TERMS OF REFERENCE. Armenia and Georgia Feasibility Study Agro Insurance in Armenia and Georgia

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1 TERMS OF REFERENCE Armenia and Georgia Feasibility Study Agro Insurance in Armenia and Georgia 1. BACKGROUND In Armenia and Georgia agriculture is a priority sector with substantial activities of the respective governments. More than half of the population works in agriculture facing difficult circumstances with deficiencies in infrastructure like insufficient mechanization, lacking investments in irrigation or small and fragmented structures. Various financing programmes for farmers and rural SMEs set up by the governments or based on Bilateral Cooperation are in place. However, financial institutions are still reluctant to onlend to the sector due to the risks which they perceive as elevated. Furthermore, both countries are highly sensitive to adverse weather conditions. The governments of Armenia and Georgia acknowledge the significant importance of an appropriate agro insurance scheme and already will start (in Georgia) and have started (in Armenia) with different activities to promote agro insurance on a pilot basis. In November 2013 the Swiss Agency for Development and Cooperation (SDC) financed a pre-feasibility study on a national agricultural insurance scheme in Georgia and has been organizing since March 2014 several workshops in Tbilisi on a National Agricultural Insurance Scheme for Georgia (NAGIS). The workshops showed the serious interest of all relevant stakeholders like the insurance industry, the agriculture sector, the authorities of Georgia (lawmakers, government, supervision), the financial institutions and donors in setting-up an appropriate agro-insurance scheme in Georgia. As a result, a draft general concept for NAGIS has been developed. More information on NAGIS will be shared with interested bidders upon their request. All stakeholders confirmed the need for further research and data and detailed elaboration of steps for implementation in order to support an efficient scheme. In this framework SDC will continue to assist to the activities of the Georgian Government in the law development process. On behalf of the German Government KfW Entwicklungsbank ( KfW ) has built up valuable Know-How in agro-insurance and is currently preparing and implementing several projects in different countries. The German Government is interested in further developing appropriate agro insurance schemes in Armenia and Georgia to mitigate climate related risks and made available financing for the feasibility study in the form of a grant to the Central Bank of Armenia and the Government of Georgia ( Employers ). Provided that the feasibility study identifies schemes appropriate for a support by the German Financial Cooperation, KfW shall propose to the German Government to use funds for investments in agro-insurance in both countries. These funds shall be invested in the Climate Insurance Fund implemented in 2013 by KfW and be used for activities in both countries. The overall objective of the Climate Insurance Fund is to contribute to the adaptation to climate change by improving access to and 1

2 the use of insurance in developing countries. The funds can be used in three different ways: equity participation in insurance companies (potentially as well guarantees, loans or contingency loans), technical assistance for the stakeholders involved and, if necessary reduction of premium payments for a pre-defined time frame. If implemented, the supported agro-insurance scheme(s) shall contribute to reduce the vulnerability of farmers, SME, and intermediaries engaged in agricultural activities in connection with economic damages as a consequence of bad weather events. It depends on the outcomes of the study whether different schemes for the two countries are appropriate or whether one scheme can be set-up or supported to serve both countries. 2. OBJECTIVES The feasibility study shall analyze the risk profile at a national level in both countries, examine the existing initiatives / products for agro-insurance and the given regulatory framework and demand. Based on these outcomes the study shall finally recommend further steps to setup new or support existing appropriate agro-insurance schemes embedded into the specific risk profile of the region and involving international best practice. In doing so, the study shall also assess and take into account options for reinsurance mechanisms and outline needs for consultancy of various parties. The results of the study shall serve as a starting point for KfW whether it shall propose to the German Government the involvement of funds of the German Financial Cooperation into an agro-insurance scheme in Armenia and Georgia. The investigations carried out within this study shall focus on the potential of agro-insurance schemes linked to credit programs as such programs might be key channels to introduce insurance schemes, create demand, and build scalable insurance systems right from the beginning. A collaboration between the governments and the private sector is highly envisaged, especially at the level of insurance companies and re-insurers. The focus of a potential design of an agroinsurance scheme shall lay on clear and simple agro-products based on the most eminent demand of the consumers. 2

