Document of The World Bank Report No. 14010-KE STAFF APPRAISAL REPORT CAMBODIA SOCIAL FUND PROJECT MAY 11, 1995 Human Resources Operations Division Country Department I East Asia and Pacific Region CURRENCY EQUIVALENTS Currency unit = Riel 1 US dollar = 2,613 riels (as of February, 1995) WEIGHTS AND MEASURES Metric System ABBREVIATIONS ADB Asian Development Bank CARERE Cambodia Resettlement and Reintegration Operation GDP Gross Domestic Product GNP Gross National Product ICORC International Committee on the Reconstruction of Cambodia IDA International Development Association ILO International Labor Organization IMF International Monetary Fund LCB Local Competitive Bidding NGO Non-Governmental Organization SFKC The Social Fund of the Kingdom of Cambodia SOE Statement of Expenditure TA Technical Assistance UN United Nations UNDP United Nations Development Organization UNICEF United Nations Children's Fund USAID United States Agency for International Development WHO World Health Organization GOVERNMENT FISCAL YEAR January 1 - December 3 1 i KINGDOM OF CAMBODIA SOCIAL FUND PROJECT TABLE OF CONTENTS CREDIT AND PROJECT SUMMARY iii L INTRODUCTION 1 II. ECONOMIC AND SOCIAL CONTEXT A. Economic Context 2 B. Social Context 3 C. Institutional Setting 5 III. GOVERNMENT STRATEGY AND RATIONALE FOR BANK INVOLVEMENT A. Government's Development Strategy 6 B. Rationale for Bank Involvement 6 C. Lessons from Social Fund Experience 7 IV. THE PROJECT A. Origins of the Project 9 B. Project Objectives 9 C. SFKC Institutional Framework 9 D. SFKC Operational Procedures 10 E. Project Components 11 V. PROJECT IMPLEMENTATION A. SFKC Organizational Structure and Functions 13 B. Sub-Project Cycle 14 C. Monitoring and Evaluation 18 D. Reporting and Supervision 19 E. Environmental Impact 20 VI. PROJECT COSTS, FINANCING, PROCUREMENT AND DISBURSEMENTS A. Estimated Costs and Financing Plan 21 B. Procurement 23 C. Disbursement 26 D. Accounts and Auditing 26 VII. BENEFITS AND RISKS 28 VIII. AGREEMENTS REACHED AND RECOMMENDATION 29 ANNEXES Annex A: SFKC Royal Decree and Statutes 31 Annex B: Royal Decree appointing Board of Directors 38 Annex C: Eligibility Principles 40 Annex D: Sub-project Menu 42 Annex E: Technical Assistance 43 Annex F: Functional Responsibilities of SFKC Departments 45 Annex G: Outline of Operational Manual 49 Annex H: Outline of Administrative Manual 53 Annex I: Project Cycle 55 Annex J: SFKC Performance Indicators 56 Annex K: Detailed Project Costs 57 Annex L: Procurement and Disbursement Methods 58 Annex M: Disbursement Profile 59 Annex N: Documents contained in Project File 60 This report is based on the findings of an Appraisal mission which visited Cambodia from March 6-20, 1995 comprised of C. Chamberlin (Mission Leader, EA1HR), S. Forster (EAIHR), M. El-Erian (Country Counsel, LEGEA), V. Wickrema (Sr. Budget and Financial Specialist, EAPCA), S. Carvalho (Economist, ESP), R. Cisneros (Social Fund Operations Specialist, consultant), and G. Paez (Finance and Administration Specialist, consultant). Other important contributions to project preparation were made by C. Bun Rong (PPU General Director), M. Naur (sociologist), and S. Pendergast (PPU consultant). The peer reviewers for the project are M. Barton-Dock (AF3AE) and J. Newrman (LA2HR). The Division Chief is J. Shivakumar (EA1HR) and the Department Director is C. Madavo (EA1DR). iii KINGDOM OF CAMBODIA SOCIAL FUND PROJECT CREDIT AND PROJECT SUMMARY Borrower: Kingdom of Cambodia Implementing Agency: Social Fund of the Kingdom of Cambodia (SFKC) Beneficiary: Not applicable Poverty: Program of Targeted Interventions Amount: SDR 13.4 million (US$ 20 million equivalent) Terms: Standard IDA, with 40 years maturity and 10 years of grace Commitment Fee: 0.5% on undisbursed credit balances, beginning 60 days after signing, less any waiver Onlending Terms: Not applicable Financing Plan: See para. 6.4 Net Present Value: Not applicable Project ID Number: KH-PA-37088 iv KINGDOM OF CAMBODIA SOCIAL FUND PROJECT Basic Social and Economic Indicators (1994) GDP per capita (US$) 200 Total area (kn2) 181,000 Population 8.64 million Rural population (% of total) 85% Population in capital city (% of total) 12% Life Expectancy (years) 51 Infant Mortality (per 1000 live births) 116 Under 5 mortality rate 184 Total fertility rate (births per woman) 6 Crude birth rate (per 1,000 population) 40-48 Crude death rate (per 1,000 population) 12-19 Percentage households headed by women 25 Access to health services (% of total population) 53 Population per doctor 12,000 Population per nurse 1,258 Population per hospital bed 478 Ratio of amputees to total population 1/236 Adult literacy rate 35% Gross primary enrollment rate 114% Gross secondary enrollment rate 29% Access to safe water supply - % urban population 20 Access to safe water supply - % rural population 12 Access to sanitation - % urban population 16 Access to sanitation - % rural population 9 Sources: Social Indicators of Development, World Bank 1994; Education Sector Review, ADB, 1994; National Health Plan, Kingdom of Cambodia, 1994; Cambodia: From Rehabilitation to Reconstruction, World Bank, 1994; Population of Cambodia, J. Desbarats 1993. Note should be taken that most of these indicators are rough estimates based on limited survey data and Government statistics. CHIAPTER I INTRODUCTION 1.1 Cambodia has recently emerged from two decades of civil conflict, social upheaval and a command economy. Today, following a UN brokered peace agreement in 1991 and subsequent elections in May 1993, a coalition government is in power which has embarked on a rehabilitation and reconstruction program aimed at putting the country back on the path of economic and social development. 1.2 The Royal Government has made it a high priority to direct donor assistance to rural areas that have long been neglected or insecure. Much of the country's infrastructure is in a state of disrepair or totally destroyed, with many areas lacking adequate schools, clinics, water supply and local roads. The opportunity to address these needs coincides, unfortunately, with a lack of experience and capacity in the central ministries to organize and deliver such investments on a national scale. Developing such capacity will take time, and in the meantime, under the current situation, the rural poor must depend on their own meager resources and the limited budgets of provincial governments to rebuild infrastructure and restore basic services. 1.3 Several features of present day Cambodia, however, encourage a more positive outlook for investing in poor, neglected areas of the country. Circumstances have forced communities and local governments to operate autonomously of the central government for many years, and communities, working with small contractors, have managed to undertake some local projects, especially if foreign financial assistance was available. The local contracting and building industry is, therefore, represented throughout much of the country and a relatively large number of NGOs are operating on a local level and have developed considerable expertise in service provision and community development. Overall, therefore, there is widespread local capacity to undertake small, relatively simple construction projects. However, financing remains a major constraint to carrying out such projects in any large numbers. 1.4 In response to this situation, in March 1994, the Government expressed its interest in creating a social fund. A social fund is a demand-driven financing mechanism that aims to target an increased level of investment to poor areas where basic infrastructure and services are badly damaged or destroyed. Patterned after the successful experience of social funds in Latin America and Africa, the Social Fund of the Kingdom of Cambodia (SFKC) would finance, on a grant basis, small-scale projects to support the rehabilitation of social and economic infrastructure and social services. The proposed project would support the establishment and operations of SFKC through an IDA credit of $20 million; $16.8 million to finance seed capital for project financing, $1.7 million for budget support for the SFKC's start-up and operations, $0.5 million for technical assistance and training of SFKC staff in project management activities, and $1 million unallocated. Based on the experience of other social funds, if SFKC is successful in its operations, it is expected that the demand for its services will quickly exceed this budget, and it will be able to attract additional financing for a program totaling at least $40 million. The institutional capacity of SFKC will be developed under the project to manage this expansion of the operational budget and sub-project activity. IUIIIUUOIYVI "i - L o LLILIal guVV SilhiiiivIiL 2 CHAPTER H ECONOMIC AND SOCIAL CONTEXT A. Economic Context 2.1 In September 1993, following UN administered elections, Cambodia established itself as a fledgling democracy under a new constitution, with the constitutional monarch as head of state. The ultimate objective of the new Government is to rebuild the country and to realize its full economic potential while reducing poverty, which is pervasive throughout the country. With an estimated per capita GDP of US$200, Cambodia is one of the poorest countries in the world. Most of the poor are concentrated in the rural areas, where over 80 percent of the population lives, though the exact number and location of people living below the poverty line are yet to be determined. 2.2 On the macroeconomic front, the Government's immediate task on coming to power was to control the high rate of inflation and deteriorating fiscal situation. In late 1992, a series of stabilization measures were taken, in consultation with the World Bank and the 1IMF, which effectively arrested the economic decline. Inflation was brought under control, the exchange rate stabilized and economic growth was relatively strong -- official data show real GDP growth of 4.1% in 1993 and 4.0% in 1994. However, despite this good performance, the country's economic situation remains precarious. The Government depends heavily on donors for budget support, as internal revenue mobilization is extremely low. Furthermore, growth has been unevenly distributed across the economy and the country, coming largely from the urban-based construction and service sectors, not from agriculture and the rural economy on which over 80% of the population depend. 2.3 The Government's long term objective is to achieve sustainable and equitable growth. Its immediate objectives under the 1995-97 macroeconomic framework agreed with the LMF and the Bank are to reach a 7.5% GDP growth rate by 1997, to consolidate recent stablization efforts and to reduce the rate of inflation to 10% in 1995 and 5% in 1997. Maintaining macroeconomic stability will require continued fiscal and monetary restraint and taking tough measures to raise government revenue. These macroeconomic policies will be accompanied by continued efforts to put in place the building blocks for a market economy, including establishing transparent and accountable legal and judicial systems, implementing structural reforms in the financial sector, civil service and public enterprises, and normalizing relations with the international financial community. 3 2 B. Social Context 2.4 Cambodia's recent political and economic history have taken an enormous toll on both the people and the physical infrastructure of the country. During the period 1970-79, between 1.5 and 3.5 million people lost their lives and another half a million people became refugees. Virtually all infrastructure was destroyed, as were many of the country's institutions. 2.5 Today, despite the notable progress made since the 1980s, the consequences of this devastation are still apparent. The country suffers from a lack of educated people, making human resources development and capacity building top priorities. An uncommonly high proportion of the adult population are women -- 25% of households are estimated to be headed by women, and these households are generally among the poorest. In addition, there are a large number of orphans and people who have been physically disabled during the war; one out of every 236 people in Cambodia is an amputee, injured by landmines, the highest national proportion of disabled people in the world. 2.6 Added to these problems, are those common to poor countries around the world. Available (though incomplete) data suggest that life expectancy at birth in Cambodia is only 51 years, the infant mortality rate of 116 per thousand live births is more than three times the regional average; mean years of schooling remain low; only 53 percent of the population have access to health services; and access to safe water is extremely low, particularly in rural areas. 2.7 Education. Cambodia is in the process of rebuilding its formal education system, which was effectively destroyed during the 1975-79 period. Since the 1980s, impressive progress has been made in rehabilitating school buildings and enrolling children in primary and secondary schools. A beginning has also been made in pre-school, technical and vocational education, as well as in adult literacy programs. 2.8 However, much remains to be done. There is still a widespread shortage of competent and adequately qualified teachers and severe budget constraints have caused a neglect of educational infrastructure at all levels. Many facilities destroyed during the war have yet to be rebuilt and those that exist are often very run-down. Recent building audits show that roughly half of the existing 27,000 classrooms are in need of repair and/or reconstruction. Communities are bearing the brunt of the cost of infrastructure provision and maintenance, which is often beyond their means. Inadequate administrative and managerial capacity within the Ministry of Education remains a key constraint to the effective implementation of policies and programs in the sector. 2.9 Recently, major efforts have been made to improve policy development and program planning to achieve the Government's overall objective of high quality education for all. The Government has prepared a medium-term investment plan for basic education for the period 2 Further details of the social context of this project are provided in the social assessment carried out during project preparation. See Maja Naur, 1994 Social and Institutional Aspects of a Social Fund Project in Cambodia. 