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Marine Madatyan

Armenia’s School Seismic Safety Improvement Project in 2016: Salaries Paid, but Almost No Work

A project designed to improve the seismic safety of schools in Armenia, and to decrease the risk of death or injury of the students inside, is going nowhere fast.

The US$107 million Seismic Safety Improvement Loan Agreement was signed between the Government of Armenia and the Asian Development Bank in October 2015.

Two years into the project, tasked with improving the seismic safety of schools in Armenia, budgetary inconsistencies have come to light.

This is evidenced by the Asian Development Bank reports and the Armenian Territorial Development Foundation (ATDF), which is implementing the project. 

Audit shows an 80% deviation

$88.5 million of the loan is provided by the Asian Development Bank, and $18.5 million is the Armenian government’s contribution.

The main beneficiaries of the project are "58,700 in total, including students, teachers, and other school staff. The program will directly benefit about 18,000 students and 3,100 teachers and other school staff, as well as about 87,500 residents near the schools, by providing temporary shelters for them during seismic events and emergencies."

The loan is targeted to strengthen or reconstruct at least 46 seismically unsafe schools in Armenia. Earlier, Hetq wrote that, by the government's decision,  425 schools are at risk in terms of seismic resistance. Consequently, this $ 107 million budget loan program can make safe only around 11% of unsafe schools.

The loan program, according to the agreement, has five components and interest, with the following allocation of funds.

As of December 31 2015, three months after the loan agreement was signed, no money had been spent. The bank allocated around $21.9 million advance recovery to the ATDF that year.

The latest financial report was submitted for 2015-2016 (including December). According to it, by the end of 2016, the money received by the fund already amounted to around $ 25.7 million.

Around $4.4 million of this amount was envisaged to be spent in 2016. However, the performed audit revealed that only around 20% of the envisaged expenditure (around $ 879,000) was spent that year.

The company presented the incurred expenses according to the project components. From there, we learn which components had a deviation of 80%, which made around $ 3.5 million.

Only the loan interest rate for the given year, around $ 388,000, was paid without any deviation. "Project Management and Implementation Capability" component expenditure had a small deviation. This is the operational expenditure of the project implementing fund, the ATDF, including salaries. $ 138,000 or around 70% were spent from around $ 200,000 allocated for this purpose.

Significant deviation is recorded in the main component, "Increasing seismic resilience of school buildings”. This is the component that envisages the strengthening or reconstruction of 46 schools. Around $ 3.8 million was envisaged for the year, but only around $ 352,000 was spent, which is around 10% of the planned amount.

Summarizing the audit, we must note that the fund was punctually paying the interest of the loan, and using around 70% of the money allocated for operational purposes, it performed only 10% of the project's main component.

None of the seismically unsafe schools has been reconstructed or renovated yet

The Loan Program Agreement has an addendum, "Basis for Withdrawal from the Loan Payment". The Loan amounts are available for withdrawal only upon satisfaction of the corresponding DLI targets, which is the program’s action plan.

According to the "Increasing seismic resilience of school buildings” component, reinforcement and reconstruction designs of eight priority schools should have been completed and approved in 2015.

The fund, however, didn’t present any expense for 2015. It started publishing the projects of the mentioned schools on the official website only from June 2016. We learn from the first half-year (January-June) report of 2017 that "the work on the eight schools has started". In July 2017, when the government approved the final list of seismically unsafe schools in Armenia, it also stated in the design documents that 7 schools were "designed" by the Asian Development Bank loan program means. This meant that the operation planned for 2015 was still in progress in 2017.

On the map, there are the eight schools selected by the program. Out of them, Stepanavan #3 school design hasn’t been ratified as of June  2017.

According to the Action Plan, the number of schools with a 9-point earthquake-resistant by MSK (Medvedev-Sponheuer-Karnik) scale should have increased by nine in 2016, by 27 in 2017, and by 46 in 2020 - the last year of implementation of the project. So, by this time, there should have been at least nine schools strengthened or rebuilt by the means of the loan program (see pages 15 and 16 of the agreement). However, no school was strengthened or reconstructed as of June 2017. According to the ATDF, out of the eight schools, the works have been initiated only at Vanadzor #7 secondary school, and construction contracts for several schools have been signed (see details on the map).

It should be noted that the interest rate of this loan, which is around $ 4.7 million, is paid directly from the loan funds during the implementation of the project, and the principal amount should be paid from 2020 to 2040, which will take more than $ 4 million annually from the state budget.

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