Documentof The World Bank FOROFFICIAL USE ONLY ReportNo: T 7593 AF TECHNICAL ANNEX FORA PROPOSEDGRANT OF SDR 6.1 MILLION (US8.4 MILLIONEQUIVALENT) TO THE TR4NSITIONAL ISLAMIC STATE OFAFGHANISTAN FORA SECONDEMERGENCY PUBLIC ADMINISTRATION PROJECT May27,2003 This document hasa restricted distributionand maybe usedby recipientsonly inthe performanceof their official duties. Its contents may not otherwisebe disclosedwithout World Bankauthorization. CURRENCY EQUIVALENT effective as of April 20,2002 Currency Unit = Afghani US$1 = "47.9 GOVERNMENT FISCAL YEAR March 21-March 20 (SY1382) Afghanistan uses a Solar Year (SY) calendar which traditionally beginson or about March21 ABBREVIATIONS AND ACRONYMS AACA Afghanistan Assistance CoordinationAuthority ADB Asian Development Bank AGO Auditor General Office ARCSC Administrative Reform and Civil Service Commission ARTF Afghanistan Reconstruction Trust Fund csc Civil Service Commission CSA Civil Services Administration DFID Department for InternationalDevelopment (U.K.) EO1 Expression of Interest EPAP Emergency Public Administration Project IDA InternationalDevelopmentAssociation IFC InternationalFinance Corporation IF1 InternationalFinancial Institution IMF InternationalMonetary Fund MOF MinistryofFinance NGO Non-GovernmentalOrganization PAREM Public Administration Reformand Economic Management PRR Priority Reformand Restructuring SEPAP SecondEmergency Public Administration Project TISA Transitional Islamic State of Afghanistan TSS Transitional Support Strategy UN UnitedNations UNDP UnitedNations Development Program Vice President: Mieko Nishimizu Country Director: Alastair McKechnie Sector Manager: Kapil Kapoor FOROFFICIAL USEONLY TRANSITIONAL ISLAMIC STATE OFAFGHANISTAN SECOND EMERGENCYPUBLICADMINISTRATION PROJECT TECHNICAL ANNEX Table of Contents I COUNTRYANDSECTORBACKGROUD . .......................................................................... 1 A. BRIEFCOUNTRYUPDATE ...................................................................................................... 1 B. FIRSTEMERGENCY PUBLIC ADMINISTRATION PROJECT ....................................................... 2 C. BROADER PUSLIC ADMINISTRATIONISSUES ......................................................................... 4 I1 STRATEGICCONTEXT . ....................................................................................................... 8 A. WORLDBANKCOUNTRY STRATEGY..................................................................................... 8 B. SECTOR STRATEGY ................................................................................................................ 8 I11 THE PROPOSEDPROJECT . ............................................................................................... 9 A.OBJECTIVES............................................................................................................................ 9 B. PROJECTDESCRIPTION........................................................................................................... 9 Component 1: Supplemental Supportfor EPAP Contracts .................................................. 10 Component 2: Civil Sewice and Administrative Reform ...................................................... 11 11 D.IMPLEMENTATION C.Component 3: Studies and Institutional Strengthening......................................................... ARRANGEMENTS..................................................................................... 12 JUSTIFICATION ..................................................................................................................... 13 ANNEX I:PAREMDEVELOPMENTBUDGET ................................................................... 14 A.GOVERNMENT BUDGET DOCUMENT** ................................................................................ 14 B.PROJECT'SFIT INTHEDEVELOPMENT BUDGET................................................................... 19 ANNEX 11:PROJECTDETAILS .............................................................................................. 20 ANNEX 111:PROJECTCOST SUMMARY ............................................................................ 28 ANNEX IV: PROCUREMENTARRANGEMENTS ............................................................. 29 ANNEX V: FINANCIALMANAGEMENT & DISBURSEMENTARRANGEMENTS 33 .... ANNEX VI: MONITORING ..................................................................................................... 36 This document has a restricteddistribution and may beused by recipients only in the performance of their official duties I t s contents may not be otherwise disclosed without World Bank authorization . . I.COUNTRYANDSECTORBACKGROUD A. BriefCountryUpdate 1. Afghanistan is now at a critical point in its history, where significant gains made in the past year and a half need to be consolidated, and the tangible benefits of development felt more widely by the Afghan people. Despite significant steps forward, the situation remains fragile with continued serious security problems encountered almost daily. Government security forces remain inadequate to widen state control and rein in disaffected groups around the country. Greater andmore rapid progress inreconstruction will require continued, high-level attention and assistance from the international community. Afghanistan's partners also need to squarely face the need to assist in bringingabout greater stability andsecurity. 2. On the economic front, much has been achieved in the past year and a half. A successful currency reform has resulted in a single, stable currency. Fiscal policy has remained conservative with a no overdraft policy. An ordinary (recurrent) budget was passed for SY1381 (March 21, 2002-March 20, 2003), and the authorities adhered to the no overdraft policy during implementation. A national development framework, which identified development priorities and policy directions, was formulated. And, for SY1382, significant gains have been made to solidify the budget as the primary policy tool with boththe ordinary and development budgets inplace byMarch2003. 3. Priority has been placed on enhancing the capacity within government to manage its reconstruction and development program. These efforts include refocusing the role o f government on coordination, policy setting and regulation (rather than implementation), relying on international contractors when necessary to enhance capacity on an emergency basis in key fiduciary areas, and using NGOs and the private sector to implement development and reconstruction activities whenever appropriate and feasible. The authorities have also established a mechanism to finance feasibility studies for projects within the development budget that are not yet sufficiently prepared to implement. All o f these efforts should result in an expansion o f absorptive capacity, consistent with the experience in other post-conflict countries which has shown that the capacity to absorb development assistance increases dramatically after about three years. 4. In addition to continuing and solidifying capacity building efforts already underway, concentrated focus is now being placed on enhancing own revenue through sequenced customs reforms and on escalating efforts to resolve on-going payments problems associated with the lack o f adequate banking capacity. 5. In summary, the Transitional Islamic State o f Afghanistan (TISA) has a unique opportunity to lay the ground work for a brighter future, by harnessing the support o f the population which is looking for security, honest administration, and a realistic hope for a better future for their children. By garnering public support for sound institutions, and equitable and transparent governance, TISA has both the opportunity and the responsibility to move forward on public administration reforms. B. FirstEmergencyPublicAdministrationProject 6. InApril 2002, IDA approved its first post-conflict grant to Afghanistan for a $10 million Emergency Public Administration Project (EPAP). EPAP's objective was to put inplace, on an emergency basis, capacity inkey public administration areas to facilitate better use o f public resources, including donor funds, for urgent reconstruction and development efforts. Specifically, the grant finances international firms to work with government officials to carry out procurement, financial management, and audit functions. The project focused on a very narrow set o f priority issues, building on lessons from other post-conflict countries where procurement and fiduciary weaknesses delayed reconstruction programs and put injeopardy the continued high-level o f donor support that was needed. The three main contractors under this project were mobilized during the summer/autumn o f 2002 under contracts that are about two years induration. As of April 17, $3.4 out o f $10.0 million has disbursed-ahead o f original disbursement projections-and the remainingbalances are largelycommitted. Overall, implementation has been generally satisfactory. 7. FinancialManagement. Ina staged approach, good progress has been made in developing the foundations for a financial management system within the Ministry o f Finance (MOF) treasury. In the first stage, with the assistance of the Financial Management Agent, a system for computerized check issuance went on-line in Kabul in October 2002. This enabled real-time reporting on all expenditures that are processed in Kabul. By the start o f SY1382, this accounting system has been augmented to allow for control o fbudget execution against budget allotments-again for all expenditures that are processed in Kabul. Recording o f revenues is now also possible. Work i s progressing towards the integration o f a standard payroll module which will be piloted in about two ministries. Connectivity testing has started with an aim to introduce the accounting system in one remote location. A Grant Management Unit has been established in the Ministry o f Finance that should assist the government in tracking donor financing and provide donors with adequate financial management reports. Training and capacity buildingefforts are well underway to enhance the likely sustainability o f achievements to date. MOF staff currently handle all data entry and check runs, and M O F staff and local consultants are being trained to handle trouble-shooting and higher-end functions. Within the next six months, the authorities will needto develop a clear strategy on how to put inplace support that may be needed when the existing emergency support comes to conclusion. 8. While outside o f the scope o f EPAP, there remains deficiencies in the overall expenditure system including cash management and the payments system. Timely budget execution remains a problem, especially in the provinces. A "nominal headcount was completed for the sixth month o f SY1381 on the basis o f salary claims submitted by ministries and departments, but there remain serious challenges in maintaining an up to date list o f civil servants-a necessary first step towards overall control o fthe payroll. And, efforts at enhanced expenditure tracking will be needed. 