Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: 69275-PE

PROJECT PAPER

ON A

PROPOSED ADDITIONAL LOAN

IN THE AMOUNT OF US$20.00 MILLION

TO THE

REPUBLIC OF PERU

FOR A

SIERRA RURAL DEVELOPMENT PROJECT

February 27, 2013

Sustainable Development Department Bolivia, Chile, Ecuador, Peru and Venezuela Country Management Unit Latin America and the Caribbean 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 January 31, 2013)

Currency Unit = Nuevos Soles (S/.) S/. 2.55 = US$1

US$0.39 = S/. 1

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing CGR Controlaría General de la República (General Comptroller Office) CPS Country Partnership Strategy DA Designated Account EOP End of Project ESCMF Environmental, Social, and Cultural Management Framework FM Financial Management IBRD International Bank for Reconstruction and Development IFR Interim Financial Report IRR Internal Rate of Return ISR Implementation Status and Results Report M&E Monitoring and Evaluation MEF Ministry of Economy and Finance OGA Oficina General de Administración (General Administration Office) OCR Oficina de Coordinación Regional (Regional Coordination Office) PAD Project Appraisal Document PDO Project Development Objective SIAF Sistema Integrado de Administración Financiera (Integrated FM System) SIGER Sistema de Información Gerencial (Management Information System) SNIP Sistema Nacional de Inversión Pública (National Public Investment System)

Vice President: Hasan A. Tuluy Country Director: Susan G. Goldmark

Sector Director: Ede Jorge Ijjasz-Vasquez Sector Manager: Laurent Msellati

Task Team Leader: Renato Nardello

iii

PERU

ADDITIONAL FINANCING TO SIERRA RURAL DEVELOPMENT PROJECT

CONTENTS

Project Paper Data Sheet page iv

Project Paper

I. Introduction Page 1

II. Background and Rationale for Additional Financing Page 1

III. Proposed Changes Page 3

IV. Appraisal Summary Page 5

Annexes

1. Revised Results Framework and Monitoring Indicators Page 8

2. Operational Risk Assessment Framework Page 14

3. Revised FM and Disbursement Arrangements Page 17

4. Revised Procurement Thresholds Page 21

5. Revised Estimate of Project Costs Page 22

iv

PERU

ADDITIONAL FINANCING TO SIERRA RURAL DEVELOPMENT PROJECT

ADDITIONAL FINANCING DATA SHEET

Basic Information - Additional Financing (AF)

Country Director: Susan G. Goldmark Sector Manager: Laurent Msellati Team Leader: Renato Nardello Project ID: P127801 Expected Effectiveness Date: June 17, 2013 Lending Instrument: SIL Additional Financing Type: Scale-up

Sectors: General agriculture, fishing and forestry sector (60%); Sub-national government administration (20%); General public administration sector (20%) Themes: Rural non-farm income generation (60%); Administrative and civil service reform (10%); Decentralization (10%); Rural markets (20%) Environmental category: B-Partial Assessment Expected Closing Date: June 30, 2016 Joint IFC: Joint Level:

Basic Information - Original Project Project ID: P079165 Environmental category: B-Partial

Assessment Project Name: Sierra Rural Development Expected Closing Date: June 30, 2013 Lending Instrument: SIL Joint IFC:

Joint Level: AF Project Financing Data

[ X ] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: Variable Spread Loan payable in 8 years including 4 years of grace and level repayment linked to commitments with all conversion options except automatic rate fixing.

AF Financing Plan (US$m)

Source Total Amount (US$M) Total Project Cost: Cofinancing: Borrower:

Beneficiaries:

Total Bank Financing: IBRD IDA New Recommitted

32.80

5.60 7.20

20.00

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Client Information Recipient: Ministry of Economic and Finance Responsible Agency: AGRO RURAL, Ministry of Agriculture Contact Person: Janette Pacheco Santos, Executive Director Telephone No.: +51 1-631-3555 Email: jpacheco@minag.gob.pe

AF Estimated Disbursements (Bank FY/US$m) FY 13 14 15 16 Annual 1.00 7.00 8.00 4.00 Cumulative 1.00 8.00 16.00 20.00

Project Development Objective and Description Original project development objective: To improve the assets and economic conditions of rural families in selected areas of the Borrower’s Apurímac, Ayacucho, Huancavelica, Junín, Huánuco, and Pasco regions, and strengthen government capacity to implement an integrated Sierra development strategy. Revised project development objective: To improve the assets and economic conditions of rural families in selected areas of the Borrower’s Apurímac, Ayacucho, Huancavelica, Junín, Huánuco, and Pasco regions. Project description: The Project comprises the following components:

Component 1: Rural Businesses

(a) Design and implementation of a communication and dissemination strategy of information on Rural Business Plans amongst rural producers and stakeholders.

(b) Provision of financing and technical assistance to support the creation of viable Rural Business Plans proposals.

(c) Co-financing the carrying out of Rural Business Plans. Component 2: Territorial Development

(a) Promotion and dissemination of information on Territorial Development Plans amongst rural communities and stakeholders in selected areas of the Borrower’s territory with limited access to markets.

(b) Provision of financing and technical assistance to support the design and preparation of viable Territorial Development Plans proposals.

(c) Co-financing the carrying out of Territorial Development Plans.

Component 3: Project Management

Support AGRO RURAL in its day-to-day management of the Project, through: (i) the provision of technical advisory services; (ii) co-financing the carrying out of specific studies; (iii) supporting the coordination of the Project at subnational level; and (iv) supporting the operation and maintenance of an adequate monitoring and evaluation system (M&E) to track Project progress.

vi

Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

[ X ]Yes [ ] No [ X ]Yes [ ] No [ X ]Yes [ ] No [ X ]Yes [ ] No [ X ]Yes [ ] No [ X ]Yes [ ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No [ ]Yes [ X ] No

Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management?

[ ]Yes [ X ] No [ ]Yes [ ] No

Conditions and Legal Covenants: Financing Agreement

Reference Description of Condition/Covenant Date Due

Schedule 2, Section I.A.1

The Borrower, acting through its Ministry of Agriculture shall operate and maintain a unit within AGRO RURAL, responsible for the overall coordination and management of the Project

Throughout Project implementation.

Schedule 2, Section I.A.2

The Borrower, through its Ministry of Agriculture shall establish and maintain a Project Steering Committee (Consejo Directivo), to be responsible for providing policy oversight and guidance for Project implementation.

Establishment within ninety (90) days after the Effective Date, maintenance throughout Project implementation

Schedule 2, Section I.C

The Borrower, though AGRO RURAL, shall adopt and thereafter implement the Project in accordance with a (revised) Operations Manual acceptable to the Bank.

