" means expenditures incurred by the Borrower to finance reasonabletransportation costs and the cost of rental of training facilities, per diem and transportation of trainees and trainers, acquisition of training equipment and material, study tours, seminars and workshops under the project. Operational Costs: The plan and budget for the PCU's Operating Costs will be reviewed and approved by the Bank annually. The term "Operating Costs" includes reasonable expenditures incurred for the carrying out of the Project, such as travel costs and per diem for official project staff and also travel costs and per diem for personnel commissioned under the project; rentals, utilities, fuel, communications (including Internet connectivity), maintenance of facilities, equipment, and vehicles, consumable materials and supplies (which expenditures would not have been incurred absent the Project), and other project implementation related costs and services to be procured using administrative procedures acceptable to the Bank. Procurement under Subprojects Eligible goods, works and services to be procured by Participants in Subprojects shall be procured in accordance with the procedures specified in the Operational Manual, including local commercial and community practices acceptableto the Bank. 44 B. Assessment ofthe agencv's cauacitv to implementprocurement Summarv ofProcurement Capacitv Assessment An assessment of the capacity of the proposed Implementing Agencies to conduct procurement actions for the project has been carried out by JosC M. Martinez during March 2004. The assessmentreviewed the organizational structure for implementing the project and the interaction between the project's staff responsible for procurement and the relevant central unit for administrationandfinance. Procurement activities in the project are not expected to include procurement for large goods (ICB) or consulting contracts, and there are no contracting of civil works contemplated for both RSS and the Regional Corporations. RSS will review and supervise the Regional Corporations' activities. The Regional Corporations will review, authorize and be held responsible for the expenditures made under the activity plans submitted by communities in subprojects. There will be subproject agreements between the Regional Corporation and the legal entity representing the community. The subprojects implemented by community groups will conduct their own procurement activities as neededfollowing the Operations Manual and under the supervision of the RegionalCorporation. PCU. A Project Coordinating Unit (PCU) located at the Red de Solidaridad Social (RSS) will be responsible for the "centralized procurement", namely: goods, evaluation and audits, in addition to its own staffing. Procurement activities for the remaining components will be conducted by the Regional Corporations selected: CONSORNOC, CDPMM, ASOPATWCRIC, Fundaci6n Montes de Maria, PRODEPAZ. Procurement under community sub-projects will be carried out by community organizations or associations following the guidelines of the Operational Manual and under the guidance andsupervision of the selectedRegionalCorporation. Red de Solidaridad Social (RSS). The RSS has some experience with procurement under Bank norms given that it currently manages two grants: a JSDF of US$2.5 million and a PCF of US$SOO,OOO. RSS has been successfully implementing 2 grants involving basically procurement of consulting services under Bank Guidelines. They have a dedicated experienced team specialized in the different processes required by procurement activities under the Local Law (technical staff, lawyers, etc.). Their concrete experience in Bank-funded procurement i s in the field of selection of consulting services and shopping for goods and non-consulting services, incontracts for relatively small amounts. Regional Corporations. Corporacidn de Desarrollo y Paz de Magdalena Medio (CDPMM). CDPMM has an experience of 5 years with procurement in World Bank projects, and are still implementing procurement activities in one active Bank-funded project. CDPMM have dedicated staff to attend procurement activities and so far the 2 ex-post reviews of contracts have shown that the Corporation has executed procurement activities at an acceptable level. Most of the issues/ risks concerning the procurement component for implementation of the project have been identified and include basically the procurement capacity of other RegionalCorporations. Recommendations. Considering the above, it was recommended that the staff to be involved in Bank- funded procurement will be trained on Bank procurement procedures before the project start (actually these training activities have already begun in March), to ensure that such personnel will be as much as possible familiarized with the principles of Bank procurement before procurement activities have commenced, and also to create the necessary communication channels between them and the Bank Procurement Specialist interms of provision of advice inthat field. 45 The overall project riskfor procurement is High, revisable at the Mid-TermProject Review. C. ProcurementPlan The Borrower, at appraisal, developed a General Procurement Plan for project implementation which provides the basis for the procurement methods for identifiable contracts to be procured centrally by the RSS and the Regional Corporations involved (Regional Corporations will submit through RSS detailed procurement plans for their needs in terms of eligible goods and services). This plan has been agreed between the Borrower and the Project Team and it i s available at the office of the preparation team in DNP. It will also be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementationneeds and improvements ininstitutionalcapacity. D.Frequency ofProcurementSupervision The capacity assessment of the Implementing Agency has recommended at least one supervision mission annually to both provide direct consultation on procurement matters and carry out post review of procurement actions. Table A: Project Costs by Procurement Arrangements (US$ million equivalent) ProcurementMethod' Expenditure Category NCB Other2 N.B.F. Total Cost 1. Goods under Part C andD 0.06 1.74 0.00 1.80 of the Project (0.04) (0.20) (0.00) (0.24) 2. Consultants services, under 0.00 6.00 0.00 6.00 PartC and D of the Project (0.00) (5.85) (0.00) (5.85) 3. Training and workshops 0.00 0.80 0.00 0.80 (0.00) (0.76) (0.00) (0.76) 4. Transfers for subproject under 0.00 10.70 0.00 10.70 PartA of the Project (0.00) (10.63) (0.00) (10.63) 5. Transfers for subproject under 0.00 10.90 0.00 10.90 PartB of the Project (0.00) (10.82) (0.00) (10.82) 6. Operations costs 0.00 0.90 0.00 0.90 (0.00) (0.70) (0.00) (0.70) 7. Unallocated 0.00 1.oo 0.00 1.oo (0.00) (1.OO) (0.00) (1.OO) Total 0.06 32.04 0.00 32.10 (0.04) (29.96) (0.00) (30.00) 'Figures in parentheses are the amounts to be financed by the Loan. All costs include contingencies. Costs include counterpart funds of US$2.1 million that will beusedinthe first year. This will be parallelfinancing. 'Includes goods to be procured through national shopping, consulting services, services of contracted staff of the project managementoffice, training, technical assistanceservices, and incremental operating costs related to (i) managing the project, and (ii)re-lending project funds to local govemment units. 