Tajikistan: Sustainable Cotton Subsector Project

Sovereign Project | 38603-013

Summary

The project's impact is the development of an economically sustainable cotton subsector in Tajikistan's two major cotton-growing regions, Khatlon and Sughd. Its outcome is for the debt-restructured cotton farms in Vose and Yovon raions of Khatlon and Mastchoh and Zafarabad raions in Sughd to sustainably improve their financial viability based on market principles.

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Project Name Sustainable Cotton Subsector Project
Project Number 38603-013
Country Tajikistan
Project Status Closed
Project Type / Modality of Assistance Grant
Loan
Source of Funding / Amount
Grant 0061-TAJ: Sustainable Cotton Subsector Project
Asian Development Fund US$ 6.50 million
Loan 2271-TAJ: Sustainable Cotton Subsector Project
Asian Development Fund US$ 5.50 million
Strategic Agendas Inclusive economic growth
Drivers of Change
Sector / Subsector Agriculture, natural resources and rural development - Agricultural policy, institutional and capacity development - Agricultural production - Agro-industry, marketing, and trade
Finance - Inclusive finance
Gender Equity and Mainstreaming
Description

The project's impact is the development of an economically sustainable cotton subsector in Tajikistan's two major cotton-growing regions, Khatlon and Sughd. Its outcome is for the debt-restructured cotton farms in Vose and Yovon raions of Khatlon and Mastchoh and Zafarabad raions in Sughd to sustainably improve their financial viability based on market principles.

The Project will provide three key outputs to achieve the desired outcome. The two key outputs in the four selected cotton-producing raions are that (i) the strategies, policy measures, and mechanisms to effectively address and resolve indebtedness of cotton farms are in place; and (ii) participating commercial banks (PCBs) provide suitable financing products and services to the debt-restructured cotton farms. At the supply chain's marketing level, the Project's third output is putting into effect grading and marketing regulations, a joint venture established by the Government with an internationally recognized cotton classification organization, and bonding warehousing of cotton following international standards. To support the delivery of the outputs, an effective Common Center for Project Management will be established.

Project Rationale and Linkage to Country/Regional Strategy The Project intends to build on the commitment of the Government to genuine development change by addressing the crucial and immediate concerns affecting the cotton subsector: (i) accumulating farm debt, (ii) policy constraints to producer incentives, (iii) inadequate alternative crop financing, and (iv) structural bottlenecks that create market distortions in the downstream section of the value chain. The grant component of the Project will assist the Government in addressing the farm debt issue and the structural problems, while minimizing the negative impact on the present role of cotton as a major source of government revenue, and employment and income to the vast majority of the rural poor. The loan component of the Project will try out crop financing through the commercial banks, establish the joint venture with an internationally recognized cotton grading controller, and upgrade bonded warehouses that will be operated by the private sector. The Project is classified as general intervention because addressing these gaps will enable cotton farms to reap the potential benefits of a vertically integrated value chain, and significantly reduce rural poverty.
Impact An economically sustainable cotton subsector in Tajikistan's two major cotton-producing regions, Khatlon and Sughd, has developed.
Project Outcome
Description of Outcome Improved access to quality seeds, finance, and market infrastructure by cotton farmers
Progress Toward Outcome The overall delay in delivering project outputs has delayed the achievement of the project outcomes. The 2012 data is being analyzed now to confirm the achievement of the outcome indicators.
Implementation Progress
Description of Project Outputs

Component 1: Seed Quality Improvement

1.1 Farmer-owned acid-delinting and seed- cleaning facilities established in Sughd and Khatlon through public-private partnership scheme

1.2 Plant quarantine laboratories at central, regional, and strategic cross-border areas constructed and

operating

Component 2: Agriculture Financing Innovation

2.0 Financial institutions provide suitable financing products and services to cotton farms in the four raions

Component 3: Market Development

3.0 Grading and marketing regulations joint venture, established by the Government with an internationally recognized cotton classification organization and bonded warehousing of cotton follow international standards are in effect

Component 4: Project Management

4.0 Efficient project implementation unit is operating and effective

Status of Implementation Progress (Outputs, Activities, and Issues)

CHANGE IN SCOPE:

ADB's Board on 14 August 2009 approved a major change in Project scope. The key elements of change are as follows:

(i) component 1 has changed focus from resolving the debt of cotton farmers in four pilot districts to addressing poor accessibility to quality cottonseeds. MOA-owned plant quarantine facilities will be upgraded and two seed-cleaning facilities will be leased to farmer organizations. MOA will be the implementing agency for the redesigned component 1;

(ii) the original target beneficiaries, under component 2, Agriculture Financing Innovation, for the subloans were farms that had resolved their debt as a result of original component 1 activities. The target beneficiaries for component 2 have been changed to all farm households in the four pilot districts. In addition, microfinance institutions will be included with the participating commercial banks as eligible financial institutions for onlending to farm households; and

(iii) the change in scope and implementation arrangements resulted in changes to: the outcome statement, outputs, and monitoring indicators of the design and monitoring framework (DMF); the cost estimates; and financing plan. The new outcome statement is improved access to quality seeds, finance, and market infrastructure by cotton farmers.