Adoption within 90 days after the Effective Date

Schedule 2, Section I.D

The Borrower, through AGRO RURAL, shall implement the Project in accordance with the ESCMF, and monitor, supervise and ensure that any territorial development and/or rural business plans (sub-projects) are carried out in accordance therewith (and proper plan-specific mitigation mechanisms/plans if needed).

Throughout Project implementation.

vii

Schedule 2, Section I.E

The Borrower, through AGRO RURAL, shall (i) select plans (sub-projects) in accordance with eligibility criteria and screening and selection procedures set forth in the Operations manual; and (ii) enter into plan agreements (i.e. sub-project agreements) with selected beneficiaries in accordance with the standard financial terms and conditions set forth in the Operations Manual.

Throughout Project implementation.

Schedule 2, Section II. B.1

The Borrower through AGRO RURAL shall install the financial information system (“SIGER”) in the Project coordination office.

Ninety (90) days after the Effective Date.

Schedule 2, Section II.B.4

The Borrower through AGRO RURAL shall select and engage the services of an independent auditor acceptable to the Bank, under a three (3) years contract, to be responsible for carrying out the annual audits of the Project’s accounts.

N/A (auditor to be maintained throughout Project implementation)

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I. Introduction

1. This Project Paper seeks the approval of the Executive Directors to provide an additional loan in an amount of US$20.00 million to the Peru Sierra Rural Development Project (P079165, Loan 7443-PE). The proposed additional loan would help finance the costs associated with scaling up activities of a well-performing project in order to enhance the impact. This Project Paper also seeks the approval of a restructuring consisting in minor changes to the Project Development Objective (PDO) and related changes to the Results Framework.

2. Overall, the Project will maintain the same design, approach, implementation arrangements, and regions of intervention as the original Project and no major changes are proposed for the scaled up activities. There are no new safeguard or fiduciary issues applicable to the additional financing (AF), which will use the same environmental and social management framework as the original Project, updated in 2011. Risks identified for the original Project activities continue to remain relevant. Some adjustments are proposed to the results framework of the original Project in order to revise and reorganize some indicators and to drop other indicators considered out of the span of control of the Project. The part of the original PDO concerning the implementation of an integrated Sierra development strategy will be dropped. 3. In terms of outcomes, the AF will support the preparation and implementation of more than 1,000 additional plans benefiting 31,600 additional families, compared to about 1,500 plans and 53,600 families under the original Project, bringing the cumulative totals to about 2,500 plans and more than 85,000 beneficiary families.

II. Background and Rationale for Additional Financing in the amount of $20.00 million

4. Country context. Despite Peru’s impressive results in poverty reduction in recent years, poverty rates remain high in rural areas and extremely high in rural highlands (Sierra). To overcome social gaps and boost productivity, the Government is implementing a “growth with social inclusion” plan that targets the poor and excluded. The Government also intends to reconnect with the rural poor “from the bottom up and from the inside out” by increasing competitiveness of local markets.

5. Consistency with Bank’s Strategy. The proposed AF is consistent with the current Bank’s Country Partnership Strategy (CPS) for the Republic of Peru for the period FY12-FY16 (Report n. 66187-PE), discussed by the Board of Executive Director on March 6, 2012. The proposed AF is specifically included in the CPS indicative lending program as an instrument for scaling up successful experiences in providing sustainable business opportunities for smallholder producers in rural areas, under the CPS objective of “Sustainable growth and productivity”. The proposed AF is expected to strengthen the impact of the Project on some of the poorest regions of the country and contribute to support the Government’s plan of “Growth with social inclusion”.

6. The Original Loan. The original loan, for an IBRD financing of US$20 million, was approved on April 24, 2007 and became effective on July 9, 2008. With a closing date of June 30, 2013 the Loan was fully disbursed as of February 27, 2013.

7. The original PDO was “to improve the assets and economic conditions of rural families in selected areas of the Borrower’s Apurímac, Ayacucho, Huancavelica, Junín, Huánuco, and Pasco regions, and strengthen government capacity to implement an integrated Sierra

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development strategy". This was to be achieved by financing small demand-driven plans proposed by producer groups (Rural business subprojects, Component 1) and communities (Community development subprojects, Component 2) as well as by supporting the government efforts to harmonize rural development interventions in the Sierra region (Sierra Coordination, Component 3). Subprojects were focused on 255 districts that had been affected by high levels of political violence1 during the civil conflicts of 1980s and 1990s.

8. Performance to date. Results recorded in the most recent Implementation Status and Results Reports (ISR) for the Project show that its impact has so far been consistent with the expectations set out in the Project Appraisal Document (PAD, Report n. 3733-PE): 24 percent increase in net family incomes, 20 percent increase in net value of production, and 93 percent increase in principal productive assets of beneficiary families.

9. The Project has been performing well overall and has consistently been rated Satisfactory for the last 12 months on progress towards achievement of the PDO and on Implementation Progress. Performance with respect to safeguards, procurement and financial management (FM) is adequate. Audits for 2010 and 2011 are unqualified and, overall, the Project is in compliance with its key loan covenants. Table 1 below presents the publicly disclosed performance ratings for the most recent ISRs.

Table 1: Most Recent disclosed ISR ratings for the Original Project

Ratings ISR #10

Jul 2011 #11

Jan 2012 #12

Aug 2012 #13

Nov 2012

Progress towards achievement of PDO S S S S

Overall Implementation Progress MS S S S

S= Satisfactory; MS=Moderately Satisfactory

10. Succinctly, the main achievements of the original Project by component are the following:

10.1. Under Component 1 the Project has financed to-date 620 demand-driven rural business investment subprojects. Results to-date show a 24 percent increase in net family incomes and 20 percent increase in net value of production, which are substantially in line with the expectations of 25 percent and 20 percent, respectively, set out in the PAD.

10.2. Under Component 2 the Project has financed to-date 875 demand-driven community development investment subprojects. Evidence from the mid-term evaluation shows a 93 percent increase in the principal productive assets of beneficiary families, which largely exceeds the target of 30% set out in the PAD.

10.3. Under Component 3, the Project has supported the establishment of a multi-sectoral Sierra development coordination unit within the prime minister office. However this activity, only financed by the Borrower, has not achieved the implementation of an integrated strategy for the Sierra region.

1 As defined by Peru’s Truth and Reconciliation Commission.

3

11. Rationale for an Additional Financing. The Borrower strongly supports the project approach and requested the proposed additional financing in order to scale up the Project and enhance its development impact in the current regions of intervention, while consolidating lessons from experience before replicating the approach to other rural areas of the country. An additional financing in Peru may have a shorter processing time than a completely new project and may allow continuity of project operations.