46 Attachment 1 Details of the Procurement Arrangement involving international competition. 1.Goods andWorks andnon-consulting services. (a) List of contract Packageswhich will be procuredfollowing ICB andDirect contracting: 1 2 3 4 5 6 7 8 9 Ref. Contract Estimated Procurement P-Q Domestic Review Expected Comments No. (Description) Cost Method Preference by Bank Bid-Opening (yedno) (Prior/ Post) Date (b) Inany case, ICB Contractsestimatedto cost above $5,000,000 for civil works and above $250,000 for goods, as well as all direct contracting will be subject to prior review by the Bank. 2. Consulting Services. (a) List of Consulting Assignments with short-list of international firms. Not expected. 2 1 3 1 4 5 6 7 Ref. No. Description - Estimated Selection Review Expected Comments of Method by Bank Proposals Assignment (Prior Submissio Post) n Date (b) Consultancy services by firms estimated to cost above $100,000 per contract and Single Source selection of firms will be subject to prior review by the Bank. Consultancy services by individual consultants estimated to cost above $50,000 per contract and any Single Source selection of individual consultantswill be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than $350,000 equivalent per contract, may be composed entirely of national consultantsinaccordancewith the provisions of paragraph2.7 of the ConsultantGuidelines. 47 Annex 9: EconomicandFinancialAnalysis COLOMBIA: PeaceandDevelopmentProject Introduction There are compelling reasons to promote this type of project due to the enormous direct and indirect economic costs of high vulnerability to violence. On the social side, conflict-related losses of human capital are estimated to be at least 1% of GDP, and investment, educational and labor-market opportunities are severely limited in an atmosphereof violence and insecurity. Healthcare costs likewise are affected, and the WHO estimates that violence-related health care costs represent 5% of Colombia's GDP. Specific investments to be implemented under the project will be determined by communities; therefore, it is not possible to know apriori how available resources will be precisely allocated, andthus neither an ex ante estimation of cost-effectiveness, economic rate of return or fiscal impact i s made. However, subprojects to be financed under the proposed project would, in general, be similar to those financed under the previous MM1and MMIIprojects and, drawing on their cumulative experience, the following aspects of project investments were assessed: (i) cost-effectiveness and sustainability of infrastructure; (ii) financial viability of productive subprojects; and (iii) fiscal impact of the project. the Cost Effectiveness of subproiects: Several aspects of project design help to ensure that subprojects financed under Components A and B represent the least-cost, best alternative. First, the demand-driven aspect of each subproject permits scarce resources to flow where they are most needed. Community participation ensures that the chosen subproject i s the best alternative for the local community. Additionally, the delegation of subproject implementation directly to the community associations should generate cost savings, when compared to similar quality works implemented by public sector agencies. The contracting procedures prescribed in the Project Operational Manual require direct contracting through competitive processes on all subprojects: the community association solicits three bids for the subproject and chooses the least-cost bid. User fees, where applicable, will aid in financing Operations and Maintenance of the subproject, thereby contributing to the sustainability of the investment. FinancialViability of ProductiveSubprojects One of the goals of the Project is to transfer the experience gained in the MM Regional Development L I L s to other regions. Given that the project i s based on community demand, the analysis of a sample of the MMprojects i s usedas a proxy for the type of productive subprojects that may be demanded in other regions. Project Sample: It was agreed that the analysis would focus on subprojects based on the information available, knowledge of the productive subprojects by World Bank staff, Red Prodepaz and other technical staff who had previously worked in the MM region. The subprojects identified were the following: 0 Palm: inPuerto Wilches 0 Cocoa: inLos Yariguies 0 Yuca (manioc): in San Vicente 0 Pottery: in Barrancabermeja 0 Small bananas ("bananito"): inLandfizuri 48 Data: The following sources were usedto obtain information for the analysis: 1. Feasibility studies preparedby the different subprojects, 2. The "Economic Observatory" Project undertaken by the consultant for the PDPMM between 1999 and2000, 3. The LL I1 external evaluation of the MM undertaken by the National University's Centro de Investigacih para el Desarrollo (CID) (Development ResearchCenter) in 2004. 4. Finally, a visit to the region, March 22-26, to review PDPMM databases and discuss the subprojects with the technicians and those responsible for same on the part of the Program. This visit included a trip to SanVicente de Chucurito gatherinformation on cocoaandyuca (manioc) projects. Methodology: Project cash flows were estimated in each case in order to obtain standard financial assessment indicators (IRR, NPV). Actual cost and production figures were used, whenever available. In some cases, the partial data available were validated with the aid of technicians and PDPMM personnel involved directly in the subprojects.. Whenever available, previously completed feasibility studies were used to validate the analyses. Subprojects with longer maturation periods currently lack sufficient production data; in those cases, an assessment was made of (a)the efficiency of the investment stage, (b) production expectations and (c) their combined effects on profitability. It should be noted that, due to time constraints, a good portion of the information used had to be reconstructed, with the limitations that this implies. This meansthat estimates are valid as weighted averages. General Results: A summary of the main results i s provided in the Table 1(see project files for detailed analysis): Table 1 Summary of Economic Analysis Cocoa 4,477 >50% 28,790 10,404 3 Palm 574,074 21% 506,944 641,6 15 7 Yuca 365 >50% 118 N.A. 10months Banano Bocadillo 2,477 >50% 4,873 2,709 1 ~ All IRRs are satisfactory and exceedthe cost of capital. Inthree of the five subprojects, IRRs are greater than 50%. Total investment varies widely from $593 million pesos (US$219,600) for Pottery to as little as $365,000 (US$135) for Yuca production. Both Pottery andPalmOil production would require from 6- . 7 years to recover the capital invested, whereas both Yuca and Banano achieve this in one year or less. Sensitivity Analysis: In order to assess the financial robustness of the subprojects, a sensitivity analysis was conducted. Two scenarios were considered. Inthe first, inputcosts are assumedto increase by 20%, relative to the base case, perhapsdue to price volatility. Inthe second case, revenue for each subproject i s reduced by 20%, perhaps as a function of marketing difficulties or production constraints. Inall cases, the IRRs remain satisfactory when assessed against the two scenarios. The results of the sensitivity analysis are presentedinTable 2. 