World Bank Document · Document of The World Bank Report No: 18341bEGT PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT ... UK-DFID United Kingdom-Department For International Development

Document of

The World Bank

Report No: 18341bEGT

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 18.6 MILLION

TO THE

ARAB REPUBLIC OF EGYPT

FOR THE

SOHAG RURA:L DEVELOPMENT PROJECT

July 31, 1998

Rural Development, Water and Environment GroupEgypt Country DepartmentMiddle East and North Africa Region

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CURRENCY EQUIVALENTS(As of May 30, 1998)

Currency Unit = Egyptian PoundLE 1.0 = US$0.3US$1.0 = LE 3.39

FISCAL YEARJuly I - June 30

WEIGHTS AND MEASURES

1 feddan (fd) 1.038 acres (ac)1 feddan (fd) = 0.420 hectares (ha)1 hectare (ha) = 2.380 feddans (fd)

ABBREVIATIONS AND ACRONYMS

BDAC Bank for Development and Agricultural CreditCAA Central Auditing AuthorityCAS Country Assistance StrategyCDA Community Development AssociationEMP Environmental Management PlanEMU Environmental Management UnitERR Economic Rate of ReturnFDF Family Development FundGDP Gross Domestic ProductGOE Government of EgyptGOS Govermorate of SohagICB Intemational Competitive BiddingIFAD International Fund for Agricultural DevelopmentLAU Local Administrative UnitLDF Local Development FundLDP-Il Local Development Project-IIMALR Ministry of Agriculture and Land ReclamationM&E Monitoring and EvaluationMIS Management Information SystemMOLA Ministry of Local AdministrationMRD Ministry of Rural DevelopmentNCB National Competitive BiddingNGO Non-Governmental OrganizationND3 National Investment BankNPV Net Present ValueO&M Operation and MaintenanceORDEV Organization for the Reconstruction and Development of the Egyptian VillagePBDAC Principal Bank for Development and Agricultural CreditPRA Participatory Rural AssessmentSFD Social Fund for DevelopmentSHROUK National Program for Integrated Rural DevelopmentSIF Special Innovation FundSOE Statements of ExpendituresSTAT SHROUK Technical Assistance TeamTAS Technical Assistance SecretariatUK-DFID United Kingdom-Department For International DevelopmentUNDP United Nations Development ProgramUSAID United States Agency for International DevelopmentVPC Village Popular CouncilVPDP Village Priority Development PlanVRDC Village Rural Development CommitteeWUA Water Users Associations

Vice President: Kemal DervisCountry Director: Khalid IkramActing Sector Director: Salah DarghouthTask Team Leader: Jean-Francois Barrns

ARAB REPUBLIC OF EGYPT

SOHAG RURAL DEVELOPMENT PROJECT

Project Appraisal Document

Table of Contents

Page No.

A. Project Development Objective .......................................................... 21. Project Development Objectives and Key Performance Indicators ....................... 2

B. Strategic Context .......................................................... 21. Sector-Related CAS Goal supported by the project ............................. ................ 22. Main Sector Issues and Government Strategy ...................................................... 23. Sector Issues to be addressed by the project and strategic choices ........... ............. 2

C. Project Description Summary .......................................................... 51. Project Components .......................................................... 52. Key policy and institutional reforms supported by the project .............. ................ 63. Benefits and target population .......................................................... 64. Institutional and implementation arrangements .................................................... 6

D. Project Rationale .......................................................... 81. Project alternatives considered and reasons for rejection ....................................... 82. Major related projects financed by the Bank and/or other development agencies ... 93. Lessons learned and reflected in the project design ................................ .............. 104. Indications of borrower commitment and ownership ........................... ................. 105. Value-added of IDA support in this project ......................................................... 10

E. Summary Project Analyses .............................................. 101. Economic ......................................................... 102. Financial ......................................................... 113. Technical ......................................................... 134. Institutional ......................................................... 135. Social ......................................................... 146. Environmental assessment ......................................................... 147. Participatory approach ......................................................... 14

F. Sustainability and Risks ......................................................... 151. Sustainability ......................................................... 152. Critical risks ......................................................... 163. Possible controversial aspects ......................................................... 16

G. Main Loan Conditions ......................................................... 171. Effectiveness conditions ......................................................... 172. Other ......................................................... 17

H. Compliance with Bank Policies ......................................................... 18

ANNEXES

Annex 1 Project Design Summary .............................................. .............. 19Appendix 1 Key Monitoring Indicators . ........................................................... 22

Annex 2 Project Description ................................ , , . , . , . ...... 23Appendix 1 Technical Assistance Secretariat - TOR of Key Staff ............. ............... 30Appendix 2 Village Infrastructure Component-Criteria for Sub-Project Selection ..... 33

Annex 3 Estimated Project Costs ........................... ,,,.. 35Annex 4 Economic Analysis .......................... 36

Table A Investment Profiles for Rural Finance Component ................................. 38Annex 5A Financial Summary and Appraisal of Intermediaries ............. ................. 40

Appendix 1 Balance Sheet - BDAC SOHAG ........................................................... 46Appendix 2 Income Statement - BDAC SOHAG ..................................................... 48Appendix 2a Performance Indicators ........................................ ..................... 49Appendix 3 Projected Balance Sheet - BDAC SOHAG ............................................ 50Appendix 4 Projected Income Statement - BDAC SOHAG ................. ..................... 51Appendix 5 Capital Adequacy Analysis - BDAC SOHAG .................. ..................... 52Appendix 6 Classification of Loan Portfolio according to Central Bank of Egypt's

Guidelines - BDAC SOHAG ............................................................. 53Appendix 7 BDAC Loan Portfolio ............................................................. 54Appendix 8 Proposed Training for Staff of SOHAG BDAC ..................................... 55

Annex 5B Local Development Fund ..................................................... ........ 56Appendix 1 Balance Sheet (LDF) ............................................................. 61Appendix 2 Income Statement (LDF) ............................................................. 62Appendix 3 Projected Balance Sheet (LDF) ............................. 63Appendix 4 Projected Income Statement (LDF) ....................................................... 64Appendix 5 Regional Distribution of Loans .......................................................... 65Appendix 6 Loan disbursed by LDF under various projects (7/1/96-6/30/97) ........ ... 66Appendix 7 Loan disbursed by LDF (7/1/96-6/30/97) Regional Distribution Pattern 67Appendix 8 LDF Board of Directors .......................................................... 68

Annex 6 Procurement and Disbursement Arrangements .69Table A Project Costs by Procurement Arrangements .72Table B Threshold for Procurement Methods and Prior Review .73Table B 1 Procurement Plan .74Table C Allocation of Credit Proceeds .75

Annex 7 Procurement Plan and Implementation Schedules .76Annex 8 Environmental Management Plan.85

Appendix 1 Environmental Data Sheet .......................................................... 91Annex 9 Project Processing Budget and Schedule .93Annex 10 Documents in the Project File .94Annex 11 Organization Chart .95Annex 12 Status of Bank Group Operations in the Arab Republic of Egypt .97Annex 13 Egypt-at-a-Glance .99

MAP: IBRD 29425

INTERNATIoNAL BANK FoR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Middle East and North Africa Regional OfficeEgypt Country Department

Project Appraisal Document

Arab Republic of EgyptSohag Rural Development Project

Date: July 31, 1998 I Draft [xl FinalTask Team Leader/Task Manager: Jean-Frangois Barres Country Director: Khalid IkramnProject ID: EG-PA-40858 Rural Development POC: Poverty Reduction/Policy ReformLending Instrument: SIL PTI: [X] Yes [ NoProject Financing Data [ Loan [X1 Credit [ ] Guarantee I Other [Specify]

For Loans/Credits/Others:

Amount (US$m/SDRm): SDR 18.6m (US$25.0m)Proposed Terms: [ Multicurrency [ Single currency

Grace period (years): 10 1 Standard [ Fixed [I LIBOR-basedYears to maturity: 35Commitment fee: 0.5%

Service charge: 0.75%

Financing plan (US$m):Source Local Foreign Total

Government 23.4 0.2 23.6IDA 14.5 10.5 25.0IFAD 14.5 10.5 25.0Co-financing 2.0 1.0 3.0Villages of Sohag Governorate 10.2 6.9 17.1Sohag BDAC 0.1 0.0 0.1Total 64.7 29.1 93.8Borrower: Arab Republic of EgyptGuarantor:Responsible agency(ies): Sohag Govemorate, PBDAC, Ministry of Rural DevelopmentEstimated disbursements (Bank FY/US$M): 98/99 99/00 00/01 01/02 02/03 03/04 04/05

Annual 2.0 4.0 3.9 4.1 4.3 4.4 2.3Cumulative 2.0 6.0 9.9 14.0 18.3 22.7 25.0

For Guarantees: [I Partial [I Partial riskProposed coverage:Project sponsor:Nature of underlying financing:Terms of financing:

Principal amount (US$)Final maturity

Amortization profileFinancing available without guarantee?: [X] Yes [ ] NoIf yes, estimated cost or maturity:Estimated financing cost or maturity with guarantee:Expected effectiveness date: December 31, 1998 Closing date: June 30, 2005

2 Egypt: Sohag Rural Development Project

A. Project Development Objectives

1. Project development objectives and key performnance indicators (see Annex 1):

The primary project development objective is to support the sustainable development of Sohag rural villagesthrough the participatory approach initiated by the National Program for Integrated Rural Development (SHROUK).The project aims to (i) improve income and quality of life in rural communities; and (ii) improve equitable access tocredit for the rural poor, unemployed youth and women. In addition, the project would enhance the capacity of localcommunities and local government at the village level to program, appraise, co-finance, implement and manage ruralinfrastructure projects and services.

Progress towards these objectives would be measured and monitored based on: (i) percentage of village.participation in investment and recovery of operation and maintenance (OQM) cost for rural infrastructure andservices; (ii) volume of credit benefiting women; (iii) percentage of credit recovery rate; and (iv) percentage ofinfrastructure and services benefiting isolated hamlets.

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1):

CAS document number: 16533-EGT Date of latest CAS discussion: May 29, 1997

The project supports two major objectives of the Egypt CAS for FY98-2000: improvement of (i) rural income,and (ii) natural resources management. The project would also contribute to the following progress benchmarks of theCAS, in the Sohag Govemorate: (i) improvement in cost recovery of O&M; and (ii) increased diversification inagricultural production.

The project would support the Agricultural Strategy for the 1990s prepared in 1993 by the Ministry ofAgriculture and Land Reclamation (MALR) with the support of the Bank and other donors (Report No. 11083-EGT).T-he strategy emphasizes: (a) the need to ensure increased productivity and environmental sustainability in themanagement and utilization of natural resources; (b) the promotion of private sector development; (c) the need toimplement measures for the agriculture sector within the context of an overall rural development strategy; (d) therecognition of the social and political issues and the need for social safety nets to ease the social impact ofimplementing a comprehensive reform program; and (e) the need to initiate a program of institutional reform to deliveragricultural services that are responsive to farmers' needs.

The project is fully consistent with the major recommendations of the Bank's Strategv "From Vision to Actionin the Rural Sector" (1997): (i) planning, execution and financing of rural programs and services must be highlydecentralized and participatory; (ii) special efforts must be made to bring improved and appropriate technologies,capacities and resources to rural areas; and (iii) the World Bank Group must focus on the development of country-specific strategies rather than regional and global sector strategies.

2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategicchoices

The incidence of poverty remains high in rural The proposed project complements Bank's and IFAD lendingEgypt. Poverty in rural areas is more widespread than portfolio in the sector and responds to the Government'sin urban areas, and is concentrated particularly in priorities as indicated in its Agricultural Strategy and itsUpper Egypt of which Sohag is one of the poorest Rural Development Program. The proposed strategy forgovernorates. Its population of 3.2 million is 77 percent poverty alleviation emphasizes public sector initiatives thatrural, with about 209,000 farming and 150,000 landless foster rural non-farm employment and facilitate access ltohouseholds on only 296,000 feddans of land. Despite rural financial services. In the Sohag Governorate, theout-migration, population growth averages 2.8 percent project would address some of the key objectives of GOE'sper annum. Recent economic reforms and the strategy for agriculture and rural development, by facilitatirgincreasing deregulation of land, crop and input markets integration of the rural poor in the credit system.is challenging the traditional sources of income securityfor the poorest farmers.In its efforts to alleviate poverty and protect vulnerablesegments of society, the Government of Egypt (GOE)

Egypt Sohag Rural Development Project 3

has adopted a multi-pronged strategy, which includesthe creation of the Social Fund for Development (SFD),and the establishment of the SHROUK, developed bythe Organization for Reconstruction and Developmentof the Egyptian Village (ORDEV), as well as thecreation of the Ministry of Rural Development (MRD).

Centralized decision making process. Village needs The major thrust of the project would be to strengthen theand priorities are not sufficiently taken into participatory village planning process initiated by theconsideration due to centralized decision making, slow SHROUK program. Key features of the SHROUK approach,disbursement and tedious bureaucratic procedures. which wiUl be supported by the proposed project, includeServices and infrastructures are usually concentrated in capacity building of local communities in need assessmenturban areas. and planning, and decentralization of decision-making andBuilding upon the achievements of lessons learned from management of vilage infrastructure and services to localthe Local Development Project-II (LDF-II) supported by communities, through collaboration at the village levelUSAID, the SHROUK program emphasizes devolution between, popularly elected local councils, representatives ofand decentralization of decision making in the planning local government and line ministries, NGOs and naturaland management of rural infrastructure. The program is leaders. The project would improve the planning process atdesigned to lay the foundation for self-help projects the village level by taking into account lessons learned fromwhich strengthen community structures as well as experience with the first years of implementation of theincomes in rural Egypt. This departure from a program which shows that: (i) NGOs, small hamlets andcentralized system is supported by USAID, UNICEF, women are under-represented in the Village RuralUNDP, and other donors. However, internal and Development Committees (VRDC); (ii) the respective rolesexternal evaluations of the program show that of the VRDC and Village Popular Council (VPC) need to beprocedures need to be clarified and the participation of clarified; (iii) villages are insufficiently involved in projectthe local NGOs needs to be strengthened. management; and (iv) VRDC have insufficient control over

O&M.

Sustainability of investment in rural infrastructure. The strategy to be followed under the project would be toWith the recent increase in investment in social and support community-based and private management of publicphysical infrastructure through both SFD and SHROUK local services and infrastructure. The project would supportprograms, there is a growing and urgent need to ensure on-going efforts of the Sohag Govemorate to improve O&Madequate provision for O&M of the new facilities. Past of rural infrastructure, in helping local communities developperformance by government agencies has been uneven, cost recovery mechanisms for O&M, such as users groups.especially in the water and sanitation sector where Arrangements for O&M and cost recovery would be spelled-current institutional and financial arrangements for out in the detailed designs of the sub-projects and theirO&M are inadequate to ensure sustainability. Little implementation would be carefully monitored and evaluated.initiative has been taken by the communities for lack of The project will make a special effort to addressfinancial resources, and training to develop appropriate shortcomings in O&M for on-going SHROUK projects.skills. The policy of the Government in both SFD andSHROUK is to include O&M arrangements as a keycriteria in the appraisal of community or villageinfrastructure.

Limited natural resource base. Sohag is characterized The strategy promotes optimum resource management withinby a physical resource base that is severely limited, less a village context and encourage technicians and the ruralthan optimal use of land and water resources, population to consider potential investments in relation toinsufficient sanitary infrastructure and severely polluted their impact on the resource base, their future sustainabilitywater canals. This has negative effects on the health of and their potential for serving the particular needs of thebroad segments of the population. Especially the ultra- rural communities. In addition, some of the villagepoor are vulnerable to unclean water. Limited funding infrastructure to be financed under the project aim to improveand a lack of awareness for these problems among the the environmental conditions and to abate the pollutionpopulation is common, hence, the situation is problems. The appraisal process of sub-projects will includeprogressively deteriorating. To address these issues, the an assessment of their environmental impact. The projectGovernorate has prepared an Environmental Action will complement the assistance of the UK-DFID to


Plan with the support of the United Kingdom environmental assessment and management in Sohag.Department For International Development (UK-DFID).

Gap between credit availability and needL. There is The project's strategy on rural finance would build upona gap between the financial requirements of individuals lessons learned from successful experiences: (i) in ruraland groups in villages and deployable funds available in credit with the on-going, Bank-supported, Agriculturalbanks and other financial institutions. Access to credit Modernization Project with the Principal Bank forfor the rural poor is hampered by: (i) the lack of Development and Agricultural Credit (PBDAC); (ii) incollateral or other forms of security for the poor, (ii) community-based micro-credit with the Family Developmentshortage of banking outlets in rural areas; (iii) the lack Fund (FDF) initiated by UNICEF in Dar El Salamn District inof familiarity with the formal credit system and its Sohag; and (iii) individual micro-credit under the Specialrequirements; and (iv) the lack of liquid funding sources Initiative Fund (SIF) of the El Sharkiya and Menufia BDACsparticularly for medium-term credit. supported by the Government of the Netherlands. InnovativeThe main thrust of GOE's policy on rural finance has approaches to reach the ultra-poor would be madLebeen to increase the availability of financial resources in mainstream in the Sohag BDAC and the LDF in Sohag.rural areas through the network of district branches ofthe Bank for Development and Agricultural Credit(BDAC) which has a network of 71 village banks. Thisnetwork is also currently the main financialintermediary for the SFD. In addition, the Governmenthas established the Local Development Fund (LDF)which is delivering credit through the localadministration structure on a smaller scale. UNICEFand bilateral aid have supported Government's efforts toexperiment with innovative credit delivery mechanismsfor the rural poor.

Limitations on full participation of women, youth The project would address this issue by expanding micro-and other disadvantaged groups in rural society. credit programs which have successfully targeted rural pocrWomen, youth, and tenant/landless are insufficiently and women, and assisting the Sohag BDAC and the LDF inrepresented in rural communities. The limitations targeting these groups. It would combine long-term goals ofimposed on women are greater in Upper Egypt because building institutional capacity with short-term targets. forof local customs and traditions. Many communities delivering services. In addition, the project would foster theconsider the lack of employment/economic participation of women in rural development committees atopportunities for youth as a key problem for the village. all levels with special emphasis on the village.Through the SFD, the SHROUK and the LDF, the GOEis making a special effort to target the mostdisadvantaged groups.

Egypt: Sohag Rural Development Project 5

C. Project Description Summary

1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown):

A. Local Institutions Strengthening Component IV. Institution Building 5.3 5 1.5 29(US$6.4 million) V. O&M 1.1 1 0 0

This component would:(a) strengthen the Governorate's capacity to

coordinate rural development in Sohag andsupport village participatory planningprocess, through training and technicalassistance;

(b) strengthen the districts' capacity to supportdecentralization and participation at thevillage level, on technical, managerial, andfinancial matters;

(c) support Line Ministries involved in ruraldevelopment in Sohag, to enable them tointeract more efficiently in the villageparticipatory process.

Project financing would include equipment,and training and technical assistance;

B. Village Infrastructure Component (US$60.6 I. Physical 54.9 59 13.7 25million) V. O&M 5.7 6 0 0

This component would support Village PriorityDevelopment Plans identified and preparedthrough a participatory process using theSHROUK methodology and co-financed by theSohag Villages, in interaction and with thesupport of the local administration andtechnical services. Project's financialcontribution would be matched with up frontvillagers' participation of about 15 percent inlabor or cash or in kind. In particular, theproject would support:(a) economic and municipal infrastructure

(potable water supply, small irrigation anddrainage systems, rehabilitation of ruralroads, etc.); and

(b) social infrastructure (youth centers,women's clubs, etc).

C.Rural Finance Component (US$26.7 million)This component would:(a) finance rural credit for on-farm technology m. Lines of Credit 19.9 21 7.0 35

improvement and rural-based investment IV. Institutional Building 0.8 1 0.1 12through a line of credit and institutional V. O&M 0.1 - 0 0strengthening of the Sohag BDAC;

(b) promote micro-credit for income generation m. Lines of Credit 5.5 6 2.7 49for the rural poor and women through lines IV. Institutional Building 0.5 1 0 0of credit to Sohag BDAC and LDF in Sohagfor: (i) community-based micro-credit; (ii)individual micro-credit; and (iii)institutional strengthening of LDF.

Total 93.8 100 25.0 27


2. Key policy and institutional reforms supported by the project:

The project would support the GOE's rural development policy aimed at administrative and fiscal devolutionand decentralization by gradually shifting responsibility and accountability to local government at the village level forthe delivery and maintenance of services. This will be accomplished by providing technical assistance and trainingdesigned to improve institutional capability at the village level. The project would also support the reform of financialinstitutions operating in rural areas such as the Sohag BDAC and the LDF.

3. Benefits and target population:

The project would improve access of the rural poor to sustainable basic economic and social services in the 5 1]Local Administrative Units (LAUNillages) comprised of 268 affiliated villages and 1,217 hamlets of the SohagGovernorate. The total population of Sohag is 3.1 million in 460,000 households; of which 30 percent are landless.

A 1995 survey estimated that about 52 percent of the population of Sohag is poor and about 36 percent is"ultra poor." Despite efforts by the Govermment and NGOs, 60 percent of the adult population is illiterate (70 percentfor women), only 30 percent of the population is served by potable water networks, 30 percent have no health facilities,and 90 percent no sewage system. The situation of women in Sohag is made more difficult by the high level out-migration of men to the Delta and to neighboring countries. Unemployment among youth between 15 and 24 years oldlis 20 percent in rural areas and reaches about 40 percent for university and high school graduates. This populationwould be especially targeted by the Rural Finance component of the project which would promote access to credit forincome generating activities (such as on-farm production, food processing, packing and drying of fruits and vegetables,apiculture, livestock fattening, dairy, off-farm activities, transport services for girls attending secondary schools, crafts,etc.). In addition, the project would also benefit rural women by promoting their representation in Rural DevelopmentCommittees, especially at the village level.

4. Institutional and implementation arrangements:

Implementation period. The project would be implemented over a period of six years.

Implementing agencies

The Governorate of Sohag (GOS) would have overall project implementation and coordination responsibilityand direct executive responsibility for the Village Infrastructure component and the Local Institutions Strengtheningcomponent. In conjunction with and under the auspices of the GOS and through Project Agreements: (i) the Ministry ofRural Development's LDF would implement part of the Micro-Credit component; and (ii) the Sohag BDAC wouldimplement the On-Farm Technology Improvement and Rural-Based Investment sub-component and part of the Micro-Credit.

Project management and coordination

The project would be coordinated by the GOS which would be assisted by a Technical Assistance Secretarial.(TAS) with responsibility for project implementation, including coordination of project activities, preparation of annualworkplans and budgets, participatory planning, procurement (except for activities implemented by Sohag PBDAC andLDF), disbursement, financial reporting, and monitoring and evaluation. The TAS would be staffed by four localexperts in administrative and financial management, procurement, rural development, and monitoring and evaluation,as well as short term consultants. In addition, the GOS will benefit from the methodological support of ORDEV and itsSHROUK Technical Assistance Team (STAT) currently assisted by the USAID-financed, Participatory RuralGovernance Program.

A Governorate Rural Development Committee, chaired by the Governor or Secretary General of Sohag andcomposed of representatives of the elected Govemorate Popular Council, Line Ministries, Rural Development DistrictCommittees, and NGOs acts as a Regional Steering committee with the Rural Development offices of the Governorateacting as the executive secretary of the committee. This committee will ensure complementarity of proposed villageplans with other programs, as well as ensuring availability of funds for the proposed sub-projects. Rural DevelopmentCommittees working in conjunction with the GOS, at the LAU and district levels, are designed to allow for fullparticipation, collection and dissemination of information, training, and reviewing proposals. Under the project, finalreview and approval of sub-projects will be done at the Governorate level. Assurances to this effect were given atnegotiation.


For the Rural Finance component, a Credit Steering Committee would be established in Sohag between theSohag BDAC, UNICEF, LDF, SFD, GOS, the Ministry of Social Affairs and NGOs active in micro-credit in Sohag.The committee would monitor and update eligibility criteria for micro-finance schemes implemented through NGOs.

The adninistrative structure of the project's operations is spelled out in the Project Operation Manual and willrespond to a demand driven approach as well as decentralization of responsibilities and functions. The OperationManual ensures that information on local budgets for sub-projects are provided prior to introduction of the planningprocess, in order to ensure that community decisions are made within clearly defined resource availability andrequirements.

At the national level, the Interministerial Committee for Rural Development will act as a National SteeringCommittee, and will ensure coordination with other national programs.

On-lending Arrangements

Proceeds of the IDA Credit will be made available to the Sohag BDAC through a subsidiary loan agreementbetween the GOE and the PBDAC. For the LDF, proceeds of the IDA Credit will be made available to the LDFthrough the National Investment Bank (NIB) under two subsidiary loan agreements: a NIB subsidiary loan agreement,in US dollars, between the GOE and the NIB; and a LDF subsidiary loan agreement, in local currency, between theNIB and the LDF. Agreements were reached during negotiations on the terms and conditions of the subsidiary loanagreements.

Credit for on farm-technology and rural investment would be regulated by the Manual for Credit and FinancialPolicies Procedures for the PBDAC and the BDACs. approved by the PBDAC's Board of Directors on May 29, 1997.Credit will be provided to the beneficiaries at PBDAC's prevailing interest rates credit - after a three percent reductionby the Government in 1996 - of 11 percent for short term agricultural credit, 12 percent for medium term credit, and 13percent for long-term. PBDAC is adding a service charge of 1.25 percent and is conunitted to continue to adjust itsinterest rates to cover its costs. Assurances were received at negotiations that the PBDAC would apply interest ratesthat would cover its cost, and allow a return on capital. On-lending term for micro-credit will be regulated by thePBDAC Micro-credit Manual which stipulates that the interest rates to final beneficiaries will cover the cost of creditand allow for a return on capital.

Micro-credit by the LDF would be regulated by the LDF Manual for Micro-credit. It was agreed duringnegotiations, that LDF interest rates will cover credit costs and allow a return on capital.

Accounting, financial reporting and auditing arrangements.

(a) Project Accounts: The GOS, supported by the TAS, which includes a financial management specialist and aprocurement specialist, would establish and maintain project accounts through GOS' accountants, in accordance withinternationally-accepted standards of accounting, satisfactory to IDA and IFAD. The GOS would maintain detailedmemoranda relating to village programs and budgets, including sub-projects appraisal, approvals, disbursements,contribution from villages in investment cost, O&M arrangements, and follow-up actions. The Sohag BDAC and theLDF would maintain detailed memoranda relating to sub-project cycle progress including appraisals, approvals,disbursements, contribution from borrowers, interest charges, installments due, collections, overdue and follow-upactions. The accounts would be computerized and an accounting package would be selected, and installed by anaccounting firn. GOS's accountants would be trained on IDA procedures by the World Bank Office in Cairo. As ofJuly 1, 1998, the BDAC has to follow international accounting standards as required by the Central Bank of Egypt.The LDF is maintaining separate accounts, using local accounting standards and is expected to move towards soundinternationally recognized accounting standards acceptable to IDA and IFAD by December 31, 1999. Sohag BDAC'saccounts will be maintained by BDAC existing staff using a new MIS currently under installation in all BDAC's. LDFwould establish a MIS that would generate annual budgets, quarterly progress reports, summary loans statements, andannual financial statements that reflect the financial performance and position of the credit lines. Agreement wasreached during negotiations that the Sohag BDAC would complete, by December 31, 1999, the institutionaldevelopment program currently under preparation through the Agricultural Modernization Project.

