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IBRD, IDA, Trust Funds Harmonized & Modernized Model Forms

IBRD, IDA, Trust Funds Harmonized & Modernized Model Forms. Niki DeWitt, Lisa Lui Operations Policy Practice Group November 2006. Overview. Background: How did we go about simplifying, harmonizing? How will it affect the Fiduciary staff’s work?

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IBRD, IDA, Trust Funds Harmonized & Modernized Model Forms

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  1. IBRD, IDA, Trust FundsHarmonized & Modernized Model Forms Niki DeWitt, Lisa Lui Operations Policy Practice Group November 2006

  2. Overview • Background: How did we go about simplifying, harmonizing? • How will it affect the Fiduciary staff’s work? • What’s the new package? What are the main changes relevant to fiduciary staff? • Your fiduciary issues with the new agreements? • Initial feedback. Need help?

  3. Background2004-2005: IBRD/IDA • Objective • Support simplification/harmonization agenda to reduce transaction costs with more user friendly documents: • Drafting stage, Negotiations, Implementation • How we went about this • Reviewed lessons learned, consulted: • International Financial Institutions • Bank Staff (CTR, OPCFM, OPCPR, Regions, Finance) • Borrowers • Comments from 22 borrowers from 6 Regions • 1/2 of IBRD + IDA portfolio • Result: completely new agreements • Updated, moved standard provisions to General Conditions • Minimized policy changes

  4. Background2005-2006: Trust Funds • Promised Board to tackle TF Grants after IBRD/IDA • Challenges: • Proliferation of TFs and tailor-made models = confusion • Concerns about adequacy of covenants, remedies • Objective: develop one, simple, comprehensive, flexible, harmonized model for Recipient-executed Grants • How did we go about this? • Followed IDA Grant model • Endorsed by TFWG, OS Panel, OPCFM/OPCPR, LOA, TF Program Managers, some donors • Result: new model for major TF Programs: • GPOBA, GEF, JSDF, PHRD, PCF/LICUS, IDF • Ongoing consultations with other TF Programs

  5. How does this affect fiduciary staff? • Fiduciary provisions in the legal agreement are more standardized • Focus on project specific covenants • Ancillary documents take on increased importance: • Procurement Plan, Disbursement Guidelines/Letter • like the Procurement Guidelines • and now, also of Anti-corruption Guidelines • Less need for amendment of agreements • TL, fiduciary staff and country lawyer need to work closely to: • craft project covenants flexibly to weather changes, but precise enough so Board knows what it’s approving • Minimize detailed legal conditionality • Expect some teething problems…

  6. What’s the package?IBRD, IDA • IBRD loan agreement (guarantee agreement), IDA financing agreement, IBRD/IDA Project Agreement: • Incorporate new General Conditions by reference • Limited to project-specific obligations • Modernized General Conditions: • Cover standard obligations – Articles/policy underpinnings • One for each of IDA and IBRD • Applies to all operations with PCNs issued on or after July 1, 2005

  7. What’s the package?Trust Funds • One model form of TF Agreement • Letter format, formal agreement format • 2 formats, same content • Incorporates Standard Conditions based on IDA General Conditions • For use with these Recipient-executed Grants • GEF, PCF, JSDF, PHRD, GPOBA • Effective July 20, 2006

  8. What are the ancillary documents? • Those incorporated by reference in covenants • Procurement Plan + Procurement/Consultant Guidelines • For TF Grants > $1 million • Disbursement Letter + Disbursement Guidelines • Anti-Corruption Guidelines • for Projects with PCN issued on or after October 15, 2006 • Safeguards Plans (e.g., Environmental Management Plan) • Supplemental Letters – elaborate on covenants • Financial representations • All legally binding or provide basis for Bank to exercise legal remedies • Compare: Minutes of negotiations – not binding, but clarify what’s acceptable to the parties

  9. Supporting information • IBRD/IDA General Conditions • Unofficial translations (Arabic, Chinese, French, Russian, Spanish) • Commentary for staff, borrowers (work in progress) • FAQs • On LEGAL’s website

  10. What are the principal changesat a glance? • 2 sets of General Conditions: 1 for IDA, 1 for IBRD • 1 set of Standard Conditions for TF Grants • In the Loan/Financing/Grant Agreement: • No more Special Account schedule • No more procurement thresholds • No more complicated FM clauses • No more complicated definitions

