71788 v1 Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF US $ 1.3 MILLION TO THE REPUBLIC OF SOUTH SUDAN FOR THE MDTF- SOUTH SUDAN CORE FIDUCIARY SYSTEMS SUPPORT PROJECT February 28, 2012 ABBREVIATIONS AND ACRONYMS AF Additional Financing CFSSP Core Fiduciary Systems Support Project GRSS Government of the Republic of South Sudan ISDS Integrated Safeguards Data Sheet MDAs Ministries, Departments and Agencies MDTF-SS Multi-Donor Trust Fund for South Sudan MoFEP Ministry of Finance and Economic Planning PFMU Project Financial Management Unit PDO Project Development Objective SS South Sudan SSAC South Sudan Audit Chamber Regional Vice President: Obiageli Katryn Ezekwesili Country Director: Bella Deborah Bird Sector Manager / Director: Renaud Selligman Task Team Leader: Adenike Sherifat Oyeyiola 2 SOUTH SUDAN Core Fiduciary Systems Support Project (P098639) P098639 Contents Page DATA SHEET 4 A. SUMMARY 5 Project Paper I. Introduction II. Background and Rationale for Additional Financing III. Proposed Changes IV. Appraisal Summary ANNEX 1: Results Framework and Monitoring 7 ANNEX 2: OPERATIONAL RISK ASSESSMENT FRAMEWORK ANNEX 3: Reallocation of Proceeds 10 3 SOUTH SUDAN CORE FIDUCIARY SYSTEMS SUPPORT PROJECT ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Deborah Bella Bird Sectors: AFTF Sector Manager/Director: Renaud Seligmann Environmental category: C Team Leader: Adenike Sherifat Oyeyiola Expected Closing Date: 09/30/2012 Project ID: P098639 Lending Instrument: Grant Additional Financing Type: Grant Basic Information - Original Project Project ID: P098639 Environmental category: C Project Name: Core Fiduciary Systems Expected Closing Date: 09/30/2012 Support Project Lending Instrument: Grant AF Project Financing Data [ ] Loan [ ] Credit [ X ] Grant [ ] Guarantee [ ] Other: AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: Cofinancing: 1.3 Borrower: 0 Client Information Recipient: Ministry of Finance and Economic Planning, Republic of South Sudan Responsible Agency: Ministry of Finance and Economic Planning, Republic of South Sudan AF Estimated Disbursements (Bank FY/US$m) FY 2012 1.3 Annual 1.3 Cumulative 1.3 Project Development Objective and Description Original project development objective: To put in place a robust framework for channelling of MDTF and GRSS counterpart funds to provide reasonable assurance regarding the use of these funds. Revised project development objective [if applicable] Not Applicable Safeguard and Exception to Policies 4 Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ ]Yes [ X ] No Natural Habitats (OP/BP 4.04) [ ]Yes [ X ] No Forests (OP/BP 4.36) [ ]Yes [ X] No Pest Management (OP 4.09) [ ]Yes [ X ] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [ X ] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [ X ] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [ X ] No Safety of Dams (OP/BP 4.37) [ ]Yes [ X ] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [ X ] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [ X ] No Does the project require any waivers of Bank policies? [ ]Yes [ X ] No Have these been endorsed or approved by Bank management? [ X ]Yes [ ] No Conditions and Legal Covenants: Financing Agreement Description of Date Due Reference Condition/Covenant 5 CORE FIDUCIARY SYSTEMS SUPPORT PROJECT (P098639) RESTRUCTURING PAPER I. Introduction 1. The proposed restructuring is for additional financing of US $ 1.3 million to support the external audit component of the project in the audit of MDTF and Republic of South Sudan financial statements. This would enable the project support all MDTF projects in implementation and closure of project activities. In September 2010, the project sought and obtained an extension to the project’s closing date from June 30, 2011 to September 31, 2012; use funds from procurement component financed under additional financing (TF097653) to support expenditures related to accounting and auditing components which were originally financed under the original grant (TF56336) as well as update of the project’s results framework. The Grant Agreement for TF097653 was amended to suitably reflect this change. 