(b) Reporting andAuditing: GOS and LDF are subject to internal financial auditing by a representative of the Ministryof Finance. Sohag BDAC has its own internal audit system, regulated by its Operations Manual. The accounts of theSohag project, PBDAC, Sohag BDAC and LDF would be audited each fiscal year in accordance with Bank guidelines


by independent auditors acceptable to IDA and selected prior to project's effectiveness. Auditor's opinion and reportssatisfactory to IDA would be provided within six months of the close of the fiscal year.

(c) Special Accounts: To facilitate disbursement against eligible expenditures, the Government would establish threeSpecial Accounts in a commercial bank to be operated respectively by the GOS, LDF and PBDAC (on behalf of lheSohag BDAC), under terms and conditions satisfactory to IDA. The Special Accounts would be audited annually byindependent auditors acceptable to IDA, and identified and selected before effectiveness. The audit report would besubmitted to IDA for review and approval within six months of the end of each fiscal year.

Monitoring and evaluation (M&E) arrangements.

The TAS would be responsible for monitoring piogress against agreed-upon performance indicators specifiedin Annex 1, and monitoring the efficiency and quality of the sub-project evaluation system. LDF and Sohag BDACwould have their own monitoring systems but they would furnish the TAS with detailed annual reports for IDA andIFAD review summarizing project operations and the utilization of project funds. Long-term impact evaluation wouldbe conducted through annual beneficiary assessments, assisted by qualified consultants from local universities orNGOs. TAS, Sohag BDAC and LDF would prepare by December 31, 2001, a detailed mid-term report to serve as thebasis for a mid-term project review, scheduled for March 31, 2002. Based on contributions from Sohag BDAC andLDF, the TAS would also prepare and submit an Implementation Completion Report to the Bank within six months ofthe closing of the IDA credit. Agreement on these arrangements was reached during negotiations.

Co-financing arrangements.

IFAD would co-finance the same infrastructure, credit and institutional building components, as the IDACredit; however the borrower will assign expenditures entirely to IFAD or to IDA on the basis of separate contracts oractivities and will, to the extent possible, ensure that commitments under the two operations are made on a paripsubasis. Concerning technical assistance expenditures, the GOE has expressed its strong preference for using grantsinstead of credits and loans. The UK-DFID will continue to support environmental assessment and management inSohag under a separate project.

D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Village Infrastructure Component. One option for implementing this component would have been to use themechanisms set up under the ongoing Second Social Fund for Development Project (SFD) (Credit 2865-EGT) whichhas already financed 391 public works projects amounting LE 41 million in Sohag. Although the proposed componentwould finance rural infrastructure similar to that currently financed by the SFD, there will be significant differencesbetween the two approaches. Specifically:

(a) The project will operate exclusively through the local administration structure in a participatory processorganized to reach small villages and hamlets; and

(b) Planning and financing mechanisms will be different and will involve strengthening village capacity indecision making, management, budgeting and financial administration. Following the SHROUKmethodology, the village community sets priorities and participates in the financing with a contribution Dfat least 10 percent.

The proposed project will complement the on-going SFD II Project by increasing the planning andimplementation capability of the local administration and the local communities in Sohag.

Rural Finance Component. The proposal to select either the Sohag BDAC or the LDF to act as a financial intermediairyfor the Rural Finance Component has been considered during project preparation. A financial assessment of SohlngBDAC and LDF was carried out as part of project pre-appraisal (Annex 5). The conclusion was that both institutioniswere playing complementary roles although at very different scales of operation and deserved to be supported.Although, it is confronted with managerial and financial difficulties, with a loan portfolio of LE 450 million the SohagBDAC is the main financial intermediary reaching every village in Sohag. Although operating at a very modest scale,the LDF has been targeting rural women and unemployed youth and is supported by UNICEF to develop communitmy-based micro-credit on the model of the Grameen Bank of Bangladesh.


An Enterprise Development Component was considered during the IFAD General Identification Mission of January1994. The component has been withdrawn from the project design to avoid duplication with the EnterpriseDevelopment Program financed under the SFD. Instead, the project would target women and rural poor through micro-credit.

2. Major related projects financed by the Bank and/or other development agencies (completed ongoing andlanne

.... . ..ane .c s

Bank-financed Ongoing

- Participatoxy Rural - Matruh Resource Management Project S SDevelopment - Irrigation Improvement Project HS HS

- Financial Intermediation - Agricultural Modernization Project S U

- Employment Generation - Social Fund Project I (completed) and II HS HS(ongoing), and Social Fund III is plannedfor FY99.

Other Development Agencies

IFAD Completed- West Beheira Settlement Project-Miniya Agricultural Development Project-Fayoum Agricultural Development ProjectOngoing-Agriculture Production Intensification

Project-Newlands Agricultural Services Project

USAID Comvleted- Development Decentralization Project I- Village Services Activity- Local Development Project IIOngoing- Participatory Rural Governance Program

OngoingUK-DFD) - Support for Enviroamental Assessment and

Management ProjectUNICEF - Family Development Fund

- Water, Environment and Sanitation ProjectCARE - Revolving Credit FundsSAVE THE CHLDREN - Water and Sanitation Projects

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)


3. Lessons learned and reflected in the project design:

About one quarter of the Bank's Group lending in Egypt has been to the agricultural sector. Most of thelending has been directed at alleviating the physical constraints on agricultural production, particularly in irrigationand drainage. These projects have contributed significantly to enhance Egypt's ability to achieve and sustain highlevels of farm production. The Bank also served as an executing agency for three area-based rural developmentprojects financed by IFAD (Miniya Agricultural Development Project, Fayoum Agricultural Development Project, andWest Beheira Settlement Project). Lessons learned from these projects highlight the importance of ensuring thefollowing: (i) project implementation in planning should take into account delaying factors such as procurementprocedures, staff shortages, inadequate budgetary allocations, etc; (ii) projects should be implemented under a singleinstitution; and (iii) institutional strengthening is a critical factor in improving efficiency in project implementation inthe sector. Although, three institutions will be involved in the implementation of the project, they will havecomplementary roles, and clearly defined responsibilities.

Furthermore, reviews of rural development projects highlight the need for greater participation of thebeneficiaries in project identification, preparation and implementation, and for more decentralization. Reviews haveemphasized the need for securing the support of local communities not only in planning but also duringimplementation and cost-recovery, as well as for organizational arrangements involving existing institutions to ensureclose coordination. Since many changes occur in the rural sector, the design and implementation of rural developmentprojects should be flexible. These lessons have been reflected in the design of the proposed project. In addition, byfocusing on operation and maintenance of local infrastructure, the project takes into account an important lessonlearned from the USAID-financed, LDP-ll.

4. Indications of borrower commitment and ownership:

The Government of Egypt initially requested IFAD to identify and support an agricultural development projectin Sohag in 1993. Subsequently, in recognition of the acute poverty in Upper Egypt and its low share of nationaldevelopment initiatives, the Government felt that a broader rural development approach would be required. Itapproached IDA to join IFAD in providing assistance to the Sohag Governorate.

The project would support an indigenous Egyptian initiative aimed at fostering decentralization andparticipation in rural areas. The SHROUK program was first initiated in the Ministry of Local Administration byORDEV and launched in October 1994 by a National Conference for Integrated Rural Development. At the natioiallevel, the GOE's financial contribution to the SHROUK program amounted to LE 91.6 million for 1997/98 of whichLE 4.7 million for Sohag. The Ministry of Planning has allocated the equivalent of US$23.6 million over the six yearsof the project as Government contribution to project costs.

Project preparation was supported by a Japanese PHRD Grant and has been carried out by a national teamestablished between the Sohag Governorate, ORDEV, and MALR which have contributed to cover preparation costs.

S. Value-added of IDA support in this project:

IDA can make available to Egypt the best international practices and experiences in rural development andrural finance. IDA would provide financial resources to expand successful micro-credit projects initiated by NGOs,UNICEF and other donors. Through the on-going Agricultural Modernization Project IDA has been supportingPBDAC's institutional and financial restructuring. The project would complement this support at the regional level inone of the poorest governorates.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (supported by Annex 4):

[x I Cost-Benefit Analysis: ERR= 12 percent minimum for sub-projects above US$250,000[x ] Cost Effectiveness Analysis

It is difficult to calculate an Economic Rate of Return (ERR) for the whole project, given the nature of itscomponents. The Village Infrastructure Component will support small scale economic and municipal infrastructure aswell as human development and service infrastructure, for which it would be difficult to quantify benefits. Therefore,the selection of sub-projects would be based on cost-effectiveness analysis. Only sub-projects for economiic


infrastructure costing more than US$250,000 would require a cost benefit analysis. Criteria for sub-project evaluationand selection would include: (a) sound technical design based on village sectoral plans, analysis of alternatives andsectoral norms; (b) feasibility: available inputs, estimate labor content, and technical feasibility of implementation; (c)cost parameters, including maximum cost per beneficiary or cost per unit for each type of sub-project, mninimumbeneficiary contribution, either in-cash or in-kind to investment cost; (d) environmental sustainability; (e) social equity(location, priority, profile of beneficiaries, gender and income); and (f) project sustainability, including realistic O&Marrangements and community commitment and plans for financing 100 percent of operation and maintenance costsafter three years.

For sub-projects costing more than US$250,000 and with quantifiable benefits, such as water supply, cost-benefit analysis would be carried out and a minimum ERR of 12 percent would be required. Benefits estimates would bebased on, inter alia, the willingness to pay (water supply); cost savings (sanitation, health, roads), etc.

The Project Operations Manual provides detailed guidelines for feasibility studies for sub-projects. It delegatesthe responsibilities for feasibility studies and the appraisal of sub-projects to the different administrative levels, wheresub-projects would be prepared at the LAU with the help of the District and appraised at the Govemorate level.

The type of investment financed under the On-Farm Technology Improvement and Rural-Based Investmentsub-component would be similar to those already financed under the Agricultural Modemization Project. Based on theexperience with ongoing activities, the FRR would be in the 20 and 40 percent range.

2. Financial (seeAnnex 5):

The project is financially sound. It would develop cost recovery mechanisms and help Sohag BDAC and LDFto move towards market rates of interest. Concerning the Village Infrastructure Component, the financial assessmentof sub-projects would be an important criteria in the selection of technical alternatives by the villages as the level ofO&M costs would impact on affordability and sustainability. The project would support LAU financial management ofO&M through TA and training. Concerning the Sohag LDF and BDAC, the financial analysis shows that the projectwould improve the profitability and thus the sustainability of these institutions.

The Sohag Bankfor Development and Agriculftural Credit (BDAC) (Annex 5A)

Ownership and Organization Structure. BDAC was established in 1976 under Law 105 and is wholly ownedby the Principal Bank for Development and Agricultural Credit (PBDAC). The PBDAC is fully owned by theMinister of Agriculture and is set up under Law 116 of 1976. The authorized and paid up share capital hasbeen raised to LE 80 million as of January 1998. The management consists of a Chairman and Board ofDirectors who are drawn from the governorate, agriculture sector, central cooperative society and employeerepresentatives.

BDAC is the main agricultural development bank in Sohag Govemorate and operates through a net work of 11district branches and 71 village banks. It provides short-term loans for agriculture and working capital,medium-term loans for investment in the areas of agriculture mechanization, horticulture, livestock, off-farmactivities, etc., and long-term loans for agribusiness and land development. Total outstanding loans amountedto LE 450 million in 1997 of which 37 percent is for livestock.

Resources and Assets. The BDAC has a medium and long-term resource constraint and a high credit depositratio of 211 percent. The shortfall in its deposit base is presently met by borrowings from PBDAC. It is,however, continuing to mobilize rural deposits. On the asset side, loans constitute 88.2 percent of the totalassets. The proposed loan will assist BDAC to access low cost resources on a long term basis to on lend tosmall and micro enterprises in a sustainable manner.

Lending Operations. The loan portfolio has been expanding significantly over the years to meet the demand inboth the farm and non-farm sectors. The portfolio has grown in real terms at a rate of 7.2 percent over theprevious year. The major growth in disbursements has been to the non-agricultural sector (Appendix 7). It isexpected that the proposed loan will enable BDAC to diversify to financing enterprise development activity.

Portfolio Oualitv. The portfolio quality continues to be an area of concern. The annual collection rates are 90.6percent for investment loans, 85.6 percent for short-term agricultural loans, and reach 100 percent for loans

12 Egypt: Sohag Rural Development Prqject

under the SFD. The collection rate is expected to improve under the Institutional Development Plan, underpreparation, which will focus on and strengthen credit management and controls. According to the audit forFY97 conducted by the Central Audit Agency (CAA) which is a GOE agency for public sector audits, there isa shortfall of LE 40.7 million in loan loss provisions (provisions for FY97 are LE 9.2 million). As a first step,BDAC has raised its capital base significantly from LE 16.1 million in FY97 to LE 80 million in FY98.

Profitability. The profitability has not been satisfactory. A nominal profit of LE 113,000 is shown for FY97The weak profitability can be attributed mainly to the high cost of funds BDAC has to pay to borrow fromPBDAC to fund its assets and the non-performing loans in its portfolio. The below-market interest rates havestrained the intermediation margins and have hampered BDAC's ability toward increased viability. The lackof surplus has been the contributing factor for inadequate provisioning. The PBDAC is comnmitted to increaseits service charge in stages to improve on the lending rates.

The Local Development Fund (LDF) (Annex 5B)

Ownership and Organization Structure. LDF was created within ORDEV in 1978 and capitalized through aUSAID grant. It is an autonomous legal entity and is tax-exempt. The initial share capital of LE 19.7 millionhas been increased to LE 30.98 million in FY97. LDF is owned by the GOE and is under the administrativesupervision of the Ministry of Rural Development. The Board of Directors consists of 14 members andcomprises of officials from the Ministries of Planning and Finance, the stock exchange, and from thegovernorates, district level and local administrative units. The Board is presided by the Chairman who is alsothe Chairman of ORDEV. LDF is a small organization with a staff of 30 has its office in Cairo.

LDF operates through the large network of LAUs in the govemorates which are under the Ministry of LocalAdministration. The employees draw their salaries from their respective organizations and the incentives arepaid by LDF. Because of the vast network of LAUs, LDF has been successful in financing small and microprojects and on-lend to NGOs. In view of the limitation in resources, their operations have been on a smnallscale. The scale of operations in Sohag is low, with only LE 7 million in loans since the inception of the fimdin 1978, for 171 projects benefiting 6,508 households.

Resources and Assets. LDF's resources are mainly comprised of capital and grants received from the GOE, Itis not allowed to accept deposits from the public. LDF has been steadily building up its reserves from theearnings. The equity base for FY97 was LE 36.9 million. The total loan portfolio was LE 32.4 million whichreflects the conservative lending approach of LDF management. The surplus funds are place in interestbearing deposits with commercial banks. The proposed project will increase the resources of the LDF to targetrural poor and women in Sohag.

Lending Operations. The loan portfolio has been growing steadily and shows an increase of 23 percent overFY96. The major lending activities cover poultry, transport, workshop and mechanization units. Loans areprocessed through the local administration. LDF has adequate experience in project preparation and lendingactivities. The average loan size has been LE 1,072, or about US$320.

Ponfolio . The quality of the loan portfolio is satisfactory. The repayment rate is good (96 percenit).They have an attractive incentive system which is linked to recovery. As LDF is a Development LendingInstitute (DFI), it does not come under Central Bank of Egypt prudential guidelines. However, the retainedearnings are adequate to cover provisioning requirements. In addition, under an agreement signed in 1996,UNICEF would assist the LDF in diversifying into community based micro-credit.

Profitabilitv. LDF has been making profits. This is mainly due to its low operational expenses and its strongequity base. It has not resorted to borrowings so far to finance its activities. As a tax-exempt institution, it isin a position to retain the entire surplus. LDF has been in a position to pass on a part of its surplus byfinancing at significantly lower than market rates. However, LDF has agreed to increase its interest rates tocover its full costs and allow a return on capital. The profitability is expected to be satisfactory.

Fiscal Impact:

Developing a sustainable mechanism to ensure recovery of O&M cost is a main objective of the project.Therefore, the project is expected to have a positive fiscal impact. However, because of the high poverty levelprevailing in Upper Egypt, full cost recovery of incremental operation and maintenance would be carried out over a


three-year period. The willingness to contribute in the financing of investment costs will also depend on theavailability of alternative sources of financing that do not require the same financial commitment from thecommunities.

3. Technical:

The project is technically sound. Technical criteria and standards are being developed for each sub-project typebased on existing norms available from the respective public agencies to ensure sectoral coherence and compatibility.These norms are being incorporated into the Operations Manual's appraisal guidelines. The technical appraisal ofcommunity projects would have to confirm that infrastructure, equipment and other inputs are consistent in scale,quality and content with the norms established and that implementation is technically feasible. In addition, theGovernorate TAS would recruit qualified short term consultants to assist Line Ministries in Sohag in transferring skillsand responsibility for project preparation, at the village level.

4. Institutional:

a. Executing agencies:

The Sohag Governorate. The Governor, by Presidential Decree, is responsible for all organizations andactivities within the Governorate. Second to the Governor, the Secretary General is responsible for theadministration of the Governorate. He has the mandate and authority to act as project manager and to ensurecoordination of the project. He will be supported by a Technical Assistance Secretariat (TAS). The TAS willwork in close collaboration with the representatives of the Line Ministries in Sohag in providing technicalassistance to the villages in preparing and evaluating projects. It will also have an important monitoring andevaluation function to follow-up on project performance and impact. Project implementation would be flexible.The activities to be financed would be prepared on a rolling program basis, with thirty villages included in thefirst-year's program. The Operations Manual has been reviewed and revised to incorporate relevant guidelinesand manuals prepared under the LDPII project. The Village Infrastructure component would be implementedusing the participatory approach developed by (SHROUK). On July 1997, ORDEV was transferred to thenewly established Ministry of Rural Development (MRD), while the Ministry of Local Administration wasplaced directly under the authority of the Prime Minister. At the Governorate level the SHROUK programcontinues to be implemented through the local administration (Governorate, District, LAUI) under theauthority of the Secretary General and with the assistance of the ORDEV.

Sohag BDAC. The financial management and accounting weaknesses were identified by the financialmanagement review carried out under the on-going Agricultural Modernization Project. An InstitutionalBuilding and Business Plan is currently under preparation. Agreement was reached during negotiations thatthe plan will be implemented before June 30, 1999. In the meantime, with the support of the AgriculturalModernization Project, PBDAC is implementing a rehabilitation plan including: training, re-capitalization,and loan portfolio cleanup.

LDF. LDF activities in Sohag will continue to be managed by the local administration at Governorate,District and Village levels. Decision making will be decentralized. It was agreed during negotiations, that theLDF will update its accounting system to fall in line with the requirements of a financial intermediary,particularly with regard to categorization of its loan portfolio, classification of assets, recovery performance, byDecember31, 1999.

The project will have an important impact in strengthening Sohag BDAC and LDF.

b. Project management:

At the Governorate level, it is critical that the participatory approach be shared among all Line Ministriesinvolved in rural development. and not only by ORDEV. For this reason, project management would beplaced directly under the authority of the Governor and the Governorate Secretary General of Sohag.Technical assistance and training would be provided to Governorate staff on participatory rural development,and administrative and financial management. With competent management and staff, an efficient OperationManual, close cooperation with other agencies, extensive staff training, the Governorate is well positioned toimplement the SHROUK program in Sohag (see Annex 11).


5. Social:

A Social Assessment was conducted as part of project appraisal. In rural Upper Egypt, women, landlessfarmers and less influential families have very few forms of organization and representation. Experience withGovernment and NGOs programs, which are attempting to address this issue, shows that participation anddecentralization need time and patience and can succeed only with the collaboration of the more influential actors ofsociety (members of the elected and executive councils, natural leaders, etc). The project will encourage rural womeninvolvement in the different phases of the SHROUK process. Social traditions and sensitivities will require innovaliveapproaches (SHROUK sub-comnmittee for women, role of female SHROUK delegate -manduba-). Conununity fonnaland informal consultations were conducted by the SHROUK teams during field visits and the promotional stage. Inaddition, extensive needs assessments have been conducted to ensure that community concerns and needs are beingaddressed. Rural Development committees and delegates (mandubeen) will utilize existing village profiles to developequity and gender specific criteria for sub-project selection. The Community Development Associations (CDA) will beinvolved in the implementation of the community based micro-credit.

6. Environmental assessment: Environmental Category [ I A [X] B [] C

The proposed project has been placed in environmental screening category "B" and an EnviromnertalManagement Plan (EMP) has been prepared which provides support for a series of practical actions to address potentialenvironmental issues (see Annex 8). These actions include: (a) strengthening the Enviromnental Management Unit(EMU) supported by UK-DFID in the Sohag Govemorate; (b) Sub-project environmental review; (c) environmentalawareness program; (d) environmental training program; and (e) monitoring and reporting.

It has been placed in this screening category due to the limited and predictable impacts of the types of smldl-scale interventions it would support, and the ability to address these issues through the use of project specificenviromnental guidelines, including procedures for a case-by-case "environmental review" and monitoring of theseactions by the EMU. Given the small-scale of the types of activities to be supported, emphasis on the rehabilitation ofexisting infrastructure and the participatory basis for sub-project selection and design, it is not anticipated that theproposed project would result in involuntary resettlement or have adverse impacts to archaeological and/or historicalsites. The project would include the use archaeological "chance find procedures" in case buried archaeological and/orhistorical materials are discovered during construction activities.

7. Partcipatory approach:

Beneficiaries/community groups COL COL COLIntermediary NGOs CON COL COLAcademic institutions CON CON ISLocal government COL COL COLOther donors COL, IS COL, IS COL

[Note: form of planned involvement : information sharing (IS); consultation (CON); and collaboration(COL).]

a. Primary beneficiaries and other affected groups:

-The population of Sohag Governorate villages-Village Rural Development Committees- Village Rural Development Delegates (mandubeen)- Community Development Associations (CDA), and other local NGOs- Local Popular Councils- Village Executive Councils- District Executive Councils- Rural and Govemorate Rural Development Councils- Unemployed Youth- Farmers


With the support of a Japanese PHRD Grant, the project was prepared by a local as well as a national team ofexperts from the Governorate, ORDEV, MALR, and Universities. With the assistance of a team of internationalconsultants, the two local teams undertook socio-economnic and production systems surveys using participatory ruralassessment techniques (PRA), in 16 villages in Sohag. An interactive design workshop, was held, in Luxor in January1996, with the active contribution of UNICEF. It included participants from the villages, the Governorate, centralgovernment, NGOs and Donors. The workshop recommended to place the project under the National Program forIntegrated Rural Development (SHROUJK).

The SHROUK process that will be followed under the project includes the following steps: (i) Orientation andAssessment through meetings convened at the Village/LAU level to establish a Village Rural Development Committee(VRDC); (ii) Popular Participation. Meetings are held with focus groups of blocks of 10-15 households representing allaffiliated villages and hamlets to discuss the findings of the 'village profile", identify projects and willingness tocontribute in their financing. Each residential block selects two rural development delegates (mandubeen); (iii)Planning. A meeting of the VRDC decides on priorities and village contribution in financing and implementation. AVillage Priority Development Plan (VPDP) is submitted to the Rural Development Governorate Committee chaired bythe Governor. At the national level the Rural Development Inter-ministerial Committee has the supreme authority forthe SHROUK prograrn; (iv) Implementation. Once the VPDP is approved and resources allocated on a matching grantbasis (minimum of 10 percent financed by the villagers), the VRDC decides on implementation and O&M mechanisms,through a local NGO, a private contractor, or usually a line ministry; and (v) Monitoring and Evaluation. ORDEVcarries out regular monthly monitoring of project progress. Although the VRDC is expected to play a major role inmonitoring and evaluation, its role is too often very limited.

At the national level the SHROUK Program is supported by, the USAID-financed, Participatory RuralGovernance Program (PRGP), which is currently under evaluation. Verification of progress towards meeting thebenchmarks required for disbursement of the second tranche of the project should be undertaken in August 1998.

The project would address the constraints identified during the first year of implementation: (i) NGOs, smallhanlets and women are under-represented in Rural Development Committees; (ii) the respective role of the VRDC andVillage Local Council need to be clarified; (iii) villages are insufficiently involved in project management; and (iv)VRDC have insufficient control over O&M. The project would enhance the participatory approach by: (a) increasingthe participation of NGOs and women at the village level; (b) supporting line ministries in Sohag in transferring skillsand responsibility for project preparation to the village level; (c) including environmental screening and mitigationplans in the project design; and (d) including the preparation of an operation and maintenance plan at the sub-projector village level as part of the appraisal process.

b. Other key stakeholders:

The local branches of International NGOs active in micro-credit (CARE, Catholic Relief Services, Save theChildren) have been consulted during the preparation of the project.

F. Sustainability and Risks

1. SustainabUity:

Sustainability of community sub-projects would be ensured through:

* high degree of participation of the various village social groups in project identification, preparation, appraisal,implementation and supervision;

* ownership by the beneficiaries, as evidenced by their participation, in-cash or in-kind for about 15 percent of sub-project cost;

* appraisal criteria that require presentation of an operation and maintenance plan and a commitment of thebeneficiaries to finance 100 percent of the incremental operation and maintenance cost after three years;


* canying out a social analysis to assess the degree of participation by the beneficiaries in the preparation of theproposed community project; and

* beneficiary community training in social management and operations and maintenance of sub-projects wherenecessary, including the establishment of committees for implementation and maintenance for sub-projects.

2. Critical Risks (reflecting assumptions in thefourth colunm of Annex 1):

Project Outputs to Objective

Coordination between Local Administration and M The Local Administration is now under the directLine Ministries is lacking. authority of the Prime Minister, which will facilitate

coordination with line Ministries. The project is underthe authority of the Governor who has the mandate andthe authority to ensure adequate coordination amongparticipating agencies.

Cost recovery and decentralization of O&M does M Policy dialogue and non lending services.not get political support.

Project Components to Outputs

Marketing problems affect the profitability of M Continuation of the economic reforms and privatization.activities financed by the Micro-Credit Special efforts of the Ministry of Rural Development tocomponent. address marketing issues at the village level.

Monitoring of credit to identify activities at risk.

The financial autonomy of PBDAC and LDF is H Policy dialogue.jeopardized by political interference. Operation Manuals are spelling out accountability and

specifying clear guidelines.

Women participation would not be socially N The project would adopt a prudent and flexible approach.accepted. The project would benefit from experience accumulated

by local NGOs and UNICEF.

Security issues in Upper Egypt prevent adequate N Supervision would be conducted from the World Banksupervision of the project. Cairo Office.

Overall Risk Rating M

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible Controversial Aspects:

The participatory approach taken dunng project preparation has reduced the risk for controversial aspects. However,the requirement for financial participation in the cost of village infrastructure may be questioned by villages which mayprefer to wait for other sources of funding. Experience shows that the financial requirement would function as atargeting mechanism. Efficient implementation would be required to meet the high expectation created by theparticipatory approach.


G. Main Loan Conditions

1. Effectiveness Conditions:

* Standard conditions.

* The GOE and the PBDAC would finalize the Subsidiary Loan Agreement confirming on-lending terms betweenthe Borrower and PBDAC.

* The GOE and the NIB would finalize the NIB Subsidiary Loan Agreement confirming on-lending terms betweenthe Borrower and the NIB.

* The NIB and the LDF would finalize the LDF Subsidiary Loan Agreement confirming on-lending terms betweenthe NIB and the LDF.

* The GOE and IFAD would finalize the IFAD Loan Agreement.

