Document of The World Bank FOR OFFICIAL USE ONLY Report No: 58891-LR PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 4.5 MILLION (US$7 MILLION EQUIVALENT) TO THE REPUBLIC OF LIBERIA FOR AN ECONOMIC GOVERNANCE AND INSTITUTIONAL REFORM PROJECT March 14, 2011 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT (As of March 11, 2011) Currency Unit = Liberian Dollar US$1 = LR$71.5 FISCAL YEAR July 1 ­ June 30 ABBREVIATIONS AND ACRONYMS AF Additional Financing AWPB Annual Work Plan Budget BOC Bureau of Concessions BIR Bureau of Internal Revenue CAS Country Assistance Strategy CBL Central Bank o f Liberia CDC Central Data Center CENTAL Center for Transparency and Accountability in Liberia CSA Civil Service Agency CS-DRMS Commonwealth Secretariat - Debt Reporting Management System DA Designated Account EBIRS Employee Biometric Identification Registration System EGIRP Economic Governance and Institutional Reform Project EISR External Implementation Status and Results Report EITI Extractive Industries Transparency Initiative EI-TAF Extractive Industries Technical Advisory Facility GAC General Auditing Commission GDP Gross Domestic Product GEMAP Governance and Economic Management Assistance Program GOL Government of Liberia GSA General Service Agency HIPC Highly-Indebted Poor Countries HRMIS Human Resource Management Information System IBRD International Bank for Reconstruction and Development IDA International Development Association IFMIS Integrated Financial Management Information System IFR Interim Financial Report IMCC Inter-Ministerial Committee on Concession IMF International Monetary Fund ISDS Integrated Safeguard Data Sheet IT Information Technology ITAS Integrated Tax Administration System LACE Liberia Agency for Community Empowerment LAN Local Area Network LDI Liberia Democratic Institute LECAP Liberia Expenditure Control and Accounting Program LEITI Liberia Extractive Industries Transparency Initiative LIBTELCO Liberia Telecommunications Corporation LIPA Liberia Institute of Public Administration ii LTC Telecommunication Corporation MDAs Ministries, Departments and Agencies MLME Ministry of Land, Mines, and Energy MOF Ministry of Finance MPEA Ministry of Planning and Economic Affairs MS-CCF Multi-stakeholder Community Forum NSC National Steering Committee ORAF Operational Risk Assessment Framework PDO Project Development Objective PFM Public Financial Management PFMP Public Financial Management Program PFMU Project Financial Management Unit PFMRU Project Financial Management Reform Unit PID Project Information Document PIM Project Implementation Manual PMU Project Management Unit PPCC Public Procurement and Concession Commission PPR Post Procurement Review PRSP Poverty Reduction Strategy Paper PTC Project Technical Committee QALP Quality Assurance of Lending Portfolio SES Senior Executive Services UL University of Liberia UNDP United Nations Development Programme USAID United States Agency for International Development WAN Wide Area Network Vice President: Obiageli K. Ezekwesili Country Director: Ishac Diwan Country Manager: Ohene Nyanin Sector Director: Marcelo Giugale Sector Manager: Miria Pigato Task Team Leader: Jariya Hoffman iii ADDITIONAL FINANCING FOR LIBERIA ECONOMIC GOVERNANCE AND INSTITUTIONAL REFORM PROJECT TABLE OF CONTENTS DATA SHEET ................................................................................................................................... v 1. Introduction ............................................................................................................................. 1 A. Background ......................................................................................................................... 1 B. Status of Project Implementation ........................................................................................ 2 C. Rationale for Additional Financing .................................................................................... 3 2. Proposed Project Changes ....................................................................................................... 5 A. Reallocation of Proceeds..................................................................................................... 6 B. Proposed AF Activities and Allocations ............................................................................. 7 C. Restructuring Component 2 Activities.............................................................................. 10 D. Strengthened CSOs Participation in Project Activities ..................................................... 11 E. Revised Results Framework ............................................................................................. 11 F. Extension of Closing Date ................................................................................................ 12 G. Project Costs ..................................................................................................................... 12 3. Appraisal Summary ............................................................................................................... 12 A. Economic Analysis ........................................................................................................... 12 B. Implementation Arrangements.......................................................................................... 13 C. Financial Management ...................................................................................................... 13 D. Procurement ...................................................................................................................... 14 E. Safeguards ......................................................................................................................... 16 4. Expected Outcomes, Benefits and Risks ............................................................................... 16 5. Financial Terms and Conditions ............................................................................................ 17 List of Annexes: Annex 1: Results Framework and Monitoring Indicators............................................................. 18 Annex 2: Operational Risk Assessment Framework (ORAF) ...................................................... 26 Annex 3: Detailed Description of Project Components ................................................................ 28 Annex 4: Implementation Arrangements and Support ................................................................. 34 Annex 5: Financial Management Assessment .............................................................................. 38 List of Tables: Table 1: Status of EGIRP Activities ............................................................................................... 6 Table 2: Reallocation of Grant Proceeds, Disbursement and Commitment ................................... 7 Table 3: Proposed Allocation of Additional Financing ................................................................ 10 Table 4: Revised Project Cost by Components............................................................................. 12 iv LIBERIA E CONOMIC G OVERNANCE AND I NSTITUTIONAL R EFORM P ROJ ECT P ROPOSED ADDITIONAL F INANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Ishac Diwan Sectors: Public Sector Management Sector Director: Marcelo Giugale Themes: Public financial management, Sector Manager: Miria Pigato and Institutional Development Team Leader: Jariya Hoffman Environmental category: C Project ID: P124643 Expected Closing Date: December 31, Expected Effectiveness Date: August 1, 2013 2011 Joint IFC: Lending Instrument: TAL Joint Level: Additional Financing Type: scaled-up, cost overrun, and expanding activities Basic Information - Original Project Project ID: P107248 Environmental category: C Project Name: Economic Governance and Expected Closing Date: December 31, Institutional Reform Project 2013 Lending Instrument: ERL Joint IFC: Joint Level: AF Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: AF Financing Plan (US$m) Source Total Amount (US $m) Total Project Cost: 7.00 Cofinancing: Borrower: Total Bank Financing: IBRD IDA 7.00 New Recommitted Client Information Recipient: Republic of Liberia Responsible Agency: Ministry of Finance Contact Person: Hon. Augustine Ngafuan Telephone No.: 06578921 Email: ngafuan@yahoo.com v AF Estimated Disbursements (Bank FY/US$m) FY FY12 FY13 FY14 Annual 2.0 2.5 2.5 Cumulative 2.5 4.5 7.0 Project Development Objective and Description Original project development objective: improved efficiency and transparency in managing public financial and human resources, focusing on revenue administration, public procurement, budget execution and payroll management. The original PDO remains unchanged. Project description: · Component 1: Strengthening Public Financial Management. The project will: (a) facilitate an exchange of public financial information to improve comprehensiveness and timeliness of fiscal reports by creating a data center and wide area network in the Ministry of Finance that provides a common platform for an Integrated Financial Management Information System (IFMIS); (b) build technical capacity in financial management and procurement by adding an intensive procurement training program at the MOF Financial Management Training School; (c) strengthen financial management and governance in the mining sector; (d) improve revenue administration by covering the cost overrun of the installation of an integrated tax administration system; and (e) strengthen financial management and governance in the mining sector by scaling up technical assistance activities. · Component 2: Support Civil Service Reform to strengthen human resource management and human capacity. The project will (a) strengthen a civil service employee database through the development of a "One Employee, One File, One Salary, One Job" system using Biometric Identification and the development of a comprehensive Human Resource Information Repository; (b) maintain existing capacity within the civil service by supporting the Senior Executive Services program; and (c) rehabilitate and strengthen LIPA institutional capacity both organizational and governance structure and its training capacity; and · Component 3: Project Management. At the project and component/activity levels, the project will promote greater transparency and reinforce accountability by strengthening participation of non- governmental stakeholders (suppliers, taxpayers, citizen, etc.) and civil society organizations (CSOs). These activities aim to increase availability of and ease of access to public information related to budget and procurement operations and build capacity of CSOs through awareness training. vi Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ ]Yes [X] No Natural Habitats (OP/BP 4.04) [ ]Yes [X] No Forests (OP/BP 4.36) [ ]Yes [X] No Pest Management (OP 4.09) [ ]Yes [X] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [X] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [X] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [X] No Safety of Dams (OP/BP 4.37) [ ]Yes [X] No Projects on International Waters (OP/BP 7.50) [ ]Yes [X] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [X] No Does the project require any exceptions from Bank policies? [ ]Yes [X] No Have these been approved by Bank management? [ ]Yes [ ] No Conditions and Legal Covenants: Financing Agreement Description of Date Due Reference Condition/Covenant Article V, 5.01 (a) The Recipient has adopted the Effectiveness Condition Project Implementation Manual (PIM) in form and substance satisfactory to the Association vii 1. INTRODUCTION 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of US$7 million equivalent to the Republic of Liberia's Economic Governance and Institutional Reform Project (P107248, grant number H385- LBR). 2. The proposed additional credit would finance the cost of expanding and scaled-up activities, cover the cost overrun, and establish project management as a separate component. Further, the additional financing (AF) will include restructuring of the original project to address recommendations of QALP-2 that was conducted in June 2010 and to meet operational considerations emerging from project implementation. The changes include: (a) reallocation of proceeds within and across project components; (b) restructuring component 2.1 activities; (c) revision of the results framework; (d) addition of a new component to support project management activities; (e) extension of the closing date to December 31, 2013 for both the original project and the AF; and (f) increasing participation of CSOs at the project level and component/activity levels. A. Backgr ound 3. Improved economic governance and strengthened public administration has been a key priority for the Government of Liberia (GOL) headed by President Ellen Johnson-Sirleaf. This priority is clearly reflected in the government's Poverty Reduction Strategy (Lifting Liberia for 2008-2011) under the first PRS pillar: Governance and the Rule of Law. The importance attached to this pillar reflects the extent that poor governance, characterized by widespread corruption and abuse of public resources, has eroded public confidence in the government, a legacy of the 14-year civil war that destroyed productive assets, physical infrastructure, institutional and human capacity, and which ultimately led to a collapsed economy and worsening living standards. Initiatives designed to improve economic governance and strengthen public administration are expected to increase transparency and efficiency in the management and utilization of Liberia's rich natural resources for the provisioning of public services. These efforts should help ensure that benefits from natural resources are reaped by all citizens and thus restore public confidence in the government. 4. The original Economic Governance and Institutional Reform Project (EGIRP) was designed to improve economic governance. Specifically, it sought to promote accountability and transparency in fiscal and financial management. The project's development objective (PDO) called for improved efficiency and transparency in managing public finances and human resources, focusing on revenue administration, public procurement, budget execution and payroll management. The project has two components: Strengthening Public Financial Management, and Supporting Civil Service Reform. The project aimed to support governance and institutional reforms by further strengthening PFM processes and systems, building the capacity of civil servants (with a focus on public procurement as a pilot), and initiating civil service reform. The project became effective on May 23, 2008 and was originally expected to close on August 31, 2011. 5. EGIRP provides logistic, training, and technical assistance to nine ministries and agencies, and supports their efforts at addressing immediate needs and helping them develop information technology systems to increase transparency and efficiency in financial and human resource management. The support has helped the agencies in overcoming both logistic and capacity constraints that hinder progress in economic governance and institutional and human development. The project focuses on strengthening fiduciary systems (budgeting, procurement, accounting, and auditing) and management systems (both human and financial) in the public sector so that opportunities for corruption are reduced and institutional and human capacity building can be strengthened. These efforts were designed to ensure the sustainability of the government's reform effort over the medium-term. 6. Implementation of the EGIRP project was carried out in support of the Governance and Economic Management Program (GEMAP) ­ a multi-donor coordination and assistance scheme that covered the period 2006-2010 and was set up by the GOL in partnership with the international community (United States Agency for International Development, European Union, International Monetary Fund, and World Bank). GEMAP was successfully concluded in September 2010 with Liberia achieving the HIPC completion point. B. Status of Pr oject Implementation 7. Achievement of the project's overall development objectives (PDO) and implementation progress (IP) has continued to be satisfactory. Financial management is also satisfactory. In December 2010, procurement management improved to moderately satisfactory (from moderately unsatisfactory in June) due to lowered procurement risk. The improvement reflects efforts by the government to complete most of the actions recommended by the June 2010 implementation support mission. A Post Procurement Review (PPR) initiated by the World Bank concluded that procurement activities were carried out in accordance with Bank guidelines, but recommended that a procurement specialist with suitable international experience be hired to strengthen the procurement aspects of the project. This specialist has now been recruited and a revised and updated procurement plan has been submitted to IDA for no objection. While monitoring indicators have remained moderately satisfactory, core and intermediate indicators continue to suffer from a persistent lack of reliable information. Project management has been strengthened now that a full-time project coordinator and a dedicated procurement specialist have been recruited and the national steering committees have resumed their quarterly meetings. 