9. Procurement. The Procurement Agent works to support the Afghanistan Assistance Coordination Authority (AACA) procurement unit. The original concept was 2 to create a focal point for building procurement capacity while ensuring that emergency short-term support was in place. The Procurement Agent was expected to assist in "complex" procurement-drawing on the input from line ministries for technical specifications. For "simple" procurement activities, the Procurement Agent would provide support, guidance and oversight to the line ministries carrying out these activities. The definition o f "simple" and "complex" was expected to shift over time as line ministry capacity increased. However, implementation in the early stage o f the contract was hindered because o f initial cuts by the authorities to the scope o f the assignment during contract negotiations. The capacity building component was largely eliminated, and initial activities focused almost exclusively on carrying out procurement h c t i o n s directly. Earlier this year, a contract amendment restored the capacity building element, though identification o f appropriate counterparts especially in line ministries remains problematic. A legislative review has beeninitiated, a training program i s being developed, and plans are being discussed to more widely disseminate information to the local business community on procurement practices and what they need to do to effectively bid for contracts. 10. By end-April, 2003, a procurement agent has assisted in the placement o f 80 contracts valued at just under $50 million. Contracts valued at an additional $160 million are inhand. While these figures remain relatively small, this reflects the fact that, to date, not very much donor assistance for reconstruction and development activities has flowed through the development budget, but rather has been implemented directly through UN organizations, NGOs, or bilateral donors. However, even with the relatively low volume and with only nine-months of the two year contract concluded, the entire cost o f the Procurement Agent represents only 2.5 percent o f the value o f contacts already placed and inhand. By contract end, this figure is likely to fall around one percent. 11. Key implementationconstraints relate to recruitment o f core counterpart staff and identification o f counterparts in line ministries; awareness o f the role o f the procurement agent within line ministries; and logistics. During EPAP supervision, efforts are underway to assist the authorities to more clearly delineate roles and responsibilities o f the A A C A procurement unit, line ministries, and other partners. On several occasions, the authorities have not been receptive to the services o f the Procurement Agent being utilized for projects other than those h d e d by IDA and ARTF, although this was envisioned inthe project design. To date, this has been satisfactorily resolved on a case- by-case basis when it emerged. However, a holistic procurement review which is now on-going should help identify why this occurs and put in place corrective measures to address the underlying concerns. Within the next six months, the authorities will need to develop a clear strategy on how to put in place support that may be needed when the existing emergency support comes to conclusion. 12. Audit. The independence o f the Auditor General has been confirmed by Presidential decree. A steering group within the Auditor General's Office has been established to guide project implementation. In addition to computer and language training, technical courses have also started in which over 100 staff have participated. Pilot audits have been identified and include donor supported projects (IDA projects and an EU project) and a govemment ministry (Ministry o f Foreign Affairs), a state-owned 3 enterprise (Ariana) and a system (computerizationo f treasury functions at the Ministry o f Finance). There i s still a need to more fully assess the overall audit framework. Within the next six months, the authorities will need to develop a clear strategy on how to put in place support that may be needed when the existing emergency support comes to conclusion. 13. Risks. Inthe EPAP documentation, a number o f risks were identified. Several are worth noting. First, it was recognizedthat there is a need to extend the functioning o f the core public administration functions outside o f Kabul. This has proven difficult, and attainment o f full functionality outside o f Kabul will be gradual. Several efforts, though, are underway to address this issue: (i) to enhance communications connectivity are plans progressing; (ii) local consultants are being placed in each province to assist the Moustufiat (MOF representative) improve information flows and basic reporting; (iii) analytical work is underway to better understand both the formal and informal nature o f provincial-central relations; and (iv) systems are intrinsically designed for roll out when logistics and security so permit. Second, it was noted that if an effective payment system was not in place, this would slow disbursement o f resources. Indeed, technical assistance provided to date on the payments issue has not satisfactorily addressed this concern, and payments problems remain acute. The IMF and DFID initially provided technical assistance to D a Afghanistan Bank (Central Bank), USAID now has in place a program o f extensive technical assistance, ADB has programmed additional support to developing the payments system, and the World Bank is preparing a financial sector operation with a strong focus on kick-starting retail banking activities. Consequently, it was determined that there was no value added in including yet more assistance in this area under the proposedProject. C. BroaderPublicAdministrationIssues 14. The Afghan authorities confront a far-reaching, complex, and urgent policy agenda as nation building and reconstruction proceeds. While EPAP focused on a very narrow range o f primarily fiduciary issues-in line with the immediate focus o f the Afghanistan Interim Administration (the predecessor to TISA) to focus foremost on enhancing transparency and accountability-over the past year, the authorities have gained a better understanding o f key constraints and priorities for fiu-theractions on the broader public administration and civil service reform agenda. This section provides some broader sectoral background. 15. Background. After years o f war and centralized state control the civil service is ina state ofcrisis. InSY1381 there were an estimated 250,000 public sector employees, although the total could be considerably higher than this and little is known about their status, competence or efficiency. Management and administrative systems and skills are lacking, and Government infrastructure has been severely damaged by war and neglect. Untilrecently, a major difficulty inmoving forward on the public administration reform agenda has been the lack o f a clear focal point on the government side for developing and takingforwardpolicy options. 4 16. The situation at the beginning o f SY1382 can be characterized by: pervasive patronage; inappropriate pay arrangements, with widespread and counter-productive salary top-ups; a chronic lack o f professional capacity; probable over-hiring; fragmented and duplicated government structures; poor policy analysis and weak implementation. A concerted and focused program for renewal and transformation o f public administration i s urgently neededto remedythese shortcomings. 17. After a period of some uncertainty, leadership in administrative reform has now been assigned to the Administrative Reform and Civil Service Commission (ARCSC). The Commission was established by decree inMay 2002, with a relatively modest set o f functions. However, a further decree i s being submitted to the cabinet that will considerably strengthen its role and extend its responsibilities. 18. Although the ARCSC was created in response to the requirements o f the Bonn Agreement, there i s a substantial historical basis for centralized responsibility for civil service management and oversight. 19. The 1970 Law on the Status and Condition o f Government Employees (Article 6) established two bodies with responsibility for public administration: the Civil Service Commission (CSC) and the Civil Services Administration (CSA). This is a relatively orthodox arrangement in which an arms-length commission acts as a check on the executive in its hiring practices, while a body within the executive is responsible for administrative reform. This Act was amended in a 1977 Decree (1433) that seemingly merged both functions in the ''Central Administration o f Employees and Administrative Reforms", reporting to the Prime Minister and thus effectively ending the arms-length oversight. 20. During the ensuing 10 years o f Soviet occupation, the ''Central Administration" was abolished, while the Office o f Administrative Affairs within the Presidency grew in authority, with a responsibility to ensure that the line ministries under the Prime Minister did in fact implement "approved" policy. This undoubtedly allowed extensive political control over senior appointments. The Soviet period also saw an increasing role for the Ministry o f Labor and Social Affairs, with its responsibility for maintaining full employment. 21. After the end of the Soviet occupation, the UN, in a report on public administration, suggested re-establishing the Civil Service Administration (1991). Seemingly, it was also the intention of Government at the time to merge the Administration Section of the Ministry of Finance with the re-established CSA-again the CSA was to report to the Prime Minister. However, nothing was implemented and, effectively, the CSA was dissolved again upon the arrival o f the Taliban in 1996. 22. The proposed decree expanding the role of the ARCSC returns to the pre-Soviet arrangement. Now, the ARCSC must address three strategic problems. First, the capacity o f the newly established Administrative Reform and Civil Service Commission i s low, and yet it needs to quickly assume responsibility in three key areas: (i) appointments and appeals; (ii) service management; and (iii) civil administrative reform. 5 Second, there is an urgent need to initiate a sensible, step-wise administrative reform program that will allow key departments to move forward with restructuring plans, and which will allow selective pay increases to key staff. Developing and implementing such a program is part o f the development budget but i s not yet funded. Third, there are additional significant funding gaps inkey elements o f the Public Administration Reform program as outlined inthe SY1382 and SY1383 indicative development budget. 