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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 82262-AM

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 13.9 MILLION (US$21.2 MILLION EQUIVALENT)

TO THE

REPUBLIC OF ARMENIA

FOR A

SOCIAL PROTECTION ADMINISTRATION II PROJECT

February 27, 2014

Human Development Sector Unit Europe and Central Asia Region

This 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.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective: February 2014)

Currency Unit = Armenia Dram (AMD) = US$1

US$ = SDR 1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADS Armenia Development Strategy MIS Management Information System ALMPs Active Labor Market Programs MLSI Ministry of Labor and Social Issues

AMD Armenian Dram NSS National Statistical Service of the Republic of Armenia

AMSE Agency for Medico-Social Expertise NGO Non-Governmental Agency

CPAR Country Procurement Assessment Report

PAD Project Appraisal Document

CPS Country Partnership Strategy PDO Project Development Objective

DA Designated Account POM Project Operation Manual

DCA Development Credit Agreement PCU Project Coordination Unit

DMEDC Small and Medium Entrepreneurship Development Center

POMC Professional Orientation Methodological Center

EMP Environmental Management Plan PRAMS Procurement Risk Assessment and Management System

ESMF Environmental and Social Management Framework

PP Procurement Plan

FAs Fixed Assets SDP Sustainable Development Program

FBP Family Benefit Program SESA State Employment Service Agency

FFPMC Foreign Financing Project Management Centre (also referred to as PIU)re

SIL Specific Investment Loan

GDP Gross Domestic Product SME Small and Medium Enterprise

GOA Government of Armenia SPAP Social Protection Administration Project

GPN General Procurement Notice SRC State Revenue Committee

IBRD International Bank for Reconstruction and Development

SSIF State Social Insurance Fund

IDA International Development Association SSSS State Social Security Services

IFAC International Federation of Accountants TOR Terms of Reference

IFRs Interim Financial Reports VET Vocational Education and Training

ILCS Integrated Living Conditions Survey YPOC Youth Professional Orientation Centre

ISPC Integrated Social Protection Center

Regional Vice President: Laura Tuck

Country Director: Henry G. R. Kerali Acting Sector Director: Alberto Rodriguez

Sector Manager: Andrew Mason Task Team Leader: Ivan Drabek and Marina Petrovic

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REPUBLIC OF ARMENIA Social Protection Administration II Project

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1

B. Sectoral and Institutional Context ................................................................................. 2

C. Higher Level Objectives to which the Project Contributes .......................................... 6

II. PROJECT DEVELOPMENT OBJECTIVES ................................................................7

A. PDO............................................................................................................................... 7

Project Beneficiaries ........................................................................................................... 7

PDO Level Results Indicators ............................................................................................. 7

III. PROJECT DESCRIPTION ..............................................................................................8

A. Project Components ...................................................................................................... 8

B. Project Financing .......................................................................................................... 9

Project Cost and Financing ............................................................................................... 10

IV. IMPLEMENTATION .....................................................................................................10

A. Institutional and Implementation Arrangements ........................................................ 10

B. Results Monitoring and Evaluation ............................................................................ 11

C. Sustainability............................................................................................................... 12

V. KEY RISKS AND MITIGATION MEASURES ..........................................................12

A. Risk Ratings Summary Table ..................................................................................... 12

B. Overall Risk Rating Explanation ................................................................................ 13

VI. APPRAISAL SUMMARY ..............................................................................................13

A. Economic Analysis ..................................................................................................... 13

B. Technical ..................................................................................................................... 14

C. Financial Management ................................................................................................ 15

D. Procurement ................................................................................................................ 16

E. Social (including Safeguards) ..................................................................................... 16

F. Environment (including Safeguards) .......................................................................... 17

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Annex 1: Results Framework and Monitoring .........................................................................18

Annex 2: Detailed Project Description .......................................................................................22

Annex 3: Implementation Arrangements ..................................................................................33

Annex 4: Operational Risk Assessment Framework (ORAF) .................................................43

Annex 5: Implementation Support Plan ....................................................................................47

Annex 6: Procurement Plan ........................................................................................................50

MAP IBRD 33364

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.

PAD DATA SHEET

Armenia

Armenia Social Protection Administration II Project (P146318)

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSH3

.

Basic Information

Project ID EA Category Team Leader

P146318 B - Partial Assessment Ivan Drabek and Marina Petrovic

Lending Instrument Fragile and/or Capacity Constraints [ ]

Investment Project Financing Financial Intermediaries [ ]

Series of Projects [ ]

Project Implementation Start Date Project Implementation End Date

26-Mar-2014 31-Dec-2018

Expected Effectiveness Date Expected Closing Date

01-Sep-2014 31-Dec-2018

Joint IFC

No

Sector Manager Acting Sector Director Country Director Regional Vice President

Andrew D. Mason Alberto Rodriguez Henry G. R. Kerali Laura Tuck .

Borrower: REPUBLIC OF ARMENIA

Responsible Agency: Ministry of Labor and Social issues

Contact: Artem Asatryan Title: Minister of Labor and Social Issues

Telephone No.: 37410526831 Email: [email protected] .

Project Financing Data(in USD Million)

[ ] Loan [ ] Grant [ ] Guarantee

[ X ] Credit [ ] IDA Grant [ ] Other

Total Project Cost: 25.50 Total Bank Financing: 21.20

Financing Gap: 0.00 .

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Financing Source Amount

BORROWER/RECIPIENT 4.30

International Development Association (IDA) 21.20

Total 25.50.

Expected Disbursements (in USD Million)

Fiscal Year 2015 2016 2017 2018 2019

Annual 3.00 5.00 5.00 6.00 2.20

Cumulative 3.00 8.00 13.00 19.00 21.20 .

Proposed Development Objective(s)

The Project Development Objectives (PDOs) are to (i) improve social protection service delivery and (ii) strengthen analytical and monitoring and evaluation functions of the agencies delivering social protection benefits and services. .

Components

Component Name Cost (USD Millions)

Roll-Out of Integrated Social Protection Service Delivery 14.30

Support the Implementation of the New Employment Strategy by the Government 2.20

Modernization of the Pension System 0.90

Strengthen MLSI Analytical Capacity and Monitoring and Evaluation Systems 1.10

Project Management 1.30

Unallocated 1.40.

Institutional Data

Sector Board

Social Protection .

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Co-benefits % Mitigation Co-benefits %

Health and other social services

Other social services 100

Total 100

I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. .

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Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Social protection and risk management Social safety nets 70

Social protection and risk management Improving labor markets 10

Social protection and risk management Social risk mitigation 10

Social protection and risk management Other social protection and risk management

10

Total 100 .

Compliance

Policy

Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ].

Does the project require any waivers of Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] .

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X

Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X .

Legal Covenants

Name Recurrent Due Date Frequency

Schedule 2, Section I, A1(a) X CONTINUOUS

Description of Covenant

The Recipient shall (a) designate the Foreign Financing Projects Management Center (FFPMC) as the Project implementation unit (PIU) with the responsibility for the fiduciary aspects of the Project (including financial management and procurement) and shall ensure that FFPMC at all times has adequate staff and

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resources to fulfill its responsibilities with respect to Project implementation.


Schedule 2, Section I, A1(b) X CONTINUOUS


The Recipient shall (b) designate a unit within the MLSI as the Project Coordination Unit (PCU) with the responsibility of general coordination, preparation, implementation and monitoring and evaluation of Project activities.


Schedule 2, Section 1, C1 X CONTINUOUS


The Recipient shall carry out the Project in accordance with the Safeguard Frameworks and all Safeguard Documents. .

Conditions

Name Type

Project Operational Manual Adopted in a manner satisfactory to the Association. Effectiveness

Description of Condition

The approval by the Ministry of Labor and Social Issues of a Project Operational Manuel, which is satisfactory to the Association.

Name Type

ALMPs Operational Manuals adopted in a manner satisfactory to the Association. Disbursement

Description of Condition

The approval by the Ministry of Labor and Social Issues of Active Labor Market Programs (ALMPs) Operational Manuals, which are satisfactory to the Association.

Name Type

ALMP Training Agreements executed in a manner satisfactory to the Association. Disbursement

All appropriate Training Agreements between the Recipient and selected employers and other organizations participating in the ALMPs shall be executed and delivered under terms and conditions satisfactory to the Association.

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Team Composition

Bank Staff

Name Title Specialization Unit

Joseph Paul Formoso Senior Finance Officer Senior Finance Officer CTRLA

Benedicta T. Oliveros-Miranda Procurement Analyst Procurement Analyst ECSO2

Arvo Kuddo Senior Labor Economist Senior Labor Economist HDNSP

Satik S. Nairian Program Assistant Program Assistant ECCAR

Darejan Kapanadze Senior Environmental Specialist Senior Environmental Specialist

ECSEN

Zoran Anusic Senior Economist Senior Economist ECSH3

Gabriel C. Francis Program Assistant Program Assistant ECSHD

Ivan Drabek Senior Operations Officer Team Lead ECSH3

Marina Petrovic Social Protection Economist Team Lead ECSH3

Rocio Mariela Malpica Valera Senior Counsel Senior Counsel LEGLE

Jasna Mestnik Finance Officer Finance Officer CTRLA

Penelope Jane Aske Williams Senior Operations Officer Senior Operations Officer ECSH3

Sarah G. Michael Senior Social Development Specialist

Senior Social Development Specialist

ECSSO

Aleksan Hovhannisyan Senior Operations Officer Consultant ECCAR

Garik Sergeyan E T Consultant E T Consultant ECSO3

Josefina Posadas Economist Economist ECSH4

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I. STRATEGIC CONTEXT

A. Country Context

1. Armenia experienced remarkable growth in the 2000s which was followed by a severe downturn during the global financial crisis. Real growth averaged 12 percent per year during 2000–2008 and was driven primarily by foreign exchange inflows, mostly in the form of remittances. These inflows boosted domestic investment, primarily in the mining and construction sectors. Growth in per capita incomes (from US$620 to US$3,700) and job creation over the observed period together with improved social safety nets contributed to a significant decline in poverty. Although social policies contributed to lowering poverty during the 2000s, the main channel was the improvements in both labor (wages) and non-labor (remittances) income. The poverty rate decreased from over 50 percent of the population in 1999 to about 28 percent in 2008. 2. Armenia has been a consistent reformer and its achievements have translated into improved living conditions, but only in the period before the global financial crisis. Armenia made notable progress toward the Millennium Development Goals between 2000 and 2008. The poverty incidence increased during the financial crisis - to 36 percent in 2010 (vs. 28 percent in 2008) - and moderated at 35 percent in 2011. The share of the very poor in 2011 amounted to 20 percent, compared to 12.6 percent recorded in 2008. Poverty also became deeper and more severe, with a poverty gap of 8.1 percent in 2010 (vs. 5.1 percent in 2008) and poverty severity of 2.5 percent (vs. 1.4 percent in 2008). Inequality, measured by the Gini coefficient, increased on the basis of both consumption (from 0.24 to 0.26) and income aggregates (from 0.34 to 0.36). In addition, labor force participation decreased and unemployment rates increased to almost 20 percent following the crisis. Improvements in living conditions and the country’s overall recovery have been slow in the post-2008 period. Armenia's overreliance on commodities and remittances, excessive growth in construction and other non-tradables, and structural bottlenecks in the economy contributed to this slow recovery. 3. The global financial crisis reversed some of the achievements and revealed existing vulnerabilities of the country’s economy. Armenia experienced a sharp contraction of the output in 2009. To counter the effects of the crisis, the Government focused mainly on increased spending on infrastructure, social protection, and emergency financing for enterprises. The Government’s crisis response policies substantially expanded the fiscal deficit from 0.4 percent of GDP in 2008 to 7.6 percent of GDP in 2009. As a result, in just 2 years, the public-debt-to-GDP ratio more than tripled and peaked at about 42 percent in 2011 (up from 13.6 percent at end-2008). While the fiscal expansion helped protect the poor and maintain jobs, the pace of recovery was slow with only 2.1 percent growth in 2010, but picking up to 4.6 percent in 2011 and 6.2 percent in 2012. To restore a sustainable fiscal path, the Government has embarked on a significant consolidation of its fiscal accounts, which helped reduce the overall fiscal deficit to 1.5 percent of GDP in 2012.

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B. Sectoral and Institutional Context

4. Armenia has an extensive social protection system, centrally funded but delivered locally. The Ministry of Labor and Social Issues (MLSI) has responsibility for social assistance payments, the State Social Security Service (SSSS) manages contributory social insurance and some non-contributory pensions, while the State Employment Services Agency (SESA) manages employment related benefits and services. Until recently, the provision of cash benefits, pensions, employment services and disability benefits and services has been managed through the decentralized offices of each agency in each marz1. 5. Overall and compared with other countries in the ECA region, Armenia spends a relatively low share of its GDP on social protection - less than 6 percent in 2012 (Table 1). As expected, pensions cover the greatest number of beneficiaries and absorb the most significant share of expenditures (4 percent of GDP). The Family Benefit Program (FBP) is the second largest social protection program and the most important social assistance (means-means tested) program targeting the poor population. The FBP constitutes 0.8 percent of GDP.

Table 1: Social Protection, by Program Type

Source: World Bank SPEED 2013.