8. EGIRP support to rehabilitate public financial systems and functions has provided visible results in the areas of budget execution, aid management, fiscal reporting, and external audit. The risk of fraud in the electronic data processing (EDP) check-writing process has been reduced through the provision of high-velocity printers interfaced with the Sun Accounting System that facilitates bank reconciliation. The timeliness of salary payments to local government employees has been improved through the provisioning of pickup vehicles (supplementing the use of UN charter flights) to convey checks to outlying counties. Foreign aid management has improved through the setting up of an Aid Coordination Unit and a monitoring system to track aid flows into Liberia (now reported in the budget). Also, the EGIRP provided support to the government to complete auditing of six major spending ministries by GAC, which enabled the country to reach the HIPC completion point in June 2010. The quality and timeliness of financial reports produced by the Ministry of Finance has been improving and these reports were posted on the government website. The introduction of the Public Procurement and Concession Act in 2005 (and its update approved in September 2010) has contributed to increased transparency and -2- competition in public procurement. Government agencies have increasingly employed more transparent and competitive procurement methods (such as national shopping and international competitive bidding). Payroll fraud has decreased as non-registered civil servants (ghost workers) have been gradually removed from the payroll through the introduction of an Employee Biometric Identification Registration System (EBIRS). Human and financial management are being streamlined and incorporated into an integrated system, thus ensuring that no public hiring occurs without financial concurrence. The information technology (IT) system infrastructure for public financial management is also being upgraded and cooperation between ministries has been strengthened to ensure improved and cost effective IT support. 9. The project is contributing to improved governance in public financial and human management and in the mining sector. According to the Ibrahim Index of African Governance released in October 2010, Liberia's ranking has improved from 32 in 2004/05 to 44 in 2008/09. The World Governance Index 1 seems to indicate that Liberia's aggregate indicator for control of corruption has improved during 2008-09. Through project support, Liberia became the first country in the Africa region to achieve Extractive Industries Transparency Initiative (EITI) compliant status, which it attained on October 14, 2009. C. Rationale for Additional Financing 10. Expanding Activities. The proposed AF will finance two expanded activities under component 1 and 2. The original component 1.1(e) - upgrade MOF LAN, interim software and link Liberia Expenditure Control and Accounting Program (LECAP) with the Sun Accounting System ­ will be expanded by including equipment, installation and maintenance costs for establishing a government data center and wide area network (WAN). These activities will contribute to effective implementation of IFMIS, including a Human Resource Management module, by providing a stable IT infrastructure environment capable of supporting the operation and eventual expansion of the IFMIS system. Increasing the reliability of IFMIS and other IT infrastructure (such as ITAS) will enhance achievement of the project development objectives (PDO). The project will also expand the activities of component 2 relating to civil service reform by supporting the continued maintenance of well performing qualified staff contracted under the Senior Executive Services (SES) and enabling their mainstreaming into the regular civil service. Maintaining key capacity in the civil service will have a direct impact on the project's stated PDO of improving the efficiency of the country's public administration. 11. Scaled-up Activities. The AF will also scale-up support to training activities at the Financial Management Training School (component 1.2) over the next two years and support the mining sector's financial management and governance (component 1.5), both of which having demonstrated proven results. The AF will support the Financial Management Training School by adding a similar program in procurement that will allow students to obtain in one year a post- university diploma in public procurement. In the mining sector, the proposed AF will scale-up activities to strengthen mining sector governance to improve transparency and the government's 1 The World Governance Indicators cover the following areas: Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, and Control of Corruption. -3- ability to ensure regulatory compliance of extractive industries' operations and their contribution to the economy. 12. Cost Overrun. Support to the Revenue Department (component 1.4) has experienced cost overruns due to under-budgeting the installation of ITAS (hardware and software) and its associated costs, including technical assistance and training. The cost overruns will be covered by both reallocation of proceeds and additional financing. The latter will finance additional consultancy services to support the installation of ITAS, which will take an additional six months to complete. This support is required to ensure continuity of coordination of the ongoing tasks and technical services, thus ensuring successful operation of ITAS. 13. Project Management. The proposed AF will add a new project component: a project management unit designed to reduce procurement risk, increase effectiveness in coordinating activities and in monitoring results indicators. The project implementation arrangement will be revised due to the recent alignment of the Project Financial Management Unit function. Adding a new component for project management activities will ensure an adequate level of operational resources so that qualified specialists can carry out effective coordination and financial and procurement management. This will mitigate fiduciary risk related to weak capacity of implementing agencies. 14. The proposed AF is consistent with the development objectives of the project and with the current CAS. The PDOs remain unchanged and are expected to be achieved at project completion through expanded and scaled up activities financed by the proposed AF. Creation of a data center will enable the sharing of financial management information necessary for IFMIS, which is expected to be operational July 1, 2011, thus improving comprehensiveness of budget information. Procurement training, both in-service and intensive, will strengthen capacity in implementing public procurement by ministries, departments, and agencies (MDAs), thus reducing discrepancies between legislative and executed budgets, which is a core PDO because of the deviation between approved and executed items. Support to the SES program will contribute to sustaining the capacity of civil servants. The results framework will be revised to improve the monitoring of core and intermediate indicators. Existing indicators will be revised or dropped; new indicators will be added to reflect new interventions and to ensure data availability; and existing targets will be revised to make them more realistic and achievable. Finally, strengthened project management and coordination (including recruitment of a procurement specialist) will accelerate implementation and improve monitoring of results. 15. In sum, the EGIRP AF will continue supporting the achievement of the PDO and achievement of the two CAS result objectives, namely (a) improved efficiency of government budget preparation and execution, and enhanced revenue administration; and (b) increased professionalization and human resource management of the civil service. The AF is fully consistent with the parameters of OP/BP 13.20. The project has been in compliance with loan covenants. There are no unresolved fiduciary, environmental, social or other safeguard problems. All audits are current and there are no audit issues. Project implementation follows procurement procedures, and the results framework incorporates all relevant and mandatory core indicators. 16. The proposed AF is the preferred option when compared to other financing alternatives. An effective response to the call for an expansion of activities, cost overruns, and scaled-up -4- activities requires quick financing to ensure that on-going activities are neither disrupted nor their full completion jeopardized. The short preparation time will ensure continuity of activities and reaffirm IDA's commitment to support the ongoing governance reform, initiatives that require continued capacity building to meet the needs emerging from the ongoing PFM improvements. The existing activities under the Financial Management Training Program have been successful in building financial management capacity in MDAs, and the addition of a one- year diploma course in procurement is expected to have a similar impact in building procurement capacity to meet the demand and reduce fiduciary risks in budget execution. 2. PROPOSED PROJ ECT CHANGES 17. A Quality Assurance of Lending Portfolio (QALP-2) conducted during May-July 2010 concluded that the likelihood of achieving the project development objectives (PDO) was Moderately Unlikely. It was also found that, in the absence of planning for a follow-up operation, the project should have had a strategy in place to address limited institutional capacity and uncertainty of government commitment after the elections in December 2011. As the project undertook a complex and long-term reform agenda that requires a long-term engagement, the panel recommended the following: (a) conduct a full review of project components and sub- components as to progress achieved and likelihood of implementation, and restructure accordingly; (b) revisit the PDOs and the results framework during restructuring so as to ensure a match with what can be achieved and to ensure consistent measurement and reporting in the ISRs; (c) ensure appropriate and timely participation by fiduciary members in supervision and reporting; (d) improve the candor and evidence provided in ISRs and enhance management oversight through the ISR process; and (e) consider a strategy to enhance prospects for sustainability, including through a follow-up operation to consolidate and extend the reforms. 18. The QALP recommendations will be addressed by both the proposed AF and by the government's actions. The proposed AF will address the QALP recommendations related to consolidation of activities through reallocation of proceeds and a revised results framework. The proposed AF focuses on fewer areas of intervention by placing high priority on areas in which the government has demonstrated strong commitment and a good implementation track record. These include financial and human management, capacity development focusing on maintaining current high-level SES staff, piloting new schemes to train and retrain public servants (using procurement as a pilot), and governance in the mining sector. 19. To enhance the sustainability of PDO achievement, the proposed AF will increase participation by other stakeholders (including civil society organizations (CSOs) at the project and component levels) to promote the demand side of economic governance. The AF will support activities under various project components that aim to increase public access to information related to the budget, procurement, and revenue administration as well as increase capacity of CSOs through awareness training workshops. Active participation by CSOs is expected to enhance sustainability of PDO achievement at completion. On the government side, the Ministry of Finance (MOF) has taken initiatives to strengthen donor coordination through the establishment of an internal Public Financial Management Reform Unit (PFMRU). This unit will be responsible for coordinating donor activities in the PFM areas guided by a coherent and sequential PFM strategy (currently in development). The strategy will also include an action plan -5- that is prioritized and costed and that can serve as a road map for donors to coordinate their contributions. This will help align donor support around priority areas, and thus enhance the sustainability of PFM results over the medium and long-term. The following sections discuss the proposed changes. A. Reallocation of Pr oceeds 20. To consolidate activities as recommended by the QALP, the implementation support mission conducted a full review of project activities and concluded that the consolidation of activities is unattainable. Implementation of most activities were already underway (with some already completed) since project effectiveness in May 2008 (Table 1). However, some component activities no longer need financing because other funding sources were identified or these activities were no longer considered priorities. Therefore, proceeds from these activities will be reallocated towards those activities that have demonstrated implementing capacity and require more resources. Table 1: Status of EGIRP Activities Activities Status Component I: Public Financial Management 1.1 Support for the Resource Management Unit (RMU) in the MOF (a) Four Key Advisors Activities completed (b) Suppport Technical Secretariat of the Cash Management Committee Ongoing (c) Support for Internal Audit Function Ongoing (d) Magnetic Ink Character Recognition (MICR) system Activities cancelled (e) MOF LAN network, LECAP and the Sun Accounting System Ongoing (f) County Payment System Activities completed 1.2 Support for MOF's Financial Management Training School Ongoing 1.3 Strengthening Public Procurement 1.3.1 Institutional Strengthening of the PPCC Ongoing 1.3.2 Support to procurement departments in ministries and agencies Activities completed 1.3.3 Reinforcement of Liberia Agency for Community Empowerment (LACE) Activities completed 1.4 Support to MOF Revenue Department Expected to be completed in 2012 1.5 Support to Mining Sector Financial Management and Governance Ongoing 1.6 Strengthening External Oversight Functions Ongoing Component II: Initiation of Civil Service Reform 2.1 Computerization of Human Resource Management Information System To be completed in 2011 2.2 Rehabilitation and Strengthening LIPA Ongoing 21. Reallocation of proceeds within component 1. Within component 1, proceeds remaining from funds earmarked for key policy advisors (1.1(a)), support for internal audit function (1.1(c)), and Magnetic Ink Character Recognition (MICR) system (1.1(d)), will be reallocated to cover the cost overrun under component 1.4 (Support to Revenue Department). 