2. Other:

The following agreements have been confirmed during negotiations:

Management of the Project:

(i) The review and approval of sub-projects under the Village Infrastructure component would be decentralized atthe Govemorate level. To that effect, the Ministry of Planning would provide the adequate budgetary allocationmechanisms.

(ii) The Rural Credit component implemented by the Sohag BDAC and the LDF would be carried out in accordancewith the Manual for Credit and Financial Policies and Procedures and the Micro-Credit Manual for the PBDACand the BDACs, and the Micro-Credit Manual of the LDF, respectively.

(iii) The Institutional Strengthening component and the Village Infrastructure component will be executed by theSohag Govemorate according to the methodology of SHROUK.

Accounts/Audits

(iv) PBDAC will employ, before June 30, 1999, consultants with qualification and terms of reference acceptable toIDA to carry out the Institutional Development and Business Plan for the Sohag BDAC.

(v) The GOS, Sohag BDAC and LDF will prepare and maintain project accounts in a form acceptable to IDA. Theaccount would be audited annually by an independent auditor acceptable to IDA. Annual audit reports andproject accounts would be submitted to IDA annually, with the report to be submitted within six months of theclose of fiscal year.

(vi) LDF will update its accounting system to fall in line with a rural financial intermediary, particularly with regardto categorization of its loan portfolio, classification of overdue assets, recovery performance and MIS byDecember 31, 1999.

Flow and Utilization of Project Funds

(vii) Government will on-lend to LDF and PBDAC on terms acceptable to IDA and IFAD. Interest rates applied bythe BDAC would be those of PBDAC. Interest rates applied by the LDF would allow the LDF to cover its costsand make a return on capital.

(viii) LDF procedures would be decentralized at the Govemorate, District and village levels.

Monitoring. Review and Reporting

(ix) The Sohag Govemorate, the Sohag BDAC and the LDF would submit to IDA and IFAD annual evaluation andmonitoring reports no later than December 31, each year, for review and approval.


(x) The Borrower will: (a) prepare annual review report to be submitted to IDA by January 31, of each year, (b)carry out jointly with IDA, IFAD and other donors, a mid-term review by March 31, 2002; (c) prepare andsubmit to IDA the mid-term review report by December 31, 2000; (d) implement the recommendations of themid-term review; and (e) prepare and submit to IDA a final evaluation report of project achievements beforeApril 30, 2005.

Imnilementation

(xi) The Project Operation Manuals would be reviewed periodically with IDA and will remain acceptable to IDA atall times.

HE Compliance with Bank Policies[x] This project complies with all applicable Bank policies.

-fdV Salah Darghmi Khalid IkramAcing Sector MnageDirector Country Director (Egypt)


Annex 1

Egypt: Sohag Rural Development Project

Project Design Summary

~~~~~~~~~~~~~~R: ..........

1. Improve Rural Income andNatural ResourceManagement

.;,.~~01. .... 01Otfe..... .. . ..

1. Promote Sustainable Rural 1. O&M plans for infrastructure 1. Villages, Districts, and The project should have aDevelopment in Sohag financed by the project in place with Governorate budgets leverage effect on other

100 percent contribution of development programs inbeneficiaries to O&M after 3 years Sohag

2. Improve income and quality 2. Percentage of households with 2. Surveys and Participatoryof life of rural comnmunities access to basic infrastructure Assessments

(quantitative objectives would beset for each village as part of theparticipatory planning process)

3. Improve equitable access to 3. Recovery rate of micro-credit to 3. LDF and Sohag BDACcredit for the rural poor, women, unemployed youth financial statements andunemployed youth and credit reportwomen Beneficiary Assessments P

A.S vcal InsfmtutionsStrengthening Component

1. Rural Development 1. Private sector and NGOs Monitoring and Evaluationmanagement capacity in participate in SHROu K ComtS itteesSohag strengthened andvillage participation process 1.2 Participation of hamlet in StROinKimproved virvage comhnittee

1.3 Participation of women inSHROUeK village committee.

1.4 Nb. of P nfr ptructure projectsprepared and evaluated at the

. ~~village level under the SHROUKprogramd

2. Capability of Line Mnistries 2.1 Percentage of Line Ministries National and local budgets Good coordination existsto interact with villages budgets charmeled through the betwveen the Localwithin a detnand-driven Loca Adtninistration, using a Administration and Lineprocess is improved. participatory approach. Ministries wluch are

_ ~~~~~~~~~~responsible for2.2 Percentage of public projects implementing the main part

adequately staffed by Line of the programMinistries in charge.


B. Village InfrastructureComponent

1. Water supply systems l. Installed capacity (m3/year) National and local budgets Political support to cosl:recovery of basic services

2. Sanitary systems 2. Designed discharge (m3/year) Village investment plansFinancial decentralization of

3. Canal and drain covering 3. Length covered Monitoring Evaluation O&Mreports

4. School Buildings 4. Nb of classrooms

5. Social and Youth Centers 5. Nb of centers

C. Rural Finance Component

1. LDFs' and BDACs' 1.1 Financial profitability of LDF and 1. LDFs' and BDACs' Efficient marketing ofmanagerial and financial BDAC financial statements agncultural and otherautonomy increased products

1.2 Volume of credit and distributionamong productive and socialactivities

2. Access to credit especially for 2.1 Percentage of micro-loans to women 2.1 LDF and BDACs financialwomen and other less and landless farmers statementsadvantaged members of thecommunity improved

3. Access to existing sources of 3. Evolution and geographical 3. BDACs financial statementscredit improved distribution of credit by the BDACs

,,,s~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~; l.!.. ...... A. Local Institutions A. US$ 6.43

Strenathening

1. Strengthening of the 1. US$ 2.1 million Monitoring and EvaluationGovernorate's capacity to Reports, Quarterlycoordinate rural Disbursement Reportsdevelopment There is a risk of limited

social acceptance of women* Sohag Technical participation in some

Secretariat villages* Training and TA

2. Strengthening District and 2. US$ 3.7 millionVillage's Planning andmanagement capability. There is a minor risk that

* Local Units Committees security issues in Upper* Village Committees Egypt may prevent adequate* Training and Workshops supervision of the project* Communicationlransport* Awareness campaigns on

public relevance issues


3. Support to other Line 3. US$ 0.6 millionMinistries* Training and Studies

B. Villave Infrastructure B. US$ 60.6 million Monitoring and Evaluation There is a risk thatComnonent Reports, Quarterly investment programs may

Disbursement Reports exceed the fnancial* Economic and Municipal capability of the villages

Infiastructure and that O&M costs are* Human Development and underestimated.

Social nifrastructure* O&M Plans for Village

hnfrastructure

C. Rural Finance C. US$26.7 million

1. On-Farm Technology 1. US$ 20.7 million Sohag BDAC Monitoring and PBDAC an LDF are allowedImprovement and Rural- Evaluation Reports, Quarterly to function as independentBased Investment Disbursement Reports financial intermediaries.

1I.1 Line of Credit for 1. 1 US$ 19.9 million BDAC financial statementsAgricultural Production andRural Investments

1.2 Institutional Building 1.2 US$ 0.9 million Sohag BDAC Monitoring andBDAC Evaluation Reports, Quarterly

* Equipment Disbursement Reports* Training and TA* O&M

2. Micro-Credit for Income 2. US$ 5.9 million BDAC and LDF financialGeneration statements

2.1 Community Based Micro- 2.1 US$ 2.7 millionCredit (LDF and BDAC)

* Line of Credit to LDF andBDAC

2.2 Individual Micro-Credit 2.2 US$ 2.7 million(LDF and BDAC)* Line of Credit to LDF and

BDAC

2.3 Institution Building LDF 2.3 US$ 0.5 million* Equipment* Training and TA* O&M

22 Egypt: Sohag Rural Development Prcject

Annex 1

Appenlix 1Egypt: Sohag Rural Development Project

Key Performance Indicators

Unit Baseline Mid-Term End of ProjectDevelopment ObjectivesIndicators

Rate of cost recovery of % 50 75 100O&M for newinfrastructure

Percentage of % n/a 50 75infrastructure benefitingisolated hamlets

Recovery rate of credit % 90 95 98Sohag BDAC

Recovery rate of creditLDF % 95 97 98

Output Indicators

Participating LAUs Nb 30 51 51

Average beneficiaries' % n/a 15 20participation ininvestment cost

Women access to credit- percentage of women % 10 25 50

among beneficiaries ofLDF

- percentage of women % n/a 25 50among beneficiaries ofBDAC (micro-credit)


Annex 2


Project Description

A. Local Institutions Stren-theninf ComDonent (US$5.5 million - base costs)

1. This component would support the Local Administration and Line Ministries at thegovernorate, district and village levels, in assisting local conmmunities in identifying, planning,appraising, operating and maintaining rural infrastructure. Activities to be supported wouldinclude:

(i) At the Governorate Level (US$1.8 million)

2. The project would establish a Technical Assistance Secretariat (TAS) in the office of theSecretary General of the Governorate. The TAS would be staffed by four local experts, for a totalof 21 staff/years, in administrative and financial management, procurement, rural development,monitoring and evaluation. They would be supported by 72 months of local consultants and 14staff/weeks of intemational consultants. The project would also finance office equipment, vehicles,training, study tours, and feasibility studies.

3. Technical assistance would focus on fostering the popular participation in decision making,improving the efficiency of internal systems and procedures, in project preparation and appraisal,financial management, environmental monitoring, and operation and maintenance. This wouldimprove user's ownership, technical quality and environmental sustainability of villageinfrastructure. The project would build upon the achievements of previous projects which havefocused on strengthening the local administration, such as the Local Development Project (LDP-l)financed by USAID, and would complement the assistance provided by the UK Department forInternational Development to environmental assessment and management in Sohag. The ProjectOperation Manual is integrating the participatory approach of SBROUK. It also includes aselection of manuals and guidelines prepared under LDP-Il on village planning, designs of ruralinfrastructure, such as water supply systems, operation and maintenance, environmental review, aswell as on the methodology for the appraisal and supervision of projects, procurement systems, andon evaluating the project's impact on the welfare of the beneficiary community. The EnvironmentalManagement Unit, supported by DFID at the Governorate level would carry out the environmentalreview and the mitigation plan would be included in the cost of the sub-projects.

4. Support will be given to the Govemorate and the Districts to assist the Villages/LAU incomplementing and rehabilitating physical infrastructure- through training, awareness campaignson public relevance issues such as environment, health, literacy, obtaining the ID card, etc. TheTAS would also promote regional workshops on micro-finance and micro-credit, involving banks,LDF, community organizations, donors and local administrations.


(ii) At the District and LAU Levels (US$3.2 million)

5. The project would support Rural Development Committees at the LAU and District levelby financing equipment and training. Training programs would focus on needs identification,awareness building, impact monitoring, health and family planning, and social intermediation.Audience for training would be member of the committees and village delegates ('mandub' and'manduba'), and their supervisors, whose work is key for the participatory rural developmentprocess. Workshops on savings mobilization for mandub and manduba would strengthen theirknowledge on rural finance. The project would finance office equipment for the LAU and 11districts. To ease the communication and transport constraints in the villages, the project wouddfinance a twincab pickup for each LAU.

6. Yearly sessions at the village level will focus on how to utilize available socio-economicdata (village profiles, background studies) and update the analysis of village needs for projectselection, monitoring and coordination through the use of participatory rural assessment techniques(PRA). Existing research at the village level will be used as well to train mandubeen supervisors inneeds identification, impact monitoring, health and famnily planning, and social intermediation.

(iii) Other Line Ministries (US$0.5 million)

7. Other line ministries in Sohag participating in the Rural Development Program would besupported through training and short-term TA to improve their capacity to assist VDRCs inpreparation and implementation, as well as in supervision and O&M. This would promote workgroup cohesiveness and coordination among the staff and to enable them to share information andexperiences with other agencies and interact with the village and district committees. TA andtraining would be administered by the TAS. Project financing would also include officeequipment.

8. The effectiveness of the TAS and the Sohag team operations would be examined throughannual surveys of quality control, beneficiary assessments, and impact evaluations, which would becontracted to independent agencies. The Management Information System (MIS) under designwill track progression of sub-projects, provide transparency and accountability of financial flows,monitor civil works progress based on field supervision reports, and flag sub-project experiencingunusual delays and cost overruns. MIS generated information will be used into the daily decisionmaking and operations of the project and will form an integral part of the reports submitted by theSohag Govemorate.

B. Village Infrastructure Component (US$47.5 million)

9. This component would support Village Priority Development Plans identified, preparedand co-financed by the Sohag Villages through the SHROUK participatory process, in interactionand with the support of the local administration and line ministries in Sohag. Based on SHROUR;'saccrued experience in sub-project implementation, the project would provide grant financing tosupport demand-driven community-based social and economic infrastructure sub-projects. Thiscomponent would improve access to basic economic and social services in the 51 LocalAdministrative Units (LAUNillages) comprising 268 affiliated villages and 1,217 hamlets of theSohag Govemorate. The total population of Sohag is 3.1 million, in 461,000 households.


The type of infrastructure financed by the project would include:

(i) Economic and municipal infrastructure such as: village water supply systems,wastewater and sanitation systems, small irrigation and drainage systems, ruralroads, canal covering in village streets, veterinary centers, slaughterhouse, andenvironmental projects, etc; and

(ii) Human development infrastructure and service sub-projects, such as: health centers,classrooms, literacy centers, youth centers, women's clubs, cultural centers, etc.

10. Sub-projects would be identified by the villages themselves as part of an on-going villageneed assessment and planning exercise which has been initiated by the SHROUK's village profiles.Under the project, representatives of the private sector and NGOs active in the village would jointhe Executive Council, the elected Village Popular Council and natural leaders who are alreadyincluded in the SHROUK Committee. To avoid possible conflicts of responsibility and ensuretransparency and accountability, the respective roles of the VRDC and the Village Popular Councilwould be clarified. Various options are currently under experimentation.

11. The VRDC would develop Village Master Plans for key sectors, with the support of theVillage Information Decision Support Center and representatives of line ministries in the village.The methodology is provided by the Project Operation Manual and manuals and guidelines alreadyavailable under the USAID financed LDII project. Project identification and preparation would bedone at the village levels with the support of the district and governorate. Project appraisal andselection would be done at the Govemorate level, based on the following criteria: (a) soundtechnical designs based on village sectoral plans, analysis of alternatives, and sectoral norms; (b)feasibility: available inputs, estimate labor content, and technical feasibility of implementation; (c)cost parameters, including cost per beneficiary or cost per unit, minimum beneficiary contributioneither in-cash or in-kind to investment costs; (d) environmental sustainability; (e) social equity(location, priority, profile of beneficiaries, gender and income); and (f) project sustainability,including realistic operation and maintenance arrangements and community commitment tofinancing 100 percent of incremental operation and maintenance costs after three years.

12. Sub-projects would be implemented through partnerships with the local government,beneficiary communities, welfare and community organizations, such as Community DevelopmentAssociations (CDAs) and other NGOs, with beneficiaries making a contribution in cash or in-kindof at least 10 percent. The maximum sub-project size would be US$500,000. Training would beprovided to farmer associations, community groups, and NGOs aimed at strengthening theircapacity for self-help and management.

13. Sustainability of infrastructure and services through adequate organization and financing ofoperation and maintenance, would be a prime objective of this component. The establishment of anacceptable Village Operation and Maintenance Plan would be an important criteria for determiningeligibility for financing infrastructure in a particular village. The O&M Plan would include anassessment of the financial capability and willingness of the community to participate in O&Mcosts. Implementation arrangement would differ by type of investment. For example:

(a) O&M of water supply, sanitation and sewage systems would be handled by theworkshops established under the Local Development Project II (LDP-ll) at the


LAU, District, and Govemorate levels. The Project will experiment with severalmanagement arrangements. One option will be to support the Govemorate inreactivating the management of the workshops through management contracts witha small technical team financed by the proceeds of the normal water fee and thespecial fee established under Govemorate Decree No 242/1991. In addition, theproject would finance training, TA, and equipment needs of the workshop. Usersare expected to cover the full cost of O&M after three years;

(b) for rura roads, maintenance would be done by the special unit working oncommercial basis established by the Sohag Road Department under the sameGovemorate Decree; and

(c) the operation of health centers and one classrooms-schools would remain under thleresponsibility of the Ministry of Health and the Ministry of Education respectively.However, beneficiaries would participate in the cost of operating and maintainingthe facilities on a progressive basis. Commitment from the Ministries of Health andof Education to provide qualified staff would be a criteria of eligibility for this typeof investment

14. For each sub-project, the LAU would enter into an agreement with the sector Line Ministryor agency and a local maintenance committee representing beneficiaries. NGOs or privatecompanies would be contracted to: (a) help create local maintenance committees where they donot exist; (b) provide training in maintenance of physical facilities based on maintenance manuadsto be developed jointly with ORDEV and Line Ministries with participation of local communities;and (c) train local committees in simple fund raising techniques, fund management, generalmanagement, and supervision.

C. Rural Finance Comuonent (US$23million)

15. This component will help to improve standard of living of the rural poor in Sohag by: (a)promoting increased economic activities, and (b) open access to credit for women and the ultra-poor. The project would support two sub-components:

(1) On-farm Technology Improvement and Rural-Based Investment (US$18.0 million)

16. The project would provide long-term resources through a line of credit and institutionalsupport to the Sohag BDAC to increase agricultural productivity and rural income through on-farmtechnology improvement and rural-based investments.

(a) The Line of Credit for Agricultural Production and Rural Investmemts(US$17.2 million) would augment the resource position of the Sohag BDAC andmake available to it a core base of long-term funds for on-lending. This would givethe BDAC the opportunity to address its critical financial issues more effectivelyand build up community trust and participation. The line of credit would finance thefollowing activities:

(i) Seasonal and short-term credit for seeds, fertilizers, machinery and labor hireand pumping costs;

Egypt Sohag Rual Development Project 27

(ii) Medium-term credit (up to 5 years) for tractors, implements, threshers,establishment of agricultural machinery hire services, rice and wheat mills,livestock fattening, and equipment of dairy processing;

(iii) Long-term credit for land development and agribusiness (over 5 years) forvegetable processing units, milk collection and processing units, privateveterinary clinics, animal shelters, etc.

(b) Institutional Support to the Sohag BDAC (US$0.7) will complement ongoingPBDAC efforts to address the financial and managerial problems facing the SohagBDAC, which are being reviewed by an ongoing financial management studysupported by the Agricultural Modernization Project: (i) the capitalization of theBDAC has been increased to LE 80 million, which is placing the Sohag BDAC inthe group of BDACs with the highest capital; (ii) the loan portfolio will be cleanedup of bad debts older than three years; (iii) a training program financed by theongoing Agricultural Modernization Project is underway; and (iv) the findings of theongoing financial management study of PBDAC and Sohag BDAC would betranslated into an institutional building and business plan which would be submittedto IDA for review and approval before June 30, 1999. The project would financetransportation and office equipment, training and technical assistance.

17. This component would operate under the "Manual for Credit and Financial PoliciesProcedures for the BDAC and the PBDAC" approved by PBDAC Board of Directors on May 29,1997. Financing terms and conditions are included in the Operating Manual includes coverage thefollowing areas: financial arrangements, principal financing conditions, approval, targetbeneficiaries, project criteria, size of loans, lending terms.

(2) Micro-Credit for Income Generation (US$5.0 million)

18. The project would support the Sohag BDAC and the LDF in Sohag to develop market-oriented credit delivery for income-generating activities by the rural poor with special emphasis onwomen, in a competitive and financially sustainable manner.

19. This component would use two different mechanisms for the delivery of micro-credit thathave been successfully experimented in Egypt: (i) community-based lending targeted towardswomen on a model inspired by the Grameen Bank of Bangladesh, initiated by UNICEF in Sohag,Assuit, Qena, and Alexandria governorates, under the Family Development Fund (FDF); and (ii)individual micro-credit through existing banking institutions, on the model of the SpecialInnovation Funds initiated by the Govermment of Netherlands with the Menufia and El SharkiyaBDACs.

(a) Community-based Micro-credit (US$2.3million)

20. The project would finance a special wholesale credit window for NGOs. The creditwindow would support eligible participating NGOs, including the Community DevelopmentAssociation (CDA) registered with the Ministry of Social Affairs. under Law 32 and currently


involved in community-based micro-credit with the rural poor and women groups that haveestablished a solid track record. The CDA, NGOs or PVOs would have to provide adequateguarantee to the financial intermediary (BDAC of LDF), and would be responsible for thecommunity loans that would be at market rates to support the credit cost and risk. The line ofcredit would be financed by IDA (50 percent) and IFAD (50 percent). The NGO would open anaccount with the BDAC (or in a commercial Bank in the case of LDF) and route all its operationsof moneys collected and disbursed through this account. Initially, at the time of loan applicatior;the NGO will prepare a simple project report outlining its experience to date, basic methodology,and target groups it focus on and with the projected cash flow, profit and loss and balance sheetbased on anticipated levels of credit. The NGOs will be required to submit quarterly progressreports on the loan portfolio and annual financial statements to the financial intermediary. Thiscomponent would be implemented by the Sohag BDAC and the LDF though two separatesubsidiary loan agreements: (i) a line of credit of US$0.9 million would be managed by the SohagBDAC; and (ii) a line of credit of US$1.4 million would be managed by the LDF in Sohag.

21. CDAs or NGOs would provide loans to rural women organized in groups of about fivebeneficiaries. Under the methodology of the FDF, loan size ranges between LE 200 and LE 1500per beneficiary. Eligible income-generating activities include inter alia: handicrafts, animalhusbandry, small retail and trade activities, vegetable and fruit selling and processing. The loansare extended to small groups (2, 2, 1) in a sequence. The neediest two members of the group areexpected to receive the first loan, then after a few weeks the second group of two receive a loanprovided that the first two beneficiaries pay back. The leader of the group will then receive a loanonly if all members of the group are paying back on time and attend weekly meetings organized bythe participating NGO. A similar methodology is successfully used by the local branches ofInternational NGOs such as Save the Children, Catholic Relief Services and CARE. Interest ratesfor the beneficiaries are at market rate (15 to 18 percent per year).

22. A credit steering committee would be established in Sohag between the SohagGovemorate, the Sohag BDAC, UNICEF, Save the Children, CARE, Catholic Relief Services,LDF, and the Ministry of Social Affairs. The committee would establish and review eligibilitycriteria for micro-finance schemes run by NGOs. These could include: experience in providingfinancial services, saving component, integration of financial and social services (health, literacy),activities in social intermediation (ex: ID card for women, assisting people in using post offices andbanks for savings).

(b) Individual Micro-Credit (US$2.3 million)

23. The project would finance a pilot line of credit for innovative credit delivery. Buildingupon the successful experience of the Special Innovation Fund (SIF), financed by the Netherlands,the main feature of the micro-credit line would be: (i) non-targeting: the credit can be used for anyproductive (income generating) activity, such as farming, farm related activity, small trade,handicraft; (ii) one standard market rate of interest is used, irrespective of type of the application ofthe loan by the beneficiary; (iii) no collateral would be required for loan less than LE 1,500; (iv)high performance targets: a repayment of 98 percent minimum would be aimed by approprialteappraisal, sound monitoring and performance oriented staff motivation; (v) existing clients ofBDAC and LDF would be checked for credit worthiness; and (vi) simplified procedures for loanapplication and simplified accounting would be used and the target for administrative expenseswould be 3 percent.


24. Other features would include: (i) speedy decision making (approval in seven days); (ii)existing clients of the program with good repayment records will be assured of continued crediteligibility the subsequent year/season; (iii) the program would focus particularly on the needyfarmers and rural dwellers, with a loan amount limited to LE 5,000 per client; (iv) the maturitywould not exceed 12 months; (v) the possibility of introduction of a saving scheme would beexplored; (vi) quick and frequent feed back of financial performance to credit officers throughappropriate monitoring system would be expected; and (vii) credit to women would be activelypromoted.

25. This component would be implemented by the Sohag BDAC and the LDF in Sohag. Aline of credit of about US$0.9 million would be managed by the Sohag BDAC and a line of creditof US$1.5 million would be managed by the LDF in Sohag.

26. The operation manual, simplified accounting system and computerized loan monitoringsystems successfully developed under the SIF would be used by the Sohag BDAC and the LDF inSohag.

(c) Institutional suDoort to the LDF (US$0.4 million)

27. The project would support the decentralization of LDF's decision making to Sohag.Agreement was reached at negotiations that the LDF will decentralize its decision-makingoperations: (i) LAU for loans up to LE 2,500; (ii) District for loans between LE 2,500 and LE5,000; and (iii) Govemorate for loans between LE 5,000 and LE 10,000. A loan committee will beconstituted in each LAU. Down payment would be waived for small borrowers (e.g., loanamounts not exceeding LE 1,500). The project would finance office equipment, training andtechnical assistance. This would complement the technical assistance provided by UNICEF under amanagement contract with ORDEV.

28. The following agreements were confirmed during negotiations: (i) interest rates to finalbeneficiaries would cover the cost of credit and allow a return on capital; and (ii) the NIB wouldtake the foreign exchange risk for the LDF.


Appendix 1Annex 2


Technical Assistance SecretariatTerms of Reference of Key Staff -

A. Administration and Financial Management Specialist

The administration and financial management specialist will work under the Secretary General ofthe Sohag Govemorate. He/she will assist the Secretary General in the overall management andadministration of the project.

He/she will be responsible for the following activities:

(a) supervision of the preparation annual budgets and work plans (with the support of the RuralDevelopment Specialist);

(b) management of the Local Institutions Strengthening and Village infrastructure Component on aday-to-day basis;

(c) supervision of financial aspects of the project, ensuring that administrative tasks onprocurement and disbursement are undertaken on a timely fashion and accounts are properlymaintained;

(d) organization of monthly coordination meetings with Sohag BDAC and LDF;

(e) preparation of withdrawal applications and management of the project's Special Account forSohag Governorate in accordance with World Bank guidelines;

(f) coordination of preparation and issuance of progress reports, including mid-term review andproject completion report;

(g) recruitment of short term consultants on the basis of TOR prepared by the Line Ministries inSohag; and

(h) support to IDA and IFAD supervision missions.

The administration and financial management specialist would have a university degree in finance,business management or accounting and practical experience with an accounting firm. He/she will have atleast five years of professional experience with financial management. He/she would reside in Sohag andwould be appointed for a period of 2 years after a six-month probationary period, with possibility ofextension. He/she would be fluent in Arabic and English.


B. Procurement Specialist

The procurement specialist would coordinate procurement activities under the project and will havethe following responsibilities:

(a) preparation of standard bidding documents and contracts to be procured under the project inaccordance with IDA/FAD, and other donors guidelines;

(b) monitoring of procurement activities;(c) recruitment and supervision of short term technical assistance to line ministries in the

preparation of bidding documents and supervision of works;(d) review and evaluation of bidding documents;(e) organization of bid evaluation and contract award; and(f) coordination of work supervision, in collaboration with representative of line ministries in

-Sohag.

The procurement specialist would have a degree in civil engineering or architecture, and wouldhave a minimum of five-year experience in supervision or implementation of infrastructure project inEgypt Experience in both the public and private sector would be preferable. He/she would reside inSohag. The contract would be for one year with possibility for extension.

C. Rural Development Specialist

The rural development specialist would be responsible for the implementation of the participatoryplanning methodology of the Project. He/she will have the following responsibilities:

(a) coordination of the preparation of annual work plans;(b) collaboration and coordination with ORDEV's National Program for Integrated Rural

Development at both national and govemorate levels;(c) coordination with NGOs;(d) development of PRA toolkit and organization of PRA training;(e) supervision of the participatory planning process at the village, district and govemorate level;(f) facilitation of dialogue between Rural Development committees and line Ministries during the

review of sub-project technical alternatives and discussions of the operation and maintenanceplans; and

(g) preparation and implementation of the training program at the village, district, and govemoratelevels.

The rural development specialist would have a university degree in rural development or regionalplanning with at least five years experience in development project with strong participation aspects.He/she would have good understanding of the local administration procedures, including regulations andlegal aspects and previous experience in the Govemorate. He/she would reside in Sohag. The. contractwould be for one year with possibility for extension.

32 Egypt Sohag Rural Development Project

D. Monitoring and Evaluation

The monitoring and evaluation specialist would be responsible for monitoring all aspects of projectprogress including project inputs, outputs and impact on development objectives listed in Annex 1. He/shewill have the following responsibilities:

(a) development and maintenance of the Management Information System (MIS) for the project;(b) monitoring of project costs (in cooperation with the management and financial specialist);(c) monitoring of physical works (in cooperation with the procurement specialist and line

ministries in Sohag;(d) preparation of quarterly and annual reports with input provided by Sohag BDAC and LDF;(e) design and coordination of the project mid-term review; and(f) prepare TOR and supervise independent evaluation of project development impact.

The monitoring and evaluation specialist would have an university degree in economy or socialscience. He/she would have at least five years experience with monitoring and evaluation of ruraldevelopment or agricultural credit projects. The contract would be for part-time assignment (six monthsper year).


Appendix 2Annex 2


Village Infrastructure ComponentCriteria for Sub-project Approval

I- Type of Projects

A- Economic and Municipal Infrastructure- rehabilitation or new construction of small scale irrigation and drainage schemes- small water supply and sanitation systems- canal covering in inhabited areas- rural roads- slaughterhouse

B- Human Development Infrastructure- village health centers- classrooms- youth centers- women centers- women clubs- literacy centers

II- Appraisal Criteria

General_ consistency of the project with the Govemorate or Village Sectoral master plan- sustainable operation and maintenance plan- endorsement of the project concept, operation and maintenance plan by the Village RuralDevelopment Committee

- total cost less than US$500,000 equivalent- financial participation of the community in kind, labor or cash, of at least 10 percent ofthe total cost of the project

- sound technical design- implementation arrangements- environ-mental review and adequate environmental mitigation plan

Social criteria- the project has been identified through the participatory methodology of the NationalProgram for Integrated Rural Development (SHROVK)

- the project has been identified as a priority by the community- the community is willing to participate in investment cost and support 100 percent ofoperation and maintenance costs after three years

34 Egpt Sohag Rural Development Project

Technical Criteria

- quality detailed designs and bidding documents- adequacy of environmental management plan- availability of proposed equipment and materials

Financial and Economic Criteria

- financing plan, including contribution from beneficiaries of at least 10 percent in cash, laboror kind (including land)

- cost benefit or cost effectiveness analysis (cost per beneficiary, or per unit, in line withcomparator costs)

- intemal rate of return above 12 percent for project costing more than US$250,000 equivalent- operation and maintenance plan including: institutional arrangements, operation andmaintenance manual, training prograrn, O&M provisional budget, staffing and financingplan

Institution and Management Criteria

- assessment of the managerial capability of the Local Administrative Units and Districts inpreparation of detailed designs, bidding documents and supervision of works

- identification of technical assistance required- commitment of line ministries to provide incremental staff and equipment required under theO&M plan


Annex 3


Estimated Project Costs

-----------------------US $ million- -----------A. Local Institutions Strengthening in Sohag Govemorate

- At the Governorate Level 1.4 0.3 1.7- At the District and LAU levels 1.8 1.4 3.2- For Line Ministries 0.4 0.1 0.5

Sub-total 3.7 1.8 5.5

B. Village Infrastructure Development 33.8 13.7 47.5

C. Rural Finance

a) On-Farm Technology Improvement and Rural-BasedInvestment- Line of Credit BDAC 10.4 6.8 17.2- Institutional Building BDAC 0.1 0.6 0.7

Sub-total On-Farm Technology and Rural-Based Invest. 10.5 7.4 17.9

b) Micro-Credit for Income Generation(i) Community-Based Micro-Credit

- Sohag BDAC 0.5 0.3 0.8- LDF 0.9 0.6 1.5

(ii) Individual Micro-Credit- Sohag BDAC 0.5 0.3 0.8- LDF 0.9 0.6 1.5

(iii) Institutional Building LDF 0.1 0.4 0.5Sub-total Micro-Credit 2.8 2.2 5.1

Sub-total 13.4 9.6 23.0

Total Baseline Cost 50.9 25.1 . 76.0Physical Contingencies 3.4 1.4 4.8Price Contingencies 10.4 2.6 12.9

Total Proiect Cost 64.7 29.1 93.8

Note: Amounts rounded


Annex 4


Economic Analysis

1. Links to CAS and ESW. The project would address two objectives of the CAS: (a) improvingrural income; and (b) improving natural resource management by: (i) improving income and quality of lifein rural communities, and (ii) mobilizing and improving equitable access to credit for the poor and forwomen. The project is specifically listed in the CAS. The project would also support the AgriculturalStrategy for the 1990s prepared in 1993 by the Ministry of Agriculture and Land Reclamation with thesupport of the World Bank and other donors. This strategy identified, among others, the need to implementmeasures for the agricultural sector within the context of an overall rural development strategy, whichshould encompass aspects related to diversifying rural activities and provide key services, in particular,sustainable intensification of agricultural production and essential social programs for health and education

2. Adequacy of Policy Environment. The performance of the Egyptian economy has improvedmarkedly in the last two years. The GOE is committed to provide a political environment to allow a rapid,sustainable growth to bring a solution to the pressing social and employment problems that are the keychallenges for the immediate future. The GOE has initiated decentralization of decision making andfostering community participation through the SFD and the SHROUEK program. The institutionalframework for the Village Infrastructure Component of the project has been created in 1994 by theestablishment of the SHROUK inter-ministerial committee and by the establishment, in July 1997, of anew Ministry of Rural Development. Concerning the financial sector, the project would build upon thepolicy reforms initiated under the on-going Agricultural Modernization Project.

3. Public/Private Sector Role. The project would support the decentralization of decision makingfor public investment in Sohag. It would promote private sector and NGOs' participation in theimplementation of the sub-projects and in their operation and maintenance through contractual agreementswith the local communities. Public intervention is justified because the project: (a) supports activitiesrightfully undertaken by the GOE because of their positive, public good, externalities; (b) targets benefitsto poor communities unlikely to be reached by the private sector; and (c) provides an impetus for newapproaches to poverty reduction and rural development which could be adopted by the private sector oncesufficient experience and familiarity with them has been gained.

4. Economic Analysis for the Village Infrastructure Component Following the standardprocedure applied in similar World Bank projects, the majority of sub-projects under the VillageInfrastructure component would be appraised against a cost per unit or cost per beneficiary criteria. A rateof return calculation would be only required for a small number of sub-projects for econormic infrastructurewith both quantifiable benefits and costs exceeding US$250,000. This approach is appropriate given: (i)the demand-driven and dynamic character of the sub-project identification, which does not allow a detailedup front planning of the entire investment program, and (ii) the benefits of sub-projects which are not directquantifiable, i.e. one classroom-school. It is difficult to calculate a rate of return for the overall project,given the uncertainty about the composition of the investment program and range of sub-projects.Investment plans would be prepared during project implementation, comprising sub-projects identified byvillages and Local Administrative Units under the participatory SHROUK process. For the first projectyear, the Sohag Govemorate prepared an investment program which would be financed by the project.


The investment program contains sub-projects such as one classroom-schools, small water supply systems,and pavement of rural roads. The sub-projects have been gathered from existing village plans which weredesigned by SHROUJK committees.

5. Cost Effectiveness Analysis for Sub-projects: For sub-projects with mainly non-monetary benefits,i.e. health units, youth centers or one classroom-schools, and for small sub-projects for economic andmunicipal infrastructure with an investment volume below US$250,000, a maximum cost per unit or costper beneficiary criteria would be determined based on the first year investment program and experience ofsimilar programs (LDP-II, SFD). Since the type as well as the size of sub-projects varies significantly, i.e.upgrading or new construction, the cost per unit threshold is expected to change during projectimplementation. The database would be continually updated and extended during project implementation tobecome a practicable tool for sub-project appraisal. Investment cost per unit would be kept withinsubsector norms and consistent with the norms used by the SFD. However, where site specific conditionsrequire a sub-project design which differs from the standard design, with cost exceeding the per unit costthreshold, the decision makers are allowed to approve such sub-projects after the need for the higher costsolution has been confirmed in a feasibility study.

6. Feasibility studies would evaluate sub-project alternatives in order to identify sub-projects whichare both cost-effective and provide high benefits. The feasibility studies would consider both quantifiableand non-quantifiable benefits from the different alternatives. The results of these studies would besubmitted to the decision makers and the SHROUJK committees at the village level in order to increase thetransparency and trust in the SHROUK process.

7. An additional appraisal criterion would be the commitment of the beneficiaries to contribution: (i)at least 10 percent to the investment costs, either in-cash or in-kind; and (ii) 100 percent to the incrementaloperation and maintenance cost after three years. Furthermore, the design of adequate operations andmaintenance arrangements according to the Operation Manual would be required. These appraisal criteriarequirements would be assessed for each type of sub-projects and would be reviewed annually toincorporate experience gained in field operations.

8. Financial Analysis for the Rural Finance Component. The financial analysis for the RuralFinance Component is based on (i) typical loans which the Sohag BDAC and LDF are currently providing,and (ii) investment profiles prepared for the Agricultural Modernization Project in Egypt. The financialanalysis assumes a borrowers' contribution to the investment of 30 percent and an interest rate at marketrates of 16 percent with repayments over five years with a one year grace period. Financial cost of theinvestment profiles include investment cost, operating cost, and additional working capital needed. Theaverage economic life of each enterprise is estimated between 8 and 10 years. For the calculation of theEconomic Rate of Return, direct transfer payments including taxes, duties and subsidies were, deductedfrom financial prices to reflect the economic value of a particular enterprise. The rate of return calculationfor the selected investment profiles indicates a high profitability of the investment (see Table A),

9. Investment Profiles: investment profiles are available for livestock production, agriculturalprocessing, honey production, and four agro-related enterprises based on the experience of the AgriculturalModeniization Project (i.e. small and medium-scale custom service small operation, small-scale wheatmilling, and medium-scale horticultural sorting and packing station). Small livestock production does notrequire investment in buildings, fixed equipment or land, thus, the proposed investment activities areappropriate for poorer households which usually lack these assets. Further, dairy production has theadvantage that income is received on a regular basis, and calf fattening provides a rapid tum over. Farmers


would retail the milk and sell their meat at local markets. Investment in agricultural processing is based onsimple technology which is suitable for small-scale enterprises. Pickle and yogurt production are economicactivities which are likely to be attractive to women wishing to become involved in agricultural processing.The agricultural processing activities generate employment because they require a relatively high input oflabor. The four agro-related enterprises require relative high investment. The Financial Rate of Return(FRR) calculation indicates a high profitability of the investment activities (see Table A).

Table A: Investment Profiles for Rural Finance Com onent (in LE

AgricultureDairy Production 16,100 4,830 3,600 27%Sheep Breeding 9,500 2,850 2,200 26%Calf Fattening 10,900 3,270 2,900 35%

Agricultural ProcessingTomato Paste Production 8,000 2,400 9,800 36%Pickle Production 13,200 3,960 5,700 49%Yogurt Production 24,000 7,200 10,500 50%

Honey Production 21,400 6,420 8,500 38%

Land Levelling (per 50 feddan) 5,400 1,620 12,000 68%

Agro-Related Enterprises- Small-Scale custom serviceoperation 394,000 118,200 135,700 24%

- Medium-scale custom serviceoperation 2,140,000 642,000 653,600 27%

- Small-scale wheat miling 140,800 42,240 83,800 29%- Medium-scale horticulturalsorting and packing station 1,886,000 565,800 1,106,000 39%

10. Feasibility studies would be prepared for loan approval. Loans for agro-processing would requirean analysis of the relevant market. Loans under the Micro-Credit component would not require individualapproval as the Grameen Bank concept by definition transfers the responsibility for loan approval to thesmall-groups who borrow from the BDAC or LDF, respectively. However, loan approval under the sub-component Individual Micro-Credit would comprise several criteria such as repayment history oifindividuals.

11. Risk Analysis. The three external key risks for the project are: (a) the financial and politicailcommitment of the GOE to decentralized rural development; (b) the participation of line ministries in theparticipatory rural development process; and (c) the performance of the Sohag BDAC and LDF. The scopeof the Village Infrastructure component has been agreed upon with the Ministry of Planning which hasallocated an equivalent of US$23.6 million to the project. ORDEV is already a department of the newly-established Ministry of Rural Development. The project would improve the capacity of the localadministration and NGOs through training and capacity building. The socially difficult participation ofwomen in the project's activities would be secured through a prudent and flexible approach where women.would play an active role in the Village SHROUK committees and get access to credit. The project would

Egypt. Sohag Rural Development Project 39

utilize the accumulated experience from local NGOs and UNICEF. An Institutional Development Plan isunder preparation for the Sohag BDAC and will be implemented under the project.

12. Fiscal Impact and Cost Recovery. Since the development of a sustainable mechanism to ensurerecovery of O&M is a main objective under the project, the long-term fiscal impact is expected to beminimal. To minimize the impact on GOE budget, incremental O&M costs will be borne by thebeneficiaries after three years of operation. The willingness to contribute in the financing of investmentcosts will depend on the availability of alternative sources of financing that do not require the samefinancial commitment of communities.

13. Institutional Capacity. The project would be part of the SHROUK program launched in 1994 byORDEV as the Village Infrastructure component would be implemented through this process. TheGovernor of Sohag would be supported during project implementation by a Technical AssistanceSecretariat (TAS) to be established within ORDEV under a management contract and with staff secondedform key Line Ministries. The TAS would provide technical assistance for the feasibility studies of villageprojects. It will also have an important monitoring and evaluation function to follow-up on projectperformance and impact. Project implementation would be flexible because of the demand driven anddynamic character of the SHROUK process. The activities to be financed would be prepared on a rollingprogram basis. The Rural Finance component would benefit from the activities of the AgriculturalModernization Project which supports the PBDAC. Other institutions that would participate in the RuralFinance component, e.g. UNICEF, have proven their capability to implement and support micro-creditprograms.

40 Egypt: Sohag Rural Developmnent Project

Annex SA


Financial Summary and Appraisal of Intermediaries

Introduction

1. This Annex attempts to evaluate major institutional issues effecting the BDAC Sohag and IheLocal Development Fund and appraise their financial performance. The parameters of OD 8.30 have beentaken as a guideline for this appraisal. In the absence of financial projections provided, projections for Ihenext five years have been based on the actual balance sheet and income statement for FY97 and anassumed real growth rate as enumerated in the report.

2. BDAC Sohag is a dominant rural bank with an extensive outreach of village banks which is criticalfor extending micro enterprise credit and mobilizing savings of the rural households. Though BDAC doesnot have prior experience in financing micro enterprises and NGOs, the TA and training recommended willsupport and strengthen this component. The financial statements do not indicate a satisfactory situation dueto various weaknesses detailed in the report. However, under the ongoing Agricultural ModernizationProject, the World Bank is assisting in strengthening PBDAC and addressing its institutional andsustainability issues. The proposed credit will in addition, augment the long-termn resource of the BDAC.

3. LDF has an extensive outreach through the LAUs which operate at the village level. LDF hlasproven satisfactory experience in financing small and micro credit enterprises/projects and NGOs. Thefinancial statements reveal the limited financial resources of the LDF to create a greater impact in ruraldevelopment. LDF has been relying entirely on donor support and grants until now. The proposed creditwill strengthen the long-term resource availability at a low cost and enable LDF to decentralize itsoperations by delegating loan sanction authority at the Governorate level.

4. Though financial intermediaries, LDF and the NGOs in Egypt are not allowed to accept depositsfrom the public. The BDAC will therefore play an important and complementary role in mobilizing ruralsavings through their village banks.

Sohag BDAC

Corporate set up and management

5. BDAC is an independent corporate entity set up under Law 105 of 1976 and is owned 100 percentby PBDAC (set up under Law 116 of 1976). According to the Law, each BDAC shall have a separatebudget to be prepared in accordance with the rules governing the budgets of the banking system. It isresponsible for paying taxes and dividends on its operations and meet with independent capital adequacystandards.

6. The management of the BDAC consists of the Chairman and a Board of Directors. PBDAC is notrepresented on the Board. Though BDAC is an autonomous entity, it is wholly owned by PBDAC and isdependent on PBDAC for its budget allocation, resources, loan approvals beyond a credit ceiling, etc. Law


117 defines that all BDACs, their branches and village banks shall fulfill the objectives of the PBDACwithin the limits it sets for them. In effect, there is limited autonomy as lending targets, interest rates, etc.are set by PBDAC. The Law in tum, places PBDAC directly under the jurisdiction of the Minister ofAgriculture.

7. The network of BDAC comprises of 11 branches and 71 village banks. The branches are mainlyadministrative units supervising village banks under their area The customer base is 247,211 covering anarea of 296,175 feddans. A significant part of the loan portfolio of approximately 37 percent consists ofloans to animal husbandry and calf fattening activities'. Total staff strength is 1680. Eleven branches andeleven village banks are computerized.

Reliability and Acceptability of the Financial Statements

8. The Balance sheet and Income statement for the past five years (FY93 to FY97) and the projectedBalance sheet and income statements for the next five years (FY98 to FY02) are attached in Appendix 1-4.The accounts of the BDAC are audited by the Central Audit Agency (CAA) which is an independentgovernment agency. The accounting standards are not in conformity with intemationally acceptedaccounting and audit standards particularly in the treatment of interest accrued on overdue loans andclassification of the loan portfolio. Since July 1, 1998, PBDAC and BDAC have to follow internallyaccepted accounting standards as required by the Central Bank of Egypt.

9. According to the CAA report, the Sohag BDAC did not show a distributable surplus in FY96.Sohag BDAC has been incurring losses for the past few years and part of the costs have been absorbed byPBDAC. They are not reflected in the financial statements. Table 2 indicates the past losses and the taxespaid:

Table 1 (LE 000's)

...... ...... ................................ ............. .. ............... .. ... ........ .. -.............. ....................................................... .....................