49 Small bananas >50% 2,477 >50% 3,463 >50% 2,489 Fiscal Impact Fiscal Impact: On the fiscal side, it i s estimated that the fiscal impact of this project i s negligible. The operation i s planned to disburse a total of $30 million over a period of 3-4 years, starting with approximately $3 million inthe second semester of the current calendar year (FY05). Taking into account that the budgeted expenditures of the Central Government (CG) total about $27.5 billion for 2004, the execution of the operation represents about 0.01% of the total budget. This calculation takes only into account CG budget. If the decentralized sector's budget i s used as well (i.e. the consolidated public sector expenditures) the figure is even lower. The effect of the operation on the country's total indebtedness (i.e. inthe total stock of debt) is also very small. The amount of the operation would be reflectedin less than 0.01% growth of the total stock of external debt of the Colombian central government. Thus, it is estimated that interest payments will rise by a low % as a direct consequence of the implementation of this operation. 50 Annex 10: Safeguard Policy Issues COLOMBIA:PeaceandDevelopmentProject The key safeguard policy issues raised by the project relate to ensuring the compliance with environmental and social safeguard policies and appropriate oversight of productive subprojects included inComponent A, and to ensuring that project benefits are extended ina culturally appropriate manner to indigenous populations who live within four of the five project areas of intervention. These issues are addressed through an Environmental Framework and an Indigenous Development Framework, each of which i s outlined below. The Colombia Peace and Development Project (the Project) aims to create social and economic conditions that reduce the vulnerability of the populationinfive key areas to conflict-related violence, and allow for the return of internally displaced persons (IDP) to their homes or new rural lands. The Project will be largely implemented through regional organizations with strong social support active in the target regions, implementingPeace and Development Programs (PDPs). The project regions include: 0 Montes de Maria (17 municipalities inthe Departments of Bolivar and Sucre); 0 Oriente Antioqueiio (23 municipalities inthe Department of Antioquia); 0 Alto Patiay Macizo Colombian0 (25 municipalities inthe Departments of Cauca andNariiio); 0 Magdalena Medio (29 municipalities in the Departments of Bolivar, Santander, Cesar and Antioquia); and 0 Ocaiia-Alto Catatumbo-Pamplona (15 municipalities inthe Department of Norte de Santander). Inaccordance with OP 4.01, an Environmental Assessment was undertaken by a local consultant to identify the potential impacts associated with the types of subprojects envisioned for the Project, and developing appropriate mitigation measures to offset those impacts. Results from the EA have been used in the development of this environmental management framework. Additional information is being collectedto supplement this framework. As part of Component B (construction of social, economic and environmental activities), the Project will support the development and implementation of productive subprojects aimed at encouraging the sustainable development of beneficiaries and their communities. All subprojects will be based on the participatory strategy developed by the local implementing agencies called in the Project partner organizations (POs). These subprojects will be subject to the environmental procedures set forth in the following annex, including: 1. Environmental screeningof subprojects Subproject Typology Environmental Classification 2. Definition of RequiredEnvironmentalWork Preliminary Site Sensitivity Screening EnvironmentalManagement Plans 3. Implementation of RequiredEnvironmental Work 4. Environmental subproject monitoring Additionally, so as to ensure adequate implementation of the environmental procedures outlined here, the project includes specific Capacity Buildingactivities andInstitutional Arrangements These elements are described inthe following sections, and presented inthe following flowchart. 51 S u b p r o j e c t Define Subproject Type I b Type I Type I 1 Type 111 S i t e Sensitivity S i t e Visit in fraLgile I area? D e f i n e scope YES and type o f environmental management plan 4 ineligible Implementation and M o n i t o r i n g Environmental screening of subprojects All subprojects will be developed by potential beneficiaries, utilizing guidelines defined in the Project Operating Manual. The technical staff within each PO will support project preparation at the community level. Once prepared, all subprojects will be subject to a process of environmental classification and site sensitivity screening. The classificationwill be done by the PO in each region, and will be summarized in an environmental checklist. In the case of uncertainty, the PO will forward information on the subproject to the central-level Project Coordination Unit(PCU) for their review andclassification. Step 1:Project Typology: All subprojects will be classified according to a typology. Each subproject typology will be definedbased upon the nature and scope of the activity, as well as the resulting environmentalrisk. 52 Ingeneral, riskclassificationwillbedefinedinthe following manner: Type I: Subprojects that are conservation friendly. Type I1 Subprojects that have minimal negative environmental impacts. Type 111: Subprojects that have moderate potential environmental impact. The subproject may have certain level of risk due to the type of works/activities planned, but the potential adverse impacts may be mitigated or managed. The impacts are site-specific, short-term, may be mitigated andare not irreversible. Type IV: Subprojects with high potential for environmental impact. The impacts may be irreversible, or affect an areabeyondthe site. Itshouldbe notedthatthe projectwill support only Type I,I1andI11subprojects. The following table presents a preliminary environmental classificationof the likely subprojects. Preliminary Environmental Classification of Likely Subprojects SubprojectType Example Environmental Classification I Small animal husbandry Small-scalehusbandryof chickens, ducks, pigs, goats, sheep, etc. moderate-scalecommercial Small-scaleprocessingand packagingof fruits, grains rocessingof agricultural crops lantations anana, pineapple, mango, passionfruit, avocado, etc.) Organic agricultural production bSmall- and medium-scalefruit plantations (citrus, ype I11 Organic coffee, chocolate, herbs, etc. Type I1(Type I11if requires landuse khanges) Small-scaleforestextraction(from Wood, pulp, and other wood productsderived from Type I11 plantations) plantationsandreforestationareas. Small-scaleaquaculture Non-industrialfish productionwith native or already Type I1 established, low-ecological-riskspecies Agricultural