23. Priority Reforms. The Public Administration Reform and Economic Management (PAREM) program within the National Development Budget aims to create an effective central Government that re-establishes national unity on the basis o f strong institutions. This involves building broad-based and equitable community level participation and effective management at the local level, installing strong systems o f financial and information management, and using the budget as an instrument o f policy. The SY1382 PAREM Development Budget i s presented in Annex I.Within the Public Administration Reform agenda, urgent action i s needed to manage interim reforms, regulate salary top-ups, and create a nominal roll o f civil servants. These issues are described ingreater detailbelow. Inaddition, on the economic management side, priority actions are needed ina variety o f areas including budget execution, cash management and enhancement o f own revenue mobilization. 24. Managing interim reforms. Some ministries are concerned about their ability to deliver services and frustrated by the lack o f a short-term public administration reform program. They have signaled their determination to seek hrther donor top-ups and extra- budgetary support, and to restructure outside o f any overall reform program, unless the government provides a clear framework for civil service reform that will allow them to restructure andto improve conditions for their staff inthe very short term. 25. To resolve this issue, a decree has been prepared that would allow a program o f interim reforms to be implemented within key Kabul ministries. This would allow pro- active departments to formalize the chaotic hiring o f consultants and contract staff, and would enable them to place staff on more appropriate fixed term, but better remunerated, contracts. Staff whose skills are no longer necessary would be relocated to other units within the ministry, or to other government departments. Such reforms are essential for competent staff to bepaid andretained, and for managers to be givengreater autonomy in managing their departments. Assisting the authorities to implement such a program is one key area that the proposedProject would support. 26. Regulating salary top-ups. Salary top-ups are not intended to cover any specific costs. They are intended to persuade staff with scarce skills to remain in tough jobs, on the assumption that there really is an employment alternative for them. Donors paying salary top-ups and other miscellaneous allowances to government staff undoubtedly achieve service delivery improvements in 'their' project, but this i s at the expense o fthe sector more generally. Uncoordinatedtop-ups contribute to wage inflation within the sector, and generally entail the movement o f skilled staff within the country rather than bringing in new skilled persons from overseas. Most damagingly, however, top-ups and other incentives undermine management within the sectors. Staff feel, rightly more often than not, that there is little advantage in responding to managerial 6 requests or instructions from within the government-and every reason to respond to the real or imagined interests o f their sponsoring donor. For operational efficiency, there must be just one employer, either government or donor/NGO. Of course, non- government employees can provide public services ingovernment facilities. 27. Service delivery would be significantly improved by some regulation o f these incentives. In practice, there i s little prospect for directly regulating in an effective manner the amounts that NGOs and donors can pay. Development and donor history is littered with many failed attempts to agree andenforce such caps. What canbe done is to require that government employees who receive top-ups beyond a specified amount resign from government service. It i s understood that a decree, jointly agreed by the Civil Service Commission and the Ministry o f Finance, has been prepared and could be passed inthe near future. 28. Creating a Nominal Roll. There i s still no comprehensive database o f civilian government employees (a "nominal roll") that can be regularly updated, though a list based upon salary claims made to the center was completed for a single month in SY1381. Such a nominal roll is the only way to guard against undisciplined hiring, and some evidence is emerging o f a creeping increase, and may m o r s o f uncontrolled hiring. The next phase o f DFID supported work will be to develop a nominal roll that can be regularly updated, and to verify this against data held by the ARCSC on public servants. 29. The government has coordinated the work o f the Financial Management Agent, the ARTF Monitoring Agent and other bilaterally funded technical assistance, and will shortly be able to announce that an initial nominal roll has been prepared and that concrete steps have been taken to ensure that this is regularly updated and used as a control mechanism. 30. Donor Coordination. The budget process is government's mechanism for seeking to obtain some alignment between a large number o f donors in a fast-changing environment. Public Administration and Economic Management (PAREM) is one o f 12 thematic areas covered by the Development Budget. Annex Isets out details o f the SY1382 Development Budget for PAREM. 12National Development Programs Pillar I Humanitarian/Human and - Pillar 2 -Physical Pillar 3 - Governance and Security Social Capital Reconstruction and Natural 10. Trade and Investment 1. Refugee Retum Resources 11. Public Administration Reformand 2. Education andVocational 6. Transport and Economic Management Training (Education Communications (Transport 12. Security and Rule ofLaw (Creation of Infrastructure) Project) a national army, Creation o f a national 3. Health and nutrition 7.Energy and Mining police force, Justice System, Mine 4. Livelihoods and social protection 8. Natural Resource clearance and awareness and (National Solidarity Program and Management (Water Demobilization) Emergency Public Works) Resource Investment) 5. Cultural heritage, media and 9. Urbanmanagement (Urban sports Infrastructure) 7 31. These are sectoral coordination groups chaired by the relevant minister. A lead donor i s designated as deputy chair and provides secretariat support for each group. Relevant UNagencies and key NGOsparticipate inthe groups. 11. STRATEGICCONTEXT A. World BankCountryStrategy 32. A key objective of the World Bank's Transitional Support Strategy (TSS) to Afghanistan (Report No: 25440 AF, February 2003) is to support the continued development o f a well-functioning state that i s accountable to its citizenry and able to ensure that delivery o f services in an equitable, efficient and effective manner. This project supports this key objective and falls within one o f the four TSS focus areas: govemance and public administration. B. Sector Strategy 33. Within the govemance and public administration reform agenda, the Bank's strategy has been to identify pragmatic opportunities for action in the short term, initiating a set o f immediate reforms which will be supportive o f longer term improvements-but without seeking to over-prescribe at a time o f great uncertainty. This approach has been pursedinconjunction with other donors such as DFID who have bene in a position to mobilize technical assistance quickly. It has entailed: (i) ensuring that emergency capacity i s in place-especially in key fiduciary areas-while launching medium-term capacity building efforts; (ii)undertaking extensive diagnostic work coupled with direct, hands-on TA and policy advice, to identify and address key constraints; (iii)identifying short term goals that are fully-owned by government and agreedwith all major donors; and (iv) providing gap financing when needed. The short- term goals that address pressing issues include passing a decree that would allow increased wage payments in selected restructured ministerial departments, regulatingtop- ups being paid to civil servants by NGOs and donors, improving payroll execution, and enhancing budget execution outside o f Kabul. While medium and longer-term issues are clearly important (e.g.,addressing deficiencies in skill-set and geographic balance inthe civil service that could lead to the need for redundancies or undertaking comprehensive wage reform), these measures will take time to implement and may be politically or fiscally more difficult. The strategy recognizes that progress can be made through quick- wins, and that this could gamer support for the more politically difficult medium-term measures. Key to the strategy is to seek to ensure that short-term policy advice and recommendations "do-no-harm" interms o f locking inlong-term obligations that may not be consistent with the future vision ofthe public sector. 34. EPAP focused on supporting the first prong o f the above strategy. Through extensive analytical work and policy notes, buttressed by intensive dialogue in Afghanistan with government and donor counterparts, the Bank identified a range o f urgent technical assistance requirements (in areas such as developing a roster o f civil 8 servants) which were financed by other donors. The Bank is currently working in a similar fashion to better understandthe key issues at play inthe administrative and fiscal relationships between the center, provinces and districts. Policy notes have been prepared in a variety o f areas, from improving payroll management to streamlining government to pay policy. 35. The World Bank and European Commission are the lead donors for the Kabul based, PAREM consultative (working) group. The IMF also plays a lead role on a range of economic management issues. With members o f this group, the World Bank has sought to build strong collaboration and partnerships with government and donors. As noted earlier, the PAREM development budget for SY1382 has now been prepared, and the proposed Project would help implement key elements. 111. THE PROPOSEDPROJECT A. Objectives 36. The objective o f the Project is to assist the authorities to enhance the accountability and transparency inthe management o fpublic resources and to implement its National Development Budget. Specifically, this includes continued emphasis on the objective o f the first EPAP-putting in place, on an emergency basis, capacity in key public administration areas to facilitate better use o f public resources, including donor funds, for urgent reconstruction and development efforts. A further emphasis o f this project i s to begin to lay the foundation for more broad-based civil service reform directed at increasing the efficiency with which basic services are delivered to the population. 37. Success in meeting the Project's objective will be measured by: the delivery o f goods, services and works in line with the agreed procurement plan in a transparent manner; accurate accounting andtimely reporting on budget execution, including detailed reports submitted to donors (to the extent that their resources flow through the budget); and the Administrative Reform and Civil Service Commission gaining capacity to carry out its core functions. B. Projectdescription 38. The Grant will finance the continued employment by TISA of qualified firms to assist the authorities in carrying out, on an interim basis, government procurement and selected financial management functions; develop the administration's capacity in these areas; and assess existing systems andprocedures to recommend suitable policy reforms. Services will also be provided to assist the ARCSC to develop its capacity to undertake the development and oversight o f merit based appointments o f senior civil servants and appeals, civil service management, and overall management and implementation o f public administration reform program. Further services will be provided to ministries for approved restructuring and for studies andinstitution buildingwithin selected entities. 