Cambodia - Second Social Fund Project

Report No. PID7300 Project Name Cambodia-The Social Fund II Project Region East Asia & Pacific Project ID KHPE50601 Borrower Kingdom of Cambodia Implementing Agencies Social Fund of the Kingdom of Cambodia Date of PID Preparation November 10, 1998 Appraisal Date February 1, 1999 Projected Board Date March 25, 1999 I. Project Background The Social Fund II Project will refinance the Social Fund of the Kingdom of Cambodia (SFKC), and further improve the successfully implemented first Social Fund Project financed by an IDA credit of US$ 20 million. The SFKC I was declared effective in December of 1995 and is now nearly completely disbursed, a full year ahead of schedule. II. Project Objectives The first Social Fund Project was designed to address three critical objectives. The first objective was to provide financing for small scale, community based sub-projects in the areas of social and economic infrastructure, as a part of the overall reconstruction effort in Cambodia. Although Cambodia has made important strides with donor support in addressing infrastructure needs, the many years of civil war and neglect have created a still substantial backlog of basic investment requirements in such areas as small scale irrigation, rural bridges and culverts, sewerage and drainage, water supply, education and health facilities, and other investments. This is reflected in the large accumulation of unfinanced and eligible applications sent to the Social Fund from communities, NGOs and local governments (currently totaling over US$50 million). Thus, in the Social Fund II Project (SFII), the objective of helping to meet small scale infrastructure needs at the local level will remain a key project objective. To insure that SFKC sub- projects are productive investments, appraisal and monitoring criteria will be strengthened to improve measurement of cost effectiveness. The second objective of SFI was to create short term employment opportunities in order to assist in the return to a peace time economy and help absorb soldiers and refugees returning to their homes. This objective was built into project design through sub-project eligibility rules, which limited SFI to the financing of sub-projects with a high labor content (as opposed to materials or equipment). Although the return of refugees has abated, the burgeoning Asian economic crisis is causing some Cambodians to return. The employment objective of SFI will thus be retained, but reduced relative to other objectives. The third objective of SFI was to strengthen communities and local government through a demand driven sub-project identification and design process. The response of local groups to the SFKC has been overwhelming, thus providing evidence of much greater dynamism and self help capacities at the local level than was expected. In this area, however, SF II will seek to improve the  local "ownership" of sub-projects and elevate this objective to higher importance within SFKC policies, procedures, and structures. This shift is justified primarily by the challenge of sustainability of SFKC sub-projects, which at this early stage has only materialized in the water sector, but sustainability problems are expected to emerge in other sectors. As in most post emergency social funds supported by the World Bank, the most difficult challenge is the shift of operational policies to promote more sustainability, local ownership and community empowerment, without losing the broad coverage, operational efficiency and impact of a more "construction management" type social fund. The fourth objective of the SFI Project was to improve line ministry capacities to develop investment criteria for local sub-projects. This has proved to be a limited area of activity, as basic designs for SFI sub- projects (schools, health centers, culverts, bridges, etc) were approved by ministries at the outset, and with little follow up required. The main area of coordination is now at the local level, where district authorities in particular have taken an active role in encouraging and supporting applications to the SF from community and village groups, and more recently, have committed more local counterpart resources to strengthen sub-project applications. This objective is revised for SFII to include more thorough coordination mechanisms with relevant line ministries and local governments to insure that SFII activities do not overlap with other donor investments (a problem in some areas during SFI) and that sustainability commitments from local governments are built into SFKC contracts. III. Project Description Project Component A (Sub-Project Grants) US$24.5 million (total cost of component) This component will finance sub-project grants for eligible sub-projects. The operational cycle followed in SFI will be continued in SFII, in accordance with the operational manual (see attached diagram of operational cycle), with changes linked to the new sustainability program. The operational manual governing SFKC operations will be updated to reflect recent changes in technical criteria, procedures, and any other immediate changes agreed at appraisal, as a condition of effectiveness. Three programs of change will be introduced into SFKC operations as part of SFII. The first program will improve technical quality, particularly of rural water supply projects and other components as well. This will be achieved through first a technical review of water supply projects, where the issues are more complex and sectoral. In addition, appraisal criteria will be improved for these sub-project components where appropriate. The regional offices initiative will place SFKC supervisory staff in the field so as to insure frequent site visits and interaction with communities, local governments and contractors. A second area of change will be more attention to economic analysis in appraisal, using cost effectiveness ratios. Aggregated unit costs will be tracked for sub-project types, and reported to the Bank every six months as part of the UCDB reports. Under SFI, such unit cost analysis featured prominently in Bank supervision. In SFII, SFKC will track these variable more closely, integrate the costs with measures of benefit streams, such as number of beneficiaries or utilization of the investment - 2 -  A third area of change is the sustainability program, which will alter the policies and procedures governing sub-project eligibility, contracting, and supervision. Group applicants will be required for certain sub-project types (water supply and