3 3. SCOPE OF WORK The Consultant is required to carry out the following tasks: (1) Collection of an Information Database and Elaboration of the Country Risk Profile (CRP) The information database shall for both countries include: o Country map including an overview of different climatic and agroecological zones, and major agricultural products, including livestock; o Consolidated climatic data (especially for wind, temperature, and precipitation) accessible through public databases (i.e., national- or international meteorological services) or provided by KfW (KfW has requested data from Germany's National Meteorological Service). Data should be daily data and cover a long time period and be provided for all existing weather stations (including the exact position of the weather station); o Overview of specific weather patterns and climatic changes based on analyses of relevant (non)scientific institutions; o Irrigation maps; an overview of the operational state of the irrigation system and an overview of irrigated agricultural products/sub-sectors in the different sub-regions; o Soil maps, including an overview about the soil-related production potential (i.e., possible yields/ha) for different agricultural products/subsectors, and the different sub-regions; o Country s (weather) risks and yield damage data linked to different agricultural perils, products/sub-sectors, and the different sub-regions; o Production and yield data at least on sub-regional level (if possible on individual farm level) for different agricultural product/sub-sectors; likely costs involved for data provision by international or local authorities; o Agricultural export and import data for different agricultural products/subsectors, and different sub-regions; o Overview of the state of agricultural production at present and in future (10-years forecast model), considering likely production adjustments due to political and market developments (e.g., national taxation, world price developments, changes of demand); o Available statistics and indexes (any historical data); o Existing regulation, supervision and policy framework. Using the information database, a CRP shall be carried out, containing the market s risk mitigation needs, defining directions for risk mitigation development, and specifying the exact priority of adequate insurance products to start with. Two different CRP shall be elaborated for Armenia and Georgia each. The data shall be collected as detailed as possible allowing for relevant analyses not covered under these terms of references. If necessary, the costs of obtaining climate data or any other data can be covered out of the financing of the study (to 3

4 be included into the financial offer). The cooperation with competent scientists (e.g. for investigating weather related yield risks) is encouraged for detailed risk analyses. Milestone 1: As soon as available the consultant shall submit to KfW a list of the agricultural products which cover 60% of production in Armenia and Georgia respectively. On the basis of this list and the recommendations of the consultant, KfW and the governmental authorities in Armenia and Georgia respectively will determine separately for each country priority products for the analysis. The Consultant shall prepare the CRP for these priority products only. (2) Market analysis on the level of the consumers It is intended that these investigations are executed in parallel in both countries based on available survey data and through own qualitative research such as focus group discussions or targeted one-to-one interviews of consumers. The market analysis shall include: Research on the needs for types of agro-insurance; Analysis of the attitudes of the consumer towards agro-insurance including willingness and ability to pay (cost-benefit analysis); Evaluation of the extent to which existing insurance products meet the needs of the consumer; Assessment of the current awareness and understanding of means of risk mitigation; Recording of existing agro-insurance contracts of the consumers interviewed; Assessment of needs for consultancy for awareness building etc. within a potential agro-insurance project. Delegation to a local firm and for the survey design cooperation with (local) scientific institutions is encouraged. The main questions to be answered within this topic are the key risks of concern identified of the consumers and the market s familiarity and receptiveness to and awareness of agro-insurance. (3) Description and SWOT-analysis of the existing (agro-)insurance companies and schemes The Consultant shall describe and analyze the landscape of existing insurance companies: Market penetration and client base; Products offered and their advantages/disadvantages; 4

5 Distribution channels; Financial situation (balance sheet, P&L); Insurance principles; Possibilities for and usage of reinsurance; SWOT-analysis of the existing agro-insurance companies; Assessment of the needs for consultancy for existing (agro-)insurance companies (under the assumption that the presented companies would qualify for a cooperation within a potential agro-insurance project). The Consultant shall analyze existing agro insurance schemes (e.g. NAGIS in Georgia). The detailed analysis shall be made only for those companies with a potential to participate in a future project as a stakeholder. (4) Analysis of the attitude of financial institutions towards agroinsurance products In this part, the financial institutions as important stakeholders are in the focus of analysis. The main questions to be analysed refer to the demand and the specific requirements in agro-insurance from a lending institution s perspective. This shall include the following topics: Demand for agro-insurance products from the lender s point of view; Required characteristics for the agro-insurance products in terms of coverage, specialized products for single agricultural subsectors, pricing, level of flexibility of the agro-insurance product; Assessment of the existing offer for agro-insurance; Role of the financial institutions in terms of distribution of agro-insurance products? Legal stipulations, including Central Bank regulations for qualification of insurance as collateral; If possible, mapping of the data collected in part 1 with the quality of the agricultural portfolio of the assessed financial institutions; Assessment of the needs for consultancy within a potential agro-insurance project. (5) Analysis of the attitude of governmental authorities The Consultant shall collect and outline the opinion of the relevant governmental authorities in Armenia and Georgia respectively: Central Bank of Armenia; Ministries of Agriculture; Ministries of Finance; 5