9 39. The overall project cost i s $10.9 million, o f which the IDA grant i s $8.4 million andDFIDis co-financing $2.5 million. Component 1:Supplemental Supportfor EPAP Contracts (US$4.3 million) 40. The Emergency Public Administration Project was prepared rapidly under difficult conditions with imperfect information. No reference information was available on the cost o f service provision, given Afghanistan's difficult security and logistical post- conflict environment. The EPAP appraisal document recognizedas a project risk that the financial support notionally allocated for the procurement and financial management agents may have been significantly under-scoped. Duringnegotiations, it was agreed that should this be the case, supplemental financing would be sought. Since this eventuality materialized, this component o f the proposed Project would provide the supplemental financing necessary to complete the originally envisioned work program for the procurement and financial management agents. The following table provides an overview o f the original notional and revised EPAP allocations, and the supplemental resources needed. Greater detail on the scope o f services being provided is provided in the technical annex for the Emergency Public Administration Project (Report No: T 7520 AF, March2002). EPAPConsultant Services Original Revised Expected Supplemental (US$ million) EPAP EPAP Actual SEPAP Allocation Allocation financinn Procurement Agent 3.0 3.O 5.6 2.6 Financial Management Agent 3.0 3.0 4.7 1.7 Audit Agent 1.5 2.3 2.3 0.0 Other activities 1.5 0.7 0.7 0.0 TOTAL. 9.0 9.0 13.3 4.3 41. Procurement Strengthening (additional US$2.6 million). As defined in EPAP, support i s being provided to put in place emergency procurement capacity to facilitate rapid, transparent utilization o f donor resources for reconstruction and development. This is being achieved by employing a specialized intemational firm (Procurement Agent) for a two-year period to assist the authorities to c m y out government procurement activities. The Procurement Agent mobilized at the end o f July 2002. The terms o f reference for the Procurement Agent also include: building local procurement capacity; and assessing existing laws, regulations, and procedures, and developing a concrete action plan for enhancing the procurement environment and building human capacity. This sub-component is expected to be fully implementedby September 2005. 42. Accounting and Treasury Department Strengthening (additional US$l.7 million). As defined in EPAP, support i s being provided to put in place emergency financial management capacity to facilitate transparent accounting o f governmental expenditures 10 and timely disbursements. This i s being done by employing a specialized international firm (Financial Management Agent) for a two-year period. The Financial Management Agent mobilized inthe beginningo f September 2002. The FinancialManagement Agent works closely with the staff o f the MOF to ensure transfer o f knowledge and development of capacity. This sub-component i s expected to be fully implemented by September 2005. Component 2: CivilService and Administrative Reform (US5.1millionofwhichUS2.6 millionfromIDA) 43. The United Kingdom, through DFID, is jointly co-financing this component, which provides partial financing for critical parts o f the Government's PAREM development budget. There are three sub-components. 44. Capacity building in the ARCSC ($1.7 million). Technical assistance will be provided to assist the ARCSC develop its capacity in three critical areas: (i) appointments and appeals; (ii) service management; and (iii) civil management o f the public administrative reform program. In addition, the ARCSC needs to be able to provide support to line ministries for costing proposals when they seek priority reforrn andrestructuring (PRR) status. 45. Support to Public Administration Reform ($3.2 million). The sub-component provides technical assistance in two critical areas. The first area assists ministries that have approved restructuring plans under the PRR decree to implement those plans. The second area i s to provide gap financing for critical activities within the PAREM development budget that are not funded by other donors. A total o f $1.3 million i s reserved for the first activity. There is a disbursement condition on this activity. The disbursement condition i s that regulatory action i s taken to put in place a framework acceptable to the association to permit PRR o f ministerial departments. Several donors have expressed interest inproviding additional resources to help ministries to implement their reform and restructuring plans if the seed financing provided under the proposed Project allows the ARCSC to demonstrate a viable framework. 46. Support for Independent Evaluation ($0.2 million). To support the ARCSC to more effectively absorb the technical assistance that would be provided under the proposed Project, this sub-component provides resources for a six-monthly review o f activities under the first two sub-components, with an aim to assess progress and make recommendations to enhance the effectiveness o f the work planningandprogramming. 47. Additional details on this component are provided inAnnex 11. Component 3: Studies and Institutional Strengthening (US1.5 million) 48. Studies and Targeted Institutional Strengthening (US$I.5 million). This sub- component provides TISA with flexibility to commission studies that could generate quick impact or which deal with key policy issues. Flexibility is designed into this 11 component in recognition o f the rapidly changing environment. The aim i s to provide services to various ministries or agencies as may be requested by TISA. Requests for financing under this component will be vetted through the Ministry o f Finance. This component provides funding o f last-resort if other donor funds are not able to be quickly mobilized for a priority activity. Activities will be screened against fit with the National Development Budget and/or support to the principles underlying o f the National Development Framework (e.g., role o f the state as supportive to the private sector, environmental sustainability, role o fwomen indevelopment). C. ImplementationArrangements 49. ImplementationArrangements. Implementation arrangements will remain the same as under EPAP for component 1. A A C A i s responsible for implementation o f procurement strengthening; MOF i s responsible for implementation o f accounting and treasury department strengthening. Component 2 will be implemented by ARCSC. Under this component, technical assistancebeingprovided for restructured ministries will be carried out through the beneficiary ministerial department. Component 3 will be implemented by the MOF. However, no activities will be carried out without the endorsement o f the relevant line minister. MOF will simply screen assistance needs against available donor funding, and fit with the development budget. It i s recognized that if there are institutional changes during the period o f implementation, implementing agencies may need to be adjusted. A A C A has recently recruiteda core focal point for the procurement unit. MOF and ARCSC will each need to appoint a specific individual as the project focal point. Since the project emphasizes capacity building, continued efforts will be needed to identify and appoint an adequate number o f civil service counterparts with sufficient qualifications to work with the firms that will be providing services. MOF will play the overall coordinating role. 50. Procurement. There is limited procurement activity under this project. Each implementing entity is responsible for providing terms o f reference and selection criteria to the A A C A procurement unit which, with support from the Procurement Agent, will undertake the procurement process for the various firms and individuals to be retained. These arrangements should ensure compliance with IDA procurement procedures and expedite implementation o f Project activities. Annex IV provides more information on procurement arrangements. 51. Disbursement and FinancialManagement Arrangements. Since there is no Country Profile o f Financial Accountability (CPFA) or Country Financial Accountability Assessment (CFAA) for Afghanistan, there is inadequate documented knowledge o f country issues and related strengths and weaknesses. However, IDA has gained substantial insight from the four IDA projects that have been under implementation over the past year. The overall assessment is that though the country's financial management system i s not fully functional, appropriate mitigation measures are being taken such as the engagement of the Financial Management Agent. Additional details are available in Annex V. 12 52. Disbursements: Disbursements from the IDA Grant would be made in the traditional mode (reimbursement with full documentation and against statements o f expenditure) for boththe IDA and DFIDGrant, which will be administered by IDA. Due to the nature o f the Project activities, this Project will have a relatively small number o f direct payments. However, provision for a Special Account with an Authorized Allocation o f $500,000 will be included inthe Grant Agreement, inthe event such funds are needed. This account will be opened and maintained in a commercial bank or D a Afghanistan Bank on terms and conditions acceptable to the Association. 