Colombia - Second Magdalena Medio Regional Development Project

Document of The World Bank Report No: 22840-CO PROJECT APPRAISAL DOCUMENT ON A PROPOSED LEARNING AND INNOVATION LOAN IN THE AMOUNT OF US$5.0 MILLION TO THE REPUBLIC OF COLOMBIA FOR THE SECOND MAGDALENA MEDIO REGIONAL DEVELOPMENT PROJECT September 20, 2001 Environmentally and Socially Sustainable Development Sector Management Unit Colombia, Mexico and Venezuela Country Management Unit Latin America and Caribbean Region  CURRENCY EQUIVALEN 1 S (Exchange Rate Effective July 2001.) Currency Unit = Colombian Peso 1.0 Colombian peso = US$ .000434 US$ 1.00 = 2305 Colombian pesos FISCAL YEAR Government of Colombia: January 1 -December 31 World Bank: July 1 to June 30 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CDPMM Corporation for Development and Peace Magdalena Medio (Corporacion para Desarrollo y Paz del Magdalena Medio) CTN National Technical Committee (Comite tecnico nacional) DNP National Planning Department (Departamento Nacional de Planeacion) Ecopetrol National Petroleum Company (Empresa Colombiana de Petroleo) ECOR Core Team (Equipo de coordinacion y orientacion regional) ELN National Liberation Army (Ejercito nacional de liberacion) ETP Subregional Community Development Team (Equipo tecnico pedagogico) FIP Peace Investment Fund (Fondo de Inversiones para la Paz) ICR Implementation Completion Report LIL Learning and Innovation Loan M&E Monitoring and Evaluation PAD Project Appraisal Document PDPMM Program for Development and Peace of the Magdalena Medio Region (Programa de Desarrollo y Paz del Magdalena Medio) PMR Project Management Report SOE Statement of Expenditures Vice President: David de Ferranti Country Director: Olivier Lafourcade Sector Director: John Redwood Sector Manager: Shelton Davis Sector Leader: Adolfo Brizzi Task Team Leader: Elsie Garfield  COLOMBIA SECOND MAGDALENA MEDIO REGIONAL DEVELOPMENT PROJECT CONTENTS A. LIL Justification Page 1. What is to be learned (why the piloting)? ....................................................................2 2. How are the results going to be used (vis a vis CAS objectives and any follow-on operation)? 4 3. Other countries or situations where similar efforts have shown promise ................................ 5 B. Structure of the Pilot 1. How will the learning take place? ........................................................................5 2. Outcome-level test to be conducted ........................................................................5 3. Steps Involved in Implementing the Pilot ........................................................................5 4. Learning Expectations to be Documented in the Pilot ..........................................................5 5. Triggers for a Follow-on Operation ........................................................................6 6. Results-based Monitoring and Evaluation Arrangements ..................................................... 6 C. Components and their Implementation Arrangements 1. Project components ........................................................................7 2. Implementation arrangements ........................................................................7 a. Procurement ....................................................................... 8 b. Financial Management ........................................................................8 c. Other ........................................................................8 D. Risks 1. Social and Environmental Risks ........................................................................8 a. Safeguard Policies ........................................................................8 b. Other social risks ........................................................................9 2. Other Risks ........................................................................9 E. Main Loan/Credit Conditions 1. Effectiveness Conditions ....................................................................... 11 2. Other ....................................................................... 11 F. Readiness for Implementation ....................................................................... 11 G. Compliance with Bank Policies ....................................................................... 12 Annexes Annex 1. Project Design Summary ....................................................................... 13 Annex 1a. Project Monitoring Baseline and Targets ...................................................................... 13 Annex 2. Project Description .19 Annex 3. Estimated Project Costs .23 Annex 4. Financial Management .24 Annex 5. Project Processing Schedule .26 Annex 6. Procurement and Disbursement Arrangements .27 Annex 7. Documents in the Project File .31 Annex 8. Statement of Loans and Credits .32 Annex 9. Country at a Glance .34  MAP(S) Map IBRD 29517 ----------------------------------------------6- -  COLOMBIA Second Magdalena Medio Regional Development Project Project Appraisal Document Latin America and Caribbean Region LCSER Date: September 20, 2001 Team Leader: Elsie B. Garfield Country Manager/Director: Olivier Lafourcade Sector Manager/Director: John Redwood Project ID: P057692 Sector(s): MC - Community Action Program Lending Instrument: Learning and Innovation Loan (LIL) Theme(s): Social Development Poverty Targeted Intervention: Y PrIogramFinancing Data 77-;7 [X] Loan [ ] Credit [ Grant [ ] Guarantee [ Other: For Loans/CreditslOthers: Amount (US$m): $5.0 Proposed Terms (IBRD): Fixed-Spread Loan (FSL) Grace period (years): 9.5 Years to maturity: 12 Cfommitment fee: 0.85% on undisbursed balance first 4 Front end fee on Bank loan: 1.00% years, 0.75% thereafter, beginning 60 days after signing :Finanzcing P.lan (U.SSm)-: Source Local .o:ig T.:-:tal.