6. Armenia’s social protection system consists of both contributory and non-contributory programs (Table 1). The main contributory program is the pensions program, which is mandatory, defined benefit pay-as-you-go (PAYGO) system, financed by payroll contribution. It is currently being transformed into a multi-pillar pension system with mandatory fully funded individual account-based pension pillar that would be added to the current pay-as-

1 Locality

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you-go pillar. This is required by a set of laws (2010) focusing on state pensions (pay-as-you-go pillar), fully funded pensions (commonly referred to as second pillar), unified income taxes, personified recordkeeping, and investment funds. The leading non-contributory and anti-poverty program is the Family Benefit Program (FBP) and it is, together with other social assistance benefits and services, regulated by the Law on Social Assistance (2005). The ILCS (Integrated Living Conditions Survey) data suggest that these two programs (pensions and FBP) play a significant role in mitigating poverty and inequalities. The simulated impact of the two programs, covering the post crisis period, suggests that poverty would have been much higher in the absence of these programs. Without both pensions and FBP, the poverty incidence would have been 43 percent, as opposed to the actual 27.6 percent in 2008. In 2010, poverty would have grown from the actual 35.8 percent to approximately 54.2 percent. Other i.e. categorical (non-means tested) programs in Armenia mainly include social pension (old-age and survivor benefits), family allowances (child-birth lump-sum benefit, child care benefit), and disability benefits. There are also a number of smaller programs administered by the Ministry of Labor and Social Issues (MLSI). Unemployment benefits and Active Labor Market programs (ALMPs) contribute to the Armenian social protection system to a lesser extent, though this might change in the foreseeable future given the country’s new focus on active labor market policies articulated in 2013-2018 Employment Strategy of the Republic of Armenia. 7. Armenia reacted to the global financial crisis with an increase in social protection spending. The main drivers of spending growth were social insurance and to a lesser extent social assistance. The expenditures increase in social insurance was caused by a real increase in benefit levels and, to a lesser extent, in coverage. Disability pensions steadily increased both in coverage and spending since 2007, while old age pensions spending hiked in 2009 despite fewer beneficiaries. Increased spending on labor market programs was also launched as a stabilizer against unemployment in the crisis but it was actually the unemployment benefit program that drove labor market spending. The budget for active labor market policies (ALMPs) has been declining since 2006 to only 0.08 percent of GDP in 2012, which is significantly lower than the ECA (Europe and Central Asia) average of 0.5 percent. This was driven by a shrinking envelope for wage subsidies and public works. 8. While the main programs’ coverage varied greatly over time, steady progress has been made in reducing program fragmentation and improving targeting. Interestingly, in the post crisis period the number of FBP recipient families has declined from 121,000 (yearly average) in 2008 to 86,000 in 2011. It, however, reversed to around 100,000 in 2013. According to survey data this program reaches around 12 percent of the population and is well targeted - 76 percent of its resources goes to the poor. The coverage of the program is generally low since only one quarter of the poor receives the transfer. In order to improve efficiency, the Government has instituted measures to detect errors and fraud by aligning the FBP database with a number of other relevant public databases. While this has increased the accuracy of targeting the program to the poor, it has also resulted in many errors of exclusion and a sharp decline in the number of families who receive the family benefit. 9. The Government renewed its focus on the FBP prompted by the financial crisis and rising poverty which further intensified social vulnerability. Poor and vulnerable households continue to rely heavily on public transfers, which in the case of pensions or FBP account for 60

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percent of the income of the extreme poor. Moreover, the FBP is more cost-effective than any other social protection program. For instance, FBP costs 1.14 drams to reduce the poverty gap by 1 dram (ILCS). However, in order to increase efficiency and effectiveness of the program, continued efforts are needed to improve the benefit formula, increase the coverage, establish linkages with the labor market, and strengthen the management and monitoring of the FBP. 10. With regard to other social protection areas, low-productivity and unemployment remain the two main labor market issues in Armenia. Nearly 40 percent of workers are employed in low-productivity agricultural activities. Many jobs do not pay enough to lift people out of poverty. In addition, the slow pace of job creation has been unable to absorb increases in the labor force. The results were a significant reduction in labor market participation rates, two-digit unemployment rates, and large emigration rates. Only about two-thirds of persons of working age are employed or looking for work. This is mainly due to the low economic activity of women. Labor force participation is also low among youth. The proportion of youth (persons aged 15-24) who are not in education, employment or training (known as NEET) is extremely high in Armenia, compared to other European countries. As many as 39 percent of Armenian youth is neither in education nor in employment, which is two to three times more than in most EU countries (European Commission 2010), where the share of NEET rarely exceeds 15 percent. The national unemployment rate has remained stubbornly high between 2009 and 2012 (17.4 percent in 2012). Regional disparities deepened as most investments and employment creation efforts were focused in Yerevan, leaving behind other marzes. 11. The majority of the registered unemployed are new labor market entrants, or persons without previous work experience, mostly youth. Young women (15-24) are most affected by unempoyment (NSS, 2012); Generally, women are more often involved in part time jobs. New labor market entrants represent over one-half of the unemployed, while job seekers who were made redundant from their previous job are only slightly more than one-quarter, the rest are people who voluntarily quit their jobs. The key to reducing unemployment in Armenia is facilitating labor market entry and providing productive jobs. Therefore, Armenia needs to support the creation of new, productive jobs in the economy’s modern sectors, and to encourage active participation of job seekers in the labor market and the search for self-reliant, income-generating opportunities. It is also important to ensure that workers have skills needed in the newly created modern sector jobs. Any reform of this kind would certainly require strengthening the State Employment Service Agency (SESA) which is capacity constrained, both in terms of staffing and resources allocated for active labor market policies. 12. The public pension system is another area undergoing major reform and institutional rationalization. With the 2010 pension reform, the State Social Security Service (SSSS) transformed from an independent PAYG (pay-as-you-go) pension agency with its own contribution and data collection, manual recordkeeping, and pension payment capacity to a department of the Ministry of Labor and Social Issues (MLSI) responsible for PAYG pension payment determination, with automated recordkeeping and supervision of the insured individuals' status. With social insurance contributions amalgamated into the personal income tax, revenue collection transferred to the State Revenue Committee, and personalized monthly tax report introduced and administered by the State Revenue Committee, the SSSS has been redirecting its capacity to strengthening its core business processes and clients relations, and

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participating in the integrated social services delivery system as the central agency responsible for payment of all social benefits from 2014. Areas requiring specific support are the development of the design of risk-based fraud and error supervision functions and strengthening IT and HR capacity in the SSSS to develop the central payment functions for the integrated social service delivery system. 13. In the absence of an overarching social protection strategy, the development of social policies is guided by the existing legislation, sectoral strategies, and various policy documents adopted by the Government.2 The concept of integrated social services governing social protection reform was officially adopted by the Government in December 2010. The concept envisages integration at different levels – from the social policy development stage to provision of services to a client. Initially, it assumes the integration of pension, employment, social assistance and disability benefits and services at the local level by placing service providers in the same building, with upgraded facilities, and promoting a wider range of individualized approaches to beneficiaries. While this is in line with reforms that the country has made in other sectors and is going to contribute greatly to the client-orientation and quality of services, and the efficiency of service provision, the integrated delivery of social services is not yet clearly defined. Developing a comprehensive integrated social welfare services for different clients in combination with financial assistance would require further harmonization of primary legislation and development and implementation of related by-laws. 14. With the introduction of the integrated social services delivery model, Armenia has made substantial changes in how the social protection system functions. In 2012, the Government approved the Decree on the Approval of the Operational-Structural Model of Comprehensive System of Integrated Social Service Provision. The Decree sets out the concept of the model of integrated social service provision and outlines the implementation plan, with a clear division on the piloting and roll-out phases. The Government has chosen a model of functional integration of four existing agencies (responsible for pensions, social assistance, and employment and disability certification) that would be placed under one roof in 56 locations across the country. The model includes the introduction of a joint reception area, management information system (MIS), and case management procedures. The piloting of integrated service delivery within the integrated social service delivery centers has first been initiated in four sites (Masis, Ararat, Vedi in Ararat marz, and Avan community in Yerevan), financed under the Social Protection Administration Project3, and implemented by the MLSI. Subsequently, 15 other sites were added and became operational. The proposed project would support the roll-out of the model of integrated service delivery in the remaining 37 sites. 15. The main beneficiaries of the new model of service provision would be marginalized and vulnerable members of society. One of the main objectives of the integrated service delivery model is to improve the outcomes of service users and their families. This is of particular importance for the most vulnerable population groups – people who face multiple and

2 The following are the key laws and strategy guiding the social protection reform supported under the project: The Law On Social Assistance adopted on October 24, 2005 with amendments pending approval by the parliament; The Law On State Benefits approved on December 12, 2013; The Law on State Pensions adopted on December 22, 2013; The Employment Strategy 2013-2018 (Government Decree N 45 from November 8, 2012) and recently adopted Law on Employment (December 11, 2013). 3 Social Protection Administration Project (P087620) approved by the World Bank on June 10, 2004 and closed on May 31, 2013.

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complex problems and are usually furthest away from the formal labor market. Marginalized and vulnerable families often have incomplete information about available services and may find it particularly challenging to navigate the application process. In a fragmented system, these families are likely to receive less support than they are entitled to. A comprehensive family assessment and joint case management would ensure that the needs of each family member are adequately addressed and services are delivered in a coordinated and coherent way. Further development of case management and related monitoring and evaluation procedures are perceived as an integral part of the integrated service delivery model and are being supported by UNICEF Armenia.

C. Higher Level Objectives to which the Project Contributes

16. The project is expected to contribute to several long-term objectives of strategic relevance for Armenia that are identified in the Armenia Development Strategy 2025 (ADS) and Country Partnership Strategy (CPS) for FY14-17. 17. The proposed project would address the CPS outcome – Improved efficiency of public administration and service delivery. The co-location and integration of social protection centers at the local level would contribute to improved efficiency of public administration and service delivery. A central reception area with staff trained to enter data, check paperwork, administer benefits and make referrals would provide efficiency gains for the public administration. Furthermore, upgraded IT equipment would allow for on-line checks of other databases, thus preventing the processing of ineligible claims. For the beneficiary, service delivery would likewise be improved since applicants would only have to visit one office and present one set of paperwork, thus reducing private costs associated with the application process. Moreover, integrated systems and centers would allow staff to refer applicants to more than one benefit or service for which they are eligible. The working environment for both staff and beneficiary would be significantly enhanced. 18. The proposed project would also contribute to another CPS outcome - Improved coverage and targeting of the FBP and efficiency of social services delivery. The proposed project would likewise support the Government’s pension, employment and social assistance reform agenda. Improved coverage and targeting would be addressed to some extent within this project’s social assistance and monitoring and evaluation component (Component IV) but primarily through the SILK ROAD TA4. The proposed activities would strengthen analytical capacity of the MLSI to improve the social assistance (FBP) benefit formula and administration of the program with the aim of increasing coverage to the poor. It would also support selected elements of the Government’s programs aimed at increasing efficiency and equity in social protection provision.

4 SILK ROAD TA refers to Social Inclusion and Labor Knowledge for Reforms, Operations and Advancing Dialogue Technical Assistance provided to the Ministry of Labor and Social Issues. It supports the design and monitoring of policies in the areas of labor market regulations, active labor market programs, and social assistance (including the FBP). It is complementary to the technical assistance on poverty analysis provided by PREM (Poverty Reduction and Economic Management).

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19. The project would also promote employment intermediation and employer-employee matching, thereby increasing labor market efficiency and promoting job opportunities for poor and vulnerable beneficiaries of various social protection programs. The new active labor market policies, which would be supported under the proposed project, would contribute to greater social inclusion of social protection beneficiaries.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO

20. The project’s development objectives are to (i) improve social protection service delivery and (ii) strengthen analytical and monitoring and evaluation functions of the agencies delivering social protection benefits and services.

Project Beneficiaries 21. Direct beneficiaries of the project would be social protection beneficiaries in 37 sites where the ISPCs would be created, the people who would benefit from improved access to benefits and services as a result of social protection reforms supported under the project such as the modernization and integration of services and information systems or provision of new active labor market policies, as well as staff who currently work in very dilapidated conditions who would benefit from newly refurbished ISPC offices. 22. Additionally and as delineated in the component descriptions, the beneficiaries would include: i) registered unemployed, employers (not limited to those registered with SESA), students and teachers of secondary, tertiary education and VET (Vocational Education and Training) programs, as well as SESA staff and the agency in general (Component II); ii) the State Social Security Service (SSSS), though the ultimate beneficiaries of the improved SSSS’s capacity would be the social protection beneficiaries and general population entitled to social services (Component III); and iii) MLSI and its staff (Component IV).

PDO Level Results Indicators

23. The key PDO level indicators are the following:

i) Client participation costs of receiving benefits and services of ISPC, ii) Client satisfaction with benefits and services received through ISPCs, and iii) Monitoring and evaluation capacity of MLSI as evidenced by gradual introduction of

the M&E system for social protection programs (covering the development of a model, indicators, project passports, software).

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III. PROJECT DESCRIPTION

A. Project Components

24. The proposed project is organized around five components, which relate to the following two major dimensions: rolling out of integrated social services delivery model including public employment, pension, and social assistance benefits and service provision (Component I) and strengthening the capacity of institutions for reforms in the areas of labor market, pensions, and social assistance (Components II-V). Some of the proposed interventions are a continuation of activities undertaken in the previous Social Protection Administration Project (SPAP) and its Additional Financing and are presented as such in the project description. 25. The proposed project would comprise five components as follows (see Annex 2 for more details): 26. Component I: Rolling-Out of Integrated Social Protection Service Delivery (US$17 million, of which World Bank credit US$14.3 million). This component would support rolling-out of integrated social protection services delivery that was initiated and piloted under the SPAP project. The project would finance the following types of activities: i) civil works, IT equipment, furniture, and other goods for 37 Integrated Social Protection Centers (ISPCs), ii) strengthening of ISPCs management information systems across all ISPCs, further software development, and IT support; iii) drafting of legislation for the implementation of the adopted model of integrated social protection service delivery; iv) training for ISPC staff in integrated social protection service delivery, as well as follow up support to the local staff through mentoring and on-the-job training, and v) public outreach through awareness campaigns and printed materials. This component would also include civil works, furniture and other goods for the central offices of two agencies – the State Employment Service Agency (SESA) and the Agency for Medico-Social Expertise (AMSE) - whose functions would be incorporated into the ISPCs at the decentralized level. 27. Component II: Supporting the Implementation of the New Employment Strategy by the Government (US$2.6 million, of which World Bank credit US$2.2 million). This component seeks to address some specific challenges of the Armenian labor market, namely: a high share of unemployed and NEET youth; a low rate of job creation; a lack of specific technical skills which sometimes prevents employers from opening or filling vacancies; and low awareness and coverage of public employment services among both jobseekers and employers. In response to these issues, the project would support a limited set of measures that build on existing initiatives and infrastructure and include: i) strengthening essential capacities of the State Employment Service Agency (SESA) central services by investing in training activities and IT infrastructure (including upgrading the GORTS management information system); ii) piloting two targeted ALMPs5; iii) expanding career orientation towards specific skills and supporting its information system, drafting and introduction of online consultancy and distance-training programs implemented via the web page, developing and installation of software for testing of professional orientation; and iv) strengthening monitoring and evaluation capacities, including implementation of rigorous impact evaluations of the ALMPs piloted under the project.

5 Described in Annex 2 and with implementation details to be further developed prior to disbursement

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28. Component III: Modernization of the Pension System (US$1.1 million, of which World Bank credit US$0.9 million). This component would support the State Social Security Service (SSSS) in improving its core business processes and upgrading them in line with ISPC requirements. SSSS would focus on: i) strengthening its technical capacity through investment in IT technology and further development of its electronic pension information system; ii) developing a risk-based fraud-and-error supervision software and system; and iii) improving its HR capacity through training in core and new business processes, such as central payment services for the integrated social delivery system. 29. Component IV: Strengthening MLSI Analytical Capacity and Monitoring and Evaluation Systems (US$1.3 million, of which World Bank credit US$1.1 million). Activities under this component are aimed at strengthening the capacity of the monitoring and evaluation unit within the MLSI and developing an integrated system of monitoring and evaluation of social protection benefits and services (in total over 70 different programs). Capacity would be built around both quantitative and qualitative M&E methodologies, and on beneficiary-led tools. This would enable the MLSI to gauge direct beneficiary feedback on quality, satisfaction and impact, streamline the indicators and methodology for monitoring the implementation of its policies on the ground (both in terms of impact on the general population as well as on the most vulnerable target groups, and including gender-sensitivity throughout), analyze possible reform options and their impacts, adjust policy solutions, and eventually increase efficiency of the system of social protection. Part of the activities would be focused on case management, continuous training and supervision of case managers in ISPCs. Research activities on poverty and different forms of monetary and non-monetary deprivations, for different vulnerable groups including youth and women, would also be financed under this component. The proposed component would additionally cover the cost of IT equipment, software development, and training of the MLSI’s monitoring and evaluation specialists. 30. Component V: Project Management (US$1.9 million, of which World Bank credit US$1.3 million). This component would finance the standard operation of the Project Coordination Unit (PCU) at MLSI for the duration of the project, trainings, project audit, and incremental operating costs. The PCU is in charge of technical aspects of the project and ensures overall monitoring and supervision of project activities. The cost of project management would also partially cover the Foreign Financing Project Management Centre (FFPMC) staff time, for those who would perform fiduciary activities for the SPAP II project, as well as operating costs.