  11. What’s changed?Structure • Loan/Financing/Grant Agreement – Short basic main text • General Conditions/Standard Conditions • Incorporated by reference • Read them interactively with LA/FA/GA • Borrower/Recipient commitment; who carries out what • Financing terms; Project-specific remedies/effectiveness conditions; contact information • Plus 3 Schedules – all about the Project • Project Description (but not for DPL) • Project Execution – tells the Project cycle story • Main focus of fiduciary provisions • Repayment (but not for Grants)

  12. What’s changed?FM • Basic requirements moved to General Conditions (IBRD §5.09): • Maintenance of financial management system • Financial Statements for the Project • Periodic Audit of Financial Statements • What’s left in the Loan Agreement (Schedule 2, §II.B): • Periodicity of Audit • Interim un-audited financial reports • [Project Agreement: Financial Statements for overall operations of PIE]

  13. What’s changed?Procurement • General Conditions (§2.05) • Reference to procurement in definition of Eligible Expenditure • Loan Agreement (Sched 2, §III) • Loan Agreement - universe of possible methods, not thresholds or preferences • Default method: • ICB or NCB (with gap fillers) • QCBS • Procurement Guidelines describe when some methods are appropriate • Borrower’s Procurement Plan • Sets out when a particular method can be used, prior review • Procurement Plan referred to in Legal Agreement: binding

  14. What’s changed?Disbursement • General Conditions (Art II) • Retains principle of allocation of funds to specific expenditures (except for DPLs) • New definition of Eligible Expenditures (§2.05): Payment is: • For reasonable cost of goods, works, services, procured according to the Loan Agreement; • Not prohibited by UN Security Council Resolution • After retroactive financing date and incurred prior to Closing Date • Exceptions in Loan Agreement • Standard provisions moved to the General Conditions • Designated Accounts for project advances (not DPL) • Payment of PPA, FEF, IDC

  15. What’s changed?Disbursement • Loan Agreement (Sched 2, §IV) • Refers to disbursement according to “additional instructions”, including Disbursement Guidelines • Disbursement table, disbursement conditions, Closing Date • Disbursement Guidelines set out: • Universe of possible disbursement methods • Standard withdrawal application and supporting documentation requirements • Terms for advances • “Additional instructions” • Disbursement Letter: project specific provisions

  16. What’s changed?Sanctions • New remedies in the General Conditions (Art. VII) • Suspension for F&C in connection with the use of loan proceeds, and failure to take timely action to address such practices when they occur • Suspension if borrower (not member country) is sanctioned under another project • Cancellation for F&C with respect to any amount of the loan • Refund of IDA Grants for F&C with respect to any amount of the loan • New covenant in Loan Agreement (Sched 2, §I) • to carry out the Project according to the Anti-corruption Guidelines

  17. What’s changed?Policy changes in General Conditions • All goods insured against loss (§5.04) • Consistent with ICB SBD; recognizes increase in local expenditure financing • Record Retention (§5.07(c)) • For all expenditures financed under the Project • Later of: • 1 year following final audit • 2 years after Closing Date

  18. Particular Fiduciary Issues • Inter-linkages with Procurement, FM and Disbursement: • Not always clear • Procurement: • What happens if Procurement Plan is inconsistent with Loan Agreement? May have no remedies. • FM: • How do I know if special FM covenants are needed? • Discuss with lawyer, specify it in the PAD • Disbursement: • What’s an eligible expenditure? • Categories: to have or not to have? Depends on project needs; may be legally necessary

  19. Initial Feedback • Lawyers: • Easier and shorter to draft and negotiate • Staff: • IBRD/IDA: Easier to negotiate • Will the new General Conditions (GC) open the door to renegotiate the GC? • TF staff: too much coverage? Will NGOs panic? • Borrowers: • Easier to negotiate • Need to become more familiar with GC. • Will the new GC limit our ability to negotiate? • Some wanted to use the new models for operations under preparation whose Project Concept Notes were issued before July 1, 2005.

  20. Need Help? • Need help? • Contact your Country Lawyer • Still need help? • Contact “Legalsimplification” Help Desk • Legal Help Desk Team: • Niki DeWitt • Lisa Lui • Manush Hristov • Alex Iorio • Give us feedback, especially suggestions of things we can add to: • Q&As • GC Commentary

  21. Structure/Content of Fiduciary Obligations

  22. Structure/Content of Fiduciary Obligations

  23. Structure/Content of Fiduciary Obligations

  24. Structure/Content of Fiduciary Obligations

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