-: BORROWER 1.35 0.00 1.35 IBRD 5.00 0.00 5.00 Total: 6.35 0.00 6.35 Borrower: REPUBLIC OF COLOMBIA Responsible agency: NATIONAL PLANNING DEPARTMENT National Planning Department (DNP) Address: Calle 26 No. 13-19, Bogota, Colombia Contact Person: Dr. Manuel Femando Castro, Advisor to the Director General for Special Investments Tel: (571) 596-0300 Fax: (571) 339-0221 Email: Other Agency(ies): Corporacion Desarrollo y Paz del Magdalena Medio (CDPMM) Address: Calle 33 No. 6-94, Piso 10, Bogota, Colombia Contact Person: Dr. Mauricio Katz, Deputy Director Tel: (571) 285-8980 Fax: (571) 285-2024 Email: col98008@colnodo.apc.org Estimated disbursements ( Bank FY/US$m): 2002~2003 24 0 F2<- 3 :-. .-..:;. : Annual 2.00 2.00 1.00 Cumulative 2.00 4.00 5.00 Project implementation period: 2001-2003 Expected effectiveness date: 10/12/2001 Expected closing date: 02/28/2004 XOS PAD Rn R, U-l 2000  A. LIL Justification 1. What is to be learned (why the piloting)? Background. The Program for Development and Peace of the Magdalena Medio Region (PDPMM) was initiated in 1995 with support from the National Petroleum Company (Ecopetrol) and the Catholic Church. The Magdalena Medio region does not correspond to a single political-administrative unit; it is composed of 29 municipalities located in 4 Departments with a population of 810,724 of which the majority (64%) live in rural areas and secondary towns. Poverty indicators show a situation substantially worse than in the country as a whole: 32% of the population live in absolute poverty (11% nationally); the Unsatisfied Basic Needs index averages 56% for the region's municipalities (30% nationally); 26 of the 29 municipalities have a quality of life index indicating poorer living conditions than the departments in which they are located and well below the national average; and the illiteracy rate is 20% compared to a national rate of 9%. Homicide is the primary cause of death in the region, with a rate well above the national average. Lessons and Impact of the frwst LIL. The first Magdalena Medio Regional Development Project (carried out under the responsibility of the National Planning Department and financed by the Government of Colombia through Ln. 4371-CO and other direct funding from the central government's budget, complemented by counterpart funding provided by Ecopetrol) supported the second phase of the PDPMM and tested successfully a participatory, community oriented methodology for promoting development in the midst of conflict. The operational model tested is characterized by the following basic elements: * it is sustained by a change agent (the Corporation for Peace and Development Magdalena Medio, CDPMM) which enjoys high credibility among all the stakeholders; * it is based on community and individual participation in the making of decisions about the community's development, and establishes specific mechanisms for this participation (e.g. the nucleos of the citizen's network, municipal proposals, and project initiatives); * it is based on a methodology that takes into account the capacity and 'initial state' of the citizens, and from this base initiates the learning and capacity building of community organizations so that they are able to take charge of their own development. Further, it recognizes and supports existing organizations and previous experiences in these communities; o it encourages communities to define a long-term development strategy for their community, municipality and region, while supporting "learning by doing" around more concrete and immediate goals and actions; * the change agent (CDPMM) operates in a decentralized manner; and * the change agent's staff (CDPMM) act consistently in accord with defined values of respect, transparency, autonomy, and defense of the public interest. Another important aspect of the model recognized by the Govemment as a key project lesson is that regional development and building conditions for peace can be led by a regional (non-public) entity using public funds, an arrangement which permits flexibility for effective resource management and a more fluid communication with communities. The participatory methodology and operational model tested under the first project proved effective at creating a longer term vision of a better future for the region, strengthening the region's human and social capital, mobilizing resources and attention for the region, and starting a community-led process of improving basic services and investment. The most striking achievement was the increase in human and social capital: 170 organizations involving 8,625 persons have internalized the vision and goals of the program. The capacity of the CDPMM, the NGO leading the program, was substantially increased, as evidenced by its ability to operate in the increasingly complex situation in the region, to mobilize and effectively use US$7.0 million, and to assist communities with 67 subprojects with - 2 -  tangible results in terms of increased capacity of the organizations promoting