Cambodia - Emergency Flood Recovery Project

Report No. PID9913 Project Name Cambodia-Flood Emergency Rehabilitation (@) Project Region East Asia and Pacific Region Sector Non-Sector Specific Project ID KHPE73394 Borrower(s) KINGDOM OF CAMBODIA Implementing Agency Address MINISTRY OF PLANNING 386 Blvd. Preah Monivong, Phnom Penh, Kingdom of Cambodia Contact Person: Mr. Ou Orhat Tel: 855 232-12055 Fax: 855 323-10944 Email: pmcu@camnet.com.kh Environment Category B Date PID Prepared January 17, 2001 Projected Appraisal Date January 18, 2001 Projected Board Date March 15, 2001 1. Country and Sector Background Country BackgroundExcept for the two years (1997 and 1998) when it was hard-hit by domestic problems and ripple effects of the Asian financial crisis, the Cambodian economy has been growing quite rapidly since 1991. Annual real GDP growth ranged between 4 percent and 7.6 percent during 1991 to 1996, and was estimated at 4.5 percent in 1999. Before the 2000 floods, real GDP was forecasted to grow by 5.5 percent in 2000. However, it is estimated that the impact of the floods could cut the GDP growth rate by as much as 1.5 percent in 2000. The country's per capita income stood at US$290 in 1999. Although economic growth since 1993 has reduced poverty somewhat, a poverty assessment carried out in 1999 indicates that 36 percent of the population still lived below the poverty line, with the concentration of poverty being higher in rural areas where 40 percent of the population was found to live below the poverty line. A large proportion of the population is clustered around the poverty line, indicating a potential for significant increases in the incidence of poverty when the country is hit by disasters such as the 2000 floods.The FloodThe 2000 floods, which started in the middle of July and continued through mid-December, are thought to be the worst in 50 years and part of an apparently increased flood frequency in recent years Major floods last occurred in the same areas in late-1996.. The rivers around Phnom Penh (particularly Bassac River and Tonle Sap River), were well above emergency levels for all of September and a large part of October. Thanks to extraordinary efforts by government flood-fighting brigades, breaches in the 40-year old dike protecting Phnom Penh were avoided and the capital city was saved from serious flood damage. The record high levels of the river systems and the unusually long floods have seriously damaged Cambodia's infrastructure, caused extensive damage to crops and livestock, and caused people extensive suffering as a result of  displacement, food shortage, interruption of economic livelihood and disease. It is reported that 347 people died and a total of 760,000 families representing more than 3.4 million people were affected, with more than 84,000 families (with close to 400,000 people) evacuated.The Government's preliminary estimate of the total cost of damages from floods is US$161 million. The Government is expected to revise this estimate upwards in January 2001. The government estimates of the cost of damages mainly refer to the direct damages. Indirect costs, which are down stream costs stemming from the direct losses or damages, have not been included in Government's estimates. Moreover, damages of some sectors such as energy, telecommunications and housing, have not been included in the government estimates. Consequently, the government estimates represent a gross underestimation of the costs of flood damages.In terms of economic losses, the greatest damage was to agriculture where the economic cost of the losses is estimated by the Government at US$71 million. Of this, US$62 million of the losses were in terms of rice associated with a damage of 400,000 ha of paddy, of which 200,000 ha is reported to have been destroyed completely. In addition, an estimated US$9 million was lost in terms of damage to 47,000 ha of subsidiary crops and a loss of 2,300 oxen/buffaloes, and 1,620 pigs.The second most heavily destroyed sector is the national and provincial transport network where damage is estimated at US$47 million (recently raised to US$64 million by the Ministry of Public Works and Transportation). In addition, flood control and irrigation systems suffered a loss of US$17 million, Education Sector lost US$15 million, rural development (mainly rural roads) lost US$11 million and the health sector lost US$0.7 million in damage to rural health facilities.Both the ADB and the Cambodia Development Research Institute (CDRI) estimate the flood damages to have cut GDP growth by 1.5 percent although the Government has been reluctant to revise downwards its pre-flood GDP growth estimate of 5.5 percent for this year (2000).Response to the Flood EmergencyInformation received by the mission indicates that provision of relief assistance by the Royal Government of Cambodia (RGOC) and donors was quickly organized and effectively delivered. The government' s ministries responsible for water resources and public works organized effective flood-fighting and damage control works. The reported contribution of RGOC of about US$15.5 million of support from the budget has led to the postponement of salary payments and other non-flood expenditures. External donors have provided relief assistance in the range of US$16 million to US$20 million equivalent.In addition to the relief assistance, the ADB has appraised an Emergency Flood Rehabilitation Project valued at US$84 million. ADB proposes to contribute to financing the project with a $55 million new loan and US$12.5 million through reallocation of funds from existing loans. The balance, equivalent to US$13.5 million largely in terms of taxes and duties, would be met by RGOC, with a balance of US$2.0 million funded with a WFP grant. Response Gap and the IDA ResponseThe response by IDA to meet emergency recovery