53. Audit: The accounts o f the Project will be audited by the Auditor General, with the support o f the Audit Agent, with terms o f reference satisfactory to the Association. The annual Project financial statements audited by external auditors would be submitted within six months o fthe close o fTISA's fiscal year. 54. Monitoring and Evaluation. Monitoring arrangements include plans for intensive supervisionby IDA to ensure that any implementation difficulties are dealt with promptly. At a minimum, a full supervision mission is needed twice a year, with specialists visiting Afghanistan more frequently ifneeded duringProject implementation. DFID has seconded a public sector management specialist to the World Bank Office in Kabul, who will play a key role in day-to-day supervision o f the civil service reform component o f the Project. The Project also builds in twice-yearly independent monitoring and evaluation o f the technical assistance being provided under the civil service component to assist the authorities in evaluating the quality o f technical assistance being delivered and to provide specific suggestions for enhancing its effectiveness. IDA will carry out a mid-term performance review. A quarterly progress report will be prepared and submitted to IDA, which consolidates all components including progress towards meeting implementation and development objectives. Responsibility for this reporting rests with MOF, with each implementing agency agreeing to provide requisite input. Annex VI provides additional details on monitoring indicators for the Project. D. Justification 55. Emerging from more than two decades o f crisis, the Afghan administration does not have a track record o f transparent and efficient implementation o f a development budget. This severely limits the scope for successful implementation o f a large recovery program. Furthermore, concerns about accountability couldjeopardize the magnitude o f donor support that has been pledged and will be required. Continuing to assist TISA in building a nucleus o f implementation capacity (in procurement and financial management) and showing credible results on the ground will help the TISA builda track record o f performance, while also providing some assurance to donors o f appropriate fiduciary accountability for budget resources. The additional activities supported by the Project begin to lay foundations for reform in selected key areas o f the public administration. Although public sector enhancement is a medium-term objective, it i s crucial to set the tone in the short-term with effective support for initial steps in this process. 13 ANNEXI:PAREMDEVELOPMENT BUDGET A. GovernmentBudgetDocument National DevelopmentProgram3.2: Public Administration Reformand Economic Management Source: Text directly reprintedfrom budget document. Transitional IslamicState of Afghanistan; National Development BudgetAnd Ordinary Budget For Solar Year 1382 (1 Hamal-29 Hoot 1382). Goal: To create an effective central Government that re-establishes national unity on the basis of strong institutions. This involves building broad-based and equitable community level participation and effective management at the local level; installing strong systems of financial and information management; and using the budget as an instrument of policy. Program Backgroundand Description: The PublicAdministration Reform and Economic Management program is an enabling program vital to the successful development of Afghanistan and the establishment of a sound base for its Government. Benefits to the people of Afghanistan include the management and facilitation of the Loya Jurga in December 2003 and the election in June 2004. The Public Administration Reform and Economic Management Program will also manage the major census and statistics gathering program across Afghanistan,which will facilitate the delivery of goods and services across the country based on needs. The program provides a range of services and functions that cut across Ministries and support the effective operation of the Government. These include the development and provision of financial and management systems and support across Government, the management of the whole-of-Government program of building reconstruction (considerably lower cost than running individual projects in every Ministry), and the development of central policies and strategies to reform and improve the civil service. The program will also manage a venture capital fund to encourage investmentand facilitate the transfer of many unnecessary SOEs to the private sector. Policy Issues BeingAddressed: Development and implementation of primary and secondary legal framework. Personnel management (payscales, policies, retrenchments, capacity building, personneldatabase). Streamlining of institutional and functional structures (of the Civil Service Commission and of central Governmentstructures). 14 Cabinet processes, policy formulation capacity building, and Machinery of Government systems. Administrative efficiency (reviews and InformationTechnology) Support and capacity buildingto develop systems and processesfor: - Operating/ development budgets - Office of the Ministerfor Finance - MoF provincialoffices - Revenue (customs)office - Da Afghanistan Bank -- Aid Coordination Unit Financial capacity of Government (CFOs) - - Procurement Women in senior economic management Projectsto support gender analysis and balanceacross Government. National population census. Planning,preparationand implementation of Loya Jurga and election. Geodesy, cadastral and cartographicsurvey and mapping. Capacity building for CSO. Capacity BuildingGroups project (supportingall Ministries). Support for AACA. Coordination of national physical infrastructure of Government project (Kabul and provinces). Sub-program I:Public Administration Reform ExpectedResults: Civil service regulatory framework and revised pay scale system; improvements to senior management structures in Government, clarification of the roles and responsibilities of all Ministries, and strengthened capacity of the Civil Service Commission and Officeof the President. Summary of Main Activities: Development and implementation of primary and secondary legal framework. Personnel management (payscales, policies, retrenchments, capacity building, personneldatabase). 15 Streamlining of institutional and functional structures (of CSC and of central Governmentstructures). Cabinet processes, policy formulation capacity building, and Machinery of Government systems. Administrativeefficiency(reviews and IT) MANAGEMENT ADM"lSTRATloN AND ECoNoMIC Total proposedfunding ($USDm) Total funded component($USDm) Project name Program Ministry 1381 1382 1383 1384 Total 1381 1382 1383 1384 Total Sub-program 2: Governance Expected Results: Expected resultsfrom this sub-program include: Improvegender balanceand the participationof women in Government. Completion of the bulk of Phase I of the populationand housing census. Successful facilitation of the Loya Jurga in December, and significant progress preparingfor the election in June 2004. Coordination of whole-of-Government Capacity Building Groups and functions (AACA). Summary of Main Activities: The Governance sub-program contains a range of public administration priorities that do not fall within either the Public Administration Reform or the Economic Managementsub-programs. These include: Projects which aim to improve gender balance and the participation of women (MoWA). Populationand housingcensus (CSO). Coordination of central Government documents such as ID cards (MoF). Loya Jurga and election (ElectoralCommission). Cadastral and mapping projects, and support to develop the Central Statistics Office. 16 0 Coordination of whole-of-Government Capacity Building Groups and functions (AACA). GOVERNANCE: Total proposedfunding ($USDm) Total fundedcomponent ($Usom) Project name Program Ministry 1381 1382 1383 1384 Total 1381 1382 1383 1384 Total Gender analysis of civil service staffing, recruitment,placement, 3.2.2 MoWA 0.100 0.100 0.100 0.100 training and promotion Gender responsive planning, programming, budgeting, monitoring, 3.2.2 MoWA 0.100 0.100 and evaluation Gender impact assessment of public enterpriseiadministrationreform 3.2.2 MoWA 0.050 0.050 policiesand processes Nationaldirectiveand technical assistancepackageon gender mainstreamingin policy making, 3.2.2 MoWA 0.070 0.070 planning, programming, monitoring and evaluation Pilot projecton gender (upgradeembassygrounds and 1 I12.000l I I I I I Sub-program 3: Economic Management Expected Results: Implementation of a consistent national revenue management system, and improved procurement systems, aid coordination and public information systems for Government. Improved capacity in all Ministries to operate financial management and planning functions; improved opportunities for (and representation of) women in senior economic management positions. 17 Functioning systems in the Da Afghanistan Bank. Summary of Main Activities: Key priorities in the Economic Management sub-program include capacity building and support to develop: The operating/development budget, the Office of the Minister for Finance, the Ministry of Finance provincial offices, Revenue (Customs) office, Da Afghanistan Bank, procurement function, and the Aid Coordination and Public Information Units; Improved financial capacity of Government (Chief Financial Officers in Ministries), and improved opportunities for women in senior economic management. Project Summary ECONOMIC MANAGEMENT: - 'rogram - 'dinistry 1381II1382 I1383 I1384 IITotal 11381I1382 II1383 1I IITotal Women in senior economic I I I I I 3.2.3 MoF 1 I 0.150/ I I 0.1501 I0.1501 I 1384 I0.1501 i Treasury department assistance (Grants Management System, Financial Management Information 3.2.3 MoF 1.293 3,000 0.835 5.128 1.293 3.000 0.835 5.128 - Office of the Auditor-General: technicalassistance 3.2.3 MoF 0.455 1.000 0.745 2.200 0.455 1.000 0.745 2.200 of Government(CFOs) 3.2.3 MoF 3.600 3.600 1.843 9.043 3.600 3.600 1.843 9.043 Ministryof Finance - 3.2.3 MoF 0.050 0.050 0.100 capacity building 3.2.3 MoF 3.399 1.999 5.398 3.399 1.999 5.398 technicalassistanceand facilities 3.2.3 rehabilitation MoF provincialoffices: equipment 3.2.3 Developmentbudget: supportand 3.2.3 MoF 4.000 7.000 3.000 14.000 4.000 4.000 8.000 Aid CoordinationUnit and Public InformationUnit:establishand 3.2.3 MoF 0.400 0.500 0.200 1.100 0.400 0.500 0.200 1.100 develoo Procurement: technical assistance - 3.2.3 MoF 1.345 2.994 4.339 8.678 1.345 2.994 4.339 8.678 3.2.3 DaB 4.051 3.038 3.038 10.128 4.051 3.038 3.038 10.128 DaAfahanistanBank: equipmentand . . structiral support - 3.2.3 DaB 1.100 1.100 1.100 1.100 Da AfghanistanBank: Evaluation - 3.2.3 DaB 0.270 0.270 0.270 0.270 18 B. Project'sFit in the DevelopmentBudget As illustrated in the table below, EPAP and SEPAP are in-line with the government's developmentbudget. 'rojectname 1381-83 PAREM budget) Entily 1381 1382 1383 Total Funding sources: notes Civil Service Legal Framework ARCSC 0.6 0.1 0.7 PersonnelManagement ARCSC 2.1 3.8 5.9 SEPAP: $1.7 million. A donor has indicated support of about $3.3 million for likely financing under this area. Institutional and Functional ARCSC 0.7 0.9 1.5 SEPAP: $1.3 million. Additional bilateral Streamlining and Development support i s expectedto provide interim assistance until SEPAP consultants are in place. Administrative Efficiency ARCSC 0.6 0.7 1.5 SEPAP: $2.1 million. For priority activities inthe aboveareasnot fundedby other donors. Total PAREMBudget under ARCSC 4.0 5.5 9.6 SEPAP: $5.1 Treasury department assistance MOF 1.3 3.0 0.8 5.I EPAP: $3 million, SEPAP: $1.7 million. Additional resources possible for strengthening grant management, payroll. Office of the Auditor-General: TA AGO 0.4 1.0 0.7 2.2 EPAP: $2.2 million. Procurement: TA, capacity building AACA 1.3 3.0 4.3 8.7 EPAP: $ 3 million, SEPAP: $2.6 million. (Corrected numbers) (1.3) (3.0) (1.3) (5.6) Figures inparentheses correct what seem to be a typo in the development budget. 