them. The first project's impact goes beyond its achievements in the Magdalena Medio region. It has contributed to: (i) the Government's thinking and strategic approach to development in conflictive regions (including the delegation of implementation to a respected third party); (ii) Colombia's image and the ability to raise funds to support the peace process; (iii) initiation of regional development programs based on similar principles in other regions of Colombia; and (iv) a new way of working for the Bank, Government, and other key participants including communities characterized by a learning mode and partnerships. As indicated above, the first LIL achieved its objective of increasing capacity of communities and the CDPMM. A key lesson of this experience was that increasing the capacity of individuals and communities to take charge of their own development, particularly in a conflictive climate, takes more time than originally expected particularly the ability to prepare and implement specific investment projects which translate into increased incomes and better standards of living. The use of a step by step approach which starts with the existing capacity of the people involved revealed that the beginning of a participatory process like this one is much slower than anticipated, but that the speed increases as people and organizations gain self-confidence and self-esteem. Through the first project, the CDPMM developed a method for providing technical assistance that empowers producers and organizations: the participants began to understand the concept of a value chain, to find their place in such a chain, to assess their capacity and their shortcomings. Through this process, participants become more capable of articulating an effective demand for services and technical support. In addition, during the course of the first LIL, it was decided to move toward supporting larger somewhat more complex productive projects (mainly agroindustrial) covering more than one municipality, because the CDPMM believed that this type of project would have.a greater impact on regional development and also serve to bring several organizations together thus reinforcing the process of creating and strengthening social capital in the region. As a result of the time required for this learning process and the increased complexity of the proposed projects, while the first LIL successfully contributed to identifying and developing productive initiatives with good potential to improve incomes and living standards, these subprojects never fully entered the investment phase. The second LIL will focus on learning how to successfully implement productive projects in a way that continues the empowerment process. Likewise, under the first project via support for development of the municipal proposals, the development of the regional planning system, and support for education and health initiatives in the context of national policies for each sector, progress was made to involve municipal administrations and local institutions in the PDPMM. However, much work remains which will be undertaken under the second LIL to further develop and consolidate the first project's innovative approach of building more responsive local institutions by increasing citizen and community knowledge and capacity--building informed demand--to create a constituency for better government and local institutions (in contrast to the usual approach of focusing on the institutions themselves and providing training and other resources with the assumption that they want to be more responsive but simply lack the means). This would be complemented by direct support to interested municipal govemnments and local institutions. Rational for a second LIL. A second LIL is warranted due to the: (i) pioneering nature of the PDPMM which requires a flexible and continuous learning approach; (ii) the challenging and unpredictable environment in the Magdalena Medio region stemming from the evolution of the armed conflict at the national and regional level; and (iii) the challenging new learning areas which need to be pursued. The strategic focus of the follow-up project is to empower communities, build the sustainability of the PDPMM, and mitigate risks by institutionalizing and rooting the PDPMM in local and regional institutions (public and private) with a particular focus on the municipality. The idea is to gradually shift the locus of decision-making and leadership of the PDPMM from the CDPMM to local and regional actors with - 3-  communities playing a lead role. The second project will draw on the state of readiness achieved under the first project to move fully into an investment mode which produces tangible social and economic results. Project objective and learning areas. The main purpose of the second LIL (project development objective) is to test new forms of managing and operating the PDPMM which result in: (a) an increase in the influence of citizens in local and regional development; (b) local institutions which are responsive and accountable to citizens; and (c) tangible social and economic benefits. In this regard, the project will focus on learning in four areas involving testing of: * new organizational and operational mechanisms for managing the program (PDPMM) which increase the role of community organizations, take into account the diverse conditions in the region particularly the armed conflict, and