Cambodia - Supplemental Credit to the Second Social Fund Project (Financing for Flood Rehabilitation of Small Scale Infrastructure)

Report No. PID9798 Project Name Cambodia-Social Fund II Supplemental (@) Financing For Flood Rehabilitation Of Small Scale Infrastructure Region East Asia and Pacific Sector Social Assistance Project ID KHPE73310 Implementing Agency Social Fund of the Kingdom of Cambodia Date of PID Preparation April 23, 2001 Date of Appraisal March 30, 2001 Projected Board Date June 5, 2001 Background 1. Flooding in Cambodia during the 1999-2000 rainy season has been the worst in 30 years. Two separate flooding episodes struck the country, the first in July 2000 and the second beginning in the end of August. At last count, 20 provinces and 3.4 million people have been affected: 347 people have died and 84,000 families have been evacuated. Of particular importance is the severity of the second round of flooding, which caught farmers completely by surprise and destroyed their second attempt to plant and grow a wet season rice crop. 2. Mission estimates at pre-appraisal in December 2000 indicate that nearly 1500 school buildings have incurred substantial damage; some 120 health centers and hospitals inundated; thousands of km of rural roads have been destroyed by flooding; hundreds of small bridges and culverts have been damaged or washed away completely; over 21,000 rural wells have been damaged; and widespread damage has occurred to irrigation infrastructure and canals. In addition, national infrastructure has also been hard hit, especially national roads, bridges, and large scale irrigation schemes. Rural households have endured very large losses to crops, fields, and housing. Total damage has been estimated by the Government at US $161 million, including public and private assets. 3. A Bank appraisal mission visited Cambodia in March 2001 in order to appraise a proposed Cambodia Social Fund II Supplemental IDA credit to support the rehabilitation of small scale infrastructure damaged or destroyed during the floods that struck Cambodia last year. 4. The objectives of the mission were to obtain sufficient information on the scale of flood damage to small scale infrastructure (rural water supply, irrigation, roads, bridges, culverts, schools, health facilities), the amounts of assistance expected to be delivered by donors to rehabilitate the infrastructure, the resulting gaps in financing, the capacity of national and provincial entities to prepare such estimates of damage and to rank their priority needs for immediate rehabilitation, and the scope of any necessary technical assistance to complement available capacity. Poverty Impact and Economic Effects  5. Cambodia is one of the poorest countries in the world, with per capita income of $290 in 1999 and poverty incidence estimated at over 40 percent in rural areas. Cambodia ranks 137 out of 174 countries covered in the UNDP Human Development Index. Cambodia's rural poor are highly vulnerable to severe shocks to both their flow of income and to their stock of productive assets, both of which have endured heavy losses during the 2000 floods. Compounding the difficulties of their recovery during the dry season (November 2000 - June 2001) will be the destruction of public assets on which they depend for their livelihoods (transport, health, water supply, irrigation). It is essential to provide for increased employment opportunities during the dry season through public works and to rebuild critical infrastructure that will allow the rural poor to plant and harvest successfully over the next rainy season. Targeting Strategy 6. The impacts of the 2000 floods are concentrated in those low lying, densely populated areas, neighboring the Mekong River and the Tonle Sap River and Lake. These areas are relatively fertile and productive, and are thus correlated with relatively higher incomes than the more hilly and remote regions that have escaped extensive flooding. Flood response activities will be unavoidably targeted to better off areas, and are likely to rebuild highly productive assets (transport and irrigation). Response of the International Community 7. Cambodia is endowed with a substantial donor community in residence, many of whom have specialized in disaster preparedness and response. Substantial resources have already been mobilized to provide food, shelter, implements and seed assistance to affected families and farmers. 8. Total expected assistance for flood damaged small-scale infrastructure rehabilitation is approximately US $36.38 million. Sectoral distribution of the $36.38 million is heavily weighted to transport with 55t of the total assistance. Irrigation is the next largest sector. The Asian Development Bank (ADB) is the single largest source of funds, with a recently approved Emergency Credit. Assessment of Flood Damage to Small Scale Infrastructure 9. The assessment of total flood damage to small scale infrastructure is complicated by limited institutional capacity at the National Committee for Disaster Management (NCDM), the varying capacities of individual ministries to obtain accurate estimates, and the inherent difficulty in identifying flood damage from other causes of infrastructure failure. Thus the best gage available on total damage appears to be the provincial priority lists that have been submitted by the Provincial Committees of Disaster Management (PCDM) to SFKC. As of end March 2001, SFKC had received 1,416 applications for flood rehabilitation assistance from 13 out of the 21 flood-affected provinces. The total value of these applications is approximately US$30.2 million. This is a 50t increase since February 2001, at which point the SFKC had received about $21 million in applications. It is thus reasonable to expect further applications and that the US $50 million estimated during the November 2000 pre-appraisal mission will remain a workable upper bound for small-scale infrastructure rehabilitation needs. This provides ample demand for both SFKC and other donor financed initiatives in small scale -2 -  infrastructure rehabilitation, as estimated at pre-appraisal. Those applications that SFKC cannot finance with supplemental resources will be passed on to the NCDM for assignment to other donor programs. 10. Such estimates, however, cannot be relied upon to rank provinces in terms of severity of damage and thus for targeting rehabilitation financing. The provincial cost estimates undertaken in December last year produced counter intuitive results, in that some lightly flooded provinces showed high infrastructure rehabilitation costs. This may have reflected differing provincial capacities to submit estimates rather than actual damage. Utilizing another methodology undertaken by the World Food Program, which examined satellite photography during the floods to assess extent of flooded areas and the population so affected, the mission ranked provinces by number of people affected. This method resulted in a more intuitive ranking, but with no rehabilitation costs attached. In order to avoid misallocation of resources under the credit, the SFKC will allocate the supplemental resources to target provinces proportionally based on number of people affected per province. Bank Response and Rationale 11. The beginning of the dry season and the ebbing of flood waters in November marks the first opportunity to accurately estimate flood damaged infrastructure, to appraise potential projects, and to initiate construction. For irrigation works and bridges and culverts, the onset of the rainy season around August/September, 2001 will force the suspension of new project launches, as river beds and canals fill with run off. Thus, there is an urgency to the launch of transport and irrigation projects, particularly those that are critical to production and transport before the coming wet season. 