FOR OFFICIAL USE ONLY Report No: PAD3383 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$ 150 MILLION TO THE PROVINCE OF BUENOS AIRES WITH A GUARANTEE OF THE ARGENTINE REPUBLIC FOR SUPPORTING THE ELECTRICITY SOCIAL TARIFF TRANSITION IN THE PROVINCE OF BUENOS AIRES August 7, 2019 Social Protection & Jobs Global Practice Latin America And Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective August 7, 2019) Currency Unit = Argentina Peso AR$45.27 = US$1 AR$62.25 = SDR 1 FISCAL YEAR January 1 - December 31 Regional Vice President: Axel van Trotsenburg Country Director: Jordan Z. Schwartz Regional Director: Luis Benveniste Practice Manager: Pablo Gottret Task Team Leader(s): Marcela Ines Salvador ABBREVIATIONS AND ACRONYMS AMBA Buenos Aires Metropolitan Area (Area Metropolitana de Buenos Aires) AUH Universal Child Allowance (Asignación Universal por Hijo) CABA Autonomous City of Buenos Aires (Ciudad Autónoma de Buenos Aires) CAF Development Bank of Latin America (Corporación Andina de Fomento – Banco de Desarrollo de América Latina) CAMMESA Electricity Wholesale Market Managing Company (Compañía Administradora del Mercado Mayorista) CNCPS National Council of Coordination of Social Policies (Consejo Nacional de Coordinación de Políticas Sociales) CPF Country Partnership Framework DLIs Disbursement-linked Indicators DPSS Provincial Directorate of Subsidies and Subventions (Dirección Provincial de Subsidios y Subvenciones) DPSP Provincial Directorate of Public Services (Dirección Provincial de Servicios Públicos) DPOMFB Provincial Directorate of Multilateral Organizations and Bilateral Financing (Dirección Provincial de Organismos Multilaterales y Financiamiento Bilateral) ENRE National Regulatory Agency for Electricity Sector (Ente Nacional de Regulación de la Energía Eléctrica) ESRS Environmental and Social Review Summary FM Financial Management GDP Gross Domestic Product GRS Grievance Redress System IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development IMF International Monetary Fund IPF Investment Project Financing LCR Latin America And Caribbean Region OCEBA Energy Control Agency of the Province of Buenos Aires (Organismo de Control de la Energía de la Provincia de Buenos Aires) OM Operational Manual PBA Province of Buenos Aires (Provincia de Buenos Aires) PDO Project Development Objective PMT Project Management Team PPSD Project Procurement Strategy for Development SBA Stand-By Arrangement SCD Systematic Country Diagnostic SINTyS National Tax and Social Identification System (Sistema de Identificación Nacional Tributario y Social) SORT Systematic Operations Risk Rating Tool ST Social Tariff TORs Terms of Reference WB World Bank The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) TABLE OF CONTENTS DATASHEET ................................................................................. Error! Bookmark not defined. I. STRATEGIC CONTEXT ...................................................................................................... 6 A. Country Context................................................................................................................................ 6 B. Sectoral and Institutional Context .................................................................................................... 7 C. Relevance to Higher Level Objectives............................................................................................. 12 II. PROJECT DESCRIPTION.................................................................................................. 13 A. Project Development Objective ..................................................................................................... 14 B. Project Components ....................................................................................................................... 14 C. Project Beneficiaries ....................................................................................................................... 18 D. Results Chain .................................................................................................................................. 18 E. Rationale for Bank Involvement and Role of Partners ................................................................... 19 F. Lessons Learned and Reflected in the Project Design .................................................................... 20 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 21 A. Institutional and Implementation Arrangements .......................................................................... 21 B. Results Monitoring and Evaluation Arrangements......................................................................... 22 C. Sustainability................................................................................................................................... 23 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 23 A. Technical, Economic and Financial Analysis ................................................................................... 23 B. Fiduciary.......................................................................................................................................... 24 C. Legal Operational Policies ............................................................................................................... 25 D. Environmental and Social ............................................................................................................... 25 V. GRIEVANCE REDRESS SERVICES ..................................................................................... 25 VI. KEY RISKS ..................................................................................................................... 26 VII. RESULTS FRAMEWORK AND MONITORING ................................................................... 28 ANNEX 1: Implementation Arrangements and Support Plan .......................................... 40 ANNEX 2: Detailed Description of Electricity ST Scheme ................................................ 51 ANNEX 3: Economic and Financial Analysis .................................................................... 56 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Argentina Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P170329 Moderate Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [✓] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 29-Aug-2019 30-Jun-2022 Bank/IFC Collaboration No Proposed Development Objective(s) Support the transition of the electricity social tariff scheme from the federal to the Buenos Aires provincial level, while strengthening the institutional capacity of the province of Buenos Aires to implement ST delivery Page 1 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Components Component Name Cost (US$, millions) Institutional capacity building on Social Tariff implementation and Energy Efficiency 8.00 Project Management, Monitoring and Evaluation 1.12 Social Tariff Scheme Financing 140.50 Organizations Borrower: Province of Buenos Aires Implementing Agency: Provincial Directorate of Multilateral and Bilateral Financing PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 150.00 Total Financing 150.00 of which IBRD/IDA 150.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 150.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2020 2021 2022 Annual 73.85 54.38 21.78 Cumulative 73.85 128.23 150.00 INSTITUTIONAL DATA Page 2 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Practice Area (Lead) Contributing Practice Areas Social Protection & Jobs Energy & Extractives, Poverty and Equity Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of No country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or No men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) No SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ High 2. Macroeconomic ⚫ Substantial 3. Sector Strategies and Policies ⚫ Substantial 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ High 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate 8. Stakeholders ⚫ Moderate 9. Other 10. Overall ⚫ Substantial Page 3 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Not Currently Relevant Community Health and Safety Not Currently Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant Biodiversity Conservation and Sustainable Management of Living Natural Not Currently Relevant Resources Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Relevant Local Communities Cultural Heritage Not Currently Relevant Financial Intermediaries Not Currently Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS). Legal Covenants Sections and Description Page 4 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Schedule 2. Section I.A Institutional Arrangements. The Borrower, through DPOMFB, shall: (a) operate and maintain throughout Project implementation, a Project management team (“PMT”) with functions and responsibilities acceptable to the Bank. Sections and Description Schedule 2. Section I.B Operational Manual. Without limitation to the provisions of Article V of the General Conditions, the Borrower, through DPOMFB, shall carry out the Project in accordance with an Operational Manual, satisfactory to the Bank. Sections and Description Schedule 2. Section I.C Verification Agent for Scalable DLIs. The Borrower, through DPOMFB, shall appoint a verification agent for the Scalable DLIs that is acceptable to the Bank, in accordance with the terms of reference acceptable to the Bank. Conditions Page 5 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) I. STRATEGIC CONTEXT A. Country Context 1. The current macroeconomic context in Argentina is characterized by a marked recession and implementation of a strong fiscal consolidation program, supported by a large IMF Stand-by-Agreement (SBA) program. Since taking office in December 2015, the federal Government has implemented structural reforms to eliminate distortions in the economy which included the gradual reduction of general subsidies for public services such as electricity, gas and transport. Nevertheless, the magnitude of the remaining macro-economic imbalances and a strong drought have led to heavy pressure on the Argentine peso in April and August of 2018. In June 2018, the IMF approved a SBA for US$50 billion which was amended to US$56.3 billion in October 2018, accompanied by modifications to the fiscal and monetary program. The Government also accelerated the fiscal consolidation path, with a commitment to achieve a primary balance in 2019 and a primary surplus in 2020; and shifted to a new monetary regime establishing a reference zone for the peso. The economy contracted by 2.5 percent in 2018 and is projected to further contract by 1.3 percent in 2019, although signs of a bottoming-out of the recession have increased over the past months. 2. Poverty and vulnerability rates have increased since the start of the recession. In 2018, nominal wages could not keep up with inflation and private consumption suffered. While real wages began to grow again in recent months, in April 2019, real income for formal-wage workers were 8.5 percent lower than by the end of 2017, while informal workers’ income had a similar trend. Poverty and extreme poverty increased in 2018, the former reaching 32 percent of the population in the main urban areas according to the latest official estimates (second semester of 2018), close to the level of early 2016.1 Measures of poverty intensity and poverty severity show a higher increase compared to poverty headcount over 2018. The average income among the poor represented a smaller proportion of the poverty line in 2018 than in 2017, implying significant widening of the gap between the average income of the poor and the poverty line from 35.6 to 39 percent. In addition, inequality among the poor increased by 41.2 percent. 3. The past and present fiscal consolidation process includes a reduction of public service subsidies. Fiscal spending on energy, gas and transport subsidies decreased from 4.9 percent of GDP in 2014 to 2.2 percent of GDP in 2018. Most of the adjustment came from lowering energy subsidies, which decreased from 2.6 percent of GDP in 2016 to 1.2 percent in 2018. Electricity subsidies alone declined from 1.7 percent of GDP in 2016 to 0.7 percent in 2018 (Figure 1). This was achieved through a stepwise increase in tariff rates, applied to both households and firms. With this adjustment, the subsidy component in the price of electricity was reduced from around 85 percent to about 20 percent from 2015 to 2019.2 The reduction in utilities subsidies was arguably the strongest structural reform made by the administration over the past several years. 4. Social tariffs are aimed to protect the vulnerable from the significant increase in public service prices. Following the energy emergency declared by Decree No. 134 in December 2015, upstream subsidies to the electricity sector declined. In early 2016, with measures toward a gradual convergence of tariffs to the costs of generation, transmission and distribution of electricity for residential, commercial and industrial users, the Government implemented a new social tariff3 (ST) to protect poor and vulnerable households from upcoming tariff increases. The ST offers electricity generation cost discounts for specific residential users as well as community-based 1 INDEC’s Poverty and Extreme Poverty Incidence Press Report. 2 See Annex 2 3 Resolution No. 7/2016. Page 6 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) organizations. A few months after implementation, more than 20 percent of households were covered by the ST. Despite the success in quickly and effectively enrolling beneficiaries in the ST (a large majority were automatically enrolled), important challenges remain in covering the target population due to issues in design (eligibility criteria and information used) and implementation (constraints to identify beneficiaries due to lack of information). Slightly over fifty percent of ST beneficiaries are part of the poorest two quintiles of the population, with a significant representation of women among them. 5. The current fiscal consolidation effort also includes a rebalancing of fiscal relationships between Government levels, including the absorption of the electricity social tariff subsidies at the provincial level. The Fiscal Pact4 (2017) aims to promote fiscal responsibility at the provincial level and includes a rebalancing of recipients of the federal transfers to the Province of Buenos Aires (PBA), where the largest share of the Argentinean population (39 percent) and the urban poor households (52 percent) live. An addendum to the Fiscal Pact signed at the end of 2018, also transferred several responsibilities to the provinces, including the regulatory authority and the financing of social tariffs for residential electricity, starting in 2019. 6. The proposed Project is part of a support package for Argentina provided by several multilateral institutions. The World Bank (WB) has prepared a set of operations, which are part of a broader package of support by international partners, that complements the IMF program. These partners include the Inter-American Development Bank (IADB), and the Development Bank for Latin America (CAF). The WB focuses on supporting the Government’s reform agenda to protect the most vulnerable and to lay the foundations for growth and is fully consistent with the IMF-supported program. The IMF SBA explicitly established a social safety net spending floor and allows well-targeted social assistance transfer programs to expand if needed. Figure 1: Energy subsidies Source: WB own elaboration based on information from Secretaría de Energía. Note: *estimated B. Sectoral and Institutional Context Energy Subsidy Reduction 4 Law No. 27.469, Consenso Fiscal. Page 7 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 7. Starting in 2002 until the end of 2015, Argentina’s Government used a wide range of subsidies to protect households and to support specific sectors of the economy. When the current administration took office at the end of 2015, public policy tools included transfers to the private sector; revenue-related support measures (e.g., tax exemptions and deductions); and programs aimed at supporting specific regions (e.g., Patagonia, Tierra del Fuego, and La Rioja), sectors (e.g., mining), and policy objectives (e.g., supporting Small and Medium sized Enterprises, youth entrepreneurship, and R&D). 8. Energy subsidies played a critical role in protecting poor households from rising inflation in Argentina, but their cost increased rapidly. The emergency arrangements introduced in 2002 succeeded in freezing energy tariffs while maintaining the provision of public services. This was important after the 2001-02 crisis to protect the purchasing power of the poor.5 However, the cost of this subsidy quickly increased due to a rise in international energy prices, internal inflation, and the increasing demand of subsidized energy in the context of a fast-growing economy. 9. The fast growth of energy subsidies (together with other subsidies) was a key driver behind the growth of public expenditures and these subsidies constituted a large share of federal government spending by 2016 . Subsidies contributed to the rise in public expenditures since 2007 and represented the second largest component of current expenditures, after social security, in 2016. Energy subsidies increased from 0.4 percent of GDP in 2005 to 2.6 percent of GDP in 2016.6 These distortions resulted in electricity bills reflecting less than 10 percent of production costs in 2014. 