The project extension till 31 Sep 2012 was granted to allow time for delivery of outputs. Specific milestones to achieve outstanding outputs were agreed with the Government. The agreed milestones have been achieved; all contracts have been completed in due time before the project closure. The project was completed on 30 September 2012.

IMPLEMENTATION PROGRESS:

Component 1: Seed Quality Improvement.

1.1 Two seed-cleaning facilities were to be established in Sughd and Khatlon provinces. Despite repeated advertisements by the PMU there was no expression of interest by farmer-owned organizations to lease seed-cleaning facilities. A private seed-cleaning facility has been established in Sughd province and replication of such a facility there was unnecessary. The Project has therefore established one seed-cleaning facility of larger capacity in Khatlon province.

1.2 The project has completed construction of regional laboratories and border posts and upgraded equipment in airport inspections posts. The outstanding issue was construction of the central plant quarantine laboratory due to lack of approval from the municipality. An alternative site has been found, and necessary approvals/certificates have been received, and the construction has been completed. Upgrade of the central laboratory for SSPPQI was complete in August 2012. Laboratory equipment has been supplied to the central and two regional laboratories, three airports and six border posts of the SSPPQI. All three laboratories started issuing plant quarantine certificates. Vehicles have been procured for four remote plant quarantine border posts (one per each) of the SSPPQI to ensure their effective operation.

Component 2: Agriculture Financing Innovation.

Under the revised scope and implementation arrangements, all farm households in the four districts were eligible borrowers and both microfinance institutions and commercial banks were eligible as participating financial institutions (PFIs) for onlending to farm households.

Change in financial intermediary. ADB advised the MOF on 23 October 2009 that based on international good practice the National Bank of Tajikistan should not function as a financial intermediary and requested that either a commercial bank be identified or the MOF directly performs this function. Agreement was reached for Agroinvestbank to act as the financial intermediary. Government prepared subsidiary loan agreement and sub-credit loan agreements. ADB reviewed and approved these agreements. Funds have been successfully transferred to Agroinvestbank; participating microfinance institutions have been selected; all funds have been fully disbursed to microfinance institutions.

Component 3: Market Development.

TAJ-WIS, the first public-private partnership arrangement in the subsector, successfully implemented the classification and certification of locally grown cotton fiber using internationally recognized cotton-grading standards (UCGS). Three laboratories have been equipped with modern cotton-classing equipment, and accredited by the relevant authorities. The installation of four high-volume instrument (HVI)-testing equipment will allow 100% of the crop to be classed to a broader and higher level of equality. Special cotton fiber bale cutters and tables to implement UCGS have been purchased and installed in 59 gins. An international Cotton Classing and Pricing Specialist and an international Institutional and Commodity Standards Specialist have provided services to improve cotton classing, pricing, and regulation and monitoring of cotton quality. This output has been however negatively affected by the continuing role of Tajikstandard in cotton grading which has rendered the investment in TAJ-WIS problematic as its competitiveness has been continually undermined by the ongoing classification of cotton by Tajikstandard.

Construction of two customs bonded warehouses has been completed using a private-public partnership structure.

Component 4: Project Management.

The PMU has been fully operational. An effective and transparent accounting system has been in place, and a framework for the project performance monitoring system (PMS) and a gender action plan (GAP) have been developed. All audit reports have been submitted in due time.

Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects The Project is expected to produce no environmental impact as it will not (i) involve any major construction that requires resettlement or land acquisition; (ii) invest in the construction of dams, new canals, or head-works that would allow increased water abstraction from main sources; (iii) enlarge the land area planted to cotton; and (iv) will not increase the use of pesticides. The Asian Development Bank (ADB) classifies the project as category C, which requires environmental review from the sector perspective.
Involuntary Resettlement The Project has no involuntary resettlement impacts. No further action is required.
Indigenous Peoples The Project is not expected to have impacts on Indigenous Peoples. No further action is required.
Stakeholder Communication, Participation, and Consultation
During Project Design

A key aspect of processing has been the consultative process initiated by ADB. A three-day executive retreat was held in June 2005 involving 16 minister-level members of the Independent Commission (IC) and several representatives from interested development partner agencies and nongovernment organizations (NGOs). The retreat enabled IC participatory development of (i) a results-based and time-bound action plan for the Cotton Farm Debt Resolution Strategy, later confirmed by the President of Tajikistan; (ii) a vision statement and a mission statement; and (iii) improved guiding principles, terms of reference, and organizational structure for the IC.

Aid coordination and cooperation have also been critical elements in loan processing, as the farm debt resolution and cotton subsector reform will require joint engagement by a wide variety of donors with significant resources to be successful. Multi-donor consultations on the project concept, fit with existing and planned activities, and the potential for parallel financing were explored during all four missions. The memorandum of agreement from the loan factfinding was presented to the IC and 16 donors, and ongoing parallel project on the Economic Cotton Sector Recovery and Poverty Reduction was under way with the World Bank.

