Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 34002-KE PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OF SDR52.9 MILLION (US$SO MILLIONEQUIVALENT) TO THE REPUBLIC OF KENYA FORA TOTAL WAR AGAINST HIVAND AIDS PROJECT MAY 9,2007 HumanDevelopment 1 EasternAfrica 2 Africa Region This documenthas a restricteddistributionandmaybeusedbyrecipientsonly inthe performanceof their official duties. Its contentsmaynot otherwisebedisclosedwithout World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Kenya Shilling Ksh70 = US$1 FISCAL YEAR July 1 - June30 ABBREVIATIONS AND ACRONYMS ACTAfrica AIDS CampaignTeam for Africa ACU AIDS ControlUnit AIDS Acquired ImmuneDeficiencySyndrome AMREF African MedicalandResearchFoundation ANC Antenatal Clinic ATG ARCAN TrainingOf Trainers (TOT) Graduates African RegionalCapacity BuildingProjectfor HIV andAIDS Prevention, Care & ARCAN Treatment ARV Anti-retroviral Therapy BCC BehaviorChange Communication CACC Constituency AIDS ControlCommittee CAS CountryAssistance Strategy CBO Community-BasedOrganization CBK CentralBank of Kenya CCT ConditionalCashTransfer CDC Centerfor DiseaseControl CIDA CanadianInternationalDevelopmentAgency COBPAR Community-BasedProgramActivity ReportingSystem CSA Country Social Analysis CfP Call-for-Proposal cso Civil SocietyOrganizations csw CommercialSex Worker CVA ComplianceVerification Agent DARE DecentralisedReproductiveHealthandHIV and AIDS Project DFID U.K.Departmentfor InternationalDevelopment DIR DetailedImplementationReview DOT Directly ObservedTreatment DTC District Technical Committee EMU Efficiency Monitoring Unit (Office ofthe President) Eo1 Expressionof Interest ERS EconomicRecoveryStrategy ESEP Economic and Social EmpowermentProject FBO Faith-BasedOrganization FMA FinancialManagementAgent FMR FinancialMonitoring Report FOROFFICIAL USE ONLY FPE FreePrimaryEducation FPESP FreePrimaryEducationSupportProject FY FiscalYear GAC GovernanceandAnti-Corruption GAMET GlobalMonitoring andEvaluationTeam GAP GovernanceAction Plan GDF GlobalDrug Facility GFATM GlobalFundto Fight HIV andAIDS, TB andMalaria GJLOS GovernanceJustice Law, Order and Security GLIA Great LakesInitiative on HIV andAIDS GOK Governmentof Kenya GSPK GovernanceStrategyfor Building aProsperousKenya HAPAC HIV andAIDS PreventionandCareProject HBC Home-BasedCare HIV HumanImmuno-DeficiencyVirus ICB ' InternationalCompetitiveBidding ICC Inter-agency CoordinatingCommittee ICR ImplementationCompletionReport ICT InformationandCommunicationTechnologies IDU IntravenousDrugUsers IEG IndependentEvaluationGroup IFC InternationalFinanceCorporation IFMIS IntegratedFinancialManagementInformationSystem IMF InternationalMonetaryFund INT Departmentof InstitutionalIntegrity IP InvestmentProgram IRCB InstitutionalReformand Capacity Building Project ITN InsecticideTreatedNet JAPR Joint HIV andAIDS ProgramReview F A Joint FinancingAgreement JIR Joint InstitutionalReview KACC KenyaAnti-Corruption Commission KDHS KenyaDemographic andHealthSurvey KEMSA KenyaMedical SuppliesAgency KfW Kreditanstaltfir Wiederaufbau KHADREP KenyaHIV andAIDS DisasterResponseProject KNAO KenyaNationalAudit Office KNASP KenyaNationalHIV andAIDS Strategic Plan LLITN Long LastingInsecticideTreatedNets LQAS Lot Quality AssuranceSampling MAM ManagementAction Matrix MAP Multi-Country AIDS Program MCG Monitoring andCoordinationGroup MDA Ministry, DepartmentandAgency MDG Millennium DevelopmentGoal - This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not be otherwise disclosed without World Bank authorization. M&E Monitoring and Evaluation MIGA Multilateral InvestmentGuaranteeAgency MIS ManagementInformationSystem MOE Ministryof Education MOF Ministry of Finance MOH Ministryof Health MOHA Ministry of Home Affairs MOPND Ministry ofPlanningandNationalDevelopment MOST Ministry of Science andTechnology MOT Ministry ofTransport MP Member of Parliament MSM MenHavingSex With Men MTCT Mother-To-Child-Transmission MTEF Medium-TermExpenditureFramework NACC NationalAIDS ControlCouncil NASCOP NationalAIDS andSTD ControlProgram(Ministry of Health) NBK NationalBankof Kenya NCB NationalCompetitiveBidding NCTIP NorthernCorridor Transport ImprovementProject NGO Non-GovernmentalOrganization OP Office ofthe President ovc Orphans andVulnerableChildren PCN ProjectConceptNote PEPFAR President's EmergencyPlanfor AIDS Relief PLWA PeopleLiving With HIV/AIDS PMA ProcurementMonitoringAgent PMI PresidentialMalariaInitiative PMTCT Preventionof Mother-to-ChildTransmission PPR ProcurementPost Reviews PRGF PovertyReductionandGrowthFacility PSO PrivateSector Organizations PWC PriceWaterhouseCoopers QAG Quality Assurance Group QK Africa Operational Quality andKnowledgeUnit RBM ResultsBasedManagement RfP Request for Proposals SBD StandardBidding Documents SIDA SwedishInternationalDevelopmentAgency SOE Statement of Expenditure STD Sexually TransmittedDisease STI SexuallyTransmittedInfection SWAp Sector Wide Approach TB Tuberculosis TOR Terms Of Reference TOWA Total War Against HIV andAIDS UN UnitedNations UNAIDS Joint UnitedNationsProgrammeon HIV/AIDS UNFPA UnitedNationsFundfor PopulationActivities UNGASS UnitedNationsGeneralAssembly 26'hSpecial SessionDocument UNICEF UnitedNationsChildren's EmergencyFund USAID United StatesAgency for InternationalDevelopment VCT Voluntary Counseling andTesting WB World Bank WDI World DevelopmentIndicators WHO World HealthOrganization Vice President: Obiageli Katryn Ezekwesili Country Director: Colin Bruce Sector Manager: Dzingai B. Mutumbuka Task Team Leader: Michael Mills This document has a restricted distribution and may be usedby recipients only inthe performance o ftheir official duties. Its contents may not be otherwise disclosed without World Bankauthorization. KENYA TotalWar Against HIV andAIDS Project CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE .............................................................................. 1 1 2 201 3... Rationale for BankInvolvement............................................................................................. Country and Sector Issues ......................................................................................................... Higher Level Objectives to which the Project Contributes .................................................... 24 B PROJECTDESCRIPTION 1.. ............................................................................................................ Project Concept....................................................................................................................... 24 24 2. Policy andGovernanceFramework........................................................................................ Project Development Objectives andKey Indicators............................................................. 26 3. 27 4 Project Components ................................................................................................................ 28 5.. Lessons Learned and Reflectedinthe Project Design ............................................................ 33 6 Project Alternatives ConsideredandReasons for Rejection .................................................. 36 7.. Lending Instrument ................................................................................................................. 37 C. IMPLEMENTATION.................................................................................................................... PartnershipArrangements....................................................................................................... 37 37 2. 1. Institutional andImplementationArrangements .................................................................... 37 3 MonitoringandEvaluation of OutcomesResults ................................................................... 44 4.. Sustainability........................................................................................................................... 45 . . . 5. Critical Risks andPossibleControversial Aspects ................................................................. 46 6. Credit Conditions andCovenants ........................................................................................... 48 D. APPRAISAL SUMMARY............................................................................................................ 50 50 Technical................................................................................................................................. Economic and Financial Analyses .......................................................................................... 2. 1. 50 3. Fiduciary................................................................................................................................. 51 4... . Environment............................................................................................................................ Social....................................................................................................................................... 53 5 54 6 Policy Exceptions andReadiness............................................................................................ SafeguardPolicies................................................................................................................... 54 7 54 Annexes: Annex 1:Kenya's Fight Against Corruption: Progress. Setbacks andNew Frontiers ................56 Annex 2: The HIV andAIDS Epidemic inKenya ....................................................................... Annex 3: Letter of Sector Policy .................................................................................................. 73 75 Annex 4: NACC Governance Strengthening:ProgressMade andAction Plan 92 Annex 5: Major RelatedProjectsFinancedby the Bank and other Agencies ............................................................................ ............................ ........................... 109 Annex 6: Results Framework andMonitoring ....................................................................................... 111 Annex 8: Project Costs................................................................................................................ Annex 7: DetailedProject Description 124 Annex 9: Financial Management and DisbursementArrangements .......................................... 130 133 Annex 10: ProcurementArrangements 150 Annex 11: Compliance with RepeaterProject Requirements..................................................... ....................................................................................... Annex 12: Project Preparationand Supervision......................................................................... 162 163 166 Annex 14: Statement of Loans and Credits ................................................................................ Annex 13: Documents inthe Project File................................................................................... Annex 15: Country At A Glance ................................................................................................ 167 169 Annex 16:MAPS IBRD33426 .................................................................................................. 172 Tables in Main Text: 11 Table 2: KNASP Pillars and Strategic Objectives........................................................................ Table 1: OrphanhoodinKenya(1998-2003)................................................................................ 12 Table 4: Project Development Objectives andKey Indicators..................................................... Table 3: Approximate ResourceAllocations for the HIVResponseinKenya ............................ 13 27 Table 5: Project Costs................................................................................................................... Table 6: Program Risks and RiskMitigatingMeasures............................................................... 32 Table 7: Summary o f Main FiduciaryManagement Risks.......................................................... 47 52 Table 8: SafeguardPolicies .......................................................................................................... 54 KENYA TOTALWAR AGAINST HIVAND AIDS PROJECT PROJECTAPPRAISAL DOCUMENT AFRICA REGIONALOFFICE AFTH1 Date: May 9, 2007 Team Leader: Michael Mills Country Director: Colin Bruce Sectors: Health (100%) Sector Manager: Dzingai B.Mutumbuka Themes: HIV/AIDS(P);Health system perfomance (S);Decentralization (S);Public expenditure, financial management and Environmental screening category: B - Partial procurement (S) Project ID: PO81712 Assessment Lending Instrument: Specific Investment Loan [ 3 Loan [XI Credit [ 3 Grant [ 3ProjectFinancingData Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US%m.): 80.00 Borrower: Government of Kenya MinistryofFinance, The Treasury P.O. BOX30007-00100 Nairobi, Kenya Tel: 252299 Fax: 240045 ResponsibleAgency: National A I D S Control Council The Chancery Building,6th Floor P.O. BOX61307-00200 Nairobi, Kenya Tel: 254-20-2715109 Fax: 254-20-271 1231 1 _FY _ 7 8 9 I 10 ~. I 11 ~~ Annual 0.00 20.00 30.00 34.00 29.00 Cumulative 0.00 20.00 50.00 84.00 113.00 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ ]Yes [XINO ~~~~ ~~ ~ Does the project require any exceptions from Bank policies? Re$ PAD D.7 [ ]Yes [XINO Have these been approved by Bank management? [[ ]Yes [XINO ]Yes [ IN0 I s approval for any policy exception sought from the Board? Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [XIYes [ ] N o Does the project meet the Regionalcriteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD B.2, TechnicalAnnex 3 The Project development objective is to assist Kenyato expand the coverage o ftargetedHIV and AIDS preventionand mitigation interventions. This would be done through: (i) sustaining the improved institutionalperformance o f the National AIDS Control Council (NACC); and (ii) supporting the implementationo f the Kenya National AIDS Strategic Plan (KNASP). Project description Re$ PAD B.3, TechnicalAnnex 7 The Project will be an integralpart o f the implementationo f the KNASP. The priorities will be set within the strategic objectives o f the KNASP, strategically detailed each year through the Joint HIV and AIDS Program Review (JAPR) process. The Project comprises the following two Components: Component I:Strengthening Governance and Coordination Capacity, which would support the continued development o f the coordinating function o fthe NACC and the monitoring and evaluation framework o f the KNASP; andcapacity buildingo f beneficiaries inthe use o f grant funds. Component 11: Support for Program Implementation: This component would make financial resources available to civil society, public sector, private sector, and research institutions, focusing on initiatives in line with the KNASP, responding to priorities identifiedby the JAPR. The component would include sub- components and essential commodities. Which safeguard policies are triggered, if any? Re$ PAD D.6 EnvironmentalAssessment (OP/BP/GP 4.0 1) The proposed Project has been classified as "Category B" for environmental screeningpurposes. As a repeater Project, the Total War Against HIV and A I D S (TOWA) Project would make use o f the existing arrangements for safeguard issues which have been successfully implementedunder the Kenya HIV and AIDS Disaster Response (KHADREP) Project. In addition, a National Medical Waste Management Action Plan has been developed and disclosed by the Borrower, and will be implementedas recommended. .. 11 Significant, nonstandard conditions, if any, for: Re$ PADD.7 The Project does not require exceptions from Bankpolicies. The Project meets the Regional criteria for readiness for implementation. Inparticular, the NACC structure i s inplace; all o fthe key staff are in position; the Operations Manual has been prepared and i s acceptable to the Bank; the N A C C i s usedto doing Financial MonitoringReports; and the first Call for Proposal i s already under preparation. Moreover, all conditions and covenants have been discussed and agreed upon with the Client to ensure timely launcho f the Project. Credit effectiveness: 1.The Contract with an independent FinancialManagement Agent (FMA) wouldhave been signed. 2. The Contract with an independent Compliance Verification Agent (CVA) would have been signed. 3. The Contract with an independent Procurement Monitoring Agent (PMA) would have been signed. 4. The prioritizationand approval o fthe first Call for Proposals (CfP) for FY07/08. 5. The Government and the NACC would have executed and delivered the Subsidiary Agreement. 6.The NACC would have opened a Project Account inan amount o fKsh20 million. Disbursement condition: 1. The Kenya NationalAudit Office (KNAO) would have confirmed that it accepts responsibility for ensuring the audit o fthe grant awards. Covenants applicable to Project Implementation: 1.The Co-financing Agreement between the Government andDFIDwould havebeen executed and delivered by December 31,2007. 2. Appoint a Performance Auditor with qualifications and experience, and under terms ofreference (TOR) and executed contract satisfactory to the Association by December 31,2007. 3. The Cfp for the following fiscal year would have been prioritized and approved by April 30 o f each year. 4. A draft NACC Budget for the following fiscal year would havebeen submitted to the Association by April 30 o feachyear. 5, The NACC Consolidated Annual Workplan would have been submitted to the Association by April 30 o f each year. 6.The Annual National Monitoring and Evaluation (ME&) Report would have been submitted by September 30 o f each year, summarizing progress made up to June 30 of each year. 7. An Institutional Assessment o f the NACC would have been carried out, under TORSacceptable to the Association, by September 30,2009. 8. A Mid-termReview o f the Project would have been carried out by September 30,2009. ... 111 A. STRATEGIC CONTEXT AND RATIONALE 1. CountryandSector Issues EconomicDevelopmentandPoverty 1. The Kenyaneconomy is now growingat around6 percentannually,with macro-economicreformsbeingcarriedout, butwith structuralreformsremaining incomplete. Duringthe 1990'~Kenya's economic performance was weak andrealper ~ capita income contracted by an average o f 0.5 percent annually. The current Government was elected inDecember 2002, which soon prepared an Economic Recovery Strategy (ERS) for Wealth andEmployment Creation, reached agreement with the International Monetary Fund(IMF) on a Poverty Reductionand GrowthFacility (PRGF) program, moved to improve relationships with donors, anddeveloped new strategies for socioeconomic development. Since then, Kenya's macroeconomic environment has improved, with a decline inpublic debt, more stable prices and enhanced growth (4.9 percent in2004,5.8 percent in2005 and an estimated rate o f over 6 percent in2006). Significant reforms are taking place inseveral sectors, including education, water, electricity, urbantransport and the railways. One o f the greatest achievements o fthe current Government was the declaration o f Free PrimaryEducation (FPE) inearly 2003, since when about 1.5 million additional children have been enrolled inschool (and the numbers continue to rise). However, financial sector reform has faced serious setbacks, andmost public enterprises are still not privatized, despite an enablingPrivatizationAct o f 2005. Sustained highgrowth will require accelerated implementationo f the promised reforms. 2. Inequalityandpovertycontinueto be major concerns. About 56 percent of households were estimated to be below the poverty line in2003 (new estimates will be available soon when the results o fthe recent household survey are analyzed). Income inequality inKenya i s likewise high: in 1998-2002, the Gini index was 43 andthe poorest 20 percent o f the population received only 6 percent o fnational income, while the richest 20 percent took nearly 50 percent. Income disparities mirror regional differences. Regionally, poverty incidence i s highest inthe densely populated Western andNyanza Provinces, which flank Lake Victoria, andinthe Coast Province. And as discussed in more detail later, the HIV andAIDS epidemic has also contributed significantly to the poverty and desperation o f many Kenyans, with over 1.2 million people now infected (including 156,000 children), about 200 new infections daily among adults and slightly over 100,000 deaths annually. Particularly affected are the youth and especially girls, with HIVinfectioninyoungwomen aged 15 to 19years being about five times higher thaninmeno fthe same age group. GovernanceandAnti-Corruption 3. The Governmenthas set ambitiousgoals for governanceimprovement. Since 2003, the Government has adopted some important measures to improve governance. 1 Initial steps focused heavily on re-staffing thejudicial andprocurement cadres, developing a legal framework, and setting up or strengthening institutions devoted to fightingcorruption. New laws required civil servants to file annual declarations o f income, assets, and liabilities; established the Kenya Anti-Corruption Commission (KACC); andprovidedfor stronger public financial management and audit. Laws to modernizeprocurement (including for security-related contracts) and to set up a new privatization commissionwere passed. Inaddition, all Ministers, Permanent Secretaries, heads ofparastatals andsenior officials have signed performance contracts that include monitorable indicators o f accomplishment. These contracts are publicly available. The Government is also strengthening capacity for monitoring and evaluation (M&E), including mechanisms to monitor the performance contracts; adopting accounting oversight bodies; and introducingrisk-based accounting techniques. 4. However, therehasbeen mixedprogress so far inimplementingthe governance strengtheningprogramandin achievingresults. The available evidence suggests that corruption, which was rife under the previous regime, declined somewhat during2003-2004 (after the new government came to power), but subsequently stagnated. The evidence also suggests deterioration inthejudiciary and inthe administration o f government procurement (although not to very low pre-2003 levels), while highlevels o fcorruption are still apparent inthe process o fobtainingpermitsand tax evasion. KACC's failure so far to secure prosecution for `big graft' has created doubts about its overall efficacy, as well as that o f the Attorney General's Office andthe judiciary, which has a major backlog o f cases numbering about one million. Nevertheless, the Government has made some significant progress inthe reform o fpublic resources and administration. The legal and institutional reforms implemented since 2003 include: (i) the introduction o f a Results-Based Management (RBM) system as a tool for helping public sector institutions to focus their work and planstrategically to ensure efficient and accountable use o fpublic resources; (ii) the rolling out o f an Integrated Financial Management Information System (IFMIS) ina number o fministries; (iii) establishmentofanautonomousKenyaNationalAuditOffice(KNAO);(iv)the the enactment o f The Public Procurement andDisposal Act andthe development o f regulations for public procurement; (v) the introduction o ftax administration reforms; and(vi) the overhaul o fthe business licensingregime. 