22. Reallocation of component 2 and unallocated funds to component 1. Proceeds from the computerization of HRMIS (US$0.7 million) under component 2.1 will be reallocated to component 1 to finance ongoing activities under the original project that will continue under the proposed AF. These include the continuation of the Financial Management Training Program until June 2012 and the service of the project coordinator. The unallocated funds ($0.322 -6- million) will be reallocated to cover the cost overrun under component 1.4 (Support to Revenue Department). Table 2: Reallocation of Gr ant Pr oceeds, Disbur sement and Commitment (US$ million) Original Allocation After Reallocation Disburse ment & (Mill. US$) % of Total (Mill. US$) % of Total Comittme Component I: Public Financial Management $8.478 77.1% $9.500 86.4% $7.243 1.1 Support for the Resource Management Unit (RMU) in the MO $1.958 17.8% $1.865 17.0% $1.442 (a) Four Key Advisors $0.550 5.0% $0.471 4.3% $0.471 Project Coordinator $0.300 2.7% $0.550 5.0% $0.267 (b) Suppport Technical Secretariat of the Cash Management C $0.108 1.0% $0.108 1.0% $0.000 (c) Support for Internal Audit Function $0.300 2.7% $0.230 2.1% $0.079 (d) Magnetic Ink Character Recognition (MICR) system $0.200 1.8% $0.000 0.0% $0.000 (e) MOF LAN network and the Sun Accounting System $0.300 2.7% $0.300 2.7% $1.980 (f) County Payment System $0.200 1.8% $0.206 1.9% $0.206 1.2 Support for MOF's Financial Management Training School $0.394 3.6% $0.844 7.7% $0.221 1.3 Strengthening Public Procurement $2.480 22.5% $2.480 22.5% $1.888 1.3.1 Institutional Strengthening of the PPCC $0.530 4.8% $0.710 6.5% $0.132 1.3.2 Support to procurement departments in ministries and age $1.250 11.4% $1.390 12.6% $1.386 1.3.3 Reinforcement of Liberia Agency for Community $0.700 6.4% $0.380 3.5% $0.370 1.4 Support to MoF Revenue Department $2.000 18.2% $2.665 24.2% $2.634 1.5 Support for Mining Sector Financial Management and Governm $0.496 4.5% $0.496 4.5% $0.236 1.6 Strengthening the External Oversight Function $1.150 10.5% $1.150 10.5% $0.823 Component II: Initiation of Civil Service Reform $2.200 20.0% $1.500 13.6% $0.767 2.1 Computerized human resource management information system $1.200 10.9% $0.500 4.5% $0.276 2.2 Rehabilitation and Strengthening LIPA $1.000 9.1% $1.000 9.1% $0.491 UNALLOCATED $0.322 2.9% 0 0 0 TOTAL PROJECT COST 11 100.0% 11 100.0% $8.009 Note: These figures do not include additional financing funds. B. Pr oposed AF Activities and Allocations 23. To address a concern raised by QALP-2, the proposed AF activities are designed to contribute to the increased sustainability of PDO achievement. The creation of a data center, WAN will enable the sharing of financial management information necessary for IFMIS and thereby improve budget management (IFMIS is funded by a WB Trust Fund and expected to go live July 1, 2011). Procurement training programs (in-service and intensive) will build capacity of civil servants that manage public procurement working in ministries, departments and agencies, and thus contribute to achieving a core PDO related to the deviation between approved and executed items. Support to SES is expected to ensure continuity of public services provided by senior executives already working in ministries and agencies until the government is ready to absorb them. This will improve the likelihood of PDO sustainability under the project. The following discusses in more detail component activities financed by the proposed AF; the cost of these activities is shown in Table 3. 24. Component 1.1 (e) activities will be expanded. The proposed AF will provide US$2.0 million to cover the cost of modified activities under Component 1.1 (e) to create a data center and WAN. The AF will finance the cost of hardware, software, installation and maintenance of the data center and WAN. As part of the expanded activities, five agencies will be connected and -7- the data center will provide a common platform for an Integrated Financial Management Information System (IFMIS) to exchange information with other electronic platforms in the MOF, including ITAS, an Automated System for Customs Data (ASYCUDA), a Human Resource Management Information System (HRMIS), and debt management and aid management software. These expanded activities will contribute to effective implementation of IFMIS and enhance the PDOs. 25. Component 2.1 activities will be expanded to cover the SES program. The civil service reform program, conceived in 2006, a critical element for improving public service provision in the country, focused on (i) launching a performance contract-based Senior Executive Services to address short-term capacity needs; (ii) reducing fraud in the payroll and pensions system and better control future personnel hiring; and (iii) rebuilding skills in the civil service through training. The SES program was successful in bringing in competent individuals to key positions across the government. This has enabled the implementation of important reforms over the past three years. SES staff is now undertaking key functions within government agencies and ministries, and it is important to maintain them in their positions to ensure continuity in government action. The proposed AF (US$1.7 million) will continue to support the SES program until December 2012 after which the SES related cost will be incorporated into the government's budget. Having given government due considerations to sustainability including consideration of implied further budgetary outlays, this financing is in line with country financing parameter for Liberia dated March 27, 2009. In addition, the proposed AF will also provide support to implementation of the operational measures necessary to mainstream SES into the regular civil service. 26. Component 1.2: Support for the Financial Management (FM) Training School will be scaled-up. The proposed AF will add an intensive procurement program at the FM Training School. The program will be a new one-year diploma program in Procurement (estimated cost of US$1.2 million). This includes technical assistance to develop a procurement training program, deliver the training, and coach and mentor trainees, as well as finance training related costs such as equipment, operating costs, teachers' salaries stipends, books, etc. With such a diploma, students will be able to join a new career stream for procurement (referred to as a procurement cadre classification) being developed by the Civil Service Agency (CSA). The main target audience are recent university graduates, which is the same approach used by the FM Training School. The new procurement diplomas will follow the same governance structure as established under the FM Training Program, referred to as a School Board. The Board comprises the MOF, Liberia Institute for Public Administration (LIPA), CSA, University of Liberia (UL), and with the addition of Public Procurement and Concessions Commission (PPCC). The program is to continue under the direct management of the MOF and in 2015 its full administration will be transferred to the University of Liberia. As part of Component 2.2 (under existing financing), LIPA will continue to be responsible for the delivery of in-service procurement training courses, although the strategic role of LIPA will be refocused towards in-service training of existing civil servants rather than longer-term post-university procurement training courses. The combination of this intensive training program with in-service training at LIPA should increase the supply of a more qualified procurement workforce, thus significantly strengthen the procurement function in Liberia. -8- 27. Component 1.5: Support for Mining Sector Financial Management and Governance (US$1.6 million) will be scaled-up. This component will be a continuation of the work started under the EGIRP (support to EITI, provision of equipment for mining cadastre office and mine department, and training to the mines department officers) and build upon outputs of the Extractive Industries Technical Advisory Facility (EI-TAF) grant. 2 The activities under this component are expected to include: (i) adjusting the legal and regulatory frameworks for the extractive industries sector; (ii) building capacity of the government to negotiate extractive industries' contracts/concessions; (iii) strengthening regulatory capacity in the mining sector in the Ministry of Lands, Mines, and Energy (MLME) and Bureau of Concessions (BOC); and (iv) support to MLME to strengthen technical expertise in such areas as mining, finance/transactions, environment, social and economic development, and infrastructure development. In order to build local capacity to handle the sector independently in the future, international consultants will be twinned (i) with the MLME and MoF staff, and (ii) with local consultants. 28. Component 1.4: Support to MOF Revenue Department will be increased to cover cost overruns. The proposed AF will finance an additional cost (US$0.15 million) related to consultancy services to complete the installation of ITAS. An additional six months are required to complete installation and begin operations. 29. A new Component on Project Management will be added. The proposed AF will finance a new project component (a project management unit) in the amount of US$0.35 million to cover operating costs. This includes (a) a full-time project coordinator, an administrative assistant, and a driver to ensure effective coordination of activities carried out by various agencies and effective monitoring of the result indicators; and (b) a full-time procurement officer to mitigate procurement risks; (c) financial management service cost of the Project Financial Management Unit (PFMU); and (d) other administrative expenses related to office management (office supplies, communication, bank transfer charges, etc.), and overall project coordination. The project's governance structure remains the same. However, project implementation arrangements will be strengthened as a project management unit will be responsible for managing day-to-day project management and coordination, reviewing the proposed annual work program and budget submitted by project beneficiaries, carrying out the project mid-term review, and monitoring progress against the performance indicators (Annex 4). The financial management function for the project will be carried out by the PFMU whose role will be limited to financial management in line with its revised functions. The project implementation unit will report directly to the project's National Steering Committee (NSC). 2 Extractive Industries Technical Advisory Facility grant between the Government of Liberia and the World Bank (TF095161) dated September 11, 2009. -9- Table 3: Pr oposed Allocation of Additional Financing (US$ million) Activities AF Allocation 1. Expanding activities $3.703 a. Data Center and Wide Area Network (WAN) $2.003 b. Support to Senior Executive Service $1.700 2. Scaled-up Activities $2.800 a. Intensive Procurement Training Program $1.200 b. Mining Sector Financial Management and Governance $1.600 3. ITAS Cost Overrun $0.147 4. Project Management $0.350 Total Additional Financing $7.000 C. Restr uctur ing Component 2 Activities 30. The original activity under Component 2 envisaged the installation of an HRMIS at the CSA (component 2.1); however, this is no longer needed as reorganization of IT support under the project and the ongoing implementation of an IFMIS project have enabled the government to rationalize project resources to achieve cost effectiveness. As a result, about US$0.5 million has been redirected to support a civil service census and the development of a comprehensive Human Resource Information Repository. Activities include support to biometric registration of civil servants under the leadership of the CSA to enable the development of a "One Employee, One File, One Salary, One Job" system. This process will ensure that employee information remains current and free of duplication. Completion of the system will provide clean data for the HRMIS module of the IFMIS. Furthermore, its completion will significantly strengthen controls on human resource management as it will close all gates for the recruitment and management of human resources beyond the CSA. 31. Activities under sub-component 2.2 will focus on strengthening the ability of LIPA to contribute to the capacity development of public employees in Liberia. To do so, the project will focus on rehabilitation and strengthening of LIPA, and designing an appropriate model for the training and retraining of civil servants and prepare them to eventually contribute to a new, modern and efficient civil service. To rehabilitate and strengthen LIPA, the support will aim to revise LIPA's strategic plan and strengthen organizational and governance structure of LIPA. As for training and retraining of civil servants, the project will use procurement career stream cadres as pilot phase of in-service training courses at LIPA. The objective of this activity is to enable civil servants to perform the roles and responsibilities expected of them in a modern civil service by providing them with refresher courses and updates over a short period. The training scheme would not guarantee that civil servants maintain their current positions, but would provide them with the training required to better fulfill basic procurement functions. With the updating courses and when combined with those from university, certain students could apply for the intensive diploma program in procurement offered at the FM training school. In the pilot phase in-service training courses, the main target audience is existing public procurement staff already working in ministries, departments and agencies. The development of a procurement cadre in coordination with CSA is an approach to professionalizing the role of public procurement. - 10 - D. Str engthened CSOs Par ticipation in Pr oject Activities 32. To address concerns about PDO sustainability and government ownership and commitment, the proposed AF will support activities that will increase public access to information related to the budget, procurement and tax administration, and will enable participation of non-governmental stakeholders (suppliers, taxpayers, citizens) and civil society organizations (CSOs) in promoting transparency. The AF will also support capacity building activities through awareness training workshops targeting CSOs and journalists. These activities will be mainstreamed at the project level as well as at the component/activity level (Annex 3). At the project level, the implementation support mission will: (a) ensure achievement of result indicators related to transparency, including the quarterly budget report and legislative audit report of the government financial accounts; (b) inform external stakeholders, including CSOs, of project activities and results achieved on a regular basis through the disclosure of the External Implementation Status and Results Report (EISR); and (c) support dissemination of good procurement practices already initiated by the Multi-stakeholder Community Forum (MS-CCF). At the component/activity level, the project will support (a) PPCC to improve the availability of and ease of access to information on procurement statistics to provide necessary information to CSOs and other stakeholders in monitoring compliance and performance of public procurement; (b) support for awareness training workshops on public financial reports and procurement targeting representatives of CSOs, journalists and the private sector; and (c) promote greater engagement with citizens (requirement for civic engagements) under project components 1.4 (Support to Revenue Department) and 1.5 (Support for the Mining Sector Financial Management and Governance). E. Revised Results Fr amewor k 33. The QALP recommended that the PDO and results framework be revisited in the course of restructuring to ensure a match with what can be achieved and to ensure consistent measurement and reporting in the ISRs. The project team proposed to keep the PDO but change the results indicators (core and intermediate) through revision, dropping or adding as necessary. Targets for these indicators will also be revised to ensure that they can be realistically achieved. 