4 1995-2000, with the assistance of the Asian Development Bank (ADB) and other donors. The main policy objectives of this program are (i) improve the quality of primary and lower secondary school education through improvements in curriculum, textbook and instructional support materials and teacher training; (ii) assure equitable access to six years of primary schooling, linked to gradual expansion of lower secondary schooling, through school building rehabilitation and targeting of schooling to ensure education for girls and minorities; and (iii) strengthen govemment's planning and management capability, at central, provincial and district levels. 2.10 Health. As in the education sector, the Government faces major challenges in the health sector. Malaria and tuberculosis are spreading almost unchecked in rural areas; child mortality from preventable diseases is high for a country of Cambodia's level of development; and public health services are unavailable or ineffective over large parts of the country. 2.11 Since mid- 1992, significant progress has been made in improving the situation. The flow of donor assistance to the sector has accelerated sharply; the availability of pharmaceuticals in private markets and public facilities has increased throughout the country; fiscal reforms have paved the way for the first truly national health budget in many years; and a comprehensive planning process has identified program objectives, needs and timetables. 2.12 However, a number of constraints to the implementation of an effective public health policy and program remain, including (i) the low allocation of budgetary resources to the health sector; (ii) donor agencies have largely bypassed central government in favor of direct assistance to public health facilities at the local level, resulting in a lack of coordination within the sector; (iii) the qualifications of practicing health professionals are extremely low, largely due to the years of conflict; (iv) the physical infrastructure of the public health system has suffered from years of neglect; (v) the public health system has been greatly decentralized in its management and financing, with inadequate policy guidance from the central ministry; and (vi) low salaries and various other factors have led public health personnel to request and receive private fees from patients within public facilities. This latter practice leads to biases against the poor and to inefficiencies in the utilization of public health services that should be provided free of charge. 2.13 The Ministry of Health has begun rebuilding a national health system through an intensive process of health policy development and program planning assisted by WHO, UNICEF, UNDP and the World Bank. The policy goals articulated by the Government are first, to reestablish functioning primary health services; second, to strengthen the national programs aimed at the principal communicable and preventable diseases; and third, to improve the capacity of the health system to perform basic functions and to manage resources effectively. 2.14 Rural Roads. The rehabilitation of roads in Cambodia is a prerequisite for the reconstruction of the country as a whole. Due to the dilapidated state of many primary and secondary roads, large parts of the country are effectively isolated. In these areas, local markets can only be accessed at very high costs or not at all, supply routes for essential commodities are threatened and basic social services cannot be provided. Expanding the repair and rehabilitation of rural roads is a high Government priority, as part of the overall effort to improve rural infrastructure and reduce poverty. Particular emphasis will need to be placed on linking rural 5 roads to the rehabilitated national roads in order to allow farmers to transport their surplus to markets and to help integrate markets. To date, the main actors in rural road rehabilitation have been UNDP's CARERE program and the ILO, both of which support labor-intensive road rehabilitation programs. 2.15 Water Supply and Sanitation. Water supply services were brought to a complete stop during the 1975-79 period. Though NGOs have been involved in the rehabilitation of water supply and sanitation systems since the mid-I 980s, the level of services remains extremely low, with about 20 percent of the urban population and 12 percent of the rural population having access to a safe and reliable source of water. UNICEF has been the main agency supporting the development of water points in rural areas and of policies for maintenance. Expansion of rural water supply projects, which are currently constrained by financial difficulties and lack of skilled workers, is called for with attention being paid as to how to involve local populations more actively in construction and maintenance. C. Institutional Setting 2.16 Given the years of war and recent establishment of the Government, management capacity within the government, at both central and provincial levels, is still weak. Lack of budgetary resources compounds the problem as many key ministries lack the minimum staff and basic equipment and supplies necessary to carry out their duties. Central ministries are responsible for establishing overall policies and directing Government programs, but provincial administrations have a high degree of autonomy and often act independently of central government. This lack of communication has led to inadequate coordination between central and local levels and lack of supervision at the local level. 2.17 Donors, UN agencies and non-governmental organizations (NGOs) have played an important role in Cambodia since the 1980s, particularly in the health, education and rural development sectors. In many instances, they have taken defacto responsibility for local level service delivery and community development activities directly, with little or no coordination with the central Government. However, as the Government has gained strength and capacity to manage programs, communication and coordination between the Government and NGOs has improved. 2.18 There is a substantial NGO presence in Cambodia, comprising about 90 international and 40 local NGOs. The majority rely on financing from bilateral and multilateral donors, including USAID, the European Union and the French Government. Many of the international NGOs have moved their activities to Cambodia in the last 2-3 years, having worked in the refugee camps previously, whereas the majority of the local NGOs started their activities in the last two years. Though the overall implementation capacity of NGOs varies greatly, in general, their wide- ranging experience and expertise in community programs and service delivery and increasing willingness to coordinate activities with the Government will make them valuable partners for SFKC. 6 CHAPTER III GOVERNMENT STRATEGY AND RATIONALE FOR BANK INVOLVEMENT A. Government's Social Development Strategy 3.1 The overarching objective of the Royal Government is to achieve sustainable growth with equity and social justice. As laid out in the 1994 "National Programme to Rehabilitate and Develop Cambodia", this translates into a commitment to (a) reform the State, its institutions and its public service so as to achieve political and socio-economic priorities; (b) rely on private entrepreneurship and the market as engines of growth; (c) double the present level of GDP by 2004 in real terms; (d) extend health, educational and social services to the entire population; (e) improve rural living standards by promoting rural development as a central development priority; (f) ensure that the pattern of development is sustainable socially, politically, fiscally and environmentally; and (g) strengthen domestic self-reliance so as to reduce dependence on external assistance. 3.2 A central element of the Government's strategy is to provide direct support for sustained development through public investment programs in infrastructure rehabilitation, health, education and rural development. Rehabilitating and reconstructing physical infrastructure is seen as critical to reducing bottlenecks to development, as is widening access to social services, especially among women and disadvantaged groups. The Government plans to pay particular attention to developing the country's rural areas, where the majority of the poor live, and to ensuring that the more remote areas of the country gradually become integrated into society's mainstream. 3.3 The greatest hurdle the Government faces in achieving these objectives, aside from a lack of financial resources, is the limited capacity of key line ministries to design and implement appropriate programs and projects. Thus, a central element of the Government's strategy is to strengthen the capacity of line ministries to improve service delivery and increase their absorptive capacity. The Ministries of Education, Health and Agriculture have been targeted as priorities in terms of capacity building. However, developing such capacity will take time. Given the urgent need to increase public investment, the Government has proposed the establishment of a social fund, as a mechanism to provide rapid and effective financing to small sub-projects proposed by governmental and non-governmental entities. B. Rationale for Bank Involvement 3.4 For social, political and economic reasons it is imperative to increase public investment and employment opportunities in the poor areas of Cambodia quickly. A social fund provides a financing mechanism that is well-suited to such a task and to current conditions and capacities in Cambodia. It is flexible, demand-driven and can respond rapidly to local needs. As such, it would be a productive interim measure to put Government resources to work for the benefit of the poor and enable the Government to deliver tangible project assistance to under-served rural and urban areas at this crucial early stage of its tenure in power. 7 3.5 The project is a key element of the Bank's Country Assistance Strategy (CAS). In particular, it supports one of the main objectives of the CAS which is to support critical rehabiliation and reconstruction that will have a significant impact quickly. In line with the spirit of the CAS, the Social Fund Project is an innovative project that takes advantage of available opportunities and capacities to channel investment effectively to the poor. Thus, it aims to increase household incomes while contributing to the rehabilitation of social services needed for longer-term human resource development. 3.6 The interest and commitment of the Royal Government to the Social Fund project is high, as clearly demonstrated by the speed with which the Government created SFKC and carried out preparation and appraisal activities. Political support for the project is strong at all levels of goverrunent, from the Prime Ministers, to line ministries to local government officials. Donors and NGOs have also expressed strong support for the Social Fund Project. 3.7 Relationship with other Bank-financed Projects. The Bank is at an early stage of involvement in Cambodia. To date, two IDA credits have been approved (the Emergency Rehabilitation Project credit and the Technical Assistance Project credit), though further projects are under preparation, including an Economic Recovery Credit, a power project, a health development project and a rural development project. The relationship of the Social Fund with other IDA-financed operations is expected to be complementary, not competitive. At the policy level, the Social Fund's activities would be guided by the development of sector strategies supported by other Bank-financed projects. At the operational level, SFKC projects will be simple, low-cost investments managed and executed by local entities and contractors. As such they will not involve the strong technical input typical of more complex and integrated Bank projects nor will they overlap with them. Mechanisms to coordinate with the relevant line ministries would be established, at both the central and local level, so as to ensure that SFKC- financed projects fall within local development plans and to encourage coordination at the operational level. If SFKC proves successful at establishing an efficient and cost-effective means of providing small-scale public infrastructure, it could be used by other Bank-financed projects, such as the health and agriculture projects, to carry out small-scale public works. C. Lessons from Social Fund Experience 3.8 The Bank has financed over 30 social fund type operations since 1987, mainly in Latin America and Africa, accumulating considerable experience in the process. The design of the proposed project incorporates the lessons from these operations. In particular, to ensure the transfer of knowledge to the Cambodian Social Fund team, during project preparation the Bank provided the Government with substantial technical assistance and advice from current and former staff of the Bolivia and Ecuador social funds and from Bank staff involved in the design of other social fund projects. 3.9 At a conceptual level, the most relevant lessons learned from prior experience are: a) a social fund should be considered as only one element of a much broader poverty reduction strategy; it should not been seen as a panacea for reducing poverty. 8 b) while the overall objective of the social fund needs to be clearly framed, experience shows that social funds can serve a number of purposes simultaneously. These include contributing to the decentralization of service delivery, building the capacity of grassroots organizations and other implementing agencies and bringing NGOs into a more cooperative and coordinated relationship with the Government. In the case of Cambodia, the social fund may help in the democratization process, by providing local governments and communities with increased control over local development decisions and project implementation. It will also help private sector development by increasing the turnover and capacity of small and medium sized enterprises, particularly those in the construction industry. c) the lesson from experience as to whether social funds should be purely temporary, short-term mechanisms is not yet conclusive. The Emergency Social Fund in Bolivia is the only fund technically to close thus far, and this was succeeded by a Social Investment Fund that effectively continued the operations of the Fund. In general, flexibility and regard for the country context are called for in determining the fiuture direction of a social fund. The Statutes of SFKC provide for optional renewal of the its' five year mandate by Royal Decree. 