productiononexisting Rubber, African palm, etc. Type I11 agriculturallands Agricultural productionon new Forestclearinglconversion for productionof rubber, Type I V agriculturallands African palm, etc. Watershedmanagement Microwatershedprotection,erosioncontrol, landuse Type I planning Step 2: Initial Site Sensitivity Screening Preliminary site sensitivity screening will be done for all subprojects, using a map of sensitive areas in each region. Maps will be developed by a consultant prior to project initiation that identify sensitive areas within each project region. These maps will be at an appropriate scale to facilitate subproject screening (e.g., 250,000 or 1:500,000). Maps will be developed utilizing existing information from the regional environmental authorities (Corporaciones Autbnomas Regionales, or CAR), regional land use plans (Plan de Ordenamiento Territorial Ambiental Regional, or POTAR); municipal land use plans (Plan de Ordenamiento Territorial,or POT), as well as information from National Agencies on protected areas and other areas of cultural or conservation concern. The maps will include and differentiate the followingtypes of areas: Critical Areas: National Parks: System of National "Natural Park" lands; Regional and Local Parks: Reserves under the authority of the CARS,departmental, municipal or local governments, defined for conservation or restorationpurposes; Proposed Protected Areas: Areas legally proposed as protected areas under the national, regional or local systems. Protected Landscape Areas: Lands protected by traditional local communities for their spiritual, cultural or landscapeimportance Culturally Important Areas: Archeological parks, historical monuments, etc. Wildlife Reserves: Areas protected for the conservation, investigation, and management of wildlife. Private Protected Areas: Private lands managed for the protection of ecosystems or natural resources (including Civil Society Reserves) Indigenous Resguardos or Territories: Lands legally recognized as property of indigenous communities or lands inthe process of legalrecognition. 54 0 Other Areas of High Conservation Value: Areas of habitat for endangeredor threatened species, as well as unprotected ecosystems dominated by native plant and animal species known to provide strategic environmental services, includingphrumos, and wetlands.. Fragile Areas: 0 Forest Reserves: Key watershedareas with slopes over 40%; 0 FishingReserves: Areas within or adjacent to areas protectedfor fishinguse. 0 Areas at Risk of Natural Disasters: Areas at high risk of natural disasters, including floodplains, unstable slopes, etc. 0 Riparianzones: Areas parallelto river coursesupto 30 meters of width. Other Areas for Consideration: 0 Integrated Management Districts: Areas subject to controlled economic, recreation, investigative and other types of activities 0 Watershed Management Units 0 Soil Conservation Districts Duringthe early stages of project implementation, the sensitivity mapswill bepresentedto eachPOto aid inthe formulation of subprojects. Step 3: Compare Subproject Locationwith Map of SensitiveAreas Site sensitivity i s defined by consulting the map of sensitive areas to determine whether the subproject location are within any critical or fragile areas. Results of this assessment are used to determine initial subproject eligibility. Ineligible Subprojects: With the exception of conservation-friendly subprojects (Le. Type I), all subprojects located within a critical area are ineligible for funding. Eligible Subprojects: Are of three types: Outside of critical or fragile areas: All subprojects are eligible (Type I, o 111). I1 In Fragile Areas: Type I1and I11subprojects receive aflug indicating the need for additional environmentalwork. InCriticalAreas: Only conservation-friendly(Type I)subprojects areeligible. Step 4: Preparation of Standard Environment Management Plans For each subproject type that is expected to be funded during initial project phases, the Project will support the preparation of standard environmental management plans. These management plans will be presented in the form of a concise guide, with simple drawings, and will include information about the types of activities expected, associated potential environmental impacts, and mitigation measures. The objective of these plans i s to define the best environmental practices for each type of expected subproject and/or activity. These management plans will be developed before Project implementation, or in some cases during the first Project phase, as an approval condition for financing. Their compliance will be monitoredby the technical unitat eachPO, and disbursements will depend on its application. Step 5: Define RequiredEnvironmental Work 55 Necessary environmental work i s a function of the project categorization and the site sensitivity. For sensitive sites (critical and fragile areas), additional site screening may be required. Regardless of site sensitivity, all subprojects will be subject to environmental managementplans (EMP). Additional Site Screening:_All Type I1and I11subprojects in fragile areas will be subject to a preliminary site screening to determine that proposed subproject activities are compatible with the site. Based on the results of site screening, additional environmental work may be required inthe form of specific mitigation measures supplementary to those inthe environmental managementplansfor standardactivities. The following matrix presents the type and scope of environmental work necessary for each project category. The specific details for required environmental work will be included in the environmental checklist for each subproject. Matrix of Environmental Work for Eligible Subprojects Project Type No Flag With Flag Apply standard managementplans Apply standardmanagement plans (developedby project). (developedby project). Monitor annually. Apply additional mitigation measuresdefined by the PO based on preliminary site visit. Monitor annually. Apply standard managementplans Apply standardmanagementplans Type I1 (developed by project). (developedby project). Monitor annually. Apply additional mitigation measuresdefined by the PO basedonpreliminary site visit Monitor every six months. ~ Type I11 Apply standard managementplans Apply standardmanagementplans (developedby project). (developedby project). Apply additional mitigation Apply additional mitigation measuresdefined measuresdefined by the PO based by the PO based on preliminary site visit or onpreliminary site visit. subsequentones. Monitor annually. Monitor every six months. EnvironmentalLicensing: In all cases, the POs will verify whether subprojects require an environmental license or other type of authorizationor approval by the environmental authority under Colombian law. In the case that subprojects are implemented in critical areas, they may also need to ensure that their activities are consistent with the management plans established for those areas. The POs will be responsible for supporting local organizations to ensure the necessary licenses/approvals. Pest Management: The procedures will address pest management issues through promoting the minimal use of approved pesticides within the context