19 ANNEX11: PROJECT DETAILS Component2: CivilService andAdministrativeReform Summary. The Civil Service and Administrative Reform Component o f the proposedProject i s beingjointly co-financed by DFID. It i s summarized inthe following table: Project Purpose Resources subcomponent Assistingthe ARCSC to developits capacityto $1.7 m ( 1) Capacity undertake: buildinginthe - Appointments and Appeals ARCSC - Civil Servicemanagement - Mgt o fthe PublicAdministrativeReformProgram Costingministries' To assistMinistries restructuringproposals indeveloping ProvidingTA to ministries proposalsto reform ( 2 ) Public and restructure $3.lm approvedfor restructuring depmentswhich (40% Administration under the ''Priority Reform Reform andRestructuring"Decree are out reservedfor critical functions p m within the Ministry ministries) Assistingthe ARCSC to implement the PAREM programofthe NationalDevelopmentBudget (3 ) Independent 6-monthlyreviewsofprogressto provideguidance $0.2 million evaluation to govemment on the directionofadministrative reform There will be one consultancy contract for each sub-component. It i s anticipated that the services provided will be primarilytechnical assistance inthe form o f reports and training, with some longer-term resident advisers. Once a contractor is mobilized, the firm will provide consulting support based on the agreed work plan. Staff to be used should meet the pre-agreed qualifications and experience standards and the govemment will be providedwith the CVs o f all staffto be usedprior to their involvement inspecific tasks. Sub-component 1: Capacity Building in the ARCSC. This project subcomponent will assist the ARCSC in developing its capacity to undertake each o f its three key tasks: 0 Appointments and Appeals. In order to fulfill its mandate under the Bonn Agreement, the Commission will recruit and promote candidates for senior civil service posts on merit, and will develop and oversee the application o f merit- based recruitment procedures for the remainder o f the Civil Service. The Commission will also hear appeals and deal with grievances from civil servants. Two independent Boards are being appointed for these purposes. 0 Civil Sewice management. The Commission will develop a new Civil Service Law, andwill review and amend as necessary existing legislation on Civil Service employment, and will develop personnel policies and procedures to ensure the 20 . legislation i s applied in practice. The Commission will be responsible, in consultation and collaboration with Ministries, for conducting reviews of institutional structures and administrative processes in order to improve the efficiency and effectiveness o f government business, and will develop strategies for enhancing the use o f modem information technology throughout government. A Civil Service Management Department is beingformed to carry out these tasks. a Administrative Reform. The Commission is the focal point within government for oversight, coordination and management o f the Public Administration Reform Program. This addresses seven priority areas: 1. Civil Service legal framework 2. Personnel management 3. Institutional and functional streamlining and development 4. Financialmanagement and accountability 5. Policy management andmachinery o f government 6. Administrative efficiency 7. Physical infrastructureimprovement. These priority "pillars" however have far reaching implications for all ministries, and a number have begunwork in areas relevant to them. For example, the Ministry o f Finance has led on much o f the forth item, and obviously have an interest in the fiscal implications o f the institutional and functional streamlining and pay reform policy. This subcomponent o f the proposed Project is primarily a contribution towards priority area 3 o f the PAREM Development Budget: "Institutional and fbnctional streamlining and development." The structure proposed for the ARCSC to undertake these tasks is indicated inthe figure on the following page, showing the three discrete functions contained within the Commission. However the organization structure may evolve differently as the work proceeds. The structure has been developed to maintain some distinction between the independent oversight functions o f the ARCSC andthe public sector reformmanagement tasks. It i s unusual and less than ideal that these functions are combined within the same organization but capacity constraints elsewhere ingovernment make this unavoidable. In addition, this subcomponent will provide the facility to prepare and cost proposals for restructuring ministries and departments under a decree currently under preparationby the government. This decree will allow Ministries to develop proposals to reform and restructure departments that are carrying out critical functions within the Ministry, and for approval for these departments to be granted priority reform and restructuring (PRR) status. With the exception o f `beyond' grade posts, Ministries may propose that specified posts within Departments granted PRR status should be placed on an interim additional allowance (IAA) scale pending the introduction o f comprehensive pay and grading reforms; and may nominate individuals for appointment to such posts on a time-limited basis and subject to performance. 21 1n N N ------l --A----- ( I Granting o f PRR status and transfer o f posts and staff to the interim additional allowance scale will be subject to the approval o f a Reform and Restructuring Board chaired by the Vice President. The Reform and Restructuring Board will be assisted by the Administrative Reform Secretariat within the Administrative Reform and Civil Service Commission, which will provide technical analysis o f the proposals. Approval for PRR status will be granted only ifspecified criteria are met, which demonstrate: a. the strategic importance o fthe departmentis concerned; and b. that the proposed reforms and restructuring will significantly improve operational efficiency and effectiveness. Approval for transfer o f specified posts and staff to the interim additional allowance scale will be granted only on the basis that: a. the specified posts are essential to the operational effectiveness o f the PRR Department; and b. staff nominatedto fillthe specified posts are demonstrably capable o f carrying out the requiredduties. The subcomponent will provide funding for development and costing o f ministries' restructuring proposals prepared under the PRR decree or equivalent. The development and costing o f ministry and departmental restructuring proposals i s to be separated from their implementation to avoid the conflict o f interest inherent inthe same firm both specifying how much TA is needed for a particular ministry or department which is being restructured, and also providing that TA. The subcomponent i s expected to cost about $1.7 million and would be implemented over a two year time period. It is anticipatedthat the services provided will be primarily technical assistance in the form o f reports and training, with some longer- term resident advisers. Provision o f a limited amount o f goods and equipment is to be included inthe consultant contract. Sub-component (2): Support for public administrationreform. This project subcomponent provides a flexible facility to assist the Administrative Reform and Civil Service Commission to implement the PAREM program o f the National Development Budget (NDB) in any o f the following areas where other resources and donor inputs are insufficient: 1. Civil Service legal framework 2. Personnel management 3. Institutional & fictional streamlining& development 5. Policy management andmachinery o f government 6. Administrative efficiency The PAREMprogram o f the NDBprovides ceilings for each o f these areas during the two years inwhich the project will be effective. These are set out in Annex B. The amounts to be funded under this project fall within the ceilings provided by the PAREM program. It i s anticipated that other donors will make up any shortfall between the resources provided by this project andthe amount required. 23 The subcomponent i s expected to cost about $3.1 million to be implementedover a two year period. The services and goods will be provided through a single firm or consortium. Provision o f a limited amount o f goods and equipment are to be included in the consultant contract. It i s anticipated that the services provided will be targeted at those areas where other donors are not supporting priorities within the PAREM program of the National Development Budget. Forty percent o f the value o f this subcomponent will provide support for ministries in implementing agreed restructuring proposals under the PRR decree. It i s important to note that if the PRR decree, or an equivalent, i s not passed then this subcomponent will be reduced by that amount. It is anticipated that the services provided by this 40% o f the subcomponent will consist primarily o f the preparation of detailed implementation plans for departmental or ministry restructuring, assistance in the evaluation o f current staff and in assessing their suitability for employment within the restructureddepartment or ministry, and training. It is important that the development and implementation o f PRR proposals takes place as quickly as possible. The ARCSC, with DFID support, has already begun to complete an initial snapshot o f ministries' main functions, structures and senior staffing levels, in order to pave the way for institutional streamlining. Individual ministries are actively participating in this process. It is anticipated that initial PRR proposals will be completed inup to 15 to 20 departments by the end o fNovember 2003, that consideration and approval takes place by the end o fDecember, and that implementation commences in upto 10departments from January 2004. Proposals will be concise and follow a standard format. Technical assistance will be provided to develop the proposals but it is important that these do not become overly bureaucratic. The approach o f the proposed Project i s to support the rapid implementationo fpublic administration reforms. Sub-component (3): Independent evaluation of progress and priorities in administrative and civil service reform. This subcomponent will provide 6-monthly reviews o f progress as guidance to the government on the direction of administrative reform. This will be o f strategic value to the ARCSC as it develops and refines its reform approaches. Firms/consortia providing services under the first two sub-components are required to provide the government with six monthly reports on progress, together with a plan showing the anticipated projects and business activities to be provided under the contract duringthe next six months. This component will assist government inits review of these six monthly reports andplans. The subcomponent will provide professional services o f about $200,000 over the period in which the first two sub-components are under implementation. The services will beprovidedthrough a single firm or individual. 