12. Alternatives considered. A larger, stand-alone operation extended to other regions of Peru was actually considered at identification stage. However, the Government and the Bank later agreed that an additional financing would be the best option to provide continuity to the current approach while defining the options for a possible larger follow-on operation.

III. Proposed Changes

13. Project Development Objective. Under the AF it is proposed to revise the original PDO by dropping the part related to “strengthen[ing] government capacity to implement an integrated Sierra development strategy”. This activity, to be originally achieved under Component 3, has seen little progress and will be pursued by the Government under other initiatives.

14. The AF maintains the original project structure. No major changes from the original Project are being proposed in terms of design, approach, implementation arrangements and regions of intervention for the scaled up activities. There are no new safeguard or fiduciary issues applicable to the additional financing. The environmental, social and cultural management framework, updated in 2011, would remain the same. Risks identified for the original Project continue to remain relevant. Minor adjustments are proposed to the results framework in order to: (i) take into account the revised PDO; (ii) revise some indicators based on the monitoring experience of the original Project; and (iii) drop some indicators considered to be out of the span of control of the Project (see Annex 1).

15. Improvements introduced. Based on the experience of the original Project, the AF will introduce the following changes to the approach or the operational arrangements:

15.1. Stronger focus on Rural Business Plans, in consideration of a) the strong demand for this type of initiative and b) the emergence of other initiatives oriented to support producer in extreme poor rural areas.

15.2. Clearer distinction between Rural Business Plans and Territorial Development Plans, by increasing the focus on poverty-reduction and natural resources management of the latter2;

15.3. Incentives for the selection of larger development plans, by increasing to 70 percent of the value of the investment3 the share of capital goods eligible for financing;

2 The change of definition from “Community” to “Territorial” intends to underline the increased emphasis on natural resources management. 3 In the Original Project, financing of goods was limited to US$4,200 per subproject, irrespective of its size. As a consequence, producers requested the smallest subproject that would allow maximizing this financing, which resulted in a portfolio of smaller subprojects than anticipated.

4

15.4. Additional support for about 15 percent of the most successful Rural Business initiatives financed under the original Project, for both technical assistance and co-financing (up to the complement of the new financial ceilings);

15.5. Simplified project procedures, by eliminating the requirement that every single subproject4 be approved by the National Public Investment System (SNIP);

15.6. Simplified organizational arrangements, with the project coordinating unit streamlined within AGRO RURAL, the implementing unit of the Ministry of Agriculture;

15.7. More active involvement of regional governments, through their participation in the decision making process and, on a voluntary basis, in co-financing the Rural Business and Territorial Development plans;

15.8. Strengthened Monitoring and Evaluation system, with the requirement that all plans shall include and measure quantifiable indicators.

16. Institutional arrangements. Under the AF, the Project will maintain the same institutional arrangements as the original Project. The Ministry of Agriculture will continue to implement the Project through AGRO RURAL, which will supervise the project operational team comprised of a core coordination unit and six regional offices. In order to simplify operational arrangements, the AF will promote increased mainstreaming of the operation within the Ministry of Agriculture: the core coordination team will be based in Lima rather than Ayacucho and will be mainstreamed within AGRO RURAL. It is expected that this change should improve the communication with both (i) the regional offices, due to the better connections between Lima and the provinces, and (ii) the Ministry of Agriculture and Agrorural itself, due to the location of the project core team in AGRO RURAL.

17. AF expected outcomes. The nature of activities financed and outputs expected from scaled-up project activities will be comparable to that of the original Project and are summarized in Table 2:

Table 2: Project outcome indicators Indicators Original targets Changes with AF Revised target

Components Projects Families Projects Families Projects Families C1: Rural business plans 620 18,600 6945 16,6106 1,314 35,200 C2: Community/Territorial development plans

875 35,000 375 15,000 1,250 50,000

Totals 1,495 53,600 1069 31,610 2,564 85,210

18. Under Component 1 (Rural Businesses), the proposed AF would support the preparation and implementation of 694 additional demand-driven plans (bringing the total number to 1,314), proposed by groups of small rural producers to build strategic productive alliances and increase market access and income, benefiting 16,600 additional families (for a total of 35,200). 4 Because of this change and to avoid confusion with the terminology used by SNIP, the “subprojects” of the original Project are now called “plans”. 5 Up to 20 percent (140) may be incremental financing to the most successful first-generation subprojects) 6 This figure and the overall total do not include about 4,000 producer families that may benefit from incremental financing.

5

19. Under Component 2 (Territorial Development), the proposed AF would support the preparation and implementation of 375 additional demand-driven Territorial Development Plans (bringing the total number to 1,250) proposed by communities and groups of families to increase their socioeconomic conditions through increased agricultural production and improved management of natural resources. Component 2 would benefit 15,000 additional families (for a total of 50,000).

20. Under Component 3 (Project management), the AF will support the operations (consulting and nonconsulting services, goods, and operational costs) required to implement the Project.

21. Project costs. Costs are comparable to the original Project’s and are presented in Table 3.

Table 3: Costs by component (US$ million, IBRD financing) Component Original cost Changes with AF Revised total cost 1: Rural businesses 10.2 13.3 23.5 59% 2: Territorial Development 9.4 5.8 15.2 38% 3: Project Coordination 0.4 0.9 1.3 3%

Total 20.0 20.0 40.0 100%

IV. Appraisal Summary

22. Technical. Technical aspects of the AF remain virtually unchanged from the original Project. The proposed Additional Financing builds on lessons from the implementation and the mid-term evaluation of the original Project. The following are some technical aspects worth mentioning under the proposed Additional Financing.

23. Targeting. Under the original Project, financing for subprojects in components 1 and 2 targeted districts that suffered high levels of violence during the civil conflicts of the 1980s and 1990s7. While this criterion was relevant when the original Project was designed, the mid-term evaluation observed that this created disparities among neighboring districts with similar socio-economic conditions but different track of past violence. Under the AF, it is proposed to add new districts, contiguous to the current ones, characterized by higher levels of poverty and extreme poverty for Component 1 and 2, respectively. This would bring the total number of districts to 395, as shown in Table 4 below.

Table 4: Number of targeted districts* Department* Original Project A.F. APURIMAC (80) 52 65 AYACUCHO (111) 77 88 HUANCAVELICA (94) 47 66 HUANUCO (76) 32 69 JUNIN (123) 39 87 PASCO (28) 8 20

TOTAL (512) 255 395 * The figures in bracket indicate the total number of districts in the departments.