needs is in three forms. The first is in terms of reallocating funds from on-going IDA-funded projects. A preliminary examination of our portfolio indicates that only about US$5 million could be freed up, primarily from a Transport project. The second form of assistance is through a possible Social Fund Supplemental Flood Rehabilitation Credit of US$10 million which was pre-appraised in early December 2000. The third form of assistance is the proposed EFRP which will receive financing from a new IDA Credit of up to US$35 million, assuming approval of the US$10 million Social Fund Supplement. -2-  2. Objectives The project has two primary objectives which are inter-related. The first objective is to restore production while the second objective is to rehabilitate economic and social infrastructure, in response to the damages caused by the 2000 floods. Support for restoration of production would be provided through financing of some agricultural inputs, primarily fertilizer, and by reducing the risk of selling land and production assets (by flood-affected families) through support for restocking of emergency and essential human drugs, and school grants to meet some school expenses (scholarships, furniture and books and other supplies) that are normally met by families. The rehabilitation objective would be pursued through rehabilitation of damaged facilities. Another project objective is to reduce the vulnerability of the country to flood damages. As Cambodia had already experienced severe floods as recently as in 1996, it is apparent that the country is increasingly becoming vulnerable to flooding. This phenomenon appears to be occurring as a result both of natural causes (e.g. rainfall and other climate changes) and of human interventions (e.g. erosion of riverbanks) taking place in the Mekong watershed. To address the problem of long term vulnerability of Cambodia to flooding, the project would include support for studies, including a review of possible projects identified under the framework of the Mekong River Commission, aimed at developing a program to restore the natural drainage capacity of the Mekong basin within Cambodia. 3. Rationale for Bank's Involvement The damages caused by the 2000 floods are beyond the financial capacity of Cambodia to correct in terms of rehabilitating the damaged infrastructure and restoring production and social services to pre-flood levels. Even after the RGOC had spent in excess of US$15 million and other donors, particularly the ADB, had committed resources to support relief and rehabilitation efforts, there is still a large gap. The question is whether the Bank should step in to fill the gap and why? The answer is yes: IDA support to restore GDP growth and economic livelihoods of people to pre-flood levels is consistent with the Bank's Country Assistance Strategy, dated February 2000 (and discussed by the Board on February 29, 2000), whose main objective is to assist Cambodia build the foundations for sustainable development and poverty reduction by, among other things, rebuilding infrastructure, rebuilding human capital and facilitating private sector development. This is what the proposed EFRP is set out to do. It will rebuild infrastructure and school facilities and support a rapid recovery in production in flood-affected areas. 4. Description The project would be implemented over three years. It would be comprised of the following components: (i) rehabilitation of school facilities; (ii) rehabilitation of flood control and irrigation systems; (iii) rehabilitation of national rural roads; (iv) rehabilitation of rural infrastructure; (v) project management and implementation assistance including a study to support development of a long term strategy to reduce vulnerability to flooding. 5. Financing Total ( US$m) Total Project Cost US$40.4 -3-  Total project costs are estimated at US$40.4 million, of which US$3.5 million, or 9 percent, are estimated to be taxes and duties. The Bank would finance US$35 million, about 95 percent of total costs, less taxes and duties. The rest, including duties and taxes, would be funded by the RGOC. 6. Implementation Project implementation will be coordinated and monitored by a Project Coordination Committee (PCC), chaired by the Minister of Planning, in line with the Government's preference. Under the PCC, there would be a Project Monitoring and Coordination Unit (PMCU), a Secretariat of PCC headed by a Secretary of State, which would oversee, coordinate and monitor project implementation. The ADB Flood Rehabilitation will use the same arrangements as we are proposing. Each of the two donors would have a separate Section in the PMCU coordinating the project. Actual implementation of each sectoral component would be undertaken by Project Implementation Units (PIUs) within each relevant line ministry. Within each line Ministry, the aim would be to use PIUs of on-going World Bank or other donor projects, with some minimal expansion if necessary. As there is a Section in the Ministry of Economy and Finance which has some experience in handling procurement and financial management of World Bank-funded projects, it will undertake financial management for the project.Given there is a large number of sub-projects in each sector and the need to respond rapidly to the flood disaster, implementation will follow a program approach, with most of the subprojects prepared and evaluated during project implementation. Selection criteria will be established for each sectoral component. Only the subprojects for implementation in the first year of the project would be prepared and evaluated before the Credit is effective. The sub-project selection criteria together with other guidelines for implementation of subprojects will be contained in a simple Operations Manual which will was reviewed during negotiations and will be adopted before the credit is effective. Retroactive financing would be considered for up to 20 percent of the IDA Credit for eligible expenditures incurred since the date of the first mission, namely December 15, 2000. 