~~~~~~~~~~~~~~~~~~~~~~~~~~............. . . ..... . ..... . .. .......... . .... ... ............Losses incurred 2,845 2,521 1,996 - 2,595 --Surplus declared -- 427 480 118 48 113Taxespaid -- 427 480 118 48 113

Source: PBDAC. Total accumulated losses from FY92-96, LE 9.9 million.

10. BDAC has maintained good growth rates in mobilizing deposits. BDAC offers 0.5 percentadditional interest for large deposits. However, the real growth in terms of new loans/disbursals isquestionable as the quality of the loan portfolio cannot be determined. There appears to be an incidence ofrolled over loans with interest capitalized, and rescheduled loans and this cannot be quantified until MIS isfully operational and adequate records are maintained. Table 3 indicates the growth rates.

Table 2 (LE millon)............................................... ........ ..... ...... ...... ........

lIflationrate% 11.1 9.0 9.3 8.3 4.8Total assets 279 334 389 435 481Growth in loan portfolio in real terms % -- 7.5 17.9 0.5 7.2Growth in deposits in real terms % -- 10.4 9.8 10.6 22.6

Source: Inflation rates Egypt Country Department

' See Appendix 7 for composition of loan portfolio.

42 Egyt Sobag Rural Development Project

Analysis of Financial Statements

11. According to the performance ratios (Appendix 2), the interest income from loans as a percentageof average loans outstanding has increased from 12.03 percent in FY96 to 13.04 percent in FY97. This ison the higher side as the average interest rates are around 12 percent (and less for loans under specialprojects e.g., social fund etc.), and assumes a recovery rate of 100 percent. The interest expenses in table 4are understated and should therefore be taken as mere indicators.

Table 3 (LE millions)

Average deposits 93.0 97.4 121.8 145.0 179.2Interest expense on deposits 10.3 10.9 16.5 12.7* 18.2Average borrowings 130.5 116.1 145.6 198.4 202.0Interest expense on borrowings 29.9 16.9 12.7 16.5* 18.9

Note:(a) Figures for FY93 are outstanding (not average) amounts.(b) FY96 interest expense on deposits and borrowings are understated when compared to the growth over the previous year.

Since FY92, the difference/excess cost in borrowings has been borne by PBDAC to avoid showing losses.(c) Borrowings are understated and do not include LE 42.6 million (FY97) received from PBDAC under various

special projects (e.g., Social Fund, Agriculture Modernization Project, etc.).

12. BDAC's lending rates were reduced by three percent with effect from February 1996 at theinstance of the Government and this has further exacerbated the situation. A service charge of one percentwas introduced in the last quarter of 1996, and has been recently increased to 1.25 percent. PBDAC iscommitted to continue to increase progressively the fee in order to reach market rates applied bycommercial banks (short term lending rates of other commercial banks in Egypt is 12.9 percent excludingservice charge and the average medium term loan rates are in the range of 15 percent).

13. Interest income is overstated. With overdue loans constituting 13 percent of the total lomnsoutstanding, and below average rates being applied for loans under special projects, the reported highinterest income of 13.04 percent as a percentage of total loans outstanding (Appendix 2) suggests thatBDAC may not be reversing interest accrued on overdue loans from interest income.

14. BDAC has an unusually high loan to deposit ratio (table 5). According to the Bank's operationalguidelines 8.30, a maximum ratio of 70 percent is usually considered a prudent limit. Though idiepercentage of loan to deposits has been decreasing, it is still very high and indicates that BDAC has beenlending irrespective of its capacity to mobilize deposits.

Table 4

.. . . . ................ ......... .... .::: ....:.::::::: .. .... .....'''':':::::::::'--...'..-"....-'--,-,''..-.,..-'..,................'.........................

Loan odeposit ratio% 252 246 262 240 211

15. Table 5 indicates the total liability position of the BDAC. Though deposits as a source of funds oftotal liabilities have grown significantly over FY96, there is a very heavy dependence on borrowings toconduct their operations.

Egypt Sobag Rural Development Project 43

Table 5 (%/6)

Deposits 33.3 33.3 34.0 36.2 41.7Borrowings 46.6 31.0 48.7 47.6 49.7OtherLiabilities 16.6 30.3 12.0 11.4 4.1Equity 3.5 5.9 5.3 4.8 4.4TOTAL LLABILITIES 100.0 100.0 100.0 100.0 100.0

Note: i3orrowings" in FY97 has been adjusted and reduced from "Otr Liabilities" with an amount of LE 42.6 million (ofborrowings under special projects).

16. Operating costs are increasing. Bonus paid to staff exceeds salaries and allowances by 19 percentBDAC has opened 12 new offices/village banks in FY96. Administrative costs have been steadily rising(includes capital expenditure of LE 2.1 million in FY96 and LE 1.2 million in FY97). Total establishmentcosts have increased by 45 percent in FY97 over FY96. The high operating expenses combined with theloan arrears, is contributing to the poor margins of the BDAC. Table 7 highlights the trend inestablishment expenses.

Table 6 (LE 000's)

yttemmEE:: 1ii 1i;l . ;99

Salaries and allowances 3,578 3,713 4,107 4,342 4,729Bonus paid 1,576 3,757 4,268 5,855 5,651Retirementbenefits 914 802 858 911 930Early -retirement oosts 175 14 17 16 na(number of employees) (103) (9) (16) (9)Training costs 5 5 6 6 7(number of trainees) (216) (325) (122) (174) (194)Other administrative costs 9,747 14,397 7,928 10,214 14,804Rent and utilities 59 64 64 67 64Total establishment costs 16,054 22,752 17,248 21,411 26,185Total net-work offices/branches 65 65 65 77 78Total number of staff 1886 1796 1730 1668 1679

Source: BDAC, Sohag.Note: The figures furnished above do not tally with the "Income statemenet and should be treated as indicators.

Capital adequacy

17. According to the Central Bank of Egypt (CBE), BDAC should have an authorzed share capital ofLE 100 million and a paid up capital of LE 50 million. The total equity in FY97 was LE 20.9 milionconsisting of a share capital of LE 16.1 million and reserves of LE 4.7 million. A decision by the Board ofDirectors of PBDAC was taken to recapitalize all the 17 BDACs by appropriating the grants towards sharecapital. As of January 1, 1998, BDAC received a transfer thereby increasing the share capital to LE 80million. The capital adequacy analysis is attached in Appendix 5.

Loan portfolio and asset quality

18. The sector-wise distribution of loans is attached in Appendix 7. The data indicates a decine inlending to direct agriculture and an increase in lending to non-agriculture related sectors in FY97.

44 Egypt: Soha Rural Development Project

19. Though the loan portfolio has been growing, the quality of the assets is difficult to determine. Theaging analysis of overdue loans is not in place and the classification guidelines of CBE are not beinguniformly applied. See Appendix 6 for loan classification. Internal controls have been weak. For example,failure to take serious and decisive measures against defaulters resulting in a drop in loan collection rates,recurring occurrences of loans being disbursed for settlement of previous loans, etc.

20. The annual loan collection rates for BDAC are 90.61 percent for investment loans and 85.56percent for seasonal agricultural loans. The recovery of loans under the Social Fund For Developmentprojects are however 100 percent. Information on rescheduled loans is not available. O.D. 8.30 criteriasuggests that not more than 20 percent of the loan portfolio should consist of rescheduled loans and notmore than 5 percent of the portfolio should have loans rescheduled more than once. Accounting andoperating systems will be put in place to generate MIS on rescheduled loans.

21. The existing provisions for loan losses constitute only 2.1 percent of the outstanding loan portfolioand is a matter of serious concern. Loan losses are not written off as per present practice. According toCAA, bad debts amounting to LE 2.7 million due since 1985 are still outstanding. This issue is currentlyunder review by a Financial Management Study, carried out under the Agricultural Modemization Project,and will be addressed under an institutional development and business plan prepared as part of the study.

Audit of accounts

22. The accounts of BDAC are audited externally by the Central Audit Authority (CAA) which is anautonomous agency responsible for auditing government accounts. The audit is carried out according tothe prevailing laws under which the BDACs and PBDAC were constituted. BDAC has provided the Bankwith the audited financial statements and comments of the Auditors for FY96.

Financial projections

23. The financial projections are based on the audited statements of FY96 and provisional statementsfor FY97. The inflation rates are based on the CAS. PBDAC has provided the projected balance sheet andincome statements of the BDAC Sohag for the next five years ending FY02. However, in the absence ofdata on assumptions e.g., projected real growth rates, interest rates etc., these were modified and areattached in Appendix 3 and 4.

Requirements for Financial Reporting

24. BDAC would maintain its accounting systems in accordance with sound internationally recognizedaccounting standards acceptable to IDA and IFAD. It would maintain independent separate accounts in thegeneral ledger for amounts received and disbursed under the project. MIS will be strengthened to generateinformation from its accounting systems on an ongoing basis on the progress in disbursements, recoveries,arrears etc.

25. In addition to the above, and as part of the Assets and Liabilities management, MIS would bestrengthened to generate funds flow statements, maturities of assets and liabilities, annual budgets aLndquarterly progress reports. BDAC would maintain detailed memoranda relating to sub project cycleprogress including appraisals, approvals, borrower contribution, disbursals, interest rates, installments due,collections made, arrears and follow-up action.


