Document of The World Bank Report No: ICR00002946 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-46890) ON A LOAN IN THE AMOUNT OF US$140 MILLION TO THE RUSSIAN FEDERATION FOR A CUSTOMS DEVELOPMENT PROJECT December 24, 2013 Poverty Reduction and Economic Management Department Russia Country Department Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2013) Currency Unit = Ruble 1.00 Ruble = US$ 0.0309 US$ 1.00 = 32.35250 Ruble FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS BEEPS EBRD-World Bank Business Environment & Enterprise Performance Survey CDP Customs Development Project CMEA Council for Mutual Economic Assistance CY Calendar Year DO Development Objective ETI Enabling Trade Index EU European Union FCS Federal Customs Service FY Fiscal Year GATT General Agreement on Tariffs and Trade GDP Gross Domestic Product ICT Information and Communications Technologies IP Implementation Progress IT Information Technology KPI Key Performance Indicators LAN Local Area Network LPI Logistics Performance Index MOF Ministry of Finance MOJ Ministry of Justice NGO Nongovernmental Organization OECD Organization for Economic Co-operation and Development OGP Office of the General Prosecutor PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit RF Russian Federation RMS Risk Management Software SCC State Customs Committee TF Trust Fund UAIS Unified Automated Information System USSR Union of Soviet Socialist Republics WCO World Customs Organization WTO World Trade Organization Vice President: Laura Tuck Country Director: Michal Rutkowski Sector Manager: Adrian Fozzard Project Team Leader: Amitabha Mukherjee ICR Team Leader: Amitabha Mukherjee RUSSIAN FEDERATION Customs Development Project Contents Data Sheet .......................................................................................................................... iv  A. Basic Information...................................................................................................... iv  B. Key Dates .................................................................................................................. iv  C. Ratings Summary ...................................................................................................... iv  D. Sector and Theme Codes ........................................................................................... v  E. Bank Staff ................................................................................................................... v  F. Results Framework Analysis ...................................................................................... v  G. Ratings of Project Performance in ISRs .................................................................. vii  H. Restructuring (if any) .............................................................................................. viii  I. Disbursement Profile ............................................................................................... viii  1. Project Context, Development Objectives and Design ................................................... 1  2. Key Factors Affecting Implementation and Outcomes .................................................. 7  3. Assessment of Outcomes .............................................................................................. 15  4. Assessment of Risk to Development Outcome ............................................................. 23  5. Assessment of Bank and Borrower Performance ......................................................... 24  6. Lessons Learned............................................................................................................ 26  7. Comments on Issues Raised by Implementing Agency ................................................ 29  Annex 1. Project Costs and Financing .......................................................................... 32  Annex 2. Outputs by Component ................................................................................. 33  Annex 3. Economic and Financial Analysis ................................................................. 43  Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 55  Annex 5. Beneficiary Survey Results ........................................................................... 57  Annex 6. Stakeholder Workshop Report and Results................................................... 60  Annex 7. Summary of Borrower's ICR ......................................................................... 61  Annex 8. Comments of Co-financiers and Other Partners/Stakeholders...................... 63  Annex 9. List of Supporting Documents ...................................................................... 64  Annex 10. Summary of Appraisal Diagnostics and Project Activities ......................... 65  MAP .............................................................................................................................. 70  Table 1. Russian Federation: Economic Context at Appraisal ------------------------------- 1  Table 2. Comparison of Outcomes – World Bank-Financed Customs Development/Trade Facilitation Projects: Russia and South-East Europe ------------------------------------------ 11  Table 3. Planned versus Actual Expenditures ------------------------------------------------- 12  Table 4. Customs revenues and enforced compliance (2006 and 2012) -------------------- 18  Table 5. Survey Results from Trading Community------------------------------------------- 18  Table 6. Survey Results from Trading Community------------------------------------------- 19  Table 7. Comparison of Bank and Borrower Ratings of the CDP -------------------------- 29  Table 8. Macroeconomic indicators – forecast vs. actual ------------------------------------ 30  ii Figure 1. Project Disbursement Profile ............................................................................ viii  Figure 2. The Territorial Network of the Federal Customs Service ................................... 6  Figure 3. Average customs clearance time (vehicle checkpoints, project pilot zones, minutes) ........................................................................................................................................... 22  Box 1. Customs Control and Clearance – Significance and Results ................................ 13  iii Data Sheet A. Basic Information Customs Development Country: Russian Federation Project Name: Project (CDP) Project ID: P072960 L/C/TF Number(s): IBRD-46890 ICR Date: 10/13/2013 ICR Type: Core ICR RUSSIAN Lending Instrument: SIL Borrower: FEDERATION Original Total USD 140.00M Disbursed Amount: USD 139.15M Commitment: Revised Amount: USD 140.00M Environmental Category: C Implementing Agency: Federal Customs Service (formerly State Customs Committee) Co-financiers and Other External Partners: None B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/14/2002 Effectiveness: 10/31/2003 10/31/2003 Appraisal: 09/26/2002 Restructuring(s): 06/29/2011 Approval: 04/22/2003 Mid-term Review: 11/15/2006 11/22/2006 Closing: 06/30/2009 06/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: iv C.3 Quality at Entry and Implementation Performance Indicators Implementation Performance Indicators QAG Assessments (if any) Rating Potential Problem Project at any time No Quality at Entry (QEA): Satisfactory (Yes/No): Problem Project at any time (Yes/No): Yes Quality of Supervision (QSA): None DO rating before Closing: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 100 100 Theme Code (as % of total Bank financing) Administrative and civil service reform 24 24 International financial standards and systems 13 28 Legal institutions for a market economy 13 13 Tax policy and administration 25 10 Trade facilitation and market access 25 25 E. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck Johannes Linn Country Director: Michal Rutkowski Julian Schweitzer Sector Manager: Adrian Fozzard Helga Muller Project Team Leader: Amitabha Mukherjee Carlos Ferreira ICR Team Leader: Amitabha Mukherjee ICR Primary Author: Craig Neal F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project development objective is to reform and modernize the Russian Customs administration, with a view to: (a) promote internationally acceptable practices for processing of international trade flows by Customs, so as to further integrate the country into the world trading community, improve the investment climate and secure the benefits from foreign and domestic investments in the economy; and (b) increase taxpayer compliance with the Customs Code and ensure uniformity in its application, to support macro-economic stability and increase transparency, timely transfer of collected revenues to the Federal budget, and equity and predictability in customs operations. v Revised Project Development Objectives (as approved by original approving authority) The Project Development Objective was not revised. (a) PDO Indicators Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Using the risk-based approach, reduce 30 percent Less than 10 percent n/a 4.8 percent the number of import declarations selected for physical inspection at designated sites (Central Customs Office and Northwest Customs Office – nine posts) Using the risk-based approach, reduce 15 percent Less than 8 percent n/a 3.0 percent the number of non-energy export declarations selected for physical inspection at designated sites Reduce the average customs clearance 45 minutes 10 percent reduction n/a 18.3 minutes time at the border at designated sites (60 percent reduction) Reduce the average import clearance None Greater than 50 Dropped n/a time, as measured by the time taken percent reduction from the entry of a truck into the import clearance terminal to the release of goods from Customs control at designated sites Reduce the average customs clearance 40 hours 50 percent reduction n/a 6.6 hours time, as measured by the time taken (five 8-hour (83 percent reduction) between lodging of the customs working days) declaration to the issue of the release note at designated sites Reduce the compliance gap measured 40 percent 10 percent reduction n/a 16 percent by Value of the EU exports to Russia as (24 percent reduction) reported by the EU) - (Value of imports from the EU recorded by SCC)]/ (Value of the EU exports to Russia as reported by the EU Increase enforced compliance in the 0.77 percent Greater than 3 n/a 0.19 percent collection of taxes and duties, as percent measured by the ratio of additional (EU average) revenues (revised assessments, interest and penalties) to total revenue collected by the SCC/FCS Improved perceptions of traders and None Improvement n/a 93 percent positive other stakeholders regarding the quality responses in 2012, up of service, responsiveness to from 70 percent in 2010 complaints, and integrity of customs administration as indicated by periodic surveys vi (b) Intermediate Outcome Indicators Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Legal database of decisions The FCS internal legal related to Customs laws and database has been No such database exists n/a regulations developed and created and is staff trained in its use operational Organizational structure of Completion of FCS HQ Customs HQ Customs HQ improved; reorganization and inadequately structured; functionally reorganized implementation of Customs posts and n/a structure implemented in functional structure offices yet to be Customs posts and offices across FCS posts and reorganized throughout the country offices A new Code of Ethics to Code of Ethics complement the No Code of Ethics for developed, n/a Customs Code is Customs implemented and implemented impact measurable Improved policies and The policies are systems for recruitment, unreformed and there are Improved policies and promotion, rotation, plans to reform them as systems envisaged by n/a performance evaluation, part of broader public project have been discipline and professional administration and civil implemented development implemented service reforms UAIS generates timely Unified Automated information for FCS Information System (UAIS) No UAIS exists n/a operations and in place management decision- making G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (US$ millions) 1 06/30/2003 Satisfactory Satisfactory 0.00 2 12/03/2003 Satisfactory Satisfactory 0.00 3 03/15/2004 Satisfactory Satisfactory 1.00 4 05/17/2004 Satisfactory Satisfactory 1.00 5 12/29/2004 Satisfactory Satisfactory 8.99 6 06/21/2005 Satisfactory Satisfactory 13.01 7 01/18/2006 Satisfactory Satisfactory 21.61 8 01/11/2007 Satisfactory Satisfactory 41.73 9 10/29/2007 Satisfactory Moderately Satisfactory 48.74 10 12/05/2008 Moderately Unsatisfactory Moderately Unsatisfactory 69.30 11 06/15/2009 Satisfactory Satisfactory 75.16 12 02/17/2010 Satisfactory Satisfactory 86.81 13 11/21/2010 Satisfactory Satisfactory 95.49 vii 14 07/05/2011 Satisfactory Satisfactory 111.21 15 03/03/2012 Satisfactory Satisfactory 123.10 16 12/01/2012 Satisfactory Satisfactory 124.59 17 06/25/2013 Satisfactory Satisfactory 132.55 H. Restructuring (if any) In June 2009, the closing date of the loan was extended by two years, from June 30, 2009 to June 30, 2011. In June 2011, the closing date was again extended by two years, from June 30, 2011 to June 30, 2013, to enable completion of remaining activities, mainly major information systems contracts. I. Disbursement Profile Figure 1. Project Disbursement Profile viii 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. At appraisal (October 2002), the institutional, political and economic context in the Russian Federation (RF) was in flux, following the economic and political turbulence of the nineties: the country was barely a decade old. Moreover, the economy was only just recovering from the financial crisis of 1998 – in large measure on the back of a sharp rebound of international oil prices from the 1999 trough (as well as the generalized run-up in commodity prices). Table 1. Russian Federation: Economic Context at Appraisal 92 93 94 95 96 97 98 99 00 01 02 Inflation percent (GDP deflator) 1490 888 307 144 46 15 19 72 38 16 15 GDP (constant 2005 US$ billion) 684 629 546 524 505 512 485 516 567 596 626 Exports (constant 2005 US$ billion) 106 108 122 136 141 141 143 159 174 182 201 Imports (constant 2005 US$ billion) 68 61 64 78 79 79 65 54 72 85 97 Source: World Development Indicators 2. In order to address the wide-ranging and profound challenges faced by Russia’s society and economy, improving the business environment and strengthening public sector management figured prominently in the Government’s Medium Term Program of Social and Economic Development for 2002-2004. These strategic goals were expressly echoed in the World Bank Group’s Country Assistance Strategy for 2003-2005. World Bank investment lending support for treasury, tax and customs administration derived from these agreed priorities. Reflecting their common border and the large volume of cross-border trade, the Finnish and Russian Governments were also engaged in substantial cooperation to modernize the RF customs processes and administration (among other tasks within the framework of the “Green Corridor” project implemented jointly with Finland and Sweden). Moreover, as it was then the only European Union (EU) member state that shared a common border with the Russian Federation, the Finnish Government also led the EU-RF dialog on customs and border control. The experience of the Finnish-Russian engagement in customs informed the CDP design, particularly in highlighting the most pressing problems to address. These engagements led to an agreement among the Finnish and Russian Governments and the World Bank to establish a US$0.7 million Bank-administered Trust Fund1 in 2004 to support the RF customs modernization. 3. Russia’s trade began to be substantially reoriented towards the OECD countries (from the CMEA countries and former Soviet republics). Russia also began to intensify its efforts to join the WTO. In this context, and as part of its strategy to support Russia’s initiatives to modernize its core public sector entities, the customs administration represented a promising engagement for the Bank. 1 Finnish Neighboring Area Trust Fund for Technical Assistance to Customs Development 1 4. Despite the relative strengths of Russia’s customs administration, the reform agenda was formidable. This included the need to align the customs administration with accepted international norms, as expressed in the World Customs Organization’s (WCO) Kyoto Convention, World Trade Organization (WTO) Agreements, and various recommendations of the United Nations Trade Facilitation Working Party. The practices and culture of the customs administration needed to be reoriented – from that of a defensive, state control/national security organ to those of a trade-facilitating, responsive public service agency (including reducing compliance burdens and raising administrative integrity and transparency). 5. In addition to comprehensive institutional development, the reform agenda required a thorough revision of the legislative and regulatory framework for customs. At appraisal, parliamentary approval of a new Customs Code was anticipated in early 2003 (correctly, as the State Duma of the Federal Assembly of the Russian Federation adopted it on April 25, 2003). 6. Appraisal also anticipated WTO accession in 2003 (optimistically, as accession did not occur until August 22, 2012, largely due to protracted negotiations over tariff structures and non- tariff barriers not related to customs administration). Similarly, accession to the International Convention on the Simplification and Harmonization of Customs Procedures, including the 1999 amendments (the Kyoto Convention), was anticipated (also optimistically, as the act of accession only came into force on November 21, 2010). The RF was already engaged with the WCO, having joined July 8, 1991 (having a senior representative elected to the WCO’s governing body, the Council, in 2007). 7. Lastly, after the fiscal crisis of 1998, the Bank reformulated its strategic approach to the country support for Russia. One dimension was to place more emphasis on developing the institutional basis for effective macroeconomic stabilization, and within this effort to concentrate on effective implementation of reform efforts. The tax and customs administrations, on the revenue side, along with the Treasury system on the expenditure side, were the three key elements for strengthening government capacity for fiscal management. 8. Project identification and appraisal included diagnostic work on the performance of the customs legal framework, organization and management arrangements, operational practices, policy formulation, and consultative practices (summarized in Annex 10). 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 9. The development objective of the Russian Federation Customs Development Project was to reform and modernize the Russian customs administration, with a view to:  Promote internationally acceptable practices for processing of international trade flows by customs, so as to further integrate the country into the world trading community, improve the investment climate and secure the benefits from foreign and domestic investments in the economy; and 2  Increase taxpayer compliance with the customs code and ensure uniformity in its application, to support macro-economic stability and increase transparency, timely transfer of collected revenues to the federal budget, and equity and predictability in customs operations. 10. Based on information available at project appraisal, baseline values were established and end-project targets agreed with the SCS. The Key Performance Indicators (KPIs) were: i. Using the risk-based approach, reduce the number of import declarations and the number of non-energy export declarations selected for physical inspection, at designated sites, to no more than 23 percent and 12 percent, respectively, by the end of 2006, and to no more than 10 percent and 8 percent, respectively, by the end of the project, from the current level of about 30 percent and 15 percent, respectively. ii. Reduce the average customs clearance time at the border by 7 percent by the end of 2006 and by 10 percent by the end of the project, at designated sites. iii. Reduce the average import clearance time, as measured by the time taken from the entry of a truck into the import clearance terminal to the release of goods from Customs control, by 25 percent by the end of 2006 and by 50 percent by the end of the project, at designated sites. iv. Reduce the average customs clearance time, as measured by the time taken between lodging of the customs declaration to the issue of the release note by 25 percent by the end of 2006 and by 50 percent by the end of the project, at designated sites. v. Reduce by 5 percent the compliance gap measured by the following ratio by the end of 2006 and by 10 percent by the end of the project. [(Value of EU exports to Russia as reported by the EU) - (Value of imports from the EU recorded by SCC)] / (Value of EU exports to Russia as reported by the EU) vi. Increase enforced compliance in the collection of taxes and duties, as measured by the ratio of additional revenues (revised assessments, interest and penalties) to total revenue collected by the SCC, to 1.5 percent by the end of 2006 and to the EU average of 3 percent by the end of the project. vii. Improve perceptions of traders and other stakeholders regarding the quality of service, responsiveness to complaints, and integrity of customs administration as indicated by periodic surveys. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 11. The PDO remained unchanged. As anticipated in the Minutes of Negotiation and agreed during the November 2006 Mid Term Review, the methodology used to calculate KPI (i), (ii), and (iv) was changed to follow FCS methodologies, so as to help mainstream project monitoring and evaluation (M&E) activities. The average import clearance time KPI (iii) was agreed to be dropped from the formal project M&E scheme. This reflected the FCS view that the overall 3 import clearance time was largely outside customs control, being dependent on the times taken for clearances to be obtained from the numerous governmental agencies with a border presence (at that time, customs did not have a coordinating role in border management as was subsequently granted). 1.4 Main Beneficiaries 12. The main direct beneficiaries are the Russian and international trade community – importers and exporters – through more efficient customs clearance and transit processes (i.e., faster processing and low compliance burdens) and reduced rent-seeking (i.e., fewer inspections, less official discretion and more transparency). 13. The indirect beneficiaries, more broadly, constitute the citizens and firms in the Russian Federation, who benefit from more stable and predictable revenue flows that contribute to the financing and delivery of public services, promote more efficient economic and financial management of public resources, stimulate productivity through an improved environment for domestic and international investment, and from a more competitive private sector and reduced informal economic activity. 