3.10. At an operational level, the main lessons which have influenced the design ofthe proposed project are: a) the importance of institutional auto7nomy and freedom from political interference for the Social Fund. b) the need for transparency and accountability. A comprehensive operational manual, effective management information system, standardized reporting, contracting of independent evaluations, and systematically gaining the feedback from sub-project beneficiaries are all tools to help ensure transparency. c) the need to attract high caliber, motivated staff by maintaining a non-bureaucratic environment and paying competitive salaries. d) mechanisms for sector coordination with line ministries should be flexible enough not to compromise the independence and efficiency of the fund. e) the need for close involvement of provincial and district governments in the project cycle to improve overall coordination and project sustainability. f) the importance of outreach activities, including promotional activities, facilitation and training, to reach the poorest regions and targeted beneficiaries and to find qualified sub- projects. Outreach activities can also play a useful role in promoting transparency and openness and generating public confidence in SFKC's integrity. g) the importance of using some monitorable, albeit simple, targeting plan to reach the poor. h) the need for community "ownership " of the sub-projects to ensure sustainability. i) simplified procurement proceduires and rapid and timely payment of contractors are necessary conditions for efficient and rapid sub-project implementation. j) the need for strong supervision mechanisms at both managerial and sub-project levels. 9 CHAPTER IV THE PROJECT A. Origins of the Project 4.1 The preparation of this project emerged out of discussions with the Royal Government in March 1994 about the possibility of establishing a social fund. The Government expressed a strong interest in the idea, regarding a social fund as a mechanism well-suited to fill the urgent need for additional financing of infrastructure and employment generating activities in the poor and underserved areas of the Kingdom. The Government was quick to follow-up this commitment with action, and in July 1994 a preparation mission took place, after which the Government established a Social Fund Project Preparation Unit (PPU) to carry out preparation activities and appointed its Project Director. Pre-appraisal of the project was carried out in October 1994 and by the end of December 1994, the Government had enacted Royal Decrees creating the Social Fund of the Kingdom of Cambodia (SFKC) as an autonomous Government institution and appointing the Board of Directors. The project was appraised and negotiated in March 1995. B. Project Objectives 4.2 The objectives of the project are to support the Government's to reduce poverty through: (a) financing small-scale projects for the rehabilitation and reconstruction of social and economic infrastructure, and other socially productive activities; (b) creating short-term employment opportunities; (c) expanding community opportunities to identify local development needs and manage small-scale development projects; and (d) increasing line ministry experience and capacity in developing investment criteria for local infrastructure construction. C. Institutional Framework of SFKC 4.3 The Social Fund of the Kingdom of Cambodia (SFKC) has been created by Royal Decree as an autonomous public institution under the Office of the Prime Minister. Given its autonomous status, the Royal Government agreed during negotiations that a separate Fund Agreement, satisfactory to IDA, would be entered into between the Government and SFKC. In particular, it was agreed that, under this the Fund Agreement, the Government will make the proceeds of the Credit available to SFKC on a non-reimbursable grant basis. As a condition of effectiveness, the Fund Agreement shall have been signed and entered into effect between the Government and SFKC (para. 8.3 (a)). The organization and management of SFKC are laid out in its Statutes (see Annex A) which were approved by the Royal Government in December 1994. According to the statutes, the co-Prime Ministers will act as the co-Presidents of SFKC. They will be responsible for proposing the appointment of the members of the Board of Directors, comprising representatives from the Government, judiciary, private sector and non-governmental organizations, and have ultimate responsibility for ensuring that the objectives of SFKC are implemented effectively. 10 4.4 The Board of Directors is composed of eleven members including the General Director of SFKC, whose appointments were decided by Royal Decree in December 1994 (Annex B). The Board, which would meet every six months, is responsible for approving the policies, procedures and budget of SFKC, approving and ratifying any agreements SFKC may enter into for financial support from international financial organizations or bilateral donors, and for defining the scope and content of reports to be submitted by the Executive Committee to the Board. 4.5 The Executive Committee, comprised of five members of the Board and the General Director, shall represent the Board in carrying out the Board's policies and approving applications for sub-project financing. It would meet at least every two weeks as the Chairman may decide. The General Director will be responsible for managing and administering the day-to-day operations of SFKC in accordance with its operational policies and procedures. D. Operational Procedures 4.6 SFKC will act as a financial intermediary. It will not be involved in project identification, preparation and implementation of projects, but will accept and appraise applications for sub- project financing from eligible applicants, which include community groups, local governments, and local and international NGOs, and will supervise sub-project implementation. Applicant eligibility is defined separately for each sub-project type depending on its nature. For example, a local water user group would be the eligible applicant for a water supply project; for a schools project, the school parents committee or school director could apply; and in the case of a rural roads project, the district authority would be eligible to apply. Applicant eligibility is designed such that those eligible are the lowest-level entity able to assume responsibility for the operation and maintenance of the project. As such, the applicant would generally represent the intended beneficiaries of the project. The project thereby institutes a process that would allow locally representative entities to participate in decision-making about local investments and would provide them with the responsibility to supervise implementation and then maintain and operate the facilities. Individuals seeking financing for private or commnercial activities would not be eligible to apply 4.7 Applications to SFKC may be sponsored by an entity other than the eligible applicant. These "sponsors" would play the role of a facilitator, assisting applicants which lack the capacity and resources to prepare or design the project, and assuming the responsibility for procuring the works or equipment for project implementation. For example, a line ministry might sponsor an application for a district hospital, or an NGO might sponsor an application for a communal water project. 4.8 SFKC-financed projects would be implemented by an "implementing agency" (a contractor in the case of civil works), which would be selected by the applicant or by the sponsor. SFKC would be delegated the authority by the applicant or sponsor to disburse funds directly to the "implementing agency", which would perform the works, provide the equipment or carry out the services financed under the sub-project. In some cases, the applicant may also implement the project, for example, in the case of an NGO applying for a training project which the NGO would implement itself SFKC staff would appraise all sub-projects and directly supervise sub-project I1 implementation. They would also promote, encourage and orient the demand for project financing. Details of the project cycle are described in Chapter 5. 4.9 Line ministries would play a key role in the project. Their main function would be to define sectoral policy guidelines and standards for infrastructure construction within which SFKC would operate. E. Project Components 4.10 The project would consist of two components. Under the first component financing would be provided for seed capital for SFKC to finance sub-projects primarily in the areas of public infrastructure and services, as further described below. The second component would consist of institutional support for SFKC's establishment and operations including (a) financing of salaries, vehicles, equipment, and operating expenses; and (b) technical assistance and training to improve SFKC's operational capacity and procedures. 4.11 First Component: Social Fund Seed Capital ($18.9 million). SFKC will provide grant financing for small-scale projects, up to a maximum cost of $250,000 each. To be eligible for financing, all projects would have to adhere to a set of eligibility principles. These include the principle that all projects shall benefit the poor; projects should be labor intensive or otherwise generate a significant social impact; SFKC will not finance recurrent costs; and all projects must be consistent with national sectoral policies (see Annex C for complete list of eligibility principles). 4.12 If projects accord with the eligibility principles, their financing is subject to appraisal by SFKC staff based on a set of eligibility and appraisal criteria developed for each sub-project type and presented in the Operational Manual (see para. 5.12). The majority of sub-projects eligible for financing are likely to fall within three main categories: social infrastructure, economic infrastructure and social services. 4.13 Social infrast-ucture, which is defined as infrastructure related to social services, would include the rehabilitation, construction and expansion of operating health and education facilities (especially health clinics, primary and lower secondary schools, and training centers), social welfare facilities (rehabilitation centers, orphanages) and communal sanitation systems. 4.14 Economic infrastructure, which would include the rehabilitation of communal water supply systems, rural roads, and communal irrigation and drainage works. 4.15 Social services. Under this category, financing would be provided for selected fees, equipment and materials for training programs in the areas of small enterprise development and public health. To be eligible for SFKC financing, such programs must be directed to local communities and run by reliable NGOs. Such sub-projects might include practical training in small business management, agricultural skills for small farmers, information and education training for public health and hygiene, skills training for the handicapped, orphans and widows, and training in mine detection. 12 4.16 Equipment. For all of the above sub-projects, SFKC may finance an equipment component through a separate contract. Equipment eligible for financing includes basic medical equipment for health facilities, desks, chairs and blackboards for education facilities and materials for training programs. Separate eligibility criteria for equipment are outlined in the Operational Manual. 4.17 Under the project, financing may also be provided for NGO-managed credit schemes for micro and small enterprise development. However, such financing will depend on further investigations into the demand for microcredit and the institutional capacity of NGOs providing credit. 4.18 During negotiations, agreement was reached that SFKC would only approve those sub- projects for which there are eligibility and appraisal criteria satisfactory to IDA (para. 8.2 (b)). Though SFKC may finance new sub-project types in response to demand, it was agreed that no change to (i) the menu of eligible sub-project types; (ii) the eligibility criteria, and (iii) the $250,000 maximum sub-project cost limit would be made without prior IDA approval (para. 8.2 (c)). 4.19 Second Component: Institutional Support for SFKC (US$2.3 million): This component would include financing of: (a) SFKC staff salaries, vehicles, office equipment and operating expenses ($1.8 million). As stated in the Social Fund statutes (Article 16 (b)), overhead costs (administrative and operating expenses) over the five year period shall not exceed 8 percent of the total amount of SFKC's resources expended during the same period. This is well within the range of overhead expenses of other social funds. To ensure institutional efficiency, overhead expenditures will be programmed and monitored as one of SFKC's institutional performance indicators. (b) technical assistance and training ($0.5 million). Technical assistance would be provided to help improve SFKC's operational capacity and internal procedures, including assistance to set-up the MIS system, improve criteria and methodologies for appraisal and supervision, carry out physical and technical audits, and beneficiary assessments. Necessary local training would also be financed, such as computer skills for local staff. Financing would also be provided for study trips abroad so that SFKC senior staff could visit other social funds and learn from their implementation experience (see Annex E for details of technical assistance). 