of an IntegratedPest Management (IPM)approach. Project operational manuals will include a list of pesticides that can be purchased with project funds (World Health Organization Classes I11and IV), andtechnical assistance and strengthening activities will include measures to promote Integrated Pest Management (IPM). These measures are expected to include exchange with CUT'SColombia-based Center for Tropical Agricultural. Step 6: Implement Environmental Work 56 Subproject proponents are responsible for complying with environmental work requirements set forth in the subproject environmental management plans (EMPs). As described above, these EMPs may be generic or may include supplementary specific mitigation measures. Subproject proponents may request technical assistance to build their capacity to implement environmental mitigation measures where necessary. Step 7: Environmental Monitoring Environmentalprocedures include ongoing monitoring to determine whether the classification system and mitigation measures are adequate at all subproject cycle stages (i.e. environmental checklists, management plans, visits and reports, and other tools included in the Operating Manual). These will be incorporated into the Project Monitoring and Evaluation Integrated System. If necessary, monitoring results will be used to refine the required environmental procedures. Environmental monitoring will pay special attention to identifying and mitigating cumulative environmental impacts. Subprojectmonitoring Environmental monitoring procedures vary according to the potential subproject impacts as presented in the environmental work matrix. In all cases, the PO has the responsibility for assuring subproject compliance with defined mitigation measures. Documentation The PO will summarize the screening and monitoring process using an environmental checklist. This checklist should include sufficient project information to enable monitoring. The checklist should include data such as the project type, location, affected area (in ha), environmental categorization (including project type and flag, if necessary), type of environmental work necessary (including standard EMPs and any supplementary specific mitigation measures), and monitoring results. All of these data should be maintainedby the PO. Local Level Monitoring (PO) Subprojects that are Type Iand I1with flag, and Type I11without flag: The PO will undertake site monitoring of each subproject before implementationbegins, in order to verify the adequacy of proposed mitigation measuresor recommend additional ones. Periodic monitoring visits will be made depending on the project type (see table above), to verify compliance with site-specific management plans and to identify capacity building needs or improvements to environmental management requirements. If necessary, additional mitigation measures may be identified duringsubproject monitoring. Subprojects that are Type I11with flag: PO will undertake site monitoring of each subproject at least every four months (see note above). As with all monitoring, special attention will be paid to ensure that subproject activities are consistent with subproject-specific management plans, in which extra mitigation measureswill be recommended. . Central Level Monitoring (PCU) In order to promote "best practices" nationwide, identify lessons learned, capacity building needs, inadequate mitigation measures, andor cumulative impacts (at the regional or project level), the PCUwill undertake annual site monitoring of a sample of subprojects, with emphasis on those that are "Type I11 with flag". The PCU will review potential cumulative impacts at the project and regional level so as to identify whether environmental procedures should be modified (specifically, whether changes are warranted for subproject classification, required environmental work, capacity building needs, etc.). This could require additional field visits. Where necessary, the resulting recommendations will be integrated into the environmentalprocedures for all POs. B. Capacity Building 57 The PO, with input from the PCU, project beneficiaries, and local partners (CAR, municipalities, etc.), will define capacity building needs to guarantee adequate implementation of the environmental procedures (including application of environmental management plans, development and application of sufficient mitigation measures, etc.) The environmental capacity buildingprogram will be included in the annual operating budget for each PO. C. InstitutionalArrangement The following section describes the primary environment-related activities to be undertaken by each of the key organizations involved inProject implementation. Central Level (PCU) The PCU will include adequate capacity for the following functions: 1) developing standard environmental monitoring plans for each type of subproject/activity to be financed by the Project, as part of the Project Monitoring and Evaluation System; 2) providing support guidelines for additional mitigation measuresto be applied when subprojects are undertaken in sensitive sites (Type I, or Type I1or I11with flag); 3) ensuring the consistent adequateapplicationof environmental procedures acrossregions; 4) providing support to POs, as needed, on all environmental issues; 5) contracting experts to provide additional environmental training and support, when needed; 6) identifying potential cumulative impacts and determining necessary mitigatory actions; 7) establishing necessary institutional arrangements; 8) monitoring a random sample with emphasis on risky subprojects (Type 111with flag); 9) evaluating POs- provided environmental reports and determining necessary changes to environmental procedures; 10) establishing links with other institutions to strengthen environmental capacity within each region; 11) developing and implementing an environmental training program; 12) working with environmental agencies to facilitate environmental licensing procedures, where necessary; and 13) promoting conservation-friendly projects in eachregion. Local Level (PO) The POs will include capacity for assuring the following functions: 1) ensuring the adequate application of environmental procedures to all subprojects; 2) monitoring environmental management in all subprojects, as part of the monitoring and evaluation system; 3) defining and coordinating environmental capacity-building activities; 4) coordinating relations with environmental authorities; 5) presenting regular monitoring results to the PCU; and6) promoting conservation-friendly projects. Advisory Level (National Technical Committee) The DNP, as Secretary of the National Technical Committee shall invite a representative of the Ministry of the Environment or the Environmental Policy Unit at DNP whenever: a) environmental issues require special attention; b) there is a discussion of environmental strategies for the project; and c) coordination andlinkage of the POs with other ongoing environmentalprograms or institutions is advisable. Consultation Consultation of beneficiaries is being undertaken as part of the development of the environmental framework. The framework was made publicly available on the DNP website and in the Bank's InfoShop on