34. PDO Indicators. The PDO indicator related to budget management has been revised to reflect the exact wording of the PEFA indicator. The PDO indicators related to automation of tax administration and civil service reform have been revised to realign them with the interventions of the project. The PDO indicator related to competitive procurement has been dropped due to unreliable data on public procurements that use direct contracting and not directly linked to project interventions. Two new PDO indicators have been included to reflect scaled-up activities in intensive procurement training and expanded activities related to the data center and WAN in the MOF. The targets for all PDO indicators have been re-established to make them more credible. 35. Intermediate Result Indicators. Three intermediate result indicators have been dropped because their targets have been achieved. Three indicators have been maintained but with revisions to reflect more realistic targets ­ those related to the posting of quarterly expenditure reports on the MOF website, tax revenue captured in ITAS, and audit of procurement contracts by GAC. Six indicators together with their targets have been revised to reflect project - 11 - interventions. Five new indicators and targets have been added to reflect scaled-up activities supporting the mining sector and revised LIPA activities. F. Extension of Closing Date 36. The AF proposes to extend the original project's closing date, the first extension, from August 31, 2011 through December 31, 2013. This new closing date will also be applied to the proposed AF. The extension is necessary to ensure the successful completion of ongoing activities under the original project. The ongoing activities under both components require additional time for completion of the installation of the systems and for training of government personnel to manage the systems and build capacity. This will support sustainability of the PDOs achievement over the long-term. The project's new closing date will also allow sufficient time to complete the scaled-up and expanded activities and to monitor their results. G. Pr oject Costs 37. Table 4 presents the overall project cost (original and additional financing) of US$18 million. The shares of IDA grant (US$11 million) and IDA credit (US$7 million) are 61 and 39 percent, respectively. The costs of the three components are disaggregated below. Table 4: Revised Pr oject Cost by Components (US$ million) After Additional Total Project Original Reallocation Financing Cost Component I: Strengthening Public Financial Management $8.478 $9.500 $4.950 $14.200 1.1 Support for the Resource Management Unit (RMU) in the MOF $1.958 $1.865 $2.003 $3.618 1.2 Support for MOF's Financial Management Training School $0.394 $0.844 $1.200 $2.044 1.3 Strengthening Public Procurement $2.480 $2.480 $2.480 1.4 Support to MoF Revenue Department $2.000 $2.665 $0.147 $2.812 1.5 Support for Mining Sector Financial Management and Governm $0.496 $0.496 $1.600 $2.096 1.6 Strengthening the External Oversight Function $1.150 $1.150 $1.150 Component II: Supporting Civil Service Reform $2.200 $1.500 $1.700 $3.200 2.1 (a) Support to an Employee Biometric Registration $1.200 $0.500 $0.500 2.1 (b) Support to SES $1.700 $1.700 2.3 Rehabilitation and Strengthening of LIPA $1.000 $1.000 $1.000 Component III: Project Management 1/ $0.350 $0.600 Unallocated $0.322 TOTAL $11.0 $11.0 $7.0 $18.0 1/ Total cost for project management includes reallocation of proceeds from component 2 and additional financing. 3. APPRAISAL SUMMARY A. Economic Analysis 38. The economic analysis of the proposed AF does not differ from the original analysis because the AF builds upon previous and ongoing assistance by the Bank (and other donors) for several of its component activities. The activities, however, do not include new technical - 12 - designs, changes to fiduciary arrangements, or raise problems not foreseen in the original appraisal. The economic justification is based on its contribution to an improved public financial management system, strengthened control of payroll, and reinforced capacity of civil servants. These activities will contribute to a better functioning government and improved provisioning of public services for citizens. 39. The overall benefits of these activities, both direct and indirect, will be translated into improved service delivery and better performance of the public administration. Although the costs associated with the proposed activities financed by the AF are quantifiable, the economic impact of technical assistance and capacity building projects are more difficult to precisely evaluate and measure. Nevertheless, we can highlight the following direct benefits of the proposed AF. The expansion of activities related to the creation of a data center and WAN will (a) contribute to the comprehensiveness of public financial information necessary for the public financial report, thus contributing to improved budget management and increased transparency; (b) improve transparency and accountability in budget and procurement management through increased public access to information, and build capacity that enables monitoring by various stakeholders; and (c) increase efficiency of public service through retaining high quality SES. Similarly, the direct benefits of the proposed scale-up of activities related to intensive procurement training will produce qualified professional public procurement officers to work in MDAs, and thus speedup budget execution, improve transparency and increase efficiency in the utilization of public resources. Support to the mining sector are expected to improve its legal and regulatory framework, increase compliance of concessional contracts for industrial scale mining operations, and increase revenue from mining operations. B. Implementation Ar r angements 40. The project implementation arrangement is described in detail in Annex 4. This arrangement should prove more effective and transparent as the PFMU will perform solely financial management functions while an internationally recruited procurement specialist will carry out procurement management. A project implementation unit will be established and include a coordinator, procurement specialist, an administrative assistant and a driver. The unit will report to the National Steering Committee. The project implementation manual (PIM) will be prepared for the first time as a condition of effectiveness. It will serve as a guidance document for the project implementation unit, PFMU and implementers of the EGIRP in various MDAs. The PIM will provide instructions on the various procedures and processes to be followed by beneficiary agencies so that project implementation is done according to applicable guidelines and the stipulated timeline to achieve the envisaged results. C. Financial Management 41. The project's financial management arrangements have been designed to facilitate implementation and support both fiduciary and developmental needs. While the proposed financial management arrangements of the project satisfy the Bank's minimum requirements under OP/BP 10.02, the overall financial management residual risk is rated `Medium- Likelihood' (M-L). The risk rating before mitigation using ORAF rating is "Medium-Impact" (M-I). The PFMU in the Ministry of Finance (MOF) will be responsible for the financial management of EGIRP as it does for most donor-funded projects in Liberia. - 13 - 42. Created in 2006 (with the assistance of the Bank) as a centralized unit in the MOF, the PFMU performs the financial management functions of donor-funded projects in Liberia. The PFMU is headed by a Unit Manager who is responsible for ensuring the overall direction of work at the unit. Under the direction and supervision of the Unit Manager, the entire PFMU accounting team is comprised of two other qualified accountants, an internal auditor and a number of support staff responsible for the day-to-day financial management functions of almost all IDA-funded projects in Liberia. The PFMU has satisfactory budgeting, accounting, internal controls and financial reporting processes in place that will support the effective and efficient utilization of resources allocated for the EGIRP. The current capacity of the PFMU is adequate to perform the financial management arrangements of existing projects in their portfolio. However, operational costs ­ such as stationery, mailing withdrawal applications, and printing project financial management reports ­ to be incurred by the unit in performing its duties under the EGIRP should be integrated into the project costs. 43. The US Dollar Credit Designated Account (DA) opened at a commercial bank, under terms and conditions satisfactory to IDA for the current EGIRP project will be used for the Additional Financing. Further deposits would be made into this account against withdrawal applications supported by appropriate documentation. The processing of eligible expenditure payments will be managed by the authorized signatories of the EGIRP project and supporting documents transferred to the PFMU for payment. The project will use report-based disbursements through the use of quarterly Interim Financial Reports on the sources and uses of project funds. A forecast of the first six months' expenditures will form the basis for the initial withdrawal of funds from the Credit, and subsequent withdrawals will be based equally on the net cash requirements for the subsequent six months. Withdrawal applications shall be submitted to the Bank on a quarterly basis. 44. The project will follow a cash basis of accounting and financial reporting and will submit, within 45 days after the end of each GOL calendar quarter, quarterly interim financial reports (IFRs) of project activities. At a minimum, the constituents of the IFRs will include (a) an Actual and Forecast Cash Flow Statement according to Components, Sub-components and Activities; (b) a Summary Statement of Expenditures according to Categories; (c) a Designated Account Reconciliation Statement; (d) a Physical Progress Report; and (e) a Procurement Status Monitoring Report. The annual audited financial statements of the project shall be submitted to IDA within six months of the end of the GOL's fiscal year (i.e., by December 31 each year). The government will appoint an external auditor who will conduct the audits on the project financial statements on terms of reference as will be agreed within four months of project effectiveness. D. Pr ocur ement 45. Under the ongoing implementation support for EGIRP, an assessment of procurement risks was carried out in July 2010 and a post procurement review (which analyzed the procurement procedures, organizational structures, staffing, and skills at the country and project levels) was completed. The overall risk for procurement (prior to mitigation measures) was considered "High" due to delays in procurement processing by the implementing entities and extensive supervision by the Bank team on all procurement activities. A number of actions to mitigate the procurement risks have been recommended (i.e., regular updating to the procurement plan, regular post procurement reviews, and a dedicated procurement specialist with - 14 - suitable international experience). The government has implemented nearly all the recommended measures. Specifically, a dedicated procurement specialist with suitable international experience has been hired and is currently performing his function. The procurement risks are expected to be reduced to Medium-Impact (M-I) once all the mitigation measures are fully implemented. 46. The major changes to the procurement implementation include the following: (i) inclusion of Works to allow for rehabilitation of classrooms at the Financial Management Training School, and if required at LIPA; (ii) use of the most recent Guidelines so that upon approval by the Bank of the Additional Financing, the following will apply: (a) "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated January 2011; (b) "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011; and (c) "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants" dated October 15, 2006 and revised in Jaunary 2011; (iii) introduction of Exceptions to National Competitive Bidding Procedures, by which the following provisions shall apply to the procurement of goods, works and non-consulting services under National Competitive Bidding procedures: (a) foreign bidders shall be allowed to participate in National Competitive Bidding procedures; (b) bidders shall be given at least one month to submit bids from the date of the invitation to bid or the date of availability of bidding documents, whichever is later; (c) no domestic preference shall be given for domestic bidders and for domestically manufactured goods; and (d) in accordance with paragraph 1.14 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the credit shall provide that: (i) the bidders, suppliers, contractors and subcontractors shall permit the World Bank, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the World Bank; and (ii) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.16(a)(v) of the Procurement Guidelines. 47. Procurement Risks and Recommended Mitigation Measures: Country Implementing Agency Procurement Capacity Procurement Procurement Evaluation Mitigation Measures Risk for ORAF Liberia Ministry of Finance During the previous (a) Regular updates to High period the project the Procurement implementation showed Plan at least twice weak procurement per year; capacity with delays in (b) Regular post procurement planning and procurement reviews implementation at least once per year; and (c) Maintain in place at least one project dedicated procurement specialist with international experience - 15 - 48. Bank procurement specialists will regularly participate in implementation support missions to assist in monitoring procurement procedures and plans. The procurement plan indicates those contracts which are subject to prior review. All other contracts are subject to post review. During the regular implementation support missions, the procurement plans will be updated at least twice each year (or more often as required to reflect the actual project implementation needs) and post procurement reviews will be carried out at a minimum once annually. E. Safeguar ds 49. The project will remain environmental Category C; no other safeguards OPs/BPs are triggered. No negative environmental or social impacts are envisaged because the proposed modified and scaled-up activities are mostly technical assistance and capacity building activities and remain similar to those of the original project. There are no exceptions to Bank policies. The project does not finance any civil works. For the additional financing, the Integrated Safeguard Data Sheet (ISDS) will not require changes and the original ISDS was re-submitted to the InfoShop on February 17, 2011. 4. EXPECTED OUTCOMES, BENEFITS AND RISKS 50. The expected outcomes of the proposed AF are several: greater efficiency and transparency in managing public financial and human resources stemming from the creation of a data center and WAN, successful introduction of an ITAS, strengthened capacity of government officers in public procurement and financial management, and strengthened payroll management through successful completion of the EBIRS that will directly contribute to the introduction of a HRMIS. 51. Specific PFM related outcomes include: (i) continued aggregate fiscal discipline and improvement in the credibility of the budget through strengthened capacity in financial and procurement management (which will contribute to increased predictability and control in budget execution and improved accounting, recording and reporting, and external and internal scrutiny); (ii) improved performance of Liberia's public procurement system and compliance with the country's public procurement act, thereby increasing value for money; (iii) improved effectiveness and efficiency of the tax administration through automation of the tax administration system, thus reducing business procedures for tax administration; and (iv) improved government capacity to manage, monitor and regulate the extractive industries sector, which is anticipated to become one of the largest revenue-generating sectors. 