7. Sustainability While the project aims to restore production and rehabilitate damaged infrastructure to pre-flood levels as well as to undertake up-grading of infrastructure on a case by case basis, operation and maintenance of the infrastructure and sustainable growth in production will be supported by existing projects and other projects in the pipeline. As there are some projects in the portfolio or pipeline in each of the sectors where the FERP has a component, these projects would be relied upon to enforce sustainability of the investments undertaken under the proposed project. Furthermore, although the FERP will aim, where feasible, to deploy design standards that can reduce damages from similar floods in future, it will largely rely on the projects in the portfolio and pipeline to develop and deploy improved technology standards that can withstand floods to ensure long term sustainability of investments made under the FERP. In addition, the proposed project supports a study to develop a strategy to reduce vulnerability to flooding. 8. Lessons learned from past operations in the country/sector Relevant lessons for design of FERP can be drawn from at least 3 sources: - 4 -  (i) previous Bank-supported emergency projects in Cambodia; (ii) previous Bank-supported emergency projects outside Cambodia; and (iii) other Bank-supported projects in Cambodia. The Bank has supported two emergency type projects in Cambodia in the past: the Emergency Rehabilitation Project (Cr. 2550) approved in 1993; and the Economic Rehabilitation Project (Cr. 2781) approved in 1995. A performance audit for the two projects carried out by the Operations Evaluation Department in 1999 drew the following relevant lessons for the design of the proposed project. First, emergency project objectives should be consistent and cohesive, with an adequate project implementation period if infrastructure rehabilitation is the objective, and a broad ear-marking of foreign exchange and counterpart fund use if support for general critical imports is the objective. The proposed project will incorporate this lesson in its design by clearly separating the infrastructure rehabilitation components from the imports component, and ensuring an adequate implementation period for the former and a broad earmarking of foreign exchange and counterpart funds for the latter. Second, emergency loans should have no policy reforms or other similar conditions for disbursement. This lesson will be reflected in the proposed project by doing away with policy conditions. Third, emergency loans should be simple in design consistent with the borrowers' institutional capacity to prepare and implement projects. This lesson will be reflected in the design of the proposed project by using Project Implementation Units (PIUs) of on-going IDA projects to implement the various components of the proposed project.Some important lessons drawn from past emergency projects outside Cambodia that will be reflected in the design of the proposed project include: (i) the speed of appraisal and implementation is crucial to project success; (ii) procurement needs to be flexible and procurement management should start early; (iii) mitigation measures should always be included against a repeat disaster; and (iv) simple and flexible design and rapidly executable. Drawn from: Gilbert, Roy and Kreimer, Alcira, 1999. "Learning from World Bank's experience of natural disaster related assistance", Urban Development Division; and Kreimer, Alcira, 1990. "Lessons learned from emergency lending", Environment Department working Paper No. 1990-15. 9. Program of Targeted Intervention (PTI) No 10. Environment Aspects (including any public consultation) Issues : As the proposed project would support rehabilitation of existing infrastructure, environmental and social impacts will be minimal. Environmental and social issues would be taken into account in the planning and design stages of sub-projects, in screening subprojects and during project implementation. Appropriate environmental, resettlement and indigenous peoples guidelines are being developed and will be reviewed during negotiations and included in the project's operational manual to guide the design and screening of sub-projects to ensure that they are in compliance with Bank safeguard policies. During negotiations, assurances were obtained that the operational manual and environmental, resettlement and indigenous peoples policy guidelines, satisfactory to the Bank, would be adopted by RGOC before the credit is effective.11. Benefits and RisksAs the proposed project would support rehabilitation of existing infrastructure, environmental and social impacts will be minimal. Environmental and social issues would be taken into account in the planning and design - 5 -  stages of sub-projects, in screening subprojects and during project implementation. Appropriate environmental, resettlement and indigenous peoples guidelines are being developed and will be reviewed during negotiations and included in the project's operational manual to guide the design and screening of sub-projects to ensure that they are in compliance with Bank safeguard policies. During negotiations, assurances were obtained that the operational manual and environmental, resettlement and indigenous peoples policy guidelines, satisfactory to the Bank, would be adopted by RGOC before the credit is effective. 11. Contact Point: Task Manager Frank Fulgence K. Byamugisha The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 202 473 4198 Fax: 202 477 2733 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending March 16, 2001. - 6 -