26. Auditor's opinion and reports satisfactory to IDA would be provided within six months of the closeof the fiscal year, in such scope and detail as IDA and IFAD may reasonably request. Agreement to theseaccounting and auditing arrangements was reached during negotiations.

Conclusion

27. BDAC Sohag is playing an important role in mobilizing savings in the rural areas of the Sohaggovemorate located in Upper Egypt. It is the only bank in Sohag with a network of village banks servingthe rural population. Having highlighted above the major issues, it is critical to extend support forinstitutional strengthening and access to long term resources for financing rural development.

28; Based on the conclusions of the external Financial Management Review which would includecritical areas of: evaluating the quality of the loan portfolio, extent of arrears, loan losses, rescheduledloans, provisioning, accounting practices, treatment of interest income, and capital adequacy, a detailedInstitutional Development Plan will be prepared. It was agreed during negotiations that consultants withqualifications and terms of reference acceptable to IDA to carry out the Institutional Development Plan willbe recruited before June, 1999. Training would form an important component under the technicalassistance. Appendix 8 identifies the areas of training.

29. Asset and liability management will be introduced for efficient financial planning. BDAC willprepare projected cash flows and maturities of its assets and liabilities for efficient liquidity management.As part of the institutional strengthening component, experienced professionals/chartered accountants willbe hired for this purpose.

30. As for the rural finance component, BDAC would have separate accounting in the general ledgerfor the loans disbursed under the proposed project. MIS should be provided on a quarterly basis on thestatus of the loan similar to the one under the Agricultural Modernization Project and in addition, asupplementary statement as being provided to the Social Fund for Development.


Appendix 1......... ~~~~~~~~~~~~~~........... ............... ................. ................. -:............. K fDIWDG.:.p.:. -:- --:-:-:

BALANCE~~~M .HEET-...........i i! ..... : --:.....:::..: .-. .... ...........................

1993 1994 1995 1996 1997(Provisional)

ASSETS

Cash 142 303 760 235 126Balances with foreign banksBalances with local banks

Total cash and due from banks 142 303 760 235 126

Net accrued interest receivable 21,642 32,092 27,600 31,300 26,335Interest bearing inter-bank receivableGovernment securities 752 752 752 752 752Other securitiesTotal investments & current receivable 22,394 32,844 28,352 32,052 27,087

Loans outstanding:Short-term 101,438 110,577 141,149 144,520 156,559Medium-term 131,231 145,588 158,370 189,106 225,789Long-term 2,246 17,700 12,544 12,845 13,603Rescheduled loans 36,270 32,483 28,589Total loans 234,915 273,865 348,333 378,954 424,540Less:

Loan loss provision 16,273 7,478 8,817 9,286 9,278Net Loans Outstanding 218;642 266,387 339,516 369,668 415,262

Receivable:Government debitsOthers 23,879 21,775 8,663 10,367 10,768Total receivable 23,879 21,775 8,663 10,367 10,768Storage 9,601 7,280 4,793 13,713 17,019Equity investment:SubsidiariesOther 418 418 504 504 554Total equity investments 418 418 504 504 554Less: provision for possible losses 188 188 60 60 60Net Equity Investments 230 230 444 444 494Other assetsFixed Assets (net) 5,007 5,461 7,159 9,339 10,581

TOTAL ASSETS 279,895 334,280 389,687 435,818 481,337


Appendix 1 (cont'd)

(continued) 1993 1994 1995 1996 1997LIABILITIES (Provisional)

Deposits:Current Accounts 11,919 13,284 12,767 14,426 17,043Passbook Savings 47,257 59,051 76,668 95,214 115,625Savings Certificates 11,153 11,732 12,618 13,531 8,702Time 19,198 23,020 25,578 28,871 48,662Others 3,627 4,162 4,926 5,591 10,879Total deposits 93,154 111,249 132,557 157,633 200,911

Borrowings:PBDAC 130,538 101,785 189,585 207,405 196,719Local loansForeign loansTotal borrowings 130,538 101,785 189,585 207,405 196,719Bills payableOther financingDue to Central bankOther liabilities 46,213 101,324 46,615 49,644 62,588Other provisions 105 135 170 286 171Total 46,318 101,459 46,785 49,930 62,759Total Liabilities 270,010 314,493 368,927 414,968 460,389

Shareholders' EquityShare capital 5,092 14,807 16,171 16,171 16,171Reserves 4,793 4,980 4,589 4,679 4,777Retained earningsRevaluation surplusGrants receivedTotal equity 9,885 19,787 20,760 20,850 20,948

TOTAL LIABILITIES & EQUITY 279,895 334,280 389,687 435,818 481,337


Appendiix 2.... ~ STAW4ENI .. AC SOILa

1993 1994 15 1996 1997(Provisional)

INCOME

Interest IncomeFrom loans 48,704 38,317 44,839 43,743 52,406From short-term investments

Total interest income 48,704 38,317 44,839 43,743 52,406Less:

Interest expenses onGeneral deposits 10,305 10,943 16,528 12,717 18,287Commercial bank depositsBorrowings 29,903 16,931 12,726 16,499 18,890Other

Total interest expense 40,208 27,874 29,254 29,216 37,177Loan expensesLosses from exchange rate fluctuationsTotal cost of fuids 0 0 0 0 0

Net interest income 8,496 10,443 15,585 14,527 15,229Income from investments 34 37 45 82 82Income from banking services 1,430 1,578 124 225 4,747Income from non-banking services 5,224 3,836 3,060 5,312 4,929Other income 1,579 3,284 3,710 4,730 1,311Total Income 16,763 19,178 22,524 24,876 26,298

Operating expensesPersonnel expenses 12,756 15,419 16,393 18,857 19,203Provision for loan losses 1,054 949 954 585 0Other provisionsOther expenses 2,526 2,330 5,059 5,386 6,982Total Operating Expenses 16,336 18,698 22,406 24,828 26,185

Profit before tax 427 480 118 48 113Taxes 427 480 118 48 113Net Profit 0 0 0 0 0Less dividendsRetained earnings


.................................................. ...................................................... ................................................................................................ ................ 4................. .............. ' ' '''''': ' ' iT . . . ....... .............................................................. .. .............. '-'''''.':'.''''''.i,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. j.............,,. ..... .... ...,::: .... ;.. ,. viPERFORMANCE IIC4T.....~~~~~~~~~~~~~~~~~~~~~~.........

. ... ... ... ... ... ... ... .......... ---' ' : !- !! '' : :: :::::: :: ::! : !:~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. .. ... .. ... .. .. ... .. ... .. ..* -''''" ' " : ':' :'' ' :: :::: -!.......... ::....... ...... ......... ;

199 1994 199S 1996 1997(Provisional)

Average total assets 279,895 307,088 361,984 412,753 458,578Average total liabilities 270,010 292,252 341,710 391,948 437,679Average total loans outstanding 234,915 254,390 311,099 363,644 401,747Average total deposits and borrowings 223,692 218,363 267,588 343,590 381,334

Ratios(a) As % of average total assets(i) Total interest income 17.40 12.48 12.39 10.60 11.43(ii) Interest expense 14.37 9.08 8.08 7.08 8.11(iii) Net interest income (i-i) 3.04 3.40 4.31 3.52 3.32(iv) Total operating expenses 5.46 5.78 5.93 5.87 5.71

(v) Provisions 0.38 0.31 0.26 0.14 0.00(vi) Net Operating Income (iii)-(iv+v) -2.80 -2.69 -1.88 -2.50 -2.39(vii) Other banking income 1.08 1.58 1.06 1.20 1.32(viii) Non-banking income 1.87 1.25 0.85 1.29 1.07(ix) Net profit 0.00 0.00 0.00 0.00 0.00(b) Total interest expense as % of

average total deposits and borrowings 17.97 12.76 10.93 8.50 9.75(c) Interest income from loans as

as % of avg. total loans outstanding 20.73 15.06 14.41 12.03 13.04(d) Net intermediation margin

[(c) minus (b)] 2.76 2.30 3.48 3.53 3.30

2 Average figures for 1993 were not available. Therefore total outstandings have been taken to arrive at theperformance ratios for FY93.

50 Egypt: Sohag Rumal Development Project

~~~~~~~~~~~~~.................. ... ,........... .... ..... ................................................................................. ....................... p p o 3

............................. ...... .................,,fi.Z I I...........

Balance Sheet items1997 1998 1999 2000 2001 2002

ASSETS (Provisional)

Cash 126 132 139 146 152 158Investments 752 752 752 752 752 752Net accrued interest receivable 26,335 35,976 38,712 41,602 44,734 48,032Total Cash, investments and currentreceivable 27,213 36,860 39,603 42,500 45,638 48,942Loans outstanding:Short-term 156,559 169,867 184,305 199,787 215,970 233,247Medium-term 225,789 246,110 268,260 292,403 318,720 347,404Long-term 13,603 14,283 14,997 15,747 16,535 17,361Rescheduled loans 28,589 26,302 23,672 21,305 19,174 17,257

Total loans 424,540 456,562 491,234 529,242 570,398 615,269Less: loan loss provisions 9,278 13,698 22,107 26,463 34,225 43,070Net loans outstanding 415,262 442,864 469,128 502,779 536,173 572,200

Keceivable 10,768 14,354 13,004 7,368 5,190 5,018Fised Assets 10,581 11,322 11,888 12,482 13,106 13,630Storage 17,019 18,551 19,849 21,239 22,301 23,193Net equity investments 494 553 620 694 777 871

TOTAL ASSETS 481,337 524,504 554,091 587,061 623,185 663,853

LIABILITES

Deposits:Demnand 17,043 17,384 17,732 18,263 18,811 19,376Savings 115,625 122,563 130,529 139,666 149,443 161,398Time 57,364 60,232 63,846 67,677 72,414 77,483Others 10,879 11,097 11,319 11,658 12,008 12,488

Total deposits 200,911 211,275 223,425 237,265 252,676 270,745

Due to PBDAC 196,719 228,281 245,617 264,621 285,199 307,635Other liabilities 62,588

Other provisions 171 171 176 181 190 200

Total Liabilities 460,389 439,727 469,218 502,067 538,066 578,580

Shareholder's equityShare Capital 16,171 80,000 80,000 80,000 80,000 80,000Reserves 4,777 4,777 4,873 4,994 5,119 5,273Tota shareholder's equity 20,948 84,777 84,873 84,994 85,119 85,273

TO TAL IASBILiICrES & EQlUITY 481,337 524,504 554,091 587,061 623,185 663,853

Egypt Sobag Ruiral Development Project 51

PLRL..:C ED INCOM STATEM ?4T- BI) C SOHAGAppenldix 4* - i OZ ili«* qj Aooo'sB uO

. .- . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. ....

1997 1998 1999 2000 2001 2002

INCOME STATEMENT (Provisional)

Interest IncomeLoans 52,406 53,144 63,332 70,389 77,745 85,830

'Total interest income 52,406 53,144 63,332 70,389 77,745 85,830Less:

Interest expenses on'General deposits 18,287 19,015 20,108 21,354 21,477 23,013'Commercial Bank deposits'Borrowing from PBDAC 18,890 21,687 22,106 22,493 22,816 24,611OtherTotal interest expense 37,177 40,701 42,214 43,847 44,293 47,624

Net interest income 15,229 12,442 21,118 26,542 33,452 38,206Otherbanking income 4,747 2,657 3,167 3,519 3,887 4,291Income from non-banking activities 4,929 2,226 2,382 2,549 2,676 2,783Income from investments 82 82 82 82 82 82Other income 1,311 1,377 1,445 1,518 1,594 1,673Total income 26,298 18,784 28,194 34,210 41,691 47,036

Operating expensesPersonnel 19,203 19,779 20,570 21,393 22,249 23,139Provision for loan losses 0 4,420 8,409 4,357 7,762 8,845Other provisionsOther expenses 6,982 7,052 7,122 7,229 7,374 7,521Total operating expenses 26,185 31,251 36,101 32,979 37,384 39,505

Profitbefore tax 113 -12,467 -7,907 1,231 4,306 7,531Taxes 113Net profit 0 -12,467 -7,907 1,231 4,306 7,531

Ratios(a) As % of average total assets(i) Total interest income 12.4 10.6 11.7 12.3 12.8 13.3(ii) Net interest income 3.6 2.5 3.9 4.7 5.5 5.9(iii) Total operating expenses 6.2 6.2 6.7 5.8 6.2 6.1(iv) Net profit 0.0 -2.5 -1.5 0.2 0.7 1.2

(1) Total interest expense as %of average total liabilities 9.3 9.0 9.3 9.0 8.5 8.5

(c) nterest income from loans asas%ofavg.totalloans 13.3 12.1 13.4 13.8 14.1 14.5

(d) Net intermediation margin[(c) minus (b)] 4.1 3.0 4.1 4.8 5.6 5.9

52 Egypt Sohag Riual Development Prcject

~~~~~~~~~~~~~~~................................................................................. .. .. .............................................................. . . . . . . . . . .. .......... . . .

.. . . . .. . . . . . . . .. ........... .. .. .. .. . . . . . . . .. . . . . .. .. CAl ITAL - Appendix 5........................................~~~~~~~~~~~~~~~~~~. . . . . . .. . . . . . ................ ....... , j..

...'.!'.'.'.'.. .. '' ' ' '' ' ' '' '' ' ' '' ' " ''.'..'.''.'..'.''.'........................ . ... 194 195 196 1979s

..........................................................................................................................................................................

L CAPITAL REQUIREMENTS

Cash 142 303 760 235 126 0Deposits with commercial banksOther deposits, payments in transit, etc.Securities:

Government bonds 752 752 752 752 752 20Promissory notes

Loans secured by property 380 22 50Equity investments 230 230 444 444 494 100Fixed assets (net) 5,007 5,461 7,159 9,339 10,581 100

Other assets 273,764 327,534 380,572 424,668 469,365 100Total Risk-Weighted Assets 279,895 334,280 389,687 435,818 481,340

Capital requirementsi. Core capital (4% of total) 11,196 13,371 15,587 17,433 19,254 4

ii Total capital (8% of total) 22,392 26,742 31,175 34,865 38,507 8

IL AVAILABLE CAPITAL

Tier I (core capital)Shareholders' equity 9,885 19,787 20,760 20,850 20,948Gross tier I (gross core capital) 9,885 19,787 20,760 20,850 20,948Less:

Goodwill, investments in otherfinancial institutions 0 0 0 0 0

Net Tier I (net core capital) 9,885 19,787 20,760 20,850 20,948

Tier H (supplementary capital)Undisclosed reservesAsset revaluation reservesGeneral provisions/loan loss 16,273 7,478 8,817 9,286 9,278Hybrid capital instrumentsSubordinated term-debtNet available capital 26,158 27,265 29,577 30,136 30,226

HL CAPITAL ADEQUACY

Capital Surplus/(Shortfall)i. Core capital -1,311 6,416 5,173 3,417 1,694

ii. Total capital 3,766 523 -1,598 -4,729 48,281

Capital surplu/(shortfall) as % of available capitali. Core capital -12 48 33 20 9ii. Total capital 17 2 -5 -14 -22


Appendix 6

Classification of Loan Portfolio according to Central Bank of Egypt's Guidelines (LE million)BDAC Sohag

Table 6.1un 30, .- . .. ...........o tni - - d-

.. . j ........................................ .......................... ........................................ ...............................

: :: ::: !!:! :: ~~~~~~~~~~~~~~~~~~~~~~::::::'-- ..................... ..........,. i ........ .... ...................... . . . . .. ............. ...... . . .

1. Performing loans:A. Loans 1 354 0 3.3B. Contingent Liabilities I 0Sub-total (a) 354 0 3.52. Non-performing loans: mA. Sub-standard (more than 3 months) 20 8 1.6Contingent liabilities 0 0 0B. Doubtful (more than 6 months) 50 22 0 11.0Contingent liabilities 0 0 0C. Bad (more than one year) 100 17 9.3 7.7Contingent liabilities 0 0 0Sub-total (b) 53 9.3 21.5Total (a) + (b) 407 9.3 25.0

Table 6.2iiii i i - UO ,~~~~.i i,,iii i:ii iii ii:iiiii: iiii:i ii i iiiii, ........... ............. . ...... ..... ........ ........... .... ............ . ....... , iiiiiii.ii.,iiiiiiiii ....................................... iii :iiiii

................ii'iiiii .: iiiii .: iiii iii iiijiiijj . ................. ........... .. .ii.iiiiii..............iiiiiiiii ii ijiiii

1. Perforrning loans:_________A. Loans 1 381 3.8B. Contingent Liabilities 1_____Sub-total (a) 381 0 3.82. Non-performing loans:______A. Sub-standard (more than 3 months) 20 13 2.6Contingent liabilities _____0 0 0B. Doubtfil (more than 6 months) 50 14 0 7.0Cantingent liabilities _ ____ 0 0 0C. Bad (morethan oneyear) 100 17 9.3 7.7Contingent liabilities _ ___0 0 0 Sub-total(b _______ 447 9.37 17.3Total (a) + (b) ______425 9.3 21.1*

' According to the Auditor's report for FY96, the actual shortfall in provisioning for loan losses is LE 34.7million.


Appendix 7BDAC Loan Portfolio

Categories of borrowers according to sectors and sub-sectors (LE 000's)

A. Short-term loansAgriculture (sub sectors)(1) Winter crops 14,025 19,722 29,566 31,430 30,337(2) Sunmmer crops 22,231 23,432 39,870 42,670 34,118sub-total 36,256 43,154 69,436 74,100 64,455Horticulture (working capital)Live stock 60,903 56,769 71,280 76,441 77,986Non-agriculture (sub sectors)(1) Farm related business 4,024 8,409 5,596 8,760 20.976(2) Poultry 255 2,245 7,223 6,967 6,898(3) Commercial credit 15,214 9,552 12,580sub-total 65,182 67,423 99,313 101,720 118,440Total short term loans 101,438 110,577 168,749 175,820 182,895B. Medium-term loans _ _ _

Agriculture:(sub sectors) T 1 _

(1) Horticulture /Potatoes 1,519 1,161 1,282 2,952 1,881(2) Sugarcane 7,651 9,i71 17,340 25,260 23,430sub-total 9,170 10,932 18,622 28,212 25,311Non-agriculture (sub sectors) _ _

(1) Agriculture modernization l l 2,464 17,287(2) Livestock 17,798 68,684 75,853 78,384 90,076(3) Farm related businesses 65,809 40,071 40,981 54,487 61,107(4) Mechanization 38,454 22,651 19,186 19,639 23,849(5) Social Project 3,250 3,727 5,920 8,159sub-total 122,061 134,656 139,747 160,894 200,478C. Long-term loans rLand development 2,246 17,700 12,544 12,845 13,603Other sectors v

sub-total 2,246 17,700 12,544 12,845 13,603Rescheduled loans of GOE . 36,270 32,483 28,589Total loans outstanding 234,915 273,865 375,932 410,254 450,876

Source: Sohag BDAC.


Appendix 8Proposed Training for staff of Sohag BDAC

1. The training requirements would broadly cover development of management and functional skdlls.(a) Management skills would include:

* Planning* Delegation* Monitoring* Quality control* Cost management

(b) Functional skills would include:* Asset and liability management* Credit Analysis* Post-approval follow-up and recovery* Management accounting* Computer technology* Human resource development* Deposit mobilization* Product development* Intemal supervision and control mechanisms* Management Information Systems

The training programs identified by PBDAC's Training Department after consultation with Sohag BDAC,which are currently under implementation through the Agricultural Modernization Project, are as follows:

Table 8.1Amount (LE)

::......::::.:....... . . . . j . . .......j .:::::.:jjjjjjj:jjjjj:.::j................ :::jjj::iii:ii::iiii::.: : :ii.:.::ii:.:ii................................... i : : i : ..... ......: iiiiii

Nos. Cost Nos. Cost Nos Cost

1. Banks role in developing 6 40 22,550 160 90,200 80 45,100 157,850NGOs and micro-enterprises

2. Credit and fnancial analysis of 6 40 22,550 160 90,200 80 45,100 157,850SMEs

3. Marketing 6 40 22,550 160 90,200 80 45,100 157,8504. Customer Service 6 40 22,550 160 90,200 80 45,100 157,8505. Credit management 6 20 11,275 20 11,275 20 11,275 -33,8256. New rural credit lines 6 40 22,550 160 90,200 80 45,100 157,8507. Accounting 6 40 22,550 160 90,200 80 45,100 157,8508. Computer training in 6 40 22,550 160 90,200 80 45,100 157,850

DOS, WORD and EXCEL9. Computer applications for MIS 6 40 22,550 160 90,200 80 45,100 157,8K50

TOTAL 340 191,675 1300 732,875 660 372,075 1,296,625Audio visual equipment 100,000Purniture and fixtures for training room 300,000


Annex 5B

Local Development Fund (LDF)

Corporate set up and management

1. LDF was established as an autonomous legal entity within the Organization for the Reconstructionand Development of the Egyptian Village (ORDEV) under a presidential decree no 310 of 1978. LDFcommenced operations in November 1979. Though an autonomous institution, LDF is in effect, a part ofORDEV, which was until recently under the direct control and supervision of the Ministry of LocalAdministration. ORDEV and LDF are now under the Ministry of Rural Development. The Localadministrative units (LAUs) through which the LDF operates, remain under the Ministry of LocalAdministration.

2. The management of LDF consists of a Board of Directors of 14 members and a technical sub-committee for sanctioning loans. The Board meets once a month and the technical committee as frequentas two to three times a week depending on the volume of business. The Chairman of the Board isappointed for a term of three years. The incumbent since the inception of LDF has also been the Chairmanof ORDEV. The term of the directors is one year. The Chairman has powers to appoint members of iheBoard. The constitution of the Board is attached in Appendix 8.

3. The LDF management is highly centralized in the Chairman. The LDF has an independent officein Cairo which is computerized and headed by a chief executive and a staff of 30. The chief executive is amember of the loan committee. The accounts of LDF are maintained by ORDEV and financial statemenitsare prepared by ORDEV staff.

4. Sohag govemorate headquarters' is located in Sohag city. The district is headed by a Goverrorwho is appointed by the Ministry of Local Administration. The administration covers 11 districts and 51local administrative units (LAUs). In addition, there are 268 affiliated villages and 1217 hamlets. Thelowest administrative unit has an executive council (nominated), and a popular council (elected). LD)F(though now under a separate ministry) will continue to utilize the network of LAUs to serve the ruralpopulation.

Reliability and Acceptability of Financial Statements

5. The Balance sheet and income statement for the past four years (FY94 to FY97) and the projectedbalance sheet and income statements for the next five years (FY98 to FY02) are attached in Appendices 1and 2. The accounts of LDF are audited externally by the Central Audit Authority (CAA) which is anautonomous govemment agency. The accounting standards are consistent with those of a governmentorganization and not of a Development Financial Institution (DFI). The financial statements appear to befairly reliable and reflect the financial situation of LDF.

6. The accounting policies differ from that of a financial intermediary. For example, the provision forloan losses of LE 8.1 million for FY96, was converted as share capital along with a major part of itheretained earnings with the result that though the share capital has increased substantially, the provisioningfor loan losses is nil. According to the CAA's report for FY96, some items have been recorded as advance


payments but not received from certain govemorates and companies for over 10 years, and othermiscellaneous amounts have not been settled since 1991.

7. As LDF is a developmental lending institution and is not allowed to accept deposits from the publicor borrow for its operations (except with specific approval from the Ministry of Finance), it does not attractthe prudential regulations of the Central Bank with regard to classification of the loan portfolio, aginganalysis, provisioning, and capital adequacy. However, to fall in line with internationally-acceptedstandards, it is necessary for LDF to classify its loan portfolio, and meet the provisioning requirementssimilar to those of other financial institutions. To assess the quality of the loan portfolio, provisioningrequirements, and the accounting systems, an external audit will be conducted similar to that proposed forthe BDAC. It was agreed during negotiations that the LDF would complete by December 31, 1999 theimplementation of a program to strengthen its financial management and accounting.

Financial Analysis

8. The performance ratios are attached in Appendix 2. The growth rates of the loan portfolio has beengood in real terms (see Table 1).

Table 1 (LE 000's)

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... ............... ....... .. ................. ...... .... .... ..... .... .... ...... .. ..... .. .... ..... ... 111.................. .... ........................... . ...... .................

Inflation rate % 9.0 9.3 8.3 4.8Total loans 15,112 21,484 26,755 32,460Growth m loan portfoho m real terms % na 32.8 16.2 16.5

Source: Inflation rates- Egypt Country Department, Cairo

9. However, in spite of increase in loans, the eanings performance has been disappointing. Interestincome from loans as a percentage of average total loans outstanding has declined from 8.9 percent inFY96 to 7.4 percent in FY97 (Table 2). This has been attributed to a relaxation in grace period from oneproduction cycle to two production cycles. Despite the reduction in revenues, LDF has shown a profit ofLE 1.9 million for FY97 (LE 274 thousand in FY96). This increase in profits is mainly due to non-provisioning for loan losses during the current year. Surplus has been transferred to retained earnings.Table 2 reflects the trend in income earned.