5. Partsof the World Bankportfolio,includingthe HIV andAIDS Program, havefaced significantgovernance problems. Since 2004, a series o freviews and special audits, conducted with the full cooperation o f the Government, have identifieda rangeo fproblems. These includeweaknesses infinancial management systems, lack o f fraud risk management, weak oversight by senior Government officials, inconsistent application o f the World Bank's Procurement Guidelines, and failure to share lessons learned and best practices. In2006, the Detailed ImplementationReviews (DIRs) by the World Bank's Department o f Institutional Integrity (INT) also confirmed corruption risks inBank-fundedoperations. Theserisks, however, differedacross sectors. For example, while the DIR found serious indicators o f corruption inBank-financedprojects inthe road, health and HIV sectors, it concluded that the Bank-fhded Free Primary Education Support Project (FPESP) had a low risk o f corruption. Inparticular, the DIR for the 2 Kenya HIV andAIDS Disaster Response (KHADREP) Project confirmed the findings o f an earlier forensic audit by identifyingsignificant indications o f fraud and corruption, including misuse o f fund administered by the National AIDS Control Council (NACC) (see section titled "The Governance o fthe HNProgram", p. 14, for more details). 6. The Governmenthascommitteditselfto intensifyingitsfocus on governance strengthening. The Government has recentlyproducedanupdated "Governance Strategy for Buildinga Prosperous Kenya" with a time-bound Governance Action Plan (GAP)that covers the periodthrough December 2007. This Plansets out specific and prioritized anti-corruption interventions andinitiatives inthe broad areas o f (i) prevention; (ii) investigation and recovery o f corruptly acquired assets; and (iii) strengthening prosecutorialcapacity. It i s plannedfor top priority to be givento administrative and preventive initiatives where measurable improvements inthe fight against corruption could be obtained inthe short-term. Emphasis is being placedby the Government on tryingto get all systems to address governance and corruption issues, rather thanjust focusing on special measures to protect programs fundedby development partners, particularly as external assistancei s only about 5 percent o f the budget resources. 7. The Governmentis seekingincreasedsupportfromthe World Bankinthe recentlyapprovedCountryAssistance Strategy (CAS). To assist the Government to implement the program, the World Bank has been asked to focus support on four priorities inthe GAP, consistent with the Bank's comparative advantage: (i) transparency initiatives; (ii)broadeningstakeholder involvement; (iii) improving public financial management; and (iv) improving governance inhighpriority sectors, such as education, HNandAIDS, healthandroads. This approachhasbeen set out inthe recent Country Assistance Strategy Progress Report for Kenya, which i s based on five guiding principles: (i) reinforce the focus on poverty reduction; (ii) theft or misuse o f prevent Bank funds; (iii) use Bank leverage to support progress ingovernance; (iv) support reform processes and work with champions o f governance reforms; and (v) avoid the reputational risk o f either turninga blindeye to corruption or walking away from the poor. 8. Specificmeasures are beingintroducedto protectBank-financedprojects againstcorruption. The Bank isworking with the Governmentto establishbetter risk management controls at the system-wide, sectoral andproject levels, and to encourage the enforcement o f applicable laws and administrative remedies. Several measures have beenintroducedto protect the Bank's portfolio against corruption: (i) project activities all have been integrated into the central Government general ledger system; (ii) all new projects include control elements recommended by the auditors andrisk management activities; (iii) ministerial and project-level audit committees have been established, the Government's internal audit function has been redefinedto effectively deal with institutionalrisks, and all projects are now requiredto present quarterly financial monitoringreports; and (iv) side letters have been used inproject agreements to reinforce compliance by staff in implementingagencies with Kenyan anti-corruption laws (such as 3 asset declaration), and to promote other transparency measures (such as disclosure o f financial statements, and audit reports). 9. Effortshavealreadybeenmadeby the NationalAIDS ControlCouncil (NACC) to addressthe particularproblemsexperiencedin the HIV andAIDS program,andto renew andenhanceitspublicimageand credibility. The NACC is the coordinating agency for the HIV and AIDS program, located inthe Office o fthe President, and it has made considerable progress inaddressinggovernance issues. In response to problems identifiedinvarious reviews inthe period 2003-05, the NACC has compiled and is implementinganAction Plan. This Planwas later enhanced with recommendations from the DIR and the associated Management Action Plan for the KHADREP (see Annex 4), with a significant emphasis on transparency. Since mid-2005, the NACC has reported regularly on a monthly basis and indetail to the World Bank on the progress being made, as part o fa "staff monitoredprogram". The NACC has recently further opened up this reportingto a wide range o f stakeholders, ina spirit o f hll transparency (see the section "The Governance o f the HIV and AIDS Program", p. 14 for more details). The HIV andAIDS Epidemic 10. The prevalenceofHIV andAIDS inKenyais stillhigh,but hasbeenon the declinesince the late 1990s. Figure 1shows the declining HIVprevalence among pregnantwomen inKenya, with the extrapolated national adult HIVprevalence falling from over 10percent inthe late 1990s to 5.9 percent in2005. Figure2 compares the prevalence o f HIV and AIDS inKenya with some other countries, especially inAfrica. Figure1:DecliningHIV PrevalenceinPregnantWomen inKenya 16 7 I 14 E 12 n !! 10 . 8 6 4 2 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Year Source: Joint UnitedNations Team on AIDS, Kenya 11. New infectionsalso seem to be on the decline, althoughthe true extent of the apparentsteep andconsistentdrop inincidenceis not entirely clear. The estimated HIVincidence basedonthe modeling ofthe prevalence data (UNAIDS, KDHS,John Stover) also show a decline between 2001 and 2003. These data, together with the mortality data shown inFigure 3, indicate that the decline inprevalence is due not only to 4 deaths o f infectedpersons, but also to an underlying decreaseinnew infections. However, the causes of the decline are complicated, particularlywhen it is noted that new HIVinfections peakedinthe mid-to-late 1990sprior to major preventiveefforts being mountednationwide from 2000 onwards. Other than a decline inthe overall incidence, there is very little information on the reduction innew infectionsper age group, inwhich geographic areas and among which at-risk groups. Figure 2: Antenatal and Population HIV Prevalence Estimates, 2001 to 2003 I Antenatal 0 Population I 30 20 10 0 Source: Global HIV andAIDS Monitoring andEvaluationTeam 12. Nevertheless, it is clear that HIV and AIDS is still a massive threat in Kenya. While Kenya i s considered by UNAIDS as a recent success story inthe fight against HIV,the country is still facing aserious HIVepidemic. There are over 1.2million Kenyanscurrently livingwith HIV, including 156,000 children. Among adults aged15 to 49, the prevalence rate is around 5.9 percent (7.7 percent for women and 4.0 percent for men). Figure 2 compares HIVprevalence inKenya to that inother countries. The number ofnewHIVinfections inthe country is about 200 daily among adults. Despite rapidly expanded access to treatment inrecent years, around slightly over 100,000 adults still die annually due to AIDS-related illnesses. By the end o f 2005, the cumulative number ofAIDS deaths was 1.5 million. Mostly due to HIV andAIDS, mortality inthe most socially and economically productive age cohort (15 to 49 years) has already increased by about 30 percent since 1998, and life expectancy at birthhas now fallen to about 47 years from 58 years in 1990. Out o f an estimated 2.4 million orphans and vulnerable children (OVC) inneed o f care and support, about 1.2 million are believed to be due to risingAIDS relatedmortality. 5 13. The threat is especiallyserious for the young andfor girls, inparticular. There are very highinfectionrates among young people. The majority o fnew infections are among young people - young women (aged 15 to 24 years) and young men (under 30 years) are particularly vulnerable. Since few HIV infected children survive into their teenage years, infected youth represent relatively recent cases o f HIV infection, and consequently serve as an important indicator for detecting trends inbothprevalence and incidence. Also, the HIV and AIDS epidemic inKenya i s increasingly feminized. The national adult prevalence female-to-male ratio o f 1.9 to 1i s higher than that found in most population-based studies inAfrica. The HIV infection rate inyoung women aged 15 to 19 years i s six times higher than inmeno f the same age group, as the prevalence rate among young women peaks at 25 to 29 years o f age, while that o f menpeaks inthe 40 to 44 year old group. The HIV andAIDS prevalence among women 20 to 24 years i s over three times that o fmen inthe same age group (9 and 2 percent, respectively). There are strong linkages betweengender inequities and inequalities, resultant powerrelations, vulnerability to gender-based and sexual violence, andconsequently HIV infection. Figure3: New Adult InfectionsandAIDS Deaths 200,000 , 1 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Source: Joint UnitedNations Team on AIDS, Kenya 14. There is also plentyof evidence aboutthe devastatingimpactof the disease on the economy. It has been estimated that by 2005, GDPmay have been 14.5 percent lower with AIDS than it would have beenwithout AIDS. Inthe education sector, HIV and AIDS has particularly affected the supplyo f teachers. The negative effect o fHIV andAIDS on food production andcommercial agriculture inKenya is also marked. Some areaswhere traditionally food production has beenhighhave recently experienced major shortfalls, even with favourable weather conditions. A well-developed human resource base has been one o fKenya's economic mainstays, but there has been a striking effect from the pandemic on the labour force. This i s caused by absenteeism, frequent sick leave and funeral attendance. This marked detrimental effect from HIV and AIDS 6 on the workforce andproductivity has ledto reduced profit margins. The impact o fHIV andAIDS is also profound at the household level. For example, according to a recent study, 36 percent of children from HN-affected households drop out o f school, compared to 25 percent from non-HIV-affected households; 73 percent o f care-givers are women, adding significantly to their household burdens; and health expenditure are 75 percent higher for households with HIV-relatedillnesses. 15. Fortunately,knowledgein Kenyaaboutthe disease andpreventionis growing. The results o fthe 2003 KDHSalso confirm that knowledgeofHIVprevention methods is now widespread. For example, over 80 percent o fKDHS respondents correctly indicated that the risk o f "getting AIDS" could be reduced by limitingsex to one faithful partner. Overall, accurate knowledge o f HNprevention methods were found to be lower among women (as compared to meninthe same age cohort), individuals aged 15 to19 years (as compared to older age cohorts), rural residents (as compared to urban dwellers), and among those with no education (as compared to those with some level o f educational attainment). With respect to stigma or discrimination towards people living with HIV andAIDS, higher education and economic statuswere found to bepositively correlated to more accepting attitudes inKenya. 16. And some behavioralchange is also takingplace,althoughthere is still much roomfor improvement. The reported age at sexual debut for women increased from 16.8 years in 1993 to 17.8 in2003. Around 14percent o f young women and 29 percent o fyoung men reported having had sex by age 15. Significantly, while one-quarter o f women (15 to 24 years) with no education reportedhaving sex by age 15, this proportion declined to only 4 percent (over an 80 percent decline) among those with at least some level o f secondary education. There has also been a significant reductioninthe number of sex partners beforemarriage. The percentage ofunmarriedwomen aged 15 to 49 with more than one sexual partner duringthe 12 months prior to survey was reduced from 4.9 percent in 1998 to 0.9 percent in2003. For men, it was 29.4 percent in 1993 and 10.3 percent in2003. However, the 2003 KDHS results indicated that almost 20 percent o f sexually active women and 40 percent o f sexually active menreported engaging in higher-risk sex inthe 12months precedingthe survey, with only one-quarter o f these women and about halfo f the men reportingcondom use at the most recent occurrence o f high-risk sex. Significantly, about one-third o f both women andmen stated that they had "no chance" o f gettingAIDS. Although knowledge o f VCT was found to be widespread, only 15 percent o f women and 16 percent o fmen reportedhaving ever been tested for HIVinfection(almost identicalto levelsreportedinthe 1998 KDHS). 17. Knowledgeofthe causes of the declineinprevalenceandof the factors affectingHIV transmissionis limitedbut increasing. The progression o fAIDS- related deaths, combined with the saturation o f infection among people most at risk, contribute to the declining national HIVprevalence inKenya. Inaddition, however, there i s strong evidence that the decline i s also significantly due to: (i) increased knowledge o fHIV andAIDS (sero) status; (ii) a reduction inthe number o f sexual partners; (iii)delayed sexual debut among young people; and (iv) increased condom utilization. Conversely, emerging evidence fromthe Region generally suggests that the 7 effectiveness o f some prevention interventions may be limited, especially inthe short- term: these interventions include the treatment o fbacterialsexually transmitted infections, peer education, women's empowerment, anti-stigma campaigns, establishment o f youth clubs and general awareness-raising, 18. Overall, the available data suggests a mixedpicture, inwhich close attention needs to bepaidto several key drivers of the HIV andAIDS epidemic, and targeting of priority activitiesincreased. The HIV epidemic inKenya is heterogenous and close attention must still continue to be paid to several key drivers o fthe epidemic, particularly those affecting the youth, young girls inparticular, and women. Often underlyingthe immediate causal factors are also issues of poverty, gender inequality, gender-based and sexual violence, and stigma. The data also emphasize the critical need for an increasingly information-basedapproach to programming preventive activities inorder to maximize their impact. The emerging evidence also suggeststhat higherpriority shouldbe givento addressing: (i) sex work, both commercial and transactional innature; (ii) the significantly higher risk o fHIV transmission within marriages or `regular/stable' partnerships; (iii) intergenerational sex involving younger women and older men (ina non-marital situation), along with casual sex andconcurrent sexual partnerships; (iv) the recent emergence o f injecting drug use, combined with effects o f other traditional types o f substance abuse, alcohol inparticular; (v) the need to ensure injection safety inhealth care settings; and(vi) men-having-sex-with-men (MSM),especially as an estimated 400,000 Kenyanspass through the correctional system annually. This targeted approach shouldgo handinhandwith the continuation o fHIVinterventions for the general population at large. 19. There hasbeena substantialimprovementinHIV preventiveand diagnostic services in recentyears, althoughprogramshavebeenunderminedby intermittent stock-outsof essentialcommodities. Joint efforts bythe Government, international donors and partners,non- Government organisations (NGOs) and faith-based organizations (FBOs) have resulted in a rapidincrease involuntary counselling and testing (VCT) sites from three inyear 2000 to 650 sites inyear 2005. Over the same period, annual VCT service uptake increased from about 1,000 to 500,000. Prevention o f Mother to Child Transmission (PMTCT) services have also increased: they were introduced on apilot basis in2000, andpresently there are now about 800 facilities countrywide. It i s estimated that 60 percent o fpregnant mothers visiting ANCs are now counselled and tested for HIV. The use o f condoms has increased rapidly inrecent years. Free distribution has been supported by Government under the World Bank-fbnded Decentralized AIDS andReproductive Health (DARE)Project o f the Ministry o fHealth (MOH). Condom distribution has increased from 8.5 million inJuly2004 to about 11 million monthly now'. For 2006/08, Kenya i s estimated to require around 132million male and3 million female condoms annually. These are expected to rise to 160million male and 6 million female condoms in2009/10. On average, the estimated cost o f condoms i s around US$3.5 millionper year. Currently there i s no major source o f fundingfor condoms. 'Thisnumber includes condoms under the social marketingprogram and condoms which are distributed free through Government channels. 8 20. In preventing the disease, the challenge now is to sustain the progress made, avoid complacency, and improve the targeting of program activities. This i s for several reasons: 0 The epidemic varies in different parts of the country. The KDHS indicated that NyanzaProvince has the highest overall prevalence o f 15 percent, followed by Nairobiwith 10percent. All other provinces have levels between 4 and 6 percent overall, except inthe NorthEasternwhere prevalence i s much lower. Urban prevalence is significantly higher (10 percent) than rural (6 percent). Since 80 percent o f Kenya's population i s categorized as rural, however, the greatest burdeno f HIVinfectionfalls amongthe ruralpopulation. 0 Relevant cultural practices also vary. For example, 80 percent o fmen in Kenya are circumcised, and this i s associated with a lower risk o f STI transmission. It is also associated with a lower risk o fHIV,as shownbythe results o fthe recent trials inKisumu. Indeed, inNyanza Province, which has the highestprovincial adult HIVprevalence (15.1 percent) inKenya, the rateofmale circumcisionis only 46 percent. 0 There are some groups at particularly high risk of contracting and transmitting HIV, for whom preventiveservices are currently very limited. These include commercial sex workers (CSWs), MSM,intravenous drugusers (IDUs), the disabled, prisoners andhighlymobile populations such as truck drivers. While there have beensome impressive pilot-programs addressing the needs o f all o f these groups, there are particular constraints to the expansion o f such programs partly due to ethical issues and the sensitivities andpolicies o f some fundingorganizations. 0 Sero-discordant couples are another especially challenging group. The 2003 KDHSresults indicatethat about 4 percent ofcohabitatingcouples are sero- concordant (both HIV-positive), and about 7 percent o f cohabitating couples are sero- discordant (one partner is HIV-positive and the other HIV-negative). The surprisingly highlevel o f sero-discordance indicates a large population o f adults at very highrisk o f HIV infection, giventhat they are cohabitating with a sero-positive partnereither knowinglyor unknowingly. 0 New information is continuously appearing that needs to be taken into account in the strategy for the prevention of HIV and AIDS preventive. For example, it has now been discovered that malaria i s more severe and frequent in People Livingwith HIV andAIDS (PLWHA). Malaria may also increase mother-to- child, as well as adult-to-adult, transmission o f HIV. It is, therefore, clear that there i s needto provide long-lasting insecticide treated nets (ITN) to PLWHA as part o fthe comprehensive care package. However, there i s not yet a systematic andnationwide effort to implement this strategy. 9 21, Programs for the provision of care and treatment for PLWHA are now being scaled up substantially, although Kenya's health care system is being severely challenged. Over the last three years, critical HIV services have beenscaled up substantially. Kenya has developed a national anti-retroviral therapy (ARV) Program which aims to progressively deliver effective ARV, reaching 75 percent o f those eligible by2010, so as to improve the quality o flife and survival o fpeople infected and affected by HIV andAIDS. Currently all provincial hospitals and 70 district hospitals underthe National AIDS and STI Control Program(NASCOP) o fthe MOHare providing comprehensive HIV care, including core components o f counselling services, prevention andtreatment o fopportunistic infections, and ARV. Inorder to standardise care, standardtreatment guidelines have been developed. Because o freduced costs, mobilisation o f resources, and the development o f guidelines and systems, there has been a massive increase inthe number o fpatients on ARV therapy from 3,000 patients in2002 to 110,000 now. This i s about 35 percent o fthose inneed o f treatment. About 40 percent o f pregnant women attending antenatal clinics in2004 benefited from PMTCT services. However, these statistics also show that despite recent scaling-up, treatment and care services have still not reachedthe majority o fPLWHA. 22. The dual TB/HIV epidemic is another challenge to the health services. In recent times, tuberculosis (TB) cases have more than doubled, mainly due to the impact o f the HIV andAIDS pandemic. Around 30 percent o f TB patients are HIV-positive. The threat o fMulti-DrugResistant andExtremely-DrugResistant TB, especially among PLWHA, i s a growing concern. Addressing the TB/HIV linkage i s therefore critical in the fight against HIV and AIDS. The national TB control program is based on a solid five-year strategic plan, with the directly observed treatment (DOT) strategy as the cornerstone for TB control. As part o fthis effort, it i s critical to ensure an adequate supply o fTB drugs for which there is needfor funding2. 