B. Project Financing

31. The proposed Project would take the form of an Investment Project Financing (IPF) implemented over a four and a half year period.6

6 The financing percentage to be used for this project and input in the withdrawal schedule of the Financing Agreement would be "100% exclusive of taxes".

10

Project Cost and Financing

Table 2: Project Costs by Components Project Components Project cost IDA Financing % Financing

1. Roll-Out of Integrated Social Protection Service Delivery 2. Support the Implementation of the New Employment Strategy by the Government 3. Modernization of the Pension System 4. Strengthen MLSI Analytical Capacity and Monitoring and Evaluation Systems 5. Project Management Unallocated Total Costs

17.0

2.6

1.1

1.3

1.6

1.9

25.5

14.3

2.2

0.9

1.1

1.3

1.4

21.2

84%

84%

82%

85%

68%

82%

Total Project Costs Front-End Fees

Total Financing Required

0

25.5

0 21.2

0

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

32. The proposed SPAP II project would be the second World Bank project implemented by the MLSI as an implementing agency. The institutional arrangement for the implementation of the proposed project would rely on the institutional arrangements successfully carried out under the SPAP, whereby the MLSI (Ministry of Labor and Social Issues) would be the agency responsible for the implementation of the proposed project while the technical aspects would be the responsibility of the PCU team at the MLSI. The Foreign Financing Project Coordination Center under the Ministry of Finance (FFPMC) would carry out fiduciary aspects (including the financial management function) of the project. 33. The SPAP II administrative mechanisms would rely on the successful implementation record of SPAP and strong implementation experience of MLSI’s PCU and FFPMC. The PCU would be responsible for general coordination, preparation, implementation and monitoring and evaluation of project activities. The PCU would agree with MLSI on its annual plans, budgets and work plans for the project. The PCU team would comprise at least seven technical staff, which includes: PCU Coordinator, Social Specialist, ICT Specialist, Monitoring and Evaluation Specialist and three Engineers. 34. The FFPMC was created in 1993 and has experience managing projects in accordance with World Bank fiduciary requirements as an implementing agency for

11

numerous projects and grants. Currently, it is successfully implementing the Second Public Sector Modernization, Tax Administration Modernization Project and E-Society project and a number of stand-alone TF grants. The FFPMC would be responsible for financial management, disbursements and procurement under the project. The recent financial management assessment of FFPMC identified no significant weaknesses. The Operational Manuals (OMs) for Active Labor Market Plans (ALMPs)7, acceptable to the World Bank, describing the implementation arrangements, fund flows and controls over them, would be developed before the implementation of the ALMPs. The OM’s development and approval by the World Bank would be a disbursement condition for ALMPs. 35. A Project Steering Committee would be created by a Government order to give it responsibility to oversee and supervise overall project implementation. The Steering Committee would have relevant representation from key stakeholders within and external to the MLSI and would comprise: MLSI, Ministry of Finance, State Employment Service Agency, State Social Security Service and Government of Armenia. 36. The Project would be carried out in accordance with the Project Operational Manual (POM) describing the rules, methods, guidelines, standard documents and procedures. More details on implementation arrangements are found in Annex 3.

B. Results Monitoring and Evaluation

37. Results monitoring and evaluation would follow good practices both for measuring and monitoring results achieved under the project. The baseline values for the proposed indicators have been established at appraisal. The PDO level and intermediate outcome indicators would be monitored using the following data sources: a) MLSI/UNICEF baseline and follow-up surveys, b) administrative data regularly collected by the MLSI/PCU; c) ad hoc surveys, interviews, and focus groups; and d) monitoring and evaluation reports of MLSI/PCU. The monitoring and evaluation (M&E) coordinator of the PCU would be responsible for bringing together the progress reports, monitoring the key performance indicators and results, and communicating with the World Bank on progress according to the frequency of reports indicated in Annex 1. 38. M&E under the project would be integrated into the regular monitoring functions of the MLSI, ISPCs, SESA and AMSE. The project’s Components II and IV would support putting in place adequate monitoring and evaluation systems, which are expected to continue to exist after project completion. 39. In addition to regular M&E activities, there would be an impact evaluation of the ALMPs piloted under the project. For both ALMPs, an impact evaluation would be conducted in a cost-effective manner. Potential participants would submit a detailed application form that serves as a baseline survey. Non-participants would serve as the control group. To evaluate the impact of the ALMPs, all applicants would be surveyed again about a year after the intervention has concluded. Data would become available throughout the implementation phase and would allow a more facts-based evaluation of the project’s employment component.

7 Under Component 2

12

C. Sustainability 40. The reforms to be supported by the proposed Project enjoy strong support from the Government of Armenia. The proposed operation would build on accomplishments already achieved under the first SPAP project which has laid the foundation for the social protection reforms aimed to be implemented under the proposed Project. Furthermore, the proposed Project’s sustainability builds on the strong legislative framework including laws, policies and strategies in the areas of social assistance, pension, employment and disability supporting the reforms in the Armenian social protection system. 41. The Government of Armenia prioritized the strengthening of the social protection system in the Armenia Development Strategy for 2012-2025, which envisages enhanced efficiency of the social protection system through improved targeting and the introduction of modern social service delivery tools, aimed at ensuring financial stability and improving quality of service delivery. The integrated social protection delivery reform has been prioritized by the Government as one of the key ongoing reform activities. The Government allocated sufficient funds in the 2014 budget for operating costs of the 19 ISPCs that have been established under the SPAP.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Risk Category Rating

Stakeholder Risk Low

Implementing Agency Risk Moderate

- Capacity Moderate

- Governance Moderate

Project Risk Moderate

- Design Moderate

- Social and Environmental Low

- Program and Donor Low

- Delivery Monitoring and Sustainability Moderate

- Other (Optional)

- Other (Optional)

Overall Implementation Risk Moderate

13

B. Overall Risk Rating Explanation

42. The overall risk is moderate. A moderate risk for implementation was selected given that the SPAP II project design envisions a larger number and a more complex scope of the activities supporting social protection reforms than the first operation, which would be more demanding to successfully implement. Furthermore, the SPAP II project would support the piloting of new ALMPs. Important decisions on the design of these ALMPs are pending. There would be a need to increase the capacity of SESA and the newly established ISPCs to deliver quality services to beneficiaries in the process of shifting from provision of passive benefits to incorporate active labor market programs into the program of support. The project would support enhancing the capacity of SESA to enable it to carry out proper analyses, take stock of existing programs, introduce new programs, and provide continuous support to the newly formed ISPCs.

VI. APPRAISAL SUMMARY

A. Economic Analysis

43. The proposed project’s components include mainly capital investments (civil works, IT equipment, and furnishings), goods, training activities, and consulting services. There would be recurrent costs in relation to the upkeep of the ISPCs which would be the responsibility of the central Government (as is currently the case). Hence, the fiscal impact of the project is expected to be marginal and conditions for fiscal sustainability are good. 44. Considering the relative importance of Component I, the economic analysis focuses primarily on investing in the roll-out of the integrated social protection centers. The ISPC model allows better and faster access to information that is relevant to the client and reduces private costs in a number of ways. Most importantly, there is (i) reduced transportation cost for the applicant; (ii) reduced number of documents needed for the application; (iii) reduced time burden for clients applying for several benefits; and (iv) less time needed to file the application. On the other side, there are a number of potential cost savings for the public authorities in the long run. Removing duplicate processes and introducing more electronic cross-checks with other databases would allow the Government to reduce administrative costs. In particular, administrative expenditures per benefit application would decline and consolidating the administration processes is likely to increase the productivity of ISPCs staff.8 Operative costs are likely to decline further once the staffs previously working in separated units are able to provide services across different social protection areas. Since the roll-out and complete operationalization of the ISPCs takes time, the full realization of these efficiency gains may only be visible after the end of the project. A coordinated and integrated service plan would also help to address fraud and

8 There are few examples in the region where the implementation of integrated social service centers has resulted in substantial improvements in staff efficiency. For example in Ukraine, processing time for applications dropped from 4.5 hours to 1 hour once integrated centers were introduced. Similar efficiency gains could be expected for Armenia. Regarding families with complex needs, evidence from the UK indicates that integrated service plans (‘whole family’ approach) and the better coordination of services needed to support these families are associated with significant costs savings. Average savings per ‘troubled’ family per year varied between £20,000 and £32,000 (Department for Communities and Local Government, 2013). Similarly, prevention and early intervention measures are generally more cost-effective than responding to a crisis – a critical aspect for social service delivery given a tight fiscal envelope.

14

abuses and minimize errors of exclusion and inclusion. This in turn would increase the effectiveness of the social safety net. 45. The possibility of future administrative cost savings gives the Government of Armenia some discretion as to how to reallocate the freed resources. In principle, these resources should be reallocated to maximize the developmental impact of the project. For example, actual face time with the clients could be increased. Alternatively, the centers could invest in more equipment, such as cars, to reach out better to marginalized families in remote areas and intensify contacts with local employers. For the cost savings to materialize and to increase the efficiency of social service delivery, the underlying management structure of the ISPCs could be further integrated. The centers need a functional model that ensures strong collaboration between the different specialists and consistent management control of all staff. Similarly, staff specialized in one program would need to be trained in other programs to learn about additional services and types of support available to families so as to make appropriate referrals. As discussed in the Implementation Completion Report (ICR)9 of SPAP, this seems particularly challenging to SESA staff that see their beneficiaries and roles as more complex than those of other social services. The ICR also pointed out that given delays during the pilot phase, it is too early to assess any efficiency effect of the already operating ISPCs, but several outputs are expected to have a positive impact on effectiveness, efficiency, and quality of service delivery. These outputs include activities aimed at improving the availability, accessibility, and compatibility of information, and improving working conditions in the ISPCs. 46. The proposed project would finance activities in the public sector for which private provisions do not exist in Armenia. Government intervention is mandated in Armenia to ensure access to social protection services for the poor and vulnerable. Given the fiscal situation in Armenia, World Bank support seems appropriate to enable Government to fulfill its responsibilities. The World Bank can add value through its large experience in funding and supporting similar projects elsewhere and extensive knowledge as to how social assistance programs and labor market related programs could further enhance the effectiveness of the social safety net in Armenia.

B. Technical

47. The technical rationale for the selection of project activities is based on the experience of middle-income and high-income countries with the integrated social protection service model, with evaluations showing benefits to both the provider (Government) and beneficiaries. The proposed activities have been appropriately tailored to Armenia’s economic circumstances and its aspirations to provide high quality and efficient social protection services. With regard to the roll-out of the integrated social service model (Component I), over the last few years the MLSI and PCU have developed standard procedures related to the design and creation of ISPCs. The proposed project draws from the experiences with implementation of integrated social protection service delivery under the pilot projects. While there are substantial implementation challenges and risks, as set out in the ICR, there are no unusual technical aspects and all proposed activities

9 Implementation Completion and Results Report for Armenia: Credit and Additional Financing for a Social Protection Administration Project (Loan Number AM7848), Report Number ICR2880, 11/27/2013.

15

are based on well-documented international experience in social protection administration reforms. As for the employment component (Component II) and the design and implementation of new ALMPs, the project would rely on international experience of similar projects, adapted to Armenia’s labor market conditions.

C. Financial Management

48. The financial management assessment of the Project was performed by the World Bank’s Financial Management (FM) Specialist in October 2013 and updated in November 2013 and January 2014. The information available from the implementation support and supervision missions of other projects implemented by FFPMC (latest conducted in December 2013) was also used. 49. As a result of the assessment, it was established that the FFPMC has adequate FM arrangements in place, which are acceptable to the World Bank for SPAP II project implementation, subject to the development of the Operations Manuals (OMs) for Active Labor Market Plans (ALMPs), acceptable to the World Bank. The OMs should describe the implementation arrangements, fund flows and controls over them under ALMPs, be prepared and approved before the ALMPs’ implementation and would be a disbursement condition for the ALMPs’ sub-component of Component 2.

50. Currently, FFPMC successfully implements PSMPII, Tax Administration Modernization Project (TAMP) and E-Society projects and a number of stand-alone Trust Fund grants. The SPAP II would be largely built on the implementation success of recently closed SPAP project and strong implementation experience and structure of FFPMC. Particularly: (i) FFPMC’s accounting staff has significant experience in implementing Bank-financed projects; (ii) FM arrangements under the Project are similar to those under the closed SPAP project (except for ALMPs) implemented by the FFPMC and found to be adequate; (iii) the audits of the active Bank-financed projects (and grants) being implemented by the FFPMC revealed no major issues, and (iv) IFRs on the active projects (and grants) were generally received on time and found to be acceptable10 to the Bank.

51. Project management-oriented Unaudited Interim Financial Reports (IFRs) would be used for the project monitoring and supervision. The format of the IFRs has been confirmed during assessment and includes: (i) Project Sources and Uses of Funds, (ii) Uses of Funds by Project Activity, (iii) Designated Account Statements, (iv) A Statement of the Financial Position, and (v) SOE Withdrawal Schedule. FFPMC would be producing a full set of IFRs every calendar semester throughout the life of the project. These financial reports would be submitted to the World Bank within 45 days of the end of each calendar semester. The first semester IFR would be submitted after the end of the first full semester following the initial disbursement.

52. FFPMC’s current auditing arrangements are satisfactory to the World Bank (no major issues arisen in the latest audit of active projects implemented by FFPMC), and it has thus been agreed that similar audit arrangements would be adopted for the Project, to cover the project

10 With a few exceptions

16

financial statements. The audit of the Project would be conducted by independent private auditors acceptable to the Bank, based on the terms of reference (TOR) acceptable to the World Bank and procured by the FFPMC. The audit would be carried out according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC).

53. The Treasury system is being used to maintain the designated accounts of Bank-financed projects including this project, which plans to open the designated account in the Treasury. In addition, the country budget system would be used for this project. For all the other FM elements of the project FFPMC’s respective systems would be used.