gradually decrease dependence on the Corporation for Development and Peace Magdalena Medio (component 1); * approaches for strengthening local and regional institutions (private and public) so that they respond better to citizens' needs and priorities, and are accountable for their actions (component 2); * approaches for implementing productive projects which increase the probability of their success (for example, methodologies to help small producers and the poor develop sound market approaches) and contribution to the economic and social development of the region (component 3); and - approaches to developing and implementing social initiatives which respond to the needs of vulnerable communities (extreme conditions of poverty and/or impact of armed conflict) and serve as a vehicle that eventually permits these communities to move on to pursue integrated and sustainable development initiatives (component 4). 2. How are the results going to be used (vis a vis CAS objectives and any follow-on operation? Document number: R99-201 Date of latest CAS discussion: 11/18/1999 The project will contribute to the CAS objective of promoting peace and development through a focus on the socioeconomic determinants of violence. The recently completed LIL was one of the first lending operations in this new area of Bank assistance to Colombia, identified by government authorities and civil society representatives as Colombia's number one development priority and incorporated as such in the Country Assistance Strategy (CAS) presented to the Board November 6, 1997 (R97-233). As noted in the CAS Progress Report presented to the Board two years later (R99-201, November 18, 1999), the importance of the PDPMM and Bank assistance in this area increased when a new presidential administration took office in August 1998 with peace as its central objective. The National Development Plan (NDP) for 1998-2002, presented a two track approach to the peace process: (i) at the political, national level negotiations for peace with various armed groups; and (ii) at the local and regional level pursuing specific initiatives to build social capital and address the root causes of violence which have long-standing local dimensions. As indicated above, the CDPMM defined and tested under the first LIL a community development approach which is the key source of the government's thinking about how to promote development in conflictive regions and which has inspired such programs in 9 other areas of Colombia. The long-term objective of the PDPMM remains: increased social capital and empowered citizens lead to a significant reduction in poverty and increase in peaceful coexistence in the Magdalena Medio Region. The results of the second project will pave the way for the next (fourth) phase of the PDPMM which will be more ambitious in terms of the poverty and peace objectives, amount of funding, and leadership role of communities and local institutions. In addition, since the PDPMM is Colombia's pioneering program in peace and development, the lessons will be used by the peace and development programs initiated in other areas of the country and will contribute to the on-going process of defining the national strategy for - 4 -  promoting peace and development. Although the PDPMM's achievements in the midst of the current circumstances in the region are fragile, and the ability to achieve its ambitious long-term objectives is subject ultimately to the broader process towards peace and security in Colombia, the Government believes that the PDPMM has contributed to this broader process. The proposed project can not resolve the armed conflict, but it continues the work started under the first project to create conditions to facilitate dialogue among contending parties, set in motion a process for addressing some of the underlying reasons for the conflict, and prepare the way for a post-conflict intervention. 3. Other countries or situations where similar efforts have shown promise. The promising results and lessons of the first project which are described above (see fuller discussion in ICR No. 22452 of June 2001) indicate the enormous promise of the PDPMM's approach. The lessons of the Rwanda: Community Reintegration and Development Project (IDA Cr. 3138) presented in the Mid-Term Review of March 2001 also indicate that this approach is promising, that capacity building takes more time than initially expected, and that communities can assume more direct responsibility for decision-making and management. B. Structure of the Pilot 1. How will learning take place? A learning mode pervaded the first project, and will continue and expand to additional stakeholders, such as municipalities, in the second. Learning by doing, reflection over actions and continuous feedback will take place throughout project implementation. Since each project component constitutes a learning area (Annex 2), the M&E of the quantitative and qualitative indicators in the logical framework will indicate changes in behavior over time. The M&E system (see Section B-6 below) will regularly measure and report on progress and success. 2. Outcome-level test to be conducted The hypotheses to be tested (stated in the project development objective and result for each component) concern how to manage and operate the PDPMIM to achieve certain results as explained in Section A-1 above, and Annexes 1 and 2. 