2. The project’s development objective continues to be achievable, the performance of the borrower and project implementing agency is satisfactory and an action plan acceptable to the Bank has been prepared by the borrower to complete the project. II. Background and Rationale for Additional Financing in the amount of USD $ 1.3 million 3. The Core Fiduciary Systems Support Project (CFSSP) was approved on February 21, 2006 for an original amount of US$8.147 million. GRSS counterpart fund contribution is US$3 million. The project was designed to put in place a robust framework for channeling of MDTF-SS and GoSS counterpart funds to provide reasonable assurance regarding the use of these funds. An additional financing (TF097653) of US$3 million was approved by the Oversight Committee of the MDTF- SS in September 2010, with the same Project Development Objective (PDO) and closing date as the parent project at the time of the additional financing. The original grant focused on accounting and auditing components, while the additional financing focused on accounting, auditing and procurement component. All funds under the two grants have been fully disbursed. 4. The project’s original closing date of November 30, 2008 was extended twice, first to June 30, 2011 and then to September 30, 2012 to enable it provide fiduciary support in auditing and accounting to projects that were still under implementation. PROJECT STATUS 5. The performance of the project is rated satisfactory. 100 percent of the original grant of US$8.1 million and additional financing of US$3 million has been disbursed. All GRSS contribution of US$3 million has been fully disbursed. The progress towards achieving of PDO and overall implementation progress are satisfactory. Quarterly bank reconciliations and Statement of Sources and Application of Funds are prepared according to established standards; annual audits are prepared for all MDTF-SS and Bank projects as well as GRSS accounts; and efforts are on-going to ensure that the Ministries, Departments and Agencies carry out their procurements based on laid down guidelines. Financial Management and procurement are rated satisfactory and there is no outstanding audit or financial reports. There is no change to the existing financial management and disbursement arrangements for the two grants. 6. The project has three components (parent plus AF) 6 a. The accounting component which supports GRSS in project accounting and disbursements for all MDTF projects is progressing well and the quarterly and annual financial reports are regularly prepared. It would need to be on-going to provide accounting support and produce financial statement for all projects in the MDTF portfolio after their closure. b. The Auditing component which supports the Audit Chamber in institutional strengthening and audit of GRSS and MDTF Accounts is progressing well and all MDTF audits are up to date. Audits of GoSS and MDTF financial statements for years ended December 31, 2009 is in progress and 2010 is expected to commence soon. c. The procurement component supports GRSS with the services of Procurement Agents and strengthening the Procurement Policy Unit in MoFEP. With the end of the contract of the Procurement Agent, an individual consultant as been engaged as a Procurement Advisor to support the Procurement Unit. d. There is no change in the PDO or results framework. III. PROPOSED CHANGES 7. The proposed change is additional financing of US$1.3 million under TF097653 to support the external audit component of the project in the audit of MDTF and Republic of South Sudan financial statements. 8. Costs by component Original Change Revised cost Component Cost with AF Project Accounting 2.6 0 2.6 Auditing 6.5 1.3 7.8 Procurement 2.0 0 2.0 Total budget 11.1 1.3 12.4 APPRAISAL SUMMARY IV. Appraisal Summary Economic and Financial Summary 7. The GOSS was established in 2006, after the more than 20 years of devastating conflict. With the independence in July 2011, the name changed to GRSS. The capacity and resource of GRSS for providing primary health care and emergency services to its citizens has been severely limited. GRSS has been struggling with budget credibility problems, illustrated by large deviations of actual spending from plans. 