13 CHAPTER V PROJECT IMPLEMENTATION A. Social Fund Organizational Structure and Functions 5.1 The organizational structure of SFKC is based on the experience of other social funds and takes into account the institutional context of Cambodia. As presented below SFKC would have four operations departments: Finance and Administration, Promotions, Appraisal, and Supervision. There would also be two Executive Support departments -- Operations and Administration Advisory Unit and Internal Audit -- which would provide advice and information to the General Director and Executive Committee. The functional responsibilities of these departments are described in Annex F. Figure 1: Organizational Structure of SFKC President Executive Board of Directors Executive Committee General Director ..~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .......... ... Executive Operations Advisory Unit . Internal Audit Support Units . . .. . ... ... . ........... ....... . ...... ...................................~~~~~~~~~~~~. . . . . . . . . . . . . .. .. . Finance and . . | Administration | Promotions Appraisal Supervision Operations Departnents 5.2 Staffing. Given the proposed scale of operations, it is estimated that SFKC would need about 40 staff (professional and support) at the height of its operations. In addition to its own staff, SFKC may subcontract a number of supervision tasks and professional services. Depending on the workload and need, small regional offices may be opened in order to decentralize and improve the cost-effectiveness of supervision and outreach activities. During negotiations, 14 agreement was reached that SFKC's management level positions (i.e. department chief level and above) will be staffed satisfactorily to IDA (para. 8.2 (d)). 5.3 SFKC's operating procedures, including criteria for project appraisal, contracting, and supervision are presented in its Operational Manual (see Annex G for outline). The administrative and financial procedures are contained in its Finance and Administrative Manual (Annex H). During appraisal, SFKC's draft Operational and Administrative Manuals were reviewed in substance and found satisfactory to IDA (para 8.1 (a)). Finalization of the Operational Manual, including detailed eligibility and appraisal criteria for all sub-project types to be financed by IDA, and the Administrative Manual, satisfactory to IDA, and their approval by SFKC's Board of Directors is a condition of effectiveness (para. 8.3 (b)). B. Sub-project Cycle Promotion, Application and Screening 5.4 The first step in the project cycle (Annex I) involves informing potential applicants and sponsoring agencies of SFKC so as to ensure a solid pipeline of projects early on and ensure effective coverage across regions of the country. The Promotions Department would be responsible for this stage of the project cycle. Its promotional strategy, which will be finalized prior to effectiveness, will include the following elements: a) the preparation and wide dissemination of informational materials to line ministries, provincial and district governments, communes, community groups and non-governmental organizations and other relevant institutions about SFKC, including a brochure describing the eligibility criteria and sub-projects menu, simple guidelines for the preparation of sub-project proposals, and application forms tailored to each category of sub-project; b) an initial, more targeted effort to inform key organizations with experience and capacity about SFKC so as to stimulate high standard project applications that can be quickly financed to stimulate a demonstration effect and build-up SFKC's credibility; c) a series of regional workshops to further disseminate SFKC's purposes and procedures, particularly in areas from which no or few project proposals are forthcoming. In the first year of operation, the focus would be on facilitation -- helping communities to understand the eligibility criteria, application procedures and to refine project proposals. In the second year, SFKC would focus on reaching areas and groups that did not respond to the call for sub- projects, particularly very poor regions that are underserved by public infrastructure and services. Lack of response is most likely to be due to the security situation and/or the result of weak capacity to prepare and implement projects. In the first instance, SFKC will have to wait until the security situation improves to reach these areas. In the second instance, SFKC would encourage potential sponsoring agencies to extend their activities to these areas, and might provide assistance and training to local groups to help them prepare viable project proposals. 15 5.5 Screening. The promotions staff would screen the sub-project applications to ensure that they correspond with SFKC's eligibility principles and sub-project eligibility criteria, which have been developed so as to be in line with sector policies and norms. 5.6 Lists of all eligible sub-projects would be submitted to the relevant line ministry for their non-objection. In order to avoid bureaucratic delays, the ministries would be given five working days to clear the projects. If no communication is received within this period, the project would be deemed cleared for appraisal. During negotiations, agreement was reached between IDA and the Government that no increase in this no-objection period could be made without prior IDA approval (para. 8.2 (c)). 5.7 Demand-Management. SFKC is a demand-driven mechanism, financing projects for which demand is forthcoming. However, the projects that are demanded may not be in accordance with the objectives of SFKC. In order to orient demand such that it is consistent with the goals of SFKC, the following operational instruments will be used: (a) eligibility principles; (b) project menu; (c) eligibility criteria; (d) appraisal criteria; (e) poverty targeting; and (f) promotion and outreach activities. 5.8 The eligibility principles (Annex C) lay out the broad policy framework governing SFKC's activities. The menu of project types (Annex D) lists the different kinds of projects that can be financed by SFKC. The menu of project types is supplemented by eligibility criteria that outline the various activities that are eligible for SFKC financing under each project type. SFKC's appraisal criteria further narrow down the activities and the form in which they will be acceptable for SFKC financing. Only project proposals that are consistent with SFKC's eligibility principles, project menu and eligibility criteria will be considered eligible for SFKC appraisal. 5.9 Poverty Targeting. SFKC may receive more eligible project proposals than it can appraise or finance. In order to deal with this possibility, SFKC will use three simple poverty targeting criteria to rank the order in which sub-projects are appraised (in addition to grouping appraisals in the same region together for logistical efficiency): Intended Beneficiaries: Project proposals, such as training facilities, whose intended beneficiaries are poor and vulnerable groups such as female-headed households and the handicapped will receive a rank of one. Ranks of two and three will be assigned to project proposals whose intended beneficiaries are relatively less poor and vulnerable groups. Type of Project: Project proposals with the highest social impact will receive a rank of one. Ranks of two and three will be assigned to project proposals with a lower social impact. Provincial Ceiling: SFKC will establish provincial limits on the portfolio share going to each province based on the province's relative access to basic social services and its population. As the SFKC starts disbursing, the provinces will be ranked based on the percentage of the allocated portfolio share they have already received from SFKC; the province that has received the least percentage of its allocation will be assigned a rank of one. 16 5.10 In ranking project proposals for appraisal, SFKC will regard the beneficiary rank as the overriding rank. If two project proposals have the same beneficiary rank, the rank for the project type willl determine which proposal is prioritized for appraisal. If two project proposals have the same beneficiary rank and the same project type rank, the rank for the provincial ceiling will determine the choice of the project proposal. Appraisal 5.11 The appraisal division would appraise the projects in the field based on simple technical, economic, institutional, social and environmental criteria appropfiate to each of the sub-project categories, as specified in SFKC's Operational Manual. a) The technical criteria for sub-project appraisal would be developed specifically for each sub- project type based on the existing norms available from the respective line ministries to ensure sectoral coherence and compatibility. Technical appraisal would confirm that the project design and specifications complies with these norms. It would also ensure that infrastructure, equipment and other inputs are consistent in scale, quality, cost and content with the proposed activities of the sub-project and that implementation is technically feasible. b) Economic analysis. A database of regional unit costs for project inputs would serve as the basis for the economic analysis. SFKC would develop ranges for cost per beneficiary and cost per unit for each sub-project type. Based on this information, indicators of cost effectiveness would be calculated and used as appraisal criteria. During negotiations, agreement was reached that SFKC would review and update their unit cost database at least every six months and submit the updated information to IDA for ex-post review (para. 8.2 (e)). c) Social analysis would be done to gather basic data on the number and breakdown of the direct beneficiaries of the project and the demographic and social characteristics of the catchment area. As well as providing a basis for appraisal, this would provide base data for future studies of the social and economic impact of SFKC-financed projects. Information on employment generation would also be collected during appraisal. Appraisers would also make sure that the project is well-targeted based on SFKC's targeting policies. d) Institutional analysis would be most important in social services project where the NGO applicant is actually implementing the project. In such projects, an institutional analysis would be carried out to appraise whether the applicant has the capacity to successfully implement the proposed project. For all projects, the appraisal staff would also ensure that the applicant or appropriate entity has the capacity to supervise the project and cover the operation and maintenance costs after project completion. The appraisers would confirm the nature and amount of the beneficiaries' counterpart contribution to the project, which must total a minimum of 5 percent of the sub-project cost, and would gain assurances that operational and maintenance costs of the sub-project will be covered. During appraisal, appraisal staff will also be required to consult and coordinate with the provincial and district level governments to ensure that there is no overlap with other planned or ongoing activities. 17 e) Environmental analysis would be undertaken on all projects according to routine environmental appraisal criteria, although given the nature and small-size of sub-projects no significant environmental impacts are anticipated. For any projects that are likely to have an adverse environmental impact above a specified threshold, SFKC would ensure measures were taken to mitigate any risks in the project design. SFKC may also reject any sub-project applications which it considers involve excessive environmental risk. The Bank would provide technical assistance to help SFKC develop environmental assessment (EA) guidelines and train appraisal staff in EA procedures. Approval Procedures and Bank Review 5.12 Once appraised, the project dossiers would be passed to the Executive Committee, which would meet at least once every two weeks, and would have formal responsibility for approval or rejection of sub-project proposals, or request that they be revised and resubmitted. If approved, sub-projects proposals would be submitted for clearance by IDA. Taking into consideration the nature, size and large number of expected sub-projects and the demands on Bank supervision, the following procedures would apply to all sub-projects financed by IDA: for civil works contracts over $100,000 and equipment contracts over US$50,000, approval would be required prior to contract signing and full documentation would have to be submitted; for projects under these limits, IDA would carry out an ex post review of a random selection of sub-projects, based on summary project data sheets, acceptable to IDA. During negotiations, agreements to these sub- project review arrangements were reached with the Government (para 8.2 (f)) Contracting, Implementation and Supervision 5.13 Upon approval of a sub-project, the applicant or sponsoring agency (if applicable) would select the implementing agency in accordance with Bank procurement procedures as directed by SFKC. The nature of the implementing agency will vary depending on the type of project. In the case of construction projects, a local private sector contractor will normally be hired to carry out the work. For other projects, such as support for training programs, the implementing agency might be, for example, an NGO. During negotiations, it was agreed that a sub-project contract (or "sub-grant agreement"), satisfactory to IDA, will be signed by SFKC, the applicant, sponsoring agency (if applicable) and the implementing agency for each sub-project (para. 8.2 (g)). This standard sub-grant agreement will be finalized prior to credit effectiveness and included in the Operational Manual. 5.14 Disbursements would be made to the implementing agency based on work completed and confirmed during site supervision visits by SFKC supervision staff. The most likely disbursement method would be through the local branch office of a commercial bank, although, final decisions as to the exact method of payment would be made prior to effectiveness based on the trial period implementation experience (see para. 6.5). 