During Project Implementation The project will ensure that all major stakeholders have sufficient information about the processes of market development to make responsible choices and act appropriately. Key activities include: (i) dialogues and consultation meetings with major stakeholders; (ii) dissemination of information; and (iii) an awareness program to ensure that all cotton farmers have access to relevant information about the new classification and market regulations and/or pricing arrangements.
Business Opportunities
Consulting Services

The Project will provide 62 allocated person-months of international consultants and 1,207 allocated person-months of national consultants for the following areas: (i) conduct of the farm-by-farm analysis and farm debt resolution in the designated raions; (ii) training of key agencies and stakeholders in the cotton subsector in the application of UCGS and business plan development; (iii) dissemination of technologies that ensure accurate quality valuation of seed cotton and fiber cotton as well as other relevant policies; (iv) facilitation of the tender process and rehabilitation of facilities for bonded warehouses; (v) facilitation of legal structures and due diligence for the JV and bonded warehousing; (vi) public information flows on farm debt resolution activities and processes as well as cotton grading and marketing improvements; (vii) policy formulation for IC consideration on issues related to the CFDRS; and (viii) project management services and an effective communication link with the IC. Unallocated person-months equivalent to 24 person-months of national consultants and 6 person-months of international consultants will be used to finance consulting services for policy and market development issues on cotton subsector development to be identified in the road map. These issues will be identified during project implementation.

The consulting services for the farm debt resolution will be provided by an international firm in association with national consultants or a national consulting firm. These will be recruited in accordance with ADB's Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers, using full technical proposals and quality-based selection (QBS).

Quality- and cost-based selection (QCBS) will be used for cotton market development, and awareness training for UCGS and bonded warehouses. Modified (simplified) QCBS will be used for the engagement of nongovernment organizations (NGOs) to conduct awareness training and development of PPMS and the gender action plan. Individual selection will be used for the identification of director for the CCfPM, while least-cost selection will be applied for the auditing firm for the external audit service. Biodata technical proposals will be used for these consulting selection methods.

Procurement Goods, related services, and civil works will be procured in accordance with ADB's Procurement Guidelines. Civil works valued less than $1 million and procurement of vehicles may be procured through limited international bidding (LIB). Procurement of computers, printers, and other office equipment as well as printed materials, radio, television and newspaper contracts for the outreach activities will follow the LIB and shopping procedures.
Responsible ADB Officer Asel Chyngysheva
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Tajikistan Resident Mission
Executing Agencies
Office of the President80 Rudaki Avenue
Dunshanbe
Republic of Tajikistan
Timetable
Concept Clearance 24 Sep 2004
Fact Finding 03 Oct 2005 to 26 Oct 2005
MRM 25 May 2006
Approval 03 Nov 2006
Last Review Mission -
PDS Creation Date 29 Mar 2006
Last PDS Update 03 Oct 2013

Grant 0061-TAJ

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
03 Nov 2006 10 Jan 2007 21 Feb 2007 30 Sep 2010 30 Sep 2012 07 Jan 2013
Financing Plan Grant Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 8.25 Cumulative Contract Awards
ADB 6.50 03 Nov 2006 3.42 0.00 53%
Counterpart 1.75 Cumulative Disbursements
Cofinancing 0.00 03 Nov 2006 3.42 0.00 53%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - Satisfactory - - Satisfactory

Loan

Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 1.75 Cumulative Contract Awards
ADB 0.00 - 0.00 0.00 %
Counterpart 1.75 Cumulative Disbursements
Cofinancing 0.00 - 0.00 0.00 %

Loan 2271-TAJ

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
03 Nov 2006 10 Jan 2007 21 Feb 2007 30 Sep 2010 30 Sep 2012 07 Jan 2013
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 5.50 Cumulative Contract Awards
ADB 5.50 03 Nov 2006 5.42 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 03 Nov 2006 5.42 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating Satisfactory - Satisfactory - - Satisfactory
Title Document Type Document Date
Sustainable Cotton Subsector Project Project/Program Completion Reports Mar 2014
Sustainable Cotton Subsector Project Loan Change in Scope, Amount, and Implementation Arrangements Aug 2009
Sustainable Cotton Subsector Project Project/Program Administration Manual Jul 2008
Amendment to the Financing Agreement for Sustainable Cotton Subsector Project between Republic of Tajikistan and Asian Development Bank dated 03 May 2007 Financing Agreement May 2007
Financing Agreement for Sustainable Cotton Subsector Project between Republic of Tajikistan and Asian Development Bank dated 10 January 2007 Financing Agreement Jan 2007
Sustainable Cotton Subsector Project Initial Poverty and Social Analysis Dec 2006
Sustainable Cotton Subsector Project Reports and Recommendations of the President Oct 2006

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation
Title Document Type Document Date
Tajikistan: Sustainable Cotton Subsector Project Validations of Project Completion Reports Jan 2015

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