Annex 1: Revised Results Framework and ... - World Bank



Document ofThe World BankFOR OFFICIAL USE ONLYReport No: RES17909Project paperFOR APROPOSED PROJECT RESTRUCTURINGOf THEROAD MAINTENANCE AND REHABILITATION PROJECT, PHASE 2TO THEINDEPENDENT STATE OF PAPUA NEW GUINEAMay 5, 2016Transport and ICTEast Asia and Pacific RegionThis document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS(Exchange Rate Effective May 2, 2016)Currency Unit=Papua New Guinea Kina (PGK)US$1.00=PGK 3.17US$1.00=SDR 0.71FISCAL YEARJanuary 1–December 31ABBREVIATIONS AND ACRONYMSDoWDepartment of WorksPDOProject Development ObjectiveEPMEmployer’s Project ManagerPGKPapua New Guinea KinaGoPNGGovernment of Papua New GuineaPNGPapua New GuineaIDAInternational Development AssociationRMRP IIRoad Maintenance and Rehabilitation Project, Phase 2MCRPBuilding a More Climate Resilient Transport Sector ProjectSDRSpecial Drawing RightsNECNational Executive CommitteeSESSocio-Economic SurveysPBCPerformance Based ContractingUS$United States DollarRegional Vice President:Victoria KwakwaCountry Director:Franz R. Drees-GrossSenior Global Practice Director:Pierre GuislainPractice Manager:Michel Kerf Task Team Leader:Jim ReichertPAPUA NEW GUINEAADDITIONAL FINANCING AND RESTRUCTURING FOR ROAD MAINTENANCE AND REHABILITATION PROJECT, PHASE 2contentsSummary1Project Status1Proposed Changes3Appraisal Summary5Annex 1: Results Framework and Monitoring6Annex 2: Systematic Operations Risk-Rating Tool9 PAPUA NEW GUINEA: ROAD MAINTENANCE & REHABILITATION PROJECT, PHASE 2RESTRUCTURING PAPERIDA Credit No. 4931-PG and IDA Credit No. 5404-PG (P119471)A. SUMMARYThis Project Paper is in response to a request that the Government of Papua New Guinea (GoPNG) made through letters dated April 12, 2016 from the Department of Treasury, and seeks the approval of the Country Director to introduce the following changes to the Road Maintenance and Rehabilitation Project, Phase 2 (RMRP II) (P119471 and P145120), IDA Credit No. 4931-PG, IDA Credit No. 5404-PG, and any necessary accompanying amendments to the project’s legal documents:revise the Results Matrix and monitoring indicators;extend the closing date of IDA Credit No. 4931-PG (the original RMRP II Credit) by 20 months, or until March 31, 2018;eliminate the requirement for counterpart funding for works and provide 100 percent financing from IDA funds for new works contracts signed on or after September 1, 2015;reallocate project funds between disbursement categories; andmodify one project sub-component.As a result of the continuing slide in the value of mineral resources, the macro-economic situation in Papua New Guinea (PNG) has deteriorated and GoPNG is under increasing budgetary pressure. GoPNG is no longer able to make its 22 percent contribution towards the cost of road works under RMRP II. As a result, GoPNG has asked that Credit No. IDA-5404-PG be restructured to allow for 100 percent financing of IDA funds for new works contracts.The modifications proposed as part of this restructuring will not change the project development objective (PDO) or impact the fiduciary, safeguards or implementation arrangements that are currently in place for RMRP II. No new activities are proposed, no additional safeguards will be triggered, and there will be no escalation of the safeguards rating.The Borrower remains fully committed to RMRP II. A qualified employer’s project manager continues to provide effective implementation support. Currently, the Department of Works (DoW), the implementing agency for RMRP II, has several works packages at various stages of preparation. These packages have a collective value estimated at US$65 million and represent 38 percent of RMRP II’s overall funding. Contracts for two of the packages have been approved and works to rehabilitate the roads are expected to commence after the contracts are signed in May 2016 (expected).B. PROJECT STATUSBackground. RMRP II was approved on May 3, 2011 for Special Drawing Rights (SDR) 27.40 million (equivalent to US$43.00 million), and became effective on August 30, 2011. This was followed by an additional financing, which was approved on February 19, 2014 for SDR 82.40 million (equivalent to US$126.50 million).The PDO is to: (i) improve road transport to project areas through providing satisfactory physical condition and safety in selected roads; (ii) strengthen institutional arrangements for road maintenance, including the participation of the private sector and communities; and (iii) enhance road-related economic opportunities for women. The development objectives of RMRP II remain relevant and achievable.Project Status. As of April 15, 2016, US$27.87 