5.15 To increase controls on sub-project execution, contingencies would not be included in sub-project budgets. Changes in standard sub-project costs, which are not expected to be 18 frequent given the accuracy and regular updating of the unit cost database and the short time frame of sub-project execution, would be handled through separate requests for a budget change. 5.16 Supervision of sub-project implementation would occur at three levels. First, SFKC would contract external on-site technical supervisors, the cost of which would be included in the sub-project cost and is estimated not to exceed five percent. Terms of reference and standard contracts for external supervision would be included in the Operational Manual. Second, the applicant, as representative of the direct beneficiaries, would also supervise and monitor the progress and quality of construction. Both the external supervisor and the applicant would verify completion of the works before requesting disbursement. Third, SFKC staff from the Supervision Department would monitor sub-project implementation directly. Supervision would involve monthly visits (or sooner, on demand from the external supervisor or applicant) to sub-project sites to validate that works are advancing and to authorize requested disbursements. In addition, as a further level of quality control, local consultants would be contracted to carry out physical audits on a random sample of sub-projects to evaluate their technical quality, their operational and maintenance cost coverage, and provide feedback to SFKC on the adequacy of the appraisal and supervision system (see para. 6.20). C. Monitoring and Evaluation 5.17 Management Information System. SFKC would establish a computerized management information system (MIS) as a tool to monitor the sub-project cycle and the overall performance of SFKC. It would also facilitate the production of reports on SFKC's performance. The MIS, which is being developed with technical inputs and assistance from other social funds, will permit SFKC to track its project pipeline, resource flows and their relation to its targeting policies and criteria. 5.18 The MIS would provide a wide range of information on the operational activities of the SFKC and would also complement the financial and accounting database system. As a condition of effectiveness the Management Information System shall have been established by SFKC, satisfactory to IDA, and shall be fully operational (para. 8.3 (c)). 5.19 Portfolio Performance Indicators. A major function of the MIS will be to produce reports on indicators established to monitor the performance of SFKC in relation to its overall objectives. Monitorable indicators of SFKC's capacity, efficiency, and attainment of policy objectives were agreed at appraisal (Annex J). These indicators include measures of the SFKC's overall disbursements, the amount and number of sub-projects approved, appraised and implemented, the number of direct beneficiaries, the number of man-months of employment created and overhead costs per total amount disbursed. Agreement between the Government and IDA on the use of portfolio performance indicators were reached during negotiations (para. 8.2 (h)). Annual performance targets will be reviewed and revised annually as part of SFKC's annual portfolio review exercise. 5.20 External Impact Evaluations. In order to evaluate the social and economic impact of SFKC-financed projects, SFKC will contract local and/or international consultants to carry out 19 evaluations of sub-projects on a sample basis. A beneficiary assessment methodology will be used to gain the feedback of SFKC's clients -- sub-project beneficiaries, applicants, sponsoring agencies and implementing agencies -- on how SFKC is responding to their needs and to gather data on the impact of the sub-projects. Other surveys and impact evaluations may also be carried out on specific sub-project types. Information from these assessments will be used by SFKC management to make adjustments to their policies and procedures so as to improve fulfillmenit of their objectives and responsiveness to client concerns. D. Reporting and Supervision 5.21 The following reporting requirements would apply to the project: (i) each month SFKC would submit to IDA standard monthly progress reports according to an agreed upon format, and based on information from the MIS system; (ii) an annual portfolio review exercise would be undertaken by SFKC in collaboration with IDA. This would include an assessment of performance indicators, sub-projects by type and location, cash-flow projections, recurrent and maintenance cost coverage, and operational procedures, including environmental assessment procedures. After each review, an annual budget and work program, including proposals as to how to improve procedures so as to fulfill SFKC's targeting policies and criteria, reviewed and found satisfactory by IDA, would be prepared and would subsequently be carried out by SFKC; (iii) based on this review exercise, SFKC would prepare an annual report to be ratified by its Board of Directors and submitted to IDA, no later than three months after the first year of operations and annually therea%.-r. Annual reports would contain key performance indicators of SFKC together with reporting on technical assistance and training efforts, and the results of any monitoring and impact evaluation studies; and (iv) a final report and evaluation of the outcome of the proposed project would be prepared by SFKC no later than six months after the closing date. 5.22 Mid-term Review. The Bank and SFKC would carry out a joint mid-term review to evaluate the performance of SFKC. This exercise would be scheduled to occur promptly after more than 50% of the credit has been disbursed, or otherwise no later than December 31, 1997. The mid-term review is designed to provide an opportunity to evaluate the experience of SFKC, both at an operational level as well as in the context of the Government's overall social policy and related programs. At the end of the review, a mid-term review report would be submitted to IDA highlighting any major problems, issues and bottlenecks identified during the review process and the proposals for resolving them and fulfilling the goals of the project. The Government's agreement to these review and reporting requirements was obtained during negotiations (paras. 8.2 (i) and (i)). 5.23 Bank Supervision. Due to the demand-driven nature of SFKC, the large number of sub- projects to be reviewed, the newness of the institution and the importance of discouraging 20 financial misallocations, intensive supervision is required by IDA. This is in keeping with the experience of other social funds. Joint supervision missions would be carried out with any other donor agencies. An estimated 2-3 supervision missions, totaling 20-30 staff weeks, would be required annually. To reduce the costs of supervision, consultants would be hired to review selected aspects of SFKC's operations and to carry out physical audits of the civil works. A supervision plan is available in the project file. F. Environmental Impact 5.24 The proposed project has been assigned a "B" environmental classification. Environmental impact assessments will be carried out as part of the appraisal process, and technical assistance will be provided to SFKC to develop environmental assessment policies and procedures. If adverse impacts are foreseen, necessary mitigating measures, if not already planned, would be incorporated into the sub-project design at appraisal. SFKC may also reject sub-project proposals on the grounds that they involve excessive environmental risk. The adequacy of SFKC's environmental procedures would be assessed by IDA as part of the annual review. 21 CHAPTER VI PROJECT COSTS, FINANCING, PROCUREMENT AND DISBURSEMENT A. Estimated Costs and Financing Plan 6.1 Project Costs. The total project cost, expressed in January 1995 prices, is estimated at US$ 22.2 million, net of taxes and duties. The foreign exchange costs amount to US$6.3 million representing approximately 28 percent of the total project cost. A summary of project costs by component is shown in Table 6.1 with a detailed cost table provided in Annex K. Table 6.1: Summary Cost Table Local Foreign Total Institutional Support Salaries and Fees 1.11 0.00 1.11 Vehicles and Equipment 0.02 0.22 0.24 Operating Expenses 0.37 0.08 0.45 Technical Assistance and Training 0.35 0.15 0.50 Sub-total Institutional Support 1.85 0.45 2.30 SFKC Sub-projects Social Infrastructure 6.95 3.20 10.15 Economic Infrastructure 2.72 1.43 4.15 Equipment 2.83 0.67 3.50 Social Services 0.88 0.22 1.10 Sub-total Sub-Projects 13.38 5.52 18.90 Base Cost 15.23 5.97 21.20 Unallocated 0.70 0.30 1.00 Total Project Cost 15.93 6.27 22.20 6.2 A total of US$18.9 mnillion, or 85 percent, of the total project cost is allocated to finance sub-projects. Based on estimated demand, indicative figures are provided for the breakdown among sub-project categories. However, given the fact that SFKC is a financial intermediary and is demand-driven by nature, the actual breakdown will depend on demand and operational experience. 22 6.3 No contingencies have been included for sub-projects as any increase in individual sub- project costs would be administered through change orders (see para. 5.16) and absorbed by the sub-project budget, resulting in an overall reduction in the number of sub-projects executed. Institutional support to SFKC (excluding technical assistance and training) accounts for US$ 1.8 million or 8 percent of total project cost. This is in line with the requirements of SFKC's Statutes. Costs of training and technical assistance for SFKC are estimated at $0.5 million for the project. Annex E lists the expected technical assistance requirements during the project. 6.4 Financing Plan. The proposed credit of US$20 million would finance about 90 percent of total project costs over the five year period. The financing plan is shown in Table 6.2. The Government will contribute the equivalent of US$1.2 million in budgetary and in-kind support. In addition, to enhance sub-project sustainability and local ownership, applicants and/or sponsoring agencies will be required to contribute a minimum of 5 percent of the sub-project cost in the form of project preparation and supervision services, materials, specialized construction equipment and other contributions defined in the eligibility criteria according to sub-project type. These contributions may be mobilized from the direct beneficiaries of the sub-project. However, SFKC will not require labor contributions from beneficiaries, as one of the main objectives of the project is to increase incomes through employment generation. During negotiations, the Government provided assurances on the provision of the specified amount of government counterpart financing each year, and agreed that applicants/sponsors would be obligated by SFKC to contribute a minimum of 5 percent of the sub-project cost as counterpart contribution (para. 8.2 (k)). Table 6.2: Financing Plan (US$ million) Local Foreign Total Government 1.20 0.00 1.20 Applicant/sponsor 1.00 0.00 1.00 IDA 13.73 6.27 20.00 Total 15.93 6.27 22.20 6.5 Project preparation activities have been expedited by resources, including a PHRD grant of $504,000, approved in December 1994. This grant money has been used to finance technical assistance to assist the Project Preparation Unit develop SFKC operational and administrative procedures and to finance operating expenses. Out of the proposed credit, up to a maximum of US$1 million equivalent (or 5% of the total credit) will be available for retroactive financing to allow SFKC to finance trial sub-projects prior to effectiveness. This trial implementation period would allow SFKC to test and improve its operational and administrative procedures based on practical experience and lessons learned in the process. 23 6.6 Corinancing. Consistent with the experience of other social funds, it is expected that SFKC, if successful, will be able to attract additional financing to expand its activities during the course of the project. Opportunities to obtain financing for the project are already being explored; preliminary discussions have been held with USAID and the Government of Japan and further discussions are planned. B. Procurement 6.7 All procurement of civil works, goods and services financed by IDA will be carried out in accordance with Bank guidelines (see Annex L for a summary matrix of procurement and disbursement methods). 6.8 Civil works. No international competitive bidding is expected under the proposed project given the small size of sub-project contracts -- the maximum sub-project cost is $250,000, with the average sub-project cost estimated to be around $25,000. Local competitive bidding (LCB) procedures, acceptable to IDA, would apply to civil works contracts valued between $100,000 and $250,000. Approximately US$4 million of civil works contracts are expected to be awarded through LCB. Civil works contracts valued between $50,000 and $100,000 would be awarded through local shopping procedures, with an expected aggregate amount to be financed by IDA of US$3.015 million. A unit cost data base maintained by SFKC will be used to check the competitiveness of quotes under local shopping procedures. For sub-projects below US$50,000 a system of direct contracting would apply, with strict application of unit costs supplied by SFKC. Direct contracting is justified given the preponderance of small-scale, labor-intensive works in scattered and remote areas and would also encourage contractors to expand their operations to these areas. Direct contracting would be allowed up to an aggregate amount to be financed by IDA of US$5 .515 million. Packaging groups of sub-projects for procurement purposes is unlikely to be possible except under circumstances in which a sponsoring agency has applied for a package of investments. 6.9 Applicants or sponsoring agencies, if the latter participates in the application, would be responsible for procurement. In the case of local competitive bidding, SFKC would provide the applicant/sponsoring agency with a package of basic documents, including a description of the procedures to be followed. During negotiations, agreement was reached that standard bidding documents and LCB procurement procedures acceptable to IDA will be used for procurement under the project (para. 8.2 (1)). 