April 11,2004. Indigenous Peoples The indigenous population of Colombia i s estimated at approximately 800,000, or about two % of the national population. The proposed project would be implemented in four Departamentos which include indigenous populations: Antioquia, Cauca, Norte de Santander and Sucre including about 227,000 persons classified as indigenous in the census. Of these, some 208,000 indigenous people are the owners of some 132 legally recognized indigenous territories (resguardos) with a total area of about 1million hectares. The remaining indigenous population of about 19,000 belong to 58 about 120 small communities that do not live in legally defined resguardos. This can be considered as the areaof influence of the project. About 12% of this population comprising some 26,405 people of seven different ethnic groups, lives in municipalities that will be direct beneficiaries of the proposed project. These municipalities include some 18 known indigenous communities of which 13 are legally recognized as resguardos, occupying some 52,364 Ha. The remaining five communities, comprising some 1760 inhabitants, located in the Departments of Antioquia, Sucre and Cauca do not yet have defined territories and are therefore more vulnerable to the usurpation of their lands and the natural resources located on them. Some of the resguardos located in the Departamentos of Sucre and Norte de Santander occupy additional lands in other Departamentos. This poses a problem for the project insofar as some indigenous communities are part of larger entities whose territory lies outside the area defined as the project area. The social organization of these indigenous communities varies considerably by ethnic group and the conditions in each community. The largest indigenous population inthe project areas i s in Cauca with a population of some 21,668 or nearly 89% of the total beneficiary population. A majority of these belong to the Yanacona ethnic group, many occupying resguardos recognized since colonial times. The Cauca communities are representedby the oldest and best organized umbrella organization known as CRIC, the Cauca Regional Indigenous Council. There are other regional indigenous organizations such as the Indigenous Organization of Antioquia (OM) and a National Indigenous Peoples Organization, ONIC, formed in 1982. Colombian law recognizes extensive rights of indigenous people, including the right to secure ownership of land, to the use of natural resources on the land, the right to self-determination (within the limits of national law), as well as the right to pursue a separate path of development. The Government of Colombia recognizes the political authority of indigenous Cabildos and Traditional Zndigenous Authorities Associations (AAT1)to legislate and take decisions affecting indigenous people within their indigenous territories. This right i s specifically recognized in the development of Life Plans (Planes de Vida)which indigenous communities at the level of the ethnic group are encouraged to prepare. Inmany cases, the indigenous communities of Colombia have had to expend most of their political capital on the struggle for recognition of the land rights and only a relative few have been able to develop complete Planes de Vida that deal with such issues as education, health, natural resource use, etc. In some cases, indigenous groups have been caught up in local and regional political struggles which has distracted them from the defense of the lands and other community rights. In other cases, indigenous communities have been forced by the fact or the threat of violence, kidnapping and economic pressures to adjust to conditions of armed conflict and the illegal drug trade in order to survive. Some indigenous people have been displaced by the armed conflict or the threat of violence. In some cases, such as the Yanacona indigenous population of the Cauca Region, indigenous people have themselves are afflicted by drug addiction ,sexually transmitted diseases and alcoholism The PDF documents a number of issues concerning indigenous groups in the proposedproject areas. In several areas, there are insufficient health services available to serve the population and some indigenous populations have not been vaccinated or received other preventative health care. In The U'wa communities of Norte de Santander, there are high levels acute and chronic diseases including tuberculosis, skin diseases and, other indigenous groups lack adequate educational services, including access to standardschools, much less schools that provide instruction inindigenous language and customs to which indigenous people inColombia have a right. As a consequence, there i s a highlevel of illiteracy among indigenous populations and school abandonment rates are high. Indigenous communities in the Cauca Valley have benefited from investments from INCORA and the Division of Indigenous Affairs of the Ministry of the Interior, mainly small-scale agricultural projects. However, no evaluation of the effectiveness or sustainability of these projects has been carried out. The availability of investment funds 59 or credit for indigenous people has declined in recent years as armed conflict and the drug trade became strong influences in many rural areas. The PDF also observes the erosion of indigenous languages and customs in several areas. The PDFoffers a number of general observations: Most of the indigenous communities in the project areas have some form of community representation and self-governance such that they can be relied upon to faithfully represent community opinions and concerns; Most of the indigenous communities in the .proposed project area have a clear sense of ethnic identity and desire to maintaintheir distinctive identity. All of the indigenous communities contemplated by the Programdemand recognition of a broad degree of freedom with regardto management of their community affairs; Most of the communities included in the Project Area have formal property right regarding the use of natural resources, however some of these communities, especially some of the Yanacona communities of the Macizo and of Antioquia and Sucre, the U'wa have serious limitations on how they use natural resources for reasons related to the armed conflict, illicit crops andor peasant settlers within their territories; All the indigenous communities within the Project Area lack, to some degree, full access to health, education, andjustice, due to the inability of the state to provide such services. However, in some cases, the communities simply lack information about the availability of such services and hence do not avail themselves; All the project-related communities are aware of their right to participate in governmental projects that are of interest to them; Indifferent degrees, allthe communities inthe projecthave an indigenous organizationthat must be consultedregarding any proposed project that affects them; Some communities, notably those of the Yanacona of the Macizo (Municipio L a Sierra) and the Embera communities of Puerto Bem'o and Yond6 in Antioquia have serious issues regarding obtainingclear title to their community lands. Based on these observations, the PDF proposes the following guidelines for the Project based on Colombian legislation and OD4.20. 