Soum Level Subprojects

3. Once the aimag subprojects are agreed, soum level entities can submit proposals for first-generation sub-agreements. The Project Management Unit (PMU) in collaboration with the Project Implementation Consultant (PIC), will provide the templates, and guidelines for the sub-agreement proposals, the basic structure of which will be similar across all soums for the specific types of sub-agreements. The process is therefore demand-driven but within an agreed

framework.

4. The sub-agreement proposal process of itself builds capacity in business planning, and principles of investment. The approach recognizes that the major factor affecting success or otherwise of an investment is the motivation of the people involved.

5. Objectives. The sub-agreements aim to establish the organizational structures, relationships, and agreements to create an enabling environment for value chains to function.

They support the development of value chains through project support to the key private or public sector entities along the value chain, and to the support to forward and backward linkages along the value chain.

6. Project support is designed to reduce some of the risk of investment in improving the value chains, through financing civil works, equipment and supplies, and services. The sub-agreements will contribute to all three project outputs. The general structure of a sub-agreement is shown in (Figure 1). The project finances civil works, equipment, and supplies and services to soum government bodies or equipment, supplies, and services to various business units that are engaged in a value chain. The project des not finance any civil works that go directly to private business units. The project can finance construction of civil works in the soum that belong to the soum government. The soum can rent or (issue of user-rights) to private business units. In any sub-agreement, the soum government or the business units will be expected to contribute their own human, physical, and financial resources. The feasibility of the sub-agreement is measured by the feasibility of the individual business plans of the business units and the soum government, and the functionality of the linkages between them. The investment analysis of the project is measured against the project costs and the contribution to the project outputs, comparing with- and without-project scenarios. The general structure of a sub-agreement proposal is shown in Figure 1.

Figure A4.1: Structure of Sub-Agreements

Source: Asian Development Bank.

7. The sub-agreements in combination with the capacity building aim to strengthen vertical and horizontal linkages at the soum, aimag, and national level. This is explained further under each sub-agreement description.

8. Types of sub-agreements. There are seven types of sub-agreement falling into two major categories – first- and second-generation sub-agreements (Figure 2).

9. The first-generation sub-agreements are:

(i) PUG/RUA development sub-agreements (1 per soum)¹

(ii) PUG/RUA implementation sub-agreements. (1 for each bagh. 6 per soum) 10. The second-generation sub-agreements are:

(i) Private Veterinary Units (PVU) development sub-agreements (1 per soum) (ii) Private Livestock Marketing Units (PLMU) development sub-agreements (1 per

soum

(iii) Private Animal Breeding Units (PABU) development sub-agreements (1 per soum) (iv) Private Feeds Units (PFU), Private Feedlot Units (PLFU) and Herder Feeding (1

per soum)

(v) Private Cashmere Processing Unit (PCPU) development sub-agreements (1 per soum)

1 https://www.adb.org/documents/safeguard-policy-statement

Figure A4.2: Overview of First- and Second-Generation Sub-Agreements

Source: Asian Development Bank.

11. First-Generation sub-agreements. The soum can submit proposals for PUG/RUA establishment sub-agreements from the start of the project. When an individual bag has 80% of herders in the bag registered as PUGs and with RUAs, a proposal can be submitted for a PUG/RUA implementation sub-agreement. The PUG/RUA sub-agreement continues until either PUG/RUA targets are reached or the soum believes it cannot develop any more.

12. Second-Generation sub-agreements. Proposals for second-generation sub-agreements will only be accepted when two pre-conditions have been met. Firstly, that two bagh-level PUG/Neg nutag Pasture Alliances have been established, with membership of 80% of herders in the bagh who have established PUGs and entered into RUA agreements with the soum; and that the minutes of the first Alliance meeting have been tabled. Secondly that the soum level Soum Pasture Society has been established based on the membership of at least two PUG/Neg nutag Pasture Alliances, and the chiefs of the other baghs, which have not formed PUG/Neg nutag Pasture Alliances, and the minutes of one meeting have been tabled.

13. Improving grazing management and reducing stocking rates thereby improving productivity and protecting the natural resource is the most important work of the project. The

PUG/RUA implementation sub-agreements, and those on breeding, feeding and marketing are part of the incentive system for herders to form RUAs and agree on RUAs with the soum. Another way of stating this is that if herders are interested in improving productivity and protecting the natural resource for future generations, the most important thing they need to do is reduce stocking rates to increase the average dry matter intake per head which is the most important determinant of productivity.

14. Process: The sub-agreement proposal process varies between sub-agreements but will generally be a two-stage process. In the first stage, the applicants will submit a sub-agreement profile to the Soum Steering Committee (SSC) with a copy to the PMU. If the profile is approved by the SSC for further development, the business units will develop a full proposal. The business units submit the final proposal to the GS, with SSC in copy. The GS makes recommendations to the project coordinator to approve or otherwise the proposal.