24 Table 6.3 Procurement Arrangementsl/ (US$ million) LCB Local Direct Other2/ Total Shopping Contracts SFKC Institutional Support Salaries and Fees 1.11 1.11 (I. 11) (1. 11) Vehicles and Equipment 0.13 0.11 0.24 (0.13) (0.11) (0.24) Operating Costs 0.45 0.45 (0.36) (0.36) TechnicalAssistance and Training 0.50 0.50 (0.50) (0.50) Sub-total Institutional Support 0.13 0.11 2.06 2.3 (0.13) (0.11) (1.97) (2.21) Sub-Projects Infrastructure Sub-projects 4.00 3.35 6.35 0.60 14.30 (3.60) (3.01) (5.52) (0.52) (12.65) Services Sub-projects 1.10 1.10 (0.99) (0.99) Equipment Sub-projects 3.50 3.50 (3.15) (3.15) Sub-total Sub-projects 4.00 6.85 6.35 1.70 18.90 (3.60) (6.16) (5.52) (1.51) (16.79) Unallocated 1.00 (1.00) TOTAL PROJECT COST 4.13 6.96 6.35 3.76 22.20 (3.73) (6.27) (5.52) (3.48) (20.00) 1/ Figures in parentheses are the estimated amounts to be financed by IDA. 2/ Under the "Other" category, SFKC Institutional Support includes consulting services procured following Bank guidelines for the Use of Consultants, and salaries, fees and other operating costs (travel, utilities, and minor office supplies), for which procurement procedures would not be applicable. Services sub-projects ($1.1 million) and small NGO-run community implemented social infrastructure projects ($0.6 million), such as latrines, would not be governed by Bank procurement guidelines. The unallocated amount ($1 million) is also included under the "other" category until it is allocated. 6.10 The main control on direct contracting would be SFKC's strict adherence to the costs provided in their regional cost database which will be updated regularly. All cost estimates for sub-projects will have to fall within the cost limits determined by the data base. This has proved an effective tool for controlling sub-project costing and procurement in other social funds. SFKC would need to demonstrate that the costs of the sub-projects are competitive with other similar projects, particularly those financed under World Bank-financed operations. As an additional safeguard, SFKC would keep a data base on the number, amount and location of sub-projects implemented by individual contractors and would limit the total value of contracts that can be awarded through direct contracting to any one contractor to US$300,000. These direct contracting guidelines would be agreed upon and included in the Operational Manual. During 25 negotiations agreement was reached between IDA and the Government that no change can be made to the US$300,000 ceiling amount awarded to any one contractor through direct contracting procedures within the life of the project without prior IDA approval (para. 8.2 (c)). 6.11 Equipment and Goods. Goods and equipment to be procured under the project's institutional support component include vehicles, computers and office equipment. Under the sub-project component, they include tools, furniture and basic equipment for health clinics, schools and other facilities. Packages of goods and equipment above $100,000, where international competitive bidding procedures would apply, are not anticipated. For goods and equipment costing between $50,000 and $100,000, LCB procedures acceptable to IDA would apply. An anticipated US$125,000 of equipment (including vehicles) under the institutional support component is expected to be purchased under LCB. Procurement would be carried out by the applicant/sponsoring agency in accordance with the guidelines provided by SFKC. For procurement of goods and equipment below $50,000, local shopping procedures would apply, with an aggregate amount of US$113,200 for the institutional support component and US$3.5 million for sub-projects. 6.12 Consultant Services and Training. About US$500,000 would be allocated to consultant services and training under the project. The selection and appointment of consultants would be done in accordance with the 1981 World Bank Guidelines for the Use of Consultants, including the contracting of SFKC higher level professional and technical personnel. 6.13 Categories not Applicable to Procurement Arrangements. Standard procurement arrangements would not apply to SFKC operating expenses (salaries, utilities, travel and minor office supplies). NGO-implemented social services projects and some small NGO-managed social projects, such as latrine construction, implemented by local communities would also not be governed by standard procurement procedures. 6.14 Bank Review. Bank review procedures for sub-projects are provided in para. 5.13. In addition, to ensure compliance with agreed procurement arrangements, IDA would require prior review of all LCB contracts. Prior Bank review would also be required for all contracts for the employment of consultant firms above $100,000 and for the employment of individual consultants above $50,000. For all consultant services (firms and individuals) and training contracts, IDA would review terms of reference. For SFKC professional staff, prior review would only be required for management positions. 26 C. Disbursements 6.15 The proposed World Bank loan would be disbursed over a period of about four years. A disbursement profile is presented in Annex M. This profile is based on anticipated demand and appraised institutional capacity. Table 6.4: Estimated IDA Disbursement Schedule FY96 FY97 FY98 FY99 Annual 1.5 4.5 10.5 3.5 Cumulative 1.5 6.0 16.5 20 6.16 Disbursements would be made against the following categories of expenditures: (a) sub- project grants: 100 percent of sub-grant amounts disbursed by SFKC as approved according to SFKC's eligibility and appraisal criteria; (b) operating costs including (i) salaries: 100 percent of eligible expenditures (net of taxes), and (ii) operating expenses: 80 percent of eligible expenditures; (c) equipment (including vehicles). 100 percent of foreign expenditures, 100 percent of local expenditures (ex-factory cost) and 90 percent of local expenditures for other items procured locally; and (d) technical assistance and training: 100 percent of expenditures (net of taxes). 6.17 Documentation of Expenditure. For civil works under US$100,000, equipment under US$50,000, special NGO-managed social services projects, Social Fund administrative expenditures and technical assistance contracts, withdrawal applications will be supported by Statements of Expenditures (SOEs). For civil works over US$100,000 and equipment over US$50,000, withdrawal applications would be supported by full documentation. A Special Account would be opened at the National Bank of Cambodia with an initial authorized amount of US$1 million equivalent, which would subsequently be adjusted based on expected disbursement flows up to the authorized allocation of US$2 million equivalent. The Government agreed to the above disbursement arrangements during negotiations (para. 8.2 (m)). In accordance with the provision for retroactive financing (see para. 6.5), withdrawals, in an aggregate amount not to exceed US$1 million equivalent, may be made on account of payments made for expenditures under the sub-grants category after March 1, 1995 and prior to credit effectiveness. D. Accounts and Auditing 6.18 SFKC's Finance and Administrative Department will be responsible for the overall financial management of SFKC. It will develop and implement an adequate computer-based MIS and accounting system that will enable SFKC to provide quick and accountable financial information on sub-projects and administrative expenditures. SFKC will also hire an Internal Auditor who will be responsible for conducting specific operational and administrative audits. These audits reports will be used as management tools to identify and take corrective actions if necessary to ensure the correct uses of funds. 27 6.19 External financial audits will be performed on an annual basis through the contracting of an internationally recognized independent accounting firm acceptable to IDA. The external auditing firm will be responsible for auditing all project accounts, the special account (dollars), and all disbursement requests made against Statements of Expenditures (SOEs). SFKC submitted draft terms of reference for the external audit prior to negotiations (para. 8.1 (b)). During negotiations, assurances were obtained that audits will be conducted by an independent private extemal auditor acceptable to IDA and will follow terms of reference in accordance with appropriate auditing standards, as approved by IDA; and that SFKC will send a copy of the external audit report to IDA within four months after the close of each fiscal year (para. 8.2 (n)). The report will certify that SFKC is using SFKC's resources for the purposes for which they were provided and that disbursements and procurement for all contracts are being carried out in accordance with the agreed guidelines and IDA's procurement regulations. 6.20 External technical audits will also be carried out by local consultants to assess the technical quality of SFKC-financed projects. Information from this survey will provide feedback to SFKC, in particular the Supervision Department, on the quality of the works carried out and recommendations as to how to improve quality. The technical evaluation will also provide an opportunity to assess whether the operational and maintenance costs of SFKC-financed projects are being covered. The SFKC would adjust its targeting and eligibility priorities in accordance with the audit's findings. 28 CHAPTER VII BENEFITS AND RISKS A. Benefits 7.1 The major benefits of the project are (i) reconstruction and rehabilitation of public infrastructure and services with the associated health, educational and economic benefits for the poor; (ii) creation of short-term employment opportunities; (iii) the development of the local construction industry; (iv) increased participation of communities in local decision-making and management of small-scale development projects; and (v) increased line ministry experience and capacity to develop investment criteria for local infrastructure investment. The project would also assist donor coordination by providing a mechanism through which donors may wish to channel their resources to quality sub-projects. B. Risks 7.2 The risks associated with this project are (i) political interference in the Fund's operations; (ii) misallocation of financial resources; (iii) shortage of qualified staff; and (iv) lack of sustainability, particularly the risk that maintenance and recurrent costs will not be covered. An added risk in Cambodia is continued insecurity which could make travel within parts of the country difficult. 7.3 Preparation of the project has incorporated the lessons from other social funds so as to minimize these risks. In particular, the risks of political interference and financial misallocation will be mitigated by incorporating procedures that ensure autonomy and transparency of the SFKC's operations, including rigorous eligibility and appraisal criteria, provisions for prior Bank approval, adherence to strict unit cost ceilings for sub-projects, and internal and external auditing. 7.4 Lack of qualified staff is being addressed by setting competitive salaries and advertising positions widely. Qualified applicants have come forward, and SFKC is currently well staffed. The problem of sustainability is being addressed by encouraging community involvement and commitment throughout the project cycle, requiring a minimum beneficiary contribution, obtaining written assurances of the coverage of recurrent/maintenance costs from the appropriate entities during sub-project appraisal, and through external audit procedures. Under present conditions, the security risk is not considered a major constraint to the implementation of the project as large areas of the country remain secure. Given the flexibility of SFKC procedures, the SFKC will be able to direct its operations to secure areas. It is anticipated that applications from secure areas should provide sufficient demand to fully utilize its resources. 29 CHAPTER VIII AGREEMENTS REACHED AND RECOMMENDATION 8.1 During appraisal, SFKC submitted: a) drafts of the Operational and Administrative Manuals (para. 5.3); and b) draft terms of reference for external audits (para. 6.19). 8.2 During negotiations, agreement was reached between IDA and the Government that: a) the Government will make the proceeds of the Credit available to SFKC on a non- reimbursable basis pursuant to a Fund Agreement satisfactory to IDA (para. 4.3); b) SFKC will approve only those sub-projects for which there are eligibility criteria in the Operational Manual satisfactory to IDA (para. 4.18); c) no change to (i) the menu of eligible sub-project types; (ii) the eligibility criteria; (iii) the $250,000 maximum sub-project cost limit; (iv) the 5 working day no objection period within which line ministries have the opportunity to clear sub-projects; and (v) the $300,000 ceiling amount which can be awarded to any one contractor through direct contracting during the life of the project, would be made without prior IDA approval (paras. 4.18, 5.6, 6.10); d) Social Fund management level positions (i.e. department chief level and above) will be staffed satisfactorily to IDA (para 5.2); e) SFKC will review and update the sub-project unit cost database at least every six months and submit the updated information to IDA for ex-post review (para. 5. 