52. Specific outcomes related to civil service reforms include: (i) improved transparency and efficiency in human resource management through the registration of civil servants using the EBIRS, which will be linked to the HRMIS to improve civil service management, and reduce the number of ghost workers or non-registered civil servants on the payroll; and (ii) improved efficiency in public service through retaining of SES and building the much needed capacity of civil servants by rehabilitating and strengthening LIPA. 53. The AF does not entail any changes in the social impact as outlined in the original project. Successful implementation of the project is expected to contribute to improved public - 16 - financial management and procurement, strengthened tax administration, better control of payroll fraud, and improved capacity of civil servants. This will increase tax revenue and improve technical efficiency of public spending, thus enabling the government to increase provision of and access to basic public services. 54. The original project has a different risk rating scale from the proposed AF. At the time of the original project, the Operational Risk Assessment Framework (ORAF) was not required. The current risks are related to project stakeholders, operating environment, implementing agency (including capacity, financial and procurement), and project. Despite the strong implementation progress to date and an established implementation arrangement, the overall risk rating for the project, including the Additional Financing, are considered Medium driven by Impact (M-I) at preparation based on relative sensitivity of this domain, weak implementation capacity, and potential impact of change in government. The overall risk rating during implementation is expected to remain at M-I. 5. FINANCIAL TERMS AND CONDITIONS 55. The proposed Additional Financing (SDR4.5 million, US$7 million equivalent) will be provided on Standard IDA terms (40 years including 10 years of grace). - 17 - Annex 1: Results Fr amewor k and Monitor ing Indicator s LIBERIA: Economic Governance and Institutional Reform Project Revisions to the Results Framework PDO Current (PAD) Proposed Comments/ Rationale for Change Improve the efficiency and No change transparency in managing public financial and human resources, focusing on revenue administration, public procurement, budget execution and payroll management. PDO indicators Current (PAD) Proposed change* Comments/ Rationale for Change Average difference between Aggregate expenditure outturns compared Revised - to reflect more realistic budget outturn and legislated to the original approved budget and interventions of the project and to budget allocation for each disaggregate for five key ministries use exact wording for PEFA ministry (disaggregated by ministry) indicators Tax Revenue administration Business procedures in commercial Revised - to align the indicator cost as a percentage of registration of taxpayer in the Bureau of with interventions in tax revenue Internal Revenue automation Percentage of public Dropped - due to unreliable data procurement that used direct on public procurements that use contracting and other less direct contracting and not aligned competitive methods without directly with project interventions proper justification Decrease in discrepancy Ministries, Departments, and Agencies Revised - to align the indicator between nominal roll and (MDAs) registered in HRMIS with direct project interventions on payroll biometric identification Procurement specialists graduated from New ­ to align directly with project intensive procurement training at FM interventions in intensive Training School working in MDAs procurement training provided by FM Training School IFMIS published monthly New - to reflect expanded activities related to the data center and WAN to integrate various information systems - 18 - Intermediate Results indicators Current (PAD) Proposed change* Comments/ Rationale for Change Improve transparency by Posting of quarterly expenditure reports on Revised ­ to clarify the indicator reducing delays in posting of MOF website after end of reporting period quarterly expenditure Increased percentage of Dropped - not directly related to vouchers approved and major project interventions (only voucher receipts by MOF provision of equipment) and these activities completed Reduced delays in posting Continued quarterly expenditure reports on MOF website Prepare legislative report on Issuance of legislative report on annual Revised annual financial statement of financial statement of public sector public sector accounts accounts after end of reporting period Increase percentage of tax Tax revenue captured in the Integrated Tax Revised revenue captured in the Administration System (ITAS) Integrated Tax Administration System (ITAS) At least two reports of Dropped - target has been achieved payments to and revenue received by the government for extractive industries (mining and minerals) are published within the project period NA Quarterly inspections of industrial scale New - to reflect additional activities mining operations performed by MLME NA Annual technical audits of large-scale New - to reflect additional activities mining operations conducted by MLME and BOC Percentage of contracts valued Continued more than US$250,000 that have undergone annual external audits by GAC Percentage of procurement for Procurement monitoring system developed Revised - no methodology and which less than 120 days and operational in PPCC for MDAs mechanism in place to enable elapsed between bid opening monitoring of procurement in and the contract signature ministries and agencies Adherence to the Extractive Dropped - target was achieved Industries Transparency Initiative, particularly carry out audit of revenues received from mining companies for FY07/08 Percentage of civil servants Civil servants registered using Biometrics Revised - to directly reflect project registered in the HRMIS interventions - 19 - Intermediate Results indicators Current (PAD) Proposed change* NA A new career stream for procurement is New ­ to reflect a revision of established by CSA and endorsed by GoL LIPA activities on in-service training Number of procurement officers Procurement specialists working in MDAs Revised ­ to directly reflect project trained in basic procurement graduated from in-service procurement interventions and have acquired proficiency training at LIPA in basic computer skills (Word, Excel, accounting, and budgeting) NA LIPA annual training calendar created with New ­ to reflect a revision of course offerings targeting civil servants LIPA activities and communicated to MDAs NA LIPA Board of Governors established with New ­ to reflect a revision of representation from key government LIPA activities ministries * Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value - 20 - REVISED PROJECT RESULTS FRAMEWORK Project Development Objective (PDO): Improve the efficiency and transparency in managing public financial and human resources, focusing on revenue administration, public procurement, budget execution and payroll management. Baseline Cumulative Target Values 6 Original Progress 2010/11 2011/12 2012/113 2013/14 Responsibility Project To Date Data Source/ PDO Level Results Indicators 3 UOM 4 Frequency for Data Comments Start (2009/10 Methodology Collection Core (2007- )5 08) Project 1. Aggregate expenditure outturns MOF's coordinator Aggregate outturn was compared to the original approved National Percent 21 -25 -15 -12 -10 -10 Annual and Project lower than original budget and disaggregate for five key Budget Technical approved budget. ministries (disaggregated by ministry) document committee Project MOF's coordinator Aggregate outturn was National a. Ministry of Agriculture Percent No data -41 -30 -20 -15 -10 Annual and Project lower than original Budget Technical approved budget document committee Project MOF's Annual coordinator National b. Ministry of Education Percent No data 2 2 0 0 0 and Project Budget Technical document committee MOF's Project Annual National coordinator Aggregate outturn was c. Ministry of Health Percent No data -5 -3 -2 -1 0 Budget and Project lower than original document Technical approved budget committee MOF's Project Annual National coordinator Aggregate outturn was d. Ministry of Mining, Land, and Percent No data -10 -8 -6 -5 -5 Budget and Project lower than original Energy document Technical approved budget committee 3 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance ­ please see http://coreindicators). 4 UOM = Unit of Measurement. 5 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 6 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the "Comments" column. - 21 - Baseline Original Cumulative Target Values 10 Progress Responsibility Project Data Source/ Core PDO Level Results Indicators 7 UOM 8 To Date Frequency for Data Comments Start 2010/11 2011/12 2012/113 2013/14 Methodology (2009/10) 9 Collection (2007- 08) MOF's Project Annual National coordinator Aggregate outturn was e. Ministry of Public Work Percent No data -48 -40 -35 -25 -15 Budget and Project lower than original document Technical approved budget committee IFC Project TBD TBD TBD TBD Visual test by 2. Business procedures for commercial mapping coordinator based on based on based on based on MOF at IFC data will become registration of tax payers in the Bureau study of and Project Number 11 steps outcome outcome outcome outcome Annual Bureau of available in September of Internal Revenue business Technical of IFC of IFC of IFC of IFC Internal 2011. procedur committee study study study study Revenue es Annual report Project 3. Qualified procurement specialists of Public coordinator graduated from intensive procurement Procurement and Project Number 0 0 0 0 20 20 Annual training working in Ministries, and Technical Departments and Agencies (MDAs) Concession committee Commission Inspection Project 4. Ministries, Departments, and and report by coordinator Agencies (MDAs) registered in Number 0 11 16 29 29 29 Annual CSA and Project HRMIS Technical committee Project coordinator 5. IFMIS Report published monthly Yes/No No No No Yes Yes Yes Annual MOF and Project Technical committee 7 Please indicate whether the indicator is a Core Sector Indicator (for additional guidance ­ please see http://coreindicators). 8 UOM = Unit of Measurement. 9 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 10 Target values should be entered for the years data will be available, not necessarily annually. Target values should normally be cumulative. If targets refer to annual values, please indicate this in the indicator name and in the "Comments" column. - 22 - Intermediate Results and Indicators Baseline Target Values Unit of Original Progress Responsibility 2010/11 2011/12 2012/13 2013/14 Data Source/ Intermediate Results Indicators Measur Project To Date Frequency for Data Comments Methodology Core ement Start (2009/10) Collection (2008) Component I: Strengthened Public Financial Management Project 1. Posting of quarterly expenditure coordinator reports on MOF website after end of Days 90 45 45 45 30 30 quarterly MOF website and Project reporting period Technical committee Project 2. Issuance of legislative report on coordinator 2009/10 General annual financial statement of public Not 9 8 7 6 and Project Months not yet Annual Auditing sector accounts after end of reporting issued months months months months Technical issued Commission period committee Bureau of Project Taxes captured by the Internal coordinator ITAS include all taxes Revenue and Project with an exception of 3. Tax revenue captured in the ITAS Percent 0 0 20% 50% 75% 100% Annual administrative Technical international trade tax records committee and excise tax that are captured by ASYCUDA. Project Currently there is no coordinator formal Mines and Project Inspectorate; regulations 4.Quarterly inspections of industrial Technical require quarterly scale mining operations performed by Yes/No No No No No Yes Yes Annual MLME committee inspections based on the MLME submission of reports by mine operators; current inspections take place ad hoc Project Currently there is no coordinator production by large-scale 5. Annual technical audits of large- MLME/ and Project mines; the first shipment scale mining operations conducted by Yes/No No No No No Yes Yes Annual Bureau of Technical of iron ore by Arcelor MLME and BOC Concession committee Mittal is due in 2011; the structure for verification needs to be created - 23 - Intermediate Results and Indicators Baseline Target Values Unit of Original Progress Responsibility 2010/11 2011/12 2012/13 2013/14 Data Source/ Intermediate Results Indicators Measur Project To Date Frequency for Data Comments Methodology Core ement Start (2009/10) Collection (2008) Project 6. Percentage of contracts valued at Customized coordinator over USD 250,000 that have report by Percent 0 0 0 10% 20% 30% Annual and Project undergone annual external audits by GAC and Technical GAC submitted to national authorities PPCC committee M&E reports Project Methodo for a ministry, coordinator logy and 7. Procurement monitoring system department or and Project M&E developed and operational in PPCC for Number 0 0 0 5 10 Annual agency Technical system MDAs reports as committee do not verified by exist PPCC Component II: Initiating Civil Service Reform CSA Project 11,130 confirmation coordinator 1. Civil servants registered using Number 0 (10/31/201 24,000 30,000 30,000 30,000 Annual from and Project biometrics 0) administrative Technical record committee 2. A new career stream for Project procurement is established by CSA coordinator and endorsed by GoL Yes/No No No No Yes Yes Annual CSA and Project Technical committee 3. Procurement specialists working in Project MDAs completed in-service coordinator Number 0 No 25 50 75 100 Annual procurement training provided by LIPA and Technical LIPA committee - 24 - Baseline Target Values Unit of Original Progress Responsibility Data Source/ Core Intermediate Results Indicators Measur Project To Date Frequency for Data Comments Methodology ement Start (2009/10) Collection 2010/11 2011/12 2012/13 2013/14 (2008) Project 5. LIPA annual training calendar coordinator created with course offerings targeting Yes/No - No Yes Yes Yes Yes Annual LIPA and Technical civil servants and communicated to committee MDAs 6. LIPA Board of Governors Project established with representation from coordinator Yes/No - No Yes Yes Yes Yes Annual LIPA key government ministries and Technical committee - 25 - Annex 2: Oper ational Risk Assessment Fr amewor k (ORAF) LIBERIA - Economic Governance and Institutional Reform Project Project Development Objective(s) Improve the efficiency and transparency in managing public financial and human resources, focusing on revenue administration, public procurement, budget execution and payroll management. PDO Level Results 1. Aggregate expenditure outturns compared to the original approved budget and disaggregate for five key ministries Indicators: (disaggregated by ministry) 2. Business procedures for commercial registration of taxpayer in the Bureau of Internal Revenue 3. Qualified procurement specialists graduated from intensive procurement training working in MDAs 4. Ministries, Departments, and Agencies (MDAs) registered in HRMIS 5. IFMIS report published monthly Risk Category Risk Rating Risk Description Proposed Mitigation Measures Project Stakeholder Risks M-L Weak coordination among donors may lead to Donors have been supporting the government in conflicting messages to the government. There is establishing a PFM Reform Coordination Unit in the risk that donors and government may not agree on MOF to foster government leadership and donor the priority and sequencing of the public financial coordination in the PFM reform. management reform. The government is currently developing a comprehensive PFM reform strategy that will sequence and prioritize the PFM reform actions. Implementing Agency Risks M-I Inadequate coordination