irrigation at least); maintenance plans and committees will be required; applicants will in some cases receive and disburse sub-project funds for certain sub-project types (possibly for water supply); procedures for applicant approval of contractor payments will be tightened up; and contracts will be modified in several important ways to assign responsibility for maintenance after handover. There will be one important addition of a post handover monitoring step, which will visit all handed over sub-projects at least once every two years. The purpose of such visits will be to identify problem sub-projects requiring follow up by SFKC. The unit will also conduct maintenance and repair training and seminars throughout the country, distribute technical guides and manuals, and publicize excellent performance, as well as very poor performance (if necessary), in the Cambodian media. In all other respects, SFII will follow SFI procedures and policies in regard to sub-grants. On legal issues, SFKC will need to review and improve agreement formats for cooperation arrangements with other ministries and for direct co-financing by donors to SFKC itself (as opposed to sub-projects). The SFKC charter will be reviewed at appraisal to insure that all necessary changes have been incorporated in the latest approved amendments. Project Component B (Institutional Support) This component will support the costs of staffing, managing, monitoring, reporting, and operating the Social Fund of the Kingdom of Cambodia. It will include: salaries and fees of SFKC staff, who are hired as temporary consultants, not as civil servants; office equipment, vehicles, and motorcycles needed to carry out operational work; minor civil works to prepare three new regional offices; operating costs not covered by Government counterpart; and technical assistance in the areas of monitoring, MIS, accounting, technical and beneficiary assessments, legal services and other specialist areas. The organizational structure of the SFKC will continue, with some modifications, as it was under SFI (see attached diagram of SFKC organizational structure). The President of the SFKC will be the Prime Minister(s) who appoints a Board of Directors with members from civil society and the General Director of the SFKC. The Board appoints a daily decision making body, the Executive Committee, as its representative with power to approve sub-projects. The operating Departments under the General Director will include, as before, Finance and Administration, Promotions, Appraisal, and Supervision. A new Department, Monitoring and Sustainability, will carry out expost reviews of sub-project utilization and sustainability (maintenance performance), and will commission the external monitoring reports (technical assessments and beneficiary assessments). This new Department will not be an internal auditor, but assume its role as part of the new operational cycle. Staffing of the SFKC will be modified to include new required skills in the social area, particularly in the area of social assessment. Such staff will be distributed in the operational departments, such as appraisal, promotions, and monitoring, to assure that sustainability program to be implemented by SFKC is carried out effectively at the sub-project level. Total staff at SFKC reached 40, including drivers and support, at its peak operational output. Given the 8% limit, which SFI attained, any additional payroll must be - 3-  associated with high levels of operational efficiency and disbursement. The decentralization of SFKC will be carried out after an initial study of options and costs is completed. Three offices are contemplated: in Battambang (NW); Kampong Chanang (N); and Kampot - Sihanoukville (S). Phnom Penh would continue to serve the east and center. Project Component C (Unallocated) As in SFI, a portion of the credit will be set aside as unallocated, in order to facilitate adjustments to out year disbursement category management. IV. Project Implementation and Monitoring Project coordination: The SFKC continues to operate under a charter enacted by Royal Decree, which gives to the SFKC considerable autonomy under the authority of its President (the Prime Minister) and a broadly representative SFKC Board of Directors. Day to day coordination with other ministries, donors and civil society are entrusted to the General Director and the SFKC staff. The Ministry of Economy and Finance exercises oversight and conducts annual audits of the SFKC (in addition to audits conducted by Coopers and Lybrand). Under SFII, the SFKC will adopt new procedures to improve coordination with government agencies and other donors, as described above, among which will be new appraisal criteria that require SFKC appraisers to determine from local authorities whether there are any similar projects planned or underway in the vicinity of the proposed SFKC project. In addition the SFKC will conduct regular meetings and share sub-project pipeline information with locally based donors. Project oversight (policy guidance, etc.): SFKC Board of Directors and the Ministry of Finance are responsible for project oversight. Accounting, financial reporting and auditing arrangements: Under SFI, technical assistance was provided to help SFKC build a capable and reliable accounting and financial management capacity. Coopers and Lybrand was engaged to perform monthly spot checks on segments of the accounting and financial management system. Audits have been performed on time by both Coopers and Lybrand and by the Ministry of Economy and Finance, with unqualified results. To ensure that SFKC is able to build on this strong foundation, SFII will include training funds for financial and accounting skills at regional institutions. Monitoring and evaluation arrangements: Under SFI, the SFKC has submitted monthly operational reports to the Bank and to its Board. The indicators used have emphasized operational steps in processing applications, from screening through appraisal, approval, supervision and handover. Two areas of improvement will be agreed at appraisal: new sustainability variables and new community participation variables. In the first category of sustainability, the SFKC will build into their operational cycle at appraisal a requirement for a maintenance plan and a committee or other agency to carry it out; and secondly, SFKC will adopt a program of visits to completed sub-projects of different ages, with reporting to the Executive Committee of maintenance quality, technical quality, and the carrying out of required