23. The most essential challenge for the health sector is the strengthening of its capacity and the performance, in terms of broad systems strengtheningacross sub- sectors, programs and facilities. It i s true that there i s a need to mainstream HIV and AIDS interventions into manyo f those activities that are not specifically concerned with HIVandAIDS, likethe development ofspecific management tools for planning and budgeting. However, the success inmeeting the challenges posed byHIV andAIDS will largelydepend on how well the healthcare system inits totality canbemade to perform. Making effective use o fthe increased financial resources for HIVtreatment requires a significant increase inthe overall performance o f the Kenyanhealth system. 24. Mitigation of the disease is also critically important, especially as AIDS- related adult mortality has tragically resulted in a massive increase in orphanhood. About 1.2 million children have lost either one or bothparents, to date, which constitutes nearly 13 percent o f all Kenyanchildren under the age o f 15 years (Table 1). Another Although Kenya is a recipient o f the GlobalDrugFacility (GDF) Grant which provides the country with free first-line TB drugs, the Grant Agreement will expire by the end of 2007. Another grant under Round 5 o f the Global Fundagainst HIV andAIDS, TB andMalaria (GFATM) will support the procurement o f second-line TB drugs. Therefore, first-line TB drugs is an area which needs further support. 10 600,000 or so are also considered to be equally vulnerable. The number o f orphans and vulnerable children (OVC) will continue to rise unless adult mortality rates are reduced, which would require a significant improvement inbothcoverage and quality o f HIV and AIDS prevention, care, and treatment services. Providing care and support to this large and increasing numbero fOVC is ahuge challenge for the Kenyan society. Table 1:OrphanhoodinKenya(1998-2003) !j j 1i ..................................................................................................................... ) Percen!!W..of.aN.~hi~dre~...under..l~.~ears..who,.haVe: ........................................................... i ~ ! ;.................................................................................................................................................................... I 4j ~ .................. 1998 2003 / ................................... ................................................................................ " ~ .................................................... Lost their father (paternal orphan) j 9 !........................................... 1 ...................................................................................................................................... ................................................... 4i........................................................................ i 8 ............................. iI............................... ij Lost their mother (maternal orphan) ~ ~ " .." ii 3 i 4 j! ! ...................................................................................................................................................................................................................................... i.......................................! .................................................................................................. : YLost both parents (double orphan) 1 1""'i 2 i I i .............................. i"-""""""""""""""""..........."................................................ -..+ ...................................................................................................... ,ji Lost either one or both parents 11 13 II i iI .!j._...................................................................................................... j ~ ~ ..................................................................................................... Source: Kenya Demographic and Health Survey..(KHDS), 1998 - 2003 j " ................................................. ~ 25. In summary,the extent and changingnatureofthe HIV andAIDS epidemic i s still one of the greatestdevelopmentchallengesthat Kenyafaces. As a result, the national HIV and AIDS response needs to be considerably more focused andprecise in the design and implementation o f interventions. This also points to the need to know more about the sources o f new infections which occur and their trends. Inaddition, there i s the need to go beyond general, one-size-fits-all strategies to information-based, cost- effective interventions which are carefblly-tailored to respond to local situations and target populations. Such interventions should be implementedwith a robust M&E system to strengthen the evidence base for decision making. 26. To respondto the HIV and AIDS epidemic,the Government,togetherwith a wide rangeof stakeholders,has alreadydevelopedthe second KenyaNationalHIV andAIDS Strategic Plan(KNASP) for the period2005406 to 2009/10. The KNASP provides a common framework for all HIV andAIDS interventions inKenya. Its objective is to reduce the spread o f HIV, improve the quality o f life o fthose infectedaffected andmitigate the socio-economic impact o fthe epidemic. It i s not intendedfor the KNASP to replace or duplicate sectoral HIV and AIDS strategies, nor does it include detailed operational or implementation plans and detailed budgets for specific interventions. Rather, the KNASP provides the framework and context for such strategies, plans andbudgetsto be formulated, monitored andcoordinated. 27. The KNASPis underpinnedby some core strategicprinciples. These include: (i)multi-sectoralapproach,whichenhancesadvocacy,buildsstrategicpartnershipsand a mainstreams HIV and AIDS within key sectors; (ii) targeted interventions for those groups most vulnerable to infection and to the impact o fHIV and AIDS; (iii) recognition o f the special needs o fwomen and youth; (iv) maximum engagement o fpeople living with HIV andAIDS inthe implementationofthe strategy; (v) empowerment o f all 11 stakeholders to participate effectively inthe nationalresponse; and (vi) interventions which are information-based. Table 2: KNASPPillarsandStrategicObjectives TotalEstimated ResponsePillars Strategic Objectives cost (US$ million) 1. Prevention o fnew Reduce the numbero fnew infections inboth 577 (24%) infections. vulnerable groups and the general populations. 2. Improving the Improve the treatment and care, protectiono f rights 697 (29%) quality o f life o f and accessto effective services for infected and people infected and affected people. affected byHIV and AIDS. 3. Mitigationo f socio- Adapt existing programs and develop innovative 721 (30%) economic impact o f responsesto reduce the impact o f the epidemic on HIVandAIDS. communities, social services and economic productivity. 4. Support services to A NACC equippedwith awide rangeof support 405 (17%) the NACC. services necessary for effective delivery o f a multi- sectoral response to the epidemic. Total 2,400 (100%) 28. The five-yearcost ofthe KNASPis estimatedat US$2.4 billion,with the annualrequirementsrising. Inthe KNASP, the annual HIV fundingrequirement was estimated at US$315 million in200906, US$400 million in2006/07, US$470 millionin 2007/08, and US$525 million in2008/09. The annual increases are partly due to the increasing numbers o f people needing treatment, and also the rising numbers o f OVC needingsupport. 29. Kenyais now receivingconsiderablesupportfor the financingofthe KNASP. Kenya currently receives support through the U S Government's President's Emergency Plan for AIDS Relief(PEPFAR), the Global Fundfor AIDS, TB and Malaria (GFATM), the UK Department for International Development (DFID), and a number o f other bilateral donors and foundations. The commitment o fthe PEPFARwas about US$186 million in2005/06 and i s about US$320 million for 2006/07. Inthe case o f the GFATM, there are commitments o f approximately US$130 million for HIV and AIDS. The contributions from other partners (including the United Nations, other bilateral donors, and the NationalBusiness Council) amounted to about US$l9 millionin2005/06. The existing DFID HIV and AIDS Prevention and Care (HAPAC) Project has provided GBP12.4million (US$24.8 million) between2004 and2007, andDFIDplans to provide a hrther GBP40 million (US$80 million) for the next five years. 12 Table 3: ApproximateResourceAllocationsfor the HIV ResponseinKenya ByInternationalDevelopmentPartners DevelopmentPartners *There i s an element of double-counting regarding the UNsystem contributiondue to funds received in- Icountry from DFID, U S Govt. and SIDA. In2006, this amount i s estimated at about US$2.3 million. **Approximately 80 to 90 percent of this allocation amount is for recurrent or fixed expenditures. 30. However, the externalsupport to the HIV andAIDS programinKenyadoes not correspondwell to the KNASPpriorities. Thevarious projectshavenot been synchronized and harmonized to ensure that all priority areas are addressedefficiently. For example, impact mitigation is meant to receive the largest share o f fundingunder the W A S P at 30 percent, followed closely by treatment and care (29 percent) andthen prevention (24 percent). Incontrast, out o f the U S Government's approved 2006 budget o fUS$208 million, close to two-thirds were earmarked for treatment, care and support. A similarbias inallocation is observed ingrants from the GFATM. The impact mitigation strategy appears to be the worst affected by the funding gap, even though there has been some improvement o f late through allocations from the MTEF. It is also clear that increased priority needs to be givento the fundingo fpreventive activities. 31. Fundsfor the HIV andAIDS programalso currentlyfallshort of estimated requirements,andthere are concernsabout the future financingofthe program. At first sight, the fundingfor the HIV andAIDS Program inthe last two years seems to have been reasonably adequate. Compared to the estimated need o f US$315 million in 2005/06, pledges amounted to US$274 million. In2006/07, the pledges rose to about US$426 million, compared to the estimated need o fUS$400 million. However, the fundingavailable for the HIV andAIDS Programis still problematic for several reasons. First,thereal value o fmuch o fthe external assistance is considerably reduced by large purchases o f branded ARV drugs, rather than generics (theprices o f which were usedfor the KNASP cost estimates), andalso bythe overhead costs o f contractors. 13 Second, the estimatedannual need i s risingconsiderably, with US$470 million estimated to be required in2007/08, compared to US$400 million in2006/07. Third, over 98 percent o fthe HIVand AIDS Program fundingnow comes from external sources, most o fwhich i s offbudget and o f uncertaintiming and predictability. Ofthe total external fbnding, the U S Government contributes by far the largest amount (76 percent), followed bythe UNsystem (8.6 percent) andthe GFATM(7 percent). Most o fthe external support is through the "project mode", rather than SWAPor basket fhding approaches, although increased efforts are being made to coordinate support programs. Fourth, there is a real concern that some projects may come to an endbefore alternative sources o f funds are secured. For instance, any interruption inthe financing o fARVs could have severe negative impact on those already under treatment. Programs such as ARVs mustbe sustained to ensure long term benefits. 32. Although the financingchallenges are very worrying, there are several initiativesnow underwayto address them. First, the "Three Ones" Principlehas been widely endorsed by the Government, development partners and other stakeholders, and serves as the guiding framework for harmonization o f activities. Second, the NACC has also established a "Harmonization Task Force" to promote increased coordination and alignment among the development partners. Third, the NACC and partners have also operationalized a Task Force that seeks to mainstream HIV and AIDS into ministerial andsector budgets andworkplans. This Task Force is aiming to increase the financial contribution o f each ministryto the HIV and AIDS response. Fourth, the major issue o f sustainability o f fbnding o f commodities i s currently beingreviewed by the Government and a consortium o f stakeholders. Intotal the cost o fthe commodities is estimated to increase from US$81million inthe financial year 2007/08 to US$ll3 million in2008/09 and US$143 million in2009/10. Finally, the designwork for the planned SWAP inthe health sector i s also examining indetail how the wider issues o f sustainability couldbe addressed, as part o f analytical work beingcarried out on health financing strategies. The Governanceof the HIV andAIDS Program 33. The importanceof a comprehensivemulti-sectoralresponsewas well recognizedin Kenyaby the end of the 1990's with the establishmentof the NACC. The NACC was established in 1999with the mandate to coordinate andmanage the multi-sectoral approach to the national HIV and AIDS Program, providing policy direction, and mobilizing resources insupport o f implementation. The NACC was one o f the first two recipients o fthe first IDA-supported Multi-Country AIDS Program for Africa (MAP), with the approval o fUS$50 million under the Kenya HIV and AIDS Disaster Response(KHADREP) Project (Credit 3415). Inits early years, the NACC made progress ina number o f areas: (i) it promoted greater inter-sectoral coordination o f the HIVandAIDS response; (ii)oversaw the development o fpolicies inkey areas, it including OVC andmainstreaming gender issues; and (iii) it played an instrumentalrole 14 inattracting new sourcesoffundingandindistributing grants to avarietyofcommunity and other organizations. 34. However,the NACCsoon faced significantcriticism. Inthe early 2000s, various challenges soon became evident. These includedvarious weaknesses inthe operational structure o fNACC (especially with the dissolution o fthe Provincial AIDS Control Committees and District AIDS Control Committees) which affected its ability to review and supervise the actual allocation o f grants andtheir use. In2002 and2003, other serious problems emerged, including: (i) corruption charges leveled against senior officials; (ii) political interference inthe grant-making procedures; (iii)general failure a by the NACC management to address fiduciary risks inthe organization; and (iv) a perceived unwillingness to allow and enable the ConstituencyAIDS Control Committees (CACCs) to function effectively at the peripheral level. The NACC became the target o f sustained criticism inthe press, amidst accusations o f lack o f transparency and inefficiency. There was a growing sense that the NACC needed to be restructured to increase its effectiveness. 35. In responseto the initialwave of criticism,the Governmentstartedto recognizeand address the governance issues inthe NACC in the period2003-04. First,the GovernmentcommissionedaJoint InstitutionalReview (JR) ofthe NACC structure and organization. The JIR made recommendations for: (i) strengthening the NACC governance environment, primarilythrough improved effectiveness o f the Council; (ii) reforming the NACC Secretariat, with greater functional focus, appropriate andtransparent recruitment of staff, the development of aperformancemanagement system, andprotection from political interference; (iii) strengthening and mainstreaming public sector programs, primarilythrough the Government Medium Term Expenditure Framework (MTEF) process; (iv) makingthe CACCs more effective; and (v) improving stakeholder coordination. These recommendations were accepted by the Government and the NACC, and ledto a fundamental restructuring o f the organization. 36. Second, the EfficiencyMonitoringUnit (EMU)of the Officeof the President conducted an investigativereview of the NACC. The EMUreport noted serious irregularities inthe implementation o fthe KHADREP, including instances o fboth negligence andclearly fraudulent practices infinancial management, procurement, payment o f allowances to staff and consultants, and inthe award andmanagement o f grants, to both CBOs and to public sector ministries. Inparticular, significant levels o f fraud were found at national level, where grants in excess o fUS$lOO,OOO were awarded. The EMUReport made a series o frecommendations, covering: (i) and revision o f review policies, structures and legal frameworks for the HIV and AIDS Program; (ii) disciplinary actions to be taken against various senior staff; (iii)investigations to be taken upbythe KenyaAnti-Corruption Commission(KACC); (iv) steps to strengthen management andoversight; and(v) strict compliance byN A C C with public anddonor procurement procedures. Therewas also an investigationinto the performance o fthe first NACC Director. She was subsequently prosecuted for fraud, and thenjailed after beingfound guilty. 15 37. However,governanceconcerns continued,andthe Governmentitself commissioned an independentForensicAudit of the KHADREPinApril 2005 to verify the situation. The report o fthis Forensic Audit identified evidence o f malfeasance and serious shortcomings inthe governance and control environment inthe KHADREP. Itpointedout that the distribution o fthe EMUReport hadbeen delayed, andthat the NACC hadtherefore been makinginsufficient progress inaddressing the EMUfindings. Inparticular, the Forensic Audit notedthe following as keycontributors to a highrisk of fraud: (i) lack o f adequate financial controls; (ii) o f recognition o f lack fraud risk and the need for fraud risk management; (iii) weak oversight by senior officials; (iv) poor understanding o f World Bank procurement procedures; and (v) weak monitoring and reporting. It also pointed out that the highfraud risks identifiedwere not inmajorprocurements (which were closely supervised bythe World Bank),butinthe management o f small grants and the operations o f the NACC itself. 38. Fromthe middleof2005 the NACC developedandprogressivelystartedto implementan Action Plan,based uponthe findingsof the ForensicAudit. The Action Plan includes: (i) recovery o f inappropriate payments to staff, and legal action full against staff found to have committed fraudulent activities; (ii) suspension o f the second NACC Director (inposition from 2004 to early 2006), following the earlier prosecution andjailing o fthe first Director o fthe NACC; (iii) investigation o f 128 (out of ongoing about 6,000 or about 2 percent o fthe total) NGOs suspected o fpossible fraudulent activities; (iv) the establishment o f anti-corruption hotlines, and protection for whistleblowers insuspectedcorruption cases; (v) improving the effectiveness o f the Council inoversight matters; (vi) introducing fraud risk management for boththe Council andthe senior staffo fNACC; (vii) re-defining responsibilities andestablishing clear mandates for the Audit Committee and the Finance andAdministration Committee o fthe Council; (viii) development o f codes o f conduct for NACC andthe Council, and declaration o f assets; (ix) competitive recruitment o f staff; (x) the signing, public disclosure, monitoring and satisfactory implementationo fperformance contracts; (xi) strengthened financial management expertise inthe NACC; (xii) the development o f a communications strategy to ensure increased social accountability (with specific measures relating to the flow o f information to all stakeholders, especially at the local level); (xiii) institution o f independent and effective internal audit capacity with the Unit staffed by a Senior InternalAuditor and another Internal Auditor; (xiv) strengthened governance mechanisms for CACCs and AIDS control units (ACUs); and (xv) a strengthened M&E system, with emphasis on results-based performance. 39. Inearly 2006, the Governmentrequestedthe World BankINT Department to conduct a DIRof the KHADREP,the reportof which was deliveredto the GovernmentinSeptember2006. The DIRconfirmed the earlier findings o fthe Government's own investigations and the Forensic Audit, concludingthat the KHADREP Project had "strong indicators.. ,.that were consistent withpotential fraud, corruption and collusion". The review o fthe NACC's internalprocurement found indicators o f collusive practices, biased bid evaluation and fraud. The DIR Team's financial management review also found severe weaknesses inthe NACC's internal control environment, accounting procedures, staff capacity and recordkeeping. In 16 addition, the DIRTeam foundstrong indicators o f irregularities within the small number o fKHADREP's grant-financed activities that it reviewed. The main recommendation was that all riskmitigation measures inplannedHIV and AIDS (andhealth) projects shouldbe plannedand reviewed carefully. For example, it was recommended that future grants to implementing organizations should be more carefully targeted, including to those with a track record o f success and inefficiency. 40. The paceof implementationof the ActionPlanpickedup significantly throughout2006, with a new managementteam appointedin the NACC. Withthe stimulus o f the DIRwork, a newNACC Director and senior managers were appointed, with a clear mandate from the Government andNACC Boardto intensify and accelerate the implementation o fthe Action Plan. This Action Planis now part o fthe overall Governance Action Plan (GAP) o f the Government for the period July 2006 to June 2007, andit is beingmonitored andreviewedon a monthly basis. Stepstaken included the following: TheNACC Council, with internationaltechnical assistance, has developed a comprehensive riskmanagement policy to manage fraud and corruption risks. This policy stipulates among other things: (i) strengtheningo f the Internal Audit the Divisionwith the hiringo f staff; (ii) establishment o f anti-corruptionhotlines; and the (iii) institutionalizationofwhistle-blowersforsuspectedcorruptioncases. Italso the emphasizes increased transparency inthe procurement system and improved social accountability. The implementation o f the risk management policy i s now being rolled out, again with international technical assistance. The external recruitment o f staff for the re-structured NACC has been completed for senior and mid-level managers. All vacancies inthe NACC Procurement Unit have been filled, following a competitive recruitment process, enabling the Unitto execute theNACC procurement planefficiently. The W A S P M&E system has been developed inspite o fresource constraints, and the NACC has established itselfas the center for coordination o fM&E for HIV and AIDS. However, this position is highlyvulnerable without immediate financial support. Inparticular, the M&E framework andimplementationmanuals have been completed anddisseminated; there i s a well-functioning M&E Technical Working Group as the forum for discussion o fM&Eissues; the NACC has recruited and hired additional technical staff necessary for the M&E and MIS divisions according to the plan; the Joint HIV and AIDS Program Review (JAPR) process has continued annually; and the NACC has completedits first Client Satisfaction Survey, with broad sampling from development partners, andthe public at all levels. At the local level, there hasbeenthe successful launcho fthe Community-Based Activity Reporting System(COBPAR). The COBPAR is now startingto be used for reporting on all community-basedHIV and AIDS activities by all donor partners, as well as by those CBOs not fundedby the large donor partners. PEPFAR has expressed its commitment to abandon its parallel reporting system once COBPAR has 17 proven itself, and a significant amount o ftechnical assistance i s now beingprovided to the NACC for COBPAR system implementation. 