7 As defined by the Peace Census conducted by the Truth and Reconciliation Commission.

6

24. Stronger rural business orientation. In consideration of a) the strong demand for this type of initiatives and b) the emergence of other initiative oriented to support producer in extreme poor rural areas (namely with the creation of the Ministry of Social Development and Inclusion), the AF will have a stronger focus on Rural Business than on Territorial Development plans. This will result in an almost 2:1 ratio between Rural Business and Territorial Development plans in the AF. The AF will also increase the distinction between Rural Business Plans and Territorial Development Plans by making sure that the latter are not used to support market-oriented activities and maintain their focus on poverty-reduction and natural resources management.

25. Safeguards. The AF is classified as “B” and will trigger the same six safeguard policies triggered by the original Project: Environmental Assessment (OP/BP/GP 4.01), Natural Habitats (OP/BP 4.04), Pest Management (OP 4.09), Physical Cultural Resources (OP 4.11), Forests (OP/BP 4.36) and Indigenous Peoples (OP 4.10). Under the original Project, environmental and social safeguard compliance and performance have been consistently considered satisfactory since mid-2011, after the Project hired an environmental specialist and a social specialist and prepared a new Social, Environmental and Cultural Framework (ESCMF, completed in April 2011) to support the implementation of social and environmental safeguards. For the purpose of the AF, the ESCMF has been disclosed in-country and on the Bank external website in October 2012. Since the beginning of the Project the Bank team has included a social specialist and an environmental specialist based in Lima that have participated in all supervision missions and engaged with the client in the support and monitoring of safeguard compliance.

26. Financial management. Financial management (FM) arrangements for the AF are expected to rely widely on the arrangements in place for the original Project, modified with two major simplifications: (i) dropping the requirement that every single plan be screened by the National Public Investment System (SNIP), and (ii) mainstreaming the project team within AGRO RURAL. These changes are expected to contribute to improve efficiency in project implementation, even though adequate and timely coordination between AGRO RURAL and the six Regional Coordinating Offices (OCRs) will remain a challenge for project implementation. Overall responsibility for FM tasks will be under AGRO RURAL’s General Administrative Office (OGA), with specific tasks assigned to the six OCRs. Detailed FM arrangements are provided in Annex 3.

27. Procurement. Procurement for the proposed Project would be carried out in accordance with: (i) the "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 2011; (ii) the "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011, and (iii) the provisions of the Loan Agreement. Based on the overall satisfactory procurement performance under the original Project, the thresholds for procurement methods and prior review have been revised and are presented in Annex 4.

28. Economic and financial analysis. The economic and financial analysis carried out at appraisal of the original Project remains valid. However, in preparing the AF the Bank team also

7

carried out an economic and financial analysis based on the actual results of plans implemented under the original Project for the period 2008-20118.

29. The overall project financial Internal Rate of Return (IRR) is an estimated 44 percent whereas the estimated economic IRR is 72 percent. Project financial and economic Net Present Value are estimated to be US$144.4 million and 246.6 million respectively for a total of US$27.8 million of overall project investment–of which US$21.6 million is direct investment in plans. Sensitivity analysis shows that these results are robust, as the switching values, for a financial IRR of 12 percent, are attained for an average decrease of 24 percent in benefits, or for average increases of 160 percent in operational cost or of 225 percent in labor costs.

30. Closing date. The closing date of the Original Loan is June 30, 2013 and it will not be extended with this Project Paper. The closing date of the AF will be June 30, 2016.

31. Policy exceptions. There are no exceptions to Bank policies.

8 The full Economic Analysis is available in the project files.

8

Annex 1: Results Framework and Monitoring

PERU: Additional Financing to Sierra Rural Development Project Results Framework

Revisions to the Results Framework Comments/ Rationale for Change

PDO

Current (PAD9) Proposed Improving the assets and economic conditions of rural families in selected areas of the Borrower’s Apurímac, Ayacucho, Huancavelica, Junín, Huánuco, and Pasco regions, and strengthen government capacity to implement an integrated Sierra development strategy.

Improving the assets and economic conditions of rural families in selected areas of the Borrower’s Apurímac, Ayacucho, Huancavelica, Junín, Huánuco, and Pasco regions.

Dropped the Sierra development strategy, which was included in component three, considered too ambitious for the resources allocated and for the nature of the Project.

PDO indicators [# = core indicator]

Current (PAD) Proposed change* At the end of the Project (EOP), the net value of production of participating rural families increased by 20 percent

REVISED At EOP, the volume of sales of participating rural families benefiting from rural business plans increased by at least 20 percent;

Changed from net value of production to volume of sales, to improve the focus on marketing, eliminate the influence of price variations, and to limit this indicator to rural businesses

At EOP, value of the principal productive assets (such as land under cultivation, pastures, water, animals, etc.) of 75 percent of the beneficiaries increased by 30 percent

REVISED At EOP, value of the principal productive assets (capital goods, livestock, equipment, tools, etc.) of 75 percent of the beneficiaries of Territorial development plans increased by at least 30 percent

Changed the definition of assets to make it realistic and measurable, and to specify that this is limited to community development plans

NEW At EOP, at least 80 percent of plans (for both rural business and community development) have an index value of objective achievement over 70 percent

To upgrade a similar indicator originally placed under Component 1 and to apply it to both types of plans

At EOP, the Sierra’s economic production as a share of national GDP has increased; and

DROPPED This result is beyond the control of the Project.

At EOP, the national government’s development investments in the Sierra have increased by 30 percent

DROPPED This result is beyond the control of the Project.

Intermediate Results indicators

Current (PAD) Proposed change* Component 1: Rural Businesses

At EOP, at least 75 percent of the rural business subprojects are achieving their objectives;

MOVED to PDO level Upgraded to PDO indicator

9 Change is with respect to the PDO of the original Loan Agreement.

9

Revisions to the Results Framework Comments/ Rationale for Change

NEW At least 75 percent of rural business plans completed are operational two years after their completion date

Proxy for sustainability of project results (will mostly apply to subprojects from the original Project).

At EOP, at least 620 business plans have been implemented and are operational;

REVISED/CHANGE OF TARGET V.

At EOP, at least 1,174 business plans (620 under the original Project and 554 under the AF) have been implemented and are operational; of which:

• at least 20 percent of plans led by women’s organizations (or groups formed in majority by women) and

• at least another 20 percent by youth groups(or groups formed in majority by under-30s)

Changed only to reflect scaled-up activities and to include a gender dimension, similarly to what was already included under the Territorial Development plans

NEW

At EOP, 140 successful rural business initiatives supported under the original Project have received additional support.

Introduced to monitor support to first-generation Rural Businesses.