within and outside Project management is strengthened by recruiting a agencies pose risks in coordinating project full-time coordinator and a dedicated procurement activities. specialist with suitable international experience to support agencies in implementing project activities. - 26 - Risk Category Risk Rating Risk Description Proposed Mitigation Measures Project Risks · Design M-L Broad coverage of the project in terms of reform The project scope is being reduced by project areas and implementing agencies may hinder restructuring that reallocates funds from unnecessary effective implementation. Limited funding for and completed activities to those that have capacity, multiple activities also lessens the impact of thus narrowing the scope of activities. Further, adding interventions by the project. a project management component is expected to strengthen coordination and speed up implementation. · Social and L The proposed project falls into environmental Project activities (provisioning of technical assistance, Environmental category C and no adverse long-term impacts are equipment, training and creation of a data center and anticipated. wide area network) have no significant impact on the environment. It does not trigger any of the Bank's environmental safeguards. The project does not involve restructuring of the public sector, implying there are no social impacts. · Program and Donor M-L Failure of donors to provide financing in a timely Project interventions financed by the proposed manner may pose risks to achieving the PDO. additional financing does not depend on funding from other donors. · Delivery Quality M-L Inadequate monitoring and evaluation mechanisms A results framework and a monitoring and evaluation and unreliable data pose risk to delivery of results arrangement have been revised under the proposed because the project's outcomes or impacts are not AF. The results framework has been revised to enable fully measured or captured. monitoring and measurable impacts. The monitoring framework will be improved through strengthening the project management and oversight. Inadequate funds to maintain the information Follow-up activities are being considered by technology systems and a high turnover of trained development partners to support implementation of civil servants will increase the risk to the the government Public Financial Management Reform sustainability of the PDO achievement in the Strategy. medium-term. Overall Risk Rating at Overall Risk Rating During Comments Preparation Implementation M-I The project team agreed to have M-I rating during M-I implementation after the decision meeting. - 27 - Annex 3: Detailed Descr iption of Pr oject Components Additional Financing ­ Economic Governance and Institutional Reform Project Component 1: Strengthening Public Financial Management 1.1 Resource Management Unit (e) Data Center and Wide Area Network (WAN). 1. The original component 1.1(e) supported only an upgrading of the existing computer network and accounting software in the MOF. However, the implementation of various applications (ITAS, ASYCUDA, IFMIS, EBIRS 11 and CS-DRMS) at the ministry will require the creation of a common data platform to ensure inter-operability and scalability among the planned systems and a streamlined backup and disaster recovery capability for the required ICT infrastructure. This approach will also make contract management easier by identifying the prime contractor who will be held accountable for the efficient performance of the technical infrastructure. Consequently, the government has requested additional financing to support these expanded activities, which will entail the creation of a data center, WAN (in addition to an upgrade of an accounting software and Sun Accounting System that will allow for the import of data from the Cash Management Committee and the production of reports by major programs, sectors, ministries and agencies, and budget codes), and maintenance cost to enable effective management of operating systems, network operations, software upgrading. 2. The Ministry of Finance will manage the Central Data Center (CDC) for all applications and the network. The Data Center will provide a common platform for all applications and networks and will be hosted at the premises of the Liberia Telecommunications Corporation (LIBTELCO). An alternate site will be selected as the Redundant or Back-Up data center for disaster recovery. Inter-connectivity for data exchange will initially be provided to the Civil Service Agency (including its Biometrics Data Centre), the Central Bank of Liberia, Liberia Telecommunications Corporation, General Services Agency (GSA) and the General Auditing Commission (GAC). The local area network (LAN) will be installed at the MOF and CSA and wide area network (WAN) will be established to connect these 5 agencies together. Component 1.2: Support to Financial Management Training School 3. Intensive Procurement Training Program. To create a critical mass of trained nationals to fill the skill gaps in the public service and effect changes in management practices, the proposed AF will launch a pilot intensive training program in procurement for a group of 20 trainees. It is designed as a one-year post-graduate diploma program. The program will be managed by the Financial Management Training School under the auspices of the Ministry of Finance (MOF). The main objectives for piloting an intensive procurement training program is to test the curriculum, the quality of lecturers and trainers, and the selected training facility with the view to having quick feedback on lessons learned before finalizing an intensive program of 11 Employee Biometric Identification and Registration System (EBIRS). - 28 - capacity building that would be transferred to the University of Liberia in 2015. The results of this pilot operation will inform the design of a longer term program of procurement strengthening based on lessons learned of what is effective for adult training and what is not in the context of Liberia. 4. The procurement program will be integrated within the FM Training School that reports to an oversight body, the Board of FM Training School chaired by the Minister of Finance. This Board already exists under the EGIRP project and includes MOF, Civil Service Agency (CSA), University of Liberia (UL), Liberia Institute of Public Administration (LIPA). The Baord will also include Public Procurement and Concession Commission (PPCC). The FM Training School will manage all aspects of the intensive procurement training program so as to attain the strategic objective of designing for the long term. It will design a curriculum that has appropriate standards for immediate acceptance of graduates into a new career stream for procurement staff in the Civil Service. The graduates will be absorbed into the civil service and among their regular duties they would deliver short in-house clinics and mentoring with the objective of quickly raising procurement knowledge in MDAs. In this context, the FM training school will: (a) adapt and complete curriculum and training modules; (b) set up admission requirements and screen and interview applicants; (c) develop and deliver a procurement training program; (d) provide coaching and mentoring case studies and "hands-on" experience with procurement; and (e) develop a second phase for the intensive procurement training program. Component 1.4: Support to MOF Revenue Department 5. Support to the MOF Revenue department in the Bureau of Internal Revenue (BIR), Ministry of Finance aims to improve efficiency in tax administration and increase revenues through improving control and increase taxpayer compliance. The EGIRP provides support to the installation of an integrated tax administration system (ITAS) in the BIR by providing equipment hardware, software, technical assistance and training. AF will finance an additional cost related to consultancy services to complete the installation of ITAS. Component 1.5: Support to Mining Sector Financial Management and Governance 6. The Mining Sector Financial Management and Governance Component, amounting to about $1.6 million, will continue the work started under the EGIRP (support to EITI, provision of equipment for the mining cadastre office and mines department, and training to the mines department officers) and build upon outputs of the Extractive Industries Technical Advisory Facility (EI-TAF) grant that supports negotiations of several iron ore projects in Liberia. The component will also integrate sector specific recommendations from the EITI++ scoping study of 2009-2010. The primary beneficiary and implementing entity for this sub-component will remain Ministry of Lands, Mines and Energy (MLME) and the Bureau of Concessions (BOC). The activities envisaged under this component will include: a. Adjusting the legal and regulatory frameworks for the extractive industries sector, in particular: · Updating mining regulations and developing other sector specific regulations and guidelines, and ensuring that the legal acts and regulations are harmonized with sector - 29 - policies and other applicable laws (including Public Procurement and Concessions Act, proposed National Bureau of Concessions Act, Environmental Protection Act, Income Tax Act, regional treaties, and others as applicable); and · Conducting the consultation process as required for the preparation of the legal act and regulations. b. Building capacity of the government (Ministry of Lands, Mines and Energy, Ministry of Finance, Bureau of Concessions and Inter-Ministerial Committee on Concession - IMCC) to negotiate extractive industries contracts through technical advisory services and training. c. Strengthening Regulatory Capacity in the Mining Sector. · Developing capacity and setting up structures with MLME to perform technical audit of large-scale mining operations, including development of guidelines, checklists, and requirements for such audits, and training and study tours for government officials and inspectors. · Developing capacity of MOF/BOC to estimate, assess, and collect royalties and taxes from mining operations (to be reinforced through the technical audits), including developing and using financial models for various commodities, technical advisory services to BOC and MOF, training staff on mining taxation and accounting, and study tours. · Strengthening MLME Management and Inspectorate Capacity by (i) conducting a functional management review of MLME focusing on the ability of MLME to attract and retain qualified and experienced staff, and develop a reorganization plan and strategy. Special attention will be paid to setting up a Mines Inspectorate, which currently does not exist; and (ii) Support to the reorganization of the MLME with particular emphasis to setting up the Inspectorate, building its capacity and providing urgently needed equipment to make it operational. d. Support for MLME to strengthen technical expertise in such areas as environmental, social and economic development, and infrastructure development. This activity will engage technical specialists to work with MLME under contract to build capacity, transfer knowledge, and to assist with implementation of recommendations by the international advisors contracted under the project to assist MLME with building capacity for contract negotiations and evaluation, technical audit and tax and royalty assessment for mining projects. Component 2: Support the Civil Service Reform Program Component 2.1 (a): Strengthen Civil Service Employee Database 7. A key result of the project intervention under component 2.1 has been the elimination of ghost workers from the payroll. It is now possible to estimate the number of public servants in the payroll, including those employed by the Ministry of Education. As the biometric registration exercise is finalized, further removals of "ghost workers" are expected, thus resulting in significant savings in the public sector wage bill. - 30 - 8. This sub-component will support ongoing activities related to the cleaning of the civil service employee database. Specifically, it will support the identification and recording of employees under the One Employee, One File, One Salary, and One Job Process, which will enable the Civil Service Agency (CSA) to identify double dippers and remove suspected "ghost workers" from the payroll. The activities to be financed under this component include (i) purchase of additional computers and scanners for both the biometric and payroll unit; (ii) finalize the collection and validation of employee information to be ready for the HRMIS; and (iii) entering data to the new HRMIS module with clean data collected through the biometric exercise. 9. The proposed activities will be carried out with the collaboration of the CSA, the Ministry of Finance and related sectoral ministries to ensure seamless transitioning of the HRMIS module into the Integrated Financial Management Information System (IFMIS) currently under preparation under the auspices of the MOF. Component 2.1 (b): Support to Senior Executive Services (SES) 10. The SES professionals are considered an integral part of the government and have brought in an effective workforce that is uniformly appreciated within government. Ninety two percent of SES staff has been considered "highly performing" and have been retained within their respective units. 11. The government has indicated its intention to retain these capable professionals into the civil service structure, and has indicated that it will budget for these positions accordingly starting with the 2013 budget. However, it is unable to absorb the financial cost associated with this program at the moment. Therefore, the government views the continuation of SES as a priority and has requested that donors continue their funding for the program until December 2012, after which the SES related cost will be incorporated into the government's budget. The total cost for this scheme is US$4.3 million, of which US$1.7 million will be financed by additional financing under the EGIRP to cover the total cost of Tier 2 executives in the SES program. Having given government due consideration to sustainability including consideration of implied further budgetary outlays, this financing is in line with country financing parameter for Liberia dated March 27, 2009. In addition, the proposed AF will also provide support to implementation of the operational measures necessary to mainstream SES into the regular civil service. Component 2.2 (a): Rehabilitation and Strengthening of LIPA 12. This component will finance activities related to the rehabilitation of training capacity targeting the civil service by strengthening the Liberian Institute of Public Administration (LIPA). The LIPA is the principal civil service training establishment in Liberia; it is, unfortunately, severely constrained by organizational and management weaknesses, inadequate training capacity and lack of training and instructional resources. A high priority is attached to rehabilitating the LIPA in the government's Civil Service Reform program. The activities to be financed under this sub-component include: (i) purchase of essential equipment; (ii) development of course materials; (iii) reviewing and strengthening of curricula for all courses offered; (iv) - 31 - revising LIPA's strategic plan; and (v) strengthening organizational and governance structure of LIPA. Component 2.2 (b): In-service Procurement Training at LIPA 13. Under the PPC Law, it is mandatory that each Procurement Unit shall be staffed with persons trained and knowledgeable in procurement and charged with carrying out, on an ongoing basis, functions related to procurement. However, the requisite knowledge and skills to perform public procurement efficiently and effectively are currently very low. The main challenges for the professionalization of the procurement function are: (i) the unavailability of regular in- country training opportunities in procurement, and (ii) the lack of clear entry requirements and career paths for personnel who perform procurement functions in the public service. To do so, the project will support in-service training of existing procurement officers in ministries and agencies to improve their performance as well as support the professionalization of the public procurement function. The enactment of the PPCA Law and Procurement Units in ministries, departments and agencies has created a substantial demand for procurement professionals in the country. 