0 A single unique registryo fall CBOs working inthe sector is also beingcompiled. Over 5,000 have already been registered. This up-to-date inventory o f community- based initiatives was created at the request o fthe Donor Harmonization Committee, andwill allow harmonizationo fdonor partner funding, improve targetingo fdonor resources andreduce duplicate fhding. 0 A wide range o fstakeholders are now involvedinstrategic decision-making and social accountability for the NACC Program, through such mechanisms as the Inter- agency Coordinating Committee (ICC). 0 Work i s starting on the compilation o f a formal Governance Charter for the NACC, andit is scheduled for approval bythe NACC BoardinJuly2007 41, The substantialimprovementinthe institutionalperformanceofthe NACC hasbeenconfirmedby an externalevaluation. According to theNACC Governance Plan and incompliance with the State Corporations Regulations o f 2004, the NACC introducedperformance contracts and assurance management in2005. Senior staff and mid-level managers now sign performance contracts against which they are periodically evaluated. Inaddition, the NACC i s subject to an external performance evaluation annually canied out bythe Inspectorate o f State Corporations inconjunctionwith an ad hoc Evaluation Task Force. These evaluations utilize a standardized methodology and instruments that are the same across all ministries, directorates and parastatal entities. The performance evaluations assess indicators inthe following domains: financial, service delivery, non-financial, dynamic and operations. The annual external performance evaluationproduces a composite score based on weighted averages o f performance on these indicators from the five domains. This overall score may be interpreted as follows according to Government guidelines: (i).OO- 1.49 (Excellent); (ii) 1 1.50- 2.49 (Very Good); (iii) 3.49 (Good); (iv) 3.50- 4.49 (Fair); and (v) 4.50- 5.00 2.50- (Poor). The NACC has shown significant improvement over the past year (2005/06) in governance and capacity, with the NACC assessedat a highlevel in2006 (a score o f 2.4, rating "very good"). 42. These steps havebeen complementedby planningfor further governance strengtheningmeasures, as partof the design work for the TotalWar AgainstHIV andAIDS (TOWA) Project. These additional measures include: (i)results-oriented a andperformance-based awardmechanism for grants; (ii) limitation on the participation o f community-based organisations (CBOs) to those with established track records o f performance; (iii) the introduction o ftransparent decision-making processeswith full dissemination o f information; and (iv) the forthcoming recruitment of: (a) a new financial management agent (FMA), with revisedterms o f reference (TORS);(b) an independent compliance verification agent (CVA) to check compliance at all levels with the laiddown rules inthe approval o fproposals; (c) an independent performance auditor to assess and compare the results verifiably achieved with the results claimed; and (d) an independent 18 procurement monitoring agency (to verify that procurement i s carried out in accordance with agreed regulations andprocedures). 43. The further progressof the institutionalstrengtheningofthe NACCwill be monitoredclosely. Under the TOWA Project, inadditionto the comprehensive measures already being taken to strengthen governance, it has been agreed that an institutional assessmento fthe NACC would be carried out by September 2009. This institutional assessmentwould be useful to maintain and enhance the effectiveness o f the NACC as the coordinatingbody for the implementation o fthe KNASP, taking into account the development o fthe epidemic, the evolving roles o f different stakeholders, andthe preparations for the next strategic plan. The focus o fthe assessmentwould include the NACC andits instructional structures, its core business processes, and management and coordination functions. The precise timing o f the institutional assessmentwould be demand driven, based on consultations with all stakeholders. This broader assessmentwould also buildon annual performance assessments completed toward the end o f each calendar year, explicitly linkedwith the JAPRprocess and within the context o fthe KNASP. The assessmentwould also be supported by the Government performance assessmento fthe NACC, which i s done annually according to procedures for assessment o fperformance contracts, and which i s being used as a progress indicator inthe results framework. These assessmentswouldbeinadditionto intensive supervision o f the Project by the regular implementation support missions. 44. Besides the work of the NACC in the fight againstHIV andAIDS, there has recentlybeen an importantinitiativeledby the MinistryofHomeAffairs to address the needs of the OVC. The Children's Department o fthe MinistryofHomeAffairs (MOHA) is now implementinga cashtransfer program. The objective o fthe cash transfer Program is to strengthenthe ability o f families to protect and care for OVC, ensuringthat orphans stay within their communities andare cared for effectively. Transfers are currently directed to vulnerable and poor households committed to meeting specific conditions aimed at promoting improved health and education outcomes for OVC. The Government's long-run objective is to continue a process o fphased expansion o fthe cash transfer Programwith the goal o f achieving nationwide coverage reaching at least 30 percent o f the poorest andmost vulnerable OVC. Implementationo f the full- scale program is plannedto rununtil2015. 45. Some importantlessonswere learnedfromPhase1("pre-pilot") ofthe Program,which beganinDecember2004 inthree districtsandsupported500 OVC. The objective was to generate lessons on program targeting, selection procedures, and implementation costs, inorder to guidethe design o fthe pilot project that could be scaled-up nationwide. The main lessons learned from Phase 1were that: (i) transfer cash delivery mechanisms are particularly challenging inremote areas o fthe country without financial institutions; (ii) some errors o f exclusion and inclusion cannot be avoided; (iii) targeting i s hardwhere poverty levels are high; (iv) increasingthe number o f OVC to be supported may stretch the capacity o f existing interventions; (v) the cash transfer Program needs to be closely linked with other existing programs; and (vi) additional challenges arise intryingto support nomadic way communities. 19 46. Phase2, launchedinJune 2006 andcurrentlysupportedbyUNICEF, DFID andSIDA, is basedon the initiallessonslearnedfromPhase 1. Changes havebeen made to the Project design, particularly interms o f selection criteria, the use o f conditionalities andthe system o f cash disbursement. Phase 2 i s now underway, and aims to deliver transfers to 10,500 OVC in 17 districts. Within this, seven districts have been identified to participateina pilot that seeks to evaluate the differences inimpact by varying programpenalty rules. Two separate treatment groups are subject either to penalties for not meeting program conditionalities or are not subject to these penalties, thus allowing anindependentevaluation o fthe impact o fthis aspect o fthe program. Phase 3 aims to reach 30,000 OVC and i s scheduled for implementation in2007/08, after the Phase2 evaluationresults are available. DuringPhase 3, program procedures will be standardized based on the results from the pilot inPhase 2. While the Government intendsto scale up the programsignificantly, it is looking for additional support particularly to ensure that the governance o f the program is strengthened to ensure maximum efficiency, accountability and transparency. 2. Rationalefor BankInvolvement a) Related Sector Operations 47. TheWorld Bankhasbeena major supporter of Kenya's nationalresponseto the HIV andAIDS epidemicthroughseveral projects. The Bank's past support has beenprimarily through: (i) the now-closed Sexually Transmitted Infections Project (Credit 2686, US$50 million, approved December 1995); (ii) the recently extended DAREProject (Credit 3440, US$54million, approved December 2000); andparticularly (iii) KHADREP(Credit3415,US$50million,approvedDecember2000). Kenya the was one o fthe first countries to access funds under the MAP, andthe KHADREP design served as a model for many subsequent projects inother countries inthe region. The DAREProject (supporting the healthsector response) was implementedinparallelwith the KHADREP, with the latter focusing more on the multi-sectoral approach. In addition, there have been H N and AIDS related activities included inother IDA- supported projects, including inthe transport and education sectors. 48. Stakeholders(Government,civil society anddevelopmentpartners)believe that the KHADREP contributedsubstantiallyto decliningHIV andAIDS incidence andprevalenceover the pastfive years, despitethe governanceproblemsthat it faced. For example, they note that the KHADREP provided the framework andinitially most o fthe financing for the HIV and AIDS Program. With KHADREP support, NACC was able to: (i) the silence about HIV and AIDS at all levels; (ii) some 6,000 break fimd community-level initiatives, which mobilized many communities all around the country and opened new channels for HIV and AIDS-related activities; (iii) support civil society andmanynon-traditional partnerswith easy-to-access, fast andflexible resources for community-based HIV activities; (iv) strengthen the core coordination mechanisms for the national H N andAIDS Program; (v) initiate major innovations such as the JAPR 20 process; and (vi) with other stakeholders, learnimportant lessons regardingmeans o f strengthening and accelerating the nationalresponse. There is, however, little quantified evidence available about the discrete impact o f specific interventions funded through the Project, with the exception o f some data resulting from the piloting o fthe lot quality assurance sampling (LQAS) methodology intwo provinces. This demonstrated significant improvement incoverage for school andnutritional support for OVC in project areas compared to control areas, as well as some impact incondom use inmen and improvedknowledge about HIV amongyouth. The LQAShasbeenrolled out nationally in2007/08, once additional resources become available. 49. The World Bankhascontributedto supportingthe HIV andAIDS Program in Kenyain other ways too. Apart from its role inmobilizing financialresources, the World Bank has helped to provide a platform for strengthening the nationalprogram through its emphasis on country alignment, a broadmulti-sectoral scope, implementation focus, and government-led processes. It has contributed significantly to the national strategic planningprocess through comprehensive economic and sectoral impact analyses. Its policy dialogue has assisted inthe definition andfurther understandingof HIVandAIDS as acore development issue, andinsafeguarding the status ofthe NACC as a credible multi-sectoral entity. The World Bank has also served as a lead advocate to support a more information-based approach to targeting specific populations and geographic sub-groups, particularly inthe context of the vastly improving epidemiological data and understanding. As the Co-Sponsor with UNAIDS o f the Global Monitoring and EvaluationTeam (GAMET), the World Bank has also helped to strengthenthe nationalM&Esystem, and inhelpingit to beused as aprogram management tool. 50. Throughthe TOWA Project,IDAwould continueto supporteffortsto sustaingovernance improvementsin the NACC. IDA is currentlyplaying a leadrole insupporting anti-corruption andgovernance issuesinKenya, andthe TOWA Project would support further institutional strengthening inHIV and AIDS. These governance strengtheningneedsinclude: hrther buildingupcapacity inthe NACC Secretariat inkey areas such as financial management, internal oversight and audit, and the implementation o f a fiduciary risk management policy; strengtheninglocal decision-making, with empowered and informed CACCs which can operate effectively and as planned; improving monitoring and accountability at both the central and constituency levels, especially with more involvement o f local communities and also through the use o f independent monitors; and increasing public disclosure, bothto inform all stakeholders about the transparency o fprocesses, successesachieved and the challenges faced, andto improve the public perception and credibility o fthe NACC and the national HIV and AIDS Program. 51. The TOWA Projectwould also respondto some importantgaps inthe financingofthe KNASP. As noted earlier, eventhoughKenya receives significant amounts o fmoney for HIV and AIDS from other external sources, there are still some significant gaps inthe resourcingo f the Program. This i s because the real value o fthe support received by Kenya i s less than the nominal amounts; the estimated annual 21 financing need i s rising considerably; the various projects do not ensure that all priority areas are addressed efficiently; and, with the closure o f the KHADREP, there i s an enormous demand for further support for enhanced HIV and AIDS activities at the local level. IDA has considerable experience insupporting and financing small CBOs, its financing is relatively flexible, and it i s willing to take focus on hard-to-reach and other vulnerable groups, such as CSWs, which may not be receiving adequate coverage under some o fthe other partner-financed programs. There i s also a need for additional funding for commodities, especially condoms, for which there are only limitedfhds available from other external sources. 52. The Projectwould also maintainthe "two-prongapproach" of addressing the preventativeandhealthsector issuesin Kenyainparallel. HIV andAIDS will continue to exert a heavy burden on the healthinfrastructure inKenya. Health sector- specific support for the national HNand AIDS Program, including the procurement o f condoms and essential drugs, i s already being provided under the DAREProject (which has beencarried out inparallelwith the KHADREP to ensure complementarity between the IDA'Smulti-sectoral and health sector investments). The DAREi s due to close at the end o fJune 2007. The design o fthe plannednew Health SWAP (whichwould address some o fthe infrastructure and capacity issues, inaddition to the procurement of medical supplies and commodities through the MOH) i s now underway, and Board consideration i s scheduled for FY08. This will enable a continuation o f the "twinning" approach initiated bythe KHADREP andthe DARE, through the TOWA Project and the health sector SWAp. 53, The Projectwould complement other IDA-supportedoperations. The TOWA Project will also be implemented inparallelwith the new Education SWAp, which includes an investment program for HIV andAIDS education inschools, amongother keynon-healthsector operations (such as the Western Kenya Community Driven Development Program andthe Roads Project). Sub-regional HNand AIDS projects supported by IDA that will serve a complementary function to TOWA Project, include the African Regional Capacity BuildingProject for HIV and AIDS Prevention, Care, and Treatment Project (ARCAN),the Great Lakes Initiative on HIV andAIDS Support Project (GLIA), and the Inter-GovernmentalAuthority on Development RegionalHIV and AIDS Partnership Program(to be financed under the Africa Catalytic Growth Fund). TOWA Project will also link to the plannednew social protection project, as it i s planned for the proposed Economic and Social Empowerment Project (ESEP) to includea component for governance strengthening and scale up o fthe OVC conditional cash transfer (CCT) program. 54. The TOWA Projectwill contributeconsiderablyto the harmonizationand alignmentagenda inKenya. The co-funding ofthe TOWA Projectwith DFID, and the closer links to the UNSystem planto be supported byDFID, will align the Bank closely behinda major harmonizationand alignment initiative. The new DFIDsupport for HIV and AIDS inKenyawill provide some GBP40 million (US$SO million) over the next five years. O fthis amount: (i) US$33 millionwill be managed by the World Bank about through pooled-funding for the TOWA Project; (ii) US$20 million will support a about 22 Joint UNSystem Action Plan for HIV andAIDS inKenya, to provide technical assistanceto the implementationo fthe KNASP and the TOWA Project through the UN system; and (iii) US$20 millionwill beprovided through a delegatedpartnership about with the Swedish InternationalDevelopmentAgency (SIDA) to strengthen the coordination between civil society and the Government for the implementation o fthe W A S P through capacity building, grant-making,networking, documentation o f lessons learned, and active collaboration, through AMREF. This DFIDsupport will be coordinated byNACC, based upon annual workplans. This will bring the World Bank, DFIDandthe UNSysteminto anenhancedpartnership, supporting the KNASP, and explicitly coordinated and managedbyNACC. Inaddition, TOWA Project will coordinate with other HIV and AIDS stakeholders inKenya inthe framework o fKNASP andannual JAPRprocess. b) Strategic Alignment with Related Investments andPolicies 55. The proposed Project is supportive of the Bank's broader development assistance strategies for Kenya. Kenya's new strategy for economic growth with poverty reduction i s definedinits InvestmentProgram for the Economic Recovery Strategy (IP-ERS)for Wealth and Employment Creation, its Poverty Reduction Strategy Paper (PRSP) which was presentedto the Bank andthe IMFBoards inMay 2004. The IP-ERSwas developed through aparticipatoryprocess. The strategy is basedon three interlinked pillars: (i) economic growth, supported by reforms o f financial services and anexpansion o finvestments ininfrastructure; (ii) andpovertyreduction, which equity would be aided by actions to improve the access of the poor to basic services (education, health, andHIV and AIDS), and the revival o f agricultural growth; and (iii)governance, including strengthening public safety, law, and order. Humandevelopment indicators, including HIV and AIDS, figure prominently inthe Kenya ERS policy matrix. 56. The TOWA Project also reflects the focus of the CAS and the CAS Progress Report. The Kenya CAS approved inMay 2004, i s designed to help Kenya achieve its development objectives as set out inthe results framework o fthe ERS. There are four main areas o f support: (i) investinginpeople (including support for the national fight against HIV and AIDS); (ii) strengthening public sector management and accountability; (iii)improving the investment climate; and (iv) reducing vulnerability and strengthening communities. The CAS notes that addressing HIV andAIDS i s a top priority for the Government. The Bank i s explicitly committed to assisting the Government, the Kenyan public and the donor community to fight corruption and strengthen governance, inline with the thirdpillar ofthe ERS. The CAS Progress Report ofMarch2007 reaffirms the Bank's commitment to support the fight against HIVandAIDS, andmakes the case for the delivery o fthe TOWA Project inFY06/07 inview of: (i) pressing needs for the continued support inthis area; (ii) significant reforms that have beenmade at NACC; the and (iii) delayed Boardconsideration o fthe TOWA Project since the closure o fthe the KHADREP inDecember 2005. As noted earlier, the strategy for the designo fthe TOWA Project is entirely consistent with the principles of: (i) preventing misuse o f World Bank funds; (ii) usingWorld Bank leverage to support furtherprogress in 23 governance; (iii) supporting champions o f governance reforms; and(iv) enhancing targeted assistance for the poor and needy. c) Compliance with Repeater Requirements 57. The TOWA is a repeaterprojectunder the new AfricaMAPs,which have evolved to be more prioritizedthanthe originalMAPs. The predecessor, KHADREP, was approved by the World Bank's Board of ExecutiveDirectors on September 12,2000, as part o fthe first package submitted under the MAP. Duringthe Project Concept Note (PCN) review for the TOWA Project on February 8,2005, the World Bank management concurred that the proposed Project design follows the requirements andcriteria established for "repeaters" under the M A P for Afr-ica (see Annex 11). The enhanced processes, systems and control measures inthe TOWA are reflective o f the Bank's experience with KHADREP. 3. HigherLevel Objectivesto whichthe ProjectContributes 58. Kenyais already meetingthe millenniumdevelopmentgoal(MDG) for HIV andAIDS, butthe outlookfor other MDGindicatorsinthe countryis mixed. The MDGsenvisionthat, by2015, the world would havehalted andbegunto reverse the HIV andAIDS epidemic. InKenya, as earlier noted, the prevalence o fHIV andAIDS is already on the decline. The picture is also encouraging inthe education sector, especially with the declaration ofFPE. However, Kenya is not expected to meet MDGindicators for health, poverty, gender equality, and water safety at the current rates o fpublic financing. Nevertheless, the inclusion o f a strong gender focus and greater emphasis on vulnerable groups inTOWA Project provides the opportunity to address two additional MDGs:Goal 4 (promote gender equality and empowerment o fwomen) and Goal 6 (improve maternal health, particularly with respect to reducingthe risk o fmother-to-child transmission). Given the linkages betweenhealth, poverty andeconomic development, the TOWA Project would ultimately contribute toward achieving Kenya's poverty alleviation and economic growth objectives. B. PROJECTDESCRIPTION 1. ProjectConcept 59. The design of the TOWA Projectis framedwithin three primarychallenges now facingthe HIV andAIDS epidemic in Kenya. These include the needfor: (i) hrthergovernance strengthening and enhanced strategic leadership bytheNACC; (ii) an increased focus on targeting and results; and (iii)improvedharmonization and alignment among development partners. 60. The Projectwould contributefurther to the governanceand anti-corruption programof the Government. While policy-level work inthe fight against corruption is 24 ongoing, several critical risk-management measures are beingtakenbythe Government, working with the Bank, inresponse to the various audits. As noted earlier, these include the following: (i) project activities have been integrated into the central Government all general ledger system; (ii) all newprojects are integrating control elements recommended bythe auditors, includingrisk management functions andrisk-based audit procedures; (iii) ministerial and project-level audit committees havebeen established andthe Government's internal audit function has beenredefined; (iv) the Government is deepening the focus on results as an integral part o f good governance; and (v) various transparency measures are beingintroduced (including public access to information, public education and public disclosure). The NACC i s now inthe forefront o fthese initiatives, as illustrated by the progress achieved inthe implementation o fits Action Plan. They will be taken further with support from the TOWA Project. 