10. Most of Argentina’s electricity and gas subsidies have benefitted middle- and upper-income households as well as non-residential consumers. While the original objective had been to offset the negative effects of rising prices on low-income households’ purchasing power, subsidies were distributed across all income groups, with non-poor households receiving the largest share. As a result, 23 percent of electricity and 37 percent of network gas subsidies went to the richest quintile while only 16.8 percent of electricity and 8 percent of network gas subsidies were accrued by the poorest quintile.7 11. In this context, the administration made reducing energy subsidies while protecting the most vulnerable a priority in its effort to reduce fiscal costs and lessen the detrimental effects of subsidies on the sustainability and efficiency of the energy sector. In early 2016, the Government implemented measures toward a gradual convergence of tariffs to the costs of generation, transmission and distribution of electricity for residential, commercial and industrial users. At the same time, the Government implemented a new social tariff8 to protect poor and vulnerable households from the tariff increases. Electricity Social Tariff at the Federal Level 12. The social tariff subsidy covers the generation cost of electricity . The electricity tariff for grid-connected users has three components: (i) the wholesale cost of electricity generation (the wholesale market is administered by 5 Lombardi, Mongan, Puig, and León (2014 “Una aproximación a la focalización de los subsidios de servicios públicos en Argentina”, working paper No. 09, DPEPE. 6 World Bank (2018), Argentina Public Expenditure Review , Washington DC. 7 Lakner, Lugo, Puig, Salinardi and Viveros (2015). “The incidence of Subsidies to Residential Public Services in Argentina: the subsidy system in 2014 and some alternatives”, working paper No. 201, CEDLAS. 8 Resolution No. 7/2016. Page 8 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) CAMMESA -Compañía Administradora del Mercado Mayorista Eléctrico SA); (ii)the transmission cost; and (iii) the distribution cost. In addition, national, provincial and municipal taxes and fees are included.9 Users pay distribution companies, distribution companies pay to transporters and to CAMMESA, and CAMMESA pays to electricity generators. The ST implemented in 2016 focused on the first component, subsidizing 100 percent of the generation cost up to 150 kilowatts (kWh) and 50 percent of the following 150 kWh consumed per user per month. The subsidy did not cover the other components of the electricity cost invoiced to customers (i.e., transmission and distribution). Neither was the subsidy channeled through the distribution companies, who receive payments from users. If users were assigned to the ST, then they were to pay a reduced amount to the distribution company, and the distribution company then would pay the corresponding reduced amount to CAMMESA, while the federal government would pay the subsidy directly to CAMMESA. 13. Eligibility criteria for the ST were defined by the Ministry of Energy, with inputs from the National Council of Social Policies (CNCPS). Eligible users included retirees, pensioners, beneficiaries of non-contributory pensions, salaried or self-employed workers with income below two minimum wages, beneficiaries of social programs, low productivity self-employed workers registered under the “monotributo social”10 scheme, war veterans, domestic workers, beneficiaries of unemployment insurance, persons with disabilities and electricity-dependent persons. Users who have more than one property, a car newer than ten years, a plane or a luxury boat are excluded. Vulnerable populations living in slums areas of the Conurbano (in Greater Buenos Aires) are usually covered freely through community meters under a separate scheme, Convenio Marco, governed by agreements between the regulatory agency and electricity providers. 14. Three federal agencies were involved in designing and implementing the ST . The Ministry of Energy defined the eligibility criteria and the subsidy amount (Resolution No. 6/2016, Resolution No. 122/2018); the electricity regulatory agency (Ente Nacional de Regulación de la Energía Eléctrica -ENRE) supervised implementation; and the CNCPS verified users’ eligibility through its database (Sistema de Identificación Nacional Tributario y Social -SINTyS). In addition, ENRE intermediated between the service provider companies (distributors) and SINTyS, exchanging the information on electricity users and their socioeconomic attributes. SINTyS combined different administrative data sources to verify eligibility conditions and classify users into three groups: (i) those who qualify for the ST, (ii) those who do not qualify for the ST; and (iii) users who cannot be assessed for ST eligibility due to the lack of information to verify the inclusion criteria. ENRE sent the resulting list of eligible users to the distributors, who in turn applied the ST to the corresponding electricity bills. 15. The ST scheme introduced in 2016 has several weaknesses.11 First, the criteria for inclusion and exclusion result in the incorporation of non-vulnerable households and the exclusion of vulnerable ones. While the criteria include some groups such as formal workers and pensioners earning close to two minimum wages that are not among the most vulnerable, it doesn’t include low-income users who are informal workers or unemployed not entitled to social programs. Second, the criteria are formulated on an individual -instead of a household- basis, which prevented the accurate identification of the vulnerability conditions. As the identification mechanism (listing of service holders) does not incorporate information about all individuals residing at the same address, the eligibility conditions are verified only for the formal service holder (who is named on the bill). This information constraint translates into 9 Therefore, electricity tariffs at user level vary by distribution company. 10 Simplified income tax regime, for small independents workers with very low income. 11 During 2017, the World Bank provided technical assistance to Jefatura de Gabinete de Ministros (JGM), as part of the Government’s efforts to reassess the effectiveness of the ST in protecting vulnerable families. The resulting analysis highlighted the existence of potential targeting errors. See Annex 2 for a short description of the recommendations. Page 9 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) exclusion errors when the household member who qualifies for the ST is not the holder of the service; and into inclusion errors when other family members would be ineligible under the established criteria. While authorities are aware of these issues and are focused on correcting them, it is not feasible to suspend the program until better arrangements are set up, especially given the current economic crisis. 16. There were also challenges to applying the eligibility criteria effectively . The administrative records needed for verifying conditions are dispersed among different governmental agencies and government levels, making data access and updates difficult. When SINTyS is not able to tap into these data sources in a timely and complete manner, there are difficulties in screening users and determining their eligibility. This is the case for tax information and property registries managed by provinces. In addition, as previously noted, holders of electricity bills might not be the users. This could be due to owners' records not being updated, a recent change in the property ownership, or residents not owning their homes (i.e., they are tenants). 17. The electricity ST scheme is estimated to be moderately pro-poor by design, with over half of the beneficiaries belonging to the bottom 40 and less than 2 percent from the richest decile. Within the bottom 40, over two-thirds are estimated to qualify for the ST through social programs (mostly, Universal Child Allowance - AUH), while the remaining beneficiaries receive ST due to low wage earnings (10 percent) or pensions (19 percent).12 In terms of amount, it is estimated that around 53 percent of the ST are accrued by the poorest two quintiles. The average ST discount reaches around 43 percent of the electricity bill, with a higher proportion for the worse-off households. This reduction in the bill represents around 4 percent of the incomes for those families in the poorest decile, while only 0.4 percent for those in the richest decile. Retirees and beneficiaries of cash transfers are mainly women, who represent 68 percent and 83 percent of ST users in those categories, respectively. As a result, 72.4 percent of ST beneficiaries are women. These shares correlate with eligibility criteria biased toward women and that women are represented in vulnerable households. 18. Starting in January 2019, the regulatory and fiscal responsibilities in the electricity sector were transferred from the Federal government to provinces (Law No. 27.469, Consenso Fiscal). This has resulted in the provinces having to commit additional resources for the payment of social electricity tariffs and requiring additional resources for regulation of the electricity sector. Provinces have assumed this delegation through provincial laws accepting the Consenso Fiscal and including the corresponding fiscal commitments in their own 2019 budgets. 19. Most provinces have maintained the existing targeting scheme albeit with different approaches. PBA, Autonomous City of Buenos Aires (CABA), Santa Fe, Mendoza, Entre Ríos, Jujuy, Catamarca, and Formosa, which combined represent 70 percent of federal ST users, applied the same eligibility criteria as the federal level. In some cases, such as Jujuy, Mendoza and Catamarca, the transition was complemented with re-surveying existing ST users and attempted to improve targeting and identification of beneficiaries. Córdoba and Chaco, where 15 percent of federal ST users live, designed a new targeting scheme for the electricity ST, with Córdoba (11 percent of ST users) also reducing by half the amount of the subsidy provided. Misiones has made changes on how the final discount is calculated, while La Pampa and Corrientes discontinued the ST. Thus, most provinces show signs of responding to the new incentives by addressing targeting and financial challenges for the ST, using the tools and information available to each one of them to complement the efforts at the national level. 12Giuliano, Lugo, Masut, Puig (2019). “Distributional Impact of a Reduction of Energy Subsidies: The recent policy reform in Argentina”. Estimates for the metropolitan area of Buenos Aires only. Page 10 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Electricity Subsidy and Social Tariff in the Province of Buenos Aires 20. While PBA has committed to maintaining the federal electricity ST scheme, ST management is currently fragmented among federal and subnational institutions. PBA allocated 0.88 percent of its 2019 budget to finance the electricity ST. However, implementation of the ST scheme is complex as electricity regulatory competencies have not been fully transferred. The electricity distribution in the Buenos Aires Metropolitan Area (AMBA) has been regulated by ENRE, but in April 2019 the PBA and the CABA agreed to create a new agency to replace ENRE and assume regulatory competences for distribution companies in AMBA. Thus, a bi-partite regulatory agency will replace ENRE, integrated by the subnational regulatory agency (Organismo de Control de la Energía Eléctrica de la Provincia de Buenos Aires -OCEBA) and CABA, who will share regulatory responsibilities. Until the new agency is in place, ENRE will continue acting as the distribution regulator. In the PBA there are around 6 million electricity users, 61.6 percent of them located in the Conurbano. 21. Currently, the administration of the electricity ST in the PBA involves different federal and subnational institutions, and an integrated monitoring system is lacking. Data to identify electricity users is collected by the subnational regulatory agency OCEBA and the federal regulatory agency ENRE (38.5 and 61.5 percent of total users, respectively). Electricity consumption data is held by distribution companies and while ENRE compiles this information for EDESUR13 and EDENOR14, OCEBA is starting to request this information from the distribution companies. Eligibility assessment for ST is in charge of the federal agency SINTyS, which provides the list of ST users to ENRE and OCEBA. Distribution companies provide information on ST subsidies monthly to OCEBA and ENRE, which compile and inform the Directorate of Public Services for reimbursement to CAMMESA. Figure A2.1 in Annex 2 illustrates the ST information flow. 22. Implementation challenges in applying the eligibility criteria effectively are related to the identification of beneficiaries through the users’ registry. Around 28 percent of electricity users (1.7 million users) are not evaluated for ST due to incomplete information. These include electricity users who have not been screened due to missing information necessary to identify them (14 percent), and groups for whom the inclusion criteria, as defined in the regulations, are not observable (14 percent) -i.e., their socioeconomic status could not be assessed. Around one- third of the beneficiaries of the electricity ST (1.4 million users) reside in the PBA, where the ST reaches 23.5 percent of electricity users. Among these ST users, 19.2 percent corresponds to users who automatically qualify for ST according to SINTyS records. Thus, 4.3 percent of electricity users qualify for ST by exceptional mechanisms; i.e., following a grievance process where regulatory agencies determine those users’ eligibility for ST or being included due to ad hoc assessments of vulnerability (Table 1). 13 Southern Distributor Company (Empresa Distribuidora y Comercializadora del Sur). 14 Northern Distributor Company (Empresa Distribuidora y Comercializadora del Norte). Page 11 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Table 1: Electricity users in PBA by access to Electricity ST Covered by ENRE Covered by OCEBA EDENOR EDESUR EDELAP EDEA EDEN EDES others Total Residential users 2,365,670 1,301,342 347,507 471,982 341,261 192,686 931,142 5,951,590 Users with ST 592,830 371,588 55,052 88,783 65,751 37,825 188,067 1,399,896 % ST of total users 25.1% 28.6% 19.1% 22.7% 19.9% 21.2% 22.2% 23.5% Distribution of ST users % ST based on SINTyS 80.5% 77.2% 79.5% 79.3% 96.8% 92.3% 89.0% 81.7% % ST included by exception of ST 19.5% 22.8% 20.5% 20.7% 3.2% 7.7% 11.0% 18.3% users % users not able to be assessed for 30.5% 33.7% 29.7% 19.9% 20.3% 19.2% 25.0% 28.0% ST by SINTyS % unidentified of total users 15.6% 18.8% 14.5% 7.3% 6.6% 3.6% 10.9% 14.0% % without socioeconomic 14.9% 14.8% 15.3% 12.6% 13.7% 15.6% 14.1% 14.0% information of total users Source: ENRE and OCEBA, February 2019. 23. The electricity ST handover from the federal to the provincial government does not include data management or other specific arrangements for the transition, at least formally. Technical knowledge, information, and data management capabilities have not been transferred from the federal level. Most provinces do not have experience in dealing with the management of the ST scheme and resources committed to related activities are typically scarce. Institutional weakness includes a lack of integrated, transparent and equitable procedures for ST implementation. 24. The PBA aims to manage the transition phase of the ST program without any discontinuity as the program benefits a large number of vulnerable households. It is not feasible to suspend the program until potentially better institutional arrangements are set up, especially given the current context of economic crisis. At the same time, this undefined transition opens opportunities for the provincial government to build a stronger, better designed and administered system, that would increase the efficiency and equity of the system in the mid-term. 25. PBA has the capacity to manage the ST scheme and will have the ability to improve its coverage. The transition positions PBA as a role model for other Provinces in managing the transition and administration of the ST. There are 1.4 million electricity users in the PBA included in the ST scheme. The annual subsidy amounts to US$ 182 million, equivalent to 26 percent of all provincial spending on promotion and social assistance. The PBA has adequately trained and qualified staff both at the Provincial Directorates of Subsidies and Public Services and, at OCEBA, who can handle the transition while the final institutional arrangements are defined. Advancements made by the PBA could turn into examples for other provinces to emulate, and spillover effects are expected considering the potential of data sharing agreements and its integration into broader policy making. C. Relevance to Higher Level Objectives 26. The proposed Project is aligned with the Argentina Systematic Country Diagnostic (SCD)15 and the Country Partnership Framework (CPF) for the period FY19-FY22 (Report No. 131971), which was discussed by the Executive Directors on April 25, 2019 and highlights the importance of ensuring a strong safety net to support those who may be hit by structural changes in the economy. The Project contributes to reducing poverty and increasing the welfare 15World Bank (2018). Argentina: Systematic Country Diagnostic (English). Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/696121537806645724/Argentina-Systematic-Country-Diagnostic . Page 12 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) of the bottom 40 percent, as the Social Tariff program can mitigate the negative impact of electricity prices increases among the most vulnerable families. 27. By supporting poor and vulnerable populations, the Project would contribute to the first CPF focus area, supporting Argentina in securing access to long-term private financing on a sustainable basis, while advancing in fiscal consolidation in a manner which increases equity and efficiency and protects the poor and low-income population from the adverse impacts of policy measures. This Project will focus on the latter aspect by supporting the protection of the vulnerable with the electricity ST as subsidies are reduced. 28. The Project is also closely connected to the second CPF area, contributing to address existing institutional constraints in the areas of governance and public service delivery, by supporting the transition of responsibilities for the ST to the provinces and improving the program’s targeting and administration, thereby enhancing institutional capabilities of regulatory agencies to provide better public service delivery. 29. In addition, programs like the ST provide support to populations, vulnerable to extreme weather events which are exacerbated by climate change. The ST, in coordination with a whole set of comprehensive policies, is key to continue supporting these populations and to strengthening their capacity to adapt to climate change. Substantial portions of vulnerable populations in the AMBA reside in areas with high-flooding risks, which are set to worsen due to climate change. According to estimations, 7 percent of the population in AMBA is at risk of flooding (70 percent of the population in the most vulnerable districts) and 23 percent of the population is at risk from high-speed winds (with up to 100 percent of the population in the most vulnerable districts, and 80 percent in several others).16 With projected variations in precipitation, the flood risks are expected to increase due to intensified frequency and intensity. Considering that social vulnerability is an important factor contributing to overall climate change vulnerability, measures for improving people’s living conditions, including through the continued existence of the ST scheme, would result in improved resilience to extreme weather events for these populations. II. PROJECT DESCRIPTION 30. This Project will support the Province of Buenos Aires’ authorities with the implementation and financing of the social tariff for electricity. The project will support the transition of the ST from the federal to the provincial level by strengthening the capacity of the PBA government in the short term to administer the ST, and to improve identification and monitoring of its beneficiaries. In the medium term, the developed institutional capacities will help the PBA to address major ST reforms. 31. The proposed lending instrument is a three-year investment project financing loan (IPF) that will finance the ST under a disbursement linked indicators (DLIs) component and a technical assistance component that will disburse under regular procurement methods. 16 CIPPEC (2018). “Vulnerabilidad social, amenazas y riesgos frente al cambio climático en el Aglomerado Gran Buenos Aires ”. Page 13 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) A. Project Development Objective PDO Statement 32. The development objective is to support the transition of the electricity social tariff scheme from the federal to the Buenos Aires provincial level, while strengthening the institutional capacity of the province of Buenos Aires to implement ST delivery. PDO Level Indicators i) Institutional arrangements and regulations on ST administration approved by the provincial government ii) Percentage of users with incomplete information in the database iii) Percentage of ST users included via claims and ad hoc additional assessment mechanisms B. Project Components 33. Component 1: Institutional capacity building on Social Tariff implementation and Energy Efficiency (US$ 8 million). In the short term, this Component includes technical assistance activities which aim at strengthening the PBA structure (roles and responsibilities) to manage the ST and the capabilities to administer information resources for monitoring. 34. This Component comprises three sub-components that provide technical assistance to: i) strengthen the PBA’s capacity to manage, coordinate, and monitor the social tariff; including capacity of provincial regulatory agencies (OCEBA and the ENRE/new AMBA agency) and at the level of electricity distribution providers; ii) integrate and close information gaps on ST users -this may involve combining additional administrative sources and updating the users’ registry; and iii) generate capacity to carry out sectorial studies to improve, inter alia, the ST targeting design and the consumption behaviors among ST beneficiaries’ households. This Component is expected to be implemented over three years. Activities under the three sub-components will be implemented by the provincial Directorate of Subsidies (DS), in coordination with the Provincial Directorate of Public Services (DPSP) and will be financed using current IPF procurement and financial management procedures. 35. The three sub-components will address the transfer of responsibilities for ST from the federal government to the PBA from institutional and operational angles. Activities will be developed in parallel across sub-components. While Sub-component 1.1 aims at establishing the broad institutional arrangements and the information system supporting its functioning, Sub-component 1.2 aims at improving data collection on users, and Sub-component 1.3 focuses on setting up the bases for analytical capabilities and improving sectorial practices. 36. Sub-component 1.1: Institutional strengthening on ST management, information procedures and transparency. This Sub-component will be focused on: (i) enhancing the PBA’s institutional structure to manage the ST, including the revision of roles and responsibilities to implement and monitor the ST; (ii) providing solutions to information gaps of the ST program by improving management procedures and strengthening the data systems of the Directorate of Subsidies and Directorate of Public Services; and (iii) improving transparency through access to information on ST, and upgrading grievance mechanisms related to ST. 37. Main activities financed under Sub-component 1.1 include, inter alia: a) developing agreements with protocols and related software for a systemic exchange of information among OCEBA, ENRE and the province; b) procuring goods Page 14 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) to strengthen the information technology capacity of participating agencies; c) delivering training to provincial agencies and distribution companies’ staff on new procedures and information mechanisms; d) supporting improvements in regulatory agencies’ grievance redress mechanisms; e) organizing data exchange with other public stakeholders at the federal and provincial levels; f) consolidating a unified data collection system on electricity users; and g) developing and publishing a regular report on the ST program. 38. Sub-component 1.2: Gathering information at the local level and from other provincial and national agencies. This Sub-component will support efforts to complete missing information on the 28 percent of electricity users that currently prevents them from being considered as potential ST beneficiaries. Activities will be concentrated on: (i) updating the user’s information from the field (re-empadronamiento) and other complementary actions, especially for the users without identification data; and (ii) combining additional administrative sources for cross-checks to provide information on users without socioeconomic attributes. A set of complementary activities to strengthen the information management system will be jointly implemented by the Directorates of Public Services and Subsidies to achieve these goals. 39. Main activities financed under Sub-component 1.2 include, inter alia: a) supporting the improvement of beneficiary information for selected distribution companies through the preparation of an action plan containing the list of users with missing information by distribution company; b) developing the methodology to collect missing information based on an agreed and unified instrument; c) developing coordination activities and protocols for transferring the data from OCEBA and ENRE to the provincial database; d) carrying out communication campaigns and preparation of dissemination materials for electricity users on eligibility criteria for ST; e) combining additional administrative sources ensuring interoperability across different databases (for cross-checks); and f) defining unified criteria and procedures to assess ST inclusion by claims and ad hoc mechanisms. 40. Sub-component 1.3: Assessing the Social Tariff and promoting Energy Efficiency behavior. This Sub-component will support the PBA in their efforts to: i) strengthen its analytical capabilities to evaluate ST policies to generate evidence-based recommendations and guidelines; and ii) assess, design and implement (when feasible) energy efficiency measures for ST beneficiaries to assure that vulnerable populations have access to affordable and quality electricity services, while maintaining or improving their wellbeing. If energy efficiency is fostered, vulnerable populations can improve their living conditions while maintaining or reducing their electricity consumption, thus avoiding increased expenditures and exceeding the social tariff threshold. Therefore, the project will support the PBA to better understand the possibilities of medium-term ST reforms and promoting energy efficiency behavior of the ST beneficiaries and to design policies, programs and activities that could help promote energy efficiency in general electricity users and especially in vulnerable households and ST implementation. 41. Main activities financed under Sub-component 1.3 include, inter alia: a) developing tools and instruments to combine data sources and perform distributive analysis on ST and other subsidies; b) carrying out an evaluation of the electricity ST to identify potential measures or reforms that can substantially reduce inclusion and exclusion errors; c) conducting research aimed at achieving a better understanding of energy consumption patterns in vulnerable households and potential sources for efficiency improvements; d) carrying out communication and education campaigns for general electricity users (i.e., encouraging electricity efficiency improvement in lighting and appliances, understanding the communication challenges of social tariff); e) sharing knowledge on electricity social tariff reforms across the world, and with other provinces implementing ST; and f) delivering information and training at different institutional levels and through agencies (especially the ones in direct contact with users). Page 15 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 42. As part of the studies to be carried out under this Sub-component, explicit activities to improving targeting could be carried out beyond the sectoral studies. For instance, specific analysis to assess the fiscal costs and targeting on measures such as moving from individual-based to household-based information on electricity users could be considered. Additionally, following the evaluation of the ST, the sub-component could support the piloting of measures that are being considered, which require further quantitative and qualitative data collection. Potential activities within this Sub-component could also be related to gaps identified in the Environmental and Social Framework. The province will also analyze the potential of implementing programs for: a) replacing inefficient appliances; b) fostering solar thermal technologies for water heating, c) improving thermal isolation in existing houses; and d) installing pre-paid meters. 43. Activities included in Component 1 and its sub-components will finance consultant and non-consultant services, goods (IT equipment, furniture and software), training, and operating costs. 44. Component 2: Social Tariff Scheme financing (US$ 140.5 million). This DLI-based component will support improvements in the management and implementation of the ST. Improvements will be reflected in a set of DLIs that, once achieved, will disburse against eligible expenditures defined as the ST subsidies for eligible residential beneficiaries. The Component is expected to reimburse the cost of approximately 36.6 percent of the program spending during its implementation. Disbursements will take place in the first two years of the Project. The amount to be disbursed will be higher in the short term, as fiscal restrictions are tighter. Hence, the Component is expected to disburse US$52.1 million in the first semester after effectiveness, and then decline in the following months. 45. Disbursements will be authorized only after: (i) DLI targets at the particular time of disbursement have been met, and this has been certified through the report issued by the independent technical agency (for scalable indicators); and (ii) Eligible Expenditures Spending Report with information on the amount of subsidies granted to the eligible beneficiaries has been submitted and verified. 46. The first DLI package of institutional milestones, administrative procedures and standards (DLIs 1.1 to 1.7) reflects the progress of the Provincial Government’s efforts in the institutional dimension to manage and implement the ST. The institutional dimension provides the basis for accountability, transparency, and information availability to ensure that the system is working. 47. The second, third, and fourth DLIs show advancements in closing information gaps, through the reduction in the number of users with no identification data, the reduction in the number of users without socioeconomic information to apply eligibility criteria, and reduction in the number of beneficiaries included via claims and ad hoc additional assessments. These DLIs are scalable. Page 16 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Table 2: Disbursements Linked Indicators DLI Targets and amount expected to be achieved in Semester 2 Semester 1 Semester 2 Semester 1 Semester 2 (CY 2019) (CY 2020) (CY 2020) (CY 2021) (CY 2021) DLI 1.1: Bipartite DLI 1.3: Data DLI 1.5: Protocols DLI 1.7: agency to sharing agreement with unified criteria Competencies of DLI 1: Package of regulate between MoE and and procedures to ST monitoring and institutional electricity SINTyS signed, and assess ST inclusion managing the milestones, distribution in the report with by claims and ad integrated users’ administrative AMBA created exchanged data hoc mechanisms database have procedures and been formally issued by DPSS elaborated by DPSP standards integrated in an and officially existing communicated to institutional area the Regulatory of the PBA or a Agencies new specific area has been formally created for this purpose $30,000,000 $10,000,000 $5,000,000 $7,000,000 DLI 1.2: Data DLI 1.4: Instruction DLI 1.6: Integrated sharing for re-surveying (re- electricity users’ agreements empadronamiento) database created. between the MoE unidentified users Standard reports and OCEBA and issued by DPSP and based on the ENRE respectively communicated to database published signed, and the Regulatory in a public official reports with the Agencies. website of the PBA exchanged data issued by DPSS $22,100,000 $10,000,000 $7,000,000 Amount DLI 1.1 to 1.7 $52,100,000 $20,000,000 $12,000,000 $7,000,000 DLI 2 Percentage of electricity users with ST included by claims and ad hoc additional assessment mechanisms (i.e., non-automatic mechanisms) according to reports issued by DPSS based on data provided by the Regulatory Agencies Baseline (February DLI 2.1 DLI 2.2 2019):18.3% 15% 10% Amount DLI 2 $5,000,000 $5,400,000 DLI 3 Number of electricity users without identification data according to reports issued by DPSS based on data collected and cross-checked by SINTyS Baseline (February DLI 3.1 DLI 3.2 DLI 3.3 2019): 831,254 760,000 705,000 630,000 Amount DLI 3 $7,000,000 $6,500,000 $6,000,000 DLI 4 Number of electricity users with missing socio-economic data according to reports issued by DPSS based on data collected and cross-checked by SINTyS Baseline (February DLI 4.1 DLI 4.2 DLI 4.3 2019): 834,778 770,000 724,000 630,000 Amount DLI 4 $7,000,000 $6,500,000 $6,000,000 Total disbursements $52,100,000 $20,000,000 $26,000,000 $25,000,000 $17,400,000 Page 17 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 48. Component 3: Project Management, Monitoring and Evaluation (US$ 1.125 million). This Component will support: (i) the Project Management Team (PMT) which will be responsible for fiduciary activities; and (ii) activities to strengthen the Directorate of Subsidies capacity on ST monitoring and evaluation. 