At EOP, at least 18,600 families have benefited from the rural business subprojects; and

CHANGE OF TARGET VALUE

At EOP, at least 35,200 families (18,600 from the original Project and 16,600 from AF) have benefited from rural business plans;

Changed only to reflect scaled-up activities and specify type of plan

At EOP, the beneficiaries of the rural businesses have increased their profits by 25 percent

DROPPED

Covered by PDO indicators already by proxy

NEW At least 60 percent of plans accomplish their disbursements and investment according to the timeline established in their management plan

The Project needs to improve its disbursement execution in order to achieve the AF outcomes in a timely manner.

Component 2; Territorial Development At EOP, at least 80 percent of the community development subprojects are achieving their objectives;

MOVED to PDO level Upgrade to PDO indicator

At EOP, at least 875 community development subprojects are implemented with at least 20 percent of subprojects led by women’s organizations and another 10 percent by youth groups; and

REVISED/CHANGE OF VALUE At EOP, at least 1,250 territorial development plans [875 from the original Project and 375 from AF]. Of these:

• at least 20 percent are led by women’s (at least one woman in Steering Committee); and

• at least 10 percent are led by youth groups (at least one woman or man under 30 years old in their Steering

Changed to reflect scaled-up activities and rephrased to clarify subsets (in CD plans, we should only expect women and young people to be included in steering committees because these plans suppose the involvement of the entire community).

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Revisions to the Results Framework Comments/ Rationale for Change

Committees). At EOP, at least 35,000 families (mostly indigenous subsistence farmers) have benefited.

CHANGE OF TARGET VALUE At EOP, at least 50,000 families [35,000 from the original Project and 15,000 from AF] have benefited from community development plans.

Changed to reflect scaled-up activities, specify type of plan, and simplified

NEW At least 60 percent of plans accomplish their disbursements and investment according to the timeline established in their management plan

The Project needs to improve its disbursement execution in order to achieve the AF outcomes in a timely manner.

Component 3: Project Coordination By the end of year 1, The Sierra development Unit within PCM is established and functioning

DROPPED Dropped because this part of the PDO is dropped (achieved under the original Project)

By the end of year 1, the Government’s rural development strategy for the Peruvian Sierra has been updated

DROPPED Dropped because this part of the PDO is dropped

By the end of year 2, sectoral committees have been established to coordinate sector investments in the Sierra

DROPPED Dropped because this part of the PDO is dropped

By the end of year 2, an integrated Sierra Development program has been approved by GOP

DROPPED Dropped because this part of the PDO is dropped

Within six months of effectiveness, all project personnel have been contracted through independent technical evaluations

DROPPED This is a legal covenant, personnel in place at all time

Performance of personnel is externally evaluated periodically

DROPPED This is a legal covenant

By the end of year 1, information management system is established and operational

DROPPED Covered under separate M&E indicator

By the end of year 1, financial management system is established and operational

DROPPED This is a legal covenant: Financial management system is established and operational at all time

By the end of year 1, monitoring and evaluation system is established and operational

DROPPED This is a legal covenant: M&E system is established and operational at all time

By the end of the Project, M&E and MIS systems have been producing useful reports for MARENASS and MINAG management

DROPPED Implicit in the definition of M&E system.

* Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value

11

REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO):

Improving the assets and economic conditions of rural families in selected areas of the Borrower’s Apurímac, Ayacucho, Huancavelica, Junín, Huánuco, and Pasco regions.

PDO Level Results Indicators10

Cor

e UOM11

Baseline Original Project Start

(2008)

Progress To Date (2013)12

Cumulative Target Values13

Frequency Data Source/ Methodology

Responsibility for Data

Collection Comments 2013

(6m) 2014 2015 2016

(6m)

1. At EOP, the volume of sales of participating rural families benefiting from rural business plans increased by at least 20 percent;

% 0 n.a. 20 20 20 20 Annual SIGER Project Revised Indicator Average per year

2. At EOP, value of the principal productive assets (capital goods, equipment, tools, etc.) of 75 percent of the beneficiaries of community development plans increased by at least 30 percent

% 0 n.a. 30 30 30 30 Annual SIGER Project Revised Indicator Average per year

At EOP, at least 80 percent of plans (both rural business and community development) have an index value of objective achievement over 70 percent

% 0 n.a. 80 80 80 80 Annual SIGER Project New indicator Average per year

Beneficiaries14

Project beneficiaries, Number 0 53,600 53,600 71,050 85,200 85,200 Bi-annual SIGER Project

Of which female (beneficiaries) Number 0 20,400 24,100 27,000 34,000 34,000 Bi-annual SIGER Project

10 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance – please see http://coreindicators). 11 UOM = Unit of Measurement. 12 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 13 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the “Comments” column. 14 All projects are encouraged to identify and measure the number of project beneficiaries. The adoption and reporting on this indicator is required for investment projects which have an approval date of July 1, 2009 or later (for additional guidance – please see http://coreindicators).

12

Intermediate Results and Indicators

Intermediate Results Indicators

Cor

e

Unit of Measurement

Baseline Original Project Start

(2008)

Progress To Date (2013)

Target Values

Frequency Data Source/ Methodology

Responsibility for Data

Collection Comments 2013

(6m) 2014 2015 2016

(6m)

Intermediate Result 1: Rural Businesses

1. At least 70 percent of rural business plans completed are operational two years after their completion date

% 0 n.a. 70 70 70 70 quarterly SIGER Project New indicator Average per year

2. At EOP, at least 1,174 new business plans [620 under the original Project and 554 under the AF] have been implemented and are operational

Number 0 620 620 895 1174 1,174 quarterly SIGER Project

3. At EOP, 140 successful rural business initiatives supported under the original Project have received additional support

Number 0 0 0 70 140 140 quarterly SIGER Project New indicator

4. At EOP, at least 32,500 families [18,600 from the original Project and 16,600 from AF] have benefited from rural business plans

Number 0 18,600 18,600 26,850 35,200 35,200 quarterly SIGER Project

5. At EOP, beneficiaries of the rural businesses have increased their profits by 25 percent

% 0 24 25 25 25 25 quarterly SIGER Project Average per year

6. At least 60 percent of Rural Business plans accomplish their disbursements and investment according to the timeline established in their management plan

% n.a 0 60 60 60 60 quarterly SIGER Project Average per year

13

Intermediate Result 2: Territorial Development

1. At EOP, at least 1,250 territorial development plans have been implemented [875 from the original Project and 375 from AF]. Of these:

• at least 20 percent are led by women’s organizations; and

• at least 10 percent are led by youth groups.