3. Steps involved in conducting the pilot The project will be carried out in accord with the LIL Implementation Plan and the Annual Operating Plans of which the first, 2001 Plan will be approved as a condition of loan effectiveness. The Operating Manual and CDPMM's Policies and Procedures Manual set forth the organizational and operational changes which will be tested under the project. While the basic approaches to be tested have been defined and are indicated in Annexes 1 and 2, some of the details particularly for components 3 and 4 will be further developed during the first year of the project (for example, alternative financing mechanisms for productive projects). A critical step in launching the new project is the "induction" of the CDPMM's staff in the project's learning objectives; the new organization, policies and procedures of the CDPMM; and the approaches to be tested. Then, with a strong role of the subregional community development teams (ETPs), induction of the organizations, institutions and individuals involved in the project will be carried out. This process will place particular emphasis on the M&E system and formative evaluation; subsequent training and learning-by-doing will build this capacity. 4. Learning expectations to be documented in the pilot 1 Economic D Technical M Social 3 Participation Z Financial 1 Institutional 1 Environmental E Other - 5-  5. Triggers for a follow-on operation The success of the LIL will be assessed relative to the objectives and indicators in the logical framework (see Annex 1); the second external evaluation will serve as an important, independent source for this assessment. A follow-on operation to support the next phase of the PDPMM would be justified if the LIL has fulfilled its objectives. The PDPMM is a long-term program involving various partners including local communities and municipal governments, so irrespective of whether the Bank decides to support a follow-on operation, it is expected that the lessons of this LIL will be utilized and that the other partners including the central government will continue their involvement in the PDPMM. 6. Results-based Monitoring and Evaluation System The monitoring and evaluation (M&E) system builds on the system developed, put into operation and tested during the first LIL. It incorporates lessons and modifications derived from the first project as well as changes motivated by the specific approach and objectives of the second. The three main objectives of the system are to: (i) contribute to the creation of social capital and technical capacity of the organizations and people involved in the project and PDPMM; (ii) regularly provide information for the decision-making of the CDPMM; and (iii) evaluate the project (as a whole) and the larger program of which it is a part. The monitoring, evaluation and learning system under the LIL will consist of the following components: * formative evaluation, to develop and consolidate the capacities of nucleos and community organizations to prepare, monitor and evaluate the efficiency, efficacy and outcomes of specific plans and subprojects for which they are responsible. This capacity can then be applied in other contexts such as citizen oversight committees, monitoring of municipal development plans and the like. * technical evaluation by the CDPMM to generate regular information on outputs, processes and outcomes of the project and program for the use of the CDPMM, citizens and institutions (particularly municipalities) in the region, and donors; this would include the systematization of the qualitative and quantitative information produced by the formative evaluation component; and * external evaluation carried out by an independent institution to provide a global assessment of project and PDPMM progress and impact. The project places a strong emphasis on formative evaluation, and incorporation of the M&E system into the structure of the CDPMM and program. The M&E responsibilities and roles of each unit in the CDPMM and organizations participating in the PDPMM have been defined and M&E has been made an integral part of the participatory methodology. The CDPMM's monitoring and evaluation team (formed during the first project) is responsible for providing technical support and training to the other CDPMM units so that they carry out effectively their M&E role, and for carrying out key technical M&E and reporting functions. The M&E team reports to the Deputy Director of the CDPMM and is composed of 5 persons: a coordinator, two specialists in participatory evaluation methods and working with communities, and two specialists in quantitative methods of data collection and analysis. The coordinator is responsible for the conceptualization, operational orientation and expansion of the M&E system in the region. The coordinator will also coordinate the preparation of the two external evaluations, and identify information sources and take measures required for the completion of an evaluation baseline for the project and for the PDPMM. According to a training-of-trainers and learning by doing approach, formative evaluation and data collection will be carried out by the subregional community development teams (ETPs) at the subregional and local levels. The M&E team will train and supervise the ETPs' work in M&E, the ETPs will in turn train M&E groups of nucleos and cormmunity organizations. M&E instruments and feedback loops for reporting