6 Assessment of the needs for consultancy within a potential agro-insurance project. Milestone 2: Approximately seven weeks after commencement of the assignment, the consultant shall summarize its findings of tasks 1 to 5 in an interim report (to be sent to the Employers and KfW). This report shall serve as basis for the decision of the Employers and KfW whether or not task 6 as an option of this ToR for this assignment will be executed. For this purpose, the Consultant, KfW and the Employers shall meet in Armenia and Georgia for a presentation of the respective results and the discussion of its findings. Optional (see Milestone 2): (6) Recommendations for a project design and setup For the project design and set-up also the following aspects shall be considered: Index-based/parametric vs. indemnity based insurance products; Individual farm level insurance vs. insurance for intermediaries (agricultural producer organizations, financial institutions); Distribution channels for insurance products; Capitalization and development of an existing insurance company vs. foundation of a new insurance company (including a rough estimation of financing needs); Detailed proposals for the design of feasible implementation options including organizational setup, terms and conditions; Areas for consultancy for the potential stakeholders involved (incl. a rough estimation of financing needs); Necessity for premium reduction (incl. a rough estimation of financing needs). The main findings shall be summarized in a (second) interim report and sent to the Employers and KfW as a preparation for the second round of workshops: The Consultant shall organize two workshops in Armenia and Georgia respectively for all stakeholders, including KfW, the Employers, governmental authorities, industry and consumers. The workshops shall take place approximately in week 11 of the assignment. During these workshops the findings of the study, especially with regard to task 6, shall be presented by the Consultant and the recommendations discussed by all stakeholders. If appropriate, only one workshop either in Armenia or Georgia could be conducted; A final report shall be sent to the Employers and KfW including the interim report, the findings of task 6 and the discussions and decisions taken of the workshops in Armenia and Georgia. 6

7 4. INSTRUCTION TO TENDERERS General The Employers are the Central Bank of Armenia and the Government of Georgia. Based on an agency contract KfW Entwicklungsbank is in charge of implementing the tender procedure and submitting a proposal to the Employers. The German Government is prepared to finance these consulting services with up to EUR 400,000 (grant). The entire procedure (including submission, assessment of the proposals, opening of financial quotations, award of contract, etc.) is governed by the KfW Guidelines for the Assignment of Consultants in Financial Cooperation which can be found on the homepage of KfW: entwicklungsbank.de/download-center/pdf-dokumente-richtlinien/consulting- E.pdf. The Consultant shall submit the qualification documents, technical proposal and the price quotation (financial proposal) simultaneously in clearly marked separate envelopes to the KfW address as indicated below. The price quotation shall be sealed and no financial information shall be included in the qualification documents or technical proposal. Price quotations will remain sealed until the technical evaluation is completed. The tender documents shall be prepared in the English language. Only written inquiries requesting clarification of the ToR addressed to KfW are permitted until one week before submission date. Answers will be given by KfW and a copy will be sent to all applicants. Any other inquiries or interventions may be regarded as impermissible intervention and lead to the exclusion of the bidder. Submission Date and Addresses Final Submission date is August 5, 2014 at 17:00 hours (Frankfurt time). Proposals shall be submitted not later than submission date in one original (marked Original and signed by the authorized representatives of the bidder) and one copy to: KfW Att. Monika Günthner Financial System Development Caucasus Eastern Europe Palmengartenstr. 5 D Frankfurt. monika.guenthner@kfw.de. In addition, the technical proposals must be submitted as electronic file to the above-mentioned address. 7