49. The PMT will sit in the Provincial Directorate of Multilateral Organizations and Bilateral Financing (DPOMFB). The technical responsibilities for monitoring and evaluation as well as conducting studies to design a comprehensive proposal of ST will be coordinated by the Directorate of Subsidies. Both Directorates are under the provincial Minister of Economy. 50. Component 3 will finance consultant and non-consultant services (publications), international technical assistance, training (workshops, knowledge sharing at subnational level), goods (IT equipment, hardware and software), and operating costs. C. Project Beneficiaries 51. The Project will benefit electricity users receiving the social tariff and PBA government agencies involved in ST management, such as electricity regulatory agencies and provincial Directorates.17 D. Results Chain 52. The transfer of the responsibility for the management of the electricity ST to the PBA exposed the PBA’s weak institutional arrangements, capabilities, and resources to administer the ST program, while at the same time it increased PBA’s fiscal pressures. The Project therefore aims at strengthening the PBA’s capacity to manage the ST program by establishing key institutional and technical milestones in the short term which will then reinforce PBA capacities to assess and address major ST reforms in the medium-term. 53. Institutional arrangements are needed to reinforce the administration of the ST and assess options for design improvements. 17Eligible electricity users are retirees or beneficiary of non-contributory pension with incomes below the two minimum wages (2MW), salaried or self-employed with incomes below the 2MW threshold, beneficiaries of social programs, social self-employed, war veterans, domestic service, beneficiaries of unemployment insurance, and persons with disability. Page 18 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Table 3: Theory of Change of the Project After the During the Project Project Activities - Capacity-building to PBA institutions involved in monitoring the ST scheme - responsibilities, roles, and resources, and standard procedures - Update the user’s registry (users resurveying) - Combine social programs databases - Carry out sectoral studies on consumption behaviors - Upgrade grievance mechanisms and citizen engagement related to ST - Develop tools and instruments to combine data sources and perform distributive analysis on ST and other subsidies - Assess evidence-based policy options for ST reforms Outputs Package of institutional Integrated data Capabilities to assess Medium-term milestones (DLI1.1 to 1.7) management system major ST reforms ST reforms › Bipartite agency › Users with missing › Policy options for AMBA created identification data for targeting › Data sharing reduced (DLI2) criteria agreements › Users with missing › Benefit amount signed socioeconomic analysis › Integrated user’s data reduced › Energy database (DLI3) efficiency › Users with ST by strategy claims and ad hoc additional assessment mechanisms reduced (DLI4) Outcomes Institutional Electricity users with Eligible Reduced arrangements and updated and complete households/groups inclusion and regulation on ST information in the database included via social exclusion management agreed for eligibility assessment programs covered by ST errors in the ST scheme PDO The development objective is to support the transition of the electricity social tariff scheme from the federal to the Buenos Aires provincial level, while strengthening the institutional capacity of the PBA to implement ST delivery. E. Rationale for Bank Involvement and Role of Partners 54. The World Bank’s added value is its extensive experience in supporting the design and implementation of cash transfers programs, and benefit-incidence-analysis of public services and policy recommendations, globally and in Argentina. During Project implementation the Bank will share international experiences on electricity ST schemes under different institutional arrangements. 55. As discussed in the Country Context section of this document, while this Project is a standalone operation, it is also part of a wider support package for Argentina during a fiscal transition process, that includes other operations by the World Bank as well as a SBA by the IMF and financial support from IDB and CAF. Page 19 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) F. Lessons Learned and Reflected in the Project Design 56. This Project draws on World Bank experience in the design of social protection and energy programs in LCR and other regions, which emphasizes the importance of inter-institutional coordination and active outreach efforts to improve social inclusion and program coverage. 57. The history of investment lending in Argentina shows the importance of working in a genuine partnership, in sectors in which Government has defined a policy framework. The Project will provide support to a social protection policy that is important to the PBA’s agenda. The Bank’s analytical work18 clearly influenced the Project design and was used to identify project components. 58. The implementation of electricity social tariff programs in the last decade in many countries highlighted the need to focus on transparency of program implementation, as public information was, in many cases, insufficient for interested parties to fully understand the relevance of these programs. 59. Lessons learned from both Argentina’s and global experience include: (i) institutional strengths need to be identified and leveraged to maximize chances of successful implementation (i.e., very strong at managing provincial wide programs while focus on direct outreach activities to complete users information and include the most vulnerable groups); (ii) mechanisms that link disbursements to progress on outcomes provide incentives to improve programs while avoiding cumbersome administrative processes; and (ii) while transfers are important to reduce poverty, effective social tariff schemes need to include a multidimensional approach to work also on the consumers ’ behaviors and electricity efficiency. 60. The experience of the European Union countries that have applied or currently apply protection measures for energy vulnerable customers while amending the existing benefit design characteristics and implementation rules, as is the case in the PBA, shows that in this context there is room for: a) harmonization and coordination of implementation practices across different agencies involved; and b) reliance on categorical identification (through the social welfare system as currently, as well as where necessary through the social insurance system) to strike a balance between accuracy of targeting the energy poor and the administrative complexity and cost of beneficiary identification. 61. Shifting the burden of eligibility determination and verification to management information systems is important. Take-up could be boosted by reducing the reliance on beneficiaries’ proactivity and expanding the role of management information systems in the identification of vulnerable customers. For example, in Belgium, each electricity supplier provides social tariffs (discounts) based on the category of the customer. The supplier determines the category and discount based on data from the Crossroads Bank (the National Social Insurance Registry). In the United Kingdom, the electricity suppliers use administrative data to identify potentially eligible customers for the Warm Home Scheme and inform them about their possible eligibility and encourages them to apply. In Portugal, the application for discounted social tariffs is on-line, by mail or at the national energy supplier offices and its agents. The national energy supplier does validation with the databases of Social Security and / or Tax Authority and Customs. 62. In the medium- and long-term, it is also important to promote energy efficiency behaviors and protect vulnerable populations under the broader social protection system. Energy benefits in different forms (price discounts, progressive tariffs, social tariffs, etc.) are usually considered a complementary solution to other social protection 18 Lakner et al (2015), ibidem. Giuliano et al (2019), ibidem. World Bank (2018), ibidem. Page 20 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) measures. Long-term energy poverty alleviation options must be considered in line with the experience of other countries. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 63. The Project will be implemented through the Provincial Directorate of Multilateral Organizations and Bilateral Financing and the Provincial Directorate of Subsidies and Subventions, under the general coordination of the former. Both Directorates are under the Provincial Ministry of Economy. DPOMFB will have a PMT which will manage a designated account. The PMT will also be responsible for the implementation of activities in Component 2, while DPSS will be responsible for the implementation of technical activities in Components 1 and 3. 64. The activities in Component 1 will require a coordinated effort with other agencies (i.e. Provincial Directorate of Public Services, OCEBA and ENRE/Bipartite agency) which are also expected to cooperate with MoE, but they will not be responsible for managing proceeds from the loan. The Provincial Directorate of Public Services, at the Ministry of Infrastructure and Public Services, will provide general support to the DPSS for the implementation of Component 1, the responsibilities assigned to the DPSP will be described in detail in the Project's Operational Manual (OM). Sub-component 1.2 presents challenges in terms of implementation because it requires coordination among the PDSS, the DPSP and the distribution companies which are diverse in terms of capacity. The collection of identification data through these companies will follow a gradual approach for its implementation. 65. Activities with OCEBA and ENRE/Bipartite Agency will be supported by data sharing agreements between those regulatory agencies and the DS. Until the DLI is met and the agreements are in place, information will continue to be exchanged as explained in Annex 2 and described in the OM. The PMT is already established and will be responsible for carrying out the corresponding procurement processes and for the financial reporting. The processes and procedures governing project implementation will be outlined in detail in the OM. 66. For Component 2, disbursements can only happen upon achievement of disbursement linked indicators (DLIs). Disbursement requests will be elaborated by the DPOMFB’s PMT. The verification of the compliance of DLIs will apply the following criteria: a) non-scalable DLIs will be subject to PMT verification of compliance; and b) Scalable DLIs will be subject to an external entity (consulting agency or individual consultant) verification of coverage results using evidence sources, every six months, in the first two years of implementation, according to what is established in the Project’s OM. 67. The PMT, in coordination with the DPSS and the DPSP, would also be responsible for the environmental and social risk management of the Project. Accordingly, to strengthen the capacity to meet the objectives of the WBG Environmental and Social Standards, a specialist will be incorporated as liaison between areas. The detailed institutional arrangements for Project implementation will be included in the OM. Page 21 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) B. Results Monitoring and Evaluation Arrangements 68. The results monitoring framework builds on the experience of previous implementation of the Social Tariff at the federal level and active and closed Bank projects, such as the Youth Employment Support Project (P133129) and the Heads of Household Transition Project (P055483). 69. ENRE/or Bipartite and OCEBA produce reports on the ST, which are currently not public. A more extensive set of tables with cross section and time series data will become available with the new ST administration arrangements. The publication of a bi-yearly report ‘Informe de la Tarifa Social’, will include integrated information on the ST scheme. The publication of this report will be complemented by specific data linked to Project indicators and will provide information on expenditure and coverage. 70. In the short run, efforts should be focused on monitoring the implementation and resolving emerging issues in a timely manner. The Government should closely monitor the implementation and provide clear guidance to OCEBA and ENRE/Bipartite Agency, particularly in terms of facilitating the verification of user’s eligibility. Specifically, the following would be useful: (i) collection of more detailed data on implementation (numbers of beneficiaries of electricity social tariff, electricity consumption, and subsidy amounts) disaggregated by the reason for acquiring the ST status (beneficiary of social program, beneficiary of child allowance or those with low income and assets, as assessed by the regulatory entities); and (ii) close monitoring of the reasons for not being included (missing information and rejection of claim applications). 71. Additionally, SINTyS has demonstrated capacity and a long tradition of applying eligibility criteria on social programs. National and provincial administrative databases are collected by SINTyS systematically to produce monitoring reports, facilitating regular and independents crosschecks on ST to verify eligibility. 72. Impact evaluations of the Social Tariff are not available, though some assessments have been completed at the national level. An analysis of the coverage of the ST across the income distribution was done as part of a study on the distributional incidence of the residential energy subsidies in the Metropolitan Area of Buenos Aires.19 The reduction of subsidies, coupled with the current social tariff scheme, are shown to make the system less pro-rich, but it is insufficient to fully protect the more vulnerable portions of the population. In addition, during 2017, the federal government prepared a diagnosis of the Social Tariff for electricity, gas, transport, water and sanitation. As part of this work, the government requested technical assistance from the World Bank in assessing alternative proposals to improve the ST design, with the aim of reducing inclusion and exclusion errors. The assistance included a review of international experiences, an assessment of the current system and suggestions for improvements in the medium-term, and the analysis of the fiscal costs and coverage gaps of short-term measures (see Annex 2). 73. As part of the activities supported by the proposed Project, the Directorate of Subsidies, in coordination with the DPSP, will conduct a series of assessments based on rigorous methodologies using primary and secondary information. Although methodologies and identification strategies would be developed during the lifetime of the project, the results will lead to the: a) assessment of the targeting criteria and policy options; b) benefit amount analysis; c) energy efficiency strategy; d) distributive analysis on ST and other subsidies; and e) process evaluation of ST specific interventions, using experimental methodologies. 19 Giuliano, Lugo, Masut, Puig (2019). Ibídem. Some of this analysis is also included in World Bank (2018). Page 22 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 74. Finally, implementation of the DLI-based financing of activities in Component 2 will result in the development of additional reports which will be complementary and compatible with the information systems. These reports are necessary to track and verify the traceability of the expenditures under Component 2. C. Sustainability 75. Fiscal sustainability of the Social Tariff program run by the province of Buenos Aires will depend on the future costs and fiscal space availability. Total expenditures on the social tariff may grow in the coming years, as the electricity price converges to its full cost of generation and as more eligible beneficiaries access the program; or decline if household incomes increase or inclusion errors are corrected, and eligibility is reduced. The project aims at increasing the efficiency of both, by providing the tools towards the improvements of the targeting (and considering the whole spectrum of subsidies received by user), and the promotion of energy savings practices. The institutional setting developed during the project will provide the implementing authorities with the tools and information structures needed to adjust the ST program according to both fiscal space and distribution goals. 76. The provincial Government is going through a fiscal consolidation process that might reduce the fiscal space for the ST program in the near future. The social tariff is expected to demand 0.88 percent of the provincial budget, an amount that should not be difficult to finance in normal times, but that could be an issue during the transition stage. This makes the proposed Project particularly important to ensure the sustainability of the social tariff program, as it will finance approximately 36.6 percent of the program expenditures over the first two years. As the fiscal situation improves, the provincial government should have the capacity to replace the Project funding with its own budget financing. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis 77. To assess the economic impact of the proposed Project, the effect of the social tariff for electricity on income poverty was estimated. This analysis relied on the most recent dataset of the Permanent Household Income (EPH for its Spanish acronym), and on administrative data about the number of beneficiaries and the discount applied to their electricity bills. As EPH is an urban survey, the analysis only considers the main urban areas of the Province of Buenos Aires. 78. As the ST generates an income effect at the household level that allows households to expand their possible space of consumption of other goods, it has similar characteristics to an unconditional cash transfer program. Therefore, the effect of the policy was simulated by modifying the income of its beneficiaries. The results of this exercise show that ST reduces extreme poverty by 0.3 percentage points and total poverty by 0.2 percentage points. Even in the case of those beneficiaries that are still extreme poor or poor, their situation is improved by a 4.5 percent increase in their disposable income in the first case, and 2.3 percent in the second one. As beneficiaries are also protected through other social protection programs (including Universal Child Allowances, Non-contributory pensions, PROGRESAR, etcetera), the total impact is expected to be larger. Page 23 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 79. In addition, the implementation of the Social Tariff facilitated the process of reducing existing electricity subsidies across the country. By 2016, the Federal Government was spending close to 1.8 percent of GDP on untargeted subsidies, which represented a substantial contribution to the fiscal deficit. As the social tariff program was implemented, authorities were able to reduce these subsidies while protecting the most vulnerable. By 2019, the total subsidy to electricity consumers had been reduced by almost 70 percent (to 0.55 percent of GDP) and social tariffs represented almost 20 percent of them. B. Fiduciary (i) Financial Management 80. A Financial Management Assessment (FMA) was carried out to assess the adequacy of financial management arrangements20 in place at the Project Management Team under the DPOMFB, within the Ministry of Economy. The assessment scope included a review of the internal control environment operating in the Ministry of Infrastructure of PBA, the electricity regulatory agencies and other units involved in the authorization, processing and recording of social tariff subsidies. 81. The FMA found that the proposed FM arrangements are acceptable and capable of providing reliable and timely financial reporting to monitor project implementation. Components 1 and 3 aim to provide institutional strengthening and technical assistance to the provincial MoE for the Social Tariff Program. Component 3 will also provide financial support to the DPOMFB-PMT. 82. Component 2 will reimburse the Government of PBA for improvements in the strategy, management and implementation of the ST reflected in a set of DLIs supported by the subsidies for eligible residential beneficiaries of the ST as eligible expenditures. To qualify for the ST, a person must meet at least one of the inclusion criteria related to income level and socioeconomic condition and none of the exclusion criteria related to assets ownership. ST beneficiaries are users whose compliance with inclusion and exclusion requirements has been controlled and verified by a recognized national government program (SINTyS)21 of the National Council for Coordination of Social Policy of the Chief of Cabinet Office (JGM in Spanish) -this agency also verifies eligibility for other relevant social programs. The complete FM assessment is included in Annex 1. (ii) Procurement 83. Procurement will be conducted using the Bank’s ‘Procurement Regulations for IPF Borrowers’, issued in July 2016 and updated in August 2018, for the supply of goods, non-consulting and consulting services. Considering that the fiduciary function will be executed by the PMT, a procurement capacity assessment was carried out over the structure that is already in place. The analysis concluded that the PMT has adequate experience and staff to carry out the procurement responsibilities under the proposed Project. Additionally, the Borrower prepared a Project Procurement Strategy for Development (PPSD) that establishes the procurement arrangements to enable the delivery of value for money in achieving the PDO in the activities to be implemented under Components 1 and 3, as 20 The Financial Management Assessment (FMA) was conducted in accordance with OP/BP 10.00 and in line with specific Bank guidelines Manual for World Bank-Financed Investment Operations; document issued by Operations Policy and Country Services OPCFM on March 1, 2010. 21 SINTyS was created in 1998 pursuant to the Decree No. 812/ 1998 as a decentralized agency of the Chief of Cabinet. Page 24 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) no procurement is expected under Component 2. Because of such analysis, a risk was identified in the planning of activities under these components, that are expected to be defined during implementation based on the actions that will be decided to strengthen the current scheme. The result of the capacity assessment and actions to address the identified risks are detailed in Annex 1. .C. Legal Operational Policies . Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No . . D. Environmental and Social . The proposed Project will neither finance nor support any physical interventions. No rehabilitation or construction of new infrastructure or other actions, expected to impact the environment, will be financed through the Project. In this sense, the overall risks and potential adverse environmental impacts are considered not significant. Furthermore, the Project would provide valuable outcomes and recommendations for decision making related to the improvement in consumption behaviors in ST beneficiaries’ households (energy efficiency). The main social risks of the project are associated to the potential exclusion of vulnerable people. The social tariff was introduced to mitigate the impact of subsidy reform and, although the current scheme has eligibility criteria and requirements that protect vulnerable households, there still are weaknesses in the system that could lead to unintended inclusion/exclusion errors. The Project will mitigate these risks by enhancing institutional arrangements required for the implementation of the ST scheme, including: (i) the improvement of data exchange among the different public stakeholders at the federal and provincial levels (The project will support the establishment of protocols for information sharing across institutions); (ii) the assessment and enhancement of regulatory agencies’ grievance redress mechanisms and citizen participation processes; and (iii) the enhancement and consolidation of an unified data collection system on electricity users, including a revised targeting scheme focused on vulnerable groups (including indigenous peoples, Afro-descendants, people with disabilities, LGBTI, etc.). Regarding citizen engagement, public consultations are mandatory in the country before changes or updates in tariff schemes. Thus, regulatory agencies involved in the Project have experience in carrying out information disclosure and stakeholder engagement. The original ST scheme and the definition of eligibility criteria were created in consultation with the National Council of Social Policies (CNCPS). There are several feedback channels available for users to complain if they have not been included or if they have been taken out of the ST roster. The Project will support the Province of Buenos Aires to consolidate all these channels in a single Grievance Redress Mechanism and to establish protocols with unified criteria and procedures to assess ST inclusion by claims and ad hoc mechanisms, including a unified time response . and reporting procedures. V. GRIEVANCE REDRESS SERVICES 84. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported Page 25 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non- compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress- service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. VI. KEY RISKS 85. The overall risk rating of this Project is assessed as Substantial. Major risks are political and governance, as well as institutional capacity for implementation and sustainability. In addition, challenges related to macroeconomic, sector strategies, and fiduciary risks are considered substantial. Technical design, stakeholders and environmental and social risks are considered moderate. The operation does not entail direct risks to the environment. The Project will neither finance nor support any physical interventions and potential adverse environmental impacts are considered not significant, while some of the activities are expected to contribute to higher energy efficiency with positive impacts on the environment, which may also provide climate change mitigation co-benefits. The main social impacts associated with the Project are positive. Nevertheless, there are weaknesses in the current ST system that could lead to potential exclusion of people who qualify for this benefit that will be considered. There is a formal feedback mechanism for users to complain if they have not been included or if they have been taken out of the ST roster. 86. Political and Governance risk is High: The upcoming Presidential and provincial elections in October 2019 may affect implementation in some areas due to institutional transition and pose a risk to the overall ST strategy. The consensus built around the importance of social tariffs as part of the social protection policy act as a mitigation measure for this risk. 87. Institutional capacity risk is High: The authorities need to complete institutional arrangements to implement the ST scheme and consolidate technical teams to effectively execute the Project. This implies translating legislation into implementation and inter-institutional agreements among different government areas at the national and provincial level to assess potential ST beneficiaries. The lack of high-quality monitoring systems based on timely data might complicate implementation, and the Government team, with Bank support, is working on the design and implementation of these systems to reduce the risk. 88. Macroeconomic risk is Substantial: If market confidence is eroded due to domestic factors or a new round of global financial turmoil hits emerging markets, renewed pressures on Argentine assets and the exchange rate could affect the country’s financing capacity and debt sustainability. In addition, if the generation cost increases (CAMMESA’s costs are nominated in US dollars, therefore a devaluation will require more local currency to fulfill the commitments) it would be costlier for the provincial government to sustain the ST at the previous level. On the domestic front, if fiscal consolidation has a higher-than-anticipated short-term impact on economic activity, broad political support for the economic stabilization program may be at risk, with potential effects on the subsidy reform Page 26 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) package and the ST. The Bank’s DPF series, complementary to the IMF program, contribute to partially mitigate this risk. 89. Sector Strategies and Policies risk is Substantial: The interventions to improve efficiency in the electricity ST scheme may prove difficult as OCEBA will assume new responsibilities and roles during the ST transition, and future interventions may require changes and adjustments in the relationship between the Province and the electricity providers. The Government team, with Bank support, will work to strengthen its capacity to manage the ST system in order to mitigate this risk. 90. Fiduciary risk is rated Substantial: The implementation scheme for Component 2, where eligible expenditures will be the subsidies paid by the PBA to CAMMESA, is complex: i) there are several agencies involved in the payment of the ST subsidies and PBA depends on the information provided by this different agencies; ii) until January 2019, the subsidies payment was made by the National Government, PBA has little experience in the ST subsidies payment and iii) even though the PMT has experience in implementing World Bank-financed projects, it does not have any background in results-based operations using Disbursement Linked Indicators. To mitigate these risks, the provincial authorities, with the Bank’s fiduciary teams help, are working in setting up procedures to ensure a smooth implementation of the ST and will formalize the roles of the different agencies involved. . Page 27 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Argentina Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires Project Development Objectives(s) Support the transition of the electricity social tariff scheme from the federal to the Buenos Aires provincial level, while strengthening the institutional capacity of the province of Buenos Aires to implement ST delivery Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 Support the transition of the ST scheme from the federal to the Buenos Aires provincial level Data sharing agreement between MoE and SINTyS signed, and Bipartite agency to regulate report with exchanged data issued electricity distribution in the by DPSS. AMBA created and the Board members for the newly created Instruction for re-surveying (re- Competencies of ST monitoring agency are duly appointed by PBA empadronamiento) unidentified and managing integrated users' Institutional arragements and regulations and CABA. database have been formally users issued by DPSP and on ST administratation approved by the DLI 1 - integrated in an existing provincial goverment (Text) communicated to the regulatory institutional area of the PBA or a Data sharing agreements between agencies. new specific area has been the MoE and OCEBA and ENRE formally created for this propose. respectively signed, and reports Protocols with unified criteria and with the exchanged data issued by procedures to assess ST inclusion DPSS. by claims and ad hoc mechanism elaborated by DPSP and officially communicated to the applicable Page 28 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 regulatory agencies Integrated electricity users' database created, and standard reports based on the database published in a public official website of the PBA. Percentage of users with incomplete 28.00 26.00 21.00 18.00 information in the database (Percentage) Percentage of users with ST included by claims and ad hoc additional assessments DLI 2 18.30 17.00 15.00 10.00 mechanisms (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 Institutional capacity building on Social Tariff implementation and Energy Efficiency Percentage of ST users included via social 39.00 40.00 45.00 50.00 programs (Percentage) Number of distribution companies updating information on electricity users 0.00 5.00 20.00 50.00 (Number) Social Tariff assessments (Text) - Social Tariff Assessment Report Energy-efficiency studies (Text) - Efficiency Strategy Report Percentage of ST users with information 69.00 79.00 90.00 100.00 on electricity consumption in the Page 29 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 integrated database (Percentage) Number of users with missing DLI 3 831,254.00 760,000.00 630,000.00 550,000.00 identification data (Number (Thousand)) Number of users with missing socio- economic data (Number (Thousand)) DLI 4 834,778.00 770,000.00 630,000.00 560,000.00 The operational manual for the GM has been developed and The GM system's main channels The GM system is fully functional Consolidated grievance mechanism in place for the whole ST Program (Text) No Consolidated System approved, and the development of are functional and the monitoring and uses the monitoring system to the associated monitoring system system is being developed manage grievances has been defined IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection The ST scheme is regulated with clear, homogeneous Milestone (it Institutional arragements and regulations PBA Published Official protocols and happens PBA Government on ST administratation approved by the Government Gazette responsibilities among the once) provincial goverment institutions involved for the PBA Provincial Electricity users with Provincial Directorate Directorate Percentage of users with incomplete incomplete information in Quarterly Administrative data of Subsidies and of Public information in the database database which prevent Subventions Services assessment of eligibility Page 30 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) OCEBA and Electricity users who have Percentage of users with ST included by ENRE / Provincial Directorate access to the subsidy Quarterly Administrative data claims and ad hoc additional assessments Bipartite of Public Services through non automatically mechanisms Agency selected by SINTyS ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Number of electricity users who have access to pro- poor social programs (cash Provincial transfer programs, non Directorate