8. Technical: The project design remains the same and supports accounting, auditing and procurement functions of GRSS. Fiduciary 9. South Sudan is building its fiduciary system. The financial management arrangements for the project are designed to address the country’s post-conflict situation and with the objective of building 7 sustainable management. The system seeks to facilitate sound and prompt disbursements and use project resources and funds to ensure effective implementation. There are no changes to the financial management and procurement arrangements for the project. 10. Procurement Arrangements: The additional financing involves retention of an international audit firm, engaged on the basis of international competition. The recruitment was carried out through the use of the quality and cost based selection (QCBS) procedures stated in sections 2.1-2.31 of the Bank Consultant Guidelines. 11. Financial Management Arrangements: This is a high risk – high reward operation in a weak fiduciary environment. A detailed financial management assessment had been carried out at project inception. Necessary fiduciary framework has been put in place to reduce the risk to an acceptable level for both GRSS and the MDTF including use of a Monitoring Agent (MA) for the MDTF who monitors actual expenditures and ensures compliance with fiduciary standards; a Project Financial Management Unit (PFMU) responsible for ensuring proper accounting and reporting of transactions ; and a Procurement Agent (PA) to ensure that procurement is conducted in a transparent and accountable manner, and in line with MDTF requirements. 12. Safeguards: An Environmental and Social Assessment Framework (ESAF) for MDTF Investments in Southern Sudan has been finalized and approved by the Directorate of Environment in the Ministry of Housing, Physical Planning and Environment and shared with all major GRSS sectors. 13. Social Issues: There are a number of post conflict issues such as a lack of government institutions, procedures, legally defined rights, continuing conflicts in some areas, grievances arising from perceived lack of inclusiveness and equity that have the potential to undermine project activities and affect the distribution of goods procured under this project to the end users. Social risks largely arising from differential access to benefits, traditional rights and entitlements, adequacy of targeting mechanisms, and varying public perception of benefits will be addressed through continuous monitoring of agreed social indicators. For this particular project there are no social issues. 14. Environmental Issue: There is no environmental issue in the project. 15. Policy Exceptions: The Project does not seek any policy exceptions. 8 ANNEX 1: Results Framework and Monitoring SUDAN: CORE FIDUCIARY SYSTEMS SUPPORT PROJECT (P098639) Revisions to the Results Framework Comments/ Rationale for Change PDO Current (PAD) Proposed To put in place a robust framework for No change channeling of MDTF-SS and GRSS counterpart funds to provide reasonable assurance regarding the use of these funds. PDO indicators Current (PAD) Proposed change* Quarterly bank reconciliations done No change according to established standards (number) Quarterly statements of Sources and No change Application of Funds done according to established standards (number) Annual project audits completed (number No change Annual GRSS audits completed (number) No change MDAs that follow Procurement as laid down No change in guidelines(number) Intermediate Results indicators Current (PAD) Proposed change* Project Accounting Agent/Project financial No change Management Unit Appointed External Audit Agent Appointed No change Oversight of public procurement by MoFEP; No change and MDAs accountable for their procurement (yes/no) Procurement agent is providing support to the No change Policy Unit in MoFEP (yes/no) Training of key MDAs on Contracts No change Monitoring and Commitment Control System PFMU accounts for MDTF and Counterpart No change Funds (number) Preparation of quarterly IFRs (number) No change Draft Audit Legislation and Codes of No change Conduct in place (yes/no) MDAs with-up-to-date Procurement Plans in No change place and implemented according to plan (number) * Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value 9 PROJECT M&E ARRANGEMENTS Project Development Objective (PDO): To put in place a robust framework for channeling of MDTF-SS and GRSS counterpart funds to provide reasonable assurance regarding the use of these funds. Click here to enter the revised PDO of your