8 Personnel / Human Resources The study should be performed by a team of at least one experienced international insurance expert, one experienced international finance expert and two research specialists, which have a proven track record in the area of agriculture, agricultural insurance and agricultural finance. It is expected that the team is able to conduct parallel field researches in Armenia and Georgia. The international insurance expert(s) should possess large experience in agricultural insurance, preferably from previous work done in the region. The international finance expert(s) is/are expected to have large practical experience in different agriculture projects and agricultural finance projects in the region, with experience in Armenia and Georgia being a strong asset. The international finance expert and insurance expert are expected to provide the main input into the study and to coordinate the work of the research specialist and, possibly, other support staff. The research specialists are expected to have a relevant university degree and initial practical experience in conducting research in the field of financial services, preferably with a focus on agriculture and climate patterns, insurance and agricultural finance. They should be engaged in collecting data and information and assist the international expert in processing these data and drafting the report. The cooperation with local Armenian and Georgian research institutes and/or experts in the field of agricultural insurance/finance is highly desired. Scope and Content of the qualification document The qualification document shall be in English language, brief and comprehensible and comprise at least the following documents: Corporate profile and status; Legally binding signed declaration of undertaking from the applicant (all consortium / joint venture members, if applicable) in compliance with the sample provided in Appendix 4 of the Guidelines; Relevant references from the last four years to prove technical qualifications and experience abroad, in Southeastern Europe / Turkey / Russia / South Caucasus or Armenia / Georgia; Curricula vitae of consultant s key personnel who will provide monitoring and back-up services from the home office; Statement of personnel structure (number and qualifications; (all consortium / joint venture members, if applicable); Declaration of intent regarding cooperation (all consortium / joint venture members, if applicable; name of lead company); Declaration on affiliations / associated firms, which may present a conflict of interest (all consortium / joint venture members, if applicable); Any further documents that provide relevant information on the financial status and technical qualifications and experience of the applicant. 8

9 Scope and Content of the Technical Proposal The technical proposal shall contain: A detailed critical analysis and the Consultant s interpretation of the ToR. The Consultant is encouraged to present critical comments and suggestions of possible solutions, if any; The concepts and methods proposed to carry out the services; Organizational and logistical aspects of the project, including an organization chart, time and staffing schedules indicating staff-month input, duration and deployment details (field and home office assignment) of Consultant s staff. A detailed description of tasks to be performed by the Consultant and those assumed to be contributed by others (e.g. local partners); Details on the composition, selection, administration and experience of the proposed team, together with description of tasks to be assigned to each professional. A brief summary of each team member shall be submitted, showing his working experience relevant to his assignment of project s tasks. Scope and Content of the Price Quotation separated for Armenia and Georgia: The financial proposal / price quotation shall be made in EURO on a net basis and shall be structured as detailed in the following way: Cost of personnel shall be broken down to Daily home office rate per expert, including back stopping and local experts, Overseas allowance, and Overseas accommodation. International travel cost separated into: Air fares (economy class) as lump sum item, and Complementary travel cost (includes transfers, excess baggage, medical expenses, visas etc.) as a lump sum item per travel. Local transport cost: Acquisition, lease or rent of vehicles, as lump sum item, and Cost of local air, rail and road transport as a lump sum item. Further potential cost positions as: Preparation and conduct of workshops in Armenia and Georgia; Costs for obtaining (climate) data. Production of reports as lump sum item: Cost for report production (including freight and local distribution) as required by these instructions. 9

10 No other cost items except those stated above will be accepted in the price quotation and considered for payment. If the Consultant regards an important cost component not covered by the above instructions, he may ask permission to include such item. Such request shall reach KfW not later than two weeks before submission date. The result will be communicated as circular letter to all bidders. The price quotation shall clearly separate tasks 1 5 and the option (task 6). The validity of the Consultant s offer shall be two months from the closing date for submission of the offers. All rates presented in the financial proposal shall be considered fixed for the entire period of contract. Terms of Payment The Consultant shall assume for the preparation of his Financial Proposal that payments will be made following the Direct Disbursement Procedure according to KfW s Guidelines for Disbursement of Funds in Financial Cooperation with Developing Countries (available on the homepage of KfW under the link mentioned in section 4. General above) and in the following sequence: Advance Payment: 10% of the contract sum as down payment after signature of the contract. If 10% exceeds EUR 150, the Consultant will have to present an advance payment guarantee for the exceeding amount. Quarterly Payments: 80% of the contract sum in quarterly payments. Final Payment: balance of 10% plus reimbursables, if any, after acceptance of the Final Project Report by KfW and the employers and submission of the final invoice. If the Consultant requests changes in the disbursement schedule, he has to justify such request adequately in his Proposal. Duration of Services / Estimated Man-days The work on the project shall commence promptly upon award of the contract and approximately mid of August The assignment is expected to last for no longer than 13 weeks. It is the responsibility of the Consultant to establish his detailed work program in accordance with his professional judgment and knowledge of the local conditions. In any case, we expect the time frame for the personnel to be no more than 50 man-days. If a Consultant estimates that this time frame is not sufficient, a request shall reach KfW not later than two weeks before submission date to increase this time frame. 10