D. Procurement

54. Procurement would be carried out in accordance with the World Bank’s “Guidelines: Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers”, dated January 2011; and “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers,” dated January 2011, and the provisions stipulated in the Legal Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply. 55. An assessment of the capacity of FFPMC to implement procurement actions for the new project was carried out by the Procurement Staff assigned to the project in June 2013. It was done on the basis of the PIU’s11 performance in implementing the recently completed Social Protection Administration Project (SPAP). As a result of the assessment, it was established that the PIU has adequate procurement arrangements in place subject to hiring or assigning a dedicated procurement specialist for the project. The PIU is headed by an Executive Director who has significant experience in implementing World Bank-financed projects, and has procurement specialists who have good knowledge and experience of the World Bank’s Procurement and Consultant Guidelines. The procurement risk for the Project is rated as “moderate” given that: (a) FFPMC has satisfactory experience in implementing Bank-financed projects and has good knowledge of the Bank’s Procurement and Consultant Guidelines; and (b) the mitigation measures have been identified, as specified in Annex 3.

E. Social (including Safeguards)

56. The social impacts of the SPAP II are expected to be positive, with improved social protection service delivery for social protection beneficiaries being a primary development objective of this project. Activities under the project are aimed at improving the provision of services, including easy access for disabled people to the Medico-Social Examination Agency’s offices, streamlining social welfare provision, using resources more efficiently to address the

11 In this document, “PIU” refers to the FFPMC under the Ministry of Finance and “PCU” to the Project Coordination Unit under the Ministry of Labor and Social Issues.

17

needs of the poor and vulnerable and helping unemployed individuals approach the labor market. The proposed project would also support strengthening the analytical capacity of the MLSI aimed, inter alia, at improving its main anti-poverty program, FBP, and increasing the coverage of the poor. 57. The activities under the project would contribute to outreach and better programming for the disadvantaged members of the society. The project would promote job opportunities for poor and vulnerable members of society through their participation in ALMPs. These activities would contribute to greater acceptance and social inclusion of target groups by the rest of the society. Gender related inclusion issues would be covered under the project, which would ensure gender sensitivity of its activities and create a basis for adequate gender-differentiated monitoring and evaluation. 58. All project activities, including construction of new ISPC buildings under Component 1, would take place on public land and no private land acquisition is expected to be supported under the project. OP 4.12 on Involuntary Resettlement has been triggered as a precaution as all the project sites are not yet known and the type and scale of civil works are still to be determined. A Resettlement Policy Framework (RPF) for the Project has been prepared by the Government and would be used should any land acquisition become necessary.

F. Environment (including Safeguards)

59. The Project would finance refurbishment and area landscaping, and construction works at 37 ISPCs, as well as rehabilitation of premises of the SESA and the Agency for Medico-Social Expertise (AMSE). Because the Project includes a physical investment component involving construction/reconstruction of buildings, the OP/BP 4.01 Environmental Assessment is triggered. The envisaged civil works would have modest local environmental and social impacts, which would be easy to mitigate by ensuring that works providers adhere to the conventional good construction and environmental practices. Therefore, the Project is classified as environmental Category B. 60. The 37 ISPCs would be selected, and detailed designs for their refurbishment/construction would be developed, on a rolling basis. Therefore, not all of these decisions could be made and not all designs were prepared by the Project appraisal. However, the environmental and social risks related to the works at all of ISPCs are expected to be similar and insignificant, and most of them are already known. Because of the above, an Environmental and Social Management Framework (ESMF) was prepared to guide further environmental work under the Project. Site -specific Environmental Management Plans (EMPs) were developed for works at the SESA and the AMSE. Similar site-specific EMPs would be prepared for other individual investments once detailed designs are produced.

18

Annex 1: Results Framework and Monitoring

ARMENIA: Social Protection Administration II Project

Project Development Objectives .

PDO Statement

The proposed Project Development Objectives (PDOs) are to (i) improve social protection service delivery and (ii) strengthen analytical and monitoring and evaluation functions of the agencies delivering social protection benefits and services.

These results are at Project Level

.

Project Development Objective Indicators

Cumulative Target Values Data Source/ Responsibility for

Indicator Name Core Unit of Measure

Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection

Client participation costs of receiving benefits and services of ISPCs. (for FBP)

Text 3026 3026 less than 2786 less than 2786

less than 2476

2476

3 times (2013, 2016, 2018)

UNICEF/MLSI surveys

MLSI

Client satisfaction with benefits and services received through ISPCs

Text ISPCs Piloted

Some clients satisfied; Areas for improvements identified (as perceived by the clients)

Some clients satisfied; Areas for improvements identified (as perceived by the clients)

Majority of clients satisfied; Suggestions for improvements addressed

Majority of clients satisfied; Suggestions for improvements addressed

Almost all client satisfied

3 times

Analysis of qualitative data obtained from interviews and focus groups

MLSI

Monitoring and evaluation capacity increased as evidenced by gradual introduction of the M&E system for SP programs (covering the development of a model, indicators, project passports, software)

Text 5 piloted programs

Develop monitoring passports (covering objectives, activities, and outcomes) and indicators for the selected

Develop monitoring passports and indicators for the selected 15 programs; Introduce the respective software changes in

Develop monitoring passports and indicators for the selected 20 programs; Introduce the

Develop monitoring passports and indicators for the selected 25 programs; Introduce the respective software changes in

Develop monitoring passports and indicators for all MSLI programs financed from the state budget;

Yearly MLSI M&E department

MSLI

19

10 programs; Evaluate the present status of M&E electronic system, defining indicators for the selected 10 programs

M&E electronic system

respective software changes in M&E electronic system

M&E electronic system

Develop electronic system (receiving reports for all indicators) Almost all clients satisfied

.

Intermediate Results Indicators

Cumulative Target Values Data Source/ Responsibility for

Indicator Name Core Unit of Measure

Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection

Number of ISPC facilities refurbished/constructed and equipped

Number 0.00 10.00 20.00 30.00 37.00 37.00 PIU quarterly reports

MLSI project data

PIU/MLSI

Number of ISPCs fully operational Number 0.00 10.00 20.00 30.00 37.00 37.00

PIU quarterly reports

MLSI project data

PIU/MLSI

Number of relevant external databases from which ISPC social workers can obtain/check necessary information on-line.

Number 1.00 1.00 2.00 3.00 4.00 4.00 PIU quarterly reports

MLSI project data

PIU/MLSI

Number of participants involved in the Program for Youth Without Education and Skills

Number 0.00 0.00 250.00 500.00 700.00 700.00 SESA IS SESA

Number of participants involved in Start-up Small Businesses Program

Number 0.00 0.00 250.00 500.00 700.00 700.00 Yearly SESA IS SESA

20

Number of participants within professional orientation system (general education, tertiary education and ISPCs) who make use of professional orientation services)

Number 52.00 300.00 350.00 350.00 350.00 1402.00 Yearly Career Orientation Center/ISPC

SESA

Supervision and control method applied in SSSS

Text

Ad hoc supervision and control of eligibility, insured service periods, pension level and other pension requests.

Ad hoc supervision and control of eligibility, insured service periods, pension level and other pension requests.

Pilot of risk-based supervision and control of pension eligibility and benefit levels.

Risk-based supervision and control system in SSSS introduced and operative.

Supervision and control of eligibility, insured service periods, pension level and other pension requests conducted on risk identification basis

Supervision and control of eligibility, insured service periods, pension level and other pension requests conducted on risk identification basis

Yearly SSSS Admin Data

SSSS

Average time required for processing a pension case (including case resolution) by SSSS

Minutes 60.00 50.00 40.00 30.00 30.00 20.00 Yearly

SSSS administrative data

SSSS

Methodology for collection of qualitative data developed

Text

Methodology for collection of qualitative data not in place

Develop methodology to study: i) beneficiaries’ opinion; ii) client satisfaction with ISPC services; SP/ISPC professionals’ satisfaction with their

Update methodology for the selected (priority) programs; Obtain qualitative data.

Obtain qualitative data.

Obtain qualitative data.

Methodology fully integrated in the M&E system of the MLSI

Yearly MLSI’s qualitative data

MLSI’s, M&E department

21

working environment; Develop qualitative indicators for the selected programs; Report baseline data

Direct project beneficiaries

Number 507345.00 507345.00 507345.00 507345.00 507345.00 507345.00 Yearly Pension Registry

MLSI/SSSS

Female beneficiaries Percentage Sub-Type Supplemental

301885.00 301885.00 301885.00 301885.00 301885.00 301885.00



MLSI/SSSS


0.00 0.00 0.00 0.00 0.00 0.00



MSLI/SSSS


6648.00 6648.00 6648.00 6648.00 6648.00 6648.00

.

22

Annex 2: Detailed Project Description

ARMENIA: Social Protection Administration II Project 1. The proposed project would build on the lessons learned from the ISPCs piloted under the SPAP. It would draw from the ISPC pilot project evaluation undertaken by the MLSI and UNICEF and from the SPAP Implementation Completion Report that reflects key lessons learned under the SPAP. Firstly, MLSI capacity-building for monitoring and evaluation should have priority over the use of external contractors, therefore the SPAP II project envisions that the monitoring and evaluation of project results be carried out by the MLSI. Secondly, the management model and staffing arrangements of the ISSCs need to be geared towards improving efficiencies and effectiveness, both of which are aimed at under the new project. Thirdly, an investment loan can be a powerful vehicle for sector policy dialogue. Even if an activity/reform (e.g., pension, FBP) is not financed directly by the World Bank, involvement through a project can provide a vehicle, together with others, through which advice can be provided. Finally, project implementation is considerably enhanced when project concept and objectives are based on stakeholder consensus and borrower priorities. The design of the project has largely been shaped by the Armenian government and specifically the MLSI, based on its priorities, as discussed in the Country Partnership Strategy (CPS). The proposed Project would comprise five components as follows: 2. Component I: Rolling-Out of Integrated Social Protection Service Delivery (US$17 million, of which World Bank credit US$14.3 million). The proposed project would build on the achievements of the SPAP. The previous project developed the model of integrated delivery of pensions, social assistance, employment and disability certification through functional integration within the ISPCs. It was implemented on a pilot basis in 19 ISPCs established, equipped and trained under the project. The proposed project would complete the country-wide roll-out of the integrated social protection delivery of the remaining 37 ISPCs.

3. The proposed types of activities are the following: a) Civil works, IT equipment, furniture, other goods, and some consulting services for 37

Integrated Social Protection Centers (ISPCs) (US$13.2million12). During the implementation of the SPAP, the Government designed and piloted a model of functional integration of four existing agencies responsible for pensions, social assistance, employment, and disability certification. In total, 19 ISPCs have been established under the first project (SPAP). The proposed project would finance the design/supervision, refurbishments, and equipment for the remaining 37 ISPCs nationwide. This may also involve investments in the electricity, water and sewage systems, as well as strengthening the buildings against seismic shocks and carrying out adjustments to improve physical access for the disabled people. Additionally, consultants would be hired to prepare designs and carry out the supervision of works, as well as to support the implementation of the new model of integrated service delivery.

b) Strengthening of the ISPCs management information systems (US$300,000). The proposed project would support the implementation of the new management information system across

12 Refers to IDA financing only.

23

all ISPCs, further software development, and IT support. The new modules would enable interface with various internal (MLSI) and external databases. This is of particular importance in the process of determining/verifying benefit eligibility. Additionally, some parts of the existing management information system need to be refined to reflect the changes in regulations governing the work of reception staff and case managers of the ISPCs. Finally, the software would be enabled to collect sex-disaggregated data along with other data needed for monitoring and analytical purposes.

c) Drafting of legislation for the implementation of the adopted model of integrated social protection service delivery (US$60,000). This subcomponent would finance consultant services to support continuous adjustments of the existing social protection legislation, including drafting of new laws and by-laws. The project would ensure that the new social protection legislation is gender equal or gender neutral.

d) Training for ISPC staff (US$200,000). The activity would include the development of training materials and manuals, practical training for MLSI/ISPCs staff in integrated social protection service delivery, as well as follow up support to the local staff through mentoring and on-the-job training.

e) Public outreach (US$284,000). This activity consists of both design and implementation of public awareness campaigns, including printed materials.

f) Civil works for the head offices of the State Employment Service Agency (SESA) and the Agency for Medico-Social Expertise (AMSE) and furniture and other goods for SESA and AMSE (US$240,000). The two agencies play an essential referral role in relation to the ISPCs, including the development, implementation, monitoring and coordination of the integrated social services delivered to unemployed persons and persons with disabilities (respectively). However, their offices are in poor physical state and do not have easy access for persons with disabilities. The proposed project would finance the design/supervision, refurbishment, and equipment for the SESA and AMSE central offices. This may also involve investments in the electricity, water and sewage systems, as well as strengthening buildings against seismic shocks and carrying out adjustments to improve physical access for people with disabilities. Consultants would be hired to prepare designs and carry out the supervision of renovations.

4. Component II: Supporting the Implementation of the New Employment Strategy by the Government (US$2.6 million, of which World Bank credit US$2.2 million). The proposed activities would cover four specific areas. a) SESA capacity strengthening (US$190,000)

5. Unemployment benefits are one of the four benefits being provided by the ISPC at the decentralized level. As such, front line staff would benefit from the refurbished ISPCs. At the central level, the Government foresees improving SESA’s capacity on two fronts: (i) employer services; and (ii) IT infrastructure.

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6. SESA has long sought to reach out more to employers, but there are already more than 20 private employment (recruiting) agencies in Yerevan reaching out to employers to mobilize vacancies. The World Bank would support SESA to collaborate with these private agencies to bundle their vacancies and provide them on a vacancy terminal in its offices (a practice called ‘spidering’ and in use in various international Public Employment Services, for example Ireland). Employers wishing to register directly with SESA could always be given that opportunity. The existing GORTS software system requires updating in order to meet new needs arising from the integration of social services, for instance to capture beneficiary status in various social programs, and to trace labor market outcomes of both applicants and actual participants. 7. The estimated cost would cover:

(i) Procurement of IT equipment: US$40,000, (ii) Procurement of furniture: US$20,000, (iii) Modernization of GORTS: US$100,000, and (iv) Training and re-training of staff: US$30,000.

b) Active Labor Market Policies (US$1.6 million)

8. The Government has decided to launch two Active Labor Market Policies (ALMPs) under the SPAP II. Each ALMP would be piloted and evaluated during the project, and if effective, could be rolled out nationwide. Within the mandate of ALMPs foreseen in the employment law, both ALMPs would focus on so-called “uncompetitive workers”, who “do not manage to engage in employment due to their social, educational and health conditions, (and who lack) adequate professional abilities and skill, (as well as) knowledge of modern technologies”. Both ALMPs would be managed by MLSI/SESA, subcontracting the key elements of the intervention to private and third sector partners, as appropriate. The MLSI and its detached unit SESA would be responsible for implementation of the ALMPs, while FFPMC would be responsible for the funds flow and controls under ALMPs (of all financial transfers including cash grants under ALMPs). Program for Youth Without Education and Skills 9. Armenian employers cited lack of skills, especially practical skills (work experience), most frequently as the reason for not filling a vacancy in a recent Skills Toward Employment and Productivity (STEP) survey13. Among different skills, technical skills were ranked as most important for medium and low skill workers, followed by the soft skills of communication, independent work, time management, and teamwork. In addition, young workers were reported to lack leadership and creative thinking. Therefore, the first ALMP would provide training and financial compensation to youth aged 16-30, who do not attend school daily, are without work, are available to start work, and are classified as ‘uncompetitive’.