Table 2 (LE 000's)

~~~~~~.......................................... ................................... ... ........................ ..............

Average total loans outstanding 15,112 18,298 24,120 29,608Interest income from loans as a % of 7.8 8.0 8.9 7.4average total loans outstandingProfit -200 489 274 1,954

10. The lending rates of LDF are below market rates and range between 10.3 and 11.2 percent. LDFhas agreed to increase its lending rates to effective market rates of interest.

11. The net intermediation margin of 7.4 percent (Appendix 2) is high due to two main factors: (a)LDF sources of funds are free of cost, and (b) the operating expenses are minimal. The expenses of LDFare understated and not comparable to other financial intermedianes. LDF has taken advantage ofORDEV and has reduced the overhead expenses substantially. For example, salaries of the employees are


paid by ORDEV and the allowances are paid by LDF. The staff at the Local Administrative Units (LAUJ)draw salaries and allowances from the Govemorate and receive incentives from LDF (see Table 3).

Table 3 (LE 000's)

Salaries and allowances 241 406 360 438Retirement benefits 44 73 67 79Training costs 32 63 56 99Other administrative costs* 216 387 478 353Rent and utilities 25 33 76 22Total establishment costs 560 962 1,039 989Total nuxmber of staff 22 22 25 28

Note:* other administrative costs includes incentives paid to LAU staff.

Capital adequacy

12. LDF was originally capitalized by a USAID grant of US$18.0 million in 1978. LDF has beensteadily building up their reserves and the equity base is LE 36.9 million. The equity base exceeds the totalloan portfolio of LE 32.4 million which is highly unusual for a DFI and reflects a high liquid situation. Anamount of LE 10.3 million which constitutes 23.4 percent of the total assets is placed with commercialbanks (includes LE 8.6 million in interest bearing deposits). The debt to equity ratio is zero as LDF hasbeen financed through grants and subsidies. Table 4 indicates the existing capital structure.

Table 4 (LE)N................. .......---'''''''!.

.... ........................... ............. ......................,::

Share capital as of June 20, 1996 30,980,205Subsidy from local government 4,000,000Surplus for current year (FY97) 1,954,004Total equity 36,934,209

13. During FY 97, LDF converted its provisions for loan losses and retained earnings into shatrecapital3. The reason behind the decision for increasing the share capital and eliminating the provisions :Forloan losses is not clear. According to CAA, there are old debts outstanding. This will be reduced fromcapital to arrive at the net position. LDF will be required to follow the guidelines applicable to a financialintermediary in this regard.

Loan portfolio and asset quality

14. The project categories financed in FY97 is attached in Appendix 5. A project usually consists of asmall group of borrowers engaging in similar enterprise activities. Out of the total project disbursals,poulty constituted 22.9 percent, followed by transport, 22.6 percent The maximum amount of loansdisbursed were to Dhakalia govemorate 20.2 percent, followed by El Gharbia govemorate, 17.6 percentShare of loans to Sohag govemorate in FY97 was about 2 percent of total LDF disbursements (seeAppendix 5). The asset quality is difficult to determine in the absence of loan classification and aginganalysis.

3 See Balance Sheet, Appendix 1.


15. The collateral requirements are less stringent when compared to commercial banks. Ordinarily, apromissory note (called checks), asset acquired under the loan and two guarantees (of governmentemployees) are accepted. Borrower's contribution of not less than 20 percent and up to 45 percent in thecase of vehicle loans is insisted upon before disbursing the loan. Where the borrower owns land, this isaccepted as collateral in lieu of guarantees.

16. The loan sanctioning powers of LDF are vested in the loan committee at headquarters. The loancommittee consists of 2 members from the Board and 8 permanent members from universities specializedin areas which include agriculture, national planning and economics. Members are appointed by thechairman for a term of one year. Meetings are presided by the Chief Manager of LDF and ORDEV.Proposals are prepared and submitted by the specialist in feasibility studies. The committee meets atfrequent intervals. LDF has agreed during naegotiations, to delegate loan approval authority to the locallevels up to a ceiling of LE 10,000 per borrower. (LAUs LE 2,500, District level up to LE 5,000 andGovemorate up to LE 10,000.)

17. The loan appraisal standards adopted by the management are sound and on the conservative sideparticularly with regard to borrower's contribution which is usually higher than the minimum set. This isto ensure a higher stake of the borrower in the enterprise and to minimize the interest burden. The ninefeasibility study experts at LDF are well trained. However, the scale of operation of the LDF is very smallcompared to those of Sohag BDAC.

18. There is regular follow up from LAUs which are responsible for collections and the incentivesoffered by LDF are linked to collections/recoveries. The recovery rate is 95 percent. About 18 projectswere rescheduled amounting to LE 930,000 in FY97. The decisions to reschedule loans are taken atheadquarters. For an accurate estimate of the asset quality, LDF has been required to put in place MIS forarrears analysis, collection analysis, rescheduled loans, and classify its loan portfolio similar to those ofother DFI's.

19. There exists a long standing dispute between the Ministry of Finance and LDF over the amountapportioned by privatization of certain earlier projects. Initially, LDF was required to invest in the sharecapital of the enterprise it financed. Subsequently, the govemment decided to sell these projects. Theamnount from the sale of about 23 projects was deposited with the government and LDF is yet to recovertheir investment.

Audit of accounts

20. The accounts of LDF are audited externally by the Central Audit Authority (CAA) which is anautonomous agency of the government responsible for government accounts. The audit is however notcomprehensive and geared towards a DFI. For example, the audit report for FY96 provided, does notcover the loan portfolio, lending practices, adequacy of provisioning, loan arrears etc.

Financial Projections

21. LDF does not prepare business plans. In the absence of their forecast, the rnission has preparedprojections on conservative estimates. The projected balance sheet and income statement for the next fiveyears i.e., from FY98 to FY02 is attached, see Appendices 3 and 4.


22. Income has been projected based on existing lending rates. At this growth rate, combined with lowlevels of operating expenses, the profitability and the net intermediation margin appears to be satisfactory.Introduction of market rates for lending operations would increase the profitability significantly.

Financal Reporting to the Bank

23. LDF will be required to upgrade its accounting systems to conform to internationally recognizedaccounting standards acceptable to IDA and IFAD. A separate sub account will be opened in the books ofLDF for the amounts received from IDA/1FAD and at the governorate level to monitor the performanceincluding: disbursals, arrears, and recoveries made under the project.

24. LDF would establish a Management Information System (MIS) that would generate quarterlyprogress reports, summary loan statements, and information reflecting the utilization of the credit line.Audited financial statements and auditor's opinion satisfactory to IDA would be provided within sixmonths from the close of the financial year in such scope and detail as IDA and IFAD may reasonablyrequest Agreement on the accounting and auditing arrangements was reached during negotiations.

Conclusion

25. LDF is playing a small but important role in providing access to credit to the rural population.Limited sources of funding, combined with a conservative approach have constrained expansion. Themanagement team is extremely dedicated to the cause of rural development and deserves support. Theproject appraisals are standardized and the LDF and LAUs have gained sufficient experience over thieyears in handling rural credit.

26. LDF has agreed having its accounting and financial reporting upgraded to conform to that of a DFI.To achieve this, it will be necessaiy for the proposed external auditors to review the existing accountingand operating procedures and suggest changes that need to be made by LDF to fall in line withinternational accounting standards (IAS). The recommendations will be implemented before December31, 1999. The internal audit and accounting departments will be brought under direct control of LDF.

Egypt Sohag Rual Development Project 61

Appendix 1

BALANCE SHE~~~~- LOCAL ~DEVELOPME.......T......U........ ,............ ... ..... . .. .. .................. ........... ............................~~~~.. .... .. ..... .... .. ..... ......... .. ... .. .... ..... .. ......... .. . .

I ! iiii: :ii! i:i:ii: i::i! iii:: : :i....:.................... i a.I ...- ....

Balance Sheet items1994 l995 1996 1997

ASSETS (actual) (provisional)Current assetsCurrent accountbalances 764 316 624 1,650Fixed deposits with banks 11,500 10,950 8,350 8,650Total cash and deposits 12,264 11,266 8,974 10,300

Loans outstanding 15,112 21,484 26,755 32,460Less:Cufrent maturities of portfolio loans 2,673 2,575 3,291 4,330Loan loss provisions 1,963 1,225 1,796 0Net loans outstanding 10,476 17,684 21,668 28130Other assets 15Checks under collection 4,112 576 740 1,141Fixed assets 0 0 0 0

TOTAL ASSETS 31,488 33,326 36,469 43,916

LIBLTESCurrent liabilitiesShort-term borrowings 0 0 0 0Other current liabilities 292 416 1,489 3,298Total current liabilities 292 416 1,489 3,298Other borrowings 0 0 0 0Small investor's development project 3,684Total liabilities 292 416 1,489 6,928GrantsShareholder's equityShare capital (grant from USAID) 19,797 19,797 15,796 30,980Subsidy from Local government* 4,000 4,000Provisions for loan losses 5,123 6,348 8,144 0Retained earnings 6,276 6,765 7,039 1,954Total shareholders equity 31,196 32,910 34,980 36,934

TOTAL LIABILITIES & EQUITY 31,488 33,326 36,469 43,916* Subsidy figures for earlier years not available.

62 Egypt Sohag Rural Developmient Project

~~~~~~~~~........................... ................ ...... .......... ............................. ............ ..--.............. . ....... ... ...................... ..... ..... . ............. . ... ...................................... ............ 2 .......................

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.............................. ................. y',,,,,,.... .. ................................... .. . . . . . . .. .. . . . . .... . . .. . . . . ... . .... . . .. . . . . . . . ... . .. . . . . . . . . .. . .. .. . . . .....................".!.'..'.:.'..::.-.

1994 1995 1996 1997(actual) (provisional)

INCOMEInterest from loans 1,178 1,470 2,155 2,188Frombank deposits 1144 1,180 905 753

Total interest income 2,322 2,650 3,060 2,941Less:Interest expense 0 0 0 0Net interest income 2,322 2,650 3,060 2,941Other income 25 48 3Total income 2,322 2,675 3,108 2,944

OPERATING EXPENSES.Administrative expenses 465 812 856 762G(ovemorate charges 64 84 97 147Other expenses 30 65 85 81Total operating expenses 559 961 1,038 990Provisions for loan losses 1,963 1,225 1,796 0Profit -200 489 274 1,954

Average total assets 31,488 32,407 34,898 40,193Average total liabilities 292 354 953 4,236Average total loans outstanding 15,112 18,298 24,120 29,608

Ratios(a) As % of average total assets(i) Total interest income 7.4 8.2 8.8 7.3(ii) Total operating expenses 1.8 3.0 3.0 2.5

(iii) Provisions 6.2 3.8 5.1 0.0(iv) Net Operating income i-(ii+iii) -0.6 1.4 0.6 4.8(v) Net profit -0.6 1.5 0.8 4.8(b) Total interest expense as %

of average total liabilities 0.0 0.0 0.0 0.0(c) Interest income from loans as

as % of avg. total loans outstanding 7.8 8.0 8.9 7.4(d) Net intermediation margin 7.8 8.0 8.9 7.4

[(c) minus (b)]


Appendix 3

PROJECTED~~~ !3LAC !H~ ! !OA : BV-L.PM.:T:: ........... !............... ....... : .................................... ............ ... ......... D!.. ...:!!:........ ............~~~~~~~~~~~~........................... , ;. .. .. .. ...... ... ........ .. .......... .

. ... ... ... .................. .-- -- ''' '' ' ' '' '''~~~~~~~~~~~~~~~~~~~~~~~~. ... .. .. .. ... .. .. ..

1997 1998 1999 2000 2001 2002ASSETS (provisional)Current assetsCurrent account balances 1,650 1,733 1,819 1,910 2,006 2,066Fixed deposits with banks 8,650 8,218 8,628 9,491 10,440 10,962Checks under collection 1,141 1,152 1,164 1,187 1,223 1,247

Total current assets 11,441 11,102 11,611 12,589 13,669 14,275

Loans outstanding 32,460 35,284 38,283 41,882 45,693 49,805Less:Current maturities of portfolio loans 4,330 4,850 5,432 6,083 6,813 7,835Loan loss provisions 0 1,522 2,464 2,864 3,110 4,197

Net loans outstanding 28,130 28,913 30,388 32,935 35,769 37,773Other assets 15 158 359 380 374 200Fixed assets 0 0 0 0 0 0

TOTAL ASSETS 43,916 46,544 50,254 54,850 59,736 64,281

LIBILITIESCurrent liabilitiesShort-term borrowings 0 0 0 0 0 0Other current liabilities 3,298 3,298 3,312 2,816 2,836 2,634Total current liabilities 3,298 3,298 3,312 2,816 2,836 2,634

Loans from government:'ID)AIIBRD funds 2,500 5,000 7,500 10,000 13,000'Other borrowings

Total borrowings 0 2,500 5,000 7,500 10,000 13,000Small investor's project 3,684 2,176 2,291 4,335 6,299 6,672Total liabilities 6,982 7,974 10,603 14,651 19,135 22,306

Shareholder's equityShare capital 34,980 34,980 34,980 34,980 34,980 34,980Provisions for loan losses 0 1,538 2,517 2,957 3,246 4,382Retained earnings 1,954 2,052 2,154 2,262 2,375 2,613

Total shareholders equity 36,934 38,570 39,651 40,199 40,601 41,975

TOTAL LIABILMES & EQUITY 43,916 46,544 50,254 54,850 59,736 64,281


Appendix 4~~~~~~~~~..................... ....................... ................................. . ............................. .. . .... .. .................... ... .. .... .................................................. ..... . .. . 4e l:

.......................... ''' ''''-''' ' ' '''''''' ""' ' E E S X ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ : ............ ....... ..............

INCOME STATEMENT1997 1998 1999 2000 2001 2002

(provisional)INCOMEInterestfromloans 2,188 2,921 3,352 3,637 4,188 4,569From deposits with banks 753 779 740 777 854 940

Total interest income 2,941 3,700 4,092 4,413 5,042 5,509Less:Interest expense 0 0 0 0 0 0Net interest income 2,941 3,700 4,092 4,413 5,042 5,509Other income 3 3 3 3 3 3Total income 2,944 3,703 4,095 4,417 5,046 5,512

OPERATING EXPENSESAdministrative expenses 762 838 964 1,109 1,275 1,530Governorate charges 147 157 170 187 206 230Other expenses 81 87 93 97 102 109Provisions for loan losses 0 1,522 942 400 246 1,087

Total operating expenses 990 2,604 2,169 1,793 1,829 2,956Profit 1,954 1,099 1,926 2,624 3,217 2,556

Average total assets 40,193 45,230 48,399 52,5552 57,293 62,008Average total liabilities 4,236 7,478 9,289 12,627 16,893 20,721Average total loans outstanding 29,608 33,872 36,784 40,082 43,787 47,749

Ratios(a) As % of average total assets(i) Total interest income 7.3 8.2 8.5 8.4 8.8 8.9(ii) Total operating expenses 2.5 2.4 2.5 2.7 2.8 3.0(iii) Provisions 0.0 3.4 1.9 0.8 0.4 1.8(iv) Net Operating income i-(ii+iii) 4.9 2.4 4.0 5.0 5.6 4.1(v) Net profit 4.9 2.4 4.0 5.0 5.6 4.1

(b) Total interest expense as %of average total liabilities 0.0 0.0 0.0 0.0 0.0 0.0

(c) Interest income from loans asas % ofavg. total loans outstanding 7.4 8.6 9.1 9.1 9.6 9.6

(d) Net intermediationmargin 7.4 8.6 9.1 9.1 9.6 9.6[(c) minus (b)J


Appendix 5

Local Development Fund

Regional distribution of loans (LE 000's)

............. ....... 'ii i iiiii iii................... .....iiiii''ii ii=iii............... .................. ... .. .. . . .. .. .

1. Kafr El Sheik 772 2,384 2 093 1 9892. MenOfia 306 431 311 3723. Damiatta 147 249 620 5844. Suez - - - 595. El Sharkia 5 10 231 5796. Kalubia 405 216 431 6807. ISmailia 624 569 354 2378. Beheira 20 145 526 4669 Dhakalia 819 819 1,625 2,38010. Gharbia 2,175 2,711 3,287 303011. FaYO1Um 749 1,545 2,581 2,58712. Menia 360 1,667 3,532 3,12613. Sohag 1,047 1,335 1,364 1,05714. Assuit 1,385 1,787 1,315 1,22415. Qena 502 1,684 1,870 . 231616. Giza 192 708 666 59317. Beni Suef 1,523 1,178 616 51918. New Va1ley 298 434 478 33219. Aswan 97 234 330 21820. Red Sea 54 38 38 14521. Luxor - 9422. Matrouh _

23. South Sinai 4 324. NorthSinai 216 100 148 91TOTAL 11,696 18,244 22,420 22,681Source: LDF Cairo.Note: The total loans outstanding do not tally with the balance sheet and therefore, the data should be treated asindicators only.

66 Egpt: Sohag Rural Development Project

Appendix 6

Loans disbursed by LDF under various projectsfor the period July 1, 1996 to June 30, 1997

wE)

Livestock 3 10 38,250 28,400 66,650Beehives 40 138 268,000 196,850 464,850Diary products 8 13 118,500 73,405 191,905Land reclamation 4 4 20,000 11,978 31,978Mechanization 341 297 1,410,700 698,166 2,107,866Transport 120 123 2,373,150 1,222,000 3,595,150Workshops 160 311 1,704,300 1,555,924 3,310,224Marketing outlets 163 128 783,700 167,372 901,582Grinding mills 19 28 261,000 302,925 523,925Home bakeries 753 753 179,750 79,100 258,850Food stalls 7 7 21,000 10,000 31,000Others 57 57 841,750 836,074 1,677,824TOTAL 1643 2148 10,471,950 6,407,244 16,929,194Source: LDF Cairo.


Appendix 7

Loans disbursed by LDF during the period July 1, 1996 to June 30, 1997Regional distribution pattern

(LE).................... .. ... ................... ... ................ ........... ............... .. ..................... ....................... ..................... ............ ........

1. Aswan 6 6 56,550 55,175 111,7252. Assuit 17 42 234,500 170,280 404,7803. El Beheira 10 15 147,750 96,755 244,5054. Beni suef 758 759 200,750 112,411 313,1615. Damiatta 17 20 264,000 298,492 562,4926. Dhakalia 105 231 2,119,350 743,777 2,863,1277. El Fayoum 71 101 956,650 744,057 1,700,7078. El Ghaioia 250 301 1,850,450 959,391 2,809,8419. El Giza 10 15 168,100 98,181 266,28110. Ismailia 78 78 295,650 80,300 325,95011. Kafr El Sheik 41 95 814,400 962,688 1,688,08812. Matrouh 0 0 0 0 013. El Minoufia 13 28 184,100 97,261 281,36114. ElMenia 80 113 614,500 374,813 989,31315. New Valley 7 14 117,800 116,700 234,50016. North Sinai 0 0 0 0 017. El Qalubiya 25 35 392,000 265,427 257,42718. Qena 72 161 1,160,750 710,160 1,870,91019. Luxor 5 5 46,000 22,146 68,14620. Red Sea 4 8 136,000 40,395 176,39521. El Sharkiya 40 45 511,400 308,382 819,78222. Sohag 24 61 216,550 138,540 355,09023. Suez 10 11 84,700 71,920 156,62024. SouthSinai 0 0 0 0 0TOTAL 1643 2148 10,471,950 6,457,244 16,929,194Source: LDF Cairo.Note: Out of total borrowers of 2148 financed in FY97, women borrowers comprised 100, and youth 96.

68 Egpt Sohag Rul Developmt Projec

Appendix 8

LDF Board of Directors

1. The Board of the Local Development Fund consists of a Chairnan* and:

(1) Three representatives; one each from:* The stock exchange (Ministenal rank from the Ministry of Finance)* Planning Ministry (Deputy minister)* Ministry of Finance (Deputy minster)

(2) Three representatives from ORDEV consisting of:

* Chairman of ORDEV (also Chma of LDF- rank of deputy minister)* General Supervisor of LDF* One LDF manager

(3) Six representatives from the govemorate and local levels on a rotation basis every year (also SHROUK -

members)

- Two General SecretariesT Two Development ManagersT Two Heads of DistrictsT two Heads of Local Administrative Units (LAUs)

* The Board is presided over by the Chairman of ORDEV.

2. The organization of LDF consists of:

Table 4.1,.,............................................ .................... ........ ........................................

Feasibility study 9Credit 7Administration 5Legal 3Computer 3Secreuries 3TOTAL 30


Annex 6


Procurement and Disbursement Arrangements

Procurement

A. Procurement Methods (Table A and B)

1. The project elements, their estimated costs, and the procurement arrangements for thecomponents to be financed by IDA are summarized in Table A.

2. All IDA-financed civil works, equipment and materials would be procured inaccordance with the Bank Procurement Guidelines for Procurement under IBRD and IDACredits published by the Bank in January 1995 and revised January and August 1996 andSeptember 1997. Procurement of Consultants services and technical assistance would followBank's Guidelines for the Selection and Employment of Consultants by World Bank Borrowerspublished by the Bank in January 1997 and revised September 1997. Preference fordomestically-manufactured goods will apply in accordance with the World Bank Guidelines.Project components not financed by the World Bank would be procured in accordance withnational regulations or the guidelines of the co-financing institutions. The Bank's standardsbidding documents would be used for all procurement under International Competitive Bidding(ICB) and, with modifications acceptable to the Bank and in Arabic language, also for NationalCompetitive Bidding (NCB). A procurement plan detailing the packaging and estimatedschedule for major procurement is presented in Table BI.

3. Goods. To the maximum extend possible, the procurement of goods, includingvehicles and equipment, for the Local Institutions Strengthening component would be throughpackages and lots of similar items. Each package would have and estimated contract valueabove US$200,000 equivalent and would be procured using ICB procedures in accordancewith IDA guidelines. National Competitive Bidding (NCB) would apply for procurement ofgoods at estimated contract values between US$20,000 and US$200,000 per procurement, upto an aggregate amount not to exceed US$500,000 equivalent. Goods estimated to cost lessthan $20,000 equivalent per contract, up to an aggregate amount not to exceed US$250,000equivalent, may be procured under contracts awarded on the basis of National Shopping (NS)procedures by obtaining at least three quotations from capable local suppliers. EligibleEgyptian manufacturers competing under ICB procedures may be eligible for DomesticPreference in accordance with Appendix 2 of the World Bank Guidelines.

4. Works. Civil works under the Village Infrastructure Component would include: smallpotable water systems or extension of potable water systems, upgrading of rural road, villageyouth centers, literacy centers, classrooms, etc. Civil works would consist of small works inrural villages and hamlets. No ICB procurement of the works would be feasible, as the natureand small size of the contract would be unattractive for international contractors. Civil worksexceeding a value of US$100,000 would be procured through NCB procedures, advertisednationally, but foreign contractors would not be excluded. Works estimated to cost less than


$100,000 per contract, up to an aggregate amount not to exceed $500,000, may be procuredunder lump sum fixed contracts awarded on the basis of quotations from community-basedcontractors, responding to announcements posted in public places. Procedures used forNational Shopping shall be in accordance with paragraphs 3.5 and 3.6 and 3.15 of the WorldBank Guidelines.

5. Procurement of farm machinery, equipment and goods through the lines of creditwould follow commercial practices. This would involve numerous dealerships andbeneficiaries and a wide range of equipment. Most import orders would be in the range ofUS$5,000 to US$200,000.

6. Consultants and training services for institutional building and detailed engineering andconstruction supervision services above an estimated contract value of US$100,000 would beselected in accordance to the Quality and Cost-Based (QCBS) method. For others consultingand training contracts, the selection would follow Consultant's Qualifications-Based (CQB)and Individual Consultants (IC) method. Single Source selection would be used under specialconditions and require IDA's prior agreement.

7. A procurement plan and standards bidding documents for NCB and community-basedprocedures have been prepared as part of the Project Implementation Plan (PIP).

B. Prior Review Thresholds (Table B)

8. All contracts for works, goods and equipment exceeding US$200,000, would besubject to prior and approval by the Bank. In addition, the first three contracts to be advertisedfor procurement of works, irrespective of value, would be subject to IDA's prior review. Forconsultancy assignments financed by IDA, there would be prior review for contracts worthUS$100,000 and above for contracts with consulting firms and US$50,000 and above forcontracts with individual consultants. This would result in prior review for about 80 percentfor goods and 30 percent for works of Bank-financed procurement. The contract reviewarrangements are summarized in Table B.

Disbursement

C. Allocation of Loan Proceeds (Table C)

9. The proposed IDA credit would be disbursed against the project components as shownin Table C. Agreement was reached during negotiations, that annual audit reports of theproject account and SOEs would be prepared by auditors acceptable to IDA, within six monthsof the end of the fiscal year.

D. Use of Statements of Expenses (SOEs)

10. Disbursements would be made against Statements of Expenditures (SOE) for contractsfor: (i) works and goods valued under US$200,000 equivalent; (ii) consulting services (firms)valued under US$100,000 equivalent; and (iii) consulting services (individuals) valued underUS$50,000 equivalent.


E. Special Account

11. To facilitate disbursements against eligible expenditures, three Special Accounts wouldbe established for IDA, and three for IFAD. Each implementing agency (GOS, PBDAC andLDF respectively) would have one account for each financing agency (IDA and IFAD). TheGovernment would establish four Special Accounts in a commercial bank: (i) two SpecialAccounts for the expenditures under the local institutions strengthening and villageinfrastructure components, with initial deposits of US$0.8 million out of the IDA credit andUS$0.8 million out of the WFAD loan; and (ii) two Special Accounts for expenditures under themicro-credit sub-component managed by the LDF, with initial deposits of US$200,000 out ofthe IDA credit and US$200,000 out of the IFAD loan. PBDAC would open on its books twoSpecial Accounts, with initial deposit of US$800,000 out of the IDA credit and US$800,000out of the IFAD loan for expenditures under the rural credit sub-component implemented bythe Sohag PBDAC. The SAs will be replenished on a monthly basis or when at least on thirdof the balance has been withdrawn, whichever occurs first. The Special Accounts would beaudited annually by independent auditors acceptable to IDA. The audit report would besubmitted to IDA for review and approval within six months at the end of each fiscal year.Agreement was reached at negotiations on the above provisions for the operation and auditingof the Special Accounts.

Co-financing Arrangements

12. IFAD would cofinance the same infrastructure, credit, and institutional buildingcomponents as the IDA Credit; however, the borrower will assign expenditures entirely toIFAD or to IDA on the basis of separate contracts or activities and will, to the extent possible,ensure that commitments under the two operations are made on a pari-passu basis.


Table A: Project Costs by Procurement Arrangements

(in US$million equivalent)

1. WorksVillage Infrastructure 22.0 32.9 -- 54.9

(--) (5.5) (8.2) (--) (13.7)

2. GoodsEquipment 1.6 0.5 -- 2.1 2.0

(0.7) (0.2) (--) (--) (0.9)

3. Equipment & InputCredit -- -- 25.3 -- 25.3

(--) (~~~~~) (9.7) ()(9-7)

4. Services -- -- 1.6 2.8 4.4(--) (--) ~~~(0.7) (-).(0.7)

5. MiscellaneousIncremental Operating Costs 7.0 7.0

Total 1.6 22.5 59.8 9.8 93.8(0.7) (5.7) (18.6) (25.0)

(Amounts Rounded)

Note: N.B.F. = Not Baik-financed (includes elements procured under parallel co-financing procedures, consultancies under trust funds, anyreserved procurement, and any other miscellaneous items). Procurement arangements under 'Other" for the VltUage Infastructure Componentcomprise Direct Conmmunity Contracting (96 percent) and Conmmunity-Based Competitive Procedures (4 percent). Figures in parenthesis are theamnounts to be financed by the Bank loan/IDA credit.