Percentage of ST users included via social contributory pensions and Quarterly of Subsidies Administrative data SINTyS programs in-kind programs) covered and by the social tariff divided Subventions total users covered by social tariff This indicator shows the Provincial number of distribution Directorate Provincial Directorate of Number of distribution companies companies re-surveying Quartely of Subsidies Progress Report Public Services updating information on electricity users users. This indicator shows and progress due to activities in Subventions Component 1 This indicator shows the Provincial Provincial Directorate of capability to implement Directorate Finalized analytical Once Subsidies and Social Tariff assessments Social Tariff reforms of Subsidies studies Subventions including targeting and and distributive incidence. Unit Subventions Page 31 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) of measure: finalized analytical studies. This indicator shows progression in activities in Components 1 This indicator shows the Provincial Provincial Directorate of capability to develop an Directorate Subsidies and energy efficiency strategy Finalized analytical Once of Subsidies Subventions and Energy-efficiency studies including consumption studies and Provincial Directorate of behaviors, technlogy Subventions Public Services update. Unit of measure: finalized analytical studies Provincial Number of ST electricity Directorate Percentage of ST users with information users with information on OCEBA and ENRE Provincial Directorate of Quartely of Subsidies on electricity consumption in the consumption (KWh per administrative data Public Services and integrated database month) divided total users Subventions covered by social tariff This indicator shows the number of electricity users unable to be assessed for ST Provincial due to missing id Directorate Number of users with missing information. Unit of Quartely of Subsidies Statistical Report SINTyS identification data measure: hundreds of and electricity users. Decreasing Subventions trend in this indicator shows progress due to activities in Component 1 This indicator shows the Provincial Provincial Directorate of Number of users with missing socio- number of electricity users Quarterly Directorate Statistical Report Subsidies and economic data unable to be assessed for ST of Subsidies Subventions due to missing socio- and Page 32 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) economic information. Unit Subventions of measure: hundreds of electricity users. Decreasing trend in this indicator shows progress due to activities in Component 1 Consolidated Grievance The DPOMBF will Mechanism working and generate a available for all potential report based Provincial Directorate of social tariff beneficiaries in on information Consolidated grievance mechanism in Annual DPOMBF Subsidies and the PBA with unified provided by place for the whole ST Program Subventions criteria, protocols for the Provincial appropriate time response Directorate of Subsidies and reporting procedures and Subventions acceptable to the Bank ME IO Table SPACE Disbursement Linked Indicators Matrix DLI_T BL_MATRI X DLI 1 Package of institutional milestones, administrative procedures and standards Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Outcome No Text 91,100,000.00 60.73 Period Value Allocated Amount (USD) Formula Baseline - October 2019 Bipartite agency to regulate electricity 30,000,000.00 distribution in PBA and CABA created December 2019 Data sharing agreements between the MoE and 22,100,000.00 Page 33 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) each of ENRE and OCEBA, respectively signed, and reports with the exchanged data issued by DPSS. March 2020 Data sharing agreement between MoE and 10,000,000.00 SINTyS signed, and report with the exchanged data issued by DPSS June 2020 Instruction for re-surveying (re- 10,000,000.00 empadronamiento) unidentified users issued by DPSP and communicated to the relevant Regulatory Agencies October 2020 Protocols with unified criteria and procedures to 5,000,000.00 assess ST inclusion by claims and ad hoc mechanisms elaborated by DPSP and have been officially communicated to the Regulatory Agencies December 2020 Integrated electricity users' database 7,000,000.00 June 2021 Definition of area in charge of monitoring the 7,000,000.00 Social Tariff October 2021 0.00 DLI_T BL_MATRI X DLI 2 Percentage of electricity users with ST included by claims and ad hoc additional assessment mechanisms Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Outcome Yes Percentage 10,400,000.00 6.93 Period Value Allocated Amount (USD) Formula Page 34 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Baseline 18.30 October 2019 0.00 December 2019 0.00 March 2020 0.00 June 2020 0.00 October 2020 0.00 December 2020 0.00 June 2021 15.00 5,000,000.00 min: 70% October 2021 10.00 5,400,000.00 min: 70% DLI_T BL_MATRI X Number of electricity users with missing identification data according to reports issued by DPSS based on data collected and DLI 3 cross-checked by SINTyS Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Number Intermediate Outcome Yes 19,500,000.00 13.00 (Thousand) Period Value Allocated Amount (USD) Formula Baseline 831,254.00 October 2019 0.00 December 2019 0.00 Page 35 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) March 2020 0.00 June 2020 0.00 October 2020 760,000.00 7,000,000.00 min: 70% December 2020 0.00 June 2021 705,000.00 6,500,000.00 min: 70% October 2021 630,000.00 6,000,000.00 min: 70% DLI_T BL_MATRI X Number of electricity users with missing socio-economic data according to reports issued by DPSS based on data collected DLI 4 and cross-checked by SINTyS Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Number Intermediate Outcome Yes 19,500,000.00 13.00 (Thousand) Period Value Allocated Amount (USD) Formula Baseline 834,778.00 October 2019 0.00 December 2019 0.00 March 2020 0.00 June 2020 0.00 October 2020 770,000.00 7,000,000.00 min: 70% Page 36 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) December 2020 0.00 June 2021 724,000.00 6,500,000.00 min: 70% October 2021 630,000.00 6,000,000.00 min: 70% Verification Protocol Table: Disbursement Linked Indicators DLI 1 Package of institutional milestones, administrative procedures and standards This DLI reflects the progress of Provincial Government’s efforts in the institutional dimension to manage and implement Description the ST. The institutional dimension provides the basis for accountability, transparency, and information availability to ensure that the system is working. Data source/ Agency DPOMBF Verification Entity Non-scalable DLIs will be subject to Task Team verification of compliance DLI 1.1: DPOMBF sends the Bank the document with the Governmental Decree / legislation approval creating the bipartite agency approved and published in the Official Gazette. The sent package must include the respective legal instruments for PBA and CABA and the evidence that have been duly published. DLI 1.2: DPOMBF sends the Bank the document with the Regulatory Agencies signed data sharing agreements and the agreed reports delivered by the DPSS with the exchanged data. The description of the report will be established at the OM. DLI 1.3: DPOMBF sends the Bank the document with the SINTyS signed data sharing agreements and the agreed reports Procedure delivered by the DPSS with the exchanged data. The description of the report will be established at the OM. DLI 1.4: DPOMBF sends the Bank the document with the instructions issued by DPSP and the evidence of that the standard modules to collect data are developed and installed and the instructions have been officially communicated to the regulatory agencies. DLI 1.5: DPOMBF sends the Bank the document with the Protocols with unified criteria and procedures to assess ST inclusion by claims and ad hoc mechanisms elaborated and issued by DPSP and the evidence of that protocols have been Page 37 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) officially communicated to the regulatory agencies. DLI 1.6: DPOMBF sends the Bank the report with complete data on electricity users delivered by the DPSS and the link where the standard are periodically published in a public official website. The description of the report will be established at the OM. DLI 1.7: DPOMBF sends the Bank the document with the respective legal instruments showing that the integrated users database have been formally integrated in an existent institutional area or a new specific area has been created. DLI 2 Percentage of electricity users with ST included by claims and ad hoc additional assessment mechanisms This indicator measures the share of electricity users who have access to the ST subsidy through non-automatic Description mechanisms. It tracks the percentage of electricity users that has been included by eligibility mechanisms applied by the regulatory agencies. Data source/ Agency DPSS - DPOMBF Verification Entity Scalable DLIs will be subject to external entity verification The DLI will be accomplished when the DPOMBF sends the Bank a report which includes data collected on the total number of electricity users with ST benefits with the breakdown showing the mechanisms of inclusion, and the percentage of ST Procedure users included by claims and ad hoc mechanisms meets the established targets for DLI 2.1 and 2.2. Number of electricity users with missing identification data according to reports issued by DPSS based on data collected DLI 3 and cross-checked by SINTyS The indicator corresponds to the number of electricity users without identification data, and thus, unable users to be Description assessed for ST benefit. Electricity users assessed refers to the number of users that have been able to be cross-checked by SINTyS to determinate eligibility for the ST benefit. Data source/ Agency DPSS - DPOMBF Verification Entity Scalable DLIs will be subject to external entity verification The DLIs will be accomplished when the DPOMBF sends the Bank a document that compiles the report which includes data Procedure collected by the Regulatory Agencies and has been crosschecked by SINTyS and the number of users without identification data assessed through SINTyS meets the established targets for DLI 3.1, 3.2 and 3.3. Page 38 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Number of electricity users with missing socio-economic data according to reports issued by DPSS based on data collected DLI 4 and cross-checked by SINTyS The indicator corresponds to the number of electricity users without socio economic data, and thus, unable to be assessed Description for ST benefit. Electricity users assessed refers to the number of users that have been able to be cross-checked by SINTyS to determinate eligibility for the ST benefit. Data source/ Agency DPSS - DPOMBF Verification Entity Scalable DLIs will be subject to external entity verification The DLI will be accomplished when the DPOMBF sends the Bank a report based on data collected from additional databases where former users without socioeconomic data have been crosschecked by SINTyS, meeting the established targets for DLI Procedure 4.1, 4.2 and 4.3. Page 39 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) ANNEX 1: Implementation Arrangements and Support Plan COUNTRY: Argentina Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires Description and Assessment of Project FM arrangements 1. A Financial Management Assessment (FMA) was carried out to assess the adequacy of financial management arrangements22 in place at the Project Management Team (PMT) under the Provincial Directorate of Multilateral Organizations and Bilateral Financing (DPOMFB), within the Ministry of Economy (MoE). In addition to the review of accounting, budgeting, financial reporting, flow of funds, external audit and institutional arrangements, the assessment scope included a review of the internal control environment operating in the Ministry of Infrastructure of PBA, the electricity regulatory agencies and other units involved in the authorization, processing and recording of social tariff subsidies. 2. The FMA found that the proposed FM arrangements are acceptable and capable of providing reliable and timely financial reporting to monitor project implementation. 3. Components 1 and 3 aim to provide institutional strengthening and technical assistance to the provincial MoE for the Social Tariff Program. Component 3 will also provide financial support to the DPOMFB-PMT. 4. Component 2 will reimburse the Government of PBA for improvements in the strategy, management and implementation of the Social Tariff reflected in a set of Disbursement Link Indicators supported by the subsidies for eligible residential beneficiaries of the ST as eligible expenditures. 5. Institutional Arrangements for FM & Organization and staffing. PBA has well-established Budget, Accounting, and Treasury Offices that cover basic PFM functions such as budgeting, accounting, and treasury. Project operations will flow through the PBA PFM processes and systems. The Ministry of Economy through its Provincial Directorate of Multilateral and Bilateral Financing, Dirección Provincial de Organismos Multilaterales y Financiamiento Bilateral will be responsible for overall coordination of the Project including FM aspects comprising: managing the Project’s designated account; overseeing budgeting formulation and execution; flow of funds and disbursements; preparing project’s accounting records and financial reporting required by the Bank; and complying with project’s external auditing arrangements. The MOE through DPOMFB continues to have qualified FM professionals who are extensively experienced in implementing Bank-financed projects.23 22 The Financial Management Assessment (FMA) was conducted in accordance with OP/BP 10.00 and in line with specific Bank guidelines Manual for World Bank-Financed Investment Operations; document issued by Operations Policy and Country Services OPCFM on March 1, 2010. 23 AR CRL1 APL1 Buenos Aires Infrastructure Project (Ln 7268-AR, P088032, closed in 2013); AR Buenos Aires Infra Sustainable Investment Dev Project Phase II (Ln 7472 AR, P105288 closed in 2013); AR CRL1 APL1 Buenos Aires Infrastructure Additional Financing Project (Ln 7947- AR, P115183088032 closed in 2015); Metropolitan Buenos Aires Urban Transformation Project (Ln 8707-AR, P159843, active with Satisfactory FM performance); and Salado Integrated River Basin Management Support Project (Ln 8736-AR, P161798, active with Satisfactory FM performance). Page 40 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 6. Budgeting arrangements. Project’s operations will flow through the province’s System of Public Accounts, which operates under the responsibility of the Province’s Accountant General and thereby subject to the government- wide budgeting arrangements and control framework. As such, all fund uses are reviewed and approved a priori by the Accountant General’s representatives. PBA budget control distinguishes various stages in the expenditure process including commitment. The budget structure uses program classification and functional classification of expenses and provides for coding of the source of funding, and type of expenditure. A budget line already exists in the PBA Ministry of Infrastructure annual budget for the ST Program. This line is expected to be maintained through Project implementation. 7. Accounting and Financial Reporting. The UEPEX24 system which is the Federal Government system for accounting and financial reporting of donor-financed operations will be used by DPOMFB-PMT to generate the Project annual financial statements and semiannual Interim Financial Reports (IFRs) to be delivered to the Bank 45 days after the reporting period. Format and content of financial statements and IFRs for reporting purposes will be agreed with the Borrower at appraisal and incorporated in the Operations Manual. 8. The following financial reports will be presented by DPOMFB-PMT to the Bank: Table A1.1: Reports’ Schedule Report Due date Semi-annual unaudited project IFRs reflecting the sources and uses Within 45 days after the end of each calendar of funds for each semester and cumulative uses by category, semester including beginning and ending cash balances. Annual audit report on project financial statements Within six months after the end of each calendar Special opinions on SOEs, Customized SOEs, Designated Account year of loan disbursements (or other period agreed and the eligibility of social tariff subsidies reimbursed be Bank with the Bank). 