14. Honest and compliant customs clients from Russia and its trading partners have benefited in several ways from the CDP, for example, through reduced compliance costs (and overall reduction of the earlier burden of uncertain formal and informal payments) and higher compliance rates. The project contributed to deterring evasion by increasing the burden of non- compliant customs clients, as evasion has become more costly and time-consuming. Improvements in customs procedural code contributed to improving the business climate by increasing the predictability of application of customs legislation and reducing inconsistencies between different laws and regulations, making it easier for customs clients to understand and apply customs legislation. Customs clients also benefited from improved customs client services, access to better information from the SCS/FSC, and reduction of time spent in queues to file customs documents. Clients’ rights were strengthened through more efficient and equitable appeals processes. 1.5 Original Components (as approved) 15. As appraised, the project contained ten components under four major headings: Customs Operations, Organizational Structure and Management, Information Technologies, Project Management. Annex 10 outlines the components and planned activities. The components (and appraised costs) were: A. CUSTOMS OPERATIONS 1. Customs Control and Clearance – US$4.02 million 2. Trade Facilitation – US$9.59 million 3. Fiscal Policy – US$4.05 million 4. Improved Legal Framework for Customs Activities – US$5.44 million B. ORGANIZATIONAL STRUCTURE AND MANAGEMENT 5. Organizational Structure and Operational Management – US$10.23 million 4 6. Financial Management – US$6.48 million 7. Human Resource Management and Training – US$7.27 million 8. Improving the Integrity of the Customs Service – US$2.49 million C. INFORMATION TECHNOLOGIES 9. Information Technology Development – this comprised the following subcomponents:  Develop and implement a modern ICT infrastructure platform – US$64.41 million  Develop and pilot “Phase III” of the SCC’s Unified Automated Information System (UAIS) – US$58.33 million  Enhance SCC executive/strategic management of information systems – US$1.09 million  Develop and implement mechanisms to strengthen the management of the application software development/maintenance processes – US$0.26 million  Develop mechanisms to strengthen ICT related human resource management – US$2.41 million  Develop and implement approaches to ensure the management of information systems are consistent with Kyoto Convention norms – US$0.33 million  Develop and implement a customs information database – US$6.40 million D. PROJECT MANAGEMENT 10. Project Management – US$3.00 million 1.6 Revised Components 16. The component structure remained unchanged, and the subordinate activities also remained largely unchanged, with only limited adjustments in response to changes in the institutional context. These changes (and the affected components) included (a) the complete transfer of tariff policies to the Ministry of Finance (MOF) from the customs administration (Fiscal Policy Component), (b) changes in government-wide performance management and budgeting (Organizational Structure and Operational Management Component), and (c) the development of the Customs Union with Belarus and Kazakhstan (Unified Automated Information System Development Subcomponent). 1.7 Other Significant Changes 17. Two institutional developments impacted the implementation progress (negatively) and the development outcomes (positively). First, in May 2006, the SCC was transformed into the Federal Customs Service as part of a government-wide administrative reform. Unlike some other Services formed at the same time, this transformation elevated the status and stature of the FCS: it ceased reporting to the Ministry of Economic Development and Trade (as it then was) and began reporting directly to the Government. Second, the elevation of the status of the FCS was followed by the appointment of a new Head of the FCS in mid-2006. This was followed by changes in the FCS management team and thereafter by extensive personnel reassignments within the FCS through much of 2006. In addition, over the following few years, the FCS underwent an organizational restructuring – the resulting FCS network is depicted in Figure 2. 5 Figure 2. The Territorial Network of the Federal Customs Service 18. These developments had three important implications: a. Integration and coordination of border management functions. The FCS was allocated a progressively increasing coordination role in the post-2006 integration process of Russia’s border management functions. While the elevation in status played an important role in the FCS being able to coordinate almost two dozen RF agencies operating on the border, other factors were also at play (e.g., the technical competence of the FCS, its relatively greater international orientation compared to other governmental agencies, and its tradition of being open to work with other countries’ border management agencies). At the CDP-supported customs posts on the Russo-Finnish and Russo-Estonian borders, implementation of some CDP-supported process reforms was at times somewhat slow, since FCS officials had to spend higher-than-anticipated amounts of time in persuading and coordinating other agencies to streamline border management functions and processes. b. Implementation of the Customs Union with Belarus and Kazakhstan. The FCS was effective in implementing the Customs Union with Belarus and Kazakhstan once the policy decision to implement the Union was taken. However, this came at a cost: during the last four years of CDP implementation, the FCS leadership and its key technical teams (e.g., on information and communications technology) became increasingly pre-occupied with the implementation of the Customs Union. c. Dealing with legal and political challenges. Making the FCS directly accountable to the Government enabled it to deal with the challenge from the Office of the Prosecutor General (OPG) more effectively than the Federal Tax Service (FTS) – see Section 2.2 below. 6 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 19. Project Preparation – Identification to appraisal took eight months. Negotiations took place four months later. The relatively short twelve-month preparation cycle reflected (a) the importance attached to customs modernization and the CDP by the Government and the Bank, (b) SCC institutional ownership and capacity in developing project components and activities, (c) the technical expertise of the Bank team that worked in close collaboration with the SCC, and (d) the close involvement of other partners such as the Fiscal Affairs Department of the IMF, the WCO, and the Finland Customs. The background analysis summarized in the Project Appraisal Document captures the breadth of the analysis that was commensurate with the needs of institutional development in the customs administration, as well as the particulars of the RF context (e.g., the reforms associated with the transition to international norms and trade facilitation). The risks identified (and rated substantial or high) included a number of “political” or institutional “culture” risks. The anchor provided by international norms and practices (e.g., WTO, WCO Kyoto Convention, etc.) was expected to mitigate these risks. In retrospect, the identified risks were genuine but reasonably effectively mitigated. The PAD also identified (and rated substantial or high) several implementation risks related to information systems and ICT personnel. In retrospect, these risks were also correctly identified (which some CDP capacity- building activities helped to mitigate). The Bank team enjoyed an engaged, candid and efficient working relationship with SCC top management and technical staff that endured into implementation. 20. Project Design – Notwithstanding the project’s ambitious scope and timeline, the CDP design matched the RF customs’ institutional development priorities and needs well. Broadly speaking, institutional development initiatives sought to raise the performance (behavior) of units and individuals within the overall organization. The achievement of this goal depended on the successful implementation of an interlocking package of interventions, including changes in institutional culture. Not only was the package broad, but successful implementation of each invention was essential to the successful conclusion of the project and the reforms: regulatory delay could have frozen procedural reforms, for instance, delays in information systems support could have stalled operational and/or management reforms. 21. The CDP design touched on all relevant elements of the institutional development package (except for physical premises, which the SCC/FCS addressed within its investment and operational budget). The CDP emphasized the legal and regulatory elements. This reflected the importance of the transitioning to an outward-looking, trade-facilitating stance while aligning the organization with relevant international good practices. The CDP also emphasized information systems development. This reflected the importance of timeliness and integrity in administering customs transactions and in addressing the challenges of managing a large and complex organization spread across ten time zones.2 2 At the identification stage, a narrower and shorter-horizon information systems project was one of two alternatives tabled. For reasons noted above, this alternative was not adopted. 7 22. Given the complex scope and the decade-long implementation period, the close alignment of the originally planned and actually undertaken activities is prima facie evidence of the appropriate balance struck by the original design – and an outcome beyond the norm in major institutional development projects. 23. Quality at Entry – A Quality at Entry Review was held on September 17, 2002. The Panel was broadly supportive of the proposed project and acknowledged its ambitious nature (noting the high rate of return on even a partially successful project). The Panel commended the use of the six-year implementation schedule as not creating unrealistic expectations. It endorsed the “holistic” approach to institutional reform (in particular it not being an-ICT limited project) and the interlinked nature of the project components. It also acknowledged that the strong client- Bank relationship offered a promising start and endorsed the internalized project management arrangements (i.e. no stand-alone project implementation unit as was – and continues to be – the norm in Bank-financed projects in the Russian Federation). The Panel also made suggestions for additional topics for the PAD. The key substantive concerns flagged included: (i) the risk that ICT activities would get ahead of the broader institutional development initiatives, (ii) the structure of internal incentives (including the remuneration and the internal distribution of rents) and the prospects for staff resistance to reforms, (iii) the importance of mobilizing the private sector to keep the pressure on continuing with institutional reforms, (iv) what would happen to staffing levels as a result of increased automation of business processes, (v) the need for effective anti-corruption/internal controls/disciplinary mechanisms, and (vi) the interplay between the project activities and compliance with obligations under WTO accession and the Kyoto Convention (including the tricky matter of valuation). Some of these concerns were addressed in the final project design, although most were risk areas more amenable to implementation dialog than ex ante activity design. The Panel also suggested that the performance indicators be sharpened: this was done. 2.2 Implementation 24. As noted above, the originally planned project components and activities remained unchanged over the course of the ten-year implementation period (2004-2013). The additional four years added to the original six-year timeline reflected a combination of the usual slippages in technical activities from the original (best case) project schedule – plus the loss of momentum in 2006-2007 due to the government-wide administrative reform which inter alia transformed the SCC into the FCS, the subsequent change in FCS top management in mid-2006, and the project stoppage for almost a year during 2006-2007 due to the challenge from the Office of the General Prosecutor (OGP) to the legal basis for applying Bank procurement guidelines (as opposed to national procurement legislation) to the CDP. 25. Following the mid-2006 changes in FCS top management and the subsequent significant changes to FCS middle management, the CDP management team took more than a year to arrive at a new equilibrium, and for project implementation to resume. Another unanticipated development in 2006 severely affected implementation and cast doubt at the time on the project’s continuation. In 2006, following a several-month long investigation of the CDP by the OGP, during which implementation and disbursements came to a halt, the OGP declared that as the CDP Loan Agreement had not been ratified by the Duma (legislature) it did not have the status of an international treaty, and so the FCS had erred in applying World Bank procurement 8 processes to the CDP. The OGP argued that project procurement should have been undertaken in accordance with the Russian Federation procurement legislation, demanded immediate cessation of the application of World Bank procurement processes, and for immediate application of national procurement processes forthwith. As a result, project procurement remained suspended till almost mid-2007 – and disbursement resumed in full swing even later - until the Borrower’s authorities (the Prime Minister’s office, the Ministry of Finance, the then Ministry of Economic Development and Trade, the Ministry of Justice, the Ministry of Foreign Affairs, the OGP, the FCS, and other entities) reviewed the matter in detail, determined that all actions taken by the FCS to implement the project were indeed fully legal and that no violation of any laws had occurred. 26. The halt in procurement and disbursements caused a protracted delay in project implementation. Furthermore, this setback occurred at a sensitive point in the electoral cycle. The timely recovery of the forward momentum of the project following the year-and-a-half hiatus in project activities is to the credit of FCS management and technical teams, reflecting also the robustness of the original project design and its implementing arrangements. 27. Implementation was also affected by changes and a high degree of uncertainty in the customs procedures following the November 2009 accession to the Customs Union with Belarus and Kazakhstan (and consequent amendments to the Customs Code of the Customs Union throughout 2010-12). The pace of the development and technical features of the UAIS application software influenced the requirements for implementing the ICT infrastructure, which, in turn, influenced the ability to pilot and refine the UAIS software. 28. It is important to note the unique (for Russia) CDP implementation arrangements and their impact on project implementation. Unlike other Bank-financed projects in Russia which are managed and implemented by external stand-alone project implementation units (so-called ‘foundations’) regardless of the implementing or beneficiary agency, the CDP implementation arrangements were differently designed. There was no project implementation unit: the CDP was implemented directly by the FCS. The project team comprised experienced SCC/FCS staff organizationally located in the central Headquarters under the direction of the First Deputy Head of the FCS, supplemented by five experienced consultants on procurement, financial management, accounting, etc. To the SCC/FCS senior management’s great credit, the CDP team was managed in a disciplined fashion and allowed to focus on CDP implementation. Moreover – and equally critical – the SCC/FCS senior management was actively engaged in directing, supporting and empowering the project management team. Except possibly the 2006-2007 change in the project management team, the implementation arrangements for the CPD constituted a best-case scenario, reflected in the successful implementation of a complex and ambitious project. In addition, these arrangements were cost-effective (US$4.1 million during 2003-2013 for a loan of US$140 million) compared to other projects implemented in the Russian Federation. 29. Indeed, the FCS itself has assessed the non-PIU-centric implementation arrangements as “sustainable and effective”, pointing out that due to these arrangements “the Client and the Project Implementation Unit are rolled into one” and that as a result, “this structure has contributed to better integration of the Project in FCS operation, active participation of personnel 9 and senior management of FCS Headquarters in Project implementation management and promoted adoption of outputs of Project activities in FCS practice.”3 30. Outcomes Achieved – Key impacts included (a) a modernized legal and regulatory framework for customs operations, (b) the reorganization of the FCS structure and functions in line with international good practices, (c) streamlining and automation of FCS business processes (reflected in the attainment of the key project results indicators) impacting the entire FCS, and (d) greater openness of FCS management to seek user feedback on service quality, complaint handling and integrity (reflected in user surveys). 31. As the FCS ICR itself notes, “Comparison of outcomes of similar customs modernization projects financed by the World Bank in Russia and South-East European countries shows that the Russian Federation overcomes most of the reviewed countries by the customs clearance time at border checkpoints. In addition, the highest reduction (as compared to baseline values of indicators) of both share of declarations selected for physical inspection and customs clearance time before release of goods is achieved under the Customs Development Project of the Russian Federation” (see Table 2). 32. Furthermore, the FCS has noted in its ICR that “…Project outcomes have played a significant role in formulation and implementation of the state policy in the sphere of development of customs administration. The majority of Project arrangements and the Project development objective are relevant tasks in the achievement of objectives of the state policy in the customs administration sphere. All the basic Project outcomes are achieved; part of outcomes is implemented, disseminated throughout the entire system of the customs authorities (including dissemination by means of implementation of other public projects and programs) and is used in the FCS practice.” 3 ICR prepared by the FCS (available in the project files) 10 Table 2. Comparison of Outcomes – World Bank-Financed Customs Development/Trade Facilitation Projects: Russia and South-East Europe4 Average customs clearance time, as Average customs clearance Share of declarations selected for measured by the time taken between time at designated vehicle physical inspection of goods at lodging of the customs declaration to the checkpoints, minutes import issue of the release note, minutes Project Name Reduction Reduction Reduction (as (as (as Baseline By end- Baseline By end- percent of Baseline By end- percent of percent of Value project Value project Baseline Value project Baseline Baseline Value) Value) Value) over 50 4.8 Russia CDP 30 18.3 39 2400 393.8 83.6 90.4 percent percent South-East Europe Trade and Transport Development Facilitation Project 90 12,0 Albania 73.75 23.5 68.1 240 64 73.3 86.7 percent percent 90 Moldova 240 42.8 82.2 500 124 75.2 48 percent 46.7 percent 100 34.5 Macedonia 40 15.0 62.5 280 100 64.3 65.5 percent percent 60 23.8 Croatia 61.7 17.3 72.0 240 145 39.6 60.3 percent percent 4 Source: FCS (project completion reports, FCS data) 11 33. Table 3 summarizes the planned versus actual expenditures by component/subcomponent. Variations between planned and actual expenditures are not very large for the first three components 5 . The variation in the last (project management) component was due to the extension of the closing date by four years. Table 3. Planned versus Actual Expenditures Planned Cost Actual Cost Percent Component (US$ million) (US$ million) Change CUSTOMS OPERATIONS 1. Customs Control and Clearance 4.0 12.6 212 2. Trade Facilitation 9.6 2.5 -74 3. Fiscal Policy 4.1 4.2 4 4. Improved Legal Framework for Customs Activities 5.4 4.3 -20 Subtotal 23.1 23.7 2.6 ORGANIZATIONAL STRUCTURE AND MANAGEMENT 5. Organizational Structure and Operational 10.2 11.9 16 Management 6. Financial Management 6.5 6.4 -1 7. Human Resource Management and Training 7.3 3.8 -48 8. Improving the Integrity of the Customs Service 2.5 2.6 3 Subtotal 26.5 24.6 -7 INFORMATION TECHNOLOGIES 9. Information Technology Development 64.4 60.4 -6 Unified Automated Information System (UAIS) 58.3 49.6 -15 Executive Management 1.1 0.8 -37 Management of Application Software Development 0.3 0.3 0 Strengthening IT Human Resources 2.4 2.7 13 Transparency & Compliance w/International 0.3 0.5 67 Standards Customs Information Database 6.4 7.5 17 Subtotal 133.2 121.7 -9 PROJECT MANAGEMENT 10. Project Management 3.0 4.1 37 TOTAL IBRD LOAN 140.0 139.1 -0.6 TOTAL GOVERNMENT CONTRIBUTION 45.8 35.0 -25 TOTAL FOR THE PROJECT 185.8 174.1 -6 34. Within the first three components, significant positive variations in sub-component expenditures occurred in two cases: a. Customs control and clearance (212 percent) – the increase arose from the need to work on this issue for longer than originally anticipated. This subcomponent achieved significant results (Box 1), not fully reflected in the project results indicators; and b. Transparency and compliance with international standards (67 percent) – the key outputs were the preparation and dissemination of User Manuals for all operational information systems and ensuring compliance with international agreements on combating misconduct and offences by customs personnel (e.g., the 2003 Arusha Declaration). The FCS ICR has rated the sustainability of the results as high. 5 Given the complexity and scope of the CDP, Annex 2 summarizes the results of the CDP components/ activities and the in-depth 136-page FCS report of CDP results, outcomes, lessons learned, and sustainability. 12 Box 1. Customs Control and Clearance – Significance and Results This sub-component supported simplification of customs control and clearance policies and procedures. It included streamlining interactions among customs offices and between the FCS and other entities (e.g., by end- 2012, the FCS had developed flow-sheets to streamline inter-departmental interactions with 25 federal authorities), developing general and special-purpose customs audit processes, user training of FCS staff, and developing an automated decision support system. Work under this sub-component was also linked with other FCS activities (e.g., a joint project with Finland and Sweden Customs on a “Green Corridor”, a “Kaliningrad Transit” project and 2012 FCS initiatives with Poland and Estonia). Currently, 49 border checkpoints implement the ‘green’ and ‘red’ corridor system. In addition, the FCS developed advance information procedures. Their impact is growing as evidenced by the following FCS data: (a) for goods imported by road, the clearance time has been reduced to about 53 minutes (a reduction of more than 30 minutes on average) while truck queue lengths have shortened although the number of trucks entering rose by 30 percent in 2012, (b) for goods transported by rail, more than 50,000 messages containing advance information were forwarded to the FCS, and (c) for goods transported by water, more than 7,000 messages were forwarded. Post-audit (also known as post-release control) was also introduced. More than 4,800 post-audits were carried out in 2012, resulting in additional assessments and penalties of RUR 5 billion (1.9 times that for the previous year) and initiation of 40 criminal cases. Ten electronic declaration centers (EDCs) were established in 2012 – these are specialized customs posts authorized to accept only electronic declarations. The creation of EDCs has encouraged importers to use e- declarations and enabled the FCS to process a rapidly growing volume of such declarations: 164,000 EDCs were cleared in 2012, compared to 54,000 the previous year. 35. Within the same components, there were major negative variations in the following: a. Trade facilitation (-74 percent) – part of the costs were met from the budget of the FCS b. Human resource management and training (-48 percent) - part of the costs were met from the FCS own budget since some activities (e.g., automation of HRM processes and defining training needs) later became part of the overall public administration reforms implemented by the Russian Federation. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 36. M&E Design – The Key Performance Indicators (KPIs) associated with the PDO correctly focused on key dimensions of the institutional performance of customs administration (i.e., the efficiency and effectiveness of physical control procedures, the effectiveness of compliance management, the compliance burden, and the integrity and quality of services). They also correctly attempted to isolate the performance impacts due to the project interventions (i.e., by focusing selected KPIs on project-finance pilots). 37. The seven original indicators represent only a subset of the numerous dimensions of customs institutional performance. For example, they do not touch on the efficiency of resource management, legal/regulatory coherence, etc. Moreover, the methodology to quantify each KPI can, at best, serve only as a proxy for a series of broad dimensions of performance (e.g., timeliness as a measure of the compliance burden). Nevertheless, a KPI scheme must, in practice, provide a practical compromise: limited in number and expressly “indicative” in nature. 13 38. In the case of this project, the cultural transformation sought included a shift away from an internally-focused “border defense” role and towards an outward-looking trade- facilitating public service. The KPI design reflected this goal. 39. M&E Implementation and Utilization – As a prominent fiscal actor and a transactions-intensive public service agency, the custom administration is relatively well disposed to, and well versed in, monitoring and analysis. The project-specific M&E indicators and monitoring processes helped the FCS modernize its management outlook. In particular, the KPI and subordinate outcomes indicator scheme was substantially integrated into the FCS’s permanent reporting/monitoring framework6. In addition, a number of the project-financed initiatives directly enhanced FCS information-gathering, information analysis, and communications capacities. These efforts contributed to the sustainability of the M&E arrangements and their utilization in the management of the FCS. The FCS has noted in its ICR (in the context of the project M&E arrangements using data from different quantitative and qualitative sources) that the CDP M&E approach “is an example of the comprehensive assessment of both the performance of the customs authorities at large and the outcomes of the Project and may be recommended for future use inter alia at implementation of the public Program “Foreign Economic Trade Development” and “road map” to improve customs administration”. 40. As noted above, shifting to SCC methodologies for KPI formulation was anticipated at Negotiations. This was meant to facilitate the mainstreaming of the CDP’s M&E activities into the SCC (FCS)’s routine M&E, which took place in the context of the project’s Mid- Term Review. 2.4 Safeguard and Fiduciary Compliance 41. The project triggered neither environmental nor social safeguards. Project financial management arrangements were satisfactory throughout the project life. Quarterly financial management reports (FMRs) were submitted on time and were acceptable to the Bank. Audits of the project financial statements were carried out on an annual basis. Clean audit reports were submitted on time. On several occasions, auditors noted that some equipment delivered to final beneficiaries was not in use during audit. The management response was that this had been caused by internal reorganization, and measures were taken to satisfactorily address these issues. 42. These findings give credit to the FCS management and project team and assume special relevance in the context of Bank-financed projects in the Russian Federation: the CDP remains the only World Bank-financed project in the Russian Federation implemented directly by an agency (the FCS in this case) and not by an external entity (normally one of several special-purpose ‘foundations’ in the Russian Federation which specialize in management and implementation of projects financed by international financial institutions) responsible for project procurement, financial management, accounting, disbursement, and compliance with Bank policies, guidelines and processes. 6 The FCS ICR refers in its ICR to the “adoption in FCS practice of a number of indicators used for assessment of the Project effectiveness. In particular, indicators characterizing the time spent for customs control at border checkpoints, the customs clearance time, the satisfaction of business community and public circles with FCS operation are used to assess the FCS effectiveness and performance.” It also states that the use of these indicators for assessing FCS performance is planned to be continued. 14 43. Loan covenants remained in compliance throughout. 2.5 Post-completion Operation/Next Phase 44. The CDP (along with the larger contributions by the SCC/FCS operational and investment budgets, as well as other bilateral and multilateral cooperation programs) has provided resources to enhance the institutional development of the FCS – in pursuit of the key strategic goals of alignment with international norms and reduced compliance burdens (as well as the subordinate goals). The successful implementation of the CDP has notably strengthened the institutional platform of the FCS as well as its performance. Going forward, the upgraded institutional platform provides a basis for the FCS to pursue its strategic goals. The Detailed Plan for the Implementation of the Strategy of the Federal Customs Service of 2020 adopted in 2012 highlights nine broad areas of initiative: Customs Regulations (sixty- three sub-initiatives), Effective Implementation of the Fiscal Function (fifteen sub- initiatives), Customs Infrastructure (twenty-four sub-initiatives), Information Technical Support (sixty-five sub-initiatives), Law Enforcement and Anti-Corruption (fifty-four sub- initiatives), International Cooperation (twenty-four sub-initiatives), Institutional Development (twenty-one sub-initiatives), Strengthen Human Resources (twenty-five sub-initiatives), and Development of the Social Sphere (seventeen sub-initiatives). The nine broad initiatives in large measure continue the emphases of the CDP and a majority of the detailed sub-initiatives build directly on CDP project activities. Consequently, the preservation (and extension) of the gains from the CDP is highly likely (especially given the continued strategic, institutional and fiscal importance of customs). 45. In the near term, the Government and the FCS are focused on fully integrating the changes in the legal framework and procedures brought on by the Customs Union with Belarus and Kazakhstan7 (including, critically, enhancements to the UAIS). Presently, the authorities anticipate undertaking a review of the project experience and the FCS’s needs during 2015. The authorities have repeatedly expressed satisfaction with the engagement with the Bank/Bank team under the CDP. Keeping the dialog open and active with this key trade-facilitation agency would contribute to the Bank maintaining itself as an active partner in the economic and social development of the RF. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 46. As the Russian Federation continues to integrate with the global economy, via trade and cross-border investment, and as natural resource still account for a significant proportion of Federation’s public finances, FCS performance remains a significant determinant of economic growth and of the business environment. Moreover, as the sophistication of global trade increases and the global alternatives for trade and investment expand, improved FCS performance will also impact national competitiveness. The performance of the FCS, in turn, remains a matter of consolidating and advancing the program of institutional development embodied in the project. This is reflected in the RF’s current high-level strategic documents. 7 And – subsequently - other entrants. 15 47. The objectives, design, implementation and follow-up of the CDP remain highly relevant to the goals of the Government, as expressed in the Government’s Development Strategy 2020. In particular, the 2011 Update emphasized the “New economic growth model, ensuring macroeconomic and social stability and Strategies for better business climate and a more attractive investment potential in order to implement a sustainable growth model”. Furthermore, the CDP’s objectives, design, and implementation remain aligned with the World Bank Group-Russian Federation Country Partnership Strategy for the period 2012- 2016, specifically the expressed goals: “(i) increase growth and diversification through better management of public finances, improved investment climate … , and (iv) improve governance and transparency through more accountability and better service standards in public administration, ...” 3.2 Achievement of Project Development Objectives 48. The Key Performance Indicators (revised) suggest a strong achievement of the PDO. Six KPIs substantially exceeded their targets (selectivity, timeliness, and compliance) while one (enforced compliance) substantially underperformed (a detailed explanation is provided later in this section). The user survey indicator showed an upward trend during 2010, 2011 and 2012. i.a Using the risk-based approach, reduce the number of import declarations selected for physical inspection at designated sites (Central Customs Office and Northwest Customs Office – nine posts). 2003 2006 end of conclusion project Baseline 30 observed: 16.2 observed: 4.8 percent percent percent target <23 percent target <10 substantially exceeded percent target i.b Using the risk-based approach, reduce the number of non-energy export declarations selected for physical inspection at designated sites (Central Customs Office and Northwest Customs Office – nine posts). 2003 2006 end of project conclusion baseline 15 percent observed: 3.4 percent observed: 3.0 percent target <12 percent target <8 percent substantially exceeded target ii. Reduce the average customs clearance time at the border at designated sites (Central Customs Office and Northwest Customs Office – nine posts). 2003 2006 end of conclusion project baseline 45 observed: 30 minutes (33 observed: 18.3 minutes (60 minutes percent reduction) percent reduction) target reduce by 7 target reduced by 10 substantially percent percent exceeded target iii. (The indicator was dropped because it conflicted with the FCS methodology) 16 iv. Reduce the average customs clearance time, as measured by the time taken between lodging of the customs declaration to the issue of the release note at designated sites (Central Customs Office and Northwest Customs Office – nine posts). 2003 2006 end of conclusion project baseline 40 hours (five 8- observed: 8 hours observed: 6.6 hours (83 hour working (80 percent percent days) reduction) reduction) target reduce by 25 target reduced by 50 substantially percent percent exceeded target v. Reduce the compliance gap measured by Value of EU exports to Russia as reported by the EU) - (Value of imports from the EU recorded by SCC)]/ (Value of EU exports to Russia as reported by the EU) 2003 2006 end of conclusion project baseline 40 observed: 33 percent observed 16 percent percent (7 percent (2012): (24 percent reduction) reduction) target reduce by 5 target reduced by 10 substantially percent percent exceeded target vi. Increase enforced compliance in the collection of taxes and duties, as measured by the ratio of additional revenues (revised assessments, interest and penalties) to total revenue collected by the SCC/FCS 2003 2006 end of conclusion project baseline 0.77 observed 0.11 observed 0.19 percent percent percent (2012): target >1.5 target >3 percent (EU substantially percent average) underperformed target8 vii. Improve perceptions of traders and other stakeholders regarding the quality of service, responsiveness to complaints, and integrity of customs administration as indicated by periodic surveys. 2003 2006 end of project conclusion baseline none observed - observed 93 percent positive, up from 70 percent in (2012): 2010 (see below) target - target improvement met target 49. FCS explanation of reasons for under-performance of indicator on enforced compliance. The FCS has explained in detail the reasons for under-performance of this 8 Please see detailed explanation on next page. 17 indicator, stating that the value of this indicator is the result of two factors that could operate in opposite directions. First, additional revenues to the federal budget from enforced compliance (from revised assessments, interest and penalties) significantly increased in absolute terms from 2006 to 2012 (RUR 3.2 billion in 2006, rising to RUR 12.21 billion in 2012 – see Table 4). However, the possibility of increases in the collection of fees and penalties was impeded by FCS policies and processes: as a consequence, revenue from fees and penalties increased only slightly (by RUR 0.1 billion in each case from 2006-2012). Second, total FCS revenue transferred to the federal budget saw high growth (from RUR 2.8 billion to RUR 6.5 billion from 2006-2012) and caused a decline in the value of this indicator (from 0.11 in 2006 to 0.19 in 2012). The FCS states that it would not be appropriate to assess the lack of achievement of this target negatively, since a low share of additional revenues from enforced compliance could be evidence of increased compliance which, according to the FCS, is supported by a substantial reduction of the gap in the assessment of the amount of foreign trade by the Central Bank of Russia (using the balance of payments methodology) and the FCS: this gap has been reduced six-fold over the project life – evidence, according to the FCS, of substantial improvement in compliance with customs legislation. Table 4. Customs revenues and enforced compliance (2006 and 2012) Year Additional Revenues, billion Rubles Customs Revenues Transferred Indicator Payments Fees Penalties Total to Federal Budget, billion Rubles percent (7=5/6) 1. 2. 3. 4. 5. 6. 7. 2006 2.11 0.49 0.6 3.2 2,864.0 0.11 2012 10.8 0.7 0.71 12.21 6,486.66 0.19 50. In 2011, the FCS informed the Bank that the indicator and target value for enforced compliance did not reflect the approach of the FCS (and of the Ministry of Economic Development) in measuring the success of enforced compliance. The FCS focused on measures to improve the effectiveness of controls at customs operations to prevent build-up of customs arrears. In view of this approach, increased collections as a result of enforced compliance are seen by management as deterioration in performance. 51. Survey Results. In addition to the KPI-based assessment of project impact, the observations of interested parties suggest the CDP achieved notable positive impact. Surveys performed9 in 2006, 2008-9, 2010, 2011 and 2012 provide a nuanced picture of impressions by the trading community, other state agencies, and customs staff on a variety of topics. 52. The trading community reported generally positive or strongly positive impressions over time (1200 respondents – from a country-wide and a broad manufacturing and natural resource sample) - see Table 5. Table 5. Survey Results from Trading Community Trading Community Question: “Response” (figures are percent of respondents) 2006 2008-9 2010 2011 2012 Overall impression of customs administration: “positive or 70 82 93 rather [somewhat] positive” Trends in customs performance: “for the better” 29 42 30 45 53 9 Conducted by the Russian Public Opinion Research Centre under a contract financed by the CDP. 18 Trading Community Question: “Response” (figures are percent of respondents) 2006 2008-9 2010 2011 2012 Use of electronic declaration for cargo clearance: “yes” 18 25 67 87 Impact of electronic declaration on clearance processes: 44 58 54 76 81 “makes it easier or makes it rather [somewhat] easier” Software for customs documentation procedure: “convenient” 63 59 63 84 89 Modernization of customs information system simplifies 24 24 20 42 67 clearance process: “to a major extent” Modernization of customs information system improves 15 22 18 36 49 transparency of custom administration: “to a significant extent” 53. Customs staff reported somewhat more mixed or muted positive impressions over time (180 respondents and 72 from the pilots) - Table 6. Table 6. Survey Results from Trading Community Customs Staff Question: “Response” (figures are percent of respondents) 2006 2008-9 2010 2011 2012 Modernization of customs information system and electronic 60 60 74 80 85 documents on cargo clearance: “makes it easier or makes it rather [somewhat] easier” Training effectiveness: “Took training and it helped a lot ” 15 17 15 38 Available technological resources: “High” 26 34 24 28 45 Software for customs documentation procedure: “convenient” 23 27 25 24 30 54. A comparative analysis in 2011 of the trading community’s responses to developments in the pilot areas versus the overall customs administration indicate that pilot areas do not show advantages in speed of clearance, transparency or overall service quality. However, respondents within the pilot areas do indicate improvements in many areas / factors (including speed of clearance, transparency, service quality). The pilot areas do not constitute a “controlled experiment” in that some of the important innovations are system- wide (such as those in the legal/regulatory/organizational arrangements). Additionally, the modernization program remains a work-in-progress. So many of the innovations to be deployed in the pilot region first (notably the UAIS) were not yet in place or yet fully effective. This is consistent with the staff in the pilot areas assessing aspects of the modernization effort more positively than customs staff at large (suggesting perhaps that the effects of the modernization initiatives in the pilots had not yet fully worked through to impacts on the trading community). 55. The 2011 narrative/textual interviews of expert representatives from state authorities, professional associations, and NGOs (180 respondents and 72 from the pilots) indicate that: (a) the modernization program (international norms, information systems modernization, e- declarations, staff training, etc.) is seen as absolutely necessary, (b) the program is clearly a work-in-progress which is thus difficult to definitively assess at this point, (c) despite its ambitious scope, the program coverage/implementation is less comprehensive than it needs 19 be to address observed deficiencies in customs, and (d) there are areas, such as information sharing, for which the FCS systems remain disappointing . 56. External Survey Results. As analyzed by the Bank team and summarized in a July 2011 Europe & Central Asia Region Knowledge Brief (Volume 41), information on customs performance from external data and surveys such as the Business Environment and Enterprise Performance Survey (BEEPS), the Logistics Performance Index (LPI), and the World Economic Forum Enabling Trade Index (ETI) appears to present a broadly consistent and relatively encouraging picture over the period 2005-2010. Problems with customs regulations trend down in the BEEPS and LPI data. LPI and ETI data indicate export clearance efficiency is higher than import clearance (associated with revenue collection and community protection processes), consistent with the internal data and the project-financed surveys. On transparency and corruption, the external surveys diverged somewhat, with BEEPS showing improvements and the LPI and ETI indicators showing higher or deteriorating reported incidences (respectively). The 2013 BEEPS data indicate a stalling of progress during 2010-2013. The number of documents and time for import and for export show improvement in only the ‘time to export’ data. Costs to import and to export are up sharply in 2013. The 2012 LPI results indicate that customs administration and cross-border trade environment generally lag the Europe and Central Asia (ECA) averages as well as Upper Middle Income country averages. In short, the CDP helped the RF move forward in terms of trade facilitation and international orientation. However, much work remains to sustain and further advance the reforms. 3.3 Efficiency 57. At appraisal, the economic benefits of the CDP were estimated for three streams of benefits to the trading community (projected for 2003-2019). These were: (1) speeding customs clearance “transportation effect”, (2) reduction in customs broker fees, and (3) lower customs fees. Expected benefit streams associated with foreign trade growth (and the contribution to national income growth), as well as the growth in transport and trade-related service sectors, were noted but not quantified due to methodological constraints (notably attribution). 58. The financial analysis integral to the cost-benefit model presented in the PAD reflects the fact that the subject of the CDP investments is a fiscal agency. Thus, the financial model includes the net impact on state revenues due to: changes in tariffs and fees structures (due to WTO and Kyoto Convention accession/alignment), as well as improvements in compliance to customs and VAT laws (i.e., reduction in black and grey market activities). 59. The estimation of Project costs and benefits and their net present value by each Project year is at Annex 3. The calculation covers the implementation and operating periods of the Project cycle. Taking into account the share of CDP financing within the total amount spent on modernization and operation of the Customs UAIS, the net present value of Project fiscal benefits is US$3.6 billion10, while the net present value of project economic benefits (net of budget benefits) is US$415.3 million. Taking into account the net present value of 10 Total amounts are provided for the period 2003-2020; the discount rate used is 0.1. The Net Present Value of project economic and financial benefits also includes non-separable useful effects from implementation of public-funded customs development programs in parallel with the CDP. 20 budget expenses for Project implementation, including co-financing costs, costs for payment of interests and Loan principal, and costs for operation of the Customs information system (US$91.8 million), the CDP has achieved a high level of economic and fiscal efficiency. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory (i.e., there were minor shortcomings in the operation’s achievement of its objectives, in its efficiency, or in its relevance). 60. The project was implemented through a decade of far-reaching institutional transformation at the federal level. The major changes have been mentioned in this ICR. CPD design was and remains highly relevant to the agency, sector, national and Bank-RF strategic frameworks. The KPIs and other indicators of impact are strongly positive. 