Number 0 875 875 1065 1250 1250 quarterly SIGER Project

2. At EOP, at least 50,000 families [35,000 from the original Project and 15,000 from AF] have benefited from territorial development plans

Number 0 35,000 35,000 42,600 50,000 50,000 quarterly SIGER Project

3. At least 60 percent of Territorial Development plans accomplish their disbursements and investment according to the timeline established in their management plan

% n.a 0 60 60 60 60 quarterly SIGER Project Average per year

14

Annex 2: Operational Risk Assessment Framework (ORAF)

PERU: Additional Financing to Sierra Rural Development Project (P127801)

Stage: Board

Project Stakeholder Risk Rating Low

Description: Risk Management: While support for the project is strong, the team will monitor social conflicts in other areas and sectors that could influence the project’s areas.

Borrower/Government Relations - GOP's and Bank interests, objectives, and motivation for undertaking operation are in sync. The AF strengthens the support for the social inclusion agenda and focuses on some of the poorest municipalities of the country. Direct/Indirect Beneficiaries views - Ninety percent of the communities and producers associations involved with the Project have expressed a very favorable opinion of it and are requesting to have additional support. Regional and Local Governments have asked to significantly expand the coverage of the Project and to receive institutional capacity support on themes such as development planning, and local economic development.

Resp: Stage: Due Date: Status:

Implementing Agency Risks (including fiduciary)

Capacity Rating Substantial

Description: MINAG and AGRO RURAL have developed important expertise and have put in place adequate arrangements to support project implementation. While the mainstreaming of project team within AGRO RURAL’s structure is aimed at further simplifying existing arrangements, lack of expertise of OGA’s staff with Bank policies and procedures may cause delays in implementation, Limitations on salary levels within AGRO RURAL may prevent it from attracting and maintaining qualified staff to strengthen OGA.

Risk Management: OGA’s structure will be strengthened with the contracting of an administrative specialist, an administrative assistant, and an accountant assistant. Existing processes and procedures will be fine-tuned to reflect new organizational arrangements. Project implementation will benefit from the implementation of the project information system (SIGER) which aims at standardizing and streamlining processes and procedures. OGA’s staff will be trained in Bank policies and procures, as well as project operations requirements, including mechanisms for the coordination with OCRs.

Resp: Stage: Due Date: Status:

Governance Rating Moderate

Description: Risk Management: Mainstreaming Project implementation through AGRO RURAL will improve the Government oversight of the operation.

Ownership and Commitment: MINAG is committed to the results of the Project, whose objectives are aligned with sectoral strategies, i.e. increasing on and off-farm rural incomes, social inclusion and strengthening of subnational governments. Accountability and oversight: MINAG, through AGRO RURAL, has a clear system of accountability with clearly defined roles and responsibilities including oversight functions.

Resp: Stage: Due Date: Status:

Project Risks

Design Rating Moderate

Description: Scope/Coverage: Project design requires decentralized funds flow arrangements and comprise a large number of plans for relatively small amounts to be implemented by low-capacity beneficiaries. Technical Complexity/Innovation:

Risk Management: The proposed AF is based on the successful experience of the Parent Project. The AF will maintain the same six regions of intervention as the original Project and should allow for continuity of the current team: both factors should avoid delays linked to the learning curve of new offices and staff. The elimination of the SNIP requirement is a major simplification that should further improve efficiency.

Resp: Stage: Due Date: Status:

15

The implementation model is decentralized at the regional level with, for each region, a regional implementation unit with a coordinator, technical staff (community development, rural business), administration, monitoring and evaluation specialists, etc.

Social and Environmental Rating Moderate

Description: Risk Management: The Project has adopted an Environmental, Social and Cultural Management Framework (ESCMF), disclosed in-country and on the Bank external website in October 2012. While the project has not been impacted by increasing social conflicts in Peru, the team will monitor social conflicts in other areas and sectors that could influence the project’s activities.

Environmental: Implementation of the Project has shown adequate adherence to environmental safeguard policies, and an appropriate level resource allocation, for the prevention or mitigation of any negative impacts on physical, biological and cultural resources. The Project is expected to have positive environmental impacts through financing plans that promote sustainable natural resources management, watershed protection, and soil conservation. As a result of plan activities, the Project is expected to (i) conserve soil, (ii) maintain or improve hydrological functions, and (iii) help conserve high mountain ecosystems and their biodiversity. Social: Implementation of the Project has shown adequate adherence to social safeguard policies. The main social issues are the inclusion of local cultural indigenous norms into project implementation and the inclusion of women and youth in the identification of their needs, constraints and choices. The AF, similarly to the Parent Project, would not involve involuntary resettlement, land acquisition, and/or restrictions of access to natural resources. The proposed Project would use the existing ESCMF strategy to identify and mitigate adverse social and environmental issues and impacts. Consultations with project beneficiaries will be renewed during AF preparation and their views will be incorporated in the design. Other: The AF, similarly to the Parent Project, would not involve international waterways (riparian issues, seaways, and so forth) or disputed areas. Consultation with direct stakeholders including project-affected women, youth and men and local NGOs. Climate and natural hazard sensitivity: Because the proposed Project would finance on and off-farm productive activities, vulnerability to climate variability, extremes, and change and/or natural disasters could affect project implementation.

Resp: Stage: Due Date: Status:

Program and Donor Rating Moderate

Description: Risk Management: The project team will work in close collaboration with other projects active in the Project’s area of intervention.

Program/project/activities Dependencies: - the Project is a stand-alone operation and does not depend on either the success or timing of other projects and/or activities. It is expected that regional governments should be willing to cofinance plans.

Resp: Stage: Due Date: Status:

16

Delivery Monitoring and Sustainability Rating Moderate

Description: Risk Management: Effective operation of the M&E system is a dated covenant and will be closely monitored. It is expected that the AF should be able to pilot, monitor and evaluate the participation of regional governments in supporting demand-driven activities. Funding for impact evaluation is included in the project financing.

Monitoring and Evaluation: A management information system (SIGER) is already established under the Parent project, which allows for effective monitoring of plan schedules, cost, quality, and timing of agreed-upon implementation milestones both at the regional and program level. Sustainability: a key aspect of sustainability is the appropriation of the competitive funds by regional governments into their economic development institutional arrangements. Additionally, strengthened regional government capacity to support their local government institutional capacity efforts in the medium to long-term will also be key to sustainable institutional capacity in the future.