9. Internal Control in place over the Social Tariff scheme. The process for payments of the ST is described in Figure 1 below. The PBA has started to pay the subsidies of the ST since early 2019. Internal controls in place are evolving so far, and it is expected that information flow between the different agencies involved in the process is improved partly as a result of the project’s support. It was determined that ENRE, the energy regulatory agency of the federal government, can produce reliable information regarding eligible beneficiaries, including the breakdown for every subsidy granted to users to support the request for reimbursement of Component 2 eligible expenditures. This report will be generated by ENRE (or the bipartite agency to be created) and will detail the Project eligible expenditures. Of the universe of subsidized users, those controlled by OCEBA, the PBA power regulatory agency, will be considered eligible for reimbursement from the Loan proceeds once OCEBA is able to provide reporting of subsidies for individual users in a manner acceptable to the Bank. It is expected that OCEBA, with technical support from the Project will be able to start preparing this information during Project implementation. The list of the ST beneficiaries for the initial reimbursement of eligible subsidies would be consolidated by the PBA Directorate of Subsidies in the MOE based on information generated by ENRE. 10. Based on input generated by ENRE, the PBA Directorate of Subsidies in the MoE will prepare the list of the ST beneficiaries for the initial reimbursement of eligible subsidies following format and content agreed with the Bank. After OCEBA is able to provide reporting of subsidies for individual users, payments controlled by OCEBA can be 24 UEPEX: Argentina budget execution and recording software for multi-lateral financed operations. Page 41 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) considered eligible for Bank financing. Figure A1.1: Component 2 Description 11. External Auditing Arrangements. The Project’s annual financial statements will be audited under terms of reference (TORs) prepared according to Bank guidelines and performed by an independent auditor following standards acceptable to the Bank. Audited financial statements will be furnished to the Bank no later than six months after the end of each fiscal year -or another period agreed upon with the Bank (not exceeding 18 months)- when, due to project circumstances, it is more cost effective to join periods to be audited. Auditors should submit: (a) an opinion on the project financial statements, including a special opinion of the SOEs, Designated Account and the eligibility of the ST subsidies to be reimbursed by the Bank; and (b) a Management Letter. Audit terms of reference will be included in the project Operational Manual. In accordance with the Bank’s Access to Information Policy, upon receipt of the annual audited financial statements of the project, they will be made available to the public by the Bank. The Borrower agrees to disclose the audited financial statements to the public on its own disclosure methods. 12. Flow of Funds and Disbursement Arrangements. The main disbursement method to be used under the loan is Reimbursement for Component 2 and Advance and Direct Payments for Components 1 and 3. 13. Disbursement Arrangements for Component 2. This component would disburse upon achievement of specific results measured by Disbursement-linked indicators (DLIs) related to improvements in the strategy, management and implementation of the ST. To qualify for the ST, a person must meet at least one of the inclusion criteria related to income level and socioeconomic condition and none of the exclusion criteria related to assets ownership. ST beneficiaries are users whose compliance with inclusion and exclusion Page 42 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) requirements has been controlled and verified by a recognized national government program (SINTyS) of the National Council for Coordination of Social Policy of the Chief of Cabinet Office (JGM in Spanish) -this agency also verifies eligibility for other relevant social programs. The payments of the ST subsidies for eligible residential beneficiaries of the ST, authorized by the PBA Ministry of Infrastructure that had been paid to CAMMESA and Energy Distribution Companies will be considered as eligible expenditures. These Provincial Ministry of Infrastructure 2019 annual budget includes a specific program for these items.25 The Project is expected to reimburse approximately 38 percent of the PBA government program’s total eligible expenditures during its implementation. These expenditures must be adequately documented and comply with any other requirement as requested by the Bank. 14. Eligible expenditures under DLIs of Component 2 will be pre-financed with fiscal resources and then refunded by the WB, adopting the reimbursement method of disbursements. Loan funds will be transferred to the Treasury Account managed by the Provincial Treasurer (TGP). Figure A1.2: Component 2 Flow of Funds Tax collection & Payroll taxes Loan (Local funds) Account Reimbursement (WB) TGP CAMMESA Energy Suppliers 15. The PMT will report the eligible expenditures identified under the DLIs of the disbursement category 2 and loan allocations for each year if all agreed targets are met. Loan funds will be disbursed upon achievement of two conditions: (i) DLI targets at the particular time of disbursement have been met, and this has been certified through the report issued by independent technical agency (for scalable indicators); and (ii) Eligible Expenditures Report has been submitted through an electronic list containing the amount of subsidies granted to the eligible beneficiaries, which DPOMFB is requesting reimbursement. The PMU will prepare a Customized Statement of Expenditures (SOE) accompanied by evidence of compliance with the agreed DLI on a bi-annual basis and sign the Withdrawal Application containing the request for reimbursement of expenditures and will submit it to the WB. 25 Budget line item 5, Partida 5.3.3 - Ley de Presupuesto 15.078 Page 43 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) 16. DLI Verification. Where specified in the DLI verification protocol (and thereafter in the Project Operational Manual), the corresponding implementing entity will verify the results reported by an independent consultant (firm, entity or individual) and will provide its recommendations related to the achievements of DLI targets. The verification report will be discussed with the WB team and final agreement on DLI performance will be reached by both parties. The total disbursement release for a given semester will be confirmed and funds released. 17. Retroactive financing (only for Component 2) for the period and amount defined in the Loan Agreement will be permitted under the same budget line described before, which must be adequately documented and comply with any other requirement as requested by the Bank. Disbursement Arrangements for Components 1 and 3 18. Eligible expenditures under Components 1 and 3 would follow traditional Bank procurements guidelines and procedures. Therefore, loan proceeds will be disbursed as advances into a separate designated account in dollars to be opened by the DPOMFB in the province state-owned bank, Banco de la Provincia de Buenos Aires (BAPRO). Payments for eligible expenditures incurred would be made from the operative bank account in local currency held by DPOMFB, also to be opened in the BPBA. 19. DPOMFB-PMT staff would request access to the Bank’s Client Connection webpage to perform the periodic reconciliation between its own registries and the Bank disbursement records. Loan proceeds would be disbursed against the following expenditure categories: Table A1.2: Disbursements per Expenditure Category Category Amount of the Loan Percentage of Expenditures to be Allocated financed (expressed in USD) (inclusive of Taxes, except for any Taxes levied for financial transactions) (1) Goods, non-consulting services, 9,125,000 100% consulting services, Training and Operating Costs for Components 1 and 3 (2) ST Subsidies for Component 2 140,500,000 100% of the amount of the Loan allocated to each DLI., as set forth in the Loan Agreement. (3) Front-end Fee 375,000 Amount payable pursuant to Section 2.03 of the Loan Agreement in accordance with Section 2.07 (b) of the General Conditions (4) Interest Rate Cap or Interest Rate 0 Amount due pursuant to Section 4.05 Collar premium (c) of the General Conditions TOTAL AMOUNT 150,000,000 Page 44 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Withdrawals from the DA would be solely made for payments of eligible expenditures incurred. The following chart reflects the project’s flow of funds for Components 1 and 3. Figure A1.3: Components 1 and 3 Flow of Funds Loan Account (WB) Direct Payments Advances in USD Reimbursement Designated Account DA BAPRO (USD) Project Account (AR $) Works, goods, and consultants Direct Payments The following Disbursement Methods26 may be used under the Loan: 26 For details, please see the Disbursement Handbook for World Bank Clients. Page 45 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Table A1.3: Disbursement Arrangements for all Components Retroactive expenditures Eligible expenditures: (Component 2) • Are paid up to 12 months prior to the date of loan signing; • Do not exceed 20 percent of the loan amount; • Comply with the agreed DLIs; and • Comply with Bank requirements for eligible expenditures Reimbursement of eligible • Reimbursement of eligible expenditures into the PBA Treasury expenditures pre-financed by the Account managed by the Provincial Treasury Office (TGP). Bi-annual Government after the date of Customized SOE requesting the reimbursement accompanied by loan signing (Component 2) evidence of compliance with the Disbursement Indicators Other Disbursement Methods • Direct payments to suppliers. The minimum application size for (Component 1 & 3) direct payment requests will be defined in the Disbursement Letter (DFIL). • Advance to a segregated designated account in USD managed by DPOMFB -PMT as explained earlier with a ceiling to be defined in the DFIL. Supporting documentation • Customized SOE for Component 2 along with an electronic list of beneficiaries and subsidies payments that had been previously paid by PBA; • Statement of Expenditures (SOEs) for Component 1 and 3; • Records (supplier contracts, invoices and receipts) for direct payments. Risk Assessment and Mitigation 20. The combined Fiduciary (Financial Management and Procurement) risk27 is rated Substantial: The implementation scheme for Component 2, where eligible expenditures will be the subsidies paid by the PBA to CAMMESA, is complex: i) there are several agencies involved in the payment of the ST subsidies and PBA depends on the information provided by this different agencies; ii) until January 2019, the subsidies payment was made by the National Government, though PBA has little experience in the ST subsidies payment; and iii) even though the PMU has experience in implementing World Bank-financed projects, it does not have any background in results-based operations using Disbursement Linked Indicators. To mitigate these risks, the Bank’s fiduciary teams are working with provincial authorities to help setting up procedures to ensure a smooth implementation and PBA will formalize the roles of the different agencies involved. 21. FM risk after mitigation measures continues to be assessed as Substantial and the following mitigation measures will be implemented to cope with the identified project risks: (i) preparation of an Operational Manual including a FM arrangements section, which should be readily available before negotiations; and ii) annual audit of project’s financial statements following auditing standards and terms of reference acceptable to the Bank, carried out by an external auditor also acceptable to the Bank, including audit special opinion on the eligibility of the ST subsidies to be reimbursed by the Bank. The Project risk rating will be reviewed regularly during Project supervision. 27 See Systematic Operations Risk-rating Tool (SORT) for further reference. Page 46 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Table A1.4: Financial Management Action Plan The following steps have been identified to be discussed by appraisal and completed by negotiations: Action Responsible Entity Completion Date Finalize Administrative Section of the Operational Manual DPOMFB -PMT By negotiations which will include inter alia: a) Chart of accounts; b) IFR format for reporting and disbursement purposes agreed with the Bank; c) Format of the Annual Financial Statements; d) TOR for the financial external audit; e) Administrative procedures. Supervision Plan 22. The FM supervision plan and resources to be allocated thereto have been determined in accordance with the risks identified. During project implementation, FM staff will conduct at least two full FM supervision mission per year and will assess the continuous adequacy of Project financial management arrangements. In addition to monitoring the timeliness of receipt of the IFRs, FM staff will review these reports as well as the financial audit reports. Ad-hoc support will be provided as needed. 23. The supervision plan may be adjusted by the assigned FMS according to project’s fiduciary performance and updated risk. Loan Covenant 24. No other than standard conditions for FM are applicable to this project. Procurement 25. Procurement will be conducted according to the World Bank’s Procurement Regulations for IPF Borrowers, issued in July 2016 and updated in August 2018, for the supply of goods, works, non-consulting services and consulting services. The World Bank's Standard Procurement Documents will govern the procurement of World Bank-financed Open International Competitive Procurement. For procurement involving National Open Competitive Procurement, the Borrower will use Standard Procurement Documents acceptable to the World Bank already in place for ongoing operations that will be included in the Operational Manual. 26. The PMT is already in place and will be responsible for preparing the procurement plan and keeping records under Components 1 and 3. The terms of reference and technical specifications of the services and goods to be procured under the technical assistance component will be provided by the relevant areas mentioned above. A capacity assessment of the PMT was carried out by the Bank to review the organizational structure for implementing the Project and the experience of the existing procurement personnel. The analysis concluded that the PMT has adequate experience and staff to carry out the procurement responsibilities under the proposed Project. The current staff has extensive experience working with Bank’s financed projects and it is integrated by five professionals and strengthened by a specialized staff member for the procurement Page 47 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) of IT. 27. The PMU has developed a Project Procurement Strategy for Development (PPSD) for the preliminary activities that are expected under Components 1 and 3. It is not expected that Component 2 would include any procurement activities. At this stage, it is expected most of the activities under Component 1 will be targeted to procure minor goods and provide technical assistance to: a) develop the institutional scheme to administer the social tariff and establish the necessary regulations; b) strengthen information management; c) carry out sectoral studies; and d) develop awareness activities to encourage efficient use and energy savings. As identified in the document, the activities will require a strategy of progressive implementation since the implementing agencies will have to advance along the learning curve of the current national scheme. In this context, the specific details for each activity will be analyzed and defined during implementation. Finally, component 3 would include the procurement of minor goods and external audit services. The procurement arrangements for these and the rest of the activities expected to be carried out during the first 18 months will be detailed in the Procurement Plan. 28. In addition to prior and post review supervision, based on the risk identified in the PPSD, the assessment recommends closely follow up on the planning of the activities under Components 1 and 3, to ensure they are identified and implemented timely. 29. Based on the above, the overall project risk for procurement is Moderate. Implementation Support Plan 30. The proposed implementation support plan (ISP) is consistent with the porpoise of this Operation would support and considers the Project-specific challenges and risks, as defined in the SORT. It also draws on lessons learned from other operations and previous operations in the social protection sector in Argentina. 