61. Nevertheless, the improvements in customs administration cannot be fully ascribed to the CDP investments, as they are not the only contributing factors and the yet-to-be-fully operational UAIS limits the scope to isolate the impact in the pilot areas. Similarly, the efficiency of the investment is most likely high, but this too is impractical to disentangle from the broader customs modernization efforts (especially the legal and regulatory reform). 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 62. The project did not specifically target poverty impacts or social development, but the CDP-financed FCS modernization ultimately resulted in more efficient collection of customs revenues, which would benefit directly from improvements in compliance, predictability and transparency nurtured by the project. Indirectly, more efficient and stable collection of customs revenues was expected to lead to a stronger relationship between customs clients and the FCS (borne out through the consistent upward trend in user survey results), more confidence in government (the user survey results showed greater confidence and trust in the FCS on the part of customs clients), greater social inclusion (this was not explicitly measured), and increased equity and transparency (the positive findings from the user surveys tend to support the realization of this hypothesis). (b) Institutional Change/Strengthening 63. The CDP is essentially a pure institutional development project. Its successful implementation can be seen in the positive indicators of customs administration performance (e.g., the KPIs and survey results above). The positive prospects for the RF to sustain and extend the institutional developments arising from the CDP – assuming there are no unanticipated fiscal constraints or contingencies - are noted above in Section 2.5. In sum, the impact on institutional change and ongoing reform ambition is very high. (c) Other Unintended Outcomes and Impacts (positive or negative) 64. The project had several unintended positive outcomes and impacts. 65. First, the most salient positive unanticipated outcome was that most of the project results and outcomes across project components were implemented countrywide rather than 21 just in the project regions, under budget funds made available by the Government. This is not only recognition that the project objective and outcomes were perceived as highly relevant by country authorities, but also that the project design was appropriate and relevant to the FCS. 66. Second, the implementation arrangements did not rely on a ‘stand-alone’ PIU – this proved to be effective in generating strong management and technical ownership, facilitating adoption of project results across the FCS and encouraging involvement of FCS management and staff in the CDP, besides being cost-efficient. 67. Third, the CDP’s ‘World Bank-financed project’ status (i) protected the project from budget cuts (e.g., during 2008-2010) when national resources were scarce, and (ii) provided the project with the flexibility to adapt project activities to unanticipated policy directions and other developments (e.g., implementation of the Customs Union). 68. Fourth, the CDP M&E framework and some of the key results indicators have been subsumed into the FCS performance assessment framework, significantly enhancing their system-wide impact. The availability of disaggregated performance information through the CDP encouraged the FCS management to ‘drill down’ and examine project results (see Figure 3) and – if positive – extend such interventions across the system. One example of this relates to the reduction of customs clearance times. Figure 3. Average customs clearance time (vehicle checkpoints, project pilot zones, minutes) 69. The FCS ICR states that “A direct effect from implementation of Project activities on customs authorities’ performance indicators may be assessed for a number of activities. For instance, after construction of 4 inspection complexes in RF border checkpoints (Burachki, Brusnichnoye, Torfyanovka, Ubilinka - North-West Customs Directorate) in November 2007, a notable (70 percent) reduction of customs clearance time is observed in the respective 22 vehicle checkpoints.” Thereafter, similar inspection complexes were constructed with budget funds in several other locations. 70. There was an unanticipated setback which detracted from the project’s otherwise positive progress and impact. In 2007, the Bank team was informed that following a several- month long investigation of the CDP (begun in 2006) by the OGP of the Russian Federation (during which implementation and disbursements came to a complete halt), the OGP declared that as the CDP Loan Agreement had not been ratified by the Duma (legislature) it did not have the status of an international treaty, and thus the FCS had no basis for applying World Bank procurement processes to the CDP. The OGP opined that project procurement should have been undertaken in accordance with Russian Federation procurement legislation, demanded immediate cessation of the application of World Bank procurement processes, and for immediate application of national procurement processers forthwith. 71. As a result of this development, project procurement and disbursements remained suspended till about mid-2007 until the Borrower’s authorities (the Prime Minister’s office, the Ministry of Finance, the then Ministry of Economic Development and Trade, the Ministry of Justice, the Ministry of Foreign Affairs, the FCS and other entities) with the Bank’s full and active support reviewed the matter in detail, determined that all actions taken by the FCS to implement the project were indeed fully legal and that no violation of any laws had occurred. 72. However, the halt in procurement and disbursements caused a protracted delay in project implementation. It took several months after the mid-2007 high-level discussions for project implementation to resume in full swing. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 73. See section 3.2 above for a summary of the beneficiary surveys. 4. Assessment of Risk to Development Outcome Rating: Moderate. 74. The risks to the sustainability of the development outcome from the CDP arise through a number of channels: (a) risks to the institutional coherence and strength of the FCS arising from political developments, (b) risks to the performance of the customs administration arising from negative developments in the broad political economy (e.g., reversal of progress in the rule of law and the integrity of public administration), (c) risks to adequate operational and investment resources needed by the FCS to maintain its staffing, skills, information systems, and other assets, and (d) risks to the technical operations of the FCS’s information systems and other specialized equipment. 75. Each of the above risk areas can be potentially quite disruptive to the performance of the customs administration and to sustaining the CDP investments. Nevertheless, the probability of these risks materializing is fairly modest (save possibly the risks to adequate operational and investment resources needed by the FCS – in the current situation of somewhat straitened state finances, future annual capital allocations for customs appear likely to be significantly reduced, as do outlays for operations and maintenance). In a straitened budgetary situation, Customs is a significant contributor to the state budget, but that has not 23 helped it to remain insulated from budget cuts. Many of the technical measures introduced in the CDP (e.g., the UAIS, the revenue risk subsystem, etc.) increasingly limit the scope for the trading community to not comply with the legal norms governing trade. These probably militate against backsliding in the rule of law and/or social/political trends away from trader compliance. In sum, the risks are generally modest, with the possible exception of moderate risks associated with the FCS’s budget and its increasing dependence on modern ICT operations. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory (i.e., only minor shortcomings in identification/preparation/appraisal). 76. In retrospect, the background analytics and CDP design were well targeted to the needs of customs administration in the RF (reflecting among other things the strong working relationship with the WCO). Similarly the implementation arrangements – especially the reliance on project implementation by the agency itself - turned out to be strong. The risk assessments were generally on target and conservatively rated. The M&E arrangements and effort levels were relatively commendable. 77. The CDP design established a highly ambitious (no-slip) implementation timeline of six years. Recognizing that six years substantially pushed the limits of Bank management’s norms for project duration, the design could have benefited from a clearer, less ambitious assessment of the likely duration. 78. That said, the strong Bank team, strong cooperation with the IMF, technical support from the WCO, and strong working relations established with the then SCC leadership (within the relatively short eight-month preparation period) suggests something closer to a Highly Satisfactory rating. However, weaknesses in aligning the Bank’s lending instruments with the needs of complex institutional development projects induced the minor shortcomings noted above (as did the related project preparation processes and norms). (b) Quality of Supervision Rating: Satisfactory (i.e., only minor shortcomings in supervision) 79. Focus on development impact – The quality of the project design (including the impact-oriented KPIs) helped the Bank team maintain a focus on the project impact during supervision (i.e., not overwhelmed by the dialog on inputs, timing and procurement transactions). The (strong) project team also maintained the participation of substantive area experts (i.e., on trade facilitation and customs operations). This also helped keep the dialog focused on the impact of the project investments. 80. Supervision of fiduciary aspects – Notwithstanding the complexity of the project activities, procurement actions and financial management, no fiduciary problems emerged. Credit is due to the FCS project management team. However, the strong country-based 24 fiduciary team helped keep this running smoothly by, among other things, maintaining good working relations with the FCS team. 81. Adequacy of supervision inputs and processes – The supervision budget and effort was substantial (225 staff weeks and 1.2 million USD) between FY03-FY14. Given the scope and complexity of the CDP, greater supervision resources would have allowed the team to strengthen technical supervision. The fact that a substantial part of the supervision effort was based in the country office – even if team leadership and customs area expertise were based outside of the RF - helped stretch the budget and maintain continuous engagement with the client. It is worth noting that during the 2006-7 hiatus in project activities, the Bank team organized a knowledge-sharing visit, at the request of the Head of the FCS, for key members of the new FCS management team. This appeared to have raised the comfort level of the new executive team with the CDP and the Bank and contributed to the subsequent renewal of project momentum. 82. Candor and quality of performance reporting – With the exception of the hiatus in 2006-7 (due to change of executive management and the OGP’s legal challenge to the CDP), project activities generally maintained acceptable forward momentum and remained closely aligned to the original project design. The time series of project ratings (Section G of the Data Sheet) reflected this overall picture. In particular, the Development Objective (DO) and Implementation Progress (IP) ratings were all “Satisfactory”, with the exception of the “Moderately Satisfactory” IP rating set in October 2007 and the “Moderately Unsatisfactory” ratings set for the DO and IP in May 2008. There was no reason to question the candor of the ratings. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory Whereas the general success of the CDP must certainly be attributed to the SCC/FCS’s management and project management teams, the Bank’s performance in design and helping resolve implementation challenges as they arose was commendable and on balance Satisfactory. As noted above, the Bank’s contribution to quality at entry and the supervision were subject to only minor shortcomings. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory (i.e., there were only minor shortcomings). 83. In terms of budgetary support and FCS management continuity the Government was engaged and supportive. Similarly, the legislative agenda needed to support customs modernization was effectively managed, reflecting the Government’s support for customs modernization. The Government was also able to resolve the issue raised by the OGP in 2006-7 (the challenge to the legality of the use of the Bank’s procurement processes) despite the sensitive stage of the electoral cycle when this occurred. (b) Implementing Agency or Agencies Performance Rating: Satisfactory (i.e., there were only minor shortcomings) 25 84. The SCC/FCS maintained a strong commitment to the project objectives, a continuing commitment to stakeholder dialog and coordination with international partners, well-staffed and empowered technical working groups, mainstreamed M&E practices, and strong project administration arrangements (including fiduciary functions). 85. The one and a half year hiatus in project activities in 2006-7 following the change in the FCS top management team (and the CDP project team) combined with the subsequent legal challenge by the OGP were resolved and strong project management was able to substantially bring implementation back on track. Both events were substantially outside the implementing agency’s control. In addition, there was some impact on the FCS of the broader public administration reforms being implemented (especially those pertaining to civil service recruitment and salaries, budget management, etc.). Lastly the policy decision of the Russian Federation to implement the Custom Union with Kazakhstan and Belarus led to more than 200 changes in legislation, followed by changes in business processes – still ongoing. This too, though a development outside the control of the FCS, was addressed by it although it did lead to the final 2-year extension of the closing date. Nevertheless, the professionalism of the FCS CDP team and support from FCS top management enabled the project to close smoothly with almost all results indicators substantially over-achieved. 86. In fairness, it would be hard to imagine any implementing agency undertaking such a complex and ambitious project without any minor shortcomings and unanticipated developments to address. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory (i.e., there were only minor shortcomings) 87. The rating reflects the Satisfactory performance of the Government and the Implementing Agency. 6. Lessons Learned 88. It was known at the outset that the CDP would be a high-risk but high-potential reward project. Indeed, the implementation experience bore this out. The lessons learned can be divided into those learned and applied at the project preparation stage, and those learned from the implementation experience. Lessons learned and applied at the project preparation stage 89. The project design incorporated lessons learned from revenue administration reform initiatives in the Russian Federation (e.g., the first and second Tax Administration Modernization Projects) and from other regions of the world, including transition economies. These included: a) Customs (in fact all revenue administration) reforms can succeed only with strong high- level political will and commitment complemented by sustained technical support from the entity itself. Both were in evidence during project preparation. 26 b) A medium to long-term strategic vision, owned by the implementing agency, is a prerequisite for sustained revenue administration reform and capacity-building. This was provided by the government and supported by Russia’s development partners. c) Successful customs reforms must address institutional constraints to customs performance, and not center reforms exclusively on information technology and systems solutions. A strong institutional capacity development aspect was built into all components. Specifically, a change management element was created through Thematic Groups at the operational level to ensure commitment and continuity of project objectives and activities. d) Business process re-engineering and related automated applications must be fully (though gradually) integrated throughout the customs administration, with appropriate management of the organizational transition (including human resource and training aspects) as central elements of this process. This was an integral part of project preparation activities and was reflected in the design of the CDP. e) Development of application systems software is often a major bottleneck. Application systems software should be developed and fully tested early in the project cycle, and equipment purchases made after the software is successfully piloted. This was incorporated in CDP project activity sequencing: the project began with analyses of policy and implementation challenges, progressed to business process streamlining and then to automation and training provision: for example, the hardware required for the UAIS was procured at the end of the project. f) Efforts to control the potential for corrupt behavior by customs officials require a comprehensive strategy aimed at reducing the motive and opportunity for corruption, and providing incentives for integrity to take hold. This was addressed by creating greater transparency in customs procedures and through implementation of automated systems to reduce discretion and to distance customs officials from clients. g) Creation of a sustainable revenue administration system requires changes to the policy/legal and institutional frameworks as well as administrative actions to support institutional reforms. This did happen in the CDP: the adoption of the Customs Code and other customs policy reforms, coupled with the institutional transformation of the SCC into the FCS and the application to the FCS of public financial management and other reforms, resulted in significant modernization of Russia’s customs policy/legal/institutional framework. And the administrative actions undertaken in parallel (including organizational strengthening, business process re-engineering and information systems modernization) ensured the sustainability of FCS modernization initiatives. h) Institutional development typically depends on implementing a tightly-interlinked package of normative, procedural and organizational innovations, as well as human resource and information systems investments - the benefits of such institutional reforms can only be realized if all the pieces are put into place. This was achieved in CDP design, which included far-reaching changes in the Customs Code, detailed regulations and internal procedures, as well as organizational changes, plus changes in information systems, taking into account cross-dependencies, especially between legal norms, procedures and application software. 27 Lessons learned from the implementation experience a) Strong and consistent support for customs modernization from the Head of Customs is essential for sustained reform. The CDP enjoyed such strong support from the Head of the FCS throughout its life. In particular, the tenure the Head of the FCS throughout project implementation provided extraordinary stability and continuity to the FCS modernization process, the CDP and to the CDP implementation team as well. This strong support served to overcome the negative impact of the hiatus in implementation caused by the OGP challenge to the CDP. b) The design and implementation of the project by the FCS itself (rather than through an external project implementation unit as in every other Bank-financed project in Russia) resulted in strong ownership at the technical level and cost-efficient implementation as well – this could be a model for the Russian Federation to consider emulating in other projects. The ‘no-PIU model’ and embedded technical ownership ensured that the project picked itself up after the OGP episode and went back to a business-as-usual mode of implementation even after a year’s hiatus. And the US$4.1 million CDP project management cost compares favorably with the US$4.5 million spent for management of the Judicial Reform Support Project from 2007-2013. c) A dedicated project implementation/management team needs to work effectively with key operational parts of customs in supporting and coordinating reforms, rather than succumbing to time-driven pressures and becoming directly involved in implementing reforms. Considerable efforts were invested by the CDP management team in developing effective working-level cooperation with FCS organizational units across the country, critical to build and sustain institutional support for the FCS reforms. d) Appropriate sequencing of reform/modernization activities is critical to their success and to the achievement of intended development outcomes. In the CDP, technical and diagnostic activities preceded the business process re-designs, which in turn preceded the design of modern information systems. For example, the advent of the customs union with Belarus and Kazakhstan induced a wave of changes in regulations, procedures and software applications that needed to be implemented in an internally consistent (and time consuming) sequence. e) Complex, risky and longer-term public sector institutional reforms can often benefit from World Bank support in significant ways, not often appreciated or understood. This was the case for the CDP, where the FCS analyzed the key aspects of the Bank’s value-added, namely (i) its ability to bring relevant international experience to the FCS as and when needed, (ii) keeping the FCS focused on development results even in times of turbulent institutional change, (iii) the Bank’s flexibility in helping the FCS to adapt project activities to changing institutional reform priorities (especially on information systems where technological obsolescence can be rapid), and (iv) the protection the ‘Bank- financed status’ afforded to the project budget (and hence to the reforms it financed). 