1. Any initigative considered for support by the project that affects indigenous communities should be fully discussed with the respective community before it is implemented, even if such initiative would have only indirect effects on the indigenous community, and the community's concerns should be taken into account; 2. Consultation with indigenous communities should be made in a fashion compatible with the community's own decision-making structures; 3. The project should consider designing specific subprojects to support indigenous communities, avoiding formulas or "standard" designs prepared for non-indigenous communities; 4. All project initiatives should be carried out in articulation with the community's Life Plans in cases where such plans have been developed; 5. Priority should be given to subprojects that strengthen the access of indigenous communities to health, education and justice, as well as economic subprojects that improve the communities' diet [Note this requirement i s fully compatible with the design of the project as a whole specifically Component B (i) Food security and 2(ii) Improving Access to Municipal Health and Educational Services.] 6. The project should provide support for the demands for land titling for those communities who lack secure title [The project can support studies and technical assistance to communities seeking to assert their landrightsunder Component C]; 60 7. Indesigning project interventions, care should be taken not to inadvertently support illegal occupation of indigenous lands; 8. With particular regard to the U'wa people the project will need to take into consideration the fact that this ethnic group has a central Cabildo located outside the proposedproject butthis organizationmust be consulted and allowed to participate in formulation of project activities affecting the U'wa people inNorte de Santander. In order to avoid problems, it could be highly useful to consider actions that will strengthen the governance of the U'wa people as a whole such as the formulation of a Life Plan for this ethnic group. 9. In the case of communities with more incipient local organization such as the Embera and Katio people of Puerto Berrio and Yond6 in Antioquia Department, it may be advisable to request the assistanceof the regionalorganization the OIA to assist in work with these communities. The design of the project is fully compatible with the above guidelines. The only recommendation that cannot be fully supported by the project i s the titling of untitled indigenous lands although the project can support studies and technical assistance for the delimitation of such lands. Bank policy does not allow financing for land acquisition or payment of compensation to non-indigenous occupants of indigenous lands. Inorder to assurefullrespectfor the interestsof indigenouspeopleunder bothColombian law andBank policy, the National Technical Committee and the PCU should have the capacity to work and evaluate indigenous projects. This can be achieve through an institutional coordination with governmental institutions with experience on indigenous rights (e.g. Indigenous Affairs Office - Ministry of the Interior) and/or hiring consultants for specific tasks. In addition, each PO (preferably a representative of indigenous people in the respective region) will monitor indigenous participation and programs in the region. This individual would serve a dual function: (a) a watchdog function and (b) an advocate function. As watchdog, the monitor would review subproject proposals under all components to assure that the rights of indigenous people as defined inColombian law and Bank policy are fully respected. As advocate, the monitor would see to it that indigenous communities have full access to the services and benefits offered by the project. . 61 Annex 11:Project Preparationand Supervision COLOMBIA: Peace andDevelopmentProject Planned Actual PCN review 10/16/2003 10/16/2003 InitialPID to PIC 10/17/2003 11/06/2003 InitialISDS to PIC 10/17/2003 11/06/2003 Appraisal 0411412004 0411512004 Negotiations 04/22/2004 05/03/2004 Board/RVP approval 0611912004 0611012004 Planned date of effectiveness 09115/2004 Planned date of mid-term review 0713112006 Planned closing date 03/15/2008 Key institutions responsible for preparation of the project: NationalPlanningDepartment (DNP) National Solidarity Network (RSS) Bank staff and consultants who worked on the project included: Name Title Unit Jairo Arboleda Sr. Social Development Specialist LCCCO ~~ Task Team Leader DanielGross LeadAnthropologist LCSEO JosC Maria Caballero Lead Agriculture Economist LCSER HidekiMori Program Coordinator LCSHD Andrew Morrison Sr. Economist LCSPP Mauricio Santamaria Sr. Economist LCCSP NataliaGdmez Rural Development Specialist LCSER Eduardo Brito Head Lawyer for Colombia LEGLA Daniel Boyce Sr.Financia1Manager Specialist LCOAA JosB Martinez Procurement Specialist LCOPR IanBannon Manager - Conflict Prev. & Conf. Team SDV AnnJ. Glauber E.T. Consultant LCSEN EdwardBresnyan E.T. Consultant LCSER Marc Chernick Consultant Gloria S. Leiva Language Program Assistant LCSEO Beatriz Elena Franco Team Assistant LCCCO Bank funds expendedto date on project preparation: 1. Bank resources: $103,000 2. Trust funds: $361,000 3. Total: $464,00 Estimated Approval and Supervision costs: 1. Remainingcosts to approval: 2. Estimated annual supervision cost: 62 Annex 12: Documents inthe ProjectFile COLOMBIA: Peace andDevelopmentProject A. Bank Staff Assessments Jos6 Martinez -Procurement Capacity Assessment, March 2004 Daniel Boyce -FinancialManagement Capacity Assessment AnnJeannetteGlauber -Environmental Assessment Mauricio Santamaria -Country and Sector or ProgramBackground B. Other World Bank -Aide Memoire and BTOR of Identification Mission, March 2003 World Bank-Minutes of PCNReview Meeting, October 2003. World Bank-Aide Memoire and BTOR of Preparation Mission, November 2003. World Bank -Aide Memoire and BTOR of Pre-AppraisalMission, March2004. World Bank-Aide Memoire and BTOR of Appraisal Mission, April 2004. World Bank -Minutes of Decision Meeting, April 2004. World Bank -Colombia: The Economic Foundationof Peace. Forced Internal Displacement, 2003. World Bank- Colombia LandPolicy inTransition. Report 27942-C0, January 2004. DNP - Documento CONPES 3278, authorization to contract an external credit operation in order to finance the Program"Peace and Development", March 2004. MHCP- Letter of Sector Policy, April 2004. RSS - Manual de Procedimientos para el Apoyo a 10s Procesos de Retorno de Poblaci6n Desplazada Victima del Conflict0 Armado, 2003. 63 Annex 13: Statementof Loansand Credits COLOMBIA: PeaceandDevelopment Project Differencebetween expectedandactual Original Amount inUS$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO77757 2004 CO: CUNDlMARCA EDUCATION 15.00 0.00 0.00 0.00 0.00 15.00 0.00 0.00 QUALITY IMPROVE PO74138 2003 CO-HigherEducation- ImprovingAccess 200.00 0.00 0.00 0.00 0.00 192.78 6.75 0.00 PO74726 2003 Colombia-Bogota Urban Services Project 100.00 0.00 0.00 0.00 0.00 94.29 -0.71 0.00 PO57369 2002 CO JudicialResolutionImprovement Prj. 5.00 0.00 0.00 0.00 0.00 4.19 2.39 0.00 PO57692 2002 CO 2ndMagdalenaMedio Project (LIL) 5.