million, or about 16.5 percent of available funding, had been disbursed. Since the approval of the first additional financing in February 2014, project activities have focused on preparing designs for several road improvements, and while disbursements have been limited to date, they are set to increase with the expected signing of two contracts for road works by end-May 2016. These are collectively valued at US$36.70 million. DoW has identified a long list of possible roads for rehabilitation under RMRP II, and the project is expected to fully disburse by its current closing date of April 30, ponent 1: Rehabilitate, Upgrade and/or Maintain Roads and Bridges. The 17.5 km section of the Hiritano Highway between Inawabui and Bereina was completed in December 2014 under budget and ahead of schedule. An additional one kilometer of road was rehabilitated and maintained through the cost savings. Routine maintenance of a critical 67 km section of the Hiritano Highway was successfully completed in January 2014. A second contract to reseal 56 km of the Hiritano Highway between Malalaua to Epo is underway and works are about 70 percent complete. This contract is expected to be completed by August 2016.A GoPNG priority is to rehabilitate the 53 km East Cape Road in Milne Bay Province. Bids from eight firms were received, and on November 2, 2015 the Bank provided its no objection to the bid evaluation report and recommended award. This contract was recently approved by GoPNG’s National Executive Committee (NEC) and mobilization is expected by June 2016. A second contract to rehabilitate a 24 km section of road in Central Province was also recently approved by NEC and mobilization is also expected by June 2016.The designs and preparation of bid documents to rehabilitate two other roads are ponent 2: Technical Assistance. Progress to pilot a performance-based road maintenance contract (PBC) has been steady. A 112 km section of the Hiritano Highway has been identified, and the scope of works, service levels, and arrangements for implementing the pilot PBC agreed. The tender is expected to be launched in mid-2016 with works commencing in early-2017.As a result of ongoing rehabilitation works on the Hiritano Highway, women from local communities have been employed in a variety of jobs, including to direct traffic along sections of road that are under rehabilitation, and as cooks and cleaners in work camps. They will also be employed under the project through community-based, routine roadside maintenance contracts. A contract to carry out socio-economic surveys (SESs) to monitor the project’s impact on beneficiary communities will get underway in early-January 2016. This will be followed by two additional SESs at the mid-point and end of the ponent 3: Contingency for Disaster Risk Response. This provisional zero-cost component will support preparedness and rapid response in the event of a disaster, an emergency, and/or catastrophic events. To date, this option has not been triggered.Project Performance. Progress towards Achieving the PDO and Overall Implementation Progress have been rated Moderately Satisfactory or Satisfactory since September 2011.The proposed works and project activities are expected to be completed within RMRP II’s closing date of April 30, 2021, and the Borrower continues to have sufficient capacity for pliance with safeguards requirements as described in the Environmental and Social Management Framework and Land Acquisition and Resettlement Policy Framework has been satisfactory, and to date there have been no negative impacts in relation to the road works financed under the RMRP II. Safeguards capacity at the implementing agency has improved through the addition of two staff to DoW’s Environmental Management Unit.RMRP II is in compliance with Bank procurement and financial management policies, as well as all legal covenants. There are no outstanding audits and no audit qualifications for RMRP II.However, the implementing agency for RMRP II (DoW) was also responsible for implementing the now closed Building a More Climate Resilient Transport Sector Project (MCRP) (P129322), and this project has overdue financial audits for 2013 and 2014. Since DoW is responsible for the financial management of project funds and the submission of audited financial statements and accompanying audit reports for MCRP, the Team sought clearance to restructure RMRP II from the Practice Manager for Financial Management and the Division Manager for Loan Operations. This request, which was supported by the Country Management Team, was approved on January 30, 2016.C. PROPOSED CHANGESChange in Results