28 7. Comments on Issues Raised by Implementing Agency (a) Implementing agency 90. Five sets of issues merit mention: i) Ratings: A comparison of Bank and Borrower ratings (Table 7) indicates similar ratings on all aspects. The FCS ICR provides reasoned explanations for the ratings, while this ICR provides justifications for the Bank’s ratings. Table 7. Comparison of Bank and Borrower Ratings of the CDP Issue Bank Rating Borrower Rating Development Outcome Satisfactory Satisfactory Risk to development outcome Moderate Moderate Bank Performance Ensuring quality at entry Satisfactory Satisfactory Quality of supervision Satisfactory Satisfactory Bank overall Satisfactory Satisfactory Borrower Performance Government Satisfactory Satisfactory Implementing agency Satisfactory Satisfactory Borrower overall Satisfactory Satisfactory ii) Improved quality of customs operations through CDP-supported activities: The FCS highlights several aspects of improved customs operations which have taken the FCS into the trajectory of a high-performing customs organization. These included (a) the adoption of a risk-based approach to customs operations and the implementation of a risk management system, (b) the adoption of a ‘single-window’ approach to border management and border control/clearance services, (c) increasing reliance on advance information systems and e-declarations for speedy clearance of customs documents, and (d) the development of a post-audit system. The Bank agrees with this assessment and hopes that these initiatives will be further strengthened and deepened in the coming years. iii) Exogenous developments affecting implementation and impact: The FCS examined several exogenous developments which, in its view, positively impacted the project and especially the significance and sustainability of its results and outcomes. The Bank agrees with this assessment. The key developments referred to by the FCS are summarized below: a) Changes to the policy/legal and institutional framework affecting customs’ operating environment such as the adoption of the Customs Code (2004), the policy decision to create the Customs Union and the Common Economic Space (2010) and Russia’s 2012 accession to the WTO; b) The adoption of landmark laws to reform the public service (2003) and the civil service (2004) and their implementation (2003-2007 and 2008-2013), which resulted in new processes for competitive recruitment, performance evaluation and performance-based remuneration – these mainly affected the Human Resource Management and Training component; 29 c) Public financial management reforms at the federal level including the introduction from 2004 of medium-term expenditure planning and program- and results-based budgeting (when a Budget Process Reform Concept was adopted) – these reinforced the CDP’s results-based approach and increased the significance of the CDP results framework and of results collection and reporting. They also led to some budget- reform related activities being financed from state budget funds rather than from the CDP; d) The implementation from 2004 of administrative reforms at the federal level led, first, to the creation of federal executive authorities including the transformation of the SCC to the FCS and second, to the subsequent – since 2008 – increased emphasis on provision of IT-enabled public services (the latter facilitating the introduction of electronic customs declarations earlier referred to). These reforms also increased the significance of CDP IT activities11 and of electronic interaction between the FCS and other federal entities since federal agencies were prohibited from demanding the same documents from service users and clients again and again (2010 Law no. 210-FZ); and e) Increased federal emphasis on anti-corruption (through 2008 Law no. 273-FZ) which facilitated the implementation of federal and sectoral anti-corruption policy through, for example, the use of project outputs to improve integrity across the FCS. iv) Underestimation of macroeconomic assumptions: The FCS points out that the differences were significant (Table 8). The FCS makes the point that the better-than- anticipated macroeconomic performance positively affected the assessment of the project’s economic and financial costs and benefits. The Bank agrees with this assessment. Table 8. Macroeconomic indicators – forecast vs. actual Indicator (annual average Forecast Actual growth rate, 2000-2004) (from PAD) GDP 4.3 6.8 GDP per capita 4.7 7.2 Export of goods and services 2.0 20.6 v) Lengthy approval and clearance processes sometimes delaying implementation: The FCS mentions two categories of processes which sometimes led to delays in implementation: a) World Bank procurement reviews: The CDP included many relatively large activities (consultancy services as well as complex IT ‘supply and install’ contracts). The World Bank procurement guidelines required Bank reviews at all 11 The FCS estimates that during the course of CDP implementation, as many as 208 external changes impacted IT-related CDP activities and implementation timelines. It estimates the cost of IT activities affected at US$87 million - about 70% of the total cost of the CDP IT component. 30 stages of the procurement process (development of technical specifications, terms of reference, bidding documents, bid evaluation reports, draft contracts, contract amendments, etc.). This sometimes led to delays in finalization of technical specifications or terms of reference, and hence in contract implementation. The Bank agrees with this assessment where it relates to procurement of complex IT systems such as the UAIS, and clarifies that in recent years, the Bank’s role and involvement in project procurement has progressively diminished wherever the client (as in this case) has sufficient technical and procurement capacity and where procurement risks are assessed to be low. Indeed, some recently developed Bank financial instruments require the use of country systems for procurement and financial management for speedy implementation, requiring agreement on project objectives and results, and specifying output-based or results-linked disbursement, thereby obviating the need for the implementing agency to require procurement reviews by the World Bank. (Indeed, if the FCS or the Russian Federation considers a follow-on CDP-like project to sustain and deepen FCS modernization, the Bank would suggest that such financial instruments could be considered as more appropriate vehicles for the complex modernization challenges the FCS confronts.) b) Internal governmental approval processes: The FCS mentions that for IT-related activities, some implementation delays arose from governmental requirements to obtain approvals, clearances, accreditation or registration from relevant governmental bodies. Especially in the case of software solutions or installation of complex information systems such as the UAIS, such requirements also caused implementation delays. (b) Co-financiers 91. There were no direct co-financiers. (c) Other partners and stakeholders 92. The World Customs Organization remained involved in supporting customs modernization in the Russian Federation. The European Union is also continuing its dialog with the FCS. Owing to its land borders, the FCS maintains a dialog with the customs authorities of Finland, Estonia, Latvia and China. Lastly, through the Customs Union, Kazakhstan and Belarus (and now Armenia) remain actively involved in the evolution and further development of the Customs Union. These stakeholders were relevant for the CDP since many aspects of CDP implementation (especially customs operations and clearance) were intertwined with the ongoing FCS dialog on these issues with such stakeholders (e.g.. as mentioned in Box 1, there were joint initiatives on ‘green’ and ‘red’ corridors with Finland, Estonia and Latvia). 31 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Appraisal Estimate Actual Percentage of Components (US$ million) (US$ million) Appraisal Total Baseline Cost 168.18 Physical Contingencies 9.61 Price Contingencies 8.03 Total Project Costs 185.82 174.10 93.7 Front-end fee IBRD 1.40 1.40 100.0 Total Financing Required 187.22 175.50 93.7 (b) Financing Type of Appraisal Actual Percentage of Source of Funds Co- Estimate (US$ million) Appraisal financing (US$ million) Borrower 47.20 35.00 74.1 International Bank for Reconstruction 140.00 139.10 99.4 and Development 32 Annex 2. Outputs by Component This Annex summarizes the outcomes documented in the FCS’s in-depth (136-page) “Study of Customs Development Project Efficiency and Evaluation of its Effectiveness”. CUSTOMS OPERATIONS 1. Customs Control and Clearance [US$ 12.6 million actual]  Risk Management System (RMS) – a strategic and implementation plan was devised, including technical requirements and pilot site preparations. RMS components were developed, including an econometric trade model and related methodologies, database of violations, and data warehouse facility for validation. Implementation of the RMS software, related documentation, training, etc., was performed under the Unified Automated Information System (UAIS) Sub-component of the Information Systems Component.  Cargo Clearance and Control Procedures – Streamlined, standardized, revenue-risk based cargo clearance and control procedures were developed, covering inland and international transit, warehousing, import and export border clearance. Regulatory and procedural innovations were identified align international practices, including inter- agency information exchange (e.g., tax administration and border control). Documentation requirement and handling were streamlined. Implementation of the computer-supported tools and procedures was performed under the UAIS sub-component, as well as the operational and investment budget of the FCS.  Post Release Control – Analytic and regulatory frameworks for strengthening post release control were developed, including technical and implementation requirements. Software and procedures and other implementation activities were performed under the UAIS sub- component.  Inter-agency Coordination – An analysis of information exchange and interactions among the FCS, other state agencies, and the foreign trade community (related to clearance, payment, licenses and other legal controls, etc.) was performed. Innovations were developed, including alignment with international practices and treaty obligations, legislative and regulatory requirements, information systems requirements, information exchange formats, etc. Implementation of the systems and procedural innovations substantially arose in the context of the UAIS Subcomponent.  Legal Information Support – Requirements analysis, design, and implementation of a Legal Information System were undertaken. The system supports the FCS Legal Department’s role in legislative analysis and drafting support. The system also supports the propagation of the legal norms, interpretations, and instructions throughout the FCS. The system is presently in pilot implementation at the FCS Headquarters and the Northwest Customs Administration and the Central Customs Administration. 2. Trade Facilitation [US$2.5 million actual]  Realignment with International Norms – An analysis and comprehensive inventory of the (mis)alignment of the RF legal framework for customs procedures and WTO and revised Kyoto Convention was performed and a staged transition plan was developed. 33  Electronic Declaration System Pilot – An electronic declaration system was designed and piloted, including electronic signature facilities. The technical design and implementation requirements were feed into the larger UAIS subcomponent.  Performance Indicators for Strategic Planning and Internal Control – Following a failed contracted-in effort, an FCS team developed a system of key customs performance indicators (with an emphasis on trade facilitation and commercial climate). Among other things, these indicators feed the FCS’s routine reporting to the RF Government. Further a “Road Map” for customs modernization was developed, including a benchmark/target to reaching a top-twenty ranking in the Bank’s annual “Doing Business” Survey. Survey- based methodologies and indicators were also developed to track client assessments of the quality of public services provided by the customs administration.  Code of Ethics – In the context of the development of the FCS Human Resource Management Strategy, a Code of Ethics was developed and formally adopted by the FCS and was supported by an integrity action plan and further improvements in the tracking of integrity related performance of the FCS.  Clearance Documentation Streamlining – The documentation requirements, submission mechanisms and procedures for clearance and control was analyzed and simplified.  Staff Awareness – A program of staff awareness of the rationale and obligations of WTO Accession and Kyoto Convention was implemented. This represented an important instrument in the cultural change process.  UNTDED Nomenclature – Formulation, translation and implementation planning for the adoption of UNTDED standard trade-related definitions was performed. Also, the links to the risk management system and the UAIS technical requirements were formalized. 3. Fiscal Policy [US$ 4.2 million actual]  Tariff and Non-Tariff Policy Analysis – In the wake of 2006 administrative reforms, which, among other things, transferred tariff, exemptions, fees, and non-tariff customs policies to the MOF (from the then SCC), this activity was dropped from the project scope and subsequently undertaken by the MOF using budget resources.  Customs Fees – Similarly, the activity to develop a customs fee structure based on administrative costs was dropped from the project scope. Although some initial analytic work was done on the RF’s alignment with WTO norms and GATT Article 8. In keeping with the 2006 national administrative reforms, work on customs fees was transferred to the MOF. The MOF subsequently undertook these activities using budget resources.  Revenue Accounting – The flow of duties, fees, and other payments remitted to the Treasury by traders/brokers in the connection with customs procedures was analyzed. Legal and regulatory changes were identified and formulated to improve the process of calculating and remitting customs revenues, in concert with the updated customs control procedures. Also, technical and implementation requirements were formulated, including the training curriculum. Implementation of the computer-supported tools and procedures was performed under the UAIS sub-component.  Payment Security – An analysis of methods to secure the financial obligations of traders/brokers was performed with the goal of broadening the options and facilitating trade. Legal and regulatory innovations were formulated. Technical and implementation requirements were specified. Implementation of the computer-supported tools and procedures was performed under the UAIS sub-component. 34  Revenue Forecasting – The design and development of methods and computer-supported econometric tools to improve revenue forecasting was performed. This capacity enhances fiscal planning. It also enhances the customs administration’s ability to perform selectivity and targeting process on the basis of potential risk to revenue collection. 4. Improved Legal Framework for Customs Activities [US$ 4.3 million actual]  Harmonization of the Legal-Regulatory Framework – An analysis was performed regarding the inconsistencies among the various RF laws that bear on customs administration. Recommendations were formulated for eliminating the inconsistencies. An analysis was performed on the inconsistencies between the new Customs Code and the customs administration (internal) regulations. Recommendations were formulated for eliminating the inconsistencies. A training curriculum was developed and implemented for customs staff on the innovations in the legal / regulatory framework. A large-scale external outreach and training program was developed and implemented for the trading community on the innovations in the legal / regulatory framework.  Administrative Appeals – An analysis and streamlining of the processes for administrative appeals was performed. Legal and regulatory acts in support of the streamlined procedures were developed. Training of customs staff on the new administrative appeals procedures was conducted.  Adjudication – A review of practices and a strengthening of capacities for the customs administration in court case proceedings was performed, including the preparation of internal orders and regulations. Staff received training on the new appeals processes. The implementation of these activities was joined with the design and development of the legal information system (covering legislative, regulatory and other legal acts, including international legal acts relating to customs activities, court decisions on customs disputes and appeals against decisions, actions (inactions) of customs authorities and officers). Training on the use of the legal information system was also provided.  Case Information – Court and appeals case information were included in the Legal Information System. Training was provided in the use of the relevant databases.  Enforcement – Improvements to information exchange and coordination with law enforcement agencies and with the enforcement functions of the courts were devised. Training on the intricacies of customs-related legislation and regulation was conducted for customs and selected law enforcement agencies’ staff. ORGANIZATIONAL STRUCTURE AND MANAGEMENT 5. Organizational Structure and Operational Management [US$ 11.9 million actual]  Organizational Structure – Optimized (and standardized) organizational structures were prepared for central (federal), regional (directorates) and local (offices and posts) levels to eliminate duplication, improve coordination and reflect innovations in practices and information systems support. The analysis and organizational design activities included drafting the necessary legal and regulatory amendments. Implementation of the optimized structure was carried out by the FCS with its own resources. In the process, the local, operational level structures (offices and posts) were consolidated.  Objectives “Tree” – Based on regional surveys of customs staff and representatives of the trading community, a hierarchy of objectives for the modernization of customs 35 administration was developed at the early stages of the project. The tree informed the organizational analysis and redesign activities.  Performance Monitoring and Evaluation – A review of reporting documentation and mechanisms, as well as a diagnostic of the existing human resource management system were undertaken. Due to contract performance concerns (coupled with government-wide administrative and budgetary reforms which included reporting and evaluation elements), the implementation activities were shifted in house, while the analyses informed the various information system designs under the project.  Regulation of Organizational Functions – The formal statements of the functions performed by the structural divisions of the customs administration were sharpened.  Document Management – An analysis, design and implementation of a computer- supported electronic document circulation system, including formats, procedures, technologies, and training was completed.  Internal Control – Customs operations and resource management processes were formally modeled and mechanisms for internal monitoring and supervision were developed. The regulatory basis of the improved internal control was implemented, as was the relevant staff training.  Incentives – An analysis of the incentive structure, and recommendations for improvement, were prepared. In the context of changes in the labor legislation effecting customs administration and the broad public service, an updated system of pay related incentives was introduced at the beginning of 2007.  External Feedback – Routine mechanisms to obtain and report on the observations of the trading community on the performance of the customs administration was developed and deployed. Among other things, this mechanism informs the investment climate indicators and targets associated with the high level Road Map for the FCS.  Executive Support (Information) System – A computer-based Executive (decision) Support System was devised and implemented, including enhancement to the existing management information system, technologies and training.  External Information Exchange – The design and development of an inter-agency, cross- border and customs-trading community information exchange system was undertaken, including formal mappings of the information flows, legal and regulatory changes, as well as technical and implementation requirements. The technical implementation of these activities was joined with the design and development of the UAIS. 6. Financial Management [US$ 6.4 million actual]  Expenditure Analysis – Expenditure estimation methods, standardized nomenclatures and standardized expenditure classifications were developed and implemented.  Commodity Reserves – Norms for storing reserves of equipment, uniforms, etc., at the customs warehouses were developed.  Resource Allocation – Administrative processes for budgeting and resource allocations were modeled including budget planning, transport maintenance, insurance, facilities repair and maintenance, as well as revision control.  Budget Evaluation – Methods to connect performance indicators to resource allocations, for the purpose of ex-post budget evaluation, were established. 36  Results-Oriented Budgeting – Methods to connect performance indicators to resource allocations, for the purpose of ex-ante, results-oriented budgeting, were established.  Financial Management Information System – A computer-based financial management information support system was designed and implemented at the central, regional and local levels. This included procedures, information standards, technologies, and training. 7. Human Resource Management and Training [US$ 3.8 million actual]  Workload Analysis – A formal analysis of customs workload, staffing levels and skill mix was performed. Baselines, strengths and weakness were identified and an optimal staffing model prepared.  Regulation and Procedures – Revised human resource management principles, policies, procedures, and practices were developed and formally adopted, including revisions to regulations and training on human resource management innovations.  Remuneration and Benefits – A strategy for enhanced recruitment and staff retention via improved remuneration and benefits was developed and feed into the FCS’s formal Human Resource Management Strategy.  Human Resource Management Information System – As a result of delays in technical preparation and uncertainties regarding the 2008 project extension, the implementation of the Human Resource Management System was shifted from project to budget finance.  Training Strategy – A formal needs analysis was performed and translated into a training strategy, including training methods, materials, metrics and evaluation, curriculum development, explicit links to staff promotion and career management.  Time, Resource and Change Management – Training of staff at the central, regional and local levels on task, time and resource planning, as well as change management, was undertaken. Software, hardware and technology-specific training was provide for computer-assisted project management tools.  Priority Training Areas – Curriculum were developed and training conducted on selected priority areas, including information technologies.  Distance Learning Facilities – Training methods, course content, evaluation techniques, technologies, and premises enhancements, were designed and implemented to deliver training remotely to customs facilities throughout the RF. Training topics include: Kyoto Convention; Standards of security and support to the development of the international trade; Resource Management System; Post clearance form of customs control of goods and vehicles and post audit procedure; Customs cost; Administration offences; Informational customs technologies; Financial management support information system; Electronic declaration; Customs control and clearance using the new form of GOD/TD.  Customs Academy and Regional Training Centers – Technical equipment, information technologies, licenses, etc. were provided to establish thirteen training classes/laboratories in seven regional directorates, the Customs Academy and its three subordinate affiliates. The FCS undertook the premises adjustments using budget resources. 8. Improving the Integrity of the Customs Service [US$ 2.6 million actual] 37  Code of Ethics – A Code of Ethics was developed and formally adopted by the FCS. Training on the implementation of the Code of Ethics was conducted for fifty-three FCS staff.  