61. The Project will have an increased focus on targeting, results and performance. This will be achieved through a series o fmeasures. 0 The Project will make a special effort to map groups at highrisk o f contracting HIV andprovidethemwith targeted interventions. Itwill also focus explicitly on activities being funded insufficientlyby other development partners. 0 Increasinguse is already beingmade of the JAPR, which involves the participationo f all stakeholders to identify annual program priorities and allocations. This will be continued under the TOWA Project. Inaddition, a Steering Committee has been established with representation o f donors and stakeholders to review work plansand recommended annual funding allocations through NACC. 0 A new grant awardmechanismhas beendesigned for implementationunderthe TOWA Project, utilizing Calls for Proposals (CfP). The CfP will prioritize its support to: (i) interventionswhich are known to be effective andhave the largest impact on the epidemic; and (ii) implementers who have comparative advantages in implementingsuch interventionsand can deliver results. The CfP will also introduce clearly definedbudgetsfor grantees and transparent decision-making processes (that involve the fillandtimely dissemination o f information, and possibly the introduction o fpublicly available transcripts o f decision meetings or video records). The CfP will limit CBO/NGO participationto those with established track records o f delivery and performance, and exclude and/or black-list non-performing previous grantees). Networks o f national-level NGOs are being established as `facilitating agencies' to strengthen CBO applications for and use o f grants. Such measures will reduce the scope for any possible fraud. The prioritization and approval of the first CfPfor FY07/0S will be a condition of effectivenessofthe Project. 0 There will be: (i)new, independent, externally-recruitedFinancial Management a Agent (FMA), with an explicit, timebound andmonitorable obligation to strengthen NACC capacity; (ii) anindependent Compliance Verification Agent (CVA) to monitor the compliance o f decisions on grant proposals against the CfPs; and (iii) an independent Procurement Monitoring Agent (PMA) to monitor procurement by the 25 NACC. All o fthese will be subject to their own transparency and accountability requirements. The recruitmentof all of these will also be a conditionof effectiveness of the Project. Therewill be anindependent Performance Auditor for a programmatic andtechnical audit to assess and compare the results verifiably achieved with the results claimed. This auditor will beprocuredby December31, 2007. 62. The TOWA Projectwould also helpto strengthencoordinationand harmonizationof externalsupportfor HIV andAIDS inKenya. There are presently a multiplicity o fpartners and a multiplicity o fprograms inthe HIV and AIDS sector in Kenya, with 80 percent o f support for the program off-budget. The epidemiological imperatives o f the epidemic are requiringgreater and greater emphasis on community- specific responses. This is leadingto a multiplicity o f outcomes and fragmentation o f processes at all levels, which presents a great challenge for coordination by NACC. There is, however, broad support for the national HIV and AIDS Program andthe KNASP. The coordination o f efforts underNACC has significantly improved, especially with the annual JAPRs. The numbero fsupportivepartners has also increased substantially, and external partnershave been actively engaged indiscussions about ways to harmonize and align their support, including with the creation o f ajoint database for civil society organizations (CSOs), and the highly coordinated assistance for the strengthening o fthe M&EProgram. The TOWA Project would buildupon these positive developments, especially with the DFID co-fimding. Finally, the TOWA Project will also focus on prevention and mitigation interventions, as support from other sources (e.g. PEPFAR, GFATM) is focused more towards treatment. 2. ProjectDevelopmentObjectivesand Key Indicators 63. The projectdevelopmentobjectiveis to assist Kenyato expandthe coverage oftargetedHIV andAIDS preventionand mitigationinterventions. This wouldbe done through: (i) sustainingthe improvedinstitutional performance o fthe NACC; and (ii) supporting the implementation o fthe KNASP. The following table shows the key monitoring indicators. Inshort, ifthe TOWA Project is successful, then after four years o fthe project, the NACC will be consistently scoring inthe range o f 1.OO- 1.49 (Excellent) or 1SO- 2.49 (Very Good); according to Government guidelines. Inaddition, at least 80 percent ofthe programs being hndedby the NACC will be achieving their targets. Interms o f the "scorecard", then there would have been major progress in selected, key outcome indicators, as shown inAnnex 63. 64. Annualpriority-settingderivedfromthe JAPR will guidethe Project. This is a key developmentinthe implementation o fthe KNASP, which will apply not only to the TOWA Project, but also to other donors' support, such as the DFID support to the UN Most of the ACTAfrica Scorecard indicators are included inthe TOWA Results Framework. Those Scorecard indicators that are not inthe Results were omitted because the project will not directly support activities that depend on those indicators. 26 systemandthe SIDA support to AMREF. The annual JAPR is the startingpoint in settingthe annual priorities for implementingthe KNASP. The JAPR is abroadbased forum where all stakeholders are involved, and which from 2006 has included decentralized input from district and community levels. The results o fthe JAPR are used to select the priority areas for all HIV and AIDS interventions for the coming year, based on the experience from implementation duringthe previous year. Table 4: ProjectDevelopmentObjectivesandKey Indicators The Project development objective 1)NACCcomposite score on the Assess overall NACC performance i s to assist Kenya to expand the annual independent performance and needs for further institutional coverage o f targeted HIV andAIDS evaluation. strengthening and technical prevention and mitigation assistance. interventions through: (i) sustaining 2) Proportiono f overall targets met Assess the effectiveness of the NACC the improved institutional for NACC-funded programs in: indirectly fundingandimplementing performance o f the NACC; and (ii) civil society/private sector programs and identify areas for supporting the implementation o f (beneficiaries); and fbrther strengthening and technical the KNASP. public sector (beneficiaries). assistance. 3) Key outcome indicators for Assess impact o fNACCs prevention and mitigation: performance inimplementation o f the Proportiono fyouth aged 15 to W A S P inthe areas o fprevention and 24 years reporting condom use mitigation. Most o f the ACTAfi-ica inthe last sexualencounter Scorecard indicators are includedin with a non-regular partner. the TOWA Project Results Proportiono f sexually active Framework. Those Scorecard youth 15 to 24 years who indicators that are not inthe Results report having had sex with a were omitted because the Project will non-spousal, non-regular not directly support activities that partner inthe past 12 months. depend o n those indicators. Number o fpersons who undergo testing and counseling. OVCreceiving care/support in the past 12 months. Number of male and female condoms distributed. 3. Policyand GovernanceFramework 65. TheProjectsupportsthe implementationof the KNASP. In addition,the Governmenthasissueda Letter of PolicySupport for the TOWA Project(see Annex 3). This letter explains the situation o f HIV and AIDS activities inKenya since the onset o f the KHADREP which ended inDecember 2005. The letter highlights the sector issues and the strategies aimed at addressing them. These have been developed as a result o f lessons learned from the KHADREP, the new challenges of institutional arrangements, and the implementation o fHIV and AIDS programs/projects inKenya. The issues inthis letter include: (i) emergingchallenges owing to the characteristics and stage o fthe HIV andAIDS epidemic inKenya; (ii) challenges pertainingto institutional management; (iii) 27 the Government's commitment to good governance and dealing with corruption issues; and (iv) the national response to HIV and AIDS to be guided by the KNASP. The letter outlines the weaknesses identified invarious areas and gives account o fthe measuresput inplaceto addressthembefore andduringthe implementationoftheTOWA Project. 66. The NACC governance strengtheningprogramhasbeen developed within the framework of the Government's GovernanceAction Plan, andrespondsto the findingsof the DIR. The NACC is already implementingthe governance actionplan robustly; andwith a growing range o f donor partnersupport, the NACC is committed to developing even stronger governance systems for the future. A series o f independent compliance and verification agencies are being contracted and mechanisms put inplace: (i) independentCVAtocheckcomplianceofproposalsfromCBOs,etcwiththeterms an o f CfPs; (ii) an independent agency to assess and compare the results verifiably achieved with the results claimed; (iii) establishment o fnetworks o fnational-level NGOs as the `facilitating agencies' to strengthen CBO applications for, and use o f grants; (iv) an independent procurement monitor to ensure that NACC procurement is inline with agreed procedures; (v) a Steering Committee with representation o f donors and stakeholders to review annual funding allocations through NACC, including those to the UN;(vi) more explicit, effective andfocused use ofthe JAPR, which involvesthe participationo f all stakeholders, to identifyand recommend annual program priorities; and (vii) the further development o fthe M&E system, following the successful launcho f the COBPAR. Reports on implementation o fthe Action Planare already prepared monthly on a regular basis, and are beingreviewed by all concerned donors and stakeholders. 4. ProjectComponents 67. With a totalcreditof US$80 million,plusa further US$33 millioninjoint funding(to be administeredby the Bank) fromDFID, andaplanned implementationperiodof four years, the TOWA Projectis structuredroundtwo keypillarsandcomponents: strengtheningNACC's role ingovernanceandcoordination;and continuingsupportfor programimplementation. 68. ComponentOne: StrengtheningGovernanceandCoordinationCapacity (US$29.8 million; US$19.7 milli~n)~. component provides support for the strategic This leadership function o f the NACC, as the Kenyan institution charged with leading, guiding and coordinating the implementationo fthe KNASP. It further focuses on the institutional strengthening o fNACC and its decentralized structures and on activities by these institutions to coordinate the national program and project activities. The role o f NACC would be emphasized as primarily a program coordinator and service component 4The cost figures relate to: (i) combined IDA, DFID and Government financing, excluding the the unallocated contingency amount; and (ii) IDA allocation alone, again excluding the unallocated the contingency amount. See Annex 8 for more details. 28 and would also support the further strengthening o fthe implementation o fthe national M&Eframework, as well as capacity buildingfor the implementingpartners. This component therefore will help strengthen the national institution for managing and implementing the long-run response to HIV inKenya, and enhance the country's capacity to use effectively resources from all sources for results. It will include four sub- components: Sub-component (a): Strategic Leadership (US$I3.4 million; US$&I million) For the strategic leadership sub-component, the Project will support: regular strategic reviewso fthe W A S P : primarily the JAPR, but also a mid-term review o fthe Program; sustaining Program operations: mainly the operatingcosts o f Constituency AIDS Control Committees (CACCs), District Technical Committees (DTCs) and NACC Field Officers; 0 limited minor works to ensure an efficient operating environment; 0 institutional capacity buildingo fNACC: this is mainly training for NACC andits structures; advisory support and technical assistance for NACC to prioritize, strengthen and focus Program targetingto be more strategic and selective; and 0 strategic communications (IEC, mass media, etc) that support the NACC Program. Sub-component (b): Accountability and Verification (US$8.5million; US$6.0million) For accountability and verification sub-component, the Project will support: 0 contracting an independent FMA, to be responsible for managingthe financial aspects o f the main grant-makingelement o f the Project; 0 contracting anindependentCVA, which will be charged with checking compliance o fproposals with the terms and conditions o fthe CfP for grants; contracting an independent Performance (value for money) Auditor, which will verify that grants are beingusedfor the purpose intended, combining a technical audit with a financial one; 0 contracting an independent Procurement Management Agency (PMA), to monitor procurement by the NACC itself; and 0 contracting independent external financial auditors. Sub-component (c): I nformation-based Management (US$4.9 million; US$3.5million) To improve the local evidence base for decision making,the Project will support: the development o f the Management Information System (MIS); the fbrther strengthening o fthe M&Esystem and reporting; and the operational research agenda. Sub-component (d): Capacity Building of Implementing Partners (US$3 million; US$2.I million) For the capacity buildingo f implementing partners, it will support strengthening grant performanceby: 29 0 the provision o ftechnical support to community-level grantees (capacity building and facilitation); 0 networking and facilitation at the regional level for needs assessment, coordination, and the public-private sector interface; and 0 networking and facilitation at regional level for coordination o fprocesses, such as responding to CfPs, participating inthe JAPR, strengthening monitoring and reporting, social accountability, and public disclosure. 69. ComponentTwo: Supportfor ProgramImplementation(US$81 million; US$57.3 million). This component would make financial resources available to civil society, public sector, private sector, and research institutions, focusing on initiatives in line with the KNASP, responding to priorities identifiedby the JAPR. Itwould also support the procurement o f essential commodities. Sub-component (a): Grant Awards (US$53million; US$37.5 million) 70. This sub-componentfocuses primarilyon the civil society and privatesector, with result-basedproposalsand activities. Proposals from the private sector, civil society organizations, research institutions anduniversities would be invitedina focused and structured manner through the mechanism o f CfP. The focus will be on results, not on inputs. The prioritized result areas will be determined annually within the framework o fthe KNASP and based on areas identifiedas priorities inthe JAPR. Proposals will be assessed and selected on the basis o f their expected results, using a set o f clear rules and criteria. Target populations and interventions are selected within the framework o fthe KNASP, according to priorities set by the JAPR. Priorities will be given to: (i) interventions with the largest impact inpreventinghrther spread o f HIV; and (ii) target populations who are most susceptible to infection or most affected already. Such populations include, but are not necessarily limitedto: (i) CSWs; (ii) (iii) OVC; highly mobile populations (truck drivers, migrant workers); (iv) women (including widows); (v) the youth (including young girls); (vi) workers insmall andmedium-sized enterprises, micro-enterprises, andthe informal sector; (vii) people with disabilities; (vii) people exposed to sexual violence; (viii) Men Having Sex With Men (MSM);and (ix) Intravenous DrugUsers (IDU). While CfP rules and criteria prioritize information-based interventions and implementers with a history o f goodperformance, they will also: (a) allow for innovations; as well as (b) give new, inexperienced, but legitimate organizations with potential, a chance to prove themselves. Sub-component (b): Mainstreaming Public Sector Programs (US$8 million; US$5.7 million) 71. This sub-componentwill providesupportto mainstreamingHIV andAIDS withinthe publicsector. The focus wouldbeon programming and activities inthe priority areas reflected inthe KNASP 2005/06 to 2009/10. The support will emphasize external rather thaninternal mainstreamingby the public sector. Fundswill be usedto amplifyinterventions plannedbythe targeted ministries intheir own MTEFs,Budgets andAnnual Planso f Operations andnot to fimd separateprojects or work-plans. 30 Through the mainstreamingadvocacy process supported through the UNorganizations (with parallel DFIDfunding); keysectors will identify appropriate responsesto priorities inthe JAPR. Key sectors important inthe fight against HIVandAIDS willbetargeted for support. As indicated inthe KNASP, the initial sectors that would be targeted are: (i) transport (including roads); (ii) agriculture (including co-operatives, livestock and fisheries); (iii) (iv) education (including Teachers Service Commission, health; Commission for Higher Education and Ministryo f Science and Technology); (v) governance (including Judiciary, Ministryo fJustice and Constitutional Affairs, Attorney General, the Kenya Police andAdministration Police); and (vi) the Directorate o f Personnel Management. The list o fpriority key sectors will be re-examined during each JAPR, andwill be determined for the following year, depending on the epidemiological information and implementation progress duringthe past year, including quality o f reporting. 72. ARCAN follow-up activitiescouldbe supportedthroughthe TOWA Project. The ARCAN Project has started picking up andis programmed to train 813 ARCAN Trainer Graduates (ATGs) between 2006 and 2009. The ATGs who have successfully completed training under ARCAN are expected, upon their return to their countries, to undertake the training o f associated staff to enhance their capacities and expand the range o ftheir skills. The ATGs are expected to conduct training for health service providers in the public sector, civil society organizations andprivate sector infive thematic areas of nursing, counseling, physicians, program managers and laboratory technicians. To facilitate this process, TOWA Project funds could be usedto conduct some o fthe training and assist inachieving the cascading effect ofthe training, as plannedbythe ARCAN Project. However, the possibility of supporting the roll-out o f ARCAN-initiated training activities would need to be considered within the JAPR process, and would be subject to the procedures for the sub-component for mainstreamingpublic sector programs. Sub-component (e): Essential Commodities(US$20million; US$14.2million) 73. The TOWA Projectwill support the procurementanddistributionof some commoditiesthat are essentialto the fight againstHIV andAIDS. Inprinciple, commodities related to the response to HIV and AIDS and its linkages with the malaria and TB programs will be eligiblefor financing under the Project andinclude condoms, drugs, test kits and laboratory equipment and supplies. TOWA Project will respond to priority needs for these commodities ina flexible manner. However, the Project plansto focus on some key commodities for which there is a funding gap by contributing: (i) US$12 million to condom procurement; (ii) million toward the procurement o f first US$4 line TB drugs; and (iii) US$4 million toward the procurement o f ITNfor free distribution among PLWHA who live inmalariazones. AlthoughARV drugs are also an important HIVandAIDS commodity, theyare alreadybeing fundedbyother sources (especially GFATMandPEPFAR). TOWA Projectwill therefore focus its commodity support primarilyon the above-mentioned areas. Ifnecessary, however, small amounts o fother commodities (such as test kits, laboratory equipment andreagents) could also be procured on a highly limited basis. 31 74. Adjustmentsto the procurementof HIV commodities under the Projectmay be made duringProjectimplementation,takingintoaccount availablefundingfrom other sources. Theywill beresponsive to the development o fthe national condom program being supported bythe Joint UNPlanwith DFID support. This will allow for flexibility and enable the Project to respond to emergingcommodity priorities. HIV commodity procurement underTOWA Project will be conducted according to the Project procurement plan, which will be linkedwith the nationalHIV commodities procurement plan. HIVcommodity procurement under TOWA Project will also be conducted inclose coordinationwith the procurement o f HIV commodities financed by the Government, the GFATMas well as other development partners such as PEPFAR, the Presidential Malaria Initiative (PMI) andDFID, etc. The commodity procurement under TOWA Project is expected to take place inthe first three years o f the Project. All o fthe commodities will be procured though non-Government procurement agencies. Possible arrangements include: (i)UNICEF for Long Lasting Insecticide Treated Nets (LLITN); (ii) for UNFPA condoms; and (iii) Global DrugFacility (GDF) for TB drugs. Fromthe fourth year onwards, the Government's procurement system, which i s expected to be strengthened underthe Kenya Health SWAP, will take over. Table 5: ProjectCosts Component A: Governance and Coordination Capacity Strengthening Strategic Leadership 13,402 2,000 8,076 3,326 Accountability and verification 8,506 6,022 2,484 Evidence-Based Management 4,900 3,469 1,431 Capacity building of implementing partners 2,950 2,088 862 Comaonent A Total - 29.758 2.000 19.655 8.103 32 75. Summaryof Projectcosts andfunding. Total fundingo fthe TOWA Projectby the I'DA(US$80 million) andDFID (US$33 million) i s US$113 million. The Government will contribute US$2 million indirect support to the NACC; although its financial support to the entire HIV and AIDS Program i s considerably more (see Annex 8). The allocation by component i s as reflectedinthe Table 5. 