Framework. Because GoPNG will no longer provide its full counterpart contributions to the project, which were estimated to be US$40.50 million, the target values for PDO Indicator 1 - “km of roads rehabilitated” - will be modified. Counterpart funds paid to date are approximately US$17.00 million. The remaining US$23.50 million will not be paid. This amounts to about 13 percent of the overall amount that had been earmarked for road improvements. Consequently, the target values for PDO Indicator 1 will be revised as follows:IndicatorCumulative Target ValuesRoads Rehabilitated (Core)Revised Targets:20162017201820192020202175 km100 km125 km150 km175 km185 kmOriginal Targets:90 km115 km145 km175 km200 km220 kmCounterparts have indicated that it was difficult to measure the “percentage of national project roads being maintained by private contractors” (PDO Indicator 3). One challenge is the lack of agreement on the length of the overall national road network. As currently defined, the indicator is too broad to be measured in a consistent and meaningful manner and has been redefined to include the following sections of national roads, all of which are expected to be rehabilitated under RMRP II:Central Province: Inawabui to Bereina Gamoga Village to Hula Vanapa Bridge to Bereina TownshipLength17.5 km23.9 km112.0 kmGulf Province: Malalaua to Epo Epo to Kerema56.5 km9.5 kmMadang Province: Bogia to Awar25.7 kmMilne Bay Province: Goilanai Bridge to Gopaia Bridge, Lot A Gopaia Bridge to East Cape Point, Lot B26.1 km26.9 kmAs a result of the ongoing rehabilitation works, women from local communities have been employed in activities other than routine roadside maintenance, such as directing traffic along sections of road that are under rehabilitation, and serving as cooks and cleaners in work camps. To date, it has been reported that about 2,100 person days of work have been carried out by women. However, the project currently only has one indicator to measure the number of person days worked by women in routine maintenance activities. This indicator alone does not fully capture the full benefits of the project’s impact on employment of women, and the project team proposes to add the following indicator: number of person days worked (by women) as a result of project activities that are not related to routine maintenance activities. The following target values for this new indicator are:New IndicatorCumulative Target Values (number)Number of person days worked (by women) as a result of project activities that are not related to routine maintenance activities.2016201720182019202020213,5004,0004,5005,0005,5006,000Change in Legal Covenants. The covenant requiring the deposit of counterpart funds in an escrow account by April 30th of each calendar year will be deleted as a result of this restructuring.Change in Credit Closing Date. The closing date of IDA Credit No. 4931-PG (the original RMRP II Credit) is July 31, 2016. Currently there are two contracts being financed from the original credit, including a: (i) works contract with Dekenai; and (ii) contract with the Employer’s Project Manager (EPM) to support project implementation. A study of socio-economic impacts of road and bridge improvements will also be tendered, but only after works between the Malalaua and Epo section of the Hiritano Highway have been completed (Dekenai contract). Payments to the EPM are low compared to the contract value, and the full EPM contract will not be utilized by the current closing date. A tender for a new EPM is underway and a new consultant is expected to be appointed by end-2016. To ensure that all activities under the original project can be fully completed, the closing date for IDA Credit No. 4931-PG will be extended by 20 months, or until March 31, 2018. This would be the first extension of the closing date of IDA Credit No. 4931-PG.Change to Financing Plan. As mentioned under paragraph 19, because the requirement for 22 percent counterpart financing for works will be eliminated, the Borrower’s contribution will be revised downward from US$40.5 million to US$17.00 million, which is the estimated overall amount of counterpart funds paid to date under the original RMRP II (IDA Credit No. 4931-PG) and the additional financing (IDA Credit No. 5404-PG). Eliminating the requirement for counterpart funds will reduce the amount available for rehabilitating, upgrading and/or maintaining roads and bridges (Component 1) by an estimated US$23.50 million.Change in Disbursement Arrangements. As already noted, the precipitous drop in the prices for mineral resources and petroleum, which account for some 20 percent of PNG’s economic activity