Egypt Sohag Rurl Development Project 73

Table B: Thresholds for Procurement Methods and Prior Review

L. Works>100 NCB 17.0 /54.920-100 NCS <20 DCC

2. Goods>200 ICB 1.6200-20 NCB0-20 - LSIIS

3. Credit CP 0 125.3

4. ServiceConsultingFirms >100 QCBS 0.4 / 1.4

20-100 CQIndividuanl Consuiltant sn 50ther

Total value of contracts subject to prior review: 19.0 1 83.8Plus first dre contracts forworks, irrespective of contWct

- ~~~~~~value

Table B1: Procurement Plan

Procurement of Goods, including Vehicle andEquipment

Bid 1 - Vehicles ICB 9/98 10/98 12/98 2/99 3/99 4/99 5/99 5-12/99Package I - Twincab Pickups (36 no.)

Bid 2 - Computers & Office Equipment ICB 10/98 11/98 12/98 2/99 3/99 4/99 5/99 5-12/99Package 1 - Computers & Printers (37 no.)Pacage 2 - Office Equipment (37 faxes andcopiers)

Bid 3 - Vehicles ICB 9/99 9/99 9/99 11/99 12/99 1/00 2/00 2-9/00Package 1 - Twincab Pickup (21 no.)

Bid 4 - Computers & Office Equipment NCB 9/00 9/00 9/99 11/00 12/00 1/01 2/01 2-9/01Package 1 - Computers & Printers (16 no.)Package 2 - Office Equipment (fax, copier)

Bid 5 - Vehicles NCB 9/01 10/01 10/01 12/01 1/02 2/02 3/02 3-12/02Package 1 - Twincab Pickup (2 no.)

Procurement of Civil Works(Village Infrastucture)First Year Program NCBINS 9/98 9/98 1/99 2/99 2/99 3/99 4/99 4-10/99Second Year Program NCB/NS 9/99 9/99 9/99 11/99 12/99 12/99 1/00 2-9/00Third Year Program NCB/NS 9/00 9/00 9/00 11/00 12/00 12/00 1/01 2-9/01 (

Fourth-Year Program NCB/NS 9/01 9/01 9/01 11/01 12/01 12/01 1/02 2-9/02Fifth-Year Program NCB/NS 9/02 9/02 9/02 11/02 12/02 12/02 1/03 2-9/03Sixth-Year Program NCB/NS 9/03 9/03 9/03 11/03 12/03 12/03 1/04 2-9/04


Table C: Allocation of Credit Proceeds

(1) For Part A of the Project

(a) Works 9,300,000 50 percent

(b) Goods 600,000 100 percent of foreignexpenditures, 100 percentof local expenditures (ex-factory cost) and 80 percent~of local expenditures forother items procured locally

(c) Consultancy Services and Training 450,000 50 percent

(2) For Part B of the Project (Sohag BDAC)

(a) Goods 70,000 100 percent of foreignexpenditures, 100 percentof local expenditures (ex-factory cost) and 80 percentof local expenditures forother items procured locally

(b) Consultancy Services and Training 30,000 100 percent

(c) Sub-loans under Part B 5,900,000 100 percent

(3) Part C of the Project (LDF)

(a) Sub-loans under Part C 1,300,000 100 percent

(4) Unallocated 950.000

Total 18,600,000


Annex 7

Procurement Plan and Implementation Schedules

Egypt - Sohag Rural Development ProjectProcurement Plan & Schedule

_8 1999 2000 2001 2002 1 2003

ID Task Name Duration Start Finish Q3 04 |Q IQ2 Q3LQ4 Q1 Q2 |Q3 I Q4 IQ1 102 1Q3 |Q4 1Q01 Q2 Q31Q4 Ql 1Q2 |Q3 0 Q4 1 Q1

I PROCUREMENT OF GOODS & MATERIALS Ow 12/30198 12130198

2 PROJECT EFFECTIVENESS Ow 12130/98 12130/98 012130

3 BId 1 - package 1 (Vehicles ) -ICB 88w 811198 12/26199

4 Bid document preparation 8w 8/1198 9/15/98

5 Approval by IFADADA 4w 9/16/98 10/8/98 0

6 Bidding 8w 12/30/98 2114/99

7 Bid evaluation 6w 2/15/99 3/21/99

8 IFADADA approval 4w 3/22/99 4/13/99

9 Bid award 4w 4/14/99 5/6/99

10 Deliveryfimplementation 40w 5)8/99 12/26/99

11 Bid 2 -(ICB) 74.6w 911198 1 9l_-

12 Bid 2- package 1 (Computers, Printers) 74.6w 9)1/98 11/9/99_~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ev .

13 Bid document preparation 8w 9/1/98 10/17/98

14 Approval by IFAD/IDA 4w 10/18/98 11/9/98

16 Bidding 8w 12/30/98 2/14/99

16 Bid evaluation 6w 2115/99 3/21199

17 IFADJIDA approval 4w 3/22/99 4/13/99

18 Bid award 4w 4/14/99 5/6/99

19 Delivery / Implementation 32w 5/8/99 11/9/99

20 Bid 2 - package 2 (Coplers, Faxes) 74.6w 911/98 11/9/99 l

21 Bid document preparation 8W 9/1/98 10/17/98 ,

Task Summary Rolled Up ProgressProject: Sohag Rural Development PrDate: 8098 Progress Rolled Up Task _

Milestone *Rolled Up Milestone 0


_8 1 1999 2000 2001 2002 2003ID Tak Name Duration Start Finish Q3 Q4 I Q2 Q34 Q I Q2 4341234 |Q 2 Q3 0 Q4 I Q1 I Q2 Q3 Q4 Q122 Approval by IFAD/IDA 4w 10/18/98 11/9/98

23 Bidding 8w 12/30/98 2/14/99

24 Bid evaluation 6w 2/15/99 3/21/99

25 IFAD/IDA approval 4w 3/22/99 4/13/99

26 Bid award 4w 4/14/99 5/6/99


28 Bid 3-package 1 (Vehicles) 4CB 72w 8/1/99 9/23/00

29 Bid document preparation 8w 8/1/99 9/15/99 1 . ,,30 Approval by IFAD/IDA 2w 9/16/99 9/27/99 131 Bidding 8w 9/28/99 11/13/99 i

32 Bid evaluation 6w 11/14/99 12/18/99 1

33 IFAD/IDA approval 4w 12/19/99 1/10/00 y

34 Bid award 4w 1/11/00 2/2/00 1

35 Delivery / Implementation 40w 2/3/00 9/23/00 -

36 Bld 4 64w 8/1/00 9/27/01

37 Bid 4 - package 1 (Computers, Printers) 64w 8/1/00 9/27/01 j38 Bid document preparation 8w 8/1/00 9/16/00 .


40 Bidding 8w 9/28/00 11/11/00

41 Bid evaluation 6w 11/12/00 12/21/00 |

42 IFAD/iDA approval 4w 12/22/00 1/18/01 . .

Task _ | Summary _Rolled Up Progress _

Project: Sohag Rural Development Pr Date: 8/3/98 Progress __ Rolled Up Task

Milestone *Rolled Up Milestone

2


Du_ation Start Finish 98 1999 2000 2001 2002 | 2003 t .

ID Task Name Duration Start Finish QQ3|04|Q1|02|Q3|04|01|2 Q3 TQ4 QilQ20Q3lQ4l01QQ2lQ30Q4101102103 Q40Q1

43 Bid award 4w 1/19/01 2/15/01 .

44 Delivery /Implementation 32w 2/16/01 9/27/01

45 Bid 4 - package 2 (Copiers, Faxes) 64w 8/1/00 9127101

46 Bid document preparation 8w 8/1/00 9/16/00W


48 Bidding 8w 9/28/00 11/11/00

49 Bid evaluation 6w 11/12/00 12/21/00

50 IFAD/IDA approval 4w 12/22100 1/18/01

51 Bid award 4w 1/19/01 2/15/01


53 Bid S - package 1 (Vehicles)- NCB 72w 8/1/01 12/17/02

54 Bid document preparation 8w 8/1/01 9/25/01

55 Approval by iFAD/IDA 2w 9/26/01 10/9/01

56 Bidding 8w 10/10/01 12/4/01

57 Bid evaluation 6w 12/5/01 1/15/02

58 IFAD/IDA approval 4w 1/16/02 2/12/02

59 Bid award 4w 2/13/02 3/12/02


Task Summary Rolled Up ProgressProjedt: Sohag Rural Development Pr PrgesRldUpTkDate: 8/3/98PrgesRleUpTk

._ Milestone * Rolled Up Milestone o '

3


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EGYPT - Sohag Rural Development ProjectImplementation Schedule

1998 1999 2000 | 2001 2002 2003 2004

ID Task Name Duratlo Start Finish Q2JQ3J|Q4 Q1|Ja2Q3Q4 Q| Q2 Q3 Q4 Q1 Q210 Q3 |4|11Q2lQ3lQ4!1|Q2|2Q3lQ4!1|Q22Q3|Q4 !Q23 O&M Plan (System, Finance) lw 7/10/99 7/14/99 I .

24 Village Final Decision 1w 7/15/99 7/20/99 .

25 Bid Documents Preparation 8w 7/21/99 9/5/99

26 Environmental Review 1w 7/21/99 7/26/99

27 Approval by IDA/iFAD 2w 9/6/99 9/16199 i1

28 Bidding SW 9/18/99 11/2/99

29 Bid evaluation 6w 11/3/99 12/7/99

30 IDA/IFAD Approval 2w 12/8/99 12/19/99

31 Bid Award 4w 12/20/99 1/11/00

32 Implementation 36w 2/5/00 8/31/00

33 O&M Training low 6/12/00 8/8/00

34 Third Year Village Inhastructure Progra 87w 4113100 9/2/01

35 Data Collection & Analysis 6w 4/13/00 5/17/00 ,

36 Project Identification 3w 5/18/00 6/4/00

37 Village Decision 4w 6/5/00 6/27/00

38 Project Planning & Budget 2w 6/28/00 7/9/00

39 O&M Plan (System, Finance) 1w 7/10/00 7/15/00 l

40 Village Final Decision 1w 7/16/00 7/20/00

41 Bid Documents Preparation 8w 7/22/00 9/5/00


43 Approval by IDA/IFAD 2w 9/6/00 9/17/00

44 Bidding 8w 9/18/00 11/2 /00

Task Summary _ Rolled Up Progress 00

Project: Sohag Rural Developrnent PrDate: 8t3198 Progress Rolled Up Task _

Milestone Rolled Up Milestone

2


1998 1999 2000 2001 2002 2003 2004

ID Tak Name Duratlo Start Finish Q2 Q3|4|Q 2 l 1031Q4 Q102 1P3 1 ±.LQlIQ2IQ31Q4 Q10Q21Q30Q4 Q1lQ2 Q3 Q41Q11Q21Q31Q4IQl 545 Bid evaluafion 6w 11/4/00 12/7/00 Ii

46 IDAliFADApproval 2w 12/9/00 12/19/00

47 Bid Award 4w 12/20/00 1/11/01

48 Inplementation 36w 2/5/01 9/2/01

49 O&M Training low 6113/01 8/9/01

50 Foufth Year Village Infrastructure Progr 87w 4/13101 9Y2.i2

51 Data Collecin & Analysis 6w 4/13/01 5/17/01

52 Projet Identification 3w 5/19/01 6/4/01

53 Village Decision 4w 6/5/01 6127/01


65 O&M Plan (System, Finance) 1w 7/10/01 7/15/01

6S Village Final Decision 1w 7/16/01 7/21/01

67 Bid Documents Preparation 8W 7/22/01 9/5/01

5S Environmental Review 1w 7/22/01 7/26/01

69 Approval by IDA/iFAD 2w 9/6/01 9/17/01

S0 Bidding 8w 9/18/01 11/3/01

61 Bid evaluation 6w 11/4/01 12/8/01


63 Bid Award 4w 12/20/01 1/12/02

64 Irnpbemntaton 36w 2/5/02 9/2/02

65 O&M Training low 613/02 810/02

66 Fifh Year Village Infrastructure Progra 87w 4/13/02 91/03

Task Summary Rolled Up Progress PProject: Sohag Rural Development PrDa8/398 Progress Rolled Up Task

Milestone Rn1IUp unMiIeAtnne >3


1998 1999 2000 2001 2002 2003 2004ID Task Name Duratlo Start Finish Q2lQ3|Q4l QlQ2|Q3lQ413 2|Q3'Q41Q 2|Q31Q41Q1|21Q31Q4 1IQ21Q31Q41|Q2103104 5167 Data Collection & Analysis 6w 4/13/02 5/16/02

68 Project Identification 3w 5/18102 6/3/02

70 Project Planning & Budget 2w 6/27/02 7/8102 \ .



73 Bid Documents Preparation 8w 7121/02 9/4/02


76 Approval by IDA/IFAD 2w 9/5/02 9/16/02

76 Bidding 8w 9/17/02 1112/02

77 Bid evaluation 6w 11/3/02 12/7/02


79 BidAward 4w 12/19/02 1/11/03i

80 Impemntation 36w 2/4/03 9/1103

81 . O&M Training low 6/12/03 8/9/03 I

62 6th Year Village Infrasbucture Program 87w 4/11303 8/31/04

83 Data Colection & Analysis 6w 4/13/03 5117/03

64 Project Identication 3w 5/18/03 6/3/03

85 Village Decision 4w 6/4/03 6/26/03




|Task Summary Rolled Up Progress 00

Project: Sohag Rural Developmernt Pr P|ogress Rolled Up TaskDate: 8/3/98 {Pors oE pTs

|Milestone *Rollbd Up Milestone

.... ~~~~~~~~~~~~~~~4


1998 1999 2000 2001 2002 2003 2004

ID TaskNane Duratio Start Finish Q2|Q3|Q4 Q1 |2|Q3IQ4|Q|2|Q3|Q4|Q1j|2|Q3|Q4 01 |Q2|03Q4 Q1 020304 Q |Q2|03040189 Bid Documents Preparation 8w 7/21/03 9/4/03

90 Environmental Review 1w 7/21/03 7/26C3i

91 Approval by IDAIIFAD 2w 9/6/03 9/16/03

92 Bidding 8w 9/17/03 11/2/03

93 Bid evaluation 6w 11/3/03 12/7103


95 Bid Award 4w 12/20/03 1/11/04

96 Implmentation 36w 2/4/04 831/04

97 O&M Training low 6/12/04 8/8/04

98 Technical Assistance Secretariate 405.2w 7/13/98 12/30/04 i I .

99 Long -term TA 370w 2/3/99 12/30/04 * * _ . . .

100 Short Term TA Year 1 Program 12w 7/13/98 9/20/98






106 Project Completion Date Ow 12/31/04 12/31/04 *1 .

Task Summary Rolled Up ProgressProject: Sohag Rural Development Pr |Date: 8/3/98 Progress Rolled Up Task[ Milestone Rolied Up Miesioniu 0

, . ~~~~~~~~~~~~~~5


Annex 8


Environmental Management Plan

A. Overview

1. Introduction. The Sohag Govemorate is a long narrow strip of land along the west bank of theNile River and adjacent to the Red Sea mountain chain. The climate is hot and dry with a short coolwinter and negligible annual rainfall. The local ecosystem is very fragile with a limited natural resourcebase. The objective of the proposed Sohag Rural Development Project is to support the sustainabledevelopment of rural villages in the Sohag Govemorate through the participatory approach initiated bythe National Program for Integrated Rural Development Program (SHROUK). The project aims topromote sustainable rural development by improving income and quality of life in rural communitiesthrough infrastructure and by making access to credit more equitable for the rural poor, unemployedyouth and women. A subsidiary objective of the proposed Project will be to conserve natural resourcesand improve environmental management. A review of the potential environmental issues associatedwith the proposed Project was developed to support Project preparation and an EnvironmentalManagement Plan (EMP) has been prepared to address environmental issues during theimplementation process.

2. Environmental Aspects. Implementation of the proposed Project is anticipated to have anoverall positive environmental impact through support for improvements in village level infrastructure,especially from new investments and rehabilitation of current investrnents related to water supply andsanitation, health services and upgrading of rural roads. The Project has been placed in environmentalscreening Category "B" consistent with the environmental procedures of the World Bank inconsultation with representatives of the Egyptian Environmental Affairs Agency (EEAA) and localenvironmental authorities. It has been placed in this screening category due to the limited andpredictable impacts of the types of small-scale interventions it would support and the ability to addressthese issues through the use of project specific environmental guidelines. Given the small-scale types ofactivities to be supported, the emphasis on rehabilitation of existing infrastructure and the participatorybasis for sub-project selection, it is not anticipated that the proposed Project would result ininvoluntarily resettlement or adverse impacts to archaeological and/or historical sites. The Projectwould include the use of archeological "chance find procedures" in case buried archaeological and/orhistorical materials are discovered during construction activities.

3. Three Complementary Components. The proposed Project includes the followingcomplementary interventions which have been individually subject to the environmental screeningprocess:

(a) Component A - Local Institutions Strengthening Component (US$5.5 million) whichsupports strengthening the capacity of local administration at the Govemorate, districtand local levels to assist communities in identifying, prioritizing, appraising andmaintaining the assets financed under the Project (environmental screening Category"C");


(b) Component B - Village Infrastructure Component (US$47.5 million) which supportsidentification, preparation and co-financing of Village Priority Development Plansthrough the SHROUK participatory process (environmental screening Category "B");and

(c) Component C - Rural Finance Component (US$23 million) which would helpimprove the standard of living of rural poor in Sohag by promoting increased economicactivities; opening access to credit for the ultra-poor; assisting in developing ruralfinancial markets, through the Local Development Fund (US$3.4 millioni for micro-loans (environmental screening Category "C"); and the Sohag Bank for Developmentand Agriculture Credit (BDAC) (US$19.9 million) to provide long-term resourcesthrough a line of credit for small-scale on-farn technology and agro-businessinvestments and a line of credit for micro loans (environmental screening Category"C").

It should be noted that the Development Credit Agreement includes specific language that loanproceeds cannot be used under the Sohag BDAC Sub-Component for the financing of any type offacilities for the formulation, packaging and repackaging of pesticides, including insecticides,fungicides, herbicides, rodenticides, molluscides, fumigants or other hazardous chemicals;

B. On-Going Environmental Activities

4. National Environmental Impact Assessment Guidelines. The EEAA, in cooperation withall concerned ministries and national organizations, and with the assistance of the Danish IntemationalDevelopment Agency (DANEDA), has prepared "Guidelines for Egyptian Environmental ImpactAssessment" (EIA Guidelines) in Arabic and English. These EIA Guidelines have been developed toassist the competent authorities and licensing agencies in implementing the Articles of Law 4 of 1994concerned with Environmental Impact Assessment requirements for new projects. In addition, theArabic and English versions of the World Bank Environmental Assessment Sourcebook are availableto provide complementary information on a wide number of sectors and issues. Egypt also has welldeveloped legislation conceming the protection of archaeological and historical sites and World Bankguidance concerning these issues has also been prepared in Arabic and English.

5. Environmental Action Plan for Sohag Governorate. In the context of the "Support toEnvironmental Assessment and Management Project (SEAM)", an Environmental Action Plan (EAP)for the Sohag Govemorate was prepared in January 1998, supported by the United Kingdom'sDepartment For International Development (DFID). The plan has identified a series of priority issueswhich include the need for: (a) infrastructure and environmental service improvements; (b) improvedresource conservation, planning and development; and (c) a better environmental planning andmanagement system. The SEAM covered the legal and regulatory aspects of environmentalmanagement including laws, decrees, bylaws, licensing arrangements, codes of practice and othermechanisms. It also evaluated the use of economic instruments and institutional measures which couldbe linked to environmental management actions. These recommended measures are designed to ensurethat future developments in the Govemorate will be environmentally sound, consistent with Law 4 of1994, and monitorable in relation to established environmental criteria. They also supportimplementation of Law 48 which aims to control pollution of both potable and non-potable waters hithe entire Nile system, including the irrigation and drainage network.


C. Elements of the Environmental Management Plan

6. Environment in the SHROUK Process. The SHROUK process to be used in the Projectemphasizes the participation of village representatives in the identification of needs, selection ofpriorities, financial participation in the cost of village infrastructure, and sustainable operation andmaintenance. Community development facilitators (mandub and manduba) at the village level play animportant role in facilitating the dialogue between the rural population and the administration. They arealso expected to play a key role in raising the environmental awareness of the rural population of theSohag Govemorate. The participatory process is designed to ensure that, prior to investment andimplementation, the selected activities are assessed for their technical and financial feasibility as well astheir enviromnental soundness and potential environmental impact. The environmental concerns of theEEAA have been embodied in the SHROUK process by having the anticipated enviromnental impactof a proposed investment described as an element of each feasibility study to be proposed for supportunder the Project

7. Elements of the Environmental and Management Plan. The Environmental ManagementPlan for the proposed Project includes the following elements:

(a) Strengthening the Environmental Management Unit;

(b) Sub-Project Environmental Review;

(c) Environmental Awareness Program;

(d) Environmental Training Program, and

(e) Monitoring and Reporting.

These elements are to be funded by contributions from the Government of Egypt and Govemorate ofSohag; support from the UK-DFID under a separate project, the World Bank and IFAD. The EMPwould be implemented concurrently with the other elements of the proposed Project. The EMP has anestimated budget over the life of the Project of US$976,081 which is summarized in Table 1. Inaddition the UK-DFID is considering finance demonstrations projects for solid waste management foran amount of about US$640,000.

8. Role of the Environmental Management Unit. Under the proposed Project, the final reviewand approval of sub-projects will be done at the Govemorate level. Consistent with this decentralizedapproach to decision making, the Environmental Management Unit (EMU), which is directly affiliatedwith the Governor's Office, will be responsible for reviewing the environmental aspects of theproposed sub-projects. Currently, the EMU is staffed by a Director who is supported by a Secretaryand one Environmental Officer. As part of the proposed Project, the EMU will be fully staffed by theGovemor's Office to include four full-time personnel to be assigned to a Secretariat and fourOperational Divisions: (a) Environmental Management and Monitoring; (b) Solid and HazardousWastes; (c) Environmental Public Awareness; and (d) Studies and Research. In addition, arrangementswould be made by the Governor's Office to establish an operational relationship between the EMU andlocally based personnel responsible for archaeological and historical sites.

9. Strengthening the Environmental Management Unit In order to strengthen the EMU tosupport implementation of the EAP and to conduct environmental review of sub-projects under


Component B - Village Infrastructure Programn of the proposed Project, assistance would be providedby UK-DFID, IDA and IFAD to strengthen the EMU. The GOE would provide adequate office spacefor the expanded EMU, as well as office furniture, storage cabinets and air conditioners, as a localcontribution to the proposed Project. Support from the project would be provided to train personnelfrom the EMU and other cooperating local organizations, provide basic office equipment, selectedtypes of field equipment and a limited number of vehicles. The salaries and operational budget for theEMU, including local travel costs to support environmental review of Project activities will be provided.by the GOE as a counterpart contribution.

10. Sub-Project Environmental Review. The EMU would implement a program of Sub-Project:Environmental Reviews for activities proposed for funding under Component B - Village InfrastructureProgram that may have a potential adverse environmental impact. These sub-projects may have aLmaximum value of US$500,000, making them extremely limited in their size and scope. Therefore,they are suitable for a simplified environmental review and monitoring procedure which is significantlyless complicated and expensive than a full Environmental Impact Assessment. As noted above inparagraph 6, the approach adopted in the SHROUK process is designed to ensure that the anticipateclenvironmental impact of a proposed investment is described as an element of each feasibility study tobe proposed for support under the Project. These "environmental reviews" would be prepared by theSub-Project sponsor, as an integral part of the feasibility study, and would follow a standardized formaltthat includes the following elements: (a) review of the current environmental conditions at the site, (b)assessment of potential environmental impact associated with the proposed activity, (c) assessment oiFpotential environmental impact associated with the implementation phase of the proposed activity, ancl(d) review, in coordination with antiquities authorities, of potential impacts to archaeological anclhistorical sites from the proposed activity. In addition, the "environmental reviews" would consider anyrequired land acquisition for the proposed acfivity and identify any anticipated needs for involuntaryresettlement.

11. Sub-Project Types Requiring Environmental Reviews. The following types of proposeclsub-projects would be subject to these environmental reviews:

(a) Road Overpasses;

(b) Filling Up of WastewaterPonds;

(c) Construction of Slaughterhouses;

(d) Rehabilitation of Rural Health Centers;

(e) Rehabilitation and Pavement of Rural Road;

(f) Extension of Water Pipes;

(g) Construction of New Wells; and

(h) Construction of Pumping Stations.

Additional types of sub-projects may be added during the course of Project implementation and theirinclusion on this list would be by agreement between representatives of the implementing agency,environmental authorities and IDA.

12. Review and Approval Process. These "environmental reviews" would be subject to reviewand approval by the EMU. This process would need to be undertaken in a timely manner consistent


with established review and comment periods developed for activities under Component B. The EMNwould be expected to evaluate the "environmental review" for each sub-project, which would includemeetings with representatives of the organization(s) responsible for the design, implementation andoperation of the Sub-Project. In most cases, the EMU staff would be expected to make a site visit toreview the specific details of the proposed Sub-Project prior to providing an approval. The EMUwould be encouraged to discuss the environmental aspects of proposed sub-projects with localofficials, residents and NGOs.

13. Environmental Awareness Program. The proposed Project would support training inenvironmental awareness for personnel from the EMU, District Supervisors of SHROUK's communitydevelopment facilitators ("mandub" and "manduba") and selected NGO representatives. The focus ofthe training program would be on the "training of trainers" to allow for a multiplier effect. In addition,support would be provided for a series of Project supported outreach programs. Special attentionwould be given to water supply and sanitation projects. The training will be delivered in conjunctionwith regularly organized training sessions organized as part of the SHROUK methodology.

14. Environmental Training Program. With the support of the United Kingdom, and potentiallyother bilateral donors, an Environmental Training Program would be conducted at the level of theSohag Govemorate. This Program would focus on development of the skills of EMU personnel, otherGovemorate environmental personnel, staff from line ministries and NGOs, in regard to environmentaland natural resources management It is anticipated that the Program would include the followingactivities:

(a) Environmental Planning and Management Training would be provided to themanagement staff of the Govemorate and Under-Secretaries of line ministnes in theGovemorate concening: (i) effective management of natural resources andenvironmental management with an emphasis on minimization of pollution; and (ii)review and discussion of applicable environmental and natural resources legislation,procedures, enforcement and monitoring programs;