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 PO65937 2002 CO WATER SECTOR REF 40.00 0.00 0.00 0.00 0.00 37.35 17.10 0.00 ASSISTANCEPROJECT PO41642 2002 CO PRODUCTIVE PARTNERSHIPS 32.00 0.00 0.00 0.00 10.00 18.32 -3.68 0.00 PO69964 2001 CO- HumanCapitalProt.-CashTransfers 150.00 0.00 0.00 0.00 0.00 87.96 -62.04 0.00 PO40109 2001 CO PUBLIC FINANC. MANAGEMENT 35.47 0.00 0.00 0.00 0.00 30.28 -5.19 ' 0.00 PROJECTI1 PO63317 2001 GEFCO-HIGHANDES 0.00 0.00 0.00 15.00 0.00 13.37 6.48 0.00 PO44140 2000 CO CARTAGENA WTR SUPPLY & 85.00 0.00 0.00 0.00 0.00 59.89 50.64 0.00 SEWERAGEENV. PO68762 2000 CO- COMMUNITY WORKS (MANOS A 100.00 0.00 0.00 0.00 0.00 76.98 76.98 0.00 LA OBRA) PO57326 2000 CO SIERRA NEVADA SUSTAINABLE 5.OO 0.00 0.00 0.00 0.00 2.55 -2.45 0.00 DEVELOPMEN PO50578 2000 CO RURAL EDUCATION 20.00 0.00 0.00 0.00 0.00 15.54 13.51 0.00 PO06861 1998 CO URBAN INFRASTRUCTURE 75.00 0.00 0.00 0.00 26.00 6.10 32.10 -6.23 PO06891 1998 CO ANTIOQUIA EDUCATION 40.00 0.00 0.00 0.00 0.00 4.36 4.36 4.01 PO53243 1998 CO PEASANTENTERPRISEZONES 5.00 0.00 0.00 0.00 0.00 1.61 1.61 1.18 (LW PO06884 1997 CO FINANCIAL MARKETS 15.00 0.00 0.00 0.00 5.50 1.47 6.97 1.47 DEVELOPMENT PO40102 1997 CO REG.REF.TA 12.50 0.00 0.00 0.00 0.00 2.64 2.64 0.00 PO06894 1996 CO SANTAFE I(WatedSupply) 145.00 0.00 0.00 0.00 0.00 23.73 23.73 0.00 PO06880 1995 CO AGRICULTURE TECHNOLO 51.00 0.00 0.00 0.00 0.00 3.67 3.67 -11.03 Total: 1,135.97 0.00 0.00 15.00 41.50 693.08 174.86 - 10.60 64 COLOMBIA STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 BCSC 0.00 7.00 0.00 0.00 0.00 7.00 0.00 0.00 2002 Bavaria 70.00 0.00 30.00 145.00 70.00 0.00 30.00 145.00 1969/85/88/93195 CF del Valle 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 CHMC 3.21 9.68 0.00 0.00 0.93 4.02 0.00 0.00 1974101 CementosCaribe 4.05 0.00 10.00 10.36 4.05 0.00 10.00 10.36 1963168169190 Coltejer 6.02 0.00 0.00 0.00 6.02 0.00 0.00 0.00 1995199 Corfinsura 25.00 0.00 25.00 0.00 0.00 0.00 25.00 0.00 2002 Inversura 0.00 15.00 0.00 0.00 0.00 15.00 0.00 0.00 2002 Omimex Oil 30.00 0.00 5.00 0.00 7.00 0.00 5.00 0.00 1987 PRODESAL 0.00 0.59 0.00 0.00 0.00 0.59 0.00 0.00 1977189192194196 Promigas 3.75 0.00 0.00 4.17 3.75 0.00 0.00 4.17 0194195 Promisan 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00 2002 Proteccion 0.00 10.00 0.00 0.00 0.00 10.00 0.00 0.00 1996 Proyectos 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00 2002 SIG 25.16 0.00 50.00 0.00 25.16 0.00 50.00 0.00 1999 Surenting 0.00 5.10 0.00 0.00 0.00 2.50 0.00 0.00 2001 Tolcemento 3.33 0.00 0.00 7.11 0.00 0.00 0.00 0.00 Total portfilio: 170.52 52.57 120.00 166.64 116.91 44.31 120.00 159.53 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic. 2001 CCGF 0.00 0.02 0.00 0.00 2001 CHMC 0.00 0.02 0.00 0.00 2003 DAVIVIENDA I 0.00 0.00 0.01 0.00 Total pendingcommitment: 0.00 0.04 0.01 0.00 65 Annex 14: Country at a Glance COLOMBIA: Peace andDevelopment Project Latin Lower- POVERTY and SOCIAL America middle- Colombia & Carib. income Development diamond' 2002 Population, mid-year(millions) 43 7 527 2,411 Lifeexpectancy GNIpercapita (Atlas method, US$) 1,830 3280 1,390 GNi {Atlas method, US$billions) 80 1 1,727 3,352 Average annual growth, 1996-02 T Population (%A) 18 15 1.0 Laborforce (%A) 26 2.2 12 GNI Gross per M o s t recent estimate (latest year available, 1996-02) primary capita enrollment Poverty (%Aof population belownationalPO vertyline) Urbanpopulation(%of totalpopulation) 76 76 49 ii Life expectancyat birth (years) 72 71 69 Infant mortaiity (per lo00 livebirths) 8 27 30 Childmalnutntion (%ofchildren under5) 7 9 11 Access to improved water source Access to an improvedwater source (%ofpopulation) 91 86 81 Illiteracy(%ofpopulation age E+) 8 11 t3 Gross pnmaryenrollment @of school-age population)) ld t30 111 Male lt3 t31 111 I Female le Lower-middle-incomegroup P8 11) KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios* GDP (US$ billions) 390 492 824 822 Gross domestic investment/GDP 205 167 149 Exports Of goods andserviceslGDP m9 7 7 194 Trade Gross domestic savingslGDP 133 187 153 Gross national savings/GDP 0 6 164 143 T Current account balancelGDP -84 18 -22 -22 Interestpaynents/GDP 18 26 30 2 4 Total debtIGDP 264 351 44.5 Total debt service/exports 278 388 36.1 Present value of debt/GDP 45 6 Present value of debt/exports 215 5 Indebtedness 1982-92 1992-02 2001 2002 2002-06 (averageannualgrowth) - GDP 40 20 14 15 0.4 ----Colombia GDP DercaDita 19 01 -03 -0.1 -11 - -- Lower-middle-Incomegroup STRUCTURE o f the ECONOMY I 1982 1992 2001 2002 Growth of investment and GDP (%of GDP) ( O h ) Agriculture 8.3 15.8 t3.0 20 industry 31.8 35.0 29.9 0 Manufacturing 21.8 8.8 16.3 -20 Services 48.9 49.3 57.1 -40 Private consumption 72.8 718 63.6 General government consumption m.9 9.5 211 Imports of goods andservices n2 15.8 8.0 i 1982-92 1992-02 2001 2002 (average annualgrowth) Growth of exports and imports (X) Agriculture 3.5 -14 0.1 Industry 5.0 0.7 -0.1 io Manufacturing 42 -2.1 -0.8 0 Services 3.5 3.4 2.1 -io 2 Private consumption 2.9 1.5 1.9 -20 Generalgovernment consumption 4.8 9.6 0.3 Gross domestic investment 1.0 -2.9 9.6 Imports of goods andservices 2.9 3.1 11.2 66 Colombia ___ PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Inflation (%) Domestic prices I (%change) I P R Consumer prices 24.6 25.1 6.5 6.0 ImplicitGDP deflator 24.8 23.6 7.6 7.0 Government finance (%of GDP,includescurrentgrants) Current revenue 0.7 0.3 0.6 97 98 99 00 01 Current budget balance -5.0 -3.7 Overallsumlus/deficit -3.0 19 -6.1 -4.6 -----*GDPdeflaIor -CPI TRADE 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) I Total exports (fob) 3,264 7263 e,309 11,903 Coffee 1,562 1259 764 991 Pooo 1 I Petroleum 2 8 1,396 3,083 3,037 Manufactures 837 2272 5,606 6,156 Total imports (cif) 5,478 6,627 12,634 0,026 Food 303 450 1,578 1,161 Fuelandenergy 659 344 189 233 Capitalgoods 2,048 2255 4,468 4,528 Export priceindex(B95=00) 9 63 243 96 97 98 99 00 Import priceindex(1995=00) 8 69 209 m Exports Imports Terms of trade (895=WO) 115 91 116 BALANCE of PAYMENTS 1982 1992 2001 2002 (US$ millions) Exportsof goods and services 4,785 9257 14,932 14,439 Imports of goods and services 7,052 8262 8,840 16,077 Resource balance -2,267 994 -906 -1,639 Net income -1,184 -1,852 -2,975 -2,525 Net currenttransfers Vl 1,734 2,094 2,335 Currentaccount balance -3,280 876 -1,789 -1,828 Financingitems (net) 2,930 450 2,956 1,323 Changes innet reserves 350 -1,326 -2166 505 Memo: Reservesincludinggold (US$ millions) 10245 10,649 Conversion rate (DEC.local/US$) 64.1 6810 2,299.8 2,504.2 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$millions) Composition of 2001 debt (US$ mill.) Total debt outstanding anddisbursed 10,306 7,277 36,699 IBRD 1,346 3,195 2,006 A:2,006 IDA 20 0 7 I G:3,738 8:7 Total debt service 1,491 4,008 6297 IBRD 187 959 365 IDA 1 1 1 Composition of net resourceflows Official grants e 89 86 Official creditors 403 -40 1,063 Private creditors 856 -e 1,3P Foreigndirect investment 366 729 2,328 Portfolio equity 0 0 -43 F World Bank program 24,369 Commitments 738 466 636 Disbursements 277 262 368 A . IBRD E Bilateral B IDA - D Other multilateral - F Private -- Principalrepayments 93 681 233 67