complementary investments by the applicant (as required at appraisal and in the contract). The staff would recommend follow up actions for problem sub-projects. The SFKC would include appropriate quantitative variables in its monthly monitoring report to the Bank on sustainability performance and follow up. - 4 -  Community participation variables will be more difficult to specify and quantify, as the level of community participation in sub project development and implementation is often a subjective judgment. However, as part of SFII, the SFKC will agree to carry out a program of experimentation with community execution of certain categories of sub-projects, including direct disbursement of sub-project progress payments to the applicant for subsequent payment of suppliers, labor, and contractors. Under SFI, SFKC disbursed directly to contractors only. In addition the SFKC will revise its operational procedures to encourage group applications, rather than single applicants, so that community groups are more effectively consulted. The monitoring system will include variables derived from these changes in SFKC procedures and policies. V. Project Costs and Financing The project would be financed by a $25million IDA credit. The total amount of IDA credit includes $18.8 million for infrastructure sub-projects, $2.59 million for services and equipment sub-projects, $2.35 million for institutional support activities, and $1.25 million of unallocated funds. Additional financing provided by the Government and local communities amounts to $3.17 million. VI. Benefits and Targeted Population The benefits of the Project will be: i. improved and rehabilitated infrastructure, both economic and social; ii. improved social services provided with benefit of the improved infrastructure (clinics, schools, district hospitals, training centers, etc.); iii. improved productivity of rural enterprises and farms through improved economic infrastructure (bridges, culverts, small scale irrigation works, etc.); iv. improved sanitation and health through provision of clean water supply and sanitation facilities; v. strengthening of community self help and project management capacities through increased community control over sub-project resources and implementation; vi. development of coordination mechanisms to rationalize local development investments between government, local government and NGOs. The target population for the Project will be the poor, who live overwhelmingly in rural areas. This will be achieved through an improved poverty targeting map, using more recent poverty analysis than was available for the first project. The targeting map will allocate sub-project financing resources to provinces based on population adjusted for poverty levels and measures of access to social and economic services. Another important aspect of targeting will be achieved at sub-project appraisal through improved coordination mechanisms to identify existing and planned donor investments in the immediate sub-project area. SFII will need to improve its coordination so as to avoid overlap or over investment in areas already enjoying concentrations of donor financed projects, including SFI projects. This was a useful finding of the recent beneficiary assessment carried out under contract with SFKC. VII. Sustainability Improving sustainability of SFKC sub-projects motivates many of the major changes in SFKC operational policies and procedures. Social funds share with other government projects the problem of adequate attention to and financing of maintenance, at the community level, at the local government level and at the central level. This issue tends to be more acute in the poorest countries. For SFII, this will be attempted through both ex ante and ex post - 5 -  interventions. Before a sub-project is financed, the SFKC will at the promotion, appraisal and contracting stage inform, and if appropriate, train applicants in their maintenance responsibilities. Requirements for a maintenance or operations committee and plan will be built into appraisal and the contract. Ex-post, the SFKC will monitor maintenance and sustainability performance, and will be empowered to take various steps to address shortcomings, from further training, group problem solving interventions, written requests for action to responsible groups, and financing of urgent and unforeseen repairs. Monitoring of post handover performance will become a regular segment of the operational cycle. VIII. Lessons Learned from Past Operations The SFI project was designed in response to an already rich accumulation of experience with Social Funds in Latin American and Africa. SFII will both continue to observe those lessons and reflect more recent experience that has been integrated in several recent reports, including an influential OED "Portfolio Review of Social Funds" in 1997, an OED conference on Social Funds and its 1998 report "Social Funds and Reaching the Poor", and a working paper on "Design of Social Funds. Participation, Demand Orientation..." in 1997. Design of SFII will therefore reflect lessons of experience as follows: Protect institutional autonomy and freedom from political interference. Insure transparency and accountability Attract high caliber staff through competitive salaries. Provincial and district coordination is at the heart of SFKC operations, and will be strengthened to improve sustainability and cofinancing performance. High community ownership to achieve sustainability of sub-projects was a SFI priority, which will be given new importance under SFII. Strong supervision mechanisms to assure sub-project quality and rapid implementation. The more complex the mandate, the more likely implementation problems. The SFII will continue the reconstruction mandate, but adjust it to emerging longer term issues, particularly sustainability and community ownership. X. Environmental Aspects The SFKC finances small infrastructure projects, averaging just over $10,000 each. All sub-projects rebuild or rehabilitate existing structures. SFKC appraisal criteria include an environmental assessment. If the assessment reveals substantial environmental impact, appraisal is halted and the impacts further studied. This has not been an issue yet in SFKC operations. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Christopher Chamberlin Principal Operations Officer World Bank Thailand Office - 6 -  Phone: 66 2 256-7792 Fax: 66 2 256-7794 Email: CChamberlin@worldbank.org Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending February 5, 1999. - 7 -