Risk Analysis – An analysis of regulations, procedures, roles and responsibilities, internal controls for integrity risk was performed, mitigation measure proposed, and adopted.  Risk Management Strategy – Delays in contracting resulted in the shift of the strategy development activity from project finance to FCS budget finance.  Risk Monitoring – A computer-based risk monitoring system was prototyped, using data mining technologies and data from customs operations, complaints, internal control processes, etc. Methods and procedures were developed, information technologies provided, as well as staff trained on methods and data mining technologies. INFORMATION TECHNOLOGIES 9. Information Technology Development (by subcomponents)  Information Technology Infrastructure Development [US$ 60.4 million actual] o Telecommunications Infrastructure – A strategic framework, technological requirements and implementation plan for an Integrated Telecommunication Network serving (virtually) all customs facilities was developed, including network management. Technologies and implementation and training services were procured (although connectivity and bandwidth services were subscribed to using FCS budget resources). Implementation of the unified (wide area) network was completed. In total one hundred forty-eight sites were connected, including thirty-five FCS telecommunications centers proving technical support and technology services to the corresponding region(s). o Workstations, Servers, Peripherals, Standard Software, Video Conferencing and other Specialized Equipment – A round of replenishment and updating of the information processes technologies used in customs administration was completed. Approximately eleven thousand workstations were deployed, along with smaller number of related technologies (servers, printers, power conditioners, etc.). Four sites received video conferencing facilities. Subsequent annual replenishments of these office technologies have been part of the FCS on-budget investment program since 2006. o Upgrading of Selected Application Software Systems – Plans to upgrade selected existing application systems (e.g., fraud detection, econometric trade modeling, risk database) were subsumed into other project initiatives/components, including most notably the Unified Automated Information System (UAIS). o Local Area Network – A methodology was developed to analyze and specify the in- office networking needs for FCS units. The methodology and resultant technical and implementation designs were piloted (in eighteen sites). Due to problems associated with extensive contract revisions, the implementation activities and technologies were shifted from project financing to budget financing. Based on the pilots, a general method and requirements statement were prepared. These informed the (ongoing) roll-out of LANs the FSC is carrying out with its own investment resources. o Large Truck and Container Inspection – Four movable “complexes” for physical inspection of large trucks and containers were specified and installed (initially). 38 Specialized training was also provided to the relevant customs staff. Based on the experience and specification of the initial four, forty-two additional complexes were subsequently procured by the FCS using budget resources.  Unified Automated Information System (UAIS) [US$ 49.6 million actual] o Concept – Development of the overall concept, high level technical architecture, implementation plan, risk mitigation mechanisms, technical and implementation requirements and other key aspects of the UAIS program was completed. o Enhancement of Selected Existing Functional Application Systems and Information Processing Facilities – Software, procedures, regulations, training, technologies, and other related items were enhanced and updated for selected functional areas, including clearance and control, valuation, fraud detection, currency and international barter transactions. Also, upgrades to the technological and technical management capacities of the central computing complex and the eight regional computing centers were specified and implemented, including training services and upgrades to system/information security facilities. These upgrades provided the basis for supporting the updated application systems, the expanded network connectivity, and the strengthen security policies. It also set the stage for the development, testing and rollout of the UAIS. o New Integrated Application (Sub)Systems for Selected Functions – Based on analysis, innovations and requirements from the various project components, national and international norms, and the requirements under the overall Concept for the UAIS, the design, development, and pilot testing of selected key customs functions was performed. The selected functions include customs clearance and control operations; accounting and control over the collection of customs duties and payments debts; risk management; post-release control and customs inspections. As an integrated system, the UAIS includes support for information exchange between existing and planned subsystems, document management and work flow, as well information interchange with the trading community, other public agencies, and cross-border coordination (e.g., green and red corridors with at selected border crossings). The UAIS also includes subsystems for Executive Decision Support (for pilot units in the FCS, e.g., Senior Executives Office, General Organization and Inspection Department, Analytical Department, and Public Relations Department). The operational function subsystems have been piloted at FCS Headquarters and the pilot regions, including the corresponding regional and central management units. Other application subsystems are presently being developed / extended using FCS budgetary resources. These include control of internal normative documents and execution; human resource management; analysis and evaluation of the customs performance in major areas of economic, fiscal, enforcement, inspection functions; the FCS Portal; Central Register of participants to foreign economic activities. o UAIS Expansion – Implementation and technical requirements and plans have been developed for a rollout of the UAIS in transactions volume prioritized phases. o Information / Systems Security – An information / system security scheme (compliant with GOST ISO/MEC 15408-1 international standards) has been put in place, including the necessary procedures and security technologies. Presently, the security scheme is operational in relation to the information and systems in relation to the presently operation subsystem of the UAIS and covering the pilot sites. The necessary approval of the Communications Security Center of the RF Federal 39 Security Service has been obtained. A Root Corporate Certification Center and Regional Certification Centers were designed and established for the FCS to support the issuance of digital keys in support of electronic documents and electronic signatures. The implementation included regulatory innovations, procedures, technologies, training, etc.  Executive Management [US$ 0.8 million actual] o Outward Looking IT Strategy – An update IT Strategy was developed with an emphasis on the information exchange and processing needs of the trading community. o Performance Management of IT – A hierarchy of objectives and a corresponding framework of performance indicators were developed for the FCS IT units. Training programs for staff on the updated IT management practices were developed and delivered. o Business Continuity / Disaster Recovery – Policies, procedures and plans were developed to minimize the risk of disruption of customs operations due to information systems problems and/or mitigate the operational consequences of disasters. Training on the policies and procedures was conducted.  Management of Application Software Development [US$ 0.3 million actual] o Project Management – Task, time and resource management tools were obtained for managing software development projects/subprojects, including procedures, job descriptions, training, etc. Project management software tools came to the FCS as part of the government-wide adoption of performance management and results- oriented budgeting. o IT Expenditure Planning and Management – Expenditure planning and control methods in relation to IT projects were elaborated.  Strengthening IT Human Resources [US$ 2.7 million actual] o Strategy – In the context of the broader human resource management initiatives, a IT- related human resource strategy, including needs analysis, training curricula, and training modalities (e.g., distance learning) was developed. o Curricula and Training Delivery – IT oriented curriculum were developed and delivered to IT staff at the center, regional and local level. o Turnover and Staff Development – Recommendations to reduce IT staff turn over and accelerate IT staff professional development were formulated and feed into the overall FCS budgeting and staffing processes.  Transparency and Compliance with International Standards [US$ 0.5 million actual] o Audit of Compliance with Annex J of the Kyoto Convention (Special Procedures: Travelers, Postal traffic, Means of transport for commercial use, Stores). o User Manuals – User documentation for all FCS information systems was inventoried and examined for quality. o Control of Efficiency of IT Investments – This activity was dropped from the project and replaced with an activity to design, develop and pilot a risk management subsystem to identify administrative offenses in customs and staff misconduct, using data mining technologies. 40  Customs Information Database [US$ 7.5 million actual] o Data Loading, Incoming/Outgoing Messaging, Database Administration, Data Transport Subsystems – Starting with the design, development and initial testing of the Data Transport Subsystem, four constituent subsystems of the FCS Customs Information Database were iteratively designed, developed and tested. The Customs Information Database (as a subsystem of the UAIS) consolidates data feeds from over thirty distinct (legacy) operational applications/databases. These include: customs cargo declarations; customs pay-in slips; delivery control documents; «Autocontrol » temporary imported (exported) goods under «Carnet-АТА» procedure; actual export of goods placed under customs export regime; «Account of forms and Vehicle Registration Certificates»; customs declarations log books; «Motor-Transport»; control over rocket and nuclear engineering. As the UAIS completes its coverage over customs procedures, these information flows (to the central Customs Information Database) will be internal to the UAIS. PROJECT MANAGEMENT 10. Project Management and Administration [US$ 4.1 million actual]  Project Management Reporting – Semi-annual project management reports were prepared, as well as quarterly financial management reports.  Procurement – Extensive procurement/contracting process management (and substantive technical support) was performed. Overall, the project carried out forty-two ICB actions, representing US$151.3 million; nine smaller invitation-to-quote actions, representing US$0.3 million; twenty-eight procurement actions for “consulting” services from firms, representing US$16.2 million; and a number of procurement of individual “consultants” services, representing US$3.5 million.  Project Audits – Annual audits of the project accounts/documentation were commissioned for 2003 through 2013.  Monitoring and Evaluation (including surveys). The in-depth evaluation report also noted the project activity linkage to key adjoining initiatives. These include “green” and “red” channel innovations piloted at selected border crossing with Finland and Poland, simplified vehicle control at the Estonian border, EU transit trade via Kaliningrad, and mandatory advance information for trade within the Russian-Belarus-Kazakh Customs Union. Each supplemented and built on innovations financed within the project. In addition, the project activities dovetailed with information exchange and coordination initiatives in the broader public sector (i.e., including (but not limited to) the: Federal Tax Service, Treasury, MOF, the Ministry of Economic Development, the Ministry of Transport, the Ministry for Communications, the Ministry of Industry, the Ministry of Defense, the Ministry of Emergency Situations, the Ministry of Agriculture, the Ministry of Public Health of Russia, Federal Drug Control Service, the Federal State Statistics Service, the Federal Service for Fiscal Monitoring, the Russian Agency for Patents and Trademarks, the Federal Service for Technical and Export Control of Russia, the Federal Agency for Technical Regulation and Metrology, the Federal Service for Consumer Rights Protection and Human Welfare, the Federal Service for Veterinary and Phytosanitary Supervision, and the Federal Service for Accreditation). 41 Furthermore, activity development and implementation included significant interplay with the Russian Trade Chamber, the Russian Union of Industrialists and Entrepreneurs, «Business Russia», the All Russian Organization for Small and Medium Entrepreneurship, Association of European Business, JSC “RZD”, ASMAP and other stakeholder organizations. 42 Annex 3. Economic and Financial Analysis The PAD forecast an Economic Rate of Return of 1898 percent on an NPV stream of US$ 5.1 billion of economic benefits. Other hard-to-measure/attribute economic benefit streams certainly add substantially to these values. The project economic and financial benefits were initially evaluated only for the regions covered by the Northwestern (NWCD) and Central Customs (CCD) directorates. This was because these two directorates accounted for the bulk of customs operations and Project arrangements. Underlying facts and assumptions: 1. The share of imports processed by NWCD and CCD in the total amount of imports and share of imports processed by project customs offices and posts of NWCD and CCD, remained unchanged during the entire Project implementation period. 2. The forecast achievement of financial benefits (against targets) was made by spreading the benefits over several years. All financial benefits have been classified into two groups: a. Benefits achievable relatively quickly, in the medium-term, their full effect being expected by 2006. The cost-benefit achievement path was initially as follows: 2003 – 0 percent, 2004 – 10 percent, 2005 – 50 percent, 2006 and after – 100 percent; b. Benefits achievable only in the longer term, with maximum effect by 2008, i.e. by initially anticipated Project completion. The following time path has been assumed for these benefits: 2003 – 0 percent, 2004 – 20 percent, 2005 – 40 percent, 2006 – 60 percent, 2007 – 80 percent, 2008 and after – 100 percent. These assumptions are justified by the fact that over the first years of the Project, the benefits would be insignificant or unrealized. 3. Taking the closing date extension into account, the following timelines are assumed for the medium-term benefits and that their full effect is achieved in 2012: 2003 – 0 percent, 2004 – 0 percent, 2005 – 10 percent, 2006 – 20 percent, 2007 – 30 percent, 2008 – 40 percent, 2009 – 50 percent, 2010 – 60 percent, 2011 – 80 percent, 2012 and after – 100 percent. 4. The time frames for longer-term benefits are assumed to be as follows: 2003 – 0 percent, 2004 – 0 percent, 2005 – 0 percent, 2006 – 0 percent, 2007 – 15 percent, 2008 – 30 percent, 2009 – 40 percent, 2010 – 50 percent, 2011 – 60 percent, 2012 – 80 percent, 2013 – 90 percent and thereafter – 100 percent. 5. Export and import amounts are assumed to remain unchanged in dollar terms over time - a conservative assumption, given an improved business environment for foreign trade companies as an expected (and achieved) project results and the growth of the world and of the Russian economy in the longer run. 43 6. Russia’s foreign trade turnover12 over the Project life is depicted in Table 3.1: Table 3.1 – Russia’s Foreign Trade Turnover Percentage 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 change 2003-2012 Volume 133.6 181.6 241.5 301.5 351.9 467.6 301.7 397.1 516.5 524.7 393.7 of RF export, US$ billion Volume 57.3 75.6 98.7 137.7 199.7 267.1 167.3 228.9 305.6 312.6 545.5 of RF import, US$ billion (The PAD assumption that export and import amounts would remain unchanged in dollar terms over the project life turned out to be inaccurate, as commodity turnover grew 4.4 times.) 7. Project benefits and costs independently affect the project financial and economic results, allowing direct summing up of all benefits. 8. Wherever possible, official information is used. Data from Rosstat was used where Rosstat data differs from FCS data. When information from other sources (such as mass media or expert estimates) is used, the most conservative estimate is presented. Assessment of fiscal and economic effects at project completion 1. Treatment of project benefits: The list of Project benefits and costs did not undergo significant changes. Project benefits fall into two categories: public (RF government) and private. The following public benefits were quantified in the analysis: (i) improvement of the overall compliance level of foreign trade participants; (ii) improvement of the customs enforcement efficiency; (iii) more efficient control over export of goods and VAT refund claims by export entities; (iv) streamlining and better application of temporary import (export) customs regulations. 2. Treatment of private benefits: a) lower transaction costs for foreign trade participants as a result of speeding up of the customs clearance procedures; b) reduction in amounts paid for the customs brokers services stemming from the simplified customs procedures; and c) savings for foreign trade participants from lower customs fees - were evaluated for the project. 12 Source: Customs statistical data («Annual Abstract of Statistics», 2012, 2007), with account for intertrade with the Republics of Belarus and Kazakhstan. 44 3. Besides quantified benefits, the Project was initially expected to generate additional benefits for both the private and public sectors, which were difficult to evaluate due to lack of information or the complex nature of the benefits. These benefits include: a) revenues for the budget from more efficient customs operations on seizure and sale of contraband goods; b) extra customs revenues from streamlining customs duty exemptions (to be seen from the further reduction of discrepancy between the statutory and effective weighted average customs duty rate), c) benefits and costs associated with the growth of exports and imports, d) public and private benefits stemming from the improved investment climate in the country, etc. 4. The proposed project costs for the government should have consisted of: (a) co-financing of the IBRD loan from tax collections; and (b) payment of interest and repayment of principal of the loan and financing of recurrent and maintenance costs. 5. The planned structure of costs on the whole turned out to be adequate and has been used for this analysis. However, the assumption that some costs for the government will also arise due to Russia’s accession to the WTO did not materialize. Methodology The applied method of costs and benefits analysis consists of (1) identification of the key areas where the project results would be most visible, (2) identification of likely positive benefits and costs for these areas, (3) selection of a set of quantitative indicators, which more or less adequately characterize these costs and benefits. Calculation of financial benefits The financial benefits for the NWCD and CCD customs posts are as follows. 1) Additional annual budget revenues from an extended dutiable base: US$3.6 billion. This comes from an improvement of the overall compliance level by 10 percent due to the reduction of unregistered foreign trade and expansion of the dutiable base. This development, leaning on simplified, faster, risk-based computerized customs clearance procedures, are estimated to bring US$3.6 billion to the budget per annum. It is assumed that the full benefit accrues from 2012. It follows therefore that 10 percent improvement in the compliance rate stipulated in the project, (which is an equivalent of the reduction of unregistered imports by the same 10 percent), has reduced the discrepancy to 5.3 percent (=29.9-10%=26.9 = 5.45 – 10% = 5.3%). As a result of more efficient control over imports while providing strong incentives for foreign trade companies to accurately report on their imports, the dutiable base will increase by 0.996 percent due to the reduction of unregistered imports. Dtb = Mcbr*(1-GAPt)/Mscc Dtb =327,2 *(1-0.0585)/309.2 = 327.2 *(0.9415): 309.2 = 0.996%, where Dtb – net increase in the dutiable base of the FCS; Mcbr – amount of imports from the CBR balance of payments on average in 2001-2012; GAPt – import value discrepancy between CBR and FCS; Mscc – amount of imports on average in 2001-2012 as reported by FCS. 45 Thus, the additional budget revenues generated by project customs in NWCD and CCD from extended dutiable base will amount to: Tbi = (T1i+ T2i+ T3i)*(I–1)*Li *Pcp Based on data of 2012: Tbi = (1659.7+55.4+655.0)*(0.0996)*0.613*0.793 = 114.8 billion Roubles (US$3.6 billion13), where Tbi – stands for annual additional revenue from project customs in the NWCD and CCD resulting from increased import tax base; T1i stands for VAT on imports; T2i stands for excises on goods (products) imported to the RF territory; T3i stands for import duties (other duties, taxes and fees of equivalent effect) paid on the territory of RF in 2012; I stands for the growth rate of registered import tax base brought about by the compliance rate improvement; Li stands for the share of the NWCD and CCD in total imports; Pcp stands for the share of imports cleared by project customs in the NWCD and CCD. 2) Additional annual revenues from enforcement measures: US$34.1 million. Improved enforcement efficiency can be measured by the ratio of additional revenues to total revenues generated by customs. Revenues from the enforcement measures were initially expected to reach the EU average level of 3 percent by 2008. It follows from these data that in 2006 the ratio of revenues from the enforcement measures to the total revenues transferred by FCS to the federal budget was equal to 0.11 percent. In practice, this indicator has not reached 3 percent, but increased only to 0.19 percent in 2012. This produces an additional annual fiscal benefit of US$34.1 million in the NWCD and CCD: Te = R * (Et:Ea-1)* Lt *Ppt Te=6486.7 * (0.19:0.11-1) *0.35*0.65= 1073.3 billion Rubles or US$34.1 million, where Te – stands for annual additional revenues that better enforcement will generate; R is the total amount of budget revenues transferred by the FCS to the federal budget in 2012; Et stands target ratio of enforced customs collections to total collections (2012); Ea – actual ratio of enforced customs collections to total SCC collections in 2006; Lt - share of the NWCD and CCD in the amount of foreign trade volume processed; Ppt – share of project in processed amount of foreign trade volume in the NWCD and CCD. Spreading additional revenues over time was done in accordance with the long-term benefit assumption as this type of benefits requires implementation of a whole range of institutional, legal and IT measures. In addition to PAD quantitative targets, the following indicators can be used to measure other financial benefits from the project: 3) Annual additional VAT collection from more efficient control over goods exports and VAT refund claims: US$23.8 million. 