to nucleos, organizations and CDPMM units have been developed and tested during the first LIL. -6 -  The CDPMM will prepare semi-annual M&E reports. The first report (December 2001) and subsequent mid-year reports (June 2002, June 2003) will focus on progress implementing the LIL in specific dimensions (ETPs, nucleos, subprojects) drawing heavily on the formative evaluation. The annual M&E reports (December 2002 and December 2003) will provide an overall assessment of the progress and achievements of the project with specific reference to the indicators in the logical framework. The two external evaluation reports will be prepared as inputs into the project's mid-term review (September 2002) and assessment at completion (September 2003). In addition, these reports will be complemented by other methods (such as videos, case studies and workshops) of documenting and disseminating the lessons and accomplishments of the project. The National Technical Committee will play a critical role in the discussion and analysis of the outputs of the M&E system, and in the preparation of the final report on the project's achievements (ICR). C. Project Components and Implementation Arrangements 1. LIL Components The project has four components, each associated with a specific learning area. Components 1 and 2 focus on increasing the community role in program management and capacity to influence local affairs. Components 3 and 4 relate to generating tangible social and economic benefits from productive and social subprojects. A description of each component is contained in Annex 2. Indida tiank- | of mpnnt $eforCoss fitnancing Bn- Xh -e t' Ba=_;kUS$M) -Total (US$M) fnancing- 1. Program Leadership and Increased Community 3.41 53.7 2.66 53.2 Role of Communities Action Program 2. Strengthening of Local and Regional Institutional 0.89 14.0 0.84 16.8 Institutions Development 3. Productive Subprojects Community 1.75 27.6 1.36 27.2 Action Program 4. Social Subprojects in Vulnerable Community 0.30 4.7 0.14 2.8 Communities Action Program Total Project Costs 6.35 100.0 5.00 100.0 Front-end fee 0.00 0.0 0.00 0.0 Total Financing Required 6.35 100.0 5.00 100.0 2. Implementation Arrangements The project will be implemented over a period of three years under arrangements which proved effective during the first project. The National Planning Department is the government agency responsible for the project. The National Technical Committee (CTN)--presided by DNP and composed of the Bank, UNDP, Ecopetrol, the Colombian Agency for International Cooperation (ACCI), and the CDPMM--will oversee the project as well as play a role in orienting and coordinating efforts related to the broader PDPMM. As in the case of the first project, the Government through DNP has designated the CDPMM, an NGO whose founding members are the Center for Research and Popular Education (CINEP) and the Catholic Diocese of Barrancabermeja, to be the project implementing agency. The CDPMM's internal organization includes: a Director and his staff, a Deputy Director, a core team (ECOR), an administrative and financial team, and 8 subregional teams with small offices. The subregional teams are part of the subregional community - 7 -  development teams (ETPs) which include community members who are not employees of the CDPMM; the nucleos--a voluntary association of citizens and organizations in each municipality--will continue to play an important role in the PDPMM promoting priority development plans (Municipal Proposal), investments and actions. The detailed terms of the project implementation arrangements will be spelled out in the Administration and Execution Contract (a condition of loan effectiveness) which is to be signed by DNP, CDPMM, Ecopetrol, UNDP and ACCI. Under this contract and in accord with the Implementation Agreement, the CDPMM will be responsible for the key project management functions under the guidance of DNP and the National Technical Committee. Under the contract, UNDP will administer project funds (loan and counterpart funds provided by Ecopetrol) as it did for the first project. The implementation mechanisms which proved successful under the first project will be continued with some adjustments under the second: annual operating plans, semi-annual monitoring and evaluation reports, external evaluations by an independent entity, and an operating manual which sets the ground rules for approving and implementing nucleo plans and subprojects. In addition, the CDPMIM's Policies and Procedures Manual will serve as a guide to ensure its efficient functioning. a. Procurement An assessment of the CDPMM's capacity to implement procurement actions for the project was found to be satisfactory, and overall project risk for procurement is judged to be average (assessment approved by the Regional Procurement Advisor on June 5, 2001). The type of procurement to be carried out under the LIL is expected to be simple and follow Bank guidelines only. As indicated above, the Government has decided to continue UNDP's role in the second project; the ACCI and UNDP have reached an agreement whereby -VNDP's administrative fee provided for under the terms of the Administration and Execution Contract will be covered by them. The agreed procurement arrangements and action plan can be found in Annex 6. b. Financial Management The UNDP (funds administrator) and CDPMM (implementing agency) are responsible for