24 Anticipated Achievements. Given the flexible nature o f this component, it is not possible to specify anticipated concrete project results. However, several broad project outcomes can be identified, including: a The establishment o f a sound legal framework for a professional, ethical, equitable and politically impartial Civil Service; 0 The establishment o f effective civil service management systems to attract, retain andmotivate qualified employees on the basis ofmerit; 0 Functional structures and administrativeprocedures that enable the govemment to fulfill its commitments; a Improved managerial and administrativecapacity within the Civil Service. Some o f the specific results from projects inthe PAREM budget are summarized inthe following table. PAREMBudgetProjectsUnder the Responsibilityof the ARCSC ACTIVITY EXPECTEDRESULTS Civil Service law & employment regulations Clarity about the role andfunctions o f the Civil Service; the principles and the ethical standards governing its activities; and the basic terms on which Civil Servants will be employed (by end 2003) Interim salary scale for key staff Highcaliber staff appointedto key posts on the govemment payroll (by end 2003) Phasingout o f donor top-ups Regularization o f donor-supported posts within the govemment payroll (mid 2004) Develop comprehensive A nominalroll of all govemment employees andtimely govemment payroll system payments in Kabul and the provinces (end 2003) Labor market surveys Realistic comparators for Civil Service pay Pay and grading structure review Pay & grading structure which reflects fiscal realities and provides career incentives to all civil servants Job classification All existingposts assigned to new grading structure B:PersonnelDolicies & urocedures A personnelmanagement handbook provinginstruction & guidance on the application of common standards o f good personnel practices across the Civil Service Senior managers and personnel staff trained to apply personnel management policies & procedures D:Retrenchment Affordable arrangements which effectively and considerately enable rightsizingo f govemment institutions Develop retrenchment arrangements Agreement on financial, re-training & redeployment options for retrenched staff Implement retrenchment arrangements Retrenched staffare retired, retrained or redeployed E:PersonnelManagement Information System A comprehensive database to support Civil Service personnel planning and training, sustainable on a long-term basis PMIS specification & design Personnel management information needs assessedand system designed Installation and operation PMIS system installed and operational ACTIVITY EXPECTEDRESULTS Institutional & functional streamlining& development A Center of government resuonsibiliLiesfor A decree establishingthe respectiveroles andresponsibilities admnistrative reform for administrativereformo f centralgovernment agencies (mid 2003) B ARCSC cauacitvbuilding ARCSC is fulfilling itsremit efficiently and effectively Establishmentof ARCSC Key staffinpost and senior staffrecruitment procedures developed(mid 2003) Work programdevelopment Work programfor ARCSC unitsdevelopedandagreed(mid 2003) Training & mentoring ARCSC staff are carryingout their dutieseffectively C: Ministrv reviews Ministries are structuredand staffed appropriatelyto fulfill their responsibilities Methodology Methodologyandprioritizedreviewprogramdevelopedand agreed Program Rollingprogramofreviewsconductedand implemented E: Management& Admnistration institutional cauacitv building Reviewrequirements andfundingoptions Agreement on affordableand sustainableinstitutional for Civil Service managementtraining arrangements for Civil Servicemanagementtraining Establishment of Civil Service Management& admnistrationtraining & development managementtraining mstitutiods providedto key staffacross the Civil Service A: Administrative efficiencvreviews Govemmentbusinesstransactedmore economcally, efficiently andeffectively B:IT enhancement Affordable, time-boundandprioritized ITimprovement programs implementedleadingto increasedefficiency & effectivenessof governmentbusiness The overarching objective i s the implementationo f a strategy for reform o fpublic administration, contributing to a sound, ethical and lawful public administration that can contribute to the hture peace, stability and economic prosperity o f Afghanistan, and the reductiono fpoverty among the Afghan people. Some basic actions inpublic administration should be achieved by the launch o f the project component. Ifnot, these will form the initialpriorities: 0 Controlling employment totals. An employee database has been compiled on the basis o f all o f the salary claims submitted by government departments inmonth 6 of SY1381. A further Accounting Entry Module database is being developed to record claims submitted on an accrual basis (Le., the month for which the payment i s due) rather than a cash basis (i.e., the month for which a payment is made. Government has said it will take concrete steps to ensure the nominal roll is regularlyupdated to serve as a control mechanism. 0 Disciplining the use of salary top-ups. Uncoordinated top-ups contribute to wage inflation within the public sector, and generally entail the movement o f skilled staff within the country rather than bringing in new skilled labor from overseas. Most damagingly, however, top-ups and other incentives undermine management within the individual sectors. Service delivery would be significantly improved 26 by some regulation o f these incentives. Government has indicated that a decree, jointly agreed by the Administrative Reform and Civil Service Commission and the Ministryo fFinance, i s about to be passed. 0 Reducing ad hoc restructuring. It i s understood that a decree will shortly be passed allowing a program o f interim reforms to be implemented within key government ministries. This would allow pro-active departments to formalize the chaotic hiring o f consultants and contract staff, and would enable them to place staff on more appropriate fixed term, but better remunerated, contracts. Staff whose skills are no longer necessary would be relocated to other units within the ministry, or to other govemment departments. Such reforms are essential for competent staff to be paid and retained, and for managers to be given greater autonomy inmanagingtheir departments. 27 ANNEX111:PROJECTCOST SUMMARY Project Cost by Component,ExpenditureCategory, andFinancier (US$ million) EPAP Civil Service Studies Total Supplement Reform Consultants, Training, Audit 4.30 5.10 1.50 10.90 Of which financed by IDA 4.30 2.60 1.50 8.40 Of which financed byDFID 0 2.50 0 2.50 Project Costsby Component (%) Component Percent of Total Percent o f IDA costs Financing EPAP Supplemental 39.4 51.2 Civil Service Reform 46.8 31.0 Studies 13.8 17.9 Total 100.0 100.0 Project CostsbyExpenditureCategory (YO) ExpenditureCategory Percent Consultants and Training 100.0 28 ANNEXIV: PROCUREMENTARRANGEMENTS A. InstitutionalCapacity There are limited procurement activities under this project, all related to the retention of consultant services. Two contracts are on-going for which supplemental financing is being sought, and two additional large contracts are to be finalized within the first three months o f project implementation. Hence, it i s expected that by September 30, 2003, the project will be over 80 percent committed. The ARCS currently has the assistance needed to provide the A A C A procurement unit with the necessary terms o f reference and selection criteria for the consultancy assignments under the component it i s implementing. The Procurement Agent i s inplace to ensure that the A A C A procurement unitis able to handletheprocurement process. Balancing the limited procurement activities and the presence o f a Procurement Agent with the post-conflict environment, the procurement risk is considered medium. Project supervision will include procurement expertise inmost early missions, and to the extent needed over entire period the o f the IDA Grant. Threshold limits described below have been set considering these risks. B. ProcurementMethods Procurement under the IDA Grant would be carried out in accordance with the "Guidelines for Selection and Employment o f Consultants by World Bank Borrowers" (January 1997, revised in September 1997 and January 1999). The "Bank's Standard Request for Proposals: Selection o f Consultants" (July 1997, revised April 1998, July 1999, andM a y 2002) would beused for consulting services. Consulting Sewices (US$lO.9 million). A description, estimated cost and method of selection o f consultancies are provided below: -~ No. Description of Services Estimated Cost Method of Selection 1. Technical Assistance and Support to AACA US$ 2.6 million CQ (on-going contract) Procurement Agent 2. Technical Assistance and Support to MOF US$ 1.7 million CQ (on-going contract) Financial Management Agent 3. Technical Assistance and Support to US$1.7 million QBS ARCSC Capacity Building 4, Technical Assistance and Support for Public US$ 3.2 million QBS Administration Reform 5. Technical Assistance and Support to USS0.2 million CQlInd ARCSC Independent Evaluation 6. Studies and Institutional Capacity Building US$1.5 million QCBSlQBSlCQlSSlInd (estimated two to six contracts) 29 Contracts may also include supply o f goods o f about 15 percent o f the value o f consultancy to be brought by the consultants for their use duringthe course o f assignment andto be left withthe client, after its use. IDA'S clearance of terms o f reference and single source selections will be mandatory irrespectiveof the value o fthe assignment. C.ProcurementPlanning With a very limitednumber o f contracts, the procurement plan for this project is very straightforward. Two contracts are on-going for which supplemental financing i s being sought, and two additional large contracts are to be finalized within the first three months o f project implementation. Hence, it is expected that by September 30, 2003, the project will be over 80 percent committed. Procurement planning for the remainder o f the Project will be done in conjunction with the identification o f specific activities that will be supported. D. Prior andPostReview All contracts for consulting services contracts above US$lOO,OOO for firms and above US$50,000 for individual consultants, would be subject to prior review by IDA. All other contracts would be subject to post-review on a randombasis duringsupervision missions and audits. E. ProcurementInformation The Procurement Agent will prepare procurement information that will be collected and recordedas follows: 1.prompt reportingof contract awardinformation for the respective components; and 2. comprehensive quarterly reports prepared byAACA indicating: a revised cost estimates for individual contracts andtotal cost; a revised timings o f procurement actions including advertising, bidding, contract award andcompletion time for individual contracts; and e compliance report by A A C A within three months o f the Grant signing date. F.ProposedProcurementArrangements The Project elements, their estimated costs and proposed methods o f procurement are summarized in Table A. Consultant Selection Arrangements are given in Table Al. Thresholds are given inTable B. 30 Table A: Project Costs by Procurement Arrangements (US$ million equiva1ent)l Services 0.0 10.9 10.9 11 All costs include contingencies 21 Includes goods to be procured through limitedintemational bidding; nationallinternational shopping andor through UNagencies, and under direct contracting consulting services, training, and audit. Table A1:Consultant Selection Arrangements (US$ million equiva1ent)l (0.0) (3.0) (0.0) (0.0) (4.6) (0.2) (0.0) (7.8) B.Individuals 0.0 0.0 0.0 0.0 0.0 0.7 0.0 0.7 (0.0) (0.0) (0.0) (0.0) (0.0) (0.6) (0.0) (0.6) Total 0.0 5.4 0.0 0.0 4.6 0.9 0.0 10.9 (0.0) (3.0) (0.0) (0.0) (4.6) (0.8) (0.0) (8.4) 1/ All costs include contingencies Figures inparenthesis are the amounts to be financed by the IDA. QCBS: Quality and Cost-Based Selection QBS: Quality-Based Selection SFB: Selection under a FixedBudget LCS: Least-Cost Selection CQ: Selection Based o n Consultants' Qualifications Other: Selection o f Individual Consultants (per Section V o f Consultants Guidelines), Single Source Selection o f Firms, SOEs for Audit, Training, Commercial Practices, etc. 31 Table B: Thresholdsfor ProcurementMethodsandPriorReview . Expenditure Procurement ,--- ' e 7 ' Method =. 