13 At the rate of 31.5 Rubles per USD. 46 An assumption was used at Project preparation that improved coordination between FCS, Ministry of Taxes and Fees (MinTax) and other fiscal agencies would improve detection of fraudulent export transactions and reduce the amount of unjustified refunds of export VAT. Since it was the MinTax, which is in charge of VAT refunds, improvements here would be reflected in better net collection of VAT to the budget by that agency. The estimated benefit is US$23.8 million. For the Project implementation period, the effect of improved information exchanges between the customs authorities of Russia and foreign countries, as a result of the Project, should be added to this assumption. The method of calculation was specified based on tax audits carried out in the Russian Federation. The specified calculation was made on the basis of actual amounts of VAT refunds to exporters (1,202 billion Rubles in 2011) 14 and assessment of the share of unjustified VAT refund (based on tax audit data, unjustified reimbursement of VAT comprised 80.9 billion Rubles or 6.7 percent of the actual refund in 2011). Another expert assessment used was the one that improvement of information exchange between customs authorities and MinTax can reduce the amount of unjustified reimbursement of VAT by 30 percent: Tr = 0,5*(Trf - Trp )*E * Le *Ppe Tr = 0.5* (210 - 93)*0.3*0.246*0.497 = 0.7 billion Rubles (US$23.8 million), Tr = (Trf*Trp )*E * Le *Ppe Tr = (1202*0.067)*0.3*0.246*0.497 = 2.95 billion Rubles (US$93.8 million), where Tr – stands for annual additional revenues that better information exchange on VAT refund claims between the NWCD and CCD and corresponding tax bodies will generate; Trf stands for the amount of actually reimbursed VAT to exporters in 2011; Trp stands for unjustified VAT refunds figure; E – coefficient of the potential improvements in detecting fraudulent exports and VAT refund claims from better information exchange between customs and tax authorities; Le - share of the NWCD and CCD in the amount of exports processed; Ppe – share of project customs in processed amount of exports in the NWCD and CCD. 4) Annual additional revenues from improved legal and regulatory framework and enhanced customs administration capacity: US$61.7 million. Based on the available assessments, annual additional revenues to the federal budget from the improvement of the legal and regulatory framework and enhancing the customs administration capacity (which will allow better information exchange and more efficient customs control over goods shipments at operations of transit, temporary import to the RF territory, etc.) will be 1.92 billion Rubles (US$61.7 million), achieved in the medium-term perspective. Before Project implementation, the loopholes in the regulatory and legal framework and statistical reporting do not permit to ensure that customs payments are paid in full when the temporary import customs regulations are applied. Creation of the Customs Union and Common Economic Space and accession of Russia to the World Trade Organization have enhanced the effect from factors relating to transit of goods across the territory of the country. 14 Source: Statement of the Committee of the Federation Council for Budget and Financial Markets on the Federal Law (draft No. 106468-6) "On Budget Implementation in 2011". http://council.gov.ru/structure/committees/5/legislation/resolution_accepted/28846. 47 Data on the identified amounts of unpaid customs payments were used to assess the financial benefits in this area15: - in 2007 unpaid customs duties amounted to 5 billion Rubles; - in 2008 unpaid customs duties amounted to 1,3 billion Rubles; - in 2009 unpaid customs duties amounted to 0,92 billion Rubles; - in 2010 unpaid customs duties amounted to 0,67 billion Rubles; - in 2011 unpaid customs duties amounted to 0,73 billion Rubles; - in 2012 unpaid customs duties amounted to 1,4 billion Rubles; In order to use this data to assess the financial effect, it is assumed that annual additional revenues to the federal budget from the improved legal and regulatory framework and from enhanced customs administration capacity resulting from the CDP are 25 percent of the average reduction of the amount of unpaid customs payments over the period 2007-2012; the full effect was achieved starting 2008 and is equally spread over years. The annual financial benefit from the improved legal and regulatory framework and enhanced customs administration capacity can be estimated as: Tt = 1/7*(Tm + Tp )*1/2:Tt1*Lt* Pcp Tt = 1/7*(1491.8+1198.7)*1/2:(5/122)*0.613*0.793 = 2.28 billion Rubles (US$78.1 million), Tt = (Tm - Tp )*Lt* Pcp Tt = (5.0-1.004)*0.613*0.793 = 1.92 billion Rubles (US$61.7 million), where: Tt – amount of additional annual revenues for the two project customs departments resulting from the improvement of the legal and regulatory framework and enhancing the customs administration capacity; Tm – amount of unpaid payments in 2007; Tp – average amount of unpaid payments over the Project effectiveness period (2008-2012); Tt1 – share of customs offices inspected by the Accounts Chamber in the total number of customs offices; Lt – share of the two project regional customs departments in total amount of imports; Pcp – share of imports cleared by project customs in the NWCD and CCD. Additional Expenses and Federal Budget Revenues Foregone Some assessments of Project financial benefits which, according to the assumptions made at Project preparation were to have led to additional expenses and foregone federal budget revenues were based on erroneous assumptions and therefore require to be revised: 1) An assumption was made at Project preparation about reduction of federal revenues due to adoption of GATT/WTO-compliant regulations on customs fees. Such estimation was based on Article VIII of GATT 1994 establishing the principle, according to which all fees and charges (other than duties) imposed in connection with importation or exportation shall be limited in amount to the approximate cost of foreign trade related services rendered by administrative agencies. The fees shall not represent an indirect protection of domestic 15 Compendium «Customs Service of the Russian Federation» for 2007-2012. 48 products or taxation for fiscal purposes. Usually, customs fee is a flat payment, the amount of which is fixed at the level allowing coverage of the cost of investment in customs service infrastructure and its maintenance. Currently, the amount of customs fee to be paid is decided on the basis of goods value (ad valorem principle). It is not connected in any way with the cost of serviced rendered by customs authorities to foreign trade companies and generates net revenues for the budget. At Project preparation, it was assumed that changes of the existing legal and regulatory framework regulating collection of customs fees will be a necessary prerequisite of Russia’s planned accession to WTO, which would lead to losses for the budget. The project was to have assisted the Government of Russia and the SCC in meeting this requirement through development of methodological, technological and information tools. However, it would be wrong to attribute possible losses for the budget to the project itself since it has to be done anyway with or without a project. This is exclusively for the purpose of full presentation of all cost and benefits related to the project, that these foregone revenues are estimated here. It follows from Table 3.2 that the accession of Russia to the WTO has resulted in a situation where the growth of actual customs payments is much higher than the growth in investment and operational costs, i.e. the forecast foregone revenues to the budget (at the stage of project preparation). Table 3.2 - Losses associated with introduction of the cost-based customs fee 2001 201216 Customs fees (billion Rubles) 8.6 1731.8 Maintenance and capital costs (billion Rubles) 2.7 69.5 Revenue loss for Federal Budget (billion Rubles) 5.95 Revenue loss for Federal Budget (US$ million) 204 Exchange rate (Rubles per US$) 29.2 Economic analysis Project implementation benefits are not limited to financial ones alone. The project is expected to have a favorable influence on the economic situation in the North-Western Region and the Central Region and, subsequently, on the entire country through trade facilitation, reduction of costs for importers and exporters and improving the investment climate. At the time of Project preparation, foreign trade participants incurred high transaction costs due to deficiencies in the customs legislation, arbitrary interpretation of the customs laws by customs officers and frequent changes in customs regulations. Unduly high customs fees, facilitation fees and unjustifiably high customs broker fees drive these high costs. Better transparency of customs agencies, the simplification and automation of customs procedures and the improvement of the legal framework were embedded in the project. Project 16 Compendium «Customs Service of the Russian Federation» for 2012. 49 implementation has secured reduced transaction costs and resulted in savings for foreign trade participants. The key economic benefits from reduction of transaction costs comprise the following: Annual economic benefit for traders from reduced transaction costs: US$420.7 million. The Project implementation itself, supported by other reforms (including the approval of the Customs Code) contributed to speeding up customs clearance procedures. As a result, the transaction costs and losses associated with long processing times diminished considerably (among other reasons due to the implementation of the Concept for customs clearance and control at sites located close to the RF state border, application of remote release technology and adoption of electronic declarations). Taking into account that: (1) truck carriers account only for 5 percent of total international cargo transportation, (2) as a result of Project implementation and implementation of other government-funded customs development activities, clearance times have been reduced from 10 days to 1 day, the economic benefit for foreign trade participants from Project implementation will be at least US$420.7 million: Ea = Lap * (10-1)/10 * Li * Pcp : Kt Ea = 48 * (10-1)/10 * 0.613 * 0.793 : 0.0364 = US$420.7 million. where Ea – stands for the annual economic benefit associated with the speeding up of customs clearance in project CD; Lap stands for current losses according to ASMAP; Li stands for the share of the NWCD and CCD in import; Pcp stands for the share of imports cleared by project customs in the NWCD and CCD; Kt stands for the truck share in total cargo transportation (pipe transportation excluded) turnover. Spreading this benefit over time was done in accordance with the long-term benefit assumption as this type of benefits requires implementation of a whole range of institutional, legal and IT measures under the project. 2) Annual economic benefit from reduced demand for customs brokers: US$44.3 million. Another benefit arising from simplified customs procedures is the reduction in amounts paid for the customs brokers services. At the beginning of the project, the services of customs brokers cost approximately $200 per customs declaration. We assume that as a result of simplified customs procedures, measures taken to adopt electronic declaration, etc. this amount has dropped to US$50. Let us also assume that 20 percent out of 4.3217 million cargo declarations processed in 2012 were processed by customs brokers. The summary share of NWCD and CCD in this number of declarations will account for 43.1 percent. Based on this information, the economic benefit from lesser demand for customs brokers’ services is estimated at US$ 44.3 million per annum, to be achieved in the medium term. The following formula was used: Eb = Lb * Pt * Pb * Li * Pcp Eb = (200-100) * 2,200,000 *0.34 * 0.431 * 0.793 = US$25,565 million, Eb = Lb* Pt * Pb*Li * Pcp 17 Compendium «Customs Service of the Russian Federation» for 2012. 50 Eb = (200-50) * 4.32 *0.2 * 0.431 * 0.793 = US$44.3 million, where Eb – Eb stands for the annual economic benefit associated with the reduction of use of customs brokers services in the NWCD and CCD; Lb stands for the benefit for foreign trade companies from lower costs of customs brokers services per customs declaration; Pt stands for the annual number of import declarations; Pb stands for the share of import declarations, processed by customs brokers; Li stands for the share of the two CD in total amount of processed import declarations; Pcp stands for the share of imports cleared by project customs in the two CD. 3) The assumption about substantial savings for traders from lower customs fees due to making customs fees legal and regulatory framework WTO/GATT-compliant turned out to be unjustified. This benefit had to become a mirror reflection of losses for the budget from the same development as discussed in the financial analysis. However, as follows from the relevant section of the financial analysis, WTO accession has not affected the above costs and benefits. There are other economic benefits which have not been quantified. Two are worth mentioning: a) Foreign trade growth. In the beginning of Project implementation, the growth of foreign trade was restrained due to legal, regulatory, operational, technological and staffing weaknesses in operations of the customs administration, in addition to basic – macroeconomic factors. Implementation of government-funded programs, among other things, in development of adequate trade oriented legal and regulatory framework, simplification of customs procedures, automation of customs technologies including electronic filing of customs declarations, and increase of customs officers’ motivation, professionalism and integrity. As a result, there was growth of foreign trade, to a large extent. However, the financial effect of foreign trade growth turned to be of a dual nature: along with growth of customs revenues administered by the FCS, higher imports negatively affect the domestic tax base and corresponding internal tax revenues due to crowding out of noncompetitive domestic producers. It is impossible to evaluate the overall net effect ahead of time, therefore it is assumed that positive and negative financial benefits of foreign trade growth offset each other. The Project implementation has also contributed to these results. b) Growth of cargo transportation, port and other foreign trade-related commercial services as a result of foreign trade growth and simplification of customs procedures. Foreign trade growth stimulates the demand for transportation services leading to creation of new jobs, broadening of tax base and growth of customs duties and fees. Simplified and automated customs procedures together with risk management system (implemented with support of the Project) have shortened customs clearance time. This improved the competitiveness of Russian trade infrastructure companies, however did not result in reallocation of trade flows into Russian ports and increased share of foreign trade and associated transportation and other services they render at expense of infrastructure companies of neighboring countries, which are used for goods transit to Russia (Baltic states, Finland). This happened to a significant degree due to unpredictable growth of foreign trade, which cannot be handled by Russian infrastructure. Thus, here the assumption may remain as well that the growth of Russian carriers, infrastructure companies, etc. is compensated by the parallel growth of expenses for import of these services. 51 The result of the estimation of Project costs and benefits and their net present value by each Project year is provided in Table 3.3. The estimation is made for a period covering the implementation and operating periods of the Project cycle. Taking into account the share of financing of the CDP within the total amount spent on modernization and operation of the Customs UAIS, the net present value of Project fiscal benefits is US$3.6 billion18, while the net present value of project economic benefits (net of budget benefits) is US$415.3 million. Taking into account the net present value of budget expenses for Project implementation, including co-financing costs, costs for payment of interests and Loan principal, and costs for operation of the Customs information system (US$91.8 million), the Project has achieved a high level of economic and fiscal effectiveness. 18 Total amounts are provided for the period 2003-2020; the discount rate used is 0.1. The NPV of project economic and financial benefits also includes non-separable useful effects from implementation of public- funded customs development programs in parallel with the CDP. 52 Table 3.3 Project Cash Flows and Financial Sustainability Estimates Based on Project Outcomes (thousand US$) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Project Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Financial (fiscal) 0,0 8550,0 17100 570765 1124430 1496390 1868350 2248860 2992780 3356190 3719600 3719600 3719600 3719600 3719600 3719600 3719600 Benefits Economic 0,0 0,0 69645 139290 185720 232150,0 278580,0 371440 417870 464300 464300 464300 464300 464300 464300 464300 Benefits Total government 1400,0 3000,7 3907,1 6596,7 5874,6 12820,6 16269,6 18022,5 15995,8 15014,7 21336,1 20168,3 19934,9 19701,5 19468,1 19234,7 19001,3 11992,9 expenses, including Project co- 0,0 2615,0 3194,6 4985,5 3201,9 4466,1 2947,8 5699,0 3699,5 2513,3 2026,7 financing Interest and commitment 1400,0 385,7 712,5 1611,2 2672,7 2519,5 1651,8 653,5 626,3 831,4 639,4 1498,3 1264,9 1031,5 798,1 564,7 331,3 97,9 fee Repayment of principal 5835,0 11670,0 11670,0 11670,0 11670,0 11670,0 11670,0 11670,0 11670,0 11670,0 11670,0 11670,0 4895,0 of the Loan Maintenance costs (5% of 7000,0 7000,0 7000,0 7000,0 7000,0 7000,0 7000,0 7000,0 the Loan amount) 53 Total Project 2400,0 14172,6 13345,3 26715,0 18460,2 26913,4 14871,0 29091,4 19169,0 13829,0 16219,4 8498,3 8264,9 8031,5 7798,1 7564,7 7331,3 7097,9 Financing Taking The Discount Rate Into Account Current Cost of Fiscal 0,0 6925,5 12465,9 374478,9 663964,7 795243,0 893626,0 968060,5 1159464,3 1170231,1 1167249,9 1050524,9 945472,4 850925,2 765832,7 689249,4 620324,5 Benefits Current Cost of Economic 0,0 0,0 0,0 45694,1 82249,4 98699,2 111036,6 119919,6 143903,5 145702,3 145702,3 131132,0 118018,8 106216,9 95595,3 86035,7 77432,2 Benefits Current Cost of 1400,0 2700,6 3164,8 4809,0 3854,3 7570,4 8646,4 8620,1 6885,7 5817,0 7439,4 6329,0 5630,2 5007,9 4453,7 3960,3 3521,0 2000,1 Government Expenditures Current Summary Cost of 2400,0 12755,3 10809,7 19475,2 12111,7 15892,1 7903,1 13914,3 8251,6 5357,6 5655,4 2666,9 2334,3 2041,5 1784,0 1557,5 1358,5 1183,7 Project Financing Fiscal Benefits, -1400,0 -2700,6 3760,7 7656,9 370624,6 656394,2 786596,6 885005,9 961174,8 1153647,3 1162791,7 1160920,9 1044894,7 940464,6 846471,5 761872,4 685728,4 618324,4 NPV Economic -2400,0 -12755,3 -10809,7 -19475,2 33582,4 66357,2 90796,1 97122,3 111667,9 138545,8 140046,9 143035,4 128797,8 115977,3 104433,0 94037,7 84677,2 76248,4 Benefits, NPV Discount Rate (to the rate of 1,00 0,90 0,81 0,73 0,66 0,59 0,53 0,48 0,43 0,39 0,35 0,31 0,28 0,25 0,23 0,21 0,19 0,17 2003) Source: FCS ICR 54 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Carlos D.C. Ferreira Lead Public Sector Specialist ECSPE Task Team Leader Pervaiz Rashid Lead Specialist Quality Assurance Jit Bahadur S. Gill Senior Public Sector Specialist ECSPE Revenue Administration Senior Revenue Administration Customs Policy and Michael Engelschalk PRMPS Specialist Legal Framework Alexander Morozov Economist ECSPE Fiscal Economist Human Resource William V. Mayville Consultant ECSPE Management Yelena Dobrolyubova Public Sector Specialist ECSPE Project Coordinator Karl Skansing Senior Procurement Specialist ECSPR Procurement Anna Jouravleva Financial Management Specialist ECSFM Financial Management Andrei Darusenkov Senior Operations Officer Project Management Administrative and Bhagwan Das Varma Program Team Assistant ECSPE Client Support Michael Welling Consultant ECSPE Trade Facilitation Customs Administration Michel Zarnowiecki Consultant ECSPE and Trade Facilitation Anthony Mort Consultant ECSPE Customs Automation Vladimir Debrentsov Senior Economist ECSPE Trade Economist Supervision/ICR Coordination & Natalia Balashova Program Assistant ECCU1 documentation Coordination & Anita Correa Senior Program Assistant PPIAF documentation Yelena Dobrolyubova Consultant ECSPE Project Coordinator Thomas Joseph Doyle Consultant PRMTR Information Systems Senior Tax Administration Customs Policy and Michael Engelschalk CICTI Specialist Legal Framework Carlos D. C. Ferreira Consultant ECSP4 Customs Automation Procedures & Yoko Kagawa Operations Officer ECSP4 Documentation Jens Kromann Kristensen Senior Public Sector Specialist AFTP3 Task Team Leader Senior Financial Management Financial management Galina S. Kuznetsova ECSO3 Specialist Administrative and Elena Lukyanchikova Senior Executive Assistant FICDR Client Support Aziz Mamatov E T Consultant ECSOQ Financial Management 55 Human Resource William V. Mayville Consultant SASEP Management Customs Administration Gerard McLinden Senior Trade Facilitation Spec PRMTR and Trade Facilitation Alexander Morozov Senior Economist ECSPE Fiscal Economics Amitabha Mukherjee Lead Public Sector Specialist ECSP4 Task Team Leader Implementation Craig Neal Consultant ECSPE Completion Report Ljudmilla V. Project Coordination Senior Projects Officer ECSF1 Poznanskaya Jesus Renzoli Consultant SASGP Procurement Alexander Procurement Senior Procurement Specialist ECSO2 Rukavishnikov Karl Skansing Consultant AFTSE Procurement Coordination & Dolly Elizabeth Teju Program Assistant ECSP4 Documentation Coordination & Ekaterina Ushakova Team Assistant ECCU1 Communication Customs Administration Michel Zarnowiecki Consultant SASDT and Trade Facilitation (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$Thousands (including No. of staff weeks travel and consultant costs) Lending FY01 3 22.81 FY02 30 289.94 FY03 51 310.36 FY04 16.73 Total: 84 639.84 Supervision/ICR FY03 2 3.50 FY04 38 170.25 FY05 28 148.93 FY06 19 74.52 FY07 20 96.60 FY08 23 145.85 FY09 30 198.70 FY10 21 131.53 FY11 12 79.40 FY12 17 99.94 FY13 15 95.30 FY14 1 10.09 Total: 225 1,254.51 56 Annex 5. Beneficiary Survey Results Project-financed surveys were performed in 2006, 2008-9, 2010, 2011 and 2012. A detailed report was prepared and shared with the Bank. (See the project files.) The report provides a nuanced picture of impressions by the trading community, other state agencies, and customs staff on a variety of topics. The salient results are summarized below. The trading community reported generally positive or strongly positive impressions over time (1200 respondents – from a country-wide and a broad manufacturing and natural resource sample). See Table 5.1. Table 5.1. Survey Results from Trading Community Trading Community Question: “Response” 2006 2008-9 2010 2011 2012 Overall impression of customs 70% 82% 93% administration: “positive or rather [somewhat] positive” Trends in customs performance: “for the 29% 42% 30% 45% 53% better” Use of electronic declaration for cargo 18% 25% 67% 87% clearance: “yes” Impact of electronic declaration on 44% 58% 54% 76% 81% clearance processes: “makes it easier or makes it rather [somewhat] easier” Software for customs documentation 63% 59% 63% 84% 89% procedure: “convenient” Modernization of customs information 24% 24% 20% 42% 67% system simplifies clearance process: “to a major extent” Modernization of customs information 15% 22% 18% 36% 49% system improves transparency of custom administration: “to a significant extent” Customs staff reported somewhat more mixed or muted positive impressions over time (180 respondents and 72 from the pilots). Presumably this reflects the burden of affecting the modernization initiatives. See Table 5.2. 