11 The work will be structured in according to the following stages: Preparation, Collection and analysis of information, including a mission, field work, summary of the findings of the findings of tasks 1 5 in (first) interim report and organization of two workshops in Armenia and Georgia, and Option (task 6). Evaluation of bids The selection of the consulting firm for the execution of services will be made in accordance with the respective Guidelines of KfW. Only those applicants will be considered eligible whose financial resources are deemed by KfW to be adequate in relation to the volume of services required. Applicants who submit no or insufficient documentation on their financial capacities will not be included in the qualification. The evaluation of tenders will be carried out in three steps. In a first step, the qualification documents will be evaluated based on the following criteria: Criteria 1. Evidence of relevant Experience gained in the last 4 years: 1.1 Experience in handling similar projects 1.2 Experience under various working conditions in developing countries 1.3 Experience of Southeastern Europe / Turkey / Russia / South Caucasus or Armenia / Georgia, preferably in the same sector 2. Suitability for this specific project: Assessment of available technical knowledge specific to this project 2.2 Assessment of the personnel structure in regard to tasks expected 2.3 Assessment of the key personnel in permanent employment and always available to monitor the team and provide back-up services from the home office 2.4 The form of the application documents: are they complete and related to the project? Points Total After having completed the evaluation of the qualification documents, a short-list of consultants, which achieve 70 points or more, will be established. The list is, however, limited to the five best placed consultants. Only the technical proposals of short-listed firms will be opened. Consultants, who will not be pre-qualified, will be informed accordingly. 11

12 In a second step, the technical proposal will be evaluated on the basis of the following criteria: 1. Concept and Method 40 points Clarity and completeness of the tender Critical analysis of the project objectives and the TOR Proposed concepts and methods, with Work program 10 Staffing schedule 10 Monitoring and coordination mechanisms 5 5 points 10 points 25 points 2. Qualifications of proposed staff 60 points Qualification of key personnel to be employed on the program, in particular program manager Qualification of the personnel in the home office who will monitor and control the team and provide back-up services 50 points 10 points Total (maximum) 100 The envelopes containing the price quotations will remain sealed and are only opened for those bidders having reached a minimum score of 75 points in their technical proposals and considered eligible. In a third step, the price quotation of the eligible bidders (on a net basis) will be opened and evaluated. The price quotation will account for 20% of the overall rating. The price quotation with the lowest adjusted value will receive the maximum possible number of points (20). The number of points awarded to the other price quotations opened is reached by dividing the total adjusted price in the lowest bid by the total adjusted price of each other bid and then multiplying by the maximum possible number of points. The technical proposal with the highest rating will receive the maximum possible number of points (80). The number of points awarded to the other proposals is reached by dividing the rating of each by the rating of the top technical proposal, and than multiplying by the maximum possible number of points. The number of points given for the price quotation will be added to the number warded for the technical proposal. The ranking of the applicants will be determined by the total number of points awarded. The bid with the highest total number of points will be the best received. It is restated that contract negotiations serve only to clarify unclear items. 5. ASSIGNMENT, NEGOTIATIONS, CONTRACT The technical proposal and the price quotation of the successful bidder will become part of the contract to be concluded. Within the framework of the agency contract KfW, however, reserves the right to negotiate and adapt those parts of the Consultant s proposal which are considered inadequate with the requirement of the work, in line with pertinent regulation in the Guidelines of KfW. 12

13 A standard contract form can be found on the KfW homepage: Richtlinien/Mustervertrag-E.pdf which forms the basis of the contract to be concluded wit the successful bidder. The contract with the selected Consultant will enter into force upon signing by both parties. 6. DELIVERABLES The consultant shall deliver the following documents and workshops: Task 1/ milestone 1: list of agricultural products; Milestone 2: (first) interim report and organization of workshops in Armenia and Georgia respectively; If the option is implemented: summary of the findings of task 6 in a (second) interim report, organization of two workshops in Armenia and Georgia respectively. A final report including the interim report, the findings of task 6 and the discussions and decisions taken of the workshops in Armenia and Georgia. A draft version shall be presented to the Central Bank of Armenia and the Government of Georgia and KfW Entwicklungsbank within three weeks after the planned workshops in Armenia and Georgia in order to receive comments from these parties. The final report shall contain an executive summary and shall be delivered in three hard copies in English and no later than two weeks after receiving the comments. Additionally, the report shall be delivered in pdf-format (one document). The standard attachments to the report include: Terms of Reference as well as names, addresses, telephone and fax numbers of all persons and institutions visited. If the option 6 is not implemented, the interim report shall be the final report. 13