managing the project funds under the terms agreed in the Administation and Execution Contract. A Financial Management Specialist conducted a review of the financial management of the CDPMM in July 2001, and found the systems and personnel adequate for the purpose of implementing the project. Loan funds will be disbursed directly into UNDP's New York account. Project Management Reports (PMRs) will not be required for this project and disbursements will be made on the basis of SOEs. Details of the financial management and disbursement arrangements are presented in Annexes 4 and 6. c. Other D. Risks 1. Social and Environmental Risk The key risks related to this project stem from the context in which it is being carried out as discussed in Section 1 b and 2 below. The operational model tested under the first project proved effective in this context. a. Safeguard Policies The project does not raise any major environmental issues and no adverse environmental impact is expected; nor does the project have expected impacts related to involuntary resettlement, indigenous peoples, or cultural heritage. Project components 1 and 2 (accounting for 70% of Bank funding) do not entail any actions which might have negative impacts, and social subprojects (component 4) will be very - 8 -  small with minor if any environmental impacts. Productive subprojects (component 3) may have environmental impacts. In regard to subprojects, screening procedures based on best practice for social funds which were included in the Operating Manual and applied by the CDPMM under the first project will be utilized and updated for the second. The CDPMM will employ an environmental specialist to carry out the screening of subprojects, help develop the terms of reference and oversee environmental assessment studies if they are required, review the studies and mitigation plans (if needed) with the community organizations concerned, and provide technical support and supervise the implementation of the plans. In any cases where Colombian law requires an environmental license to carry out a subproject, the CDPMM will ensure that the license has been obtained prior to providing funding for implementation of the subprojects. For any subprojects requiring environmental assessments, the community organization sponsoring the subproject will be involved in preparing the terms of reference, overseeing the work of the consultants, discussing the studies' findings, and agreeing on and implementing the mitigation plan (if one is required). Thus, the entire process will involve consultation with stakeholders. Environmental Category: B (Partial Assessment) b. Other Social Risks The project is being carried out in a situation of on-going conflict which is very unpredictable. The CDPMM is very aware of the risks related to the continuing conflict in the region and country, and the particularly difficult situation in specific parts of the Magdalena Medio region. This is a particular concern for the southern Bolivar Department where the Government and ELN agreed that parts of two municipalities would be declared a demilitarized zone where peace negotiations would take place; this has been violently opposed by the paramilitary forces currently occupying the area and by civilian groups (who experienced the control of the ELN for thirty years) some of which have ties to these forces. The situation has been at an impasse for more than six months, and recently the Government announced the suspension of its dialogue with the ELN alleging the ELN's lack of flexibility. However, Colombian civil society organizations, the Catholic Church, and members of the international community are talking to the two sides to convince them to reinitiate talks as soon as possible. A positive development over the last few months in the region and southern Bolivar in particular is greater international involvement and presence of national institutions. The CDPMM is aware that it needs to act very carefully in this difficult environment where perceptions of various stakeholders are often distorted and extreme. See Section 2 below for a discussion of the risk management strategy. 2. Other (external, reflecting the failure of the assumptions in the fourth column of Annex 1) Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Community organizations and CDPMM S The CDPMM is building on its successful are unable to establish communication approach under the first project to maintain a mechanisms and direct contact with the continuous dialogue with the diverse actors, diverse actors in the region in order to regularly monitor the socio-political dynamics in manage the conflict in the subregions. each subregion/municipality, and adjust and modulate its activities and approach. The systematic involvement of citizens is a critical means of reducing this risk. The CDPMM's strategy is being strengthened for the new project as the situation has become more complex (see below). -9-  The confidence generated between M This is related to the first risk which might have communities, organizations and the an impact on relations due to fear stemming representatives of the PDPMM is from an increase in violent acts and intimidation weakened/not maintained. by armed groups. This will be closely monitored by the CDPMM. Municipal authorities oppose the M In most municipalities, the CDPMM and orientation and concrete work of the PDPMiM are accepted and