and nearly 80 percent of its exports, contributed to a rapid decline in the country’s macro-economic situation. Although GoPNG did provide RMRP II with PGK 20 million in counterpart funds in 2015, the country’s difficult fiscal situation means that GoPNG can no longer make its 22 percent contribution towards the cost of road works under the project. While GoPNG has provided counterpart funds to complete the ongoing contract to reseal the 56 km section of the Hiritano Highway from Malalaua to Epo, it cannot do the same for new contracts. As such, the requirement for counterpart funding will be eliminated for new works contracts signed on or after September 1, 2015. It is worth noting that DoW has not signed any contracts since September 1, 2015. However, two new road works with a collective estimated value of US$36.70 million were recently approved by NEC, but these contracts can’t be signed until DoW can demonstrate that there is sufficient funding to pay for the contracts. Unless RMRP II is restructured to allow 100 percent IDA financing of new road works, DoW will not be able to sign these contracts or enter into any new commitments under the project.Reallocations. Because no operating costs have been incurred under the project to date, and to help offset a projected shortfall in funding for consultant services under Category 2, a total of SDR 2,150,000 will be reallocated from IDA Credit No. 49310 Category 3 (SDR 650,000 for operating costs) and IDA Credit No. 49310 Category 1 (SDR 1,500,000 for goods, works, non-consulting services and consultants' services) to Category 2 (goods, non-consulting services and consultants' services).Change to Components and Cost. As the project has been rolled out, it is evident that many activities expected to be carried out under sub-component 2.2, entitled “Piloting an Integrated Maintenance Regime for Hiritano and/or Magi Highways,” are similar to, and overlap with, key activities to be carried out under the performance-based approach being piloted on the Hiritano Highway (sub-component 2.3). In addition, the loss of counterpart funding will reduce the overall monies available for RMRP II, and GoPNG would like to use any savings to finance works. As such, this sub-component, which will not prevent the PDO from being achieved, would be eliminated.D. APPRAISAL SUMMARYFinancial and Economic Analysis. None of the proposed changes would have a significant impact on the original economic, financial or technical analyses of the project as appraised.Risks. The proposed restructuring does not trigger new risks or exceptions to Bank policy.Annex 1: Revised Results Framework and Monitoring IndicatorsRevisions to the Results Framework for RMRP IIComments/Rationale for ChangePDOCurrent (PAD)ProposedThe PDO is to: (i) improve road transport to project areas through providing satisfactory physical condition and safety in selected roads; (ii) strengthen institutional arrangements for road maintenance including the participation of the private sector and communities; and (iii) enhance road-related economic opportunities for women.No ChangePDO IndicatorsCurrent (PAD)Proposed ChangeKilometers of roads rehabilitated.No ChangePercentage of Hiritano Highway maintained to good condition.No ChangePercentage of national project roads being maintained by private contractors.No ChangeNumber of person days worked (by women) in project-related routine road maintenance activities.No Changen.a.New Indicator: Number of person days worked (by women) as a result of project activities that are not related to routine maintenance activities.To better capture the overall economic opportunities for women as a result of project-related activities.Revised PRoject Results FrameworkProject Development Objective (PDO):The PDO is to: (i) improve road transport to project areas through providing satisfactory physical condition and safety in selected roads; (ii) strengthen institutional arrangements for road maintenance including the participation of the private sector and communities; and (iii) enhance road-related economic opportunities for women.PDO Level Results IndicatorsCoreUnit of MeasureBaselineOriginal ProjectStart(2011)Progress To Date(2015)Cumulative Target Values (FY)FrequencyData Source/MethodologyResponsibility for Data Collection201620172018201920202021PDO Indicator One: Kilometers of roads rehabilitated. FORMCHECKBOX km01875100125150175185Quarterly Project ReportsEPM/DoW Progress ReportsEPM/DoWPDO Indicator Two: Percentage of Hiritano Highway maintained to good condition. /a%30 35404045455050AnnuallyEPM/NRA Progress ReportsEPM/NRAPDO Indicator Three: Percentage of national project