31. The ISP is based on mechanisms that would enable enhanced implementation support to the GoA, timely and effective monitoring of the Project, and guidance on technical, fiduciary, environmental, and social aspects. The ISP would entail review meetings and missions with the GoA; regular technical meetings; field visits, as needed; and monitoring and evaluation. The Bank’s implementation support would broadly consist of: i) Capacity-building activities to strengthen the ability to implement the Project, covering the technical, fiduciary, and environmental and social dimensions ii) Provision of technical advice and implementation support geared towards the attainment of the PDOs, DLIs, and intermediate results indicator. iii) Ongoing monitoring of implementation progress, including regular review of key outcome and intermediate indicators, and identification of bottlenecks iv) Monitoring changes in risks to the Project, identification of appropriate mitigation measures, and compliance with the Loan Agreement Page 48 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Main Focus of Implementation Support Time Focus Skills Needed First 12 months • Monitor Project’s planned activities and • Project management, monitoring, funds allocation and evaluation • Monitor DLIs and Results Framework • Financial management • Evaluate technical performance • Procurement management • Evaluate fiduciary systems’ performance • ESF management • Fine-tune DLI verification mechanisms and their effectiveness • Review staffing of implementing agency • Assist client in formulation of terms of reference and assessment of resources required 12-24 months • Monitor Project’s planned activities and • Project management, monitoring, funds allocation and evaluation • Monitor DLIs and Results Framework • Financial management • Evaluate technical performance • Procurement management • Evaluate fiduciary systems’ performance • ESF management • Carry out Mid-Term review to assess the Operation’s performance 24-36 months • Monitor Project’s planned activities and • Project management, monitoring, funds allocation and evaluation • Monitor DLIs and Results Framework • Financial management • Evaluate technical performance • Procurement management • Evaluate fiduciary systems’ performance • ESF management • Begin implementation completion and results report in the final 6 months of implementation Task Team Skills Mix Required for Implementation Support 32. The table below presents the estimated number of staff weeks and trips (for Bank staff and specialized consultants) that would be required during the first two years of implementation. The first two years would require more staff weeks given that the bulk of disbursements are planned for this timeframe. Page 49 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Staff Weeks per No. of Trips Skills Needed Year per Year Task Management, Monitoring and Evaluation Task Team Leader (Country Office), Senior Social Protection Specialist 20 3 Senior Energy Specialist 12 3 Analyst 10 3 Program Assistant 6 0 Specialized consultants To be determined Procurement Specialist 4-6 2 Financial Management Specialist 4 1 Financial Management Analyst 4 2 Social Specialist 4 2 Environmental Specialist 2 1 33. The table below shows the resources required after the first two years. Staff Weeks per No. of Trips Skills Needed Year per Year Task Management, Monitoring and Evaluation Task Team Leader (Country Office), Senior Social Protection Specialist 15 2 Senior Energy Specialist 10 2 Analyst 8 2 Program Assistant 6 0 Specialized consultants To be determined Procurement Specialist 4-6 2 Financial Management Specialist 4 2 Financial Management Analyst 4 2 Social Specialist 4 2 Environmental Specialist 2 1 Page 50 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) ANNEX 2: Detailed Description of Electricity ST Scheme COUNTRY: Argentina Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires Sectorial background and legal Framework 1. Following the energy emergency declared by Decree No. 134 in December 2015, subsidies to the energy sector decline gradually and the federal government launched the electricity ST to cushion residential tariffs increases in February 2016.28 2. Three instances of the federal government were involved in the ST process. The Ministry of Energy was in charge of defining the eligibility criteria and the subsidy amount (Resolution No. 6/2016, Resolution No. 122/2018), the regulatory agency of the electricity sector (Ente Nacional de Regulación de la Energía Eléctrica -ENRE) was the supervisor of the implementation process, and the CNCPS verified the users eligibility condition for the ST through their information system (SINTyS). In addition, ENRE intermediated between the service provider companies (distributors) and SINTyS by providing the users’ registry of the companies. SINTyS combined several administrative data sources (including, social security, property registry, social programs) to check the eligibility conditions and classified users into three groups: (i) users who qualify for the ST, (ii) users who do not qualify for ST due to exclusion criteria; (iii) users who do not qualify for ST due to the lack of information to verify the inclusion criteria. ENRE would send the resulting users’ list to the distributors to apply the ST to the corresponding electricity bills. Sectorial developments. Overall subsidies in the energy sector (electricity and natural gas) decreased from 2.6 percent of GDP (2016) to 1.2 percent (2018), or about US$6bn. Electricity subsidies alone declined from 1.7 percent (2016) to 0.7 percent (2018). The level of cost recovery in the electricity and gas tariffs has significantly increased. For residential electricity users in the metropolitan area of Buenos Aires (the most heavily subsidized area in the country), subsidies were reduced from 90% in 2015 to 30% in 2018 and are expected to be further reduced to 20% in 2019. The following figures show cost recovery of residential electricity tariff in City of Buenos Aires, October 2015 and October 2018. The sharp subsidies reduction has raised concerns of affordability for vulnerable populations, prompting the introduction of a Social Tariff. 33% 90% Subsidy Subsidy Source: Secretaría de Energía: EDESUR user, consuming 300kWh per month. 28 Resolution No. 219/16 Page 51 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) ST in the PBA 3. PBA, which concentrates around 35 percent of federal ST users, assumed the federal instances at the provincial level. The ST beneficiaries receive the benefit (electricity discounts) through the electricity bills issued by the distributor companies. In the current scheme, the following agencies are involved in the process (see Figure A2.1): ▪ Two Regulatory agencies -OCEBA (subnational) and ENRE (federal): besides the sectorial responsibilities, they consolidate the list of users from the distribution companies and each of them send this information to SINTyS who identifies the ST beneficiaries (automatic inclusion). In addition, OCEBA and ENRE are responsible for the inclusion of beneficiaries that are not automatically selected. This means, evaluate users’ claims for ST benefits among those not automatically selected by SINTyS (inclusion by claims), as well as assess the inclusion of those living in vulnerable settlements and other socioeconomic characteristics (ad-hoc inclusion). Currently, 18.3 percent of the ST beneficiaries have access to the ST benefit through claims and ad hoc additional assessments. The agencies are then responsible for providing the list of eligible users to distribution companies which they use to calculate the bill amount. Finally, OCEBA and ENRE receive information from the distribution companies on the total discount due to ST, and then pass this information to the Ministry of Infrastructure. ▪ SINTyS (federal): applies the eligibility criteria crossing its databases of individuals with those of electricity users provided by OCEBA and ENRE and sends the assessed database back to OCEBA and ENRE. ▪ Ministry of Infrastructure in PBA- Directorate of Public Services: receives information from OCEBA and ENRE on the total discount amount due to ST and authorizes the Ministry of Economy the payment of the total amount of discount to the electricity generator company. ▪ Finally, the Ministry of Economy in PBA: pays the subsidies claimed to the generator company (CAMESSA). The distribution companies have direct contact with electricity users: they receive documentation and claims regarding the ST and issue the electricity bills considering the benefit (electricity discount) for the ST beneficiaries. Page 52 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) Figure A2.1 Information exchange in the PBA Electricity ST scheme Page 53 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) ST performance and opportunities to revise the eligibility criteria and institutional arrangements 4. During 2017, the World Bank provided technical assistance to the executive office of the President’s Chief of Cabinet Office (JGM in Spanish). The purpose was to assess alternative measures to improve ST targeting in the medium run, as well as short-term measures that are implementable within the current system. The study reviewed Argentina’s ST schemes for electricity, network gas, and transport and identified a number of areas where coverage can be improved while reducing fiscal costs. A summary of the technical assistance was included in the Public Expenditure Review (P161695). 5. The main conclusion from the technical assistance -narrowing on residential electricity ST- included: First, the social tariff for residential electricity users are important to mitigate the impact of subsidy reduction among the vulnerable, despite current limitations. However, there are inclusion and exclusion errors in electricity STs due to their design and implementation, as well as the limited availability of administrative records. On the implementation side, the largest limitations for electricity and gas STs come from the fact that the vulnerability criteria require household level information that is not available, and that the selection of beneficiaries is based on service holder’s information that is often outdated. The result is a system that does not necessarily include all vulnerable families or exclude all non-vulnerable households for the following three factors: i. The inclusion and exclusion criteria determined by regulations do not allow for the identification of all vulnerable families. For example, low-income households may not be registered in the formal system or may not be beneficiaries of other social programs (e.g., adults with children not reached by the AUH). Also, beneficiaries under one social program may be registered under a different name for another program. ii. The criteria for inclusion and exclusion result in the inclusion of some non-vulnerable households and the exclusion of some vulnerable households. For example, inclusion errors may result from income thresholds that are set too high or because no other income was registered in the household. Also, the current exclusion criteria may be excluding households with low income per capita. iii. Identification mechanisms do not allow the Government to identify who resides in a home. This could be due to owners' records not being updated, a recent change in the ownership of the property, or residents not owning their homes (i.e., they are tenants). There needs to be a process to easily and efficiently update the user database by either complementing the current identification mechanism with other mechanisms (e.g., self-selection without requiring input from the service holder, or geographic targeting), or transitioning to a system that uses other user bases (e.g., a system based only on the records of persons or families, regardless of ownership). 6. In the medium term, improved targeting mechanisms are needed to better identify potential beneficiaries. This includes transitioning to a beneficiary identification system based on administrative records of households (hogarización de registros administrativos). An alternative strategy would involve transitioning to a system of direct transfers to beneficiaries that does not rely on potentially outdated information of service holders. However, such reforms will require a careful redesign and testing of instruments to ensure that information mechanisms, implementation capacity, communication strategies, and institutional arrangements are adequate. 7. There are also several short-term measures that could reduce inclusion and exclusion errors at minimal Page 54 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) fiscal costs, even though they represent second or third-best solutions and are being analyzed by authorities. Using administrative records, short-term measures that can be rapidly implemented are assessed by providing estimates of the magnitude of an improvement in targeting mechanisms as well as potential fiscal savings. These include: i. extending the inclusion criteria related to social programs, such as, including second parent of the AUH beneficiary, CUS program beneficiaries, and small self-employed workers (in practice not automatically included); ii. calibrating the asset ownership exclusion criteria based on the value of assets; and iii. using alternative (lower) income thresholds to segment beneficiaries between retirees, pensioners, and formal wage employees in addition to the existing family allowance categories, with different levels of discounts, depending on the category. This means going from a binary system of benefits to a step-wise system. Page 55 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) ANNEX 3: Economic and Financial Analysis COUNTRY: Argentina Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires 1. To assess the economic impact of the proposed Project, the effect of the social tariff for electricity (ST) is analyzed from both the perspective of beneficiaries and public finances. For beneficiaries, the social tariff is equivalent to an increase in disposable income. As such, it produces a positive effect in terms of poverty, albeit small. However, Social Tariff is part of a broader set of policies to protect the vulnerable and the total effect should be considered. In terms of public expenditures, the implementation of ST made possible a rapid reduction of electricity subsidies for non-vulnerable population, hence contributing since 2016 to fiscal consolidation. From the perspective of beneficiaries: 2. As the social tariff is a discount in the electricity bill, it represents a reduction of their total expenditures. Alternatively, this can be thought as a public transfer which increases the level of income of those households. Therefore, the effect of the ST can be captured by comparing the current situation with a simulated scenario where beneficiaries’ income is increased. 3. Ideally, this kind of simulation would require a dataset with information on full tariffs, discounts applied through the ST programs and total household income, at individual level. However, since such dataset does not exist, the team simulated it by using the Permanent Household Survey (EPH, for its Spanish acronym), which provided information on households’ income29 and other variables that define ST eligibility. The data used correspond to the largest urban agglomerates in PBA during the second semester of 2018. 4. According to the electricity ST criteria, the following groups are eligible to receive the benefit: retirees; pensioners; salaried and self-employed workers with income equal or lower than two minimum wages; formal domestic workers; workers included in the “monotributo social” regime; and beneficiaries of social programs - such as the Universal Child Allowance (AUH, for its Spanish acronym), school grants (PROGRESAR) and unemployment insurance.30 Therefore, these groups were identified on the dataset. 5. However, the program also has exclusion criteria, based on ownership of certain assets. Hence, those who meet the requirements listed above but are owners of more than one property or a car that is less than ten years are excluded. As the EPH dataset does not collect data on assets, these criteria’s impacts were simulated by reducing the total number of identified eligible beneficiaries in the survey by a percentage defined by the number of cases where the exclusion criteria were used by SINTyS. 6. As a result of the simulation, the team estimated that Social Tariffs reduced the extreme poverty by 0.3 percentage points and the total poverty rate by 0.2 percentage points, respectively. In other words, it prevents 29 As the resulting dataset combines incomes for the third and fourth quarter of the year, in the last case incomes were adjusted to be expressed at prices of the third quarter of the year. 30 There are three additional groups that should be included (veterans, disabled and electricity-dependent), but they were not considered in this exercise because the survey does not include questions on that regards. However, this restriction is not expected to affect the results, because the administrative data shows that the omitted cases represent less than 1% of the total beneficiaries. Page 56 of 57 The World Bank Supporting the Electricity Social Tariff Transition in the Province of Buenos Aires (P170329) around 40,000 people from falling into extreme poverty, and around 30,000 from falling into poverty. The situation of those that do not escape from poverty is also improved because of the increase in their income, which grows by 4.5 percent among the extreme poor and 2.3 percent among the poor. From the perspective of the public finances: 7. Electricity subsidies is Argentina reached as much as 1.8 percent of GDP by 2016, after a decade of increases. As the tariff policy was changed in 2016, the implementation of the social tariff and reduction in subsidies to other consumers resulted in a rapid decline. By 2019, total subsidies have declined by almost 70 percent, and social tariffs represented close to 20 percent of these subsidies (Figure A3.1). This significant savings represented more than one percentage point of GDP in the last few years, an important contribution to the fiscal consolidation efforts. Figure A3.1: Subsidies for electricity as a percentage of the GDP, 2009-2019 2.0% 1.8% 1.5% % of GDP 1.3% 1.0% 0.8% 0.5% 0.3% 0.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019* Ente Bionacional Yacireta Social Tariff transfers to CAMMESA CAMMESA transfers (without Social Tariff) Page 57 of 57