13 Rutkowski. J: “Skills Employers Seek (in Armenia)”, October 2013.

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10. Additional discussions with the counterparts are needed to determine whether any further specifications would be made within this target group, for example to encourage women or disabled people to apply. The project would provide cash transfers to eligible NEET youth, as well as financial incentives to employers. This would be detailed in the OM. Implementation arrangements would likewise be described in the OM. Starting Small Businesses/Self-Employment 11. In Armenia, reaching a 60% employment rate, a realistic medium term target, would require the creation of 166,000 new jobs. Lack of job creation is the major reason for high unemployment. In this context, the Government wants to pilot an ALMP that fosters the creation of self-employment and small businesses. This ALMP would also target “uncompetitive workers”, and again further discussions are needed to determine whether any further specifications would be made within this target group. 12. Training would be provided to uncompetitive workers who wish to establish a business. The project would also provide financial support (cash grants) for their business start-up or self-employment. A Commission established by Ministerial Decree would be responsible for establishing eligibility criteria and selection of participants. It would propose the list of beneficiaries of ALMPs and cash grant projects for Minister’s approval. 13. When the Government of Armenia has determined further details of these two ALMPs, the Ministry and/or SESA would write, or commission a consultant to write, an operational manual (OM) for these ALMPs. The OM would provide details on the objective, number and nature of the target group, roles and responsibilities of each agency, flow of funds, and control over these funds, the Procurement Plan, evaluation and reporting standards. These OMs are expected to be complete within six months of Board approval of the project as a whole and would be the subject of a Disbursement Condition on this sub-component (only) of Component 2. c) Career Orientation (US$310,000)

14. There are severe skill mismatches in the Armenian labor market. Some vacancies are not created or filled because relevant skills are missing. Structural unemployment (i.e. the coexistence of unfilled vacancies with high unemployment) is particularly prevalent in rural areas. This is a symptom of the fact that ‘links between (the) labor market and (the) education system are weak. Within this context, professional orientation plays a crucial role in terms of striking an efficient and long-term balance between employment and (the) labor market, which must be based on the integrity of an individual's occupational preferences and ways to achieve them’.14 15. The Government has already started to build a Career Orientation service. Targeted to beneficiaries of all ages, the service is aimed at reducing the mismatch between disciplines chosen by students, or lifelong learning chosen by adults, and labor demand. In October 2007,

14 Government’s Concept Note for the development of a professional orientation system (2012).

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the Ministry of Labor and Social Issues (MLSI) established a "Youth Professional Orientation Centre" (YPOC) in Yerevan, with the view to guide students and graduates towards labor market needs while taking into account their personal preferences, and enhancing their competitiveness. The YPOC was later transformed into a “Professional Orientation Methodological Center” (POMC), with the mandate to provide methodological support to the institutions providing professional orientation. At the same time, some educational institutions have established career centers. The regional units of the Ministry of Sport and Youth Issues have also been providing career support. A multi-agency action plan for 2012-2015 was approved in 2012 and lists a series of steps encompassing framework legislation, agreement of agency responsibilities, joint processes, a unified database and dissemination and outreach. While responsibilities and framework legislation have largely been established, no common methodology or standards exist among the outlets of career advice, and there is a lack of current information on the labor market situation and career development trends. 16. The SPAP II would support the effective roll-out of a career orientation program, based on the Government’s plans. The Government’s Concept Note for SPAP II envisages (a) at the front end of this service, online consultancy and distance-training programs provided through POMC, easy access media to inform about professions as well as current labor market data; and (b) in the back office, an information system for methodical assistance and software to test professional orientation. 17. Currently, the POMC in Yerevan is staffed with advisers specialize in and liaise with the different levels of education (school level 1-12, tertiary and VET establishments) as well as the ISPC, all of which are supposed to provide direct career advice. The POMC is governed by a board of ten people including representatives of the education sector, MLSI, education establishments, and the employer union. 18. In 2014, POMC would conceptualize the methods and standards to be applied in publicly provided career advice all over the country. To this end, it already offers a website which would be expanded to be a portal for eLearning of the decentralized (regionally and locally based) advisers in the education system and the ISPC. Selected/designated teachers, POMC staff and one delegated staff per ISPC would need to be trained to apply the new methodology. This can largely be done via self-guided eLearning and accreditation.

19. According to the MLSI’s own concept note, the following budget is foreseen:

(i) Computer hardware update:US$40,000, (ii) Furniture: US$20,000, (iii) Information system: US$50,000, (iv) Drafting and introduction of online consultancy and distance-training programs implemented via the web page: US$30,000, (v) Development and installation of software for testing of professional orientation: US$40,000, and (vi) Preparation of films about professions and cartoon animations for the professional orientation of primary school-aged children and people with mental disabilities: US$130,000.

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d) Public awareness activities on reforms and programs implemented in the labor and employment sector (US$100,000)

20. Public awareness campaigns will include multiple components (beneficiary and employer outreach, media relations, government affairs, and similar) to support innovative activities financed by the project and reforms supported by the government’s strategic documents. e) Monitoring and Impact Evaluation

21. The Government’s Employment Strategy and the new Employment Law emphasize the need to monitor and evaluate rigorously any new program. Results-orientation and transparency are guiding principles. 22. SPAP II would ensure very close coordination between the operational design of each one of the above activities and the separate M&E component of the project. The two proposed ALMP pilots would be prime candidates for rigorous impact evaluation prior to fuller adoption and roll-out. 23. Evaluations could be done in a cost-effective manner, combining the registration of beneficiaries for the pilot with a detailed application form that serves as a baseline survey. A randomly selected number of applicants would participate in the pilot while the non-participating applicants would serve as the control group. The entire pool of applicants would be surveyed again approximately one year after the completion of the program. 24. Throughout the implementation of each pilot, SESA’s monitoring and evaluation system would pick up key indicators for each participant. The operational manual for each pilot would contain a specifically designed monitoring and evaluation section listing the indicators and explaining the way they can be fed into and retained in SESA’s MIS. 25. The OM will detail oversights arrangements, which would include six months full-time work of a field coordinator that could assist SESA and the PCU to write TORs, contract the different elements of both ALMP pilots, and supervise the randomized selections. The online registration of candidates for the ALMP would result in a baseline survey which would be captured in a database. The cost for this item is already accounted for within the GORTS update mentioned above. About six months after candidates have gone through the interventions under either ALMP, a follow-up survey would enquire about their labor market and other socio-economic situation. This survey would also be administered to the control group each time. 26. Component III: Modernization of the Pension System (US$1.1 million, of which World Bank credit US$0.9 million). The public pension system in Armenia is undergoing a major policy and institutional reform. Armenia’s current PAYG pension pays low pensions, lacks incentives for individuals to participate and contribute, and offers poor perspectives for future pension benefit adequacy. The ongoing pension reform, legislated in 2010/11, aims to improve future pension system adequacy and incentives to participate by introducing a mandatory funded pillar. The second pillar was launched in January 2014. From January 2013

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social insurance contributions have been amalgamated into the personal income tax, and all contribution revenue collections transferred to the State Revenue Committee (SRC). 27. The institutional framework to support personalized recordkeeping and individual second pillar accounts has been completed and tested. A personified monthly tax report has been introduced and administered by the State Revenue Committee. SRC has been providing needed monthly data to the SSSS from January 2013.Data provision for the second pillar accounts to the Central Depository Agency (second pillar account administrator) commenced in January 2014.

28. Within the pension reform, the SSSS has been transforming from an independent PAYG pension agency with its own contribution collection, data collection and recordkeeping, and pension payment into a segment of the integrated social service delivery system. In the reformed pension system, the SSSS would remain responsible for PAYG pension payment, individual work history recordkeeping, qualitative (risk-based) supervision of the insured individuals' status, and servicing of insured individuals and pensioners. In the ISPC, the SSSS is expected to assume the central payment function for all social benefits, with a significantly broader client base. 29. SPAP’s Additional Financing actively and successfully supported the new SSSS’s role and engaged in reforming its functions and strengthening its capacity. In all, US$0.8 million (14.7% of total SPAP Additional Financing’s disbursed amount) was allocated to pensions. Under SPAP’s Additional Financing, the SSSS:

(a) developed the integrated database of the state pension system and acquired digital equipment and licensed software for its operation; (b) consolidated data from the former personalized accounts into the new pension information system (PIS); (c) designed and rolled out the sub-system of automatic verification of mandatory social insurance (security) contribution compliance during the period between 1992-2004 and its respective information system; (d) created internal informational portal; and (e) trained staff in various pension reform issues.

30. The outcomes confirm the successful engagement: over the course of SPAP and its Additional Financing (from 2007 to 2013) the share of pensioners receiving pension on time increased from 85% to 100%; client satisfaction with SSSS services increased from 21% to 97%, and pensioners awareness of their rights rose from 13% to 47%. 31. The pension component of SPAP II would support the SSSS in improving its core business processes and upgrading them in line with ISPC requirements. SSSS would focus on: i) strengthening its technical capacity through investments in IT technology and further development of its electronic pension information system; ii) introducing a risk-based fraud-and-error supervision model; and iii) improving its HR capacity through training in core and new

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business processes such as central payment services for the integrated social delivery system. Specific project activities would include:

(i) Procurement of IT equipment (US$250,000)

32. With SSSS’s current volume of work, ongoing business processes reform, and the expected 50% average increase in volume of work due to assuming central payment role in the ISPC, SSSS’ existing capacity would not be able to support efficient service delivery. In addition, its computer equipment needs to be regularly replaced and upgraded. Under this component funds would be provided for the procurement of personal computers, servers, and other technical means, mainly for the field offices of SSSS. Initial estimate is that a minimum 25% of field office computers need to be replaced and work places equipped, which would require procurement of up to 100 PC workstations and several pieces of other IT equipment over the course of the project. In addition to equipment already procured under SPAP AF, it is estimated around US$250,000 would be required in this project to complete the buildup process.

(ii) Upgrade of electronic pension information system (US$90,000)

33. SSSS’s current electronic pension information system has not yet integrated all decision making processes and automated all interfaces with other systems. For example, the system does not allow for data exchange with commercial banks, verification of banking accounts of pensioners, and automatic updating of the list of pensioners receiving pensions via banking transfers. Procedures for registration of the issued administrative acts (i.e. from citizens’ registry, family benefit system, child allowance, etc.) and registration of corresponding information are only partially automated. As a result, the engagement of SSSS’s human capacity in these processes is still very high, increasing the chances for fraud and error. SSSS would need to upgrade its electronic information system software, improve the process of pension benefit determination and payment, upgrade the system to absorb information and administer payments for other systems, and provide timely information on pension and other benefits paid. 34. Furthermore, the ongoing pension reform is expected to revise pension privileges, the system of pension for long years of service, disability, survivorship, registration rules, and other pension system features. All of these reforms would need to be reflected and captured by the respective changes in the SSSS’s electronic pension information software. The task would include SSSS’s software upgrade.

(iii) Designing and piloting risk-based fraud-and-error supervision model (US$100,000)

35. In order to improve supervision efficiency, automate the supervision processes, and reduce staff engagement in extensive processes, risk identification and risk management would be institutionalized through the establishment of the risk-based supervision model. The objective of this activity is to design a model for risk-based supervision system in SSSS based on best international practices. The activity would include a review of international experience in risk-based supervision models in the pension systems, providing recommendations, designing a model for Armenia, and piloting it in one or more marzes.

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(iv) Development of a new risk-based control and supervision system software (US$200,000)

36. SSSS’ system serves roughly 500,000 pensioners and distributes close to 25% of the state budget expenditures. In 2013 Q1, the SSSS’s pension assignment units received over 65,000 applications for assignment, recalculation of pensions, recognition of pension entitlements, and resumption of suspended pension payments. The volume of work on daily individual case resolution is high and exhausting. Developing analytical capacity, procedures for risk identification, and institutionalizing risk control on the grounds of risk-based supervision model would improve SSSS’ efficiency and reduce time required for individual case resolution. These business processes would be established as new modules of the SSSS's integrated business software (developed under SPAP and SPAP AF). 37. The objective of this activity is to develop the additional software module for risk-based supervision functions including methodology, content, and organizational framework for the fraud and error system, data interfaces for the analytical functions, and other system design issues.

(v) Training of SSSS staff in various pension reforms (US$100,000)

38. With SSSS reforming its business processes, new role in the ISPC, and the ongoing reforms in the PAYG pillar, numerous changes are expected to follow in the legislative and institutional framework, as well as in the mechanisms and methods of management and delivery of pension services. Consequently, a broad and comprehensive training program is envisaged over the whole project period for SSSS HQ staff and staff of the ISPC regional centers. A detailed training program would be developed when the new SSSS functions and proposed reforms in the PAYG pension pillar are adopted.

(vi) Training and certification of staff to be engaged in SSSS’s central social benefit payment processes (US$100,000)

39. The new central social benefit payment function in SSSS requires a secure business framework, including trained and reliable staff. SSSS’s pension payment function has been functioning well, with pensions paid into designated bank accounts and distributed through the postal system on time. Expansion of payments to all social services would make the process more complex, intensify the number of transactions, volume of data exchanges and staff in SSSS and other agencies involved in the process. SSSS staff engaged in central social benefit payment process would therefore be trained and certified to operate the central payment system. The objective of this activity is to develop, organize and deliver training required for the certification of staff in central payment function.

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(vii) Study tour for SSSS staff to analyze Social Enterprise Management software in selected country which implemented it (US$40,000)

40. Social Enterprise Management (SEM) software is operational business software designated for social protection administrations and agencies such as the SSSS. SEM software automates the front and back office operations and produces both standard business reports on agency’s daily operations and also statistical reports (i.e. risks assessment, compliance, labor market developments) for quality policymaking. Such a tool would enable MLSI and SSSS faster detection of problems in the pension system and labor markets and a timely policy reaction. The objective of this activity is to learn about the SEM software’s benefits and constraints in practice by conducting a study tour in a country that has successfully implemented the SEM software and has been actively using it. 41. Component IV: Strengthening MLSI Analytical Capacity and Monitoring and Evaluation Systems (US$1.3 million, of which World Bank credit US$1.1 million). Activities under this component are aimed at strengthening the capacity of the monitoring and evaluation unit within the MLSI and developing an integrated system of monitoring and evaluation of social protection benefits and services (in total 84 different programs). The component would finance goods, consultant services, and training as follows:

a) Hardware and software in support of M&E development, including the development and

introduction of the internal portal, electronic system of monitoring and evaluation, and printed materials (US$550,000);

b) Consultant services covering the development of a M&E model, indicators, job descriptions, as well as studies analyzing possible reform options and their impacts and research activities on poverty and different forms of monetary and non-monetary deprivation, for different vulnerable groups including youth and women (US$460,000); and

c) Training of the MLSI’s monitoring and evaluation specialists (US$70,000).