relations are PDPMM. cooperative. Project component 2 is part of a strategy to build common interests and stronger links with municipal authorities as both a goal and a risk management strategy. In the exceptional cases where the situation is very polarized, the CDPMM has looked for ways to improve communication and identify common interests; sometimes, in rare cases, it must wait patiently for conditions to improve. Subproject activities are delayed or M Under the first project, UNDP, DNP and the canceled due to delays in arrival of funds. CDPMM learned the importance of avoiding this problem and developed mechanisms for handling disbursements in a timely manner which will be applied in this project. CDPMM is adopting improved budgeting and cash flow management procedures. There is substantial involuntary M This risk is also tied to evolution of the armed displacement of persons involved in conflict; it will be managed as part of the overall subproject activities. strategy described below including strengthening of community organizations. It is expected that this phenomenon would be restricted to certain localities. From Components to Outputs Members of the nucleos and subregional S Relates to risk 1 above. CDPMM to help them community development teams (ETPs) develop increased capacity and take actions to face significant interference due to the anticipate and handle these problems. on-going conflict. Counterpart funds not available when M Relates to risk 4 above. needed. Producer associations, municipalities and M Experience under the first project demonstrated other entities (including financial) do not the capacity of CDPMM and PDPMM to commit resources to cofinance the mobilize cofinancing. productive projects. Overall Risk Rating S Learning is expected to be high for this project. The risks relate to the extent of learning and achievements if the armed conflict escalates to an acute stage throughout much of the region. Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) - 10 -  Some of the key elements of the CDPMM's strategy for managing the risks to the project and PDPMM stemming from the complex environment in the region are: * seek the presence and involvement of the international community in the region including close relations with agencies of the UN system (for example, UNDP has opened an office in Barracabermeja); * work closely with state authorities particularly local governments and key agencies of the national government while maintaining the CDPMM's autonomy; * decentralize the CDPMM's operating structure and promote greater involvement of persons and organizations outside the CDPMM in decision-making about the PDPMM in accord with widely disseminated, transparent rules contained in the Operating Manual; * constant dialogue and monitoring of the situation within CDPMM and with participants in the PDPMM, and an agreed process for taking decisions about how to react to various situations which may arise; * strengthen communications (internal and external) and press relations to ensure consistent and accurate messages about the CDPMM and PDPMM; and * direct dialogue as appropriate with key actors in the region. Concerning the Bank's reputational risks, it is fair to say that the Bank has gained considerable benefits from its involvement with the first project and the PDPMM which is perceived by the Government, civil society and other donors in a positive way. Good project supervision will be ensured by following supervision practices which proved effective under the first project: (i) working with a highly reputable NGO, fully responsible for carrying out the project, which has shown the capacity to manage the difficult conditions in the region; (ii) regular feedback in the form of annual operating plans and semi-annual M&E reports; and (iii) independent, professional assessments of the project's implementation and results/impact by Colombian experts (annual financial and procurement audits including field visits, two external evaluations). This will be complemented by staff visits to the region when possible. E. Main Loan Conditions 1. Effectiveness Condition Submission of the following which are found satisfactory to the Bank: CDPMM's Manual of Policies and Procedures, Operating Manual, Administration and Execution Contract, Annual Operating Plan for 2001. 2. Other (classify according to covenant types used in the Legal Agreements.) Disbursement: retroactive financing for expenses made on or after January 1, 2001. F. Readiness for Implementation El 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. X 1. b) Not applicable. 1 2. The procurement documents for the first six months' activities are complete and ready for the start of project implementation; and a framework has been established for agreement on standard bidding documents that will be used for ongoing procurement throughout the life of LIL 1 3. The LIL's Implementation Plan has been appraised and found to be realistic and of satisfactory quality. IZ 4. The following items are lacking and are discussed under loan conditions (Section G): - 11 -  GDPMMs Maml Of PtL;4is d PVc=fres, OpM l duMa, Mins i azaTdE=Wotn Coact A.ual Opwratig Plan for 2001 G. Compliance with Bank Pollcle6 1 1. This projea cot Liao wfi Wil pplicable Ba=k pol0sb. O02.Th o1owm$ ecepfon to BItpolicies aro imoonow~a tbr appToVI rhe p?oject cswlios wt afl otbr applcable k poicies. EilsieB. Ga