15. Content: The sub-agreement proposals include a business plan for each of the business units along the value chain, whether they be public or private sector entities. The business plan should include a with- and without-project analysis to show how each unit will benefit from the sub-agreement. For private sector units the business plan should show costs and income, while for public sector units only costs will be relevant. The final business unit in each proposal should either be herders, or downstream processors of livestock or livestock products. The sub-agreement proposal must show how the sub-sub-agreement will contribute to one or more of the three project outputs. The investment analysis takes account of the whole of the investment measured against the contribution to the project outputs, as well as the feasibility of the business plans for each entity in the value chain. The proposal should show the proposed contributions of each of the entities to the sub-agreement implementation.

16. The period of the business plan may well go beyond the period of the sub-agreement or the period of the project. The business plan should reflect the actual plan to make the business work, including replacement of major capital items.

17. The project loan contribution to the sub-agreement includes provision of civil works, equipment, and supplies and services. Where the project loan procures items that fall into various categories of assets, the ownership, and use of such assets, including operation and maintenance, will be determined by government regulations.

18. The business units’ contributions will be the human and physical and financial resources that they can bring to the sub-agreement. The project will not finance salaries of the staff or members of the submitting entities. If business units can raise loans to contribute to the sub-agreement, then they are free to propose as such.

19. The proposal should include a description of the number and type of beneficiaries, how they will benefit, and the system of monitoring and evaluation.

20. The proposal should be signed by any entities who propose to receive project-financed items or services. Depending on the value chain, which is the topic of the proposal, it may need to be co-signed or have a supporting letter from government agencies responsible for regulations or guidelines related to the value chain.

21. Period of the proposal: The period of the sub-agreement should be sufficient to show the business units making a return on investment, and of sufficient period to be able to show how the investment is contributing to one or more of three project outputs. The period of the business plan

should be sufficient to show when major capital items are replaced. Business plans will often extend beyond the life of the project, although obviously there can be no contributions from the project after the end of the project. For private sector units, return on investment is measured in income; for public sector units, the return can be estimated by monetizing against project outputs.

22. The proposal should describe with- and without-project scenarios. It should show investment costs, operation and maintenance, technical support, and income over a period long enough to include replacement of major capital items. The proposal should include the with- and without-project analysis of herders downstream from submitting entity. This is to ensure that the sub-agreements impact on herder productivity can be clearly shown.

23. Approval: Upon approval, the sub-agreement proposal becomes a tri-partite agreement between the soum, the project, and the entities who submitted the proposal. Sub-agreement proposals should be signed by the submitting entity, with supporting letters from other important stakeholders. Since there will be many similar sub-agreements across the 20 soums, PMU works to aggregate project financial commitments from a number of approved sub-agreements. This includes procurement of civil works, equipment, and supplies and consulting and non-consulting services. The consulting firm will sub-contract services, based on the list of pre-approved service providers developed by the PMU.

24. Amendments: While the approved sub-agreements have a specified period, they can be amended by mutual agreement between the parties to the agreement. The amendment could extend the period of the agreement. The amendment can modify the total budget or budget lines according to internal project guidelines, for example in cases where costs vary from estimates in the proposal.

25. Civil works: The ownership and maintenance of assets and replacement, if necessary, at the end of the asset useful use will be decided according to standard government procedures. In general, buildings and other civil works will be the property of the soum and use of them by private entities will be through rental or other arrangements, such as operation and maintenance and replacement, according to government regulations.

26. Services: The Project Implementation Consultants (PIC) and the JFPR consultants will be the main source of services for each of the sub-agreements. The aimag PIC will assist with aimag coordination.

27. Equipment and Supplies: The project will procure these items according to standard procedures. The ownership of these assets will follow government and project guidelines.

28. The PMU will aggregate the civil works, equipment, and supplies and services to be produced across sub-agreements from various soums to facilitate procurement procedures.

29. A central theme across several of the sub-agreements is that the soum authority will be supported by the project to build facilities that will be rented to private sector entities (or user-rights agreement) under arrangements to be included into tripartite agreements between the soum, the entity and herder’s Bagh or Soum Khural representatives (Figure A4.3). Rental costs should be included in the business plans of the business units. Any income should be included in the business plan of the soum for the relevant sub-agreement.

Figure A4.3: Approach of Soum Renting Facilities to Business Units

Source: Asian Development Bank.

30. Monitoring: The soum will appoint a Monitoring Focal Point. The focal point should join a six-monthly monitoring workshop with all soum monitoring focal points from all 20 soums, organized by the PMU M&E officer. The focal points should enter key sub-agreement activity and indicator data into the MIS developed by the PMU. The soum coordinator should submit a 6-monthly and annual report of all sub-agreements being implemented in the soum, according to templates developed by the PMU.

31. Capacity building: Structures and units involved in sub-agreements will have their capacity increased through the processes of developing and implementing sub-agreements. But there will be a need for capacity building driven from the national level, such as training, and accreditation programs to support the systems being developed by the subprojects. These activities will be addressed in the capacity building output.

32. Governance. Issues around governance of the value chains or institutions involved in the agreements will be addressed in the capacity building component, not within the sub-agreements.