42. The above is expected to enable the MLSI to streamline the indicators and methodology for monitoring and evaluation of policy implementation on the ground. 43. Component V: Project Management (US$1.9 million, of which World Bank credit US$1.3 million). This component would finance the standard operation of the PCU at MLSI for the duration of the project, trainings, incremental operating costs, and project audit. The PCU is in charge of technical aspects of the project and ensures overall monitoring and supervision of project activities. The cost of project management would also partially cover the Foreign Financing Project Management Centre (FFPMC) staff time, for those who would perform fiduciary activities for the SPAP II project, as well as operating costs.

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Other projects complementing the activities financed under SPAP II

44. The work under the new project would be closely coordinated with the World Bank’s Social Inclusion and Labor Knowledge for Reforms, Operations and Advancing Dialogue (SILK ROAD) Technical Assistance project, particularly with regard to the possible FBP reform options and ongoing in-depth gender and work study for Armenia. 45. While the FBP has a good targeting accuracy, as already noted, its coverage of the poor is low and has declined in recent years (along with the total number of beneficiaries). Extending the program’s coverage while maintaining its targeting efficiency is one of the targets of the planned Armenia Development Policy Operation (P143040) – during the DPO design phase it was expected that the number of FBP recipient households would reach 104,000 by May 2015. This target has already been met. Additional focus would be on provision of active support and beneficiaries’ integration into the labor market. 46. The World Bank is also working with the Government on strengthening the livelihood of the poor and vulnerable population of Armenia, supported by the Japan Social Development Fund (US$2.7 million).15 The objective of the JSDF is to support piloting of self-reliant livelihoods and the generation of employment opportunities combined with the provision of vital services to 4,000 persons with disabilities and other extremely poor people. Specifically, the project finances: i) vocational training and self-employment, ii) community-based social and health care services, and iii) access to information and advocacy education. The implementing agency of the project is the local non-Governmental organization Mission Armenia. As such, the JSDF grant focuses on helping the “hard to reach” beneficiaries who are sometimes overlooked by mainstream labor market programs.

47. Other key partners involved in different components of the social protection reform carried out under the MLSI are UNICEF and USAID. UNICEF supports the development of case management within the piloted integrated social service centers and related performance monitoring indicators and procedures. A close collaboration between UNICEF and World Bank was established in the previous SPAP project. USAID is providing comprehensive support to the state social security service development. Overall coordination among different donors and stakeholders is carried out by the MLSI in order to prevent possible overlaps across different reform areas.

15 The Grant was approved on March 1, 2013; The expected closing date is March 1, 2016.

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Annex 3: Implementation Arrangements

ARMENIA: Social Protection Administration II Project Project Institutional and Implementation Arrangements Project administration mechanisms 1. The proposed SPAP II project would be the second World Bank project implemented by the MLSI as an implementing agency. The SPAP (Loan No. 3921-AM), including Additional Financing (Loan No. 7848-AM), was implemented from 2005-2013. The institutional arrangement for the implementation of the proposed project would rely on the institutional arrangement successfully carried out under the SPAP, whereby the MLSI (Ministry of Labor and Social Issues) would be the agency responsible for the implementation of the proposed project, the Foreign Financing Project Coordination Center under the Ministry of Finance (FFPMC) would carry out fiduciary aspects, while the technical aspects would be the responsibility of the PCU (Project Coordination Unit) team at the MLSI. It is proposed to keep the PCU-type project implementation structure given the enlarged scope of activities and ambitious schedule under the proposed SPAP II, as this arrangement proved efficient under SPAP. 2. The SPAP II administrative mechanisms would rely on the successful implementation record of SPAP and strong implementation experience of MLSI’s PCU and FFPMC. The FFPMC was created in 1993 and has experience managing projects in accordance with World Bank fiduciary requirements as an implementing agency for numerous projects and grants. Currently, it is successfully implementing the Second Public Sector Modernization and E-Society projects and a number of stand-alone TF grants. The FFPMC would be responsible for financial management, disbursements and procurement under the project. It has the procurement and financial management divisions with support staff and is able to ensure smooth implementation of fiduciary arrangements under the Project. Two procurement specialists, an accountant and a financial specialist would be dedicated to SPAP II. The FFPMC would formally submit the TORs and Technical Specifications to the Project Steering Committee for approval and the World Bank’s no-objection. The FFPMC reports to the Government of Armenia and the Ministry of Finance. 3. The PCU would be responsible for general coordination, preparation, implementation and monitoring and evaluation of the project activities. The PCU would agree with MLSI on its annual plans, budgets and work plans for the project. The PCU team would comprise at least seven technical staff, which includes: PCU Coordinator, Social Specialist, ICT Specialist, Environmental Specialist, Monitoring and Evaluation Specialist and three Engineers. In addition, the PCU team would also have an Interpreter, Secretary/Assistant and Driver. The responsibilities of the PCU technical team would be as follows:

a) The Project coordinator would: (i) carry out overall coordination of the Project and operation of PCU staff; (ii) ensure implementation of the Project in line with the approved

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financial agreement and the project documents; (iii) coordinate preparation of the TORs, procedures, reports, and other documents related to the implementation and monitoring and evaluation; (iv) ensure effective contract management and present interests of the FFPMC and the stakeholders; (v) submit quarterly progress reports to the World Bank;

b) The social specialist would: (i) provide methodological/technical support to the working groups and consultants; (ii) draft TORs; supervise implementation of the project activities under signed contracts; (iii) review technical reports and provide feedback; (iv) contribute to development of monitoring and evaluation framework for the PDO indicators and contribute to development of progress reports; (v) together with engineer trained in environmental and social issues carry out oversight of safeguard issues.

c) The monitoring and evaluation specialist would: (i) prepare and oversee project/activity implementation plans and schedules; (ii) create data base, design M&E framework, collect data and regularly observe the project activities through site visits; (iii) provide qualitative and quantitative analyzes, prepare and submit project progress reports informing the status of PDO indicators; (iv) provide recommendations for addressing issues and improving the implementation;

d) The ICT specialist would: (i) prepare technical specifications for procurement of computer and other equipment; (ii) monitor and ensure timely implementation of the MISs related activities and informational integration of ISPCs; (iii) ensure timely implementation of IT related activities through effective contract management and offering solutions to emerged issues; (iv) carry out necessary analytical work related to IT activities and contribute to development of progress reports and measuring PDO indicators.

e) The engineers would: (i) prepare technical specification of bidding documents for procurement of design, supervision and civil works; (ii) prepare implementation plans and schedules for the activities related to civil works; (iii) review the documents and reports related to civil works activities; (iv) carry out observations and studies in construction suites; (v) contribute to preparation of progress reports; (vi) ensure meeting the requirements of the national construction code; (vii) participate in identification and transfer of ownership of the buildings or land acquisitions; (viii) together with the social specialist carry out oversight of safeguard issues.

4. A Project Steering Committee would be created by Government to provide inter-agency coordination, supervise and control project implementation, review and approve annual work programs and budgets, and review and approve project documents (TORs, tender documents, results and contracts). The Steering Committee would have relevant representation from key stakeholders within and external to the MLSI and would comprise: MLSI, Ministry of Finance, State Employment Service Agency, State Social Security Service and Government of Armenia. Financial Management, Disbursements and Procurement Financial Management 5. The FM arrangements of FFPMC were reviewed and assessed as acceptable to the Bank for the SPAPII project implementation subject to the development of the OMs for ALMPs, acceptable to the Bank, describing the implementation arrangements, fund flows and controls

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over them, before the ALMPs’ implementation, which would be the disbursement condition for ALMPs. The Project FM assessment undertaken in October 2013 and updated in November 2013 and January 2014 confirmed that: (i) internal control and filing systems in place are adequate (while the controls over ALMPs need to be developed and described in the ALMPs’ OMs); (ii) the FM staff at FFPMC has extensive experience in the Bank-financed project; and (iii) results from the latest annual audit of FFPMC were satisfactory. 6. As agreed during the assessment, the FFPMC has: (i) finalized the customization of the accounting software to make it fully operational to be used for the Project; and (ii) developed the Project’s Financial Management Manual (FMM) acceptable to the Bank to reflect specific activities, funds flow and controls under the Project.

7. The overall FM risk for the Project before mitigation measures is assessed as substantial and after mitigation measures it is moderate.

8. FFPMC is capable of preparing relevant budgets. The financial manager prepares the project annual budget in co-operation with procurement specialists. The annual budget is based on the procurement plan, which is regularly updated by the procurement specialist. The budget is classified by categories, components, and sources of funds. All changes in procurement plan are reviewed by the FFPMC director agreed in advance with the Bank and with MOF, and only then the changes are incorporated in the annual budget.

9. The accounting staff at FFPMC consists of a financial manager, a chief accountant, newly recruited accountant/financial specialist (previously worked at another PIU implementing the Bank-financed projects) and a monitoring specialist. The financial manager, the chief accountant and the accountant/financial specialist have significant experience in the Bank financed projects and knowledge in the Bank FM policies and procedures. In the short term no major issues are expected to arise with the FM staffing. However, the Government recently revised the salary scale for the Governmental agencies staff (including the staff of the PCUs implementing the Bank-financed projects), which in longer term may have adverse impact on the staffing, as some reduction from the current level of the salary for newly recruited staff is expected.

10. FFPMC utilizes “Armenian Software” (AS) accounting software (used by several Armenian PCUs and found adequate), which has a flexible and convenient report writing tool to generate reports in customized formats.

11. For reporting purposes FFPMC follows cash basis IPSAS and applies former local accrual basis accounting standards (ASRA) for accounting. The chart of account used for ongoing projects can be used for the Project.

12. The internal controls at the FFPMC are found to be sound and capable of safeguarding assets, recording transactions, ensuring effectiveness and efficiency of operations and compliance with applicable laws/regulations, and providing reliable and timely information on projects. FFPMC maintains a good and well systemized filing system that allows quick retrieval of documentation

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13. FFPMC developed separate Financial Management Manuals (FMM) for each project, and a single FMM for all the TF grants, which are updated regularly. For this Project also FFPMC developed a separate FMM. In addition, before the ALMPs implementation, the OMs for ALMPs acceptable to the Bank need to be developed where the implementation arrangements, the funds flow and controls over them would be described. This would be a disbursement condition for ALMPs.

14. FFPMC regularly (before each Withdrawal Application is prepared or at least once a quarter) reconciles the projects’ accounting records with the WB disbursement data via the Client Connection system. The formal XDR reconciliations are also conducted on a regular basis (usually at least once a quarter) in the Excel spreadsheet.

15. The SOEs are prepared by the financial manager in Excel spreadsheet and reconciled by the chief accountant. The financial manager reviews the monthly bank statements, reconciles them to the project accounting records.

16. Stocktaking is performed annually. All fixed assets (FAs) of FFPMC are on the balance sheet of the MOF. FFPMC maintains lists of FAs assigned to each employee and FAs registration cards. FAs have stocktaking tags attached.

17. The backup of all accounting data is made on a flash disk on a weekly basis as well as on the server’s external hard drives once a month and on CDs once a quarter.

18. The responsibility for contract management is with the project managers at implementing agencies (i.e. the line ministries, Government staff, parliament staff, chamber of control, tax service, etc.), who accept the deliverables under the contracts, as well as with FFPMC procurement specialists, who regularly monitor the specific deadlines for the contracts (such as contract closing dates, suspensions, delays, etc.). The monitoring of the contract payment related data is conducted by the accounting staff. The paid invoices are marked “paid” to prevent any possibility of double-payments. In addition to this procedure, the financial manager developed Excel spreadsheets that lists for each contract the amount of each invoice to be paid, as well as all the previous payments made. The FFPMC is currently exploring the functionality of the accounting software to incorporate the contract monitoring. The advance bank guarantee expiration dates are also monitored by the monitoring specialist. The payments are also verified by the financial manager before each payment is made. In addition the monitoring specialist keeps records in Excel spreadsheet on contract amendments, extensions, and monitors payments and performance and bank advance guarantees. 19. Considering the small size of the FFPMC, no internal audit function exists nor is required; however the MOF’s internal audit unit performs ad hoc supervisions.

20. Project management-oriented IFRs would be used for the project monitoring and supervision. FFPMC has significant experience in IFR preparation, and the IFRs of active projects were always received on time and found to be acceptable to the Bank.

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21. The format of the IFRs has been confirmed during assessment and includes: (i) Project Sources and Uses of Funds, (ii) Uses of Funds by Project Activity, (iii) Designated Account Statements, (iv) A Statement of the Financial Position, and (v) SOE Withdrawal Schedule. FFPMC would be producing a full set of IFRs every calendar semester throughout the life of the project. These financial reports would be submitted to the Bank within 45 days of the end of each calendar semester. The first semester IFR would be submitted after the end of the first full semester following the initial disbursement.

22. FFPMC’s current auditing arrangements are satisfactory to the Bank (no major issues arisen in the latest audit of active projects implemented by FFPMC), and it has thus been agreed that similar audit arrangements would be adopted for the Project, to cover the project financial statements. The audit of the Project would be conducted (i) by independent private auditors acceptable to the Bank, on terms of reference (TOR) acceptable to the Bank and procured by the FFPMC, and (ii) according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC).

23. The sample audit TOR for the Project was agreed with the Bank. The annual audits of the Project financial statements would be provided to the Bank within six months since the end of each fiscal year, also at the Project closing. If the period from the date of effectiveness of the credit to the end of the Recipient’s fiscal year is no more than six months, the first audit report may cover financial statements for the period from effectiveness to the end of the second fiscal year. The Recipient has agreed to disclose the audit reports for the Project within one month of their receipt from the auditors and acceptance by the Bank, by posting the reports on its (www.ffpmc.am) web site. Following the Bank's formal receipt of these reports from the Recipient, the Bank would make them publicly available according to World Bank Policy on Access to Information. The contract for the audit awarded during the first year of Project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost of the audit would be financed from the proceeds of the Project.