5. LessonsLearnedandReflectedinthe ProjectDesign 76. The TOWA Projectseeks to strengthen"learning-by-doing," and maintain the participatoryandcommunity-focusedapproachof the WorldBank's response to the HIV andAIDS challengeinAfrica. The TOWA Project will support amore prioritized andinformation-based approach to Kenya's national response to the epidemic. Lessons from the implementation o fKHADREP, as well as other IDA-supported HN andAIDS projects, havebeen integrated into the TOWA Project design. Inaddition, the process of increased coordination and harmonizationbetween partners, both external and internal, has enabled a wider range ofperspectives to be fed into the design o fthe Project. (a) Lessons from KHADREP 77. The early initiationof the KHADREPImplementationCompletionReport (ICR) providedimportantlessons. The first phaseo fthe ICRwas initiatedduringthe TOWA Project Identification Mission. The key lessons identified inPhase Io fthe ICR process, which are o f particular relevance to the TOWA Project design and which have beenaddressed, fall inthe areas o f (i) program coordination; (ii) public sector the programs; (iii) the civil society programs; (iv) M&E; and (v) management and governance. These are as follows: 78. Programcoordination:the KHADREPsupportto the NACCwas essential for the progress achievedandneedsto becontinued. The ICR recommended that: (i) future support to the HIV and AIDS Program should also be linked to the full implementation o fNACC's Governance Action Plan, and to the NACC's delivery of the specific results outlined inthe W A S P results framework; and(ii) support for NACC's decentralized entities (specifically the CACCs) shouldbebetter defined, and there should be a more limited role for Members o fParliament (MPs) ininfluencing CACC decisions, particularly those relating to CACC membership and resource allocation. The design o f the TOWA Projecthas responded to these recommendations, andnew guidelines have been issuedby the NACC for the functioning o fthe CACCs. 79. Publicsector programs:the emphasis of the work of the ACUs was initially on the "internal domain"andneeds to be broadened. Underthe KHADREP, there was some success inraising the general awareness o fHIV and AIDS within the public sector, and inexpanding access to VCT andrelated services for public workers. However, with a few exceptions (such as the Ministries o f Education, Science and Technology), the ACUs have hadlimited impact inthe critical "external" domain: the services provided by the public sector, rather than its internalmanagement. Also, the difficulties faced byACUs were largely the result of the institutional challenges. As a 33 consequence, the TOWA Project hasbeen designed to support a targeted number o fkey sectors (prioritized under the KNASP) and to emphasize external mainstreaming efforts. 80. Civilsociety programs:the role ofthe FMA should bestrengthenedand arrangementsmade to mitigateconcerns aboutinappropriateselection ofprojects and"briefcaseNGOs". Another conclusiono fthe ICRis that reforms are needed inthe grant approval and management process, with opportunities for political interference minimized. As a result, under the TOWA Project there will be a more targeted approach (usingthe CfPs), with a focus onthe fhding o f specific vulnerable groups who are under-supported from other sources (such as girls, MSM, IDUs and CSWs). Support will also be made available for technical capacity buildingfor community groups, alongside the provision o fgrants. The M&Eofcommunity initiatives will also be strengthened and linked to the roll out o fthe LQAS methodology. 81. Monitoringand evaluation:the KenyaHIV andAIDS epidemicis one of the most comprehensivelymonitoredinAfrica, butfurther strengtheningof programmaticM&Eis needed. Goodquality information from sentinel surveillance sites, the KDHS and other sources i s already available to support the development o f information-basedresponses, but under the KHADREP there was an absence o f an effective, programmatic M&E system (especially for community initiatives). This lack meant that it was impossible to consistently measure the progress andimpact o fkeyHIV and AIDS interventions, and the management o f the national response was therefore undermined. It was also difficult to quantify Project impact. Inresponse, the TOWA Project has been designed to provide substantial support for the operationalization o f the national M&E framework, including both epidemiological andprogrammatic indicators. Itwill also provide resources for essential supporting systems, for strengtheningthe NACC's role incoordinating M&E, and for the sharingo f M&Edata among all the various donors and implementers (which is essential for accurate measurement o f the indicators inthe national M&E framework). Under the TOWA Project, emphasis will also beplaced on improving the evidence base for local decision making. 82. Managementandgovernance:the experienceof the KHADREPshowsthat the NACC sufferedfroma lackof creative, results-basedandeffectiveleadership. Going forward, it i s imperative that there i s strong leadership and the strengthening o f key management systems and the TOWA Project has been designed accordingly. Specific investments are needed insuch areas as: financial management strengthening; the development o finternal oversight and audit arrangements, andthe implementation of a fiduciary riskmanagement policy; and the strengthening o f decision-making, monitoring and accountability at the central and local levels. The newly recruited senior staff at the NACC are already beingprovided with training to enable them to function effectively, buildingupon the induction training that has already been carried out, and thiswillbecontinuedunderthe TOWA Project. The recently introducedperformance contracts provide an opportunity for an increased emphasis on the achievement o fresults andthe strengthening o f governance and accountability; andthe annual institutional assessmento f the NACC will be used as a key monitoring indicator o fprogress made. 34 (b) Lessons from 2004MAP Interim Review' 83. The multi-partnerreview of several MAPprojectshasindicateda numberof major lessons fromthe Regiongenerally. These lessons include the following. First, better strategic planningi s needed interms o f supporting specific activities and interventionswhich have the greatest impact, based on analyses o f current epidemiological andbehavioral data. Second, there is need for an information-based approach that strikes the balance between broad-based general public intervention and the targeting o fvulnerable groups. Third, a performance-based disbursement system should be considered to encourage strong performers. Fourth, civil society should be fully involved inthe design o fmaterials and procedures for grant making, application and reporting. And fifth, adequateresources should be set aside to develop operational M&E systems which can provide adequate information for the monitoring o f program activity. All o fthese lessons ofexperience have beenincorporatedinto the design o fthe TOWA Project. (c) Lessons from the Bank's HIV and AIDS Programs Globally6 84. Key lessons have also emerged from reviews carriedout in recentyears by the World Bankof itsHIV andAIDS lendingandnon-lendingoperations throughoutthe world. They includethe following: (i) the Bank,by its acts and its omissions, influences both developed and developing countries intheir actions on HIV andAIDS; (ii) ownership, leadership andcapacity are crucial to successful country action; (iii)the Bank's policy advice and country-led approach are important assets to countries inpursuingtheir national goals; (iv) HIV andAIDS needs to be better integrated into development policy andplanning, andthe Banki s uniquelypositioned to assist countries with this; (v) HIV and AIDS strategies, policies andprograms should be information-based, with priorities based on local epidemic conditions; and (vi) M&E are essential and consistently neglected. These lessons have guided the development of its Global AIDS Program o f Action generally, and the design o fthe TOWA Project explicitly. 85. Lessons are also availablefromthe World BankIndependentEvaluation Group (1EG)'s "Evaluationof the World Bank's Assistance for Fightingthe HIV andAIDS Epidemic,2005". These include the needto: (i) help governments to be more strategic and selective, and to prioritize, usingtheir limited capacity to implement activities that will have the greatest impact on the epidemic; (ii)strengthen national institutions for managing and implementing the long-run response; and (iii) improve the local evidence base for decision making. Again, the design o fthe TOWA Project i s consistent with these findings. MAP InterimReview, ACTAfrica, October 2004. The WorldBank's GlobalHIV/AIDS ProgramofAction(December2005) 35 (d) Lessons from other partners 86. Workingwith other partnershasbroughtfresh perspectivesandbenefits. The World Bank Team for the TOWA Project gained fresh andreinforcedinsights, and confirmed many o f the lessons learned, through the joint work with UNAIDS, DFIDand other development partners. Principally these perspectives were: (i) benefits o f the harmonization (for TOWA Project, for example, it i s agreed that advocacy for mainstreaminginthe public sector, can be promoted largelyby the UNsystem, using parallel DFID support); (ii) broadening access to additional expertise (the experience o f AMREF, which havebeen doing capacity-building for grantee CBOs, has strongly influenced the design o f the sub-component on capacity-building for implementing agencies); and (iii) the critical role o fNACC coordination and the need to support it. 6. ProjectAlternativesConsideredandReasonsfor Rejection 87. RepeaterProjectwith the same broadscope as KHADREP(withno prioritizationbyprogramcoverage, sector, risk groups or geographichot-spots). This alternative design was rejected due to the need, expressed by many stakeholders and also indicatedinthe KNASP, for the IDA financing to explicitly complement existing investments. Havingseparate project components for project implementers (e.g. public sector, civil society and the private sector entities), as under the KHADREP, would also not easily allow for a performance-based model, due to the need to conduct formal re- allocations between categories. The "no prioritization" approach was also rejected on the basis o f the evolving epidemiological and socio-economic evidence o f the HIV and AIDS epidemic inKenya. 88. Sector Wide or Programmaticapproach. Itwas felt that the current donor environment inthe HIV andAIDS sector i s not yet conducive for a more comprehensive SWAP. As a result, although the proposed Project would support the comprehensive KNASP and include a significant pooling o fresources with DFID, as well as considerable harmonizationo f efforts o fpartners, the Project would not f i c t i o n explicitly as a SWAP overall. Efforts would be made inthe areas o fplanning, financing andbudgeting,implementationand M&Eto prepare a foundation onwhich a future fully- joint operation couldbe developed. 89. Cease IDA Support. The final alternative consideredwould be to programno further IDA support for HIV andAIDS Program inKenya, especially due to the governance problems experienced under the KHADREP. However, this was not viewed as an appropriate option, as it was felt by many stakeholders that the World Bank has a role to play inthe national response to HIV andAIDS andneeds to remain actively involved. As previously discussed, the World Bank's policy influence, country presence, technical and fiduciary expertise, broad scope across all development sectors, and implementation focus, are viewed as essential elements insupporting the continued strengthening and expanding o f the nationalresponse to HIV andAIDS inKenya. 36 7. LendingInstrument 90. The proposed Project i s a Specific Investment Loan and i s a repeater Project to the KHADREP. It i s to be co-funded with DFID. C. IMPLEMENTATION Implementationarrangementsare set out inthe Operations Manual for the TOWA Project, and are summarized below. 1. PartnershipArrangements 91. The TOWA Projectwould beimplementedwithin a strongpartnership framework. Inrecent years, as previously discussed, additional and significant resources have become available to support Kenya's response to HIV and AIDS, particularly with increased Governmental funding and also with resources from the GFATMand the PEPFAR. However, local stakeholders believethat continued IDA support, through the TOWA Project, would be essential. The Bankis a major financing agency involved in the nationalHIV and AIDS policy dialogue. Together with UNAIDS andDFID in particular, it i s strongly supporting greater steps towards harmonizationandthe implementation o f the "Three Ones". Through the KHADREP, the Bankhas supported the initiation and conduct o fJAPRs, involving a wide range o f stakeholders; in2006 for the first time, the JAPRwas also conducted at decentralized level, with consultations at the districts andprovincial levels, as well as the national event. The TOWA Project would buildupon these initiatives, emphasizing particularly the role o fthe Inter-Agency Coordinating Committee (ICC) for HIV and AIDS, the JAPR and harmonized external support, especially with DFIDand UNAIDS. 2. InstitutionalandImplementationArrangements (a) Institutional Arrangements 92. The institutionalarrangementsfor the NACCto implementthe TOWA Projectreflectthe multi-sectoralnatureof the KNASP. As no single agency has responsibility for all aspects o f implementation, it i s essential to have strong coordination mechanisms to ensure that key stakeholders cooperate effectively to achieve the results set out inthe results framework, and work towards overall strategic objectives. This national coordination responsibility i s a core function o f the NACC, which provides the fora andmechanisms inand through which decisions are made. As outlined inthe KNASP, the NACC i s accountable for ensuringthat: (i) effective coordination and monitoring mechanisms are inplace for the national strategy engaging all stakeholders, including those who have lacked effective representation inthe past; (ii) the CACCs 37 provide effective coordination mechanisms at the local level, including clear definition of, and limitson, the role o f MPs; (iii) there are appropriate and timely communications to all stakeholders on progress made; (iv) there i s accountability by lead agencies and strategic partners for the deliverables to which they have committed; and (v) periodic, effective andjoint reviews take place o fKNASP implementation. The NACC Council therefore, comprises senior policy makers fiom all sectors o f society, including the Permanent Secretaries o fkey ministries, and senior representatives from the private sector and civil society. The NACC Council provides a highlevel policy forum to ensure that the KNASP remains on track. 93. The NACC hasrecentlybeenstrengthenedinstitutionallyandis readyto implementthe TOWA Project. The reorganizationo fthe NACC has enabled it to address more effectively the needs o fnational coordination and to position itselfbetter to implement the TOWA Project. The new NACC structure consists o fthe Director's Office andthree departments. The Director's Office includes the Audit Division, the Legal Office and Special Programs. The three departments are: (i) Coordination and Support, that is responsible for stakeholder coordination, technical support andthe decentralized structures; (ii) Strategy and Communication, that oversees the Policy, implementationo fKNASP, strategy development, resource mobilization, M&E, research and strategic communication; and (iii) Finance andAdministration, that is responsible for finance, accounting, humanresource development, management information and general administration. Inline with the Letter o f Sector Policy, the NACC has: (i) completed the process o f filling all key senior and middle-level managerial positions competitively; (ii) reviewed andwritten staffpolicies and a Code o f Conduct; (iii) developed individual work-programs, guidelines for performance appraisal andperformance contracts; and (iv) instituted a well organized administrativemanagement system. Ithas been supported in these activities by technical assistanceprovided by DFIDthrough the HAPAC project. This support i s beingextended to facilitate the launcho f the TOWA Project. 94. The NACC Councilhasseveral committees whichwill also play a major role inthe implementationofthe TOWA Project. These include: 0 The NACC ProgramsCommittee. Itsmainresponsibilitiesinclude: (i) review to and assess all the programs, projects andplans submittedto the Council; (ii) to promote program coordination andcollaboration betweenthe interested organizations, agencies and individuals; and (iii) to monitor and evaluate all program activities, andpromote dissemination o f information. TheNACC FinanceandAdministrationCommittee. Itsmain responsibilities include: (i) the preparation o f estimates o f expenditure and forward budgets; (ii) the administration o f the rules and regulations governing financial management o f the Council's funds; (iii) the provision of a framework for coordination, resource mobilization and allocatioddistribution; (iv) the coordination o f all matters related to external donor funding; (v) review o f staff appointments; and (vi) functioning as a disciplinary committee for the staff o f the Council. 38 0 Audit Committee. The Audit Committeehasrecently been established with clear TORS.The Committee is tasked with a general oversight role with regardto governance, accountability, and transparency at the Council. The Audit Committee i s strengthening overall audit functions within the Council through constant review o f operational risks and actions taken by the management to address the risk. To facilitate the Committee inits work, NACC's Heado f Internal Audit Divisionreports to the Committee. The Committee approves andguides the audit plan. 95. Inadditionto the above NACC CouncilCommittees, theNACC Secretariathas the following Committees: Tender Committee. Itsmainresponsibilities include: (i) and verify that review all the procurement procedures, processes including tender opening, technical and commercial evaluationhave been undertaken inaccordance with the Public Procurement and Disposal Act, 2005, the Public Procurement and Disposal Regulations, 2006 and the terms set out inthe tender documents; and (ii) award procurement contracts where the contract value exceeds the threshold o fthe Procurement Committee. 0 ProcurementCommittee.The committeehandles smaller contract awards. The threshold for procurement Committee i s limitedto Quotations below Ksh500,000 and Direct Procurement below Ksh500,000. 96. The key coordinating structures include: The Inter-AgencyCoordinatingCommittee(ICC) for HIV andAIDS provides an effective HIV andAIDS stakeholder coordination mechanism. The ICC provides high-level technical coordination o fthe KNASP, including coordination o f the annual JAPR process. The ICC i s chaired by the Director o fNACC and includes senior representatives with HIV and AIDS responsibility from Government, civil society, the private sector and development partners. The ICC includes, and receives reports from, the chairs and executive secretaries o f the Monitoring& Coordination Groups for each priority area inthe KNASP. The ICC will be used to review formally the progress with the KNASP on a regularbasis. 0 MonitoringandCoordinationGroups(MCGs) havebeenestablished for the three priority areas o f the KNASP (including M&E), and for support services. The MCGs follow on directly from the Working Groups that developed the KNASP results framework. The TORShave been drawn up by the NACC for each MCG, incorporating the hnctions of the Technical Groups which were previously in existence. The membership o f each M C G reflects key implementing agencies in relevant areas, as identified inthe results framework, andother key strategic partners. 39 Figure4: The Structureof the NACC ICabinet Sub-Committee 1 0 ExecutiveCommittee onHIV andAIDS 0 Audit Committee Officeofthe President t 0 Finance & Admin Committee I I ...' 0 Programs Committee ....*' ,.*a 0 Tender Committee I 1_.**.- I CONTROLCOUNCIL Inter-AgencyCoordinating Committee NACC Secretariat I I 1 I AIDS ControlUnits District Technical Civil SocietyPrivate Sector (ACUs) o f LineMinistries Committees (DTCs) umbrellaorganizations A ' i 1 ConstituencyAIDS Control - FBOsandPrivate CBOs, NGOs, Committees (CACCS)210 Sector 1 -COMMUNITY. 0 SteeringCommitteeofthe ICC- HIV andAIDS. The ICC-HJY and AIDS has established a Steering Committee to be an executive arm and advisor on HIV and AIDS Programs. The Steering Committee will: (i) responsible for efficient be communication flow with the members o fthe ICC-HIV andAIDS; (ii) advocate for effective collaboration and networking among the members; and (iii) engage in problem solving anddispute resolutionamong the members upon request by NACC. The Steering Committee will also advise and support the NACC inthe following areas: (i)development o f policy and strategic direction based on the "Three Ones" principles, particularly incoordination, strategic planning, M&E, capacity developmentand technical assistance; (ii) harmonization o f stakeholders' support 40 mechanisms andprocedures; (iii) coordination o fresource mobilization strategies and activities to implement the KNASP; (iv) addressing implementation bottlenecks o f the nationalresponse, including challenges relatingto resource absorption; (v)review o f JAPR recommendations and guide the development o fthe annual workplan for the JAPR ResultsFramework, andpromote adherence to the workplan by stakeholders; (vi) endorsing workplans as requiredby development partners,includingthose to be submitted to GFATM; and (vii) performing any other task that may be assigned by the ICC- HIV and AIDS. ImplementationArrangements 97. A new, morerobustgovernance systemwill beusedfor the implementation of the TOWA Project. The TOWA Project is built uponnew governance and accountability mechanisms and systems. These are set out inthe following documents: 0 The Government's Governance Action Plan, July 2006 to June 2007 (Annex 1); 0 The Letter o f Sector Policy (Annex 3); 0 The DIRManagement Action Plan(Annex 4); 0 The NACC Governance Action Plan(Annex 4); 0 TheNACC RiskManagement Policy (Annex 4); and 0 The TOWA Project Operations Manual (which includes chapters on governance, public disclosure and social accountability mechanisms, financial management and procurement). 98. The TOWA Projectwouldbe implementedby the NACC usingagreed procedures,as set out inthe OperationsManual. Implementationofthe Project will, as much as possible, rely on mainstreamGovernmentfinancialmanagement systems, as modifiedinthe NACC institutionalarrangements. These take account of: (i) redefinitionofthefiduciaryriskmanagementresponsibilitiesoftheCouncil the Finance and Audit Committees; (ii) the institutionalizationo faneffective and independentinternal audit andriskmanagement function; (iii) strengtheningo f the project anti-comption and public oversight activities; (iv) the revision o f the responsibilitieso fthe FMAto include fiduciary management o f all grant funds; and (v) the arrangements for the external auditors' assessment and increased reliance on the work o f InternalAudit Department. 