11(b)); f) IDA review arrangements of sub-projects will be carried out as specified, including submission of appropriate documentation (para. 5.12 and Annex M); g) a sub-project contract (or "sub-grant agreement"), satisfactory to IDA, will be signed by SFKC, the applicant, sponsoring agency (if applicable) and the implementing agency for each sub-project (para. 5.13); h) selected SFKC portfolio performance indicators will be used to monitor SFKC's performance (para 5.19); i) SFKC will fulfill the following reporting requirements: (i) submission of a monthly progress report from the MIS system; (ii) submission of SFKC's annual report, approved by SFKC's Board of Directors, no later than three months after the first year of operations and annually thereafter; and (iii) submission of a final report and 30 evaluation of the outcome of the proposed project no later than six months after the closing date (para. 5.21); j) project implementation will include annual joint portfolio reviews and a joint mid-term review to be conducted promptly after more than 50% of the credit has been disbursed, or otherwise no later than December 31, 1997 (para. 5.21 and 5.22); k) the Government will provide the specified amount of counterpart funds, and sub- project applicants/sponsors will be obligated by SFKC to contribute the 5 percent minimum counterpart contribution (para. 6.4); 1) standard bidding documents and LCB procurement procedures acceptable to IDA will be used for procurement under the project (para. 6.9); m) the Government will carry out specified disbursement arrangements, including the establishment of a Special Account with an initial authorized amount of US$1 million equivalent (para. 6.17); and n) annual audits will be conducted by an independent private auditor acceptable to IDA and will follow terms of reference in accordance with appropriate auditing principles, as approved by IDA, and such audits will be submitted to IDA within four months of the close of each fiscal year (para. 6.19). 8.3 During negotiations, agreement was reached that the following will be conditions of credit effectiveness: a) the Fund Agreement shall have been signed and entered into effect between the Government and SFKC (para. 4.3); b) finalization of the Operational and Administrative Manuals, satisfactory to IDA, and their adoption by SFKC's Board of Directors (para. 5.3); and c) the Management Information System shall have been established by SFKC, satisfactory to IDA, and shall be fully operational (para. 5.18). Recommendation. Subject to the above conditions and assurances, the proposed project constitutes a suitable basis for a Development Credit of SDR 13.4 million (US$20 million equivalent) on standard IDA terms with a maturity of 40 years to the Kingdom of Cambodia. 31 ANNEX A Page 1 of 7 KINGDOM OF CAMBODIA SOCIAL FUND PROJECT ROYAL DECREE Unofficial Translation RD/1 294/20 -CONSIDERING the constitution of the Kingdom of Cambodia, -CONSIDERING the Royal Decree of Samdech Preah Norodom Sihanouk Varman King of the Kingdom of Cambodia, dated November 1,1993 on the appointment of the Royal Government of Cambodia. -CONSIDERING the Royal law, dated July 20, 1994 on the organization and management of Cabinet of Minister. -REFERRING to the request of the first Prime Minister and second Prime Minister, dated December 28, 1994. Therefore, it is Decided Article 1: Is hereby established the Social Fund of the Kingdom of Cambodia designated with the acronym " S.F.K.C." in the Kingdom of Cambodia. Article 2: The " S.F.K.C." is established as a separate autonomous public institution with independent social legal status and possessing full juridical standing as well as administrative, managerial, technical and financial autonomy under the laws of the Kingdom of Cambodia. Article 3: The organization and management of the " S F K C "is defined by the Statutes set forth in the Annex attached hereto. Article 4: The Prime Minister shall undertake responsibility for implementing this Royal Decree. Article 5: This Royal Decree shall become effective and in force from the day of signing hereon. Phnom Penh, December, 29, 1994 on behalf of the King Acting Chief of State Signature Signed CHEA SIM 32 ANNEX A Page 2 of 7 Submitted to: Submitted to the King for His The First Prime Minister and Signature. Second Prime Minister First Prime Second Prime Co-Minister of Cabinet of Minister Minister Minister Signature Signature Signature Signature Signed Signed Signed Signed SOK AN VENG SEREYVOUTH NORODOM RANARITH HUN SEN No: 10 Copied for Distribution Phnom Penh, December 29, 1994 Deputy General Secretary of the Royal Government. Signature Signed SIN SEREI 33 ANNEX A Page 3 of 7 KINGDOM OF CAMBODIA SOCIAL FUND PROJECT STATUTES The Social Fund of the Kingdom of Cambodia CHAPTER I GENERAL PROVISIONS Article 1: The Social Fund of the Kingdom of Cambodia, designated with the acronym "S.F.K.C." is hereby established as a separate autonomous public institution with social legal status and possessing full juridical standing as well as administrative, managerial, technical and financial autonomy under the chairmanship of the Prime Minister. Article 2: The "S.F.K.C." shall be subject to the laws and regulations of the Kingdom of Cambodia and such other provisions as shall be applicable under said laws. CHAPTER II OBJECTIVES Article 3: The "S.F.K.C." shall use its obtained resources to finance on a grant basis the implementation of projects consistent with its objective. The "S.F.K.C." is empowered to enter into agreements with bilateral and international financial organizations, other Agencies, and entities and with the implementing Agencies for the purposes of financing and implementing such projects. The main objectives of the "S.F.K.C" shall be to (a) respond to the urgent needs of the poor communities within the Kingdom and alleviate their poverty, (b) increase the employment opportunities for the Cambodian people, and (c) promote social welfare through the implementation of small scale projects for the rehabilitation of social and economic infrastructure, for supporting socially productive activities, and for supporting micro-credit schemes managed by reliable organizations. In order to assist the "S.F.K.C." in realizing these objectives, the "S.F.K.C." shall be governed by its own policies, procedures and regulations for procurement, contracting, disbursement, and personnel management. It shall engage the necessary technical assistance in respect of the agreements in to which it enters with bilateral and international financial organizations, in accordance with the provisions of those agreements. 34 ANNEX A Page 4 of 7 CHAPTER III OFFICE AND DURATION OF MANDATE Article 4: The head office of the "S.F.K.C" is located in Phnom Penh, the capital city of the Kingdom of Cambodia, and the "S.F.K.C" may establish its own branch offices in the cities of the Kingdom of Cambodia. Article 5: The mandate of the "S.F.K.C" will last for five (5) years from the date the Royal Decree establishing the "S.F.K.C" is promulgated and is signed by the King of the Kingdom of Cambodia. The mandate of the "S.F.K.C" may be renewed by Royal Decree. CHAPTER IV ORGANIZATION AND ADMINISTRATION Article 6: The structure of the "S.F.K.C" shall be organized as follows: (a) The President of the "S.F.K.C" (b) The Board of Directors of the "S.F.K.C" (c) The Executive Committee of the "S.F.K.C" (d) The General Director of the "S.F.K.C" and (e) The Operational Units of the "S.F.K.C" Article 7: The President of the "S.F.K.C". The Prime Minister of the Kingdom of Cambodia shall be appointed by the Chief of State to act as President of the "S.F.K.C" with the following powers: (a) Propose the appointment of the members of the Board of Directors, the Chairman of the same Board, and the General Director. (b) Approve the appointment of a duly qualified independent and intemationally recognized firm to carry out the extemal audits of the "S.F.K.C." (c) Ensure that the objectives of the fund are at all times implemented effectively by the Board of Directors. (d) Propose the scope of the annual operational reports on the operations of the "S.F.K.C" to be submitted by the Board to the President. Article 8: The Board of Directors of the "S.F.K.C." The Board of Directors of the "S.F.K.C" shall consist of eleven (11) highly recognized personality members namely as follows: (a) Two (2) highly recognized personalities of economy, including a representative from the Ministry of Economy and Finance as voting members. (b) Two (2) highly recognized personalities of law as voting members. (c) Two (2) highly recognized personalities of social affairs as voting members. (d) The General Director of the "S.F.K.C" as a non- voting member. (e) Two (2) qualified representatives from non-govemmental organizations as voting members. (f) Two (2) qualified representatives of the private sector as voting members. 35 ANNEX A Page 5 of 7 Article 9: The mandate of the members of the Board of Directors of the "S.F.K.C" shall last for five (5) years. Article 10: The members of the Board of Directors shall convene every six (6) months, or more often as the Chairman deems appropriate. A quorum shall be defined as at least six (6)of the total Board members present. In the case of equality of vote, the vote of the Chairman of the Board shall act as the deciding vote. The Board shall have the following powers: (a) Establish and approve the "S.F.K.C" operating policies and procedures. (b) Approve the annual budget of the S.F.K.C. and its financial regulations. (c) Approve and ratify the agreements entered into between the "S.F.K.C" and bilateral and international financial Organizations and other Agencies and Entities for the provision of financial resources to the "S.F.K.C" as shall be in conformity with the laws and regulations of the Kingdom of Cambodia and such other provisions as shall be applicable under said laws. (d) Approve the administrative (by-law) and the finance/administration and operational manuals of the "S.F.K.C". (e) Propose the scope and content of reports to be submitted by the Executive Committee. Article 11: The Executive Committee of the "S.F.K.C." The Executive Committee shall represent the Board of Directors in carrying out the Board's policies and for project financing subject to the finance/administration and operational manuals of the "S.F.K.C". The Chairman of the Board of Directors shall appoint to the Executive Committee six (6) members from the Board. (a) The General Director as the Chairman of the Executive Committee. (b) The representative of the Ministry of Economy and Finance. (c) One of the Board members representing law. (d) One of the Board members representing social affairs. (e) One of the Board members representing non-governmental Organizations. (f) One of the Board members representing the private sector. Article 12: The Executive Committee shall meet every two (2) weeks or more frequently as the Chairman of the Executive Committee may determine. A quorum shall consist of three (3) members, including the General Director. 36 ANNEX A Page 6 of 7 rticle 13: The General Director of the "S.F.K.C" lhe General Director of the "S.F.K.C" shall be a highly recognized personality. The General Director shall have the following powers. (a) Direct and administer the day-to-day operations of the "S.F.K.C" at all times in accordance with the policies, directives and the finance/administration and operational manuals approved by the Board of Directors. (b) Represent the "S.F.K.C" in the negotiations of agreements and contracts with international and bilateral financial organizations and such other Agencies and Entities, all in accordance with the policies and procedures of the "S.F.K.C" as approved by the Board of Directors. (c) Appoint the staff ofthe operational Units through a competitive and transparent selection process in accordance with the policies and procedures approved by the Board of Directors. (d) Manage the operational Units and its staff in their duties for carrying out the operations of the "S.F.K.C" (e) Submit to the Executive Committee proposed projects for its consideration and approval. (f) Assume any other responsibility that the Board may fornally delegate to him from time to time. (g) Should the General Director expect to be absent from a meeting of the Executive Committee, the General Director shall designate an acting Chairman from among the members of the Executive Committee. MAicle 1 The operational Units of the "S.F.K.C" The "S.F.K.C" shall conduct its relations with its employees on the basis of the personnel and salary administration regime to be issued by its Board of Directors. The personnel of the "S.F.K.C" shall not be govemed by the State Regulations for Civil Service salaries and terms of employment. CHAPTER V FINANCE, BUDGET AND BANKING PROCEDURES Arficle The "S.F.K.C" is authorized to receive financial support including credits, grants, budgetary allocations or any other type of financial assistance from international or bilateral organizations, National Institutions, and such other domestic and foreign entities as may be permitted by the laws and regulations of the kingdom of Cambodia in order to fulfill its objectives. 