12. The Social Fund of the Kingdom of Cambodia (SFKC) was established by the Cambodian Government by means of a Royal decree in 1995 and has been in operation continuously since then with financial support from a first IDA credit (Social Fund I - $20 million), a second IDA Credit (Social Fund II - $25 million), co-financing from American Assistance to Cambodia ($2 million) and from the OPEC Fund of approximately $8 million. The SFKC has supported nearly 2000 individual sub-projects, distributed over every province and district in the country. The sub projects are in schools; rural water supply, bridges and culverts, health facilities, irrigation, urban water supply and markets and training. This sectoral distribution contains substantial overlap with reports of flood damage to rural, small scale infrastructure, thus positioning SFKC well to respond. 13. For SFKC to respond quickly during this dry season, the Bank and the SFKC agreed that the flood rehabilitation effort over this dry season will take precedence over all other sub-project approvals. Project Objectives and Description 14. The objectives of the project remain those of SFII, namely to support Cambodia's reconstruction through the financing of small scale, community based infrastructure, to create short term employment opportunities in construction, and to strengthen communities and local government through a demand driven sub-project identification and preparation process. - 3 -  15. The components of the Project, will include: ? Sub project grants ($9 million): repair and rehabilitation of small scale infrastructure damaged by Floods. ? SFKC administrative costs ($.8 million): SFKC will incur additional administrative costs (salaries, travel, equipment, etc.) to manage the incremental sub-projects. This component will sustain SFKC's compliance with its legal limitation to contain administrative costs below 8t of total costs. ? Technical Assistance ($.2 million): SFKC will utilize the TA resources to recruit consultants and technical services to assess its performance in flood rehabilitation, develop data bases for transfer to national disaster coordination entities and projects, conduct beneficiary, technical and procurement assessments, and conduct training in operational topics (irrigation, appraisal procedures). 16. Partnerships for the Project will be structured with the National Disaster Management Committee, the UN Disaster Management Committee, the Ministry of Rural Development, the World Food Program and the Cambodian Red Cross. During the pilot phase, SFKC has worked well with NCDM and PCDMs in the identification of sub-projects. This collaboration has helped to prevent overlap in project funding. Donor agencies (excluding the Bank) have a seat, along with provincial officials, on the PCDMs. An important challenge for SFKC is to manage its contractual obligations with other donors in light of the urgent priority of flood sub-projects; so far donors have agreed to some delays in their sub-projects with SFKC to allow for flood project processing. Financial Management 17. The financial management arrangements will exactly overlap with those for the underlying credit, with the one exception that the sub-project disbursements under flood rehabilitation will be coded separately (similar to the separate coding for MOU sub projects, that is sub projects that are being processed in accordance with an MOU signed between SFKC and a donor agency). In all other respects, the supplemental is simply added to the balance of the credit. There will be no separate coding for other categories of expenditure. Environmental Impact 18. The SFII and Supplemental Credit resources will now finance an increasing proportion of irrigation and transport due to the flood rehabilitation program, raising the risks of environmental impacts and requiring a more vigilant and systematic approach to appraising such risks and monitoring impacts during construction and handover. A consultant with experience in this area will be engaged to help revise operational manual procedures and criteria for environmental risk management in the sub-project cycle and to provide further training. Issues and Risks 19. There are two potential constraints to the timeliness and scale of SFKC - 4 -  flood response: adequate implementation of the new procurement arrangements; and procedures and criteria that may not be suitable for an emergency response. 20. Procurement in SFKC operations has been inconsistent in terms of procurement management, particularly in the management of direct contracting. A series of procurement reforms have been introduced by SFKC, including the cessation of direct contracting as an eligible method of procurement. Direct contracting has been replaced by a limited form of competitive bidding. The remaining question is the effectiveness of these reforms in improving procurement performance. To achieve a high level of certainty on this remaining issue, the SFKC agreed to send a combined Technical Assessment/Beneficiary Assessment team back into the field to review 25-30 projects that have been implemented under the new procedures. This notification and procurement assessment was completed by March 2001, at which time the Bank appraisal mission was able to proceed. 21. In regard to SFKC procedures, the mission and SFKC reached agreement that three procedures would be modified. First, the appraisal criteria governing the proportion of earth moving costs (repairs to dikes and canals) allowed under irrigation projects will be increased from 30t to 50t of total project costs, with higher proportions allowed on a World Bank no objection basis. Second, the appraisal criteria governing the proportion of road repair costs allowed for bridge and culvert projects will be increased from 10t to 50w, with higher proportions allowed under a World Bank no objection basis. Third, the mandatory community/applicant contribution to total project costs will be lowered to 59 for flood rehabilitation sub-projects. Contact Points: The InfoShop The World Bank 1818 H. Street, NW Washington, DC 20433 Telephone: (202) 458-5454 Fax No.: (202) 522-1500 Chrisotopher Chamberlin Task Manager 5788+344 Bangkok, Thailand This PID was processed by the InfoShop during the week ending April 27, 2001. - 5 -