99. For the grantsunderthe Project,therewouldbe major changesto the award system usedunderthe KHADREP'. Inparticular,underthe TOWA Project, 'Under the KHADREP, as noted earlier, financial resources were channeled to support civil society organizations (including NGOs, CBOs, FBOs and private sector organizations) through a continuous 41 proposalsfromboththe publicsector and civil society organizationswill be invited in a more focused and structuredmanner. First,proposals will be invited through a CfP mechanism, advertised inthe media inthe case o f civil society organizations, and as a written invitation inthe case o fministries, Government departments or Government agencies (MDAs). Second, all proposals, whether from the public sector or civil society organization, will be treated as grants to implementing agencies. Third, inthis process, priorities will be given to: (i) proposals with information-basedinterventionswhich have the largest impact on the epidemic; (ii) implementers who have the comparative advantage inimplementingsuch interventions and can deliver results; and (iii) priority activities that have inadequate support from other sources o f financing. Fourth, the Project would support an independent hotline to receive, review and act uponany feedback, question, complaints, or request for information. Fifth, two new verification and compliance mechanisms are beingset inplace: (i) anindependent CVA to check that proposals do infact respond to the results andtargets asked for inthe CfP; and (ii) an independent Performance Audit to assess and compare the results verifiably achieved with the results claimed. Finally, the CfP process would be supported by the capacity buildingactivities, so that NGOsare assistedinthe process o fproposal design and submission. 100. Very specific guidelines havebeen developedfor the CfPs for the CSOs and privatesector. The CfP wouldbepublishedinthe nationalnewspapers by the NACC andwould indicate explicitly for which (one or more) outcome proposals they were being solicited. These outcomes would relate directly to the results as elaborated inthe results framework beingpart o f the KNASP and as prioritized through the annual JAPR. The CfPs would also request the potential recipient to commit to the M&E framework associatedwith the KNASP results framework, and elaborate the process through which the relevant indicators would be measured, collected andreported. The invitation to submitproposals would also indicate an allocation ceiling. Only a limited number o f proposals couldbe funded according to the budgetaryceilings set for constituency, district and national level proposals. Financial allocations would be made for, and communicated to, individual CACCs, DTCs and the national level. The proposed allocations would be reviewed and endorsed by the Steering Committee, and subject to no objection bythe World Bank, prior to the issuingo f Cfps. The CfPs would also indicatethe criteria for: (i) eligibility; and (ii) assessment and prioritization. These criteria would vary from one CfP to the next, inaccordance with the evolution o f priorities throughthe course o f the Project, and would be subject to World Bankno process of submission, review and approval o f proposals originating from these organizations. While the broad invitation to civil society organizations served the project's objective o f expanding the national responseto HIV and AIDS to include a significant number o f additional stakeholders, it also became obvious that this "social mobilization" approach had its limitations. Civil society organizations were given little guidance on areas that were considered priorities; no allocations were set or ceilings given with regard to the hnds available; and the proposalreview process therefore lacked a critical set o f criteria against which to assess proposals. Inaddition, because o f the continuous intake and review o fproposals, this activity was increasinglyperceived as the main function o f CACCs andthe NACC as a whole. The public sector was supported under a different modality, through the financing o f annual workplans reviewed and approved by the NACC. 42 objection, after review and endorsement bythe Steering Committee. The frequency of CfPs inviting CSOs to submit sub-project proposals could also vary. This would depend on emergingpriorities, identified gaps, availability o f resources and additional finding opportunities anddisbursement targets. Lastly, inthe case o f the smaller CBOs, proposals will be encouraged that cover more than a one year period, although finances beyond the first year o f implementation would only be committed upon certification o f performance by the relevant CACC and the beneficiaries. 101. The review of proposals and their approval or rejection would be delegated to appropriate levels, with clear accountability. The following thresholds would apply: proposals with a value o f up to US$5,000 (70 percent o ftotal funding for sub- component, equivalent to about 8,400 grants at a total cost o fUS$42 million) would be reviewed at the CACC level; DTCs would review proposals with a value o fUS$5,001 to US$25,000 (20 percent o f total finding for sub-component, equivalent to about 480 grants at a total cost o f US$12 million); proposals with a value ofUS$25,001 to US$lOO,OOO (7 percent o ftotal funding for sub-component, at a total cost o f about US$4.2 million) would bereviewed at the national level by an ad-hoc committee; and proposals o f a value over US$lOO,OOO (3 percent o f total funding for sub-component, at a total cost of about US$1.8 million) would be subject to technical review and a no- objection by IDA. Once approved, proposals would be financed through the FMA, contracted by NACC to disburse financial resources to implementingagencies. The disbursement o f fhds would only be done through electronic transfer from the FMA account to the commercial bank account o fthe implementing partner. 102. There are also specific guidelines for the CfPs for the mainstreaming of the publicsector activities. CfPs for the public sector would be issued once a year inorder for the M D A s to include andplanthe approved HIV andAIDS related activities intheir annual planningcycle. The CfP would be inwriting byNACC to selected MDAs, and would indicate explicitly for which (one or more) outcome proposals were being solicited. These outcomes would relate directly to the results as elaborated inthe results framework o fthe W A S P 2006 to 2010. The CfPs would also request the potential recipient to commit to the W A S P M&E framework, and elaborate the process through which the relevant indicators would be measured, collected andreported. The invitation to submit proposals would reflect the budgetaryceiling, to be reviewed and endorsed by the Steering Committee, andsubject to the no objection o f the World Bank. The review of the proposals for the public sector would be the task o f an ad-hoc panel o f ICC experts. The panelwould be appointed bythe NACC andsubject to ICC approval, on an annual 43 andshort-term basis whenthe CfPs hadbeendistributedto the various MDAs. The members o fthis panelwould be drawn from various independentorganizations, and the expertise required would be consistent with the nature o fthe CfP and relate to the specific result aimed for. Once approved, proposals would be financed through the FMA, contracted byNACC to disburse financial resources to implementing agencies. Project funds wouldbemade available to, andaccounted for by the Accounting Officer inthe respective MDA. 103. The NACC will preparean annualworkplan for no-objectionfromthe World Bank andother financiers ofthe Program. Following the JAPR, the Monitoring and Coordination Groups will identifypriorities which will be consolidated, with overall fundingallocations bythe ICC Steering Committee, as the annualprogram targets. By April, the implementation partnerswill prepare annual workplans, based upon the agreed priorities and funding allocations. These will be consolidated byNACC into an annual comprehensive workplan to include Government, World Bank, DFID and SIDA funding. This will be submittedto the fundingpartners by the end o fApril for their respective no-objection certification. 3. MonitoringandEvaluationof OutcomedResults 104. Very considerableprogress hasbeen madein M&E strengtheningby the NACC. Whereas M&Ewas weak under the KHADREP, the NACC has made major progress instrengthening M&E systems particularly since the end o fKHADREP. The NACC has demonstrated its strong commitment to improving M&E by implementing almost all o fthe activities outlined inthe TOWA Project's original first-year M&Ework plan usingalternative fimdingsources inspite o fthe delay inTOWA Project effectiveness. Inparticular, (i) the KNASP M&E Framework has been officially launched; (ii) the NACC has elaborated a comprehensive KNASP M&E Implementation Manual; and (iii) theNACC has also recently developed a specific, complementary TOWA Project M&EImplementationManual. Together, these documents detail procedures for: (i) the new community-based monitoring system; (ii) reportingby ACUs andkey sectoral public sector entities; and (iii) interagency coordinating for national reporting. 105. There has also been substantialinstitutionalstrengtheningof the NACC for M&E. The NACC M&EDivisionhasproduced a much-utilized "Data Booklet" summarizing the principal, up-to-date information about the epidemic, and has produced its first M&EReport outlining progress toward strengthening the M&E system. The NACC M&EDivisionhas also coordinated the elaborationo f anH N and AIDS strategy for coordination andresource mobilization for HIV and AIDS research. The NACC has proceeded with the enlargement o fthe M&E Divisionbyrecruiting and training an M&E Coordination Specialist. The MIS Divisionhas added a database administrator and analyst/programmer. This Divisionhas successfully designed the COBPAR system database, which i s now accessible over the NACC's new LAN/WAN. The M&E Technical Working Group has been revived, and i s active incoordinating M&E activities, standards andessential funding for M&E. The NACC, through the M&EDivision and 44 M&E Technical Working Group, has carried forward the designandrollout o fthe comprehensive CBO database and COBPAR System, even inthe absence o f TOWA Project support so far. Inaddition, formal linkages havebeen established with entities responsible for other sources o f data. 106. The stage is now set for the NACCto fully coordinatethe nationalresponse to the epidemicusingconcrete M&E datafor analysis,the JAPR process for coordinateddeterminationofpriorities,andimplementationthroughthe CfPthat is results-based. Furtherprogress to continue implementation o fthe M&Eworkplan will require the significant ongoing support planned to be provided bythe TOWA Project. The TOWA Projectwill place a strong emphasis onprogram improvement, learningby doing, andresults-based management, which requires an effective M&E system. The following activities will therefore be undertaken or continued to strengthen the M&E system further: (i) ongoing training and supervision o fnational and regional M&E personnel; (ii) follow-up training and supervision for the program activity monitoring systems for community-based activities at the NACC, including training for data use; (iii) supporting the NACC M&E Coordination Specialist instrengthening the newly established inter-agency coordinating mechanisms; (iv) strengthening M&E dissemination and data use mechanisms at both the central and local levels; (v) the coordination and integration o f information from the new Ministryo f Healthmonitoring and reporting system at the NACC level, as well as some limited staff training (to be carried out together with other partners); (vi) the national implementationo fthe LQAS outcome measurement survey and its integration into regular M&E system; and (vii) the development and implementationo fmechanisms both centrally and locally to link data with program management. 4. Sustainability 107. The TOWA Projectis a significantstep forward inhelpinginstitutional sustainabilityof the HIV andAIDS Programin Kenya. The Government, with support o f IDA andother development partners, has already mobilized different sectors, mass organizations and communities to increase their capacityto respond to the demands o f the HIV andAIDS epidemic. This would be continued and strengthenedhrther under the TOWA Project. It i s expected that the social, sectoral and community capacity built with the TOWA Project contributions wouldbe sustained after the Project has been completed, particularly inlight o f the experience o f KHADREPimplementation. The position o f the NACC is now considerably more established and accepted. Importantly, it hasmanagedto go forward inthe period since the end o fthe KHADREP (inDecember 2005), although it has hadto struggle hard due to reduced resource availability which have limited the progress that could be made. (i)TechnicalSustainabiZity. TheTOWAProjectaimstosupportwell-established, simpletechnical interventions andpolicies, the operational implications o fmost o fwhich have been well-documented inKenya. As a result, technical sustainability will be ensured. 45 (ii)FinancialsustainabiZity. ThepreventionandmitigationofHIVandAIDSisa public good, which would support efforts towards improved economic growth and poverty alleviation. This serves to justify the investment inthe TOWA Project, even though long-term financing o f the programs may remainproblematic. However, the financial sustainability o f the HIV and AIDS Program ultimately rests with Kenya's ability to: (a) increase domestic resource allocations for HIV and AIDS and health, in addition to improvedprioritization and governance; and (b) furtherreduce new HIV infections. The Project will enable the Kenya Government, the NACC and implementers to become more strategic andselective, focusing on effective interventions with the greatest impacts on the epidemic to reduce its spread, the Project will also contribute to financial sustainability o fKenya's response to the HIV and AIDS epidemic. 108. NACC andstakeholdersare currentlydiscussingways to putinplacea sustainableandharmonizedfinancingframework for allHIV andAIDS Programs in Kenya, andthus to safeguardthe gains made in the nationalresponseto HIV and AIDS inthe country. Keyissuesbeingaddressedinclude: (i) mobilization and harmonizationo f financing to ensure that all KNASP priority interventions are efficiently addressed, both inthe medium term and long term, and that there are no gaps inthe response, particularly with respect to vulnerable groups; (ii)ensuring medium and long term plans are inplace andresources set aside to minimize stock-outs of key inputs; (iii) mainstreamingo f HIV and AIDS into all sectors and ensuring more fundingo f KNASP priorities by the Government and other sources through the MTEFBudgetProcess; (iv) streamlining financial flows and strengthening financial management systems/structures to ensure available funds are absorbed for intendedpurposes; and (v) ensuring appropriate mechanisms are inplace for monitoring a mainstreamed harmonized response which includes all stakeholders. The sustainability o f the program will be reviewedwith stakeholders annually as part o fthe JAPR process. 5. CriticalRisksandPossibleControversialAspects 109. The TOWA Projectis recognizedas beingrisky. This is for several reasons: (i) isperceivedasbeingahigh-riskenvironment; (ii) historyofthe Kenya the KHADREP was problematic, with corruption identified; (iii) are manydifferent there organizations (community-based, private sector and Government entities) with different levels o f capacity to be involved inthe proposed new Project; (iv) it i s not easy to target the most vulnerable groups (CSWs, MSM,mobile workers and IDUs, etc.) who are often marginalizedand hardto reach; and (v) despitevery careful and extensive project design, risks remain incoordination, sub-project design and implementation and governance.. 110. However, the risks are consideredto be manageable(substantialrather than high)for two mainreasons. First, the NACChas already beensuccessfully carrying out a GovernanceAction Plan. Massive attentionhas already been given to the governance problemsthat have been affecting the performance o fthe NACC, bythe NACC itself, the Government, development partners (including the World Bank) and other stakeholders. The NACC has clearly demonstrated its commitment to strengthen results-based management, includingthrough its significant efforts to strengthen M&E. 46 Inaddition, the W A S P is avery impressive strategy andhasbeenformally launchedby the President, givingthe NACC a clear and comprehensive political andtechnical mandate. Also, the recent JAPR, conducted inOctober 2006 with broadparticipation from stakeholders at all levels, is widely regarded as havingbeen the best ever. It is also clear from the annual institutional assessment that the NACC i s now performing considerably better than inthe past. 111. The NACC has committed itself to further governance strengthening actions. The summary o fprogram-specific risks and proposed mitigating arrangements is presented inthe table below: Table 6: ProgramRisks and RiskMitigatingMeasures Risk RiskMitigating Measures RiskRating after Mitigation Weak Continued implementation o f governance action plan and roll-out o f M governance riskmanagementpolicy, withregular monthlyreporting. environment. Establishment o f effective fiduciary oversight by the NACC Council through various subcommittees with clear operational terms o f reference. Continued investigation o f officials and organization implicated in fraudulent activities. Utilization o f transparent, participatory, and performance-based approaches to project implementation. Implementation o f the NACC communications strategy. Introductionof social accountability arrangements and independent anti-conuptionhotline initiatives. Intense and continuous supervision o f the TOWA Project by the Bank, with public dissemination o f mission findings. Weak Signing and monitoring o f performance contracts. M managerial Further strengthening o f the M&E system, with emphasis on accountability program management. Enhanced arrangements for quarterly reporting. Institutional assessment o f the NACC inCYO9. Annual review of work program and budget. Weak external Use o f the Public Expenditure Review process to review external M support and assistance and Government budget for HIV and AIDS program. inadequate Use o f the ICC and JAPR consultation processes. stakeholder Improvedrelations with CSO at all levels through links under DFID coordination. support to civil society under NACC Coordination. Focused technical assistance to the NACC from the UNunder DFID support for the Joint UNPlan. Failure to target Development of clear eligibility and evaluation criteria for proposals H vulnerable which prioritize: (i)information-based, effective interventions with youps with the largest potential impacts on the epidemic; and (ii) implementers adequate with the expertise and comparative advantage to implement such interventions interventions. Conducting socio-geographical and service mapping for vulnerable groups. Use o f JAPR process to identify priority groups. 47 Risk RiskMitigating Measures RiskRating after Mitigation Prioritizationo f the vulnerable groups inthe Cfps. 0 Capacity buildingfor CBOs to identify and address the needs o f vulnerable groups effectively. 0 Promotion o fbehaviour change to address continuing social, religious and cultural challenges. Insufficient 0 Institutiono f independent and effective internal audit, with out- M technical sourcing o f independent verification. capacity for 0 Strengthening o f grant accounting oversight function. financial Expandeduse o f FMA. management and 0 Formal confirmationthat the KNAO will take responsibility for the procurement auditing o f grants implemented by CBOs and NGOs. 0 Public disclosure o f procurement decisions. 0 Retraining o f the NACCprocurement staff. Training o f the DTCs and CACCs inreviewing proposals from CBOs, etc. 0 Development o f standard biddingdocuments and forms, acceptable to the Bank, where necessary. Increasedoversight o f the NACC through the use o f a procurement monitor. Weak N e w CfP approach and clear budget ceilings with decentralized CACCsDTC. responsibility. Physical verification o f community sub-projects. 0 Public disclosure o f information at the local level. Increased resources for supervision and creation o f local secretariats. 0 Continued disbursement o f funds directly to communities. 0 Expanded training programs for secretariats, including on M&E. Wide distribution o f Operations Manual (including procurement, M&E,and financial management). Continuous training and capacity-building o f CACC secretariats and members. 0 Improved coordination with CSOs and other partners. Weak ACUs. Extended role o f FMA to handle all public sector disbursements. Competitive and performance-based approval o fproposals. 0 Prioritizationo f ministerial programs. 0 Technical assistance from the UNto identify and support mainstreaming needs. 0 Distribution o f Operations Manual (including procurement, M&E, and financial management). 3verall Risk S Kating. RiskRatings-H(High), S (Substantial), M(Modest), N(Negligible or Low) 6. Credit Conditions and Covenants 112. There is no Board Condition. 48 113. The following are Effectiveness Conditions: Action 1. The Contract with an independent FMAwould havebeen signed. 2. The Contract with an independent C V A would have been signed. 3. The Contract with an independent PMA would have been signed. 4. The prioritization and approval o f the first CfP for FY07/08. 5. The Government and the NACC would have executed anddelivered the Subsidiary Agreement. 6. The NACC would have opened a Project Account inan amount o f Ksh20 million. 114. The following i s a DisbursementCondition with respect to Sub-component 1o f Component 2, relating to the grant awards: Action 1. The KNAO would have confirmed that it accepts responsibility for ensuringthe audit o f the grant awards. The following are Dated Covenants: 1. The Co-financingAgreement between the Government andDFIDwould have been executed and deliveredby December 31,2007. 2. Appoint a Performance Auditor with qualification and experience, andunder terms o f reference and executed contract satisfactory to the Association by December 31,2007. 3. The C P for the following fiscal year would have beenprioritized andapproved byApril 30 of each year. 4. A draft NACC Budget for the following fiscal year wouldhave been submittedto the Association by April 30 o f each year. 5. The NACC Consolidated Annual Workplan would havebeen submitted to the Association byApril 30ofeach year. 6. The Annual National M&EReport would havebeen submittedby September 30 o f each year, summarizing progress made up to June 30 o f each year. 7. An Institutional Assessment o fthe NACC would have been carried out, under TORS acceptable to the Association, by September 30,2009. 8. A Mid-ternReviewofthe Proiectwouldhavebeencarriedout bv Seutember 30.2009. 