37 ANNEX A Page 7 of 7 Article 16: All financial support to the "S.F.K.C" shall be subject to the following requirements: The Royal Government will ensure the prompt availability of adequate start-up funds for the "S.F.K.C". (a) The total administrative budget of the "S.F.K.C" over its five years life shall not exceed eight percent (8%) of the total arnount of its resources expended during that same period. (b) Individual projects financed by the "S.F.K.C" shall not exceed in the aggregate the equivalent of two hundred and fifty thousand dollars (USS250 000) each. (c) The "S.F.K.C" shall submit to the Royal Government its annual request for budgetary allocation under the Government's national budget in accordance with the provisions of the organic Budget Law of 28 December, 1993. Article 17: The "S.F.K.C" shall at all times maintain a special deposit account in the National Bank of Cambodia into which all of its financial resources will be deposited promptly. The account and all related financial transactions shall be subject to the provision of the organic Budget Law of 28 December, 1993. CHAPTER VI AMENDMENTS Article 18: These Statutes may not be amended, altered or modified except by Royal Decree. In the evnt of an inconsistency between an express provision of these Statutes and any law of the Kingdom of Cambodia, the provisions of these Statutes shall prevail. CHAPTER VII CLOSING Article 19: The Board of Directors shall determine the closing equity of the "S.F.K.C" and the end of its mandate. It shall disburse all commitments to the relevant projects for expenditures incurred, and shall thereafter transfer to the national budget the "S.F.K.C"'s capital in accordance with the laws and regulations of the Kingdom of Cambodia and such other Provisions as shall be applicable under said laws. 38 ANNEX B Page 1 of 2 KINGDOM OF CAMBODIA SOCIAL FUND PROJECT ROYAL DECREE Unofficial Translation RD/1294/19 -Considering the constitution of the Kingdom of Cambodia. -Considering the Royal Decree of Samdech Preah Norodom Sihanouk Varnan King of the Kingdom of Cambodia, dated November 1,1993 on the appointment of the Royal Government of Cambodia. -Considering the Royal Law, dated July 20,1994 on the organization and management of Cabinet of Ministers. -Referring to the request of the first Prime Minister and second Prime Minister, dated December 28,1994. Therefore, it is Decided Article 1: -Appoint Samdech Krom Preah NORODOM RANARITH as the Co- President of the Social Fund. -Appoint Samdech HUN SEN as the Co-President of the Social Fund. Article 2: -Appoint H.E SOK AN as the Co-Chairman of the Board of Directors of the Social Fund. -Appoint H.E VENG SEREYVOUTH as the Co-Chairman of the Board of Directors of the Social Fund. Article 3: -Appoint H.E HONG SUNHUOT as a member of the Board of Directors of the Social Fund. -Appoint H.E HENG VONGBUNCHHART as a member of the Board of Directors of the Social Fund. -Appoint H.E SUY SEM as a member of the Board of Directors of the Social Fund. -Appoint H.E SUN CHANTHOL as a member of the Board of Directors of the Social Fund. -Appoint H.E CHUM BUN RONG as a member of the Board of Directors and as General Director of the Social Fund. -Appoint H.E CHHAN SAPHAN as a member of the Board of Directors of the Social Fund. -Appoint Mr SENG RON as a member of the Board of Director of the Social Fund. -Appoint Mr. EAR LIMSOUR as member of the Board of Directors of the Social Fund. -Appoint Mr. UNG CHHEUT as a member of the Board of Directors of the Social Fund. 39 ANNEX B Page 2 of 2 Article 4: -The First Prime Minister and the Second Prime Minister shall undertake responsibility for implementing this Royal Decree. Article 5: -This Royal Decree shall become effective and in force from the day of signing hereon. Phnom Penh, December, 29, 1994 on behalf of the King Acting Chief of State Signature Signed CHEA SIM Submitted to: Submitted to the King for His The First and Second Prime Minister Signature. Co-Minister of Cabinet of First Prime Second Prime Minister Minister Signature Signature Signature Signature Signed Signed Signed Signed SOK AN VENG SEREYVOUTH NORODOM RANARITH HUN SEN No.: 11 Copied for Distribution Phnom Penh, December 29, 1994 Deputy General Secretary of the Royal Government. Signature Signed SIN SEREI 40 ANNEX C Page 1 of 2 KINGDOM OF CAMBODIA SOCIAL FUND PROJECT ELIGIBILITY PRINCIPLES 1. Poverty Targeting: Projects shall benefit the poor. The choice of the type of project can ensure high coverage of poor people (" self-targeting"). Infiastructure improvement of primary schools rather than of universities, for example, and of health clinics rather than of tertiary hospitals would by their nature benefit the poor. Projects will also be targeted towards the poorest regions according to a regional poverty index, based on relative regional access to social services. 2. Eligible Applicants: The Social Fund will consider funding requests from public and private entities representing communities and government. The Social Fund will not provide resources directly to individuals to finance commercial undertakings or improve private property. 3. Government Programs and Expenditures: The Social Fund shall not supplement recurrent budget expenditures of Government, nor shall it serve to replace normal sectoral activities and responsibilities of the Government. 4. Sustainability: The Social Fund shall not finance vehicles, generators, and other equipment that require continuous recurrent costs to operate. 5. Project Implementation: The Social Fund will not implement projects itself, but will rely on the local capacity of both the sponsoring group and the implementing agency who will be responsible for project implementation. Great importance is given, therefore, to appraising the capacity of the implementing agencies to ensure the successful completion of the projects. 6. Project Identification and Sponsorship: The Social Fund shall not identify, initiate or sponsor projects directly. Instead, it will respond to the demand for projects as proposed by community groups and local governments or their sponsoring agencies. The Social Fund, government agencies and other groups will promote, encourage and orient the demand for project financing. 7. Productive Investments: Projects shall be investments in social and economic productivity. Projects that do not directly increase the productivity of the poor, such as construction of sport fields and public administration buildings, shall not be eligible. Financing of recurrent costs will not be eligible. Projects financing relief activities shall not be eligible. 41 ANNEX C Page 2 of 2 8. Labor vs. Capital Intensive: The Social Fund's objective of providing enployment opportunities for the poor means that projects should be labor intensive or otherwise generate a significant social impact (education and health infrastructure projects are not as labor intensive as other types of infiastructure, but their social impact might be significant). Large scale projects such as paved roads, high tech bridges and dams that require the use of heavy equipment are not labor intensive and therefore are not eligible. Equipment purchases may have a social impact (primary health equipment, school desks) and are justified, but applications requesting high cost equipment that would make a project capital intensive (generators, dental equipment, hospital diagnostic equipment) would not be accepted. 9. Project Costs and Benefits: Projects shall employ least cost designs and deliver the maximum benefits for a given cost. Projects shall be appraised according to standard methods of measuring costs and benefits. 10. Sectoral Policies: All Social Fund projects shall be consistent with national sectoral policies. For example, all health and education infrastructure must comply with sectoral policies and regulations. 42 ANNEX D SFKC SUB-PROJECT MENU IINFRASTRUCrURE DESCRIPTION RANKING Prirary schools Rehabilitation, expansion and construction of I operating government primary school facilities. Lower secondary schools Rehabilitation, expansion and construction of 2 operating governnent secondary school facilities Vocational training centers Rehabilitation, expansion and construction of 3 operating vocational training centers. Commune clinics Rehabilitation and expansion of operating 2 government commune clinic facilities. District Hospitals Rehabilitation and expansion of operating 2 government district hospital facilities. Social Welfare Facilities Rehabilitation and expansion of operating social 3 welfare facilities. Water Supply Rehabilitation, expansion and construction of 1 communal water supply facilities. __ Piped Water Repair, expansion and construction of public piped 3 water works. Sewerage Repair, expansion and construction of sewerage 2 works. Latrines Construction of latrines within NGO community 2 sanitation programns. Drainage Repair, expansion and construction of drainage 3 works. Rural Roads Rehabilitation and construction of culverts and 2 bridges, as well as mninor road repairs, for secondary and tertiary roads. Irrigation Rehabilitation and construction of locks, gates and 2 sluice dams for operating communal irrigation schemes that have an existing irrigation users committee. EQUIPMENT :_:___:_ __:_:_:___i: Primary school equipment Supply of classroom equipment for operating 1 government primary schools. Secondary school equipment Supply of classroom equipment for operating 2 government lower secondary schools. Training center equipment Supply of equipment for training centers. 3 Commnune clinic equipment Supply of basic medical equipment for governnent 2 commnune clincs. District hospital equipment Supply of basic medical equipment for government 2 .district hospitals. Social welfare equipment Supply of basic equipment for social welfare 3 facilities. 1:SOCLAtLSERVICES Small Business Training Short term skills training for small enterprise 2 development managed by reliable NGOs. Public Health Training Short term public health and hygiene training 2 projects directed towards communities and run by reliable NGOs. 43 ANNEX E Page 1 of 2 KINGDOM OF CAMBODIA SOCIAL FUND PROJECT TECHNICAL ASSISTANCE AND TRAINING Objective The technical assistance and training component of the Social Fund Project is designed to strengthen the operational capacity of SFKC, by improving its overall eligibility and appraisal criteria and procedures, and thus improve the quality of its sub-projects while improving their social impact. Technical Assistance External Audits: SFKC will hire an internationally recognized local firm to produce the annual audits, as required by IDA. In addition local expertise will be hired to carry out a physical audit of a sample of projects to assess their technical quality. Information from this technical study will provide feedback to SFKC the overall cost of the project and accountability of funds used, as well as on the quality of the works carried out. Based on this, recommendations would be made as to how to improve criteria, procedures, and thus the quality of projects. In addition, the technical audit will provide an opportunity to assess whether the operational and maintenance costs of SFKC- financed projects are being covered. MIS Advisor: Within the first year of operations, SFKC will hire a local expert to advise on the equipment to be purchased by the SFKC, to design the network to be installed, and to create a database system that enables the management of the overall project cycle, as well as all financing operations. Financial Management TA: In order to assist the SFKC in developing and improving its financial programming and accounting procedures, local expertise may be hired. Operational and Management Advisor: During the initial stage of SFKC operations, while the operational and financial manuals are being fine-tuned based on actual operational experience, international TA will be hired to advise and assist the General Director on the overall improvement of procedures and criteria. New Sub-projects: For any type of sub-project not yet identified in the sub-projects menu but of interest to SFKC, local or international expertise will be hired to provide assistance in the design of eligibility, appraisal, and supervision criteria for each new type of sub-project. Promotion: In accordance with the need to improve and increase SFKC's outreach, local technical assistance will be hired to assist the Promotions Department in organizing workshops with potential applicants, as well as in designing regional or national information campaigns. 44 ANNEX E Page 2 of 2 Legal Services: Part time legal services will be hired locally by SFKC to provide advice on legal issues as and when they arise. The legal expert will verify that all policies, procedures and regulations approved by the SFKC comply with national laws. In addition the legal expert will oversee the compliance of all contracts and agreements that SFKC might have with third parties. Computer and MIS Training: To improve the overall management of SFKC, the necessary local expertise will be hired in order to train all professional and support staff of SFKC in the use of computers and the MIS system. Visits to Funds Abroad: Once SFKC has started operations, Department Directors will travel abroad to visit other operating Social Funds so as to learn from their operational experience. Impact Evaluations: In order to evaluate the social and economic impact of SFKC-financed projects, SFKC will contract local and/or international consultants to carry out evaluations of sub- projects on a sample basis. A beneficiary assessment methodology will be used to gain the feedback of SFKC's clients -- sub-project beneficiaries, applicants, sponsoring agencies and implementing agencies -- on how SFKC is responding to their needs and to gather data on the impact of the sub- projects. Other surveys and impact evaluations may also be carried out on specific sub-project types in order to evaluate whether operational procedures are in line with the eligibility criteria and to evaluate the social and economic impact of specific sub-project types. Information from these assessments will be used by SFKC management to make adjustments to their procedures so as to improve fulfillment of their objectives and responsiveness to client concerns. 45 ANNEX F Page 1 of 4 KINGDOM OF CAMBODIA SOCIAL FUND PROJECT FUNCTIONAL RESPONSIBILITIES OF SFKC Board of Directors * Establish and approve the operating policies and procedures * Approve the annual budget and financial regulations * Approve and ratify agreements entered into by the SFKC with donors * Approve the Administration and Finance and Operational manuals * Propose the scope and content of reports to be submitted to the Executive Committee Executive Committee * Approve applications for project financing General Director * Direct and administer the day-to-day operations of the SFKC * Represent the SFKC in negotiations of agreements with donors * Appoint the staff of the SFKC * Submit to the Executive Committee proposed projects for approval Internal Audit Unit * Audit of finances * Audit of banking procedures * Audit of procurement procedures * Physical audit of projects * Audit of project costing MIS 46 ANNEX F Page 2 of 4 Operations and Administration Advisory Unit MIS Advisor * Computer specifications and installation * Network administration * Design and implementation of project MIS * Design and implementation of financial MIS * Design and implementation of project costing MIS * Management and maintenance MIS's * MIS training Legal Advisor * Review procurement procedures * Project contracting * Warranties and guarantees * External supervisor contracting * Personnel contracting * Dispute resolution * Legal compliance of SFKC * Agreement negotiation Administration and Finance Department * Personnel * Equipment and vehicles * Office supplies * Communications * Travel * Project portfolios and filing systems * Buildings and maintenance * Translation * Banking * Procurement of office equipment and supplies
Groupe de la Banque mondiale · Staff Appraisal Report
Cambodia - Social Fund Project
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