Resp: Stage: Due Date: Status: Resp: Stage: Due Date: Status:

Overall Implementation Risk Rating Rating Moderate

17

ANNEX 3: Financial Management and Disbursement Arrangements

PERU - Additional Financing to Sierra Rural Development Project

1. Overall, project implementation will benefit largely from the arrangements put in place by AGRO RURAL for the Original Project, mainly as it relates to processes, procedures, and tools. Those arrangements have been further simplified by eliminating the SNIP requirement for individual plans and mainstreaming the project team within AGRO RURAL. While those changes are expected to contribute to improve efficiency in project implementation, adequate and timely coordination between AGRO RURAL central office and the six Regional Coordinating Offices (OCRs)15 remains a key challenge for project implementation. Under these arrangements, overall responsibility for financial management (FM) tasks will be under AGRO RURAL’s General Administrative Office (OGA), with specific tasks assigned to OCRs. Beyond the above mentioned adjustments, existing arrangements have been recently strengthened through: the implementation of a management information system, improved accounting policies and procedures to account for plan transactions, and preparation of financial reports as well as clarification of roles and responsibilities for all parties involved in project implementation, and streamlined and standardized processes and procedures. 2. FM performance for the existing Project is acceptable. However, following the decision to fully integrate project team within AGRO RURAL’s structure, a measure aimed at further simplifying processes and procedures, AGRO RURAL needs to complete the following arrangements: (i) recruitment of additional qualified staff, with terms of reference acceptable to the Bank, to strengthen the OGA with the following positions: administrative specialist, accounting assistant and administrative assistant; (ii) adjustment to the SIGER for its operation under the OGA; and (iii) adjustments to the operational manual to reflect the new organizational arrangements, 3. Considering the measures taken by AGRO RURAL to strengthen the financial management arrangements, including those aiming at further simplifying operational arrangements, and subject to the completion of the measures agreed above, the proposed arrangements are acceptable to the Bank. The following sections describe project FM risk profile, key arrangements, and areas to be strengthened. 4. Project FM risk profile. The FM risk is considered Substantial (S) for the following reasons: (i) project design requires decentralized funds flow arrangements for the largest components, which comprises a large number of plans with relatively small amounts to be implemented by low-capacity beneficiaries; (ii) AGRO RURAL’s Administrative Office (OGA) still needs to get familiar with Bank policies and procedures, and develop expertise in project specific requirements as it relates to the implementation of plans and interaction with OCRs; (iii) potential delays in the General Comptroller Office (Controlaría General de la Republica - CGR) for the appointment of external auditors; (iv) constraints and limitation to hire and maintain qualified and experienced fiduciary staff both within OGA and in the area of intervention; and

15 See Organization and Staffing section for an explanation of the roles of these two units.

18

(iv) effective implementation of revised FM arrangements depends on the availability of qualified staff, including continuity of the current staff and continuous technical assistance. 5. Organization and staffing. With the decision of mainstreaming the project team within AGRO RURAL’s existing structure, FM tasks will be fully assigned to AGRO RURAL’s General Administrative Office (OGA), in direct coordination with OCRs. The OGAs is a well-established unit and it comprises more than seventy staff organized in the following areas: Accounting, Treasury, Logistic, and Human Resources. Key financial management functions assigned to OGA include : (i) requesting and recording the budget for the overall project, (ii) managing the Designated Account and the local currency account that receives transfers from it, and (iii) recording accounting transactions in the national integrated FM system (SIAF), (iv) processing, recording, controlling, and monitoring implementation and disbursements under plans through the use of SIGER, in coordination with OCRs, (v) preparing and submitting project financial reports and (vi) coordinating audit reviews. While most of these tasks will be undertaken by existing staff, it has been agreed that OGA will be strengthened with an administrative specialist (Asistente de Coordinación), an accounting assistant, and an administrative assistant, who will be incorporated into the existing structure. These staff shall be recruited no later than three months after effectiveness of the AF. All staff assigned to support project implementation will be trained on project operational requirements and tools, and Bank’s policies and procedures. 6. Programming and Budgeting. Overall, budget preparation, formulation, and execution in Peru follow an orderly and well-structured process, which will be adhered to by the Project. Under the AF, individual plans will not be required to go through the National Public Investment System’s approval. While this is a major simplification, timely budget approval and availability still need to be monitored to guarantee timely disbursements to plans. 7. Accounting. Overall, project transactions (IBRD loan and ordinary resources) are processed and accounted for in the national accounting through the Government’s Integrated FM system (Sistema Integrado de Administración Financiera - SIAF). AGRO RURAL will have the responsibility for recording transactions in SIAF. The use of SIAF is complemented with the use of the recently implemented tailor made management information system SIGER (Sistema de Información Gerencial). Accounting policies and procedures for the recording of transactions have also been reviewed and reflected in the Operational Manual. 8. Management Information System. Implementation of the AF will benefit from the significant progress made in the implementation of SIGER. The system is designed to permit the recording, processing and control of plans throughout their plan cycle, covering both technical and financial aspects. The SIGER system has allowed the standardization of most of the internal procedures, formats and documents as well as the issuance of some monitoring reports including the IFRs (see specific paragraph) and the plan monitoring reports. Minor adjustments to SIGER might be needed to make sure key profiles are assigned to AGRO RURAL’s staff and key processes are fully aligned to operate under AGRO RURAL’s structure to support project implementation. The required adjustments to SIGER shall be ready no later than three months after effectiveness of the AF.

19

9. Processes and Procedures. Based on lessons learned, processes and procedures (including internal controls) have been recently reviewed, mainly in relation to the implementation of plans. This review resulted in a clarification of roles and responsibilities among AGRO RURAL, former Central Coordination Office (a.k.a. ALIADOS), Regional Offices (OCRs), and Producer Groups, and also between technical and administrative-finance teams. Considering the proposal of fully integrating project team within AGRO RURAL’s existing structure, there is need to slightly review those streamlined processes and procedures to make sure they are adequately assigned to AGRO RURAL’s staff. Those minor adjustments are actually expected to permit further simplification, particularly of procedures for transfers to plans. AGRO RURAL will finalize the Operational Manual reflecting adjustments within 90 days from effectiveness. With these minor adjustments in place, processes and procedures will provide for an adequate segregation of duties that, together with the implementation of the information system SIGER and the subsequent automation of some key controls, would contribute to enhanced efficiency and simplified administrative requirements. In order to complement the operation of those procedures, there is a need to strengthen the monitoring and oversight function of AGRO RURAL over the OCRs. Nonetheless, effective operation of those arrangements will still require close monitoring. 10. Financial reporting. While content and format of Interim Financial Reports (IFRs) is expected to be the same as the current Project, preparation of financial reports is an area that needs to be significantly strengthened. The IFRs will be issued automatically by the financial information system SIGER; however, some of the information is manually uploaded. Therefore, financial reports issued from the system needs to be revised and reconciled to ensure consistency. IFRs will be prepared and submitted to the Bank on a semester basis within the 45 days following the end of each calendar semester. IFRs will include: (i) sources and uses of funds; (ii) uses of funds by project component; and (iii) a statement of plan showing amounts disbursed, documented and outstanding balances. 11. Audit arrangements. Similarly to the original Project, annual audit reports on project financial statements will continue to be submitted to the Bank within six months of the end of the Borrower's fiscal year (December 31). The audit will cover the project's financial statements, including all sources of financing, and SOE Statement. It will be performed by independent auditors appointed by the General Comptroller’s Office (CGR), acceptable to the Bank. The audit will be carried out in accordance with terms of reference approved by the Bank and would be financed out of loan proceeds. In order to avoid delays in the appointment of the external auditors, it is required that auditors are appointed for at least three audit periods, subject to acceptable performance.