14. To address these challenges, this sub-component seeks to: (i) strengthen the current public management curricula of LIPA by embedding a robust in-service procurement module targeting low and mid-level procurement professionals in the civil service. (ii) develop in-service procurement training courses at LIPA; and (iii) support the establishment of a career path in the civil service for trained public procurement professionals by developing a policy paper and proposed roadmap on the establishment of a procurement career path for discussion with relevant government departments. The paper will include the definition of the public procurement cadre with entry requirements, career path, quality control standards for performance evaluation and capacity development. Strengthening Social Accountability across the Project and Component levels 15. To address concerns about PDO sustainability and government ownership and commitment, the proposed AF will actively involve the participation of non-governmental stakeholders (suppliers, taxpayers, citizen, etc) and civil society organizations (CSOs) in promoting transparency as well as in capacity building through measures at the project level and at the component/activity level. 16. At the project level, the proposed AF will incorporate the following measures to involve CSOs: 1. Ensure achievement of result indicators related to transparency including quarterly budget report and legislative audit report of the government financial account. The Implementation Support Mission will strictly monitor the timeliness of publications and widely disseminate these reports through appropriate communication channels (website, government gazette) by the government to ensure easy access to financial information by CSOs. This will enable CSOs to monitor the use of public resources to ensure transparency and efficiency of public spending. - 32 - 2. Participate in the testing of an External Implementation Status Report (EISR) piloted by the World Bank. The EISR will inform CSOs and other stakeholders of project activities and results achieved on a regular basis through the disclosure of ISRs to external stakeholders. 3. Coordinate with wider dissemination of good procurement practices so as to engage with civil society, as for example to support the already initiated actions for Multi-Stakeholder Community Forum (MS-CCF) ­ National & Sub-National Stakeholders Engagement - Steering Committee Chair ­ CENTAL, Members ­ Liberia Extractive Industries Transparency Initiative (LEITI), Liberia Democratic Institute (LDI), and AGENDA. 17. At the component/ activity level, the following options were discussed and agreed with the government: 1. Support PPCC to improve the availability of and ease access to information on procurement statistics to provide necessary information to CSOs and other stakeholders in monitoring compliance and performance of public procurement. Under component 1. 3: Strengthening Public Procurement, the EGIRP will strengthen capacity of the Monitoring Division at the Public Procurement and Concession Commission (PPCC) to enable the division to collect and disseminate national procurement statistics and post them on the PPCC website. The statistics will provide information about the results of public procurement implementation. This could include data such as estimated cost, method of procurement, duration of procurement at various cycles (bidding announcement, closing date, bid evaluation, and contract signing), information about suppliers (names, directors, registration details), amount of contract awarded, and deliveries (date of project start, expected completion date and project status). This would enable CSOs as well as consultants, suppliers, and contractors to monitor public procurement practices and to facilitate contracts monitoring undertaken by the Contract Monitoring network. 2. Support to the Financial Management Training School at the Ministry of Finance in carrying out awareness training workshops on public financial reports and procurement targeting representatives of CSOs and private sector. The training is expected to increase awareness and improve understanding about budget reports and procurement documents and processes, thereby facilitating contract monitoring; and 3. Promote greater engagement with citizens (requirements for civic engagements) under project components 1.4 (Support to Revenue Department) and 1.5 (Support for the Mining Sector Financial Management and Governance). In collaboration with IFC, the project could support the Revenue Department in conducting regular meetings with taxpayers to inform changes brought about by an integrated tax administration system (ITAS) and to listen to stakeholders about problems in paying taxes. Similarly, the team will explore options to consult with stakeholders in the mining sector under component 1.5. - 33 - Annex 4: Implementation Ar r angements and Suppor t Liberia: Additional Financing ­ Economic Governance and Institution Reform Project 1. The Ministry of Finance is responsible for project implementation including the overall coordination and oversight of the proposed project. Implementation arrangements for the proposed project include the project governance comprising a National Steering Committee (NSC), a Project Technical Committee (PTC), and a Project Management Unit (PMU). Details of the proposed arrangement are as follows: A. Project Governance 2. National Steering Committee (NSC) chaired by the Minister of Finance and with membership comprised of senior managers representing the beneficiary agencies, notably the Expenditure Department at MOF, Revenue Department at MOF, Ministry of Planning and Economic Affairs (MPEA), Civil Service Agency (CSA), Financial Management Training School (FMTS), Public Procurement and Concession Commission (PPCC), General Auditing Commission (GAC), Ministry of Lands, Mines and Energy, Liberia Institute of Public Administration (LIPA), and key development partners. The main responsibilities of the NSC will include: · Providing conceptual and strategic guidance to the implementing agencies for project design, implementation and coordination of project activities; · Ensuring overall conformity with government policies and strategies; · Reviewing project progress and performance; · Approving the Annual Work Program and Budget (AWPB); · Resolving any implementation problems or conflicts; and · Assisting the implementing agencies in obtaining, whenever needed, government assistance and contribution to the project. 3. Project Technical Coordination (PTC): At the technical and operational level, a PTC chaired by the Project Coordinator will include membership of senior technical personnel of the concerned participating ministries and agencies (including representation of concerned technical staff representing development partners with ongoing operations linked to the EGIRP project). The PTC will be responsible for providing necessary inputs to the Project Coordinator concerning their respective annual work plans and budgets, progress in implementing activities financed by the project, and progress against the performance indicators listed in the results framework. The Project Coordinator will play a pro-active facilitation role by organizing monthly PTC meetings to monitor implementation progress, including implementation of the agreed procurement plan. B. Project Management Unit (PMU) 4. The PMU will be responsible for managing the day-to-day activities of the project. The responsibilities encompass overall coordination of project activities with beneficiary agencies, procurement management and monitoring, and financial management. The PMU, headed by a project coordinator, includes a project coordinator, a procurement officer, an administrative assistant and a driver. Both the project coordinator and procurement officer have been hired. - 34 - 5. Project Coordinator. The project coordinator will be responsible for coordinating line ministries, departments, and agencies responsible for implementing project activities through the PTC. He/she will report to the chairman of the NSC and maintain direct communication with the Bank's Task Team Leader. He/she will be responsible for preparing semi-annual and annual project status reports together with the results framework including actual and target indicators to the implementation support mission in advance. More specifically, the coordinator will have the following responsibilities: · As leading the implementation of the EGIRP, the coordinator will be responsible for oversight on the following activities: (a) the overall project management, coordination, monitoring and reporting; (b) management of project funds including petty cash, accounting and financial reporting for EGIRP activities with inputs from PFMU; (c) monitoring and evaluation of project performance including updating the results framework for the project with inputs from the PCT members; and (d) ensure that high ethical standards and transparency are maintained by all stakeholders throughout the project implementation; · As Chairman of the PTC, the project coordinator will: (a) play a pro-active facilitation role by organizing monthly PTC meetings to monitor implementation progress; (b) prepare and propose an annual work plan and budget with inputs from the members of PTC; and (c) ensure that the minutes of the PTC meeting is prepared; · As secretariat of the NSC, the project coordinator will: (a) prepare a mid-term review and annual assessment report for consideration by the NSC; (b) prepare and submit to the NSC all required management reports, including an interim un-audited financial report consisting of the quarterly progress report, procurement progress report, and financial management report; and (c) organize NSC quarterly meetings and support the NCS Chairman in preparing the agenda, distributing necessary project documents, and drafting minutes of NSC meetings. 6. Procurement Specialist. The project will recruit and maintain a dedicated procurement specialist with suitable international experience who will be responsible for the procurement of all goods, consulting services and other services for the EGIRP and for supervision and oversight of contracts for the supply of goods and services until the goods (or services) are delivered to their final destination as specified in the respective contracts. The procurement specialist shall carry out procurement in accordance with the applicable procurement procedures as set out in the Legal Agreement of the project. More specifically, the work involves: · Updating detailed Procurement Plans (PP) for the EGIRP for all works, goods and services to be contracted for approval of the project Coordinator and the National Steering Committee; · Developing and maintaining a comprehensive procurement filing system consisting of physical and electronic files and logs by contract; · Preparing on behalf of the client and arranging the publication of specific procurement notices in accordance with Bank Guidelines and specific requirements of the Financing Agreement; · Drafting and coordinating issuance by the client of the specific Bidding Documents (BDs) and Request for Proposals (RFPs); - 35 - · Assisting the client's representatives to receive, secure and open bids/proposals; · Assisting the client in their duties to convene bid/proposal evaluation committees, and provide advice on how to prepare high quality bid/proposal evaluation reports that describe full details; · Drafting and processing each contract for signature by the client and the other contracting party on the basis of any contract finalization proceedings. C. Financial Management. 7. The already established Project Financial Management Unit (PFMU) under the Ministry of Finance serves as a fiduciary agent for financial management only for the entire Bank portfolio, as well as for the EGIRP. The PFMU will continue to be responsible for the day-to-day management of funds and accounting for the Bank portfolio in Liberia in accordance with the project financial procedures manual already developed for the ongoing Bank projects. The PFMU will also have responsibility for project financial reporting, using already agreed interim un-audited financial statements (IFR) formats in use for other projects. The PFMU is currently staffed with a team of competent financial professionals with the required experience and qualifications acceptable to the Bank. The PFMU will be further strengthened with the selection of a permanent unit head (international), in addition to an accountant and an internal auditor, with regional experience (underway). D. Flow of Funds. 8. The US Dollar Credit Designated Account (DA) opened at a commercial bank, under terms and conditions satisfactory to IDA for the current EGIRP project will be used for the Additional Financing. Further deposits would be made into this account against withdrawal applications supported by appropriate documentation. 9. The project arrangements are such that there will be no implementing entities at any decentralized position. The PFMU will therefore operate a centralized funds management system for the project. All requests for payment approved by beneficiary ministries will be processed and paid by the PFMU. Where the single payment is above a defined threshold, it will be processed and sent to the World Bank for direct payment to the third party. The PFMU will be required to submit withdrawal applications in respect of the project to the World Bank on a monthly basis. This will ensure that the project has funds for operations at all times. E. Results Monitoring and Evaluation 10. Monitoring and evaluation of the PDO level and intermediate results indicators for the project will be conducted by the project coordinator with inputs from the project technical committee comprising of members from beneficiary agencies. The monitoring and evaluation of the result framework for the project will not rely on the country system. Weak capacity, data availability and reliability of the sources of data resulted in several data gaps and non-reporting of indicators in the original result framework. The result framework under the Additional Financing was revised and adjusted to reflect lessons learned from the monitoring and evaluation - 36 - of the original project. There is no incremental cost of the project monitoring and evaluation arrangement. F. Implementation Support Plan 11. Extensive and rigorous World Bank implementation support of this project will be required to ensure its success. In addition to funding a Project Coordinator to manage the day- today activities of the project, the Task Team Leader, based in Liberia, will provide sustained and ongoing supervision and support. The Task Team Leader will be supported in this role by in house FM and Procurement Specialists based at the World Bank office in Monrovia. 12. World Bank technical specialist in financial management, procurement, public sector, mining and capacity building have agreed to provide additional technical supervision and guidance, and will conduct at least 3 joint supervision visits each year. In addition, the Task Team Leader will coordinate regular supervision meetings with the technical specialists and members of the Country Management Unit to review project progress and resolve bottlenecks. These meetings will initially be held on a monthly basis, but may move to a quarterly basis, depending on implementation progress. - 37 - Annex 5: Financial Management Assessment Introduction 1. In accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on March 2010, a financial management assessment was done to assesses the continuing adequacy or otherwise of the financial management arrangements for implementing the additional financing of the Economic Governance and Institutional Reform project (EGIRP). 