Disbursements Arrangements 24. The accounting staff of the FFPMC is well aware of the World Bank’s disbursement procedures. FFPMC would establish a Designated Account (DA) specifically for this Project, in State Treasury maintained by Central Bank of Armenia, which is holding almost all DAs for ongoing Armenian projects. 25. Project funds would flow from the Bank, either: (i) via the DA to be maintained in the Treasury, which would be replenished on the basis of SOEs or full documentation; or (ii) on the basis of direct payment withdrawal applications and/or special commitments, received from the FFPMC. The Government funding would be made via the Treasury through normal budget allocation procedures initiated by the implementing agency in accordance with standard Treasury and Budget execution regulations. Withdrawal applications documenting funds utilized from the DA would be sent to the Bank at least every three months. The following disbursement methods may be used under the Project: Reimbursement, Advance, Direct payment and Special

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Commitment. The DA ceiling is proposed to be established at USD 1,500,000, which would be finalized and reflected in the Disbursement Letter. Detailed instructions on withdrawal of credit proceeds are provided in the Disbursement Letter. The fund flows and controls over them for ALMPs would be described in the OMs for ALMPs, acceptable to the Bank. Procurement 26. Procurement under the project would be carried out in accordance with the World Bank’s Guidelines: Procurement of Goods, Works, and Non-Consulting Services Under IBRD Loans And IDA Credits & Grants by World Bank Borrowers (January 2011) and Guidelines Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers (January 2011), and the provisions stipulated in the Legal Agreement. The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply. The various items to be procured under the project and the different expenditure categories are described below. 27. Procurement would be carried out by the FFPMC, which implemented the SPAP and other Bank-financed projects. The country procurement risk for Armenia is rated “substantial”, however given that: (a) the FFPMC has satisfactory experience in implementing Bank-financed projects and has good knowledge of the Bank’s Procurement and Consultant Guidelines; and (b) the mitigation measures identified in Annex 3, the procurement risk for the Project is rated as “moderate”. This is already reflected in the Procurement Risk Assessment and Management System (PRAMS) in the portal, which was completed on August 18, 2013 by the Procurement Accredited Staff (PAS) assigned to the project. General Procurement Notice 28. The General Procurement Notice (GPN) and its updates would be published in the UN Development Business and the Bank’s external website. The initial GPN was published on January 16, 2014. Procurement Plan 29. For each contract to be financed by the Loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan (Annex 6). The procurement plan, which covers the entire project, and its updates or modifications, shall be subject to the Bank’s prior review and no objection before implementation. The Procurement Plan and its updates would be published in the Bank’s external website.

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Thresholds for Procurement Methods 30. The same procurement thresholds for SPAP would apply and this is reflected in the procurement plan (see Annex 6). 31. Goods: Goods and equipment estimated to cost US$300,000 or more would be procured through International Competitive Bidding (ICB). Goods estimated to cost less than $300,000 and more than $100,000 would be procured through National Competitive Bidding (NCB). Readily available off-the-shelf goods estimated to cost less than US$100,000 each may be procured through Shopping (SH) on the basis of at least three written quotations obtained from qualified suppliers. 32. Works: Works estimated to cost US$4,000,000 and more would be procured through ICB. Works estimated to cost less than US$4,000,000 and more than US$100,000 would be procured through NCB. Contracts estimated to cost less than US$100,000 each may be procured through Shopping (SH) procedures on the basis of at least three written quotations obtained from qualified contractors. 33. Consultant Services: Consultancy services to be provided by consulting firms estimated to cost US$300,000 or more would be procured through Quality and Cost Based Selection (QCBS) method. Consultancy services to be provided by consulting firms estimated to cost less than US$300,000 may be procured through Consultants’ Qualifications (CQ) method. For assignments estimated to cost less than US$100,000, the shortlist may comprise only of national firms according to the paragraph 2.7 of the Consultant Guidelines. However, if foreign firms express interest, they shall be considered. Individual Consultants would be selected in accordance with Section V of the Consultant Guidelines. Prior Review Thresholds 34. Prior Review thresholds are proposed as follows: - All ICB and first two NCB contracts each for Goods and Works; - All DC contracts; - All contracts with consulting firms estimated to cost US$100,000 or more and all Single Source Selection contracts; - All contracts with individual consultants estimated to cost US$50,000 or more and all Single Source Selection contracts. Mitigation Measures 35. Based on the experience and lessons learned from the first SPAP, adequate mitigation measures have been put in place and would be closely monitored to ensure that the residual project risk is acceptable, including: (a) procurement prior and post reviews, the latter to be conducted twice a year; (b) monitoring of procurement progress against the procurement plan

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and recommending an action plan whenever there are perceived delays; (c) goods and works would be packaged to generate the maximum competition; and (d) in addition to the UNDB (United Nations Development Business), procurement opportunities under the project would be advertised and posted on the official web-site of the Public Procurement of the Ministry of Finance of the Republic of Armenia www.procurement.am and at least one newspaper of national circulation in Armenia, e.g. Hayastani Hanrapetutyun.

Environmental and Social (including safeguards) 36. The Project would finance refurbishment and area landscaping, and construction works at 37 ISPCs, as well as the refurbishment of premises of the SESA and AMSE. The envisaged civil works would have modest local environmental and social impacts, which would be easy to mitigate by ensuring that works providers adhere to the conventional good construction, environmental and social practices and respect relevant World Bank Safeguards policies. The Project triggers OP/BP 4.01 Environmental Assessment and OP/BP 4.12 Involuntary Resettlement. Based on the principles of OP/BP 4.01, it is classified as environmental Category B. 37. The 37 ISPCs would be selected and detailed designs for their refurbishment / construction would be developed on a rolling basis during the project period. Due diligence for the Project preparation therefore included the development of a Project ESMF, which describes the main types of expected environmental and social impacts of the expected Project investments, and provides a generic set of their mitigation measures. The ESMF also carries guidance for screening upcoming investment proposals, so that no activity gets supported if, by chance, it is associated with higher risks then a Category B Project should finance. To facilitate preparation of site-specific EMPs, the ESMF carries a suggested template of an EMP Checklist for Small Construction and Rehabilitation Activities developed by the Bank in support to its Borrowers. Site-specific EMPs were developed for work at the SESA and AMSE offices. EMPs for the refurbishment of ISPC would be produced at a later stage, once the buildings are identified and designs are ready.

38. A precautionary RPF was also prepared to provide a framework for land use or acquisition under the project. It provides detailed guidance for developing investment-specific RAPs, to be worked out and implemented prior to commencement of works at a site where resettlement or land use/acquisition would be required.

39. The ESMF, RPF and site-specific EMPs for a set of priority individual investment sub-projects were disclosed in-country and through the InfoShop, finalized after discussion with a relevant audience of stakeholders and re-disclosed. Other site-specific EMPs would undergo similar procedures once the detailed designs and EMPs are ready. Commencement of works would not be allowed at any site till the respective EMP is disclosed and consulted with local stakeholders. RAPs, if required, would be disclosed, discussed with the affected people, finalized, and implemented to the Bank’s satisfaction before a contractor is mobilized to a site where resettlement is taking place.

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40. The MLSI is the Project Implementing Entity for SPAP II. After having implemented the first SPAP project, the MLSI has basic understanding of the Bank's safeguard policies. However, as the first SPAP was classified as environmental Category C, the MLSI would now be responsible for overseeing safeguards under a more complex Category B project. To do so, the MLSI would expand its institutional capacity by involving a PCU staff member responsible for safeguards management, including supporting and overseeing implementation of the project EMPs and RAPs. This may be one of the engineers currently on staff (with appropriate supplementary training), or a qualified new staff, or a consultant/s engaged for this purpose. This person would work closely with the safeguards specialists of the Bank team and receive on-the-job training sufficient for handling safeguards issues under a low risk Category B project. Institutional arrangements for handling safeguards would be in place within MLSI by the time of Project effectiveness and shall be maintained through the Project life. Monitoring & Evaluation 41. Results monitoring and evaluation would follow good practices both for measuring and monitoring results achieved under the project. The baseline values for the proposed indicators would be established at appraisal (for 2013). The PDO level and intermediate outcome indicators would be monitored using the following data sources: a) MLSI/UNICEF baseline and follow-up surveys, b) administrative data regularly collected by the MLSI/PCU; c) ad hoc surveys, interviews, and focus groups, and d) monitoring and evaluation reports of MLSI/PCU. The monitoring and evaluation (M&E) coordinator of the PCU would be responsible for bringing together the progress reports, monitoring the key performance indicators and results, and communicating with the World Bank on progress according to the frequency of reports indicated in Annex 1. 42. M&E under the project would be integrated into the regular monitoring functions of the MLSI, ISPCs, and SESA. The project (Components II and IV) would support putting in place adequate monitoring and evaluation systems, which are expected to continue to exist after the completion of the project.

43. In addition to regular M&E activities, there would be an impact evaluation of the ALMPs piloted under the project. For both ALMPs, an impact evaluation would be conducted in a cost-effective manner. Potential participants would submit an application form that serves as a baseline survey. A transparent awareness campaign would inform all applicants that participation in the ALMPs is not guaranteed. As both programs can be expected to be over-subscribed, a random selection of up to 1,000 candidates for each program would be drawn, forming the treatment groups. Non-participants would serve as control group. To evaluate the impact of the ALMPs, all applicants would be surveyed again about a year after the intervention has concluded. Data would become available throughout the implementation phase and would allow a more facts-based evaluation of the project’s employment component.

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Role of Partners 44. The key developmental partners involved in different components of the social protection reform in Armenia are UNICEF and USAID. UNICEF supports the development of case management within the piloted integrated social service centers and related performance monitoring indicators and procedures. A close collaboration between UNICEF and World Bank was established in the previous SPAP project. Through its Pension Reform Implementation project (PRIP), USAID is providing support to the pension reform implementation and operational development of the SSSS. Project activities proposed in this Project are complementary with USAID’s PRIP Project and coordinated with other donors. Both partners have included the support to overall modernization of the social protection system of Armenia including implementation of the integrated social protection delivery system and development of a relevant monitoring and evaluation system in their respective programs for the coming years.

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Annex 4: Operational Risk Assessment Framework (ORAF)

Armenia: Armenia Social Protection Administration II Project (P146318)

Risks

.

Project Stakeholder Risks

Stakeholder Risk Rating Low

Risk Description: The roles of other Government departments and local authorities, critical for the implementation of the integrated social protection services, are not properly addressed in the final model of integration of social service delivery. This could affect both the stakeholders’ engagement in the project and speed of the implementation. Beneficiaries, particularly those belonging to the most vulnerable and marginalized groups, may not be approached or informed properly by social workers in ISPCs.

Risk Management:

The MLSI has been maintaining extensive consultations with the key stakeholders since the new model was endorsed by the Government in July, 2012. A Project Steering Committee was established by the Government to oversee the reform process and to address emerging issues that may require contribution from and collaboration between key stakeholders. Proactive and transparent discussion of all the issues and working out solutions with contributions provided by all parties involved would best inform implementation arrangements for improved service delivery to the beneficiaries. There are already 19 pilot ISPCs.

Resp: Client Status: In Progress

Stage: Both Recurrent:

Due Date:

Frequency: CONTINUOUS

Risk Management:

The client can address this risk through a well-developed network of social workers both at the central level in ISPCs and at the local/community level. Efforts should be made to ensure close collaboration between ISPCs, local authorities and NGOs in order to identify procedures for identifying and reaching each beneficiary and addressing their needs. Furthermore, consultations are underway with several donors and other units within the World Bank to leverage resources to support vulnerable and marginalized groups for enhanced youth inclusion.

Resp: Both Status: In Progress


Due Date:

Frequency: Yearly

Implementing Agency (IA) Risks (including Fiduciary Risks)

Capacity Rating Moderate

Risk Description: The MLSI has not acted as an implementing entity for an environmental Category B project yet. Furthermore, unlike the first SPAP the SPAP II also triggered the involuntary resettlement safeguard, posing relatively higher risks and more responsibilities for safeguards application.

Risk Management:

The MLSI acted as an implementing entity for the SPAP and would remain an implementing entity for SPAP II. After having implemented the first Project, the MLSI has a basic understanding of the World Bank's safeguard policies. However, the MLSI has to expand its institutional capacity in applying safeguards under a more complex Category B project by recruiting a staff member or a consultant, or assigning an existing staff to safeguards management, including preparation and oversight on the implementation of the EMPs and RAPs, as required. This may be one of the engineers currently on staff (with appropriate supplementary training), or a qualified new staff, or a consultant engaged for this purpose. This person would work closely with safeguards specialists of the Bank team and receive on-the-job training sufficient for handling safeguards issues under a

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The capacity of the State Employment Service Agency and the newly established ISPCs is not sufficient to deliver quality services to beneficiaries in order to shift from provision of passive benefits to active labor market programs. Furthermore, the SPAP II project would support the piloting of new ALMPs. Important decisions on the design of these ALMPs are pending. The design choice could give rise to different opportunities or risks. The delays could affect the ability of the MLSI to implement them effectively and on time. Description: High turn-over of procurement specialists because of low salary. The Government recently revised the salary scale for the Governmental agencies staff (including the staff of the PCUs implementing the Bank-financed projects), which could exacerbate the impact on staffing, as some reduction from the current salary level for newly recruited staff is expected. The PCU needs to improve on (a) packaging of goods, works, and services required under the project; and (b) the timely implementation of the procurement plan (specifically preparation of the bidding documents and completion of evaluation reports) and contract monitoring. The overall FM residual risk for the project is moderate as the project’s design envisions a larger number and a more complex scope of the activities supporting the reforms in social protection than the first operation, which would be more demanding to successfully implement.

low risk Category B project. Institutional arrangements for handling safeguards must be in place within MSLP by the time of Project effectiveness and shall be maintained through the Project life.



Due Date:


Risk Management:

Before the ALMPs implementation, the OMs for ALMPs acceptable to the Bank need to be developed where the implementation arrangements, the funds flow and controls over them under ALMP would be described. This would be a disbursement condition for ALMPs. The capacity of the State Employment Service Agency would be enhanced to enable it to carry out proper analysis, take stock of existing active programs, introduce new programs and provide ongoing methodological support to the newly formed ISPCs. An international consultant has been recruited under the project to guide the work on Employment services.


Stage: Preparation Recurrent:

Due Date:


Risk Management:

The client would identify and retain a high-quality procurement specialist throughout the project lifetime. The Bank Country Office would hold consultations with the Government on the PCUs staff salary issue.



Due Date:


Governance Rating Moderate

Risk Description: Local authorities may feel isolated from contributing to addressing vital needs of vulnerable groups due to planned integration of social protection service delivery. It may affect

Risk Management:

The final model of the planned integration of social service delivery should ensure all the key stakeholders’ contribution in identification of potential beneficiaries and in addressing their needs. This should be reflected in the relevant legislation.



Due Date:

Frequency: Yearly

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local authorities’ commitment to addressing needs of vulnerable people. The integrated delivery of social protection services does not proceed smoothly due to internal resistance from the staff that used to apply more administrative approaches in their work while being mapped to independently operating agencies (employment, social assistance, pension, disability certification). The risk is that they may face difficulties in understanding of changes and developing appropriate behavioral norms to shift from previously-applied administrative tools to client-centered social work.