operation Baseline Cumulative Target Values3 Unit of Original Progress Responsibility 2012 Data Source/ PDO Level Results Indicators1 Measur Project To Date Frequency for Data Comments Core Methodology ement Start (2011)2 Collection (200x) 1. Quarterly bank reconciliations Financial Project done according to established 18 per reports and Coordinator/U number 0 18 per quarter quarterly standards (number) quarter mission ndersecretary reports MoFEP 2. Quarterly statements of Sources and Application of Funds done Financial Project 18 per reports and Coordinator/U according to established standards number 0 quarter 18 per quarter quarterly mission ndersecretary (number) reports MoFEP 3. Annual project audits completed Auditor (number) number 0 18 18 annual Audit reports General 4. Annual GRSS audits completed Auditor (number) number 0 4 6 annual Audit reports General 5. MDAs that follow Procurement Procurement Director as laid down in guidelines(number) Agent’s General number 0 6 8 annual Technical Procurement/U Assistant ndersecretary report MoFEP 1 Please indicate whether the indicator is a Core Sector Indicator (see further http://coreindicators) 2 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value 3 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name or in the “Comments� column. Intermediate Results and Indicators Baseline Target Unit of Original Progress Values Data Source/ Responsibility for Data Intermediate Results Indicators Measur Project To Date 2012 Frequency Comments Core Methodology Collection ement Start (2011) (2006) Intermediate Result 1: Accounting Component 1. Project Accounting Agent/Project Project Financial reports financial Management Unit Appointed Yes/No No Yes Yes once and mission reports Coordinator/Undersecretary (yes/no) MoFEP Project 2. PFMU accounts for MDTF and Financial reports number 0 18 18 Quarterly Coordinator/Undersecretary Counterpart Funds (number) and mission reports MoFEP Project 3. Preparation of quarterly IFRs number 0 18 18 Quarterly Financial reports Coordinator/Undersecretary (number) MoFEP Intermediate Result 2: Auditing Component 4. External Audit Agent Appointed Yes/No No Yes Yes Once Audit reports Auditor General (yes/no) 5. Draft Audit Legislation and Codes of Yes/no No Yes Yes once Audit Legislation Auditor General Conduct in place (yes/no) Intermediate Result 3: Procurement Component 6. Oversight of public procurement by Procurement Director General MoFEP; and MDAs accountable for Yes/No No Yes Yes Annual Agent’s Technical Procurement/Undersecretary their procurement (yes/no) Assistant report MoFEP 7. Procurement agent is providing Procurement Director General support to the Policy Unit in MoFEP Yes/No no Yes yes daily Agent’s Technical Procurement/Undersecretary (yes/no) Assistant report MoFEP 8. Training of key MDAs on Contract Mission report Director General Monitoring and Commitment Control number 0 0 5 once Procurement/Undersecretary Systems MoFEP 9. MDAs with-up-to-date Procurement Procurement Director General Plans in place and implemented number 0 6 6 annual Agent’s Technical Procurement/Undersecretary according to plan Assistant report MoFEP 11 Annex 2 Operational Risk Assessment Framework (ORAF) REPUBLIC OF SOUTH SUDAN: Core Fiduciary Systems Support Project 1. Project Stakeholder Risks Rating Substantial Description: (1.1) Political Stakeholders Risk Management: The Bank team will continue to work with MoFEP and the Audit Changes in political stakeholders in MoFEP and Chamber as well as other related government Agencies with a view to strengthening their the Audit Chamber could impact on commitment to the project, and enhancing accountability and transparency. implementation and commitment. Resp: Due Date : Stage: implementation Status: Ongoing Recipient/Bank 09/30/2012 1.2 Recipient relations and development partners’ Risk Management: (i) The team will continue to build synergies and complementarities relations (i) Borrower relations and development with other donors’ particularly USAID, AfDB and CBTF by Joint Donor Office. (ii) The partners’ relations do not represent risks; (ii) The project is expected to build the capacity of GRSS and this would have a likely positive project would not be able to provide support to all impact of accountability in the States. potential beneficiaries, for instance, the