2. The objective of the assessment was to determine whether PFMU has acceptable financial management arrangements, which will ensure: (1) the funds are used only for the intended purposes in an efficient and economical way; (2) the preparation of accurate, reliable and timely periodic financial reports; and (3) safeguard the entity's assets. In line with existing financial management arrangements in Liberia, the financial management of the project will be carried out through the Project Financial Management Unit (PFMU) at the Ministry of Finance (MOF) that has developed financial management structures, functions, and responsibilities acceptable to the IDA over the years. The Project will thus rely on the already existing fiduciary arrangements established by the PFMU for the financial management of donor funded projects in Liberia. The FM risk has been assessed as Medium-I. But, with the articulated risk mitigation measures through the use of PFMU during implementation, this FM risk will residually fall to Medium-L. Country Issues 3. A PEMFAR was conducted in 2007 that included an analysis of Liberia's PFM strengths and weaknesses. The findings from the PEMFAR showed that the government has taken considerable actions to improve public financial management since 2006. Government revenues have increased several folds since 2002/03, and expenditure controls have been strengthened through the establishment of the cash management committee and the interim commitment control system. However, the government still needs to address weaknesses in its financial management systems, specifically within the areas of the legal and regulatory framework, internal and external audit functions, procurement and concessions, budget planning, formulation and execution, accounting, recording and reporting, human resources and payroll management, cash and debt management and aid management. The government's developmental and poverty reduction priorities are anchored in the PRSP which is generally aligned with the budget although there is no formal poverty reducing expenditure tracking systems. The budget cycle is coordinated by an inter-ministerial Budget Committee and spending ministries are consulted early in the budgeting process. All revenues are by law deposited into a revenue bank account at the Central Bank and expenditure from this account is strictly in accordance with annual cash plans and allotments. However, majority of donor expenditure is project based and not executed through the government budget. 4. The country lacks a sufficient number of qualified accountants to serve the public and private sector. A PFMU at MOF provides centralized project financial management for donor projects. The PFMU is staffed with qualified consultants with experience in managing donor- funded projects. Fiduciary risks for donor-funded projects are mitigated by the use of the PFMU, - 38 - which has internal controls and procedures and practices acceptable to the Bank. The lack of qualified PFM personnel is a major constraint to the implementation of PFM reforms to address the weaknesses identified in the PEMFAR. At the moment key agencies such as the MOF are staffed with foreign experts under the Governance and Economic Management Program (GEMAP) and World Bank's technical assistance provided to the Resource Management Unit. Notwithstanding capacity constraints, the government is making progress in PFM reforms. The Cabinet approved the Internal Audit strategy in June 2008 that will see the establishment of an internal audit cadre and a charter clarifying the roles and responsibilities for internal controls. The MOF has moved from a single entry recording system to an interim accounting system that is now used to prepare budget outturn reports. The interim system provides a foundation for migrating to IFMIS that will eventually handle all the accounting and recording for the consolidated funds with arrangements to capture and report on donor-funded projects. A PFM Law and its enabling regulations and manuals are being prepared that will further strengthen the legal and regulatory framework. In the area of procurement, the Public Procurement and Concessions Act (PPCA) came into effect in January 2006 as Liberia's first significant step towards subjecting public sector contracts to transparency and meaningful competition. These measures in financial management and procurement will put in place appropriate structures and processes to promote transparency and accountability and mitigate the fiduciary risk in utilizing public funds both at the country and project level. Overview of Project and Institutional Arrangements 5. The Lead Implementing partner will be the EGIRP Project Management Unit (PMU) based in the Ministry of Finance. The Unit is staffed a Project Coordinator and a Procurement Specialist. There are plans to recruit an administrative assistant in due course. Consistent with the previous arrangements for EGIRP, the financial management functions and responsibilities for the project will be handled by the PFMU of the Ministry of Finance. The PFMU has a Unit Manager/ Head who is responsible for ensuring the overall direction of work at the unit. The unit is also staffed with two qualified accountants, a qualified Internal Auditor and supporting accounting staff. Specifically, the PFMU will be tasked with the following responsibilities: operate an efficient financial management system acceptable to the IDA, establish effective accounting and transaction processing procedures to support the payment of all eligible expenditure, provide internal audit services and periodically review the control environment to ensure that policies and procedures are being complied with, prepare on a timely basis quarterly financial reports and any other financial reports as may be requested by the IDA and the EGIRP project coordination unit. Lastly, the PFMU will ensure that the financial statements of the project are audited and conform to the financial covenants as per the Financing Agreement in consultation with the PMU. Budgeting 6. The PFMU and the EGIRP Project Management Unit will work together to prepare an annual budget for the project based upon the agreed program to be financed. Most of the activities of the key components are already known and these will be included in the project annual budgets. The annual project budget will be reviewed and agreed with the World Bank, and No objections will be issued by the World Bank task lead for activities agreed upon in the budget. - 39 - Accounting 7. Accounting for the use of the project funds, using a cash basis of accounting, will be carried out by the PFMU using a robust accounting system (SUN Accounting system) that provides for adequate segregation of function, accurate recording of all accounting transactions of the project. The system is also capable of producing accurate periodic financial reports including interim un-audited financial reports (IFR) and annual project financial statements that considered acceptable to the Bank. A project Fixed Assets register will be maintained at all times to correctly reflect assets acquired or created under the project. Funds Flow and Disbursement Arrangements 8. Funds will be disbursed directly into a Designated Account set up and managed by PFMU. This account will be established in US Dollars at a commercial Bank acceptable to the IDA. PFMU will submit withdrawal applications for the initial deposit and subsequent replenishment as per the Disbursement Letter. Banking and payment processing will be managed centrally by the PFMU in order to ensure adequate control and financial monitoring. All expenditure approvals and initiation of processing of payments will be done at the EGIRP Project Management Unit and supporting documents transferred to the PFMU for effecting the payments to third parties. The report-based disbursement method (Interim Financial Reports) will be used as a basis for the withdrawal of credit proceeds. The project provides for the use of `advances, reimbursements, special commitments and direct payments as disbursement methods under the project and these will be specified in the disbursement letter. An initial advance will be provided for the implementing entity based on a forecast of eligible expenditures against each component linked to the appropriate disbursement category. These forecasts will be premised on the annual work plans that will be provided to IDA and cleared by the task team leader. Replenishments, through fresh withdrawal applications to the Bank, into the designated accounts will be made subsequently at quarterly intervals; however, such withdrawals will equally be based on the net cash requirements that are linked to approve work plans. Supporting documentation will be retained by the implementing agencies for review by the IDA missions and external auditors. Any advances made for contracts will be secured a bank guarantee or performance based bonds and a retention amount withheld. Financial Reporting and Monitoring 9. The PFMU will be responsible for preparing the quarterly interim unaudited financial reports. The financial reports will be submitted to the Bank within 45 days of each fiscal quarter after prior review by the EGIRP Project Management Unit. The constituents of the quarterly project IFRs, that will be submitted to IDA within 45 days after the end of each calendar quarter, shall be as follows: (a) Actual and Forecast Cash Flow Statement according to Components, Sub-components and Activities; (b) Summary Statement of Expenditures according to Disbursement Categories; (c) Designated Account Reconciliation Statement; (d) Physical Progress Report; and (e) Procurement Status Monitoring Report. 10. The project will also prepare annual financial statements at the end of each GoL fiscal year in accordance with International Public Sector Accounting Standards (PSAS) ­ cash basis. The audited financial statements should be submitted to the Bank within 6 months of the end of the fiscal year. The financial statements will comprise, at a minimum, of: (a) Sources and uses of - 40 - funds (summary of Expenditures shown under the main program headings and by main categories of expenditures for the period); (b) Notes to the financial statements, including background information on the project, the accounting policies, detailed analysis and relevant explanation of the main accounts/major balances, etc. In addition, the project shall provide, as an annex to the financial statements, an inventory of fixed assets acquired according to asset classes, dates of purchase, location, and cost. External Auditing Arrangements 11. Independent and qualified auditors, acceptable to the Bank, would be selected to carry out the audit of the project. The selection of auditors shall be on competitive basis and in accordance with the Bank's procurement guidelines and would be selected within four months of project effectiveness. The TOR of the auditors will be cleared by the Bank. The project financial statements including movements in the designated accounts will be audited in accordance with International Standards on Auditing (ISA) and a single opinion will be issued to cover the project financial statements in accordance with the Bank's audit policy. The auditors' report and opinion in respect on the financial statements, including the management letter, would be furnished to the World Bank within six months of the close of each GOL fiscal year. Project Risks and Mitigation Measures 12. The table below shows the risks, together with mitigating measures on how these risks will be addressed. Inherent Risk Risk Risk Mitigation Measure Condition for Residual Rating Effectiveness/Ne Risk Rating gotiations? Country Level The 2007 PEMFAR H The Bank and other donors are No H identified weaknesses in the currently supporting the GOL country financial through two core investment management systems with operations to enhance the public specific reference to budget financial management system. The execution, external audit, IFMIS will go-live in July to legal and regulatory establish a readiness to manage framework for PFM. budgeting and budget execution processes, and facilitate improved audit practices, among other things. Training is also being imparted on the implementation of the new PFM Law and Regulations (2009). Entity Level The political arm of the H A strong and independent project No M-L Entity Management may financial management unit in unduly interfere with, and/or existence (PFMU) and under the override, project financial control auspices of the MoF will management controls. manage the fiduciary aspects of the project. Project Level The newly established H As implementation of the fiduciary No M-L EGIRP Project Management management arrangements under Unit may not be familiar the project will be under the direct with Bank procedures, and control of the strong and - 41 - thus lead to delays in independent PFMU, the otherwise implementation of key resource constraints at the project components of the project. implementation unit will be obviated. Overall Inherent Risks: H M-L Control Risk: Budgeting Delays in preparing detailed M-L The PFMU tasked with FM No M-L budget estimates and annual responsibilities will assist in work plans. finalizing the budgets. Accounting The EGIRP Project PFMU is staffed with competent No M-L Management unit does not M-I Project Accountants who will have a full complement of perform the accounting tasks of the required accounting staff to project as well as support the supplement the independent EGIRP in submitting regular PFMU team in rendering payment requests. In addition, the payments requests for internal control arrangements at the PFMU processing. PFMU in terms of segregation of duties and use of internal control tools are well matured. PFMU staff will train available government staff to improve their capacity during project implementation. Fund Flows Possible delays in M-L The PFMU will be responsible for No M-L processing withdrawal preparing and submitting applications leading to withdrawal applications, and there problems in honoring are acceptable service standards for payments to third parties. settlement of bills. Internal Controls Risk of non compliance with M-I PFMU, managing the fiduciary No M-L internal control procedures. aspects under the project, is staffed with a qualified Internal Auditor who reports directly to the Minister of Finance. The IA performs periodic internal control reviews and issues a report to the Minister, with evidence of follow up. External Audit Delays in the submission of M-I To ensure timeliness of audit No M-L audit reports and the compliance, the engagement of an timeliness of management acceptable auditor will be done follow up on audit issues. within 4 months of effectiveness, and the PFMU traditionally provides the draft accounts well in time for audits to be conducted Overall Control Risk. M-I M-L Key: Medium Impact (M-I); Medium ­Likelihood (M-L) Conclusion 13. A description of the project's financial management arrangements above indicates that they satisfy the Bank's minimum requirements under OP/BP10.02. Nevertheless, the fiduciary - 42 - environment in Liberia, while improving tremendously, is not without risks. The assessment of the overall FM risk therefore remains at `Medium-L'. This is particularly as a result of a series of PFM reforms that are ongoing but gains on which are tempered by the apparent complexity of first performance based operation. Supervision Plan 14. The FM supervision missions' objectives will include that of ensuring that strong financial management systems are maintained for the project at the PFMU, and there is adequate FM implementation guidance provided to EGIRP by the PFMU throughout project life. Equally, annual field visits to PFMU and EGIRP will be conducted to ensure that their internal control procedures remain robust. The supervision will include desk reviews of IFRs, testing of expenditures, review of audit reports, and evaluation of the efficiency of the payment processing, internal control processes, and funds flow arrangements. - 43 -