Risk Management:

The risk can be addressed through: (a) early decision on the final model of integrated social protection service delivery; (b) preparing and processing the necessary legislative changes to ensure smooth integration; (c) addressing all the needs that have been raised by the staff at the pilot stage; and (d) designing and implementing a comprehensive training program, including providing daily follow-up support by experienced experts through mentoring and coaching at the implementation sites.



Due Date:

Frequency: Yearly

Project Risks

Design Rating Moderate

Risk Description: There is a risk that the final structural-functional model of integrated delivery of social services may be incomplete before the project starts as a result of delays in pilot evaluation or due to resistance from other stakeholders who used to take part in the provision of services to vulnerable groups. Transfer of ownership of some buildings for ISPCs is not completed which will affect the project progress.

Risk Management:

Pilot program undertaken under SPAP will be assessed and analyzed, while the results of evaluation will inform the final model. The Project Steering Committee, which is composed of representatives of the main stakeholders, should facilitate adoption of the final model based on the results and lessons learned from the pilot.



Due Date:

Frequency: Yearly

Risk Management:

The Government has established a Project Steering Committee which is also in charge of facilitating the decision making. The World Bank team has agreed with the MLSI that transfer of ownership of buildings for the bulk of the remaining 37 centers will be carried out before the project becomes effective. To support that, the MLSI, World Bank and USAID have agreed that USAID will support the MLSI through financing the PCU staff until the project effectiveness, which in turn would facilitate the process of ownership transfer of the facilities of future ISPCs to MLSI.


Stage: Preparation Recurrent:

Due Date:

30-Sep-2014 Frequency:

Social and Environmental Rating Low

Risk Description: 1. The Project will finance refurbishment and area landscaping and construction works at 37 ISPCs, as well as rehabilitation of premises for the SESA

Risk Management:

Minor social and environmental risks associated with small rehabilitation works will be mitigated by ensuring that civil works providers adhere to the conventional good construction and environmental practices. To achieve this, a site-specific EMP will be prepared for each work site. EMPs will be part of bidding documents and will make an integral part of works contracts, mandatory for implementation by contractors.

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and the AMSA. The envisaged civil works will have modest local environmental and social impacts, typical for small scale rehabilitation works inside settlements. 2. Some buildings suggested for rehabilitation may carry structural damage and/or not meet the established standards of seismic stability.



Due Date:


Risk Management:

Study of any existing documents pertaining current condition of buildings and their visual inspection will be part of the selection process. The selected buildings will be inspected in a greater detail and certificates of their seismic stability will be obtained over the design process. No building will be approved for the Project intervention unless it does not carry structural damage, or the client agrees to undertake capital reinforcement works to meet the national standards of earthquake resistance.



Due Date:


Program and Donor Rating Low

Risk Description: Risk Management:

Duplication of activities with the two other Donors supporting the client in advancing reforms in SP sector.

The MLSI and the World Bank’s task team have been organizing regular consultations with the other developmental partners in order to ensure complementarity of programs and avoid possible duplications. USAID would finance the PCU until the project effectiveness in order to enable its staff to work on the project preparation. UNICEF is financing a survey which is contributing to baseline knowledge about beneficiaries’ experience of social protection service delivery.

Resp: Both Status: In Progress


Due Date:


Delivery Monitoring and Sustainability Rating Moderate

Risk Description: Risk Management:

At present the MLSI does not have enough capacity to properly monitor and evaluate its programs. Although all subsectors have their own MISs, the existing M&E system has limited capacity and lacks up-to-date tools to make cross-cutting analyses, which would provide timely and useful feedback to service providers and properly inform the policy making.

The Project envisages establishment of comprehensive M&E system to enhance the efficiency of social programs and better inform the policy.



Due Date:


Overall Risk

Overall Implementation Risk: Moderate

Risk Description:

Although this is a follow-up project to a successful operation with the same implementing entities, a moderate risk for implementation was selected given that SPAP II design envisions a larger number and scope of the activities supporting the reforms in social protection than the first operation, which would be more demanding to implement.

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Annex 5: Implementation Support Plan

ARMENIA: Social Protection Administration Project II

Strategy and Approach for Implementation Support 1. Implementation support is a core element of the proposed project and partnership between the Government of Armenia and the World Bank. Implementation support would involve engagement by the World Bank across several dimensions:

Technical: The World Bank team would field expert staff and consultants to

support the counterpart team across all three technical areas of the proposed project: roll-out of the ISPCs; implementation of the employment strategy; and pension system modernization. The ISPC roll-out would require specific skills related to architectural design (including assessment of seismic resistance) and safeguards (see below).

Financial Management: As part of its project implementation support and supervision missions, the Bank would conduct risk-based financial management implementation support and supervisions within a year from the Project effectiveness, and then at appropriate intervals. During the Project implementation, the Bank would supervise the Project’s financial management arrangements in the following ways: (a) review the project’s semi-annual IFRs as well as the Project’s annual audited financial statements and auditor’s management letters and remedial actions recommended in the auditor’s management letters; and (b) during the Bank’s on-site missions, review the following key areas (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement arrangements and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving project resources. As required, a Bank-accredited Financial Management Specialist would participate in the implementation support and supervision process.

Procurement Supervision: Procurement supervision mission would be carried out by the Bank to include: (a) review of procurement plan; (b) physical inspection of goods; and (c) site visits of works contracts. In addition, in compliance with the results of the capacity assessment of the Implementing Agency, there would be one supervision mission every year to carry out post review of procurement actions. These missions would include informal training. The post review report would be entered and the Procurement Risk Assessment Management System (P-RAMS) updated in the Bank’s operation portal. The FFPMC would maintain complete procurement files, which would be reviewed by Bank supervision missions. All procurement related documentation that requires Bank prior review would be cleared by PAS and relevant technical staff. No packages above mandatory review thresholds by Regional Procurement Manager (RPM) are anticipated.

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Environmental Safeguards Supervision: A Bank Environmental Specialist would be a member of the project team throughout the project cycle. The specialist would supervise compliance with World Bank environmental safeguards policies and the project ESMF, and would ensure that site-specific EMPs are developed for individual investments, as required, and adhered to by contractors. Environmental Specialist would also provide guidance and advice to the PIU safeguards staff and other relevant personnel to improve their capacity for applying environmental safeguards and for reporting on environmental monitoring outcomes.

Social Safeguards Supervision: A Bank Social Specialist would be a member of the project team throughout the project cycle. The specialist would supervise compliance with World Bank safeguards policies and the project RPF (and any investment-specific RAPs, if required), and would provide capacity-building support on social safeguards to the PCU safeguards staff and other relevant personnel. The specialist would also provide technical advice on other social sustainability issues within the project, including gender sensitivity, stakeholder engagement, beneficiary targeting, grievance redress mechanisms and social research on the impacts of the project.

2. Implementation Support would be undertaken regularly. Implementation support and supervision missions are planned twice a year covering technical and fiduciary aspects of the project. The team members would monitor and report on progress on the key project activities and their contribution towards achievement of the Project Development Indicators and Project Development Objective. During these implementation support and supervision missions, an assessment would also be made of the risks and updates made, as needed, to the ORAF (Annex 4). Overall project implementation arrangements would also be assessed with identification of any adjustments that may be needed.

3. Several team members are based in the region. Much of the implementation support team (including some technical, fiduciary and safeguard staff) are based in the region, which facilitates timely, efficient and effective implementation support. Furthermore, both project co-TTLs are TTLs for other operations in Armenia and the implementation support for SPAP II would also be provided during their missions to Armenia related to those other projects.

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Table A5.1: Implementation Plan – Basic Timetable Time Focus Skills Needed Resource Estimate Partner Role

First twelve months

Ensuring fiduciary (especially procurement) staff are equipped to make a strong start on the procurement of key project inputs and activities; Ensuring full understanding of and compliance with the World Bank’s safeguard requirements; Development of implementation arrangements for the ALMPs (sub-component 2(ii)) Technical support to initiate project activities

Procurement Safeguards Employment services specialist Full team

USD 100,000 Client staffing of the PCU, especially fiduciary and safeguard staff; Regular reporting to the World Bank and active engagement in supervision missions.

12-48 months Ensuring technical quality; Ensuring fiduciary and safeguards compliance; On-going technical support and supervision

Technical specialists for each component Fiduciary and Safeguards Specialists Full team

USD 300,000 ($100,000 p.a.)

Other

Table A5.2: Skills needed and time requirements (per annum)

Skills Needed Number of Staff Weeks

Number of Trips Comments

Task Team Leader 8 x 2 TTLs 3 x 2 TTLs One DC-based; one regionally based Pension Specialist 4 2 Regionally based; trips to be combined

with other project support Employment/Labor Specialist

4 2 DC-based

Employment Consultant 4 2 Regionally based Financial Management Specialist

2 0 Based in-country

Procurement 4 2 DC-based Environment 3 2 Regionally based; trips to be combined

with other project support Social 2 1 DC-based, trip to be combined with

other project support Seismic Engineer 4 0 Based in-country

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Annex 6: Procurement Plan

ARMENIA: Social Protection Administration II Project

Package number

Description of Contract Packages No. of

Packages Procurement

Method

Review by Bank (Prior /

Post)

A B C F D

Component 1. Rolling-out of Integrated Social Protection Service Delivery

1. Works

1.1.1 Refurbishment of ISPCs, head offices of SESA and AMSE multi NCB/SH

2. Goods

2.1.1 Procurement of computer equipment and other technical means for ISPCs 1 ICB Prior

2.1.2 Procurement of furniture for ISPCs, head offices of AMSE multi NCB/SH

2.1.3 Upgrade and Development of information subsystem of complex social services provision (Upgrade and development of ISPCs’ MIS)

1 ICB Prior

3. Consultancy

3.1.1 Preparation of design-cost estimate documents for refurbishment of ISPCs, SESA, and AMSE, and implementation of supervision

1 QCBS Prior

3.1.2 Implementation of technical supervision of refurbishment of ISPCs, SESA, and AMSE 1 CQ Prior

3.1.3 Preparation of interior-design projects for ISPCs and supervision over their introduction 1 CQ Prior

3.1.4 Drafting of legal acts for legislative amendments necessary for the introduction of integrated social protection delivery system

1 CQ Post

3.1.5 Development of financing models for integrated social protection delivery system 1 CQ Post

3.1.6 Public awareness of integrated social protection delivery system 1 CQ Prior

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Package number



Method


Post)

3.1.7 Development of methodical manuals and other training materials assuring the provision of integrated social protection delivery services, delivery and follow up support of distance-training system

CQ Prior

4. Training

Component 2. Supporting the Implementation of the New Employment Strategy by the Government

1

2. Goods

2.2.1 Procurement of IT equipment for the "State Employment Service" Agency and "Professional Orientation Methodical Center" POMC

1 SH Post

2.2.2 Modernization of "Gorts" information system of employment sector 1 NCB Post

2.2.3 Procurement of furniture for the "State Employment Service" Agency and "Professional Orientation Methodical Center" POMC

1 SH Post

2.2.4 Development and introduction of information system for assuring methodical assistance to professional orientation

1 SH Post

2.2.5 Drafting and introduction of online consultancy and distance-training programs implemented via the web page of "Professional Orientation Methodical Center" POMC

1 SH Post

2.2.6 Development and installation of software for testing of professional orientation 1 SH Post

3 Consulting Services

3.2.1 Preparing of films about professions and cartoon animations for the professional orientation of primary school-aged children and people with mental disabilities

1 CQ Prior

3.2.2 Fulfillment of public awareness activities on reforms and programs implemented in the sector of labor and employment

1 CQ Prior

4. Implementation of ALMPs multi

5. Training

5.2.1 Training and re-training of cadres of labor and employment sector multi SOE

Component 3. Modernization of Pension System

2. Goods

2.3.1 Procurement of computer and other technical means for SSSS 1 NCB Prior

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Package number



Method


Post)

2.3.2 Upgrading electronic pension information system software with interfaces with other databases 1 NCB Post

2.3.3 Development of the new risk-based control and supervision information system software 1 NCB Prior

3. Consulting Services

3.3.1 Designing and piloting SSSS's risk-based supervision and control (error and fraud) system. 1 CQ Prior

4. Training

4.3.1 Training in various pension reform issues

multi SOE

4.3.2 Training and certification of SSSS staff engaged in central social benefit payment processes multi SOE

4.3.3 Study tour on Social Enterprise Management software multi SOE

Component 4. Strengthening MLSI Analytical Capacity & Monitoring & Evaluation System

2. Goods

2.4.1 Procurement of computer equipment for MLSI 1 SH Post

2.4.2. Printing on information materials for MA (monitoring and assessment) system of social assistance and socials service sectors

multi SH Post

2.4.3 Development and introduction of internal portal for MLSI management system 1 NCB Prior

2.4.4 Development and introduction of electronic system of monitoring and evaluation of efficiency of social services

1 NCB Prior


3.4.1 Development and introduction of monitoring indicators and job-descriptions for assessing the efficiency of monitoring and evaluation of projects/social services provided to the population through the MLSI system

1 CQ Prior

3.4.2 Provision of methodological support for improvement of activities of supervisors in the system of integrated social services

1 CQ Post

3.4.3 Assessment of needs of the primary beneficiaries of programs piloted in the SP system, evaluation of their opinions about these programs, and preparation of recommendations on introduction of a system for collection of information required for monitoring and assessment

1 CQ Prior

53

Package number



Method


Post)

3.4.4 Assessment of the impact of integrated social services system on the poverty level of various groups of population

1 CQ Post

3.4.5 Surveys on project indicators 2 CQ Post

4. Training

4.4.1 Training and re-training of specialists of Social Assistance Sector and MA (monitoring and assessment) system

multi SOE

Component 5. Project Management

2. Goods

2.5.1 Procurement of technical equipment for PCU and PIU (FFPMC) 1 SH Post

2.5.2 Procurement of office furniture for PCU and PIU (FFPMC) 1 SH Post

2.5.3 Procurement of a car for PCU 1 SH Post


3.5.1 Project Audit 1 LCS Post

3.5.2 Project coordinator 1 SSS Prior

3.5.3 Specialist on social issues 1 SSS Prior

3.5.4 Specialist on project monitoring and evaluation 1 IC Prior

3.5.5 Environmental Specialist 1 IC Prior

3.5.6 ICT Specialist 1 IC Prior

3.5.7 Engineer 3 IC Prior

3.5.8 Translator 1 IC Post

3.5.9 Assistant to project coordinator 1 IC Post

3.5.10 Driver 1 IC Post

4. Training

54

Package number



Method


Post)

4.5.1 Training and seminar-discussions costs multi SOE

5. Operational Costs

5.5.1 Incremental operating costs SOE

Total

Unallocated funds

Grand total

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46°E 47°E

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ARMENIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 10 20 30 40

0 10 20 30 Miles

50 Kilometers

IBRD 33364

SEPTEMBER 2004

ARMENIASELECTED CITIES AND TOWNS

PROVINCE (MARZ) CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE (MARZ) BOUNDARIES

INTERNATIONAL BOUNDARIES