57 Table 5.2. Survey Results from Trading Community Customs Staff Question: “Response” 2006 2008-9 2010 2011 2012 Modernization of customs information 60% 60% 74% 80% 85% system and electronic documents on cargo clearance: “makes it easier or makes it rather [somewhat] easier” Training effectiveness: “Took training 15% 17% 15% 38% and it helped a lot ” Available technological resources: 26% 34% 24% 28% 45% “High” Software for customs documentation 23% 27% 25% 24% 30% procedure: “convenient” A comparative analysis in 2011 of the trading community’s responses to developments in the pilot areas versus the overall customs administration indicate that pilot areas DO NOT show advantages in speed of clearance, transparency or overall service quality. However, respondents within the pilot areas DO indicate improvements in many areas / factors (including speed of clearance, transparency, service quality). This suggests that the pilot areas do not constitute a “controlled experiment” in that some of the important innovations are system wide (such as those in the legal/regulatory/organizational arrangements). Additionally, the modernization program remains a work-in-progress. So many of the innovations to be deployed in the pilot region first (notably the UAIS) were not yet in place or yet fully effective. This is consistent with the staff in the pilot areas judging aspects of the modernization effort more positively than customs staff at large (i.e., the effects of the modernization initiatives in the pilots had not yet fully worked through to impacts on the trading community). 2011 narrative/textual interviews of “expert representatives” from state authorities, professional associations, NGOs (180 respondents and 72 from the pilots) indicate that: (a) The modernization program (international norms, information systems modernization, e-declarations, staff training, etc.) is absolutely necessary. (b) The program is clearly a work-in-progress which is thus difficult to definitively assess at this point. (c) Despite its ambitious scope, the program coverage/implementation is less comprehensive than it needs be to address the observed deficiencies in customs. (d) There are areas, such as information sharing, for which the FCS systems remain disappointing. (e) Requirements associated with e-signatures are not as streamlined as they could be. External Survey Results. As analyzed by the Bank team and summarized in a July 2011 Europe & Central Asia Region Knowledge Brief (Volume 41), external surveys (Business Environment and Enterprise Performance Survey – BEEPS; Logistics Performance Index – LPI; and the World Economic Forum Enabling Trade Index – ETI) present a broadly consistent and relatively encouraging picture of the performance of customs in the RF over the period 2005-2010. Problems with customs regulations trend down in the BEEPS and LPI data. LPI and ETI data indicate export clearance efficiency is higher than import 58 clearance (associated with revenue collection and community protection processes), which is consistent with the internal data and the project-financed surveys. On transparency and corruption, the external surveys diverged somewhat, with BEEPS showing improvements and the LPI and ETI indicators showing higher or deteriorating reported incidences (respectively). 2013 BEEPS data indicate a stalling of progress between 2010-2013. The number of documents and time for import and for export show improvement in only the time to export data. Costs to import and to export are up sharply in 2013. 2012 LPI results indicate custom administration and cross-border trade environment generally lag the Europe and Central Asia averages as well as Upper Middle Income averages. In short, the CDP helped the RF move forward in terms of trade facilitation and international orientation. However, much work remains to sustain and further advance the reforms. 59 Annex 6. Stakeholder Workshop Report and Results A separate Stakeholder Workshop was not held. The CDP incorporated a sequence of in depth stakeholder surveys in 2006, 2008-9, 2010, 2011 and 2012. (Please see Annex 5 for a summary of the findings.) 60 Annex 7. Summary of Borrower's ICR Annex 2 summarized the FCS’s detailed implementation completion report and evaluation of project efficiency and effectiveness (see project files). Three issues in the Borrower’s ICR merit consideration: i) Ratings: A comparison of Bank and Borrower ratings (Table 7.1) indicates similar ratings on all aspects. The FCS ICR provides reasoned explanations for the ratings, while this ICR provides justifications for the Bank’s ratings. Table 7.1. Comparison of Bank and Borrower Ratings of the CDP Issue Bank Rating Borrower Rating Development Outcome Satisfactory Satisfactory Risk to development outcomes Moderate Moderate Bank Performance Ensuring quality at entry Satisfactory Satisfactory Quality of supervision Satisfactory Satisfactory Bank overall Satisfactory Satisfactory Borrower Performance Government Satisfactory Satisfactory Implementing agency Satisfactory Satisfactory Borrower overall Satisfactory Satisfactory ii) Exogenous developments affecting implementation and impact: The major developments included (a) changes to the legal and institutional framework affecting customs’ operating environment such as the adoption of the Customs Code (2004), creation of the Customs Union and Common Economic Space (2010) and Russia’s 2012 accession to the WTO; (b) laws to reform the public service (2003) and the civil service (2004) and their implementation (2003-2007 and 2008-2013), which resulted in new processes for competitive recruitment, performance evaluation and performance-based remuneration – these mainly affected the Human Resource Management and Training component; (c) public financial management reforms including the introduction from 2004 of medium-term expenditure planning and program- and results-based budgeting (when a Budget Process Reform Concept was adopted) – these facilitated the project’s results-based approach and increased the significance of the results framework and of results collection and reporting, but also led to some budget-reform related activities being financed from budget funds rather than from CDP resources; (d) administrative reforms (2004) which led to the creation of federal executive authorities including the transition of the SCC to the FCS and later – since 2008 – increased emphasis on provision of IT-enabled public services (the latter facilitating the introduction of electronic customs declarations earlier referred to) and increased the significance of electronic systems of interaction between the FCS and other federal entities since federal agencies were mandated to avoid demanding the same documents from service users and clients over and over again (2010 Law no. 210-FZ) and (e) increased federal emphasis on anti-corruption (through 2008 Law no. 273-FZ) which facilitated the use of project outputs on improving FCS integrity across the FCS to implement federal and sectoral anti- 61 corruption policy. Overall such exogenous developments positively impacted the project and especially the significance and sustainability of its results and outcomes. In addition, the FCS estimates that during the course of implementation, 208 external changes impacted information technology-related project activities and implementation timelines, affecting IT activities costing about US$87 million (about 70% of the total cost of the IT component). The Bank agrees with the above assessment. iii) Underestimation of macroeconomic assumptions: The FCS points out that the differences were significant (Table 7.2) and affected the assessment of the project’s economic and financial costs and benefits. The Bank agrees with this assessment. Table 7.2. Macroeconomic indicators – forecast vs. actual Indicator (annual average Forecast Actual growth rate, 2000-2004) (from PAD) GDP 4.3 6.8 GDP per capita 4.7 7.2 Export of goods and services 2.0 20.6 The project economic and financial analysis has been separately presented. 62 Annex 8. Comments of Co-financiers and Other Partners/Stakeholders The FCS provided comments on the draft ICR through a letter from its Deputy Head and State Secretary dated December 20, 2013, addressed to the Country Director. These comments have been taken into account wherever possible. 63 Annex 9. List of Supporting Documents Final report, containing conclusions and recommendations, as well as comparative analysis of the results of the survey data with analogous surveys conducted in 2006, 2008-2009, 2010 and 2011, Russian Public Opinion Research Centre (October 9, 2012). Evaluating Efficiency and Effectiveness of the Customs Development Project – FCS Report on the CDP (2013) FCS Letter dated December 20, 2013 addressed to the World Bank Country Director with comments on the draft ICR Aide Memoires from Implementation Support Visits by the World Bank Task Team Implementation Status Reports (ISRs) Other reports and documents pertaining to the CDP 64 Annex 10. Summary of Appraisal Diagnostics and Project Activities Appraisal Diagnostics The following recaps the appraisal diagnostic analysis of customs administration in the Russian Federation (circa 2002):  Legal Framework o The need to address the (then current) Customs Code’s ambiguities, loopholes, and high degree of discretion for individual customs officials and customs administration to interpret the Code; lack of support for (revenue) risk-based examination, electronic filing, streamlined procedures, and other inconsistencies with Kyoto and WTO norms as well as other trade-facilitation measures; the need to mitigate the administrative burdens and constraints on customs administration arising from the laws pertaining to VAT and excise administration, currency control, banking activity, procurement, and the enforcement of administrative penalties.  Fiscal Policy and Practices o The need to expand the narrow base of custom revenue sources (in terms of firms and goods); the need to reduce the high level and complex structure of tariffs (including exemptions and preferences); the need to align custom fees with the corresponding administrative costs; the need to address the substantial stock and flow revenue arrears; the need to improve the less-than-robust revenue planning function (and reduce the pressure for customs to focus on fulfilling revenue targets and rather than its proper role in the confirmation, facilitation, and enforcement of trader/broker/traveler compliance to the Customs and Tax Codes).  Customs Procedures o The need to streamline excessive goods clearance documentation requirements; the need to shift away from (some) arbitrary valuation methods; the need to address the limited additional revenue yield (assessments and penalties) arising the high rate of physical inspection; the need to fill gaps in valuation information and processing capacities that are required to support (revenue) risk-based selection of cargo for inspection; the need to strengthen the risk-based allocation of anti-smuggling personnel and resources; the need to strengthen VAT information exchange with RF State Tax Service (and abate VAT fraud); the need to expand traders’/brokers’ options for financial guarantees, securities and deferments; the need to expand cross-border harmonization of customs control of goods.  Consultative Practices o The need to sustain and extend the good practices the SCC has adopted in trader community relations (including the SCC Advisory Council on Customs Policy, the relevant working groups of the Foreign Investment Advisory Council). 65  Accountability, Transparency, and Anti-Corruption o The need to develop and implement an integrated and cross-cutting administrative integrity program, including organizational responsibilities, human resource policies and practices, a code of ethics, technical and technological controls over administrative processes, legislative and regulatory improvements, as well as stakeholder relations and feedback mechanisms.  Dispute Resolution o The need to strengthen SCC legal representation before the courts, as well as the courts’ understanding of the relevant Customs and Tax Codes (including issues arising from the CIS customs union); the need to strengthen the administrative appeals process (including clarifications to the new Code on Administrative Offenses, which will govern fines and penalties).  Organization o The need to address financial and human resource rigidities imposed by the distinct legal identities of the customs bodies in the administrative subdivisions of the RF; the need to follow-up the review and standardization of the structure of the Regional Customs Directorates, Customs Offices and Customs Posts with a review and streamlining of the organization of the SCC Headquarters; the need to revise/refine operational level (and HQ level) organizational arrangements to reflect the introduction of modern risk-based procedures, as well as modern information systems.  Performance Management o The need to rationalize and better target operational and resource management information reporting arrangements, including formats, information flows, integrated computer-based management information systems; the need to train managers at all levels on modern, performance-based management methods.  Human Resource Management o The need to overhaul of human resource (HR) management policies and practices, to accommodate the transformation of the majority of SCC personnel from members of a uniformed service (i.e., military) to civil servants; the need to strengthen HR planning (e.g., work load and staffing) and HR administration (e.g., recruitment, evaluation, ethics, discipline, rotation and career management); the need to implement an integrated, computer-based HR management information system; the need to strengthen and better target the SCC’s education and training capacity, including the Customs Academy.  Financial Management o The need to strengthen the SCC’s financial arrangements to overcome the rigidities imposed by the non-unitary legal structure of the SCC; the need to implement an integrated, computer-based financial management information system. 66  Information Systems and Management o The need to transition from the collection of fragmented software applications used to support customs operations to an integrated software platform that can share information across operational functions (improving internal control, reducing operational burdens, and enhancing operational reporting), evolve in line with advances in the underlying ICT platform and software functionality, and lend itself to centralized system management; the need to build a contemporary ICT infrastructure platform upon which to run a suite of integrated operational applications; the need to establish up-to-date information and systems security, back-up and disaster recovery mechanisms; the need to manage application software, ICT infrastructure, and information stores as strategic institutional assets; the need to address staffing constraints and high turnover for ICT professionals. Appraised Project Components-Activities The following summarizes the project components and activities and costs estimated at appraisal. CUSTOMS OPERATIONS Customs Control and Clearance – Develop a strategy for risk-based selection; rationalize cargo clearance procedures; strengthen post-clearance audit; enhance customs- tax administration coordination; and devise an effective cargo monitoring system. [US$4.02 million] Trade Facilitation – Align procedures with international norms; implement a comprehensive program of trade facilitation (procedures, dialog, dissemination, distance learning, e-filing, etc.); develop and pilot methodology for evidence-based strategic planning and internal control; develop and implement a Code of Ethics; catalog and streamline customs clearance documentation requirements; raise staff awareness of / commitment to trade facilitation; adopt and promote use of UNTDED nomenclature. [US$9.59 million] Fiscal Policy – Enhance SCC information and analytical support to Government; develop and implement a customs fee structure based on administrative costs; implement updated and rationalized revenue accounting methods and systems (including regulations and training); implement updated and rationalized customs payment control methods and systems (including regulations and training); implement strengthened revenue forecasting methods and systems (including regulations and training). [US$4.05 million] Improved Legal Framework for Customs Activities – Analyze and eliminate inconsistencies in the broad legal framework that compromise customs efficiency and effectiveness; develop and implement the regulatory structure necessary to support the new Customs Code (including outreach); align customs legislation with WTO standards and Revised Kyoto Convention; upgrade administrative appeals mechanisms (including 67 regulations and training); rationalize processes for managing customs-related court cases (including legal and regulatory acts); develop and implement shared databases of relevant laws, regulations, internal orders, court decisions, and customs cases); develop and implement database of draft customs legislation; develop and implement a program to strengthen SCC capacity to contribute to law enforcement activities (including cross- border information sharing, dialog with judiciary, and training). [US$5.44 million] ORGANIZATIONAL STRUCTURE AND MANAGEMENT Organizational Structure and Operational Management – Align organizational structures at all levels with the reformed procedures and modernized systems; develop an objectives “tree” based on regional surveys; develop and implement a modernized performance monitoring system for the SCC (including methods, information systems, and training); review and sharpen the structure of roles and responsibilities of organizational units and staff; develop and implement contemporary, computer-based document / work flow system; review and rationalize internal reporting practices and systems; develop and implement strengthen internal control/supervision mechanisms (including methods and training); develop and implement performance-based staff incentive mechanisms; develop and implement permanent/regular external stakeholder feedback mechanisms; upgrade the SCC management information system (including information linkages and a executive level decision support sub-system); develop and implement external information exchange methods and systems (including inter-agency links, cross-border links, links with the trading community). [US$10.23 million] Financial Management – Review and rationalize SCC internal budgeting practices; develop and implement a contemporary financial management information system (including training). [US$6.48 million] Human Resource Management and Training – Develop and implement a capacity building program to undertake work load and staffing requirements analysis; develop and implement an updated and upgrade framework for managing the “life cycle” of personnel management (including classification, recruitment, assessment, rotation, career management, training, ethics, and discipline, etc.); develop strategies for improved recruitment and retention (including remuneration and non-monetary benefits); develop and implement a contemporary human resource management information system (including training); develop a comprehensive staff training strategy (including needs analysis); develop and implement a modern management training program at all levels; develop and implement technical subject area curriculum (including IT); develop and implement content, methods, and technologies for distance learning; develop and implement programs to strengthen the service delivery capacity the Russian Customs Academy and regional training centers (including modern training laboratories). [US$7.27 million] Improving the Integrity of the Customs Service – Develop and implement a comprehensive customs integrity strategy (including code of ethics, risk maps, data mining technologies, inputs to the operational system specifications, etc.). [US$2.49 million] 68 INFORMATION TECHNOLOGIES Information Technology Development (by subcomponents)  Develop and implement a modern ICT infrastructure platform (including telecommunications, networks, information processing technologies); develop and implement mobile inspection systems for trucks and containers (including training); [US$64.41 million]  Develop and pilot “Phase III” of the SCC’s Unified Automated Information System (UAIS), covering the full range clearance, control and monitoring/reporting processes (including upgrading and sustaining the central and regional processing centers, transitioning legacy systems and upgrading systems supporting specialized administrative procedures for currency control and control of international barter transactions, etc.); extend a proven UAIS to customs offices on the basis of cargo traffic; develop and implement up-to-date security mechanisms. [US$58.33 million]  Enhance the executive/strategic management of information systems in the SCC (including ICT strategies and policies, ICT-related performance management, quality control mechanisms for information sharing with trading community, business continuity and disaster recovery). [US$1.09 million]  Develop and implement mechanisms to strengthen the management of the application software development/maintenance processes (including ICT project management and budgeting/expenditure control). [US$0.26 million]  Develop mechanisms to strengthen ICT related human resource management (including measures to reduce staff turnover and continuously upgrade technical skills). [US$2.41 million]  Develop and implement approaches to ensure the management of information systems are consistent with Kyoto Convention norms (including a compliance audit, user manual preparation/dissemination, investment efficiency controls and reporting mechanisms). [US$0.33 million]  Develop and implement a customs information database (including mechanisms for data loading, analysis, archiving, at the central level). [US$6.40 million] PROJECT MANAGEMENT Project Management – Support Bank-specific procedures and project reporting; support M&E activities (including surveys). [US$3.00 million] 69 This map was produced by the Map Design Unit of The World Bank. 70°N 80°N 80°N 60°N The boundaries, colors, denominations and any other information UNITED STATES OF AMERICA shown on this map do not imply, on the part of The World Bank ARCTIC OCEAN Group, any judgment on the legal status of any territory, or any Bering S endorsement or acceptance of such boundaries. tr ait Norwegian Sea NETH. NORWAY RU S S I A N F E DE R AT I ON GSDPM Map Design Unit DENMARK SWEDEN East Siberian GERMANY Barents Sea Anadyr Sea For More Details, Murmansk See Inset Below RUSSIAN FINLAND FED. Kaliningrad Laptev ESTONIA Sea Kara Sea POLAND LATVIA Karelia LITH. 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Tartu OF J A PA N Pskov OBLAST CENTERS KOREA Ventspils RUSSIAN MAIN ROADS Pavilosta ¯ FEDERATION REP. Riga LATVIA RAILROADS Liepaja ¯ OF OBLAST, KRAI, REPUBLIC, KOREA Siauliai Daugavpils ˙ Klaipeda AUTONOMOUS REPUBLIC, OR N ˙ ˇ Panevezys AUTONOMOUS OKRUG BOUNDARIES C H I N A 30° LITHUANIA Zelenograd DECEMBER 2013 Kaunas INTERNATIONAL BOUNDARIES IBRD 40607 Kaliningrad RUSSIAN FED. Vilnius BELARUS ´ Gdansk Elblag POLAND Minsk 80°E 90°E 100°E 110°E 120°E 130°E