49 D. APPRAISAL SUMMARY 1. Economicand FinancialAnalyses 115. There is growingevidence inthe Regionof the value ofHIV andAIDS- relatedinterventions. Researchacross manyseverely-affected, low-income countries clearly demonstrates that HIV andAIDS i s a most serious impediment to economic growth and development' insuch countries. This research includes detailed economic analysis on HIV andAIDS within the Africa Region carried out bythe MAP (Report No. 20727 AFR, September 2000). There i s also substantial knowledge regarding the economic impact o fHIV andAIDS specifically inKenya. This includes a country study conducted by the World Bank, and also a study o fHIV andAIDS, ARVs, and socio- economic status inWestern Kenya. Summarizing, the productivity o fthe agriculture sector, uponwhich the majority o f Kenyans rely, i s beingunderminedbynegative impacts on the supplyof labour, crop production, andagricultural extension services, loss o fknowledge and skills, andtrauma. The consequences include reduced householdand community food security, and decline inthe nutritional andhealth status o f families. Commercial agriculture, a major source o f employment and foreign earnings, i s being detrimentally affected by increasinghealth costs, protractedmorbidity and mortality o f keyworkers. Educationis also sufferingas teachers are lost to AIDS, andas children drop out o f school due to the illness or death o fparents andreductions inhousehold incomes. The health service i s losing trained staff, andhas to cope with the increasing burdeno fHIVrelated infections. There are also hugecosts associated with caring for increasing numbers o f orphans, coupled with existing highpovertylevels. This demonstrates the impact ofthe epidemic on economic development andpoverty, as well as the advantageous cost-benefit ofkey HIV andAIDS-related interventions. 2. Technical 116. The proposedProjectis builton the principlesof internationally-accepted bestpracticesfor HIV andAIDS andlessons of experience. First, the KNASP has receivedconsiderable acclaim for its technical strength. Second, the TOWA Project takes into account Kenya's specific socio-economic circumstances, and the most reliable anddetailed epidemiological data that is now available. Third, it is also firmlybuiltupon the experiences o f the KHADREP. Fourth, the comparative advantage o f different sectors and the community inthe nationalresponse to HIV and AIDS i s well established. Finally, the Project also places strong emphasis on strengthening institutions, learning andinnovation, and anoverall performance-based approach. 117. However, there are manytechnicalissues that needto be monitoredand addressedfurther as the Projectis implemented. Specifically, the followingissues were among those identifiedduringthe October 2006 JAPR. Some o fthese relate to the work o fthe NACC andthe design o f the TOWA Project, and are addressed inthe risk assessment: (i) cultural andreligious challenges continue to hamper the use o f social, *TheMacroeconomics of HIV and AIDS, International Monetary Fund, November 2004 contains a comprehensive summary of this research 50 condoms, andthe promotion and distribution o f female condoms i s particularly low; (ii) national behaviour change strategies targeting some o fthe vulnerable groups have not yet beendeveloped; (iii) mainstreaming o fthe rights o fvulnerable groups inHIV and the AIDS programs is still inadequate; (iv) the CACCs shouldbe continuously trained to enable them carry out their mandate effectively; and (v) the funding to the CACCs and DTCs needs to be more consistent and timely. Other issues relate to the health sector, and arebeing addressed as part ofthe design o fthe health SWAP: (i) are there insufficient counsellors offering comprehensive and effective DCT, VCT & PMTCT services; (ii) post-exposure prophylxis training and awareness i s low; and (iii) i s there needfor more networkingto enhance information sharingandthe improvement ofhealth services for PLWA. 3. Fiduciary 118. The financialmanagementrisk is consideredto be modest. The institutional arrangements comprise: (i) establishment o facceptable financial management the systems; and (ii) safeguards that respond to country andproject level fiduciary risks o f weak governance and corruption. As the project's key institutional arrangements have already been implemented satisfactorily, the financial management risk i s rated as modest. 119. Procurementrisks are considered to be moreserious andrequiresome mitigationmeasuresfor the successfulimplementationofthe Project. The risks includethe following: (i) is staffed with two procurement officers, but their NACC experience inBankprocurement procedures need to be enhanced; (ii) the procurement capacity o fthe staff inthe MDAsi s also mixed; (iii) more training i s needed for DTCs and CACCs inreviewing proposals by CSOs; (iv) there is need to ensurethat the procurement activities o f DTCs, CACCs, CSOs andACUs are monitored; (v) standard biddingdocuments need to bereviewedandcleared with the Bank; and(vi) more oversight i s needed o fprocurement activities bythe NACC. The initial assessmento fthe risks i s high, but the rating may be viewed as modest, ifthe following measures are implemented satisfactorily: There will be: (i) an independent,externally-recruitedFMA; (ii) independentC V A an to monitor compliance o f grant proposals with CfPs; (iii) an independent performance auditor to assess and compare the results verifiably achieved with the results claimed; and (iv) anindependent PMA to monitor the procurement activities o fthe NACC. The procurement staff inthe NACC will be retrainedat the World BankCountry Office inKenya, or at a regional training institute (such as ESAMI, Arusha and GIMPA, Accra). Therewill also be some short-term technical assistance(fundedby DFID)onprocurementfor theNACC. The capacity o f DTCs andCACCs will be enhanced through the capacity building sub-component o fthe Project. 51 Standard BiddingDocuments and Forms, acceptable to the Bank, will be developed where necessary. Table 7: SummaryofMainFiduciaryManagementRisks andMitigationMeasures Risk MitipationStratem Status and/or ActionsRequired Risk that Project Establishment and utilization o f an An Institutional Risk Management Policy resources may not Institutional Risk Management Framework has been established, comprising be used for Policy Framework. ongoing risk identification and response intended purposes initiatives by management. owing to weak financial Establishment o f fiduciary oversight Fiduciary oversight functions have been management finctions inthe NACC. established by the NACC Council Audit and capacity and Finance Committees. environment. Deployment o f a risk based internal A riskbasedinternal audit functionhas audit fimction. already been deployed. Regular project reporting. There will be quarterly financial and project progress reports to stakeholders. Riskthat Project Sufficient capacity for procurement NACCprocurement staffto receive additional resources may not inthe NACC. training. Short-term technical assistance on be used for procurement to be recruited for the NACC. intended purposes owing to weak There will be an independent PMA to monitor procurement Importance o f independent the procurement activities o f the NACC. capacity and monitoring o f procurement by the environment. NACC and MDAs. There will be an independent CVA to monitor compliance o f grant proposals with Cfps; and Limited capacity o f the CACCs and DTCsto carry out procurement also an independent performance auditor to efficiently. assess and compare the results verifiably achieved with the results claimed. The appointment o f them would be a condition o f effectiveness (as well as a financial management agent). Capacity buildingwill also be provided through the Project. New processes have been developed using Calls for Proposals, enhanced dissemination o information, and increased social Need for transparent system for accountability. The preparation o f an selection o f sub-projects to be acceptable first CfP is an effectiveness supported with grants. sondition. 52 4. Social 120. The recentCountrySocialAnalysis(CSA) for Kenyahasdocumentedwell the social impactof the HIV andAIDS epidemic,throughthe humansufferingof its directvictims, the depletionof humancapital, andthe additionalburdenof care which the pandemicimposes on families andsociety. The CSA also shows the links through social relations to the erosion o f livelihoods and changing gender relations. In particular, HIV and AIDS adds to women's workload under conditions o ftime poverty. Italso disruptsthe level andtimeliness ofaacultural labor inputs, especially inthe subsistence sphere, for which women are largely responsible, thus contributing to the precariousness o f household food supply and nutrition. Second, because o f the inferior nature o fwomen's property rights, widows are liable to loose all o f their property on the death o ftheir husbands. They may also be subject to `cleansing' rituals which involve ritual unprotected sex and remarriage. Third, because o f their social and economic status, women are subject to coercive, predatory or transactional sex, with the accompanying highrisk ofinfection. Manyare subject to physicalor sexual violence (correlated with HIVandAIDS incidence), andareunable to escapeabusive partnerships, because divorce would mean their losing all rights to property. 121. TOWA Projectwill payclose attentionto social issues, with a renewedfocus on expandingcoverage ofHIV andAIDS-relatedservices to particularlyvulnerable populations. The HIV and AIDS epidemic will continue to exert severe social and economic consequences inKenya over the coming years with increasingrates o f morbidity and mortality, and increasing numbers o f orphans. A major gap identified by many stakeholders inthe review o fthe previous national strategy was the need to target interventions more effectively on vulnerable groups. Vulnerable groups inKenya include,but are not limited to, discordant couples, CSWs, OVC, migrant workers, girls andvictims o frape andsexual violence, andthose inthe uniformed services. With a growing recognition o fthe need to focus on vulnerability, it has been agreed that all priority areas o fthe KNASP would explicitly addressthe needs o f groups that are especially vulnerable to infection, or whose quality o f life or social and economic wellbeing i s most severely affectedby the epidemic. The TOWA Project would support this approach through its targeted interventions, based on the participatory and consultative JAPR process, and would additionally ensure that pertinent results o f on- going social assessmentsinKenya are reflected inthe evolving program design. 122. One of the key reasonsthat a broader,multi-partner,multi-levelresponseto HIV andAIDS is requiredis the influenceof socio-culturalnormsandvalues on the spreadof the disease. Attitudes towards gender, religious teachings on sexuality, and social and cultural practices often facilitate the spread o fHIV infection. Through the TOWA Project, as was the case under the KHADREP, concerted efforts would be made to promote socio-cultural norms, values, andbeliefs that would create an enabling environment for HIV prevention interventions, and to protect the humanrights o f those infected or affected bythe disease. NACC-coordinated activities are expected to pursue this objectivethrough behavior change communication(BCC) campaigns, advocacy, 53 counseling, consultation, andintensifiedenforcement o fboth customary andwritten laws, particularly with respect to gender-specific issues. The reductiono f stigma would receive special attention as it constitutes an important obstacle for affected persons and households to access available prevention, care, and support services. 123. Inparticular, the growingnumber of OVC poses an unparalleledchallenge to the social sectors, as merely providingvery basic health and education services for them already constitutes a significant challenge. Providing at least a basic, sustainable, but meaninghl package o fcare and support services to OVC poses enormous economic, social, ethical, and organizational challenges to Kenyan society, as a whole. The TOWA Project would support the piloting o f initiatives to enable greater coverage and quality assurance inthe implementation o f OVC-related community-based interventions (when the subject o f CfPs) and also through the scaling-up o fthe cash transfer Program. 5. Environment 124. The proposedProject has been classified as "Category B" for environmental screening purposes. As a repeater Project, the TOWA Project would make use o fthe existing arrangements for safeguard issueswhich have been successhlly implemented under the KHADREP. Inaddition, a national Medical Waste Management Action Plan has been developed and disclosed by the Borrower, and will be implemented as recommended. Both the Health Waste Management Planandthe ISDS for the Project have been disclosed at the Bank's Info Shop. 6. Safeguard Policies Table 8: SafeguardPolicies SafeguardPoliciesTriggeredby the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management(OP 4.09) [I [XI Cultural Property (OPN 11.03, being revisedas OP 4.11) [I [XI Involuntary Resettlement(OP/BP 4.12) [I [XI IndigenousPeoples(OD 4.20, being revisedas OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI ProjectsinDisputedAreas (OP/BP/GP 7.60) [I [XI Projectson International Waterways (OP/BP/GP 7.50) [I [XI 7. Policy Exceptions and Readiness 125. The Project does not require exceptions from Bankpolicies. The Project meets the Regionalcriteria for readiness for implementation. Inparticular, the NACC structure i s inplace; all o f the key staff are inposition; the Operations Manual has beenprepared 54 andis acceptable to the Bank; the NACC is usedto doing FMRs; andthe first CfP is already under preparation. Moreover, all conditions and covenants have been discussed andagreed uponwiththe Client to ensure timely launchofthe Project. 55 Annex 1: Kenya's FightAgainst Corruption: Progress, Setbacks andNew Frontiers KENYA: TotalWar AgainstHIV andAIDS Project I.Introduction 1. Several surveys o f Kenyan households, firms and individuals suggest widespread concern about corruption inthe public service. Some o fthese surveys also suggest that in specific areas like free primaryeducation and health, the public is reporting improvements inservice delivery, while inother areas, like procurement andthe judiciary, the situation continues to cause public concern. 2. This Annex discusseshighlightso fKenya's efforts since 2003 to address the problem o f corruption, includingsteps taken and setbacks experienced, and further actions that are plannedby the Government. These actions build on lessons o f experience and look at corruption through a broader governance lens. Another important source o f inputhas been consultations heldinJanuary 2007 with a wide variety o f stakeholders around the World Bank's BoardPaper on Governance and Anti-corruption (GAC) as part o f the global consultation exercise. 11. SelectedHighlights 3. HistoricalPerspective. Historically inKenya, power has operated through aweb of informal networks based on personal ties, often with a strong ethnic and gender element, between leaders and supporters at all levels. The networks permeated public institutions, subverted formal rules and severely compromised systems o fpublic accountability. As a result, key institutions decayed. Thejudiciary, for example, became largely ineffectual andcorrupt, and presidentialpowers (and single-party democracy until 1992) supplanted other vital institutions such as Parliament. Theft o f public resources, including procurement fraud, was documented by controllers and auditors general, but corrupt individualsused the court powers andother means to punishcritics. Media freedoms suffered, and the police emerged inKenya's public opinion surveys as the most corrupt institution. When it came to power at the beginning o f 2003, the new government made a number o f bold moves infulfillment o f its campaignpledge to put a halt to corruption. These actions are discussed below. 4. LegislativeActions. In2003, Parliament passedthe Public Officer Ethics Act, requiringcivil servants to file annual declarations o fincome, assets andliabilities, and the Anti-Corruption andEconomic Crimes Act, which set up the Kenya Anti-Corruption Commission (KACC). The Government also enactedkey legislation aimed at improving governance andpublic service delivery which include the Government Financial Management Act (2004) andthe Public Audit Office Act (2004). In fulfillment o f the Anti-corruption Action Plan for April 2005-June 2006, the Public Procurement and Disposal Act, 2005 came into force on January 1,2007, and established a semi- autonomous Public Procurement Oversight Authority responsible for the regulationo f 56 procurement inthe public sector, including procurement o f security related contracts, transactions which were shrouded insecrecy inthe past and associated with highlevel graft. Inaddition, the Privatization Act received Presidential assent inOctober 2005 setting the stage for the privatization o fpublic assets and operations including state corporations, as part o f the privatization program under a new privatization commission. Inlate2006, legislationwas introducedto Parliament that would increasethe numberof judges, significantly reduce delays incorruptiontrials, fight money-laundering, and providea framework for political party funding.Parliament recessedinDecember before completing this legislative agenda. OnMarch2007 Parliament reconvened andre- introduced this work program. The Government i s also at an advanced stage in developing a Freedomo f Information Billthat will ensure public access to information. Meanwhile, implementationo f the new procurement act andregulationsbeganinJanuary 2007. 5. CapacityBuildingandAdministrativeActions. After 2003 there was a four- fold increase inthe professional staff o fthe KACC, recruitment magistrates and other legal staff, and the launch o fpublic education campaigns. The Attorney General's Office had 126new state attorneys inJanuary 2006, significantly increasingits capacity. To speedup trials, the Chief Justice changed the rules o f the court inJanuary 2006 to set rigorous time limits for disposing o f Constitutional references which tend to add years to the disposal o f cases. Respondingto criticism that it relied too heavily on legislative measures, the Government began to take administrative steps more regularly. For example, inDecember 2005, the Government annulledthe recruitment o f 3,000 police officers and suspended senior officers involved inthe recruitment exercise, pending furtherinvestigation. The KenyaRevenue Authority also announced that itwas suspending several senior officers who work at the Port pendinginvestigationinto why they were not achieving performance targets for customs revenues. Inaddition, the Government fired the Managing Trustee o fthe National Social Security Fund(NSSF) following investigation by the KACC, although monthslater he was appointed to head another parastatal (Meanwhile, a Bank-sponsored study o fthe NSSF has shown it to be severely dysfunctional; for example, as a result o fmismanagement and low returnon fimdinvestments, the typical Kenyanretiredworker can expect to receive a total retirement package that would cover no more than 12 months o f income). The Governor o f the Central Bank was also suspendedpendinginvestigations o fwrongdoing and i s now being prosecuted. Such suspensions and dismissals have become somewhat more frequent. For example, the Government recently suspended senior staff inthe Ministryo f Lands and two senior executives at the KenyaRe-Insurance pendinginvestigations into corrupt practices. Also on the administrative front, thejudiciary has instituted a self- rejuvenatingmechanismthrough a peer review on integrity andhandlingo f complaints, which i s expected to improve its systems and performance. 6. Results-basedManagementand PerformanceContracts.Consistent with the focus on the effective and accountable use o fpublic resources, the Government has introduced a Results-Based Management (RBM) systemas a tool for helping public sector institutions to focus their work, plan strategically anddemonstrate the difference that each organization is making to development. This focus on "Practical Resultsfor 57 Kenyans" is based on internationalbest practice incountries such as Canada, Sweden and the UnitedKingdom. The Government has also introducedperformance contracts for all its senior officials including those inparastatals. The contracts are meant to create incentives for public sector managers and their staffto improve performance and accountability by undertakingto deliver specific outputs inline with their mandates. The availability o f these contracts (at http://www.dpm.go.ke/pages/splans.html)i s not widely known, and i s therefore a missed opportunity for public monitoring, assessment and pressure for enforcement. There i s also room to improve the focus o fthe contracts themselves on issues o f corruption. Public sector management reform has also focused on introducing rapid results initiatives, service charters, codes o f conduct, and citizen scorecards. One important milestone inthis home-grownreform program occurred in December 2006, when the President officiated at a public event inwhich all Ministers, Assistant Ministers, and their permanentsecretaries receivedtheir performance scores as assessedby expert stakeholders on the basis o fthe results-based management performance contracts their departments had signed. 7. Alleged CorruptionAmong Ministers. Followingthe constitutionalreferendum o f November 2005, the President reshuffled his Cabinet, removingministers alleged to have beeninvolved inlarge scale corruption and appointing a new andrespectedminister o fjustice andconstitutional affairs. DuringFebruary2006 two o fthe ministers named in the report preparedby the former Permanent Secretary for Governance and Anti- corruption resignedfrom office to allow for investigations to proceed. KACC beganto investigate these and all others mentionedas possibly involved incorrupt activities. A thirdminister, the Minister o fEducationwho hadbeenthe Minister o fFinance at the time o fthe Goldenberg affair that occurred inthe early 1 9 9 0resigned following his ~ ~ implication inthe Goldenberg Commission report which was also released at this time (in July2006), however, Kenya's HighCourt ruledthat he hadacted appropriately inhisrole as Minister for Finance, and that becauseKenya's Attorney General o f a decade ago had cleared himo f wrong-doing ina statement to Parliament at that time, he could not be prosecuted -this HighCourt ruling i s beingappealed again by the Hon. Attorney General on behalfo fthe Government. This was followed by Government seizure o fpassports and firearms o f several individuals associated with Goldenberg. Prosecutions inthe Goldenberg scandals began inmid-June