roads being maintained by private contractors. /b%2020202530353540AnnuallyEPM/DoW Progress ReportsEPM/DoWPDO Indicator Four: Number of person days worked (by women) in project-related routine road maintenance activities. /cnumbern/a06127148169181,0201,122Annual Project ReportsEPM/DoW Progress Reports & SESEPM/DoWPDO Indicator Five: Number of person days worked (by women) as a result of project activities that are not related to routine maintenance activities. /dNewnumbern/a2,1003,5004,0004,5005,0005,5006,000Annual Project ReportsEPM/DoW Progress Reports & SESEPM/DoWNOTES: /a Good condition is measured by an International Roughness Index (IRI) of 5.0 or lower. /b National project roads include: (i) Central Province: Inawabui to Bereina, 17.5km, Gamoga Village to Hula, 23.9km, and Vanapa Bridge to Bereina Township, 112.0km; (ii) Gulf Province: Malalaua to Epo, 56.5km and Epo to Kerema, 9.5km; (iii) Madang Province: Bogia to Awar, 25.7km; and (iv) Milne Bay Province: Goilanai Bridge to Gopaia Bridge, 26.1km and Gopaia Bridge to East Cape Point, 27.0km. /c It is assumed that for each 10 km of road, 5 groups of 20 people (200 sq. meters/day/worker) will maintain 160,000 sq. meters annually with 4-cycles, which results in 800 working days per year. Estimates for road projects are that women will represent 17% of overall workers carrying out routine road maintenance activities, and that roads will be maintained on a 3-cycle, rather than a 4-cycle, basis. It is further assumed that the following lengths of roads would be maintained each fiscal year: 2015: 50 km of roads; 2016: 60 km of roads; 2017: 70 km of roads; 2018: 80 km of roads; 2019: 90 km of roads; 2020: 100 km of roads; 2021: 110 km of roads. The number of workers per km and percentage of women employed may vary across provinces and within communities. /dProject activities that are not related to routine maintenance activities could include directing traffic along sections of road under rehabilitation, serving as cooks or cleaners in work camps, working as day laborers, etc.Intermediate Results and IndicatorsIntermediate Results IndicatorsUnit of MeasureBaselineOriginal ProjectStart (2011)Progress to Date(2015)Cumulative Target Values (FY)FrequencyData Source/MethodologyResponsibility for Data Collection201620172018201920202021Component 1: Number of works contracts tendered.Number01467899Annual Project ReportsSupervision & Progress ReportsDoWComponent 2: Number of domestic companies trained in bidding and contract management.Number005810141720Annual Project ReportsSupervision & Progress ReportsDoWComponent 3: Number of gender-based violence and HIV/AIDS awareness workshops conducted.Number022304050556065Annual Project ReportsProgress Reports & SESDoWAnnex 2: Systematic Operations Risk-Rating Tool (SORT)Risk CategoryRating1. Political and GovernanceSubstantial2. MacroeconomicSubstantial3. Sector Strategies and PoliciesModerate4. Technical Design of Project or ProgramSubstantial5. Institutional Capacity for Implementation and SustainabilitySubstantial6. FiduciarySubstantial7. Environment and SocialSubstantial8. StakeholdersSubstantial9. OtherOVERALL:SubstantialExplanation:Political and governance risks are related to political stability and the volatile security conditions throughout the country. While security issues have typically occurred in provinces that are outside the scope of RMRP II, risks remain. Other important risks for the project include cost overruns and delays in awarding and implementing contracts due to GoPNG’s prolonged process to approve large contracts, and the limited capacity within counterpart agencies. To mitigate these risks, a dedicated employer’s project manager with extensive experience working in PNG has been contracted and continues to assist DoW with project implementation, in particular by providing guidance with respect to contract management, the procurement process, and preparation of financial systems and documents.Given the uncertain economic environment and the continued downward pressure on prices for mineral resources, there is considerable pressure on GoPNG’s national budget. As such, the macroeconomic risk rating should be elevated to substantial.None of the proposed changes would have a major impact on the original economic, financial or technical analyses of the project as appraised.Because works are limited to rehabilitation and maintenance of existing road sector assets, the environmental and social risks are well understood and can be managed. Experience to date with safeguards under RMRP II has been largely satisfactory. ................
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