Audit type Due date Project financial statements Management Letter

June 30

Special Opinion SOE June 30

20

Funds Flow and Disbursement Arrangements

12. Disbursement categories. While disbursement categories of the AF would be substantially the same as the ones used for the original loan; the source of financing will be assigned to each plan to clearly identify the plans financed out of each loan. 13. Disbursement Methods. The following disbursement methods may be used to withdraw funds from the loan: (a) reimbursement, (b) advance, and (c) direct payments. In keeping with arrangements for the original Project, a new Designated Account (DA) for the AF will be opened at Banco de la Nación in US dollars, which will also operate with a Cuenta de Monetización in Soles managed by AGRO RURAL, from which all payments will be processed in accordance with the procedures established in the Operational Manual. AGRO RURAL needs to get familiar with Bank’s disbursement policies and procedures and the Bank will provide necessary training to the OGA’s staff in Bank disbursement procedures 14. The ceiling for advances to be made into the DA would be US$ 2,000,000. The minimum value of applications for direct payment and reimbursement as well as thresholds for providing supporting documentation for project expenditures under advances and reimbursement methods would remain the same and be reflected in the Disbursement Letter. 15. Payments to beneficiary groups, based on the same model of plan agreement between AGRO RURAL and each beneficiary group used under the original Project, will be mainly made on a lump-sum basis based on cost estimates and defined outcomes or delivery of an end product. Transfers from monetization account to plans will be made in up to two installments based on programed tranches and physical progress. All disbursement mechanisms, including those related to the provision of counterpart funding and transfers to the group’s bank accounts, will be similar to the ones currently followed under the original Project and will be reflected in the updated Operational Manual. 16. The general flow of funds for the Project is diagrammed below.

Loan Account, WB

Designated Account (Banco de la Nación) AGRO RURAL

Cuenta de Monetización AGRO RURAL

Direct payments

Suppliers, contractors, and

consultants

Beneficiary Groups’

Bank accounts

21

ANNEX 4: Changes in Procurement Arrangements

PERU - Additional Financing to Sierra Rural Development Project

1. General. Procurement for the proposed AF would be carried out in accordance with: (i) "Guidelines: Procurement under IBRD Loans and IDA Credits" dated January 2011; (ii) "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011; and (iii) the provisions stipulated in the Loan Agreement.

2. Procurement Plan. The Project’s Procurement Plan dated January 30, 2013 was approved before negotiations. Changes to the Procurement Plan will be managed and approved through the Bank’s publicly accessible Procurement Plans Execution System (SEPA).

3. Thresholds for Procurement Methods and Prior Review:

Expenditure Category Contract Value Threshold (US$ 000)

Procurement Method Contracts subject to Prior Review

Works

>3000 ICB All

250-3000 NCB First

<250 Shopping First Regardless of value Direct Contracting All

Goods

>250 ICB All

50-250 NCB First

<50 Shopping First

Regardless of value Direct Contracting All

Non-Consulting Services

>250 ICB All

50-250 NCB First

<50 Shopping First

Regardless of value Direct Contracting All

Consulting Services: Firms

>=100 QCBS, QBS, FBS, LCS >=200

<100 QCBS, QBS, FBS, LCS, CQS

<200 TORs only

Regardless of value SSS All

Consulting Services: Individuals

3CVs >=100 <100 TORs only

SSS All

ICB = International Competitive Bidding NCB = National Competitive Bidding DC = Direct Contracting QCBS = Quality- and Cost-Based Selection QBS = Quality-Based Selection

FBS = Fixed Budget Selection LCS = Least-Cost Selection CQS = Selection Based on Consultants' Qualifications SSS: Single Source Selection

22

ANNEX 5: Revised Estimate of Project Costs

PERU - Additional Financing to Sierra Rural Development Project

Table A5.1: Project Cost by Financier

Components IBRD Government Beneficiaries Total Cost

US$ % US$ % US$ % US$ %

1. Rural Business 13,350,000 66.8 0 5,800,000 81.2 19,150,000 58.9

1.1 Information and dissemination 453,000 2.3 0 0 450,000 1.4

1.2 Pre-investment activities 612,000 3.1 0 150,000 2.1 760,000 2.3

1.3 Rural Business Plans 12,285,000 61.4 0 5,650,000 79.1 17,940,000 55.2

2. Territorial Development 5,735,000 28.7 0 1,335,000 18.7 7,070,000 21.8

2.1 Information and dissemination 107,000 0.5 0 0 110,000 0.3

2.2 Pre-investment activities 285,000 1.4 0 0 290,000 0.9

2.3 Territorial Dev. Plans 5,343,000 26.7 0 1,336,000 18.7 6,680,000 20.6

3. Project Management 915,000 4.6 5,360,000 100.0 0 0.0 6,280,000 19.3

3.1 Project Management 0 0.0 5,360,000 100.0 0 5360000 16.5

3.2 Studies 665,000 3.3 0 0 670,000 2.1

3.3 Local coordination and M&E 250,000 1.3 0 0 250,000 0.8

TOTAL 20,000,000 100.0 5,360,000 100.0 7,140,000 100.0 32,505,000 100.0

Table A5.2: Financing Shares by Financier

Components IBRD Government Beneficiaries

1. Rural Business 70% 0% 30%

1.1 Information and dissemination 100% 0% 0%

1.2 Pre-investment activities 80% 0% 20%

1.3 Rural Business Plans 70% 0% 30%

2. Territorial Development 81% 0% 19%

2.1 Information and dissemination 100% 0% 0%

2.2 Pre-investment activities 100% 0% 0%

2.3 Territorial Dev. Plans 80% 0% 20%

3. Project Management 15% 85% 0%

3.1 Project Management 0% 100% 0%

3.2 Studies 100% 0% 0%

3.3 Local coordination and M&E 100% 0% 0%

TOTAL 62% 17% 22%