States, with Resp: Due the risk that they may feel being left out. Stage: Implementation Status: Ongoing Recipient/Bank Date:9/30/2012 2. Implementing Agency Risks (including fiduciary) 2.1. Capacity Rating: High Description: FM systems are still undeveloped Risk Management: (i) The PFMU which is financed as a component of the project is particularly at the Ministry level. Capacity is low to responsible for Financial Management. The Audit Chamber would audit the project prepare budgets that lay down physical and activities with support from an External Audit Agent (EAA); (ii) Robust action plans would financial targets in sufficient detail to monitor be developed from the on-going Integrated Fiduciary Assessment to support the PFM subsequent performance and to properly account systems in the country and report on funds utilization. Resp: Due Date : Stage: Implementation Status: Ongoing Recipient/Bank 09/30/2012 2.2. Governance Rating: High Description: Ownership and commitment is Risk Management: (i) The project support reforms and capacity building to strengthen evolving. Recent presentation of Audited Financial PFM (including auditing and accounting) and procurement systems at GRSS level. Whilst Statement for 2005 & 2006 to National Legislative these may not eliminate corruption and fraud, it would help to minimize the opportunities Assembly indicated some substantial cases of for corruption and fraud. (ii) Procurement and FM specialists recruited under the program fraudulent practices. Recent and past incidents of will ensure compliance of all contracts to the WB guidelines. corruption and fraud at both GRSS and state level Resp: Due Date : make this risk high. Stage: Implementation Status: Ongoing Recipient/Bank 09/30/2012 3. Project Risks 3.1. Design Rating: High Description: The project was designed to be overly Risk Management: The program created more focus on accountability and transparency ambitious in South Sudan’s extremely and building capacity of MoFEP and Audit Chamber. disadvantaged operating environment (no Resp: Due Stage: Implementation Status: Ongoing government existence prior to the program). Recipient/Bank Date :09/30/2012 3.2. Social & Environmental Rating: Not Relevant Description: Project is a Category C Project. On a Risk Management: An Environmental and Social Assessment Framework (ESAF) for general note, There are no firmed legal and MDTF Investments in Southern Sudan has been finalized and approved by the Directorate institutional frameworks in the country to ensure of Environment in the Ministry of Housing, Physical Planning and Environment and shared compliance with World Bank safeguard policies with all major GRSS sectors. triggered. 3.3. Program & Donor Rating: Not Relevant Description: No risk anticipated. The project is Risk Management: Not Relevant 100% MDTF financed. 3.4. Delivery Monitoring & Sustainability Rating: Substantial Description: Risk Management: (i) The project will make significant investments in procurement The monitoring and sustainability will depend on capabilities of the MoFEP including facilitating and decentralizing the public procurement the systems put in place under the program and function to MDAs. (ii) capacity building for the national staff in the Audit Chamber financing after the closure of MDTF in June 2011. Resp: Due Date : Stage: Implementation Status: Ongoing Recipient/Bank 11/2011 Overall Risk Following Review: Substantial Implementation Risk Rating: Substantial Comments: The project is almost complete and significant proportion of the PDO is being achieved. 13 Annex 3: Revised estimate of project costs Reallocation of Proceeds Table 1: Proceeds for South Sudan, CORE FIDUCIARY SYSTEMS SUPPORT PROJECT – ADDITIONAL FINANCING GRANT TF097653, P098639 will be reallocated as follows: Category of Expenditure Allocation % of Financing Current Revised Current Revised Current Revised Actual US$’m US$’m Expenditure US$’m Procurement Procurement 1.85 2.0 62 46 1.70 Accounting 0.85 0.3 28 8 0.30 Auditing 0.30 2.0 10 46 0.70 3.00 4.30 2.70 Table 2: Financing for South Sudan, CORE FIDUCIARY SYSTEMS SUPPORT PROJECT P098639; TF56336 Original Grant Project Costs (US$m.) Components/Activities Current Disbursed Actual Allocation Expenditure US$’m US$’m US$’m Accounting 2.3 2.3 2.3 Auditing 5.8 5.8 5.8 Total 8.1 8.1 8.1