1 J s I , / 'i' f ~ i 1.Services a) Firms Above US$lOO,OOO Bank Guidelines as per 10.2 ParagraphB2above. b) Individuals US$50,000 or above 0.7 TOTAL Value of Contracts subject to Prior Review: US$10.9 million OverallProcurementRiskAssessment: Medium Frequency o fprocurement supervision missions proposed: Once every 6 months and as needed (includes special procurement supervision for post-review/audits). 32 ANNEXV: FINANCIAL MANAGEMENT & DISBURSEMENTARRANGEMENTS CountryIssues Since there is no Country Profile o f Financial Accountability (CPFA) or Country Financial Accountability Assessment (CFAA) for Afghanistan, there i s inadequate documented knowledge o f country issues and related strengths and weaknesses. However, IDA has gained substantial insight from the four IDA projects that have been under implementation over the past year. The overall assessment is that although the country's financial management system i s not filly functional, appropriate mitigation measures are being taken such as the engagement o fthe Financial Management Agent. Strengths The engagement o f the Financial Management Agent; the government's commitment to transparent and accountable financial management; and the use o f direct payments for the very limited number o f contracts under the Project are the primary strengths of the Project's financial management system. AccountingPoliciesandProcedures The Project will follow standard government financial management policies and procedures, including using the Chart o f Accounts developed by the Financial ManagementAgent to recordProject expenditures. Project accounts will be consolidated centrally in the Ministry o f Finance, in particular, the Grant Management Unit (GMU), with support from the Financial Management Agent. Consolidated Project financial statements will be prepared for all sources anduses o fProject finds. Audit Arrangements The accounts o f the Project will be audited by the Auditor General, with the support o f the Audit Agent, with terms o f reference satisfactory to the Association. The annual Project financial statement to the Association would include a summary o f funds received (showing funds received from all sources), and a summary o f expenditures shown under the main Project components/activities and by main categories o f expenditures. The format o f the annual Project financial statements will be similar to the Financial Monitoring Reports (FMRs). The audit o f the Project accounts would also include an assessment o f (a) the adequacy o f the accounting and internal control systems; (b) the ability to maintain adequate documentation for transactions; and (c) the eligibility o f incurred expenditures for Association financing. The annual Project financial statements audited by the Auditor General, supported by the Audit Agent, would be submitted within 6 months o f the close o f fiscal year, i.e. by September 22 o f each year. The following audit reports will be monitored in the Audit Reports Compliance System (ARCS): 33 ResponsibleAgency Audit Auditors MOF SOE, ProjectAccounts and Auditor General Special Account ReportingandMonitoring Quarterly Financial Monitoring Reports will beproducedshowing: (i) and sources uses of funds by disbursement category and project component; (ii) physical progress; and (iii) o f procurement activities. status These will be submitted to the Association within 45 days o fthe end ofthe quarter. DisbursementArrangements Allocation of GrantProceeds ExpenditureCategory Amount (USD) Financing Percentage Consultants services 8.4 million 100% Total 8.4 million Financing Percentage. The SDP for Afghanistan has been set at 100%. However, the SDP was set based on the working assumptionthat no taxes being collected on IDA financed activities. In the future, if it becomes apparent that withdrawal applications are being submittedthat are not net o f taxes, then the SDP would need to be adjusted and the financing percentage for hture operations would be less than 100%. Disbursement Method. Disbursements from the IDA Grant would be transaction- based (replenishment, reimbursement, direct payment, and payments under Special Commitments) with full documentation or against statements o f expenditures as appropriate). Cojinancing. DFID is providingjoint co-financing inthe amount of $2.5 million for component 2. Use of statements of expenditures (SOEs). Disbursements will be made on the basis o f SOEs for: (a) consultants and training for contracts not exceeding US$lOO,OOO for firms andUS$50,000 for individual and all training andaudit. Special Account. The Special Account will opened and maintained in a commercial bank or Da Afghanistan Bank on terms and conditions acceptable to the Association; and would be operated by MOF-GMUin accordance with the Association's operational policies. The Authorized Allocation will be $500,000. Minimum application size. Applications for replenishment to the Special Account will be submitted (a) monthly, regardless o f amount, or (2) when the Special Account balance is reduced by 40%, whichever comes first. The minimum application size or 34 withdrawal applications for reimbursement, direct payment, or for applications for Special Commitments i s 20% o fthe Authorized Allocation o fthe Special Account. Authority to withdraw Grantfunds. MOF-GMUwill retain the right to sign and submit withdrawal applications to the Association. Disbursementschedule % of Expenditures ~ Amount o f the Grant Allocated (Expressed to be Financed Category inSDREquivalent) Consultants, training, audit 6.1 100 TOTAL 6.1 100 Disbursementtimetable (World Bank fiscal year) Amount Total for period Cumulative US$ m ("/.I disbursements ("/.I FY04 first semester 0.30 3.6 3.6 FY04 second semester 2.05 24.4 28.0 FY05 first semester 3.15 37.5 65.5 FY05 second semester 1.80 21.4 86.9 FY06 first semester 0.65 7.7 94.6 FY06 second semester 0.45 5.4 100.0 SupervisionPlan From a financial management perspective, the Project will need close supervision. The focus during supervision will be on the internal control arrangements for the Project andfunctioning o f accounting, financial reporting and auditing. FinancialCovenants (a) TISA shall submit to IDA audited financial statements within 6 months o f the end of each fiscal year. (b) TISA shall maintain throughout the Project implementation period, a satisfactory financial management system. (c) Financial MonitoringReports will be submitted on a quarterly basis. (d) Audit of the Special Account, SOEs and the Project financial statements will be performedinaccordance with terms o f reference agreed with the Association. 35 ANNEXVI: MONITORING The following table provides detailed information on monitoring outputs and outcomes for each component o f the project. Component Monitoringindicators Goals Component 1 Procurementstrengthening September 2005: Auard the work specified inthe Procurementcapacitynot a agreedprocurement planto ensure that rhc goods, constraint to the sen ices and works are deli\ ercd as per agreed reconstructionprogram. schedule (Progressreports) Action plan for (Supervisionreports, procurement strengtheningagreed and under including from other IDA implementation(Supervisionreports). financed projects). Programinplace for medium-termenhancement of procurementenvironment, including any continued temporary arrangements (Supervisionreports). Treasury andAccounting Sept 2005: Computerized systemfor basic Accuratelyrecorded Department Strengthening expendituremanagement inplace andhnctioning expendituresandstrong inselect locations. Action planto further enhance intemalcontrol, including for the financialmanagement environment prepared all IDAprojects; regularand (Progress andsupervisionreports). timely reporting(Supervision reports, including from other IDA financedprojects). Programinplacefor medium-termenhancement of financialmanagement environment, includingany continuedtemporary arrangements(Supervision reports). Capacity building ARCSC Jan 2004: ARCSC is staffed, work programis ARCSC undertakesits role in developed. (Supervisionreports, DFID appointmentsandappeals, monitoring). civil servicemanagement and March2004: Recruitmentfor senior civil service managementof the public positionsbasedonmerit (Progressand supervision administrationreform reports). Work programis beingimplemented. program(Supervision reports). Throughout projectimplementation: Ongoing implementationof work programsagreed on a quarterlybasisbetweenARCSCIDFID andWorld Bank(supervisionreports, DFID monitoring). Supportto PublicAdmin Dec 2003: Methodologyandprioritized review Througharollingprocess, Reform programdevelopedand agreed(Progressand ministries are structured and supervisionreports). staffedappropriatelyto fulfill June 2004: Restructuringcompletedinat least 5- their responsibilities 10departments(Progressandsupervisionreports). (Supervisionreports) Gap financingof essentialprojectsinthe PARAM Critical projectsinthe Public budget (Budget executionreports). AdministrationReform nPriPinnmPnt rzllrlmPt 36 IJune 2006: Restructuring completed inat least 15 -~ I Development Budgetare- departments (Progress and supervision reports). financed. Support for Independent June 30,2005: At least one independent Effectiveness o f TA being Evaluation evaluation completed, and results incorporated into provided for capacity future work planning (Progress and supervision building and support to reports). public administrationreform June 30,2006: A total o f at least three evaluation i s enhanced (Supervision completed, and results incorporated into future reports). work planning (Progress and supervision reports). Studies and Institutional June 30,2004: At least one interventions financed Support providedto facilitate Strengthening (Progress reports). the initiation o f at least two June 30,2005: A total o f at least two interventions "quick-win"/priority activities (Progress and financed (Progress reports). Supervision reports). March 20,2006: A total o f at least three interventions financed (Progress reports). 37