(b) Environmental Impact Assessment. Training would be provided to EMU staff, otherGovemorate environmental personnel, staff from line ministries and NGOs inimplementation of the new Environmental Impact Assessment Guidelines. This wouldinclude: (i) the legal requirements, methods and techniques of EIA; and (ii)development of appropriate review procedures; and

(c) Environmental Monitoring and Enforcement. Training would be provided toprofessional and technical staff of EMU, Govemorate (including Districts and LocalAdministrative Units); line ministries with responsibilities for sub-projects, and NGOs.This would include training concerning: (i) development of technical skills for datacollection and interpretation; (ii) the importance of standardizing monitoringtechniques; and (iii) support for design of compliance strategies and monitoringprograms.

D. Environmental Management Plan - Monitoring and -Supervision

15. Monitoring and Reporting. The EMU will conduct routine monitoring of environmentalaspects of Project supported sub-projects, during their implementation and operational phases. as anelement of a work plan which would be agreed to on an annual basis between the implementing


agency, the EMU and the Bank. These monitoring reports would follow a standardized format andwould be based on field visits to representative and/or problematic sub-projects. They would beincluded as an element of Environmental Reports which are to be submitted by the EMU to theimplementing agency and the Bank as an element of the Project reporting process.

16. Project Supervision - Environmental Aspects. The Project Supervision Plan will include theparticipation of an environmental specialist in selected missions, the Mid-Term Review and in theImplementation Completion Report, to review progress in implementation of the EMP. Thesesupervision missions would include review of the performance and institutional development of theEMU, implementation of the environmental review procedures for sub-projects, and progress inenvironmental awareness activities at the local level. These reports would also note the status andprogress of bilaterally funded activities which support development of the EMU and implementation ofcomplementary actions to the E in the Sohag Govemorate.

Table 1: Environmental Management Plan - Estimated Budget

Item LE | USs | Source1. EMU Salaries and Allowances .

Director, Secretariat, Environmental 302,000 GOEManagement and Monitoring Officer, (estimate)Solid and Hazardous Wastes Officer,Environmental Public AwarenessOfficer, Studies and Research Officer _____jI____

2. EMU EquipmentX Office Furiture 5,000 GOE.(b) Storage Cabinets 1,200 GOE

(c) Air Conditioners 3.000 GOE(d) Computers and Printers (2) 5,200 IDA/IFADe2 Photocopying Machine (2) _X 6,600 IDA/IFAD

_f) Office Supplies 5ooo GOE(A) Light Truck (double cabin) (1) _ _ _ 28.600 IDAIIFAD

3. Scientific Equipment(a) Portable E ui ment _50000 UK-DFID

4. EMU Trainina/TA Demonstration(a) Advisonr SUpport 430,000 UK-DFID(b) Environmental Planning 36.300 IDA/IFAD(c) Sub-Proiect Environmental Review 32,100 IDA/IFAD(O Sub-Project Environmental Review _ 192,000 UK-DFID(e) Monitoring and Evaluation TA _ 50,000 UK-DFTD)(fl Environmental Awareness 11.700 IDAIIFAD

5. EMU Overational Budget(a) TransDortation 122.040 GOE(b) Office operation 14,600 _ GOE

SUB-TOTAL (US$) US$842.500SUB-TOTAL (LE) LE 452,840 (US$133,580)GRAND TOTAL US$976.080UK-DFID US$722,000IDAI/FAD US$120,500GOE LE 452.840 _


Appendix 1

Annex 8


ENVIRONMENTAL DATA SHEET FOR PROJECISIN THE IBRDIIDA LENDING PROGRAM

COUNTRY: Arab Republic of Egypt PROJECT IM:EG- PA- 40858PROJECT: IDA AMOU6NT SDR 18.6 millionAPPRAISAL DATE: N4ovember/December 1997 IBRD AMOUNTBOARD DATE: August 25, 1998 PROJECr COST: USW9A.8MANACING DIVISION: MNSRE SECIOR. Ruma DevelopnuntLENDING INSTRUMENTS: SIL STATUS: LendingEA CATEGORY(AJB/QC: B DATE ASSIGNED:

DATE DATA SHEET PREPARED: April 20.1998

MiAJOR PROJECr COPONENTS(a) The Local InSiatudons Strengtheng Component will support strengthenin the capacity of local adrmini tration at theCiovemoTate, District and Village levels to sasist commities in identitying, prioritizing, appraising .operating andmaintining the assets financed by the project (environmnental category "C`)

(b) The Village !nfrastucnure Component wil supports the identincation, preparation and co-f±lnauclg of VillagePriority r7cvelopient Plans including the rehabilitabon or new construction of basc econonic and so il Infrastrucmr.,through i te participatory process of the National Pogram for Integrated Rural Development (SHROk i t) (enviromnentalcatgora, 3')

(c) The Rural Finance Conponent will help improvc the stadrds or living Ofrural pmr in Sohag by promotingincreaeud economic acftvies; opening accss to credit for the uila-poor asisting i developing rats flmsacial marketsthrough dxe Local Development Pund for micro-loan (environmental category '"C) and the Sohag . -ink forDevelopment and Agricultual Credit to provide long-term resours for a line credit for smalt-scale, a-farn technologyand agibusiness investments and line of credit for miaco-loans (environmental category 'C")

MAJOR ENVIRONMENTAL ISSUES:None

OTIMR ENVIRONMENTAL ISSUES:Potential cnvironmnal iUues re; primrily relaxed to potenial restricted envirometl 1mpacr. asciated with theimplementation and operation of a range of small scale ub-projects to be implemented under the Village InfrastructureProgram ::omponent. nTe Fnvironmcnt Management Plan will provide to address the potential issum and will includeprocedur :3 for a case-by-case "environmental review" and monitoring of these on by the Envirouri =l ManagementUnit of tLe Sohag Govermoratse.

PROPOSEI) ACTIONS:An Evironmental Management Plan has been prepard for the project with the support of the ,Sobag lnvironnmtalManagement Unit, ctblished and appored by the united Kingdom's Deparunt For International Development(DFID) "Support to Environmental Asscssment and Managcment Project (SEAM) in thc Sohay Govcrnontc.It includes the following elements:(a) S&rngthening of the Environmental Management UInit trough training, provision of baic office and field equipmentand vehicles.(h) Sub-projects Environmentw Reviewn would be part of the feasibility studies ard would follow a suindardizcd formincluding the following: (i) review of thc curret conditions at the site; (ii) assesmet of potential environmental impactasociated with thc proposed activity; (iii) asment of potutial evironmantal impact maociatcd -idi theimplementation phase of the proposed acivity; and (iv) review, in coordination with antiquities aut'srities. of potnilimpacts to archaeological and historical sites from the prosod acdvity. In addition, the "environmental reviews" wouldconsider any required land acquisii for the propoed activity and identify any anticipated e for involuntaryresettlewent-(c) L *awt Seisor of rM"s dwuld suppt aning in ecviritaw *awunCd o br pe-manal fnr teRMtJ. flawtlct .9upervisr of SUlROUg'a commnunity development Ibeilitarors ("mandub" and "nduba"l and selected


NGO reprsentatives.(d) Envirownental Training Program; With the support of the United Kingdom, and potentially other bilateral donors, inEnvironental Training Program would be conducted at the level of the Sobag Governomtae. This Program would focuson development of the skdlls of EMU pasonnel, other Govemorate environmental personnel, staff from linc ministriesand NGOs. in regard to environmental and natural resources managcrnent It is anticipated tbat the Program wouldinclude the following activies: (i) Environmntal planning and rmnagement training; (ii) Environmental impactassesmet training; (iii) Environmental nmitoring and enforcement taiing.(e) Monitoring and Evaluaton. The BMU will conduct routine monitoring of ceviromwental aspects of Project suppora:dSub-Projects, during their implementation and operational phases. These monitoring report. would foLow a standardizedfonmat and would be based on field visits to represenative and/or problmaic sub-projects. They would be included asan element of Environmental Reports which art to be submitted by the BMU to the impleenting agency and thc Bankas an element of the Project reporting process.JUSThICATION/RAflNAL FOR ENVIRONMENTAL CATEGORY:The Project has been placed in envimental screnimg category "B" consistent with the environmental procedures ofthe World Bank in consulution with representatives of the Egyptian Environmental Affairs Agency (EEAA) and localenvironmental authorities. It has been placed in this screening category due to dte limited and predictable impacts of thetypes of small-scale interventions it would support and the ability to addrcs these isues through the use of projectspeciiic eavironmena guidelines. Given the small-scale types of activities to bc suppurted, the cmphlsis onrehabilitation of existing infiastucture and the participatory basis for sub-project selection, it is not anticipated that theproposed Project would result in involuntariLy resettlement or advcrse impacts to archaeological andtor historical sites.The Project would include the use of archeological 'chance find procedures" In case buried archaeol-,,ical and/orhistorical mateals are discovered during construction activities.SUMMARY OF CATEGORY 'A" ENVIRONMENTAL ASSESSMENT:

N/A

REMARKS:The project will benefit from the Eavironmcnlal Action Plan for Ihe Sohag Govemorate prepared by thc Support toEnvironmntal Assessment and Managenent Project (SEAM) funded by DF1D and from the eanvir owental guidelinesdeveloped during the USAID-inanced, Local Developmet Project -II.

Signed by:

Moha4d AiDirector, MNSRE Khaid lkraxa, Country Director

Nicole Glineur, hAting Environment Iteg±onl Loordmator


Annex 9


Project Processing Budget and Schedule

Planned Actual

A. Project Budget

B. Project Schedule

PCD Review 10/10/96 10/10/96Time taken to prepare the project (months) 20 28First Bank mission (identification) 07/95 07/95Appraisal mission departure 03/15/97 11/01/97Negotiations 06/25/98Board 07/10/97 08/25/98Planned Date of Effectiveness 12/31/98

Prepared by: Sohag Governorate, Ministry of Local Administration, Ministry of Rural Development,Ministry of Agriculture and Land Reclamation

Preparation Assistance: Japanese PHRD Grant

Bank Staff who worked on the project included:

Mr. Bachir Souhlal - Senior Agriculturist, Task Manager IdentificationMr. Jean-Francois Barres - Principal Agricultural Economist, Team Leader (MNSRE)Mrs. Marjory-Anne Bromhead - Principal Natural Resources Management Economist (MNSRE)Mr. Usaid El-Hanbali - Senior Irrigation Engineer (MNSRE)Mr. Rouchdy Saleh Hassan - Natural Resources Specialist (MNCEG)Mr. Matthias Schlund - Agricultural Economist (MNSRE)Ms. Nirmala Reddy - Consultant, Banking SectorMs. Randa Al Rashidi - Consultant, Community Development Specialist (MNSHD)Mr. Aymnan El Gindy - Consultant, Rural DevelopmentMs. Elena Volpi - Consultant, SociologistMr. Tarek Salim - Consultant, Water and SanitationMrs. Conchita Castillo - Team AssistantMs. Amal Fouad Sohby - Senior SecretaryMr. Abdalla Ralman - Project Controller (IFAD)


Annex 10


Documents in the Project File

A. Project Inplementation Plan- Villages Five-Year Investment Plan- Sohag - SHROUK Annual Program and Budget (1997)- Detailed Project Cost Tables- Project Operation Manual- Project Operation Manual (Arabic)- PBDAC Manual for Credit and Financial Policies and Procedures- LDF Manual of Operations- Manual for Micro-Credit-PBDAC- Manual for Micro-Credit-LDF- Project Preparation Report (three Volumes)- Socio-Economic Study of the Sohag Govemorate- SHROUK Approaches and Mechanism- The Organizational Framework of SHROUK- Financial Regulations and Instructions- Policy Paper on the Composition of SHROUK Committees at Different Levels- Policy Paper on the Involvement of SHROUK Committees in the Planning and Oversight of their HSD Program- Current Procedures for Monitoring and Evaluation in the Context of the National Program for Integrated RuralDevelopment

- Sohag Govemorate - Environmental Action Plan

B. Bank Staff Assessments- Identification Mission Working Papers- Inception Mission Report- Institutional and Financial Assessment of Sohag BDAC and LDF- Agricultural Strategy and Activities in Sohag- Overview of the SHROUK and Social Fund for Development- Social Assessment

C. Other- The National Program for Integrated Rural Development (SHROUK)- SHROUK Projects hIplemented in Sohag (1995/96-1997/98)- Issues in Fiscal Decentralization for the SHROUK Program- Review and Evaluation of the Special Innovation Funds- Review of the Family Development Fund and UNICEF's Support for Micro-Credit in Egypt- Audit Report for PBDAC and the BDACs (1995/96)- SHROUK Annual Reports (Arabic)- Participatory Rural Governance Program - Program Review- Participatory Rural Development in Sohag Governorate - Description

Organiizationl Chtart

NATIONAL PiLEVEL

Ministries |t C m

PBDAC~~~~~~~~~~~C

GOVELNSRI TE Governorate Rural ------

LEVEL G~~~~~~~~~~ ~ ~~~~~~~overnorate Developmeint Commiiittee

M inisres

I I a.~~~Mi Isre --------------------------------------- I------------

.................................... ............ ...... .................................... ........... ........... ... ..................................................I ................ .. . . .. . . . .. . . .

DISTRICTLEVEL

Ministei-ial ------ District Rutiral BDAC

Departimenterial ( |)Development Comlilmttee District Branci

VILLAGE LEVEL

Ministerial -LAU (51) Village Rtiral -------- Village Banik

Departments \ l l 1 Development Committee

NGOs


Data Collection & Analysis

SHRROUK COMMITTEE ORGANIZATION

Popular Participation & PlanningVILLAGE COMMITTEE

(VRDC)>.

DISTRICT COMMITTEE T~~~~~~~~echnical Support toDISTRICT COMMITTEE Implementation

{ ~~~~Monitoring8: Evaluation

.................................. . .................... .. ...... . .................. ........................................................................................................ ................................... . ............. : .........

Technical Assistance forDistrict and Village

Project Appraisal

GOVERNORATE COMMITTEE..

Credit Supervision of Implementation

Steering Committee )

( . ~~~Monitoring & Evaluation

Egypt - Sohag Rural Development Project

Annex 12 i

Status of Banik Group Operations in the Arab Republic of EgyptA. IBRD Loatis and IDA Credits in the Operations Portfolio

Difference Between expect d

Original Amount in USS Millions and actual

Loan or fiscal di_b__...__ ___ _t_

Project ID Credit Year Borrower PurposeNo IBRD IDA Cancellations Undis ursed Orig F RBev'd

'. _ . . . . U2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C CD'B-mber of Closed Lo.-./oredits: 90Active Loans30-21-49166 ID330020 1998 EAST DELTA AG.5CRV. 0.00 15.00 0.00 14.96 0.00 0.00EG-P -54958 1B9D42630 1998 GoGvEBOBET or ZGYPT POLLUTION ABATE3MNT 20.00 0.00 0.00 20.00 0.00 0.00

Z0-P6-549058 IDA30240 1998 GOVEBIRET OF EGYPT POLLUTIOB AB1.TDE0T 0.00 15.00 0.00 14.69 0.00 0.00EG-P6-5169 IU8ANO080 1997 GOx ED. Z.ANCeH13T PROG. 0.00 75.00 0,00 66.39 12.88 0.00 r 0

3g-B1-43102 0A328650 1996 GOVEBNOOET SOCIAL FUND II 0.00 120.00 0.00 38.51 -21.97 0.00 0

WG-P1-5163 IDA128300 1996 GO POPULATION 0.00 17.20 0.00 16.03 4.24 0.00 MWG-P1-5173 IBPD38320 1995 imWR XGYPT IPRIGATION DIP 26.70 0.00 0.00 26.70 11.68 0.00 JC

9G-2P-5173 IDA26720 1995 KPlR EGYPT IPBGATioW DeP 0.00 53.30 0.00 45.86 11.68 O0.0

XG-PE-5157 I9RD37190 1994 G0Z/PBDAC AGRICULTUB1fi NODRNI 54.00 0.00 0.00 3.63 -45.17 0.00IG-PI-5157 IDA25850 1994 GOX/P8DAC A3RICULTURIBL NODYPHI 0.00 67.00 0.00 14.15 -45.17 0.00Z0-PE-5153 IDA25040 1993 GOVXIOIUT OF EGYPT 0dAT0G PESOURCZ M1A% 0.00 22.00 0.00 16.10 7.70 -. 66 57 W0-Pt-5161 IDA24760 1993 GO3 BASIC 9DUCATION PROJ 0.00 55.50 0.00 19.09 8.51 0.00 > aIG-PI-516B 1BRD36050 1993 GOVERNIENT PVT SEC TOURISh IN9 & ENV 130.00 0.00 0.00 84.09 57.19 0.00 ( >30-P2-5146 I38D34170 1992 GOVBNIWEOT o0r GYPT NATIONAL DRABINAGE 45.00 0.00 0.00 32.61 -3.43 0.00 0 o

YG-PZ-5146 ID823130 1992 GOVEBBMEO1T Of EGYPT NATIONAL DRIAINAGE 0.00 75.00 0.00 4.95 -3.43 0.00 5 g.

1G-PI-5152 lDA24030 1992 GOVERNNXT SCHISTOSO0I5SIS CONT 0.00 26.84 0.00 16.90 11.67 0.00 c

3G-21-5111 I8033540 1991 tGPC GAS INVES YO PROJII 84.00 0.00 0.00 11.56 11.56 0.00 _.

ZG-P6-5140 38031370 1990 GOVRNDINET NGINEERING & TECHNI 30.50 0.00 0.00 6.10 6.12 0.00 11Q-2P-5149 IBRD31980 1990 GOVERI3WUT Or EGYPT IRRIG./PUMPING 31.00 0.00 0.00 3.88 3.89 0.00 :rTotal 421.20 541.84 0.00 456.20 27.95 -. 66 M;

Active Loan. Clos.d Loan. Total OTotal Dibursed (I8RD and IDA): 491.64 3,561.87 4,053.51 n

of whiob h heen repaid: 11.47 1,958.63 1,970.10 -Total now held by I3R8 sod 30k: 951.06 1,606.75 2,558.31 ES

A-ount sold : 0.00 7.48 7.48 0Of which repaid 0.00 7.48 7.48 ,e -

Total Undihouraed : 456.20 0.00 456.20

jl00

A. Intended diharxeants to date mincu tual disbursements to date: a projected at appraisal.b. Rating of 1-4: see OD 13.05. Anne. D2. Preparation of I3pl.nttion Sucoary (lFor, 590). rollowing the FY94 Annual Revi-w of Portfolio perforacce. (ARPP) a letter based syste-

will he used (NS - highly Satifactory, S- - satisfactory, U - unsatisfactory, HU - highly unsatisfactory): see proposed Ispr-vesents in Project and Portfolio Perforeance RatingMethodology A5eoM94-991) August 23, 1994.

Not-: Disbursent dat i- updated at the end of the first week of the mocth.


B. STATEMENT OF IFC's

Committed and Disbursed Portfolio in Arab Republic of EgyptAs of 31-Jan-98

(In US Dollar Millions)

Conuintted DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1982/88 Luxor Hotel 0.00 1.37 0.00 0.00 0.00 137 0.00 0.00

1983/91/94/92196 ANSDK 17.14 11.44 0.00 0.00 17.14 11.44 0.00 0.00

1985 MFIC 0.00 .12 0.00 0.00 0.00 .12 0.00 0.00

1986/88/92 Meleiha Oil 0.00 30.82 0.00 0.00 0.00 1.53 0.00 0.00

1991 Al Bardi 1.03 0.00 0.00 0.00 1.03 0.00 0.00 0.00

1992 Misr Compressor 9.70 3.77 0.00 0.00 9.70 3.77 0.00 0.00

1992/97 Carbon Black-EGT 9.67 2.96 0.00 0.00 7.67 2.96 0.00 0.00

1993 Cmrcl Intl Bank 0.00 15.59 0.00 0.00 0.00 15.59 0.00 0.00

1994 - -Club Ras Soma 4.71 2.40 0.00 0.00 4.71 237 0.00 0.00

1994/96 Abu Sonsa Develop 0.00 1.20 0.00 0.00 0.00 .91 0.00 0.00

1996 Apache Corp. 0.00 9.33 0.00 0.00 0.00 9.33 0.00 0.00

1996 Orix Leasing EGT 0.00 .89 0.00 0.00 0.00 .89 0.00 0.00

1997 Egypt Trust 0.00 5.00 0.00 0.00 0.00 5.00 0.00 0.00

1997 MGDK 0.00 1.50 0.00 0.00 0.00 .37 0.00 0.00

1997 Orascom 20.00 5.00 0.00 0.00 12.00 5.00 0.00 0.00

1997 UNI 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Portfolio: 67.25 91.39 0.00 0.00 52.25 60.65 0.00 0.00

Approvals Pending Commitment

Loan Eiuity Quasi Partic

1997 ANS]DK GDR 0.00 0.00 0.00 30.001997 ECC 35.00 0.00 0.00 0.001997 MGDK 4.00 0.00 0.00 0.001995 MISR COMP-CAP LN 1.60 0.00 0.00 0.001996 ORIX LEASING EGT 5.00 0.00 0.00 0.001997 UNIPAK-NILE 0.00 0.00 0.00 5.00

Total Pending ConumitFnent: 45.60 0.00 0.00 35.00


Annex 13


Egypt at a glanceM. Eat Lowor-

POVERT and SOCIAL & North middle-Egypt Africa Income Development diamond'

Population mid-1996 (millons) 59.3 279 1,125GNP per capt 1996 (USS) 1,090 2,090 1,750 Life expectancyGNP 1996 (bifons US$) 64.1 582 1,967

Avenge annual growth, 1990-96

Population (t) 2.0 2.6 1.4 GNP - GrosaLabor fonce fX) 2.7 3.3 1.8 p Gross

per primaryMost recnt embat (latest year available since 1989) capita enrollment

Povety: headcount Index (6 of popufathn)Urban population (X of total populalon) 45 57 56Lif expectancy at bith (yeats) 63 66 67Infant mortality (per 1,000 hve birfhs) 56 54 41 Accesa to safe waterChid malnution (t of c)ildrn under 5) 9 ,,Access to safe water (3 of population) 84 8s 78Illiteracy (% of popultion age 15+) 49 39Gro primary enrollment (3 of schtoo-age population) 98 97 104 - Egypt Arab Rep.

Male 105 104 105 Lower-middeincoms groupFemale 91 91 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1076 1985 1996 1996 rEconomic ratloa-

GOP (bllons USS) 11.4 34.7 60.5 67.6 EGros domestic investentnGDP 33.4 26.7 16.3 16.6 OpennessofeconomyExports of goods and servIcsGDP 20.2 19.9 22.0 20.6Grossdomesticaavings/GDP 12.3 14.5 14.0 14.0Grossnationalsavings/GDP .. .. 21.0 19.9

Current account balanGDP -21.2 9.3 0.8 -1.6Inteet payments/GDP 0.7 2.6 2.1 2.2 Savings InvestmentTotal debtGDP 42.3 104.1 56.4 46.2Tota debt service/expors 10.3 25.8 13.0 13.6Present value of debt/GDP .. .. 42.8Prfesnt va of debtexports .. .. 140.7 .. Indebtedness

197646 1986-96 1996 1996 1997-06(avenge annual rth) Egypt, Ab Rep.GOP 7.8 3.9 4.7 5.1 2.8-gytArbRpGNP per capIta 4.4 3.1 3.2 2,9 1.1 Lower-middle-income groupExport of goods and services 3.8 7.3 1.5 4.2 3.4

_v~~ ~ ~ ~ ~ ~ ~ ~ =

STRUCTURE of the ECONOMY1976 1935 1996 1996

(9C of GDP) Growth rates of output and Investmentt,#)Agriculture 29.0 20.0 16.8 17.3 20

Industry 26.9 28.6 32.3 31.6Manufacturing 17.4 13.5 24.494 95 s

Servkes 44.1 51.5 50.9 51.1

Private consumption 62.9 68.2 75.5 75.6 -40Genera govemmentconaumpton 24.9 17.2 10.5 10.4Import ofgoods and servoes 41.3 32.0 24.3 23.2 GDI --- GDP

197546 1986-96 1996 1996(average annual growth) Growth rtes of exports and Imports (%)Agriculture 2.8 2.7 2.9 3.1 15Industry 9.8 4.3 5,0 4.9

Manufacturng .. 4.7 7.1 6.2 o/Se en 10.6 3.6 5.0 5.6

Prvate consumption 6.8 4.6 2.8 4.0Generalgremmentconsumption 4.4 -0.5 8.2 6.0 91 03 95 nGross domst binvestment 7.8 -4.0 9.1 9.7 * lmports of goods andservcee 3.9 0.8 1.0 6.4 EGros national product 7.0 5.3 5.0 5.3 L Export -0--Iports

Note: 1996 dat are prelimiary esimat. Flgurs In titics are for ysrs other than those specfied.The diamonds show four key Indkctor In th country (In bold) oompared with ibt income-group averge. If data are mlsing, the dilamond wilbe Incomplett.


PRICES an GOVERNiAENT FINANCE1976 1185 1995 199 __

Domestic pdcs Inflaion (%)(% change) 30Consumer prices 9.7 9.3 7.2ImplicitGDP deflator 10.4 9.0 11.9 6.5 20

Governmmnt fneance It

(% of GDP) oCurrent revenue 22.2 27.3 25.1 tn 92 93 94 95 96Current budget balance -13.7 4.1 2.5 GDPOverall surplus/deficit -21.6 0.3 -1.3

TRADE1976 1985 1995 1996

(millions US$) Export and Import leveIs (mill. USS)Total exports (fob) 5.366 4,593 f ssoo

Cotton . .. 306 91Other agriculture 309 230Manufactures . .. 2,202 3,540 1'0

Total imports (cif) . .. 12,811 13,826Food .. .. 2,760 2,887 9,000Fuel and energy .

Capital goods . .. 3,108 4,100

Exportpriceindex(1987=100) 118 109 90 91 92 93 94 00 9S

Import prce index (1987=100) 140 127 oExports ilmportsTerms of trade (1987=100) 84 86

BALANCE of PAYMENTS1975 1985 1995 1996

(millions US$) Current account balance to GDP ratio (#)Exportsofgoodsandservices 2,503 6,866 13,470 13,422 n

Imports of goods and services 5,141 12,606 16,894 17,559Resource balance -2,638 -5,741 -3,423 -4,137

Net income -244 -991 -468 281Net current transfers 456 3,622 4,358 2,800 o + r -se_

Current account balance, so 91 92 93 94 00

before official capital transfers -2,426 -3,209 466 -1,057 s5

Financing items (net) 1,878 3,022 288 1,628Changes in net reserves 548 187 -754 -571 .10

Memo:Reserves including gold (mill. US$) 535 1,587 26,752 27,922Conversion rate (locaJUS$) 0.5 1.0 3.4 3.4

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1995 1996 1

(mi/lons USS) Compostion of total debt, 1995 (mIl USS)Total debtoutstanding and disbursed 4,835 36,102 34,116 31,208 G A s

IBRD 14 1,048 1,320 1,075 23751320 1035IDA 84 802 1,035 1,090 F 103

2033DTotal debt servioe 305 2,817 2,395 2,619 1874

IBRD 1 147 312 272IDA 1 8 21 23

Composition of net resource flowsOffical grants 1,123 734 1,006 932Official creditors 2,169 1,635 -90Private creditors 49 559 -306Foreign direct investment 8 1,178 598 615 EPortfolio equity 0 0 2 50 25376

Worid Bank programCommitments 132 59 80 172 A-IBRD E-BllateralDisbursements 62 269 125 108 B-IDA D-Othermuliateral F-PrivatePrincipal repayments 0 70 212 192 C-IMF G- Short-termNet fiows 62 198 -87 -84 1Interestipayments 1 84 121 102Net transers 61 114 -208 -186

Development Economics. 1996 extemal debt and resource flows data are staff estmates (preliminary). 8/20/97

MAP SECTION

: : 2~~~~252 r W .

ASSIUT

/ I ~~~~~~~ARAB REPUBLIC

/, / \/

* ) @ 'CHAD'J SUDAN

63'~~~~~~~~~~~ '

IC

:63~~~~~~~~0

-®( 63 (i) > 9 40 . 1-ARAB REPUBLIC OF EGYPT

SOHAG RURAL

EL WADI i rShag6 @7

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2 Nid.h3 Al Koulah

/ I / 1 4 Arobet Abi D-osI,-t X to' 5 AwlAdElewo

' ~'i ~HL .^/ ' 6 Ro<ni H-nili_ ~' ' '7 Bardees

1) QY ja 8 Al BitkhI . 9 Agh-yzat

' 5 10 Awlod beal

( EL BAHR 11B.oee: .@ 3 ' 12 Shondawil

13 Awlod HamzoJ-- - 14 Al Zouk Al Gorbiyoh

,I 1,5j IS Aldorat16 Awlod Salomo17 Rawaf Alesawya1 I Al Kashh19 Alihion

[] ;20 Awad Yehio Bahori63 2, i) !21 Awlad Solem BahoriI' ' 22 Elowamer Bahori

23 Alberba'% \ \24 Alnagab,o

't' (9 \ @ 25 Bait Alo.26 Boit Dowood27 Altolyh..t28 Enoibes29 Gohin- El Sharayao

* (5f -i);; '-b 30 Al Galowiyahn 1 11 k97 % . 31 SifloqA ( i) /4-1% - 2 32 El Kowamel

' j 33 Alsolac* - 34 Arobet Abou Dohob

'\ i3 j 35 Awlad A-aoz: : 36 Balasfouro1 $!J zi \ 37 ourAlkrmnya

*'38 Ed0.' . (') t 39 Ge-ret Sh-ndaweel

\** " ~.*' j 40 Rawofen Al Kousair41 Tounis

- 1 \ ~> j 42 Alsaleh- ' : 43 Alsowomo Ghreb

DISTRICTS: ! j 44 BangoLb iRMA I j ~~~~~~~~~~~45 NozIeB Al Kudey

TEMA 46 Shalworu

[B TAHTA '. 47 Aleadmoer

@ GOHINA EL-GHRBIA ? 48 Al-olou-n

@ AL-MARAGHA ,49 Alryiai Almuaol

L SAQULTA 5 \Meshta

T SOHAG QENALb AKHMIEMH AL MENSHAH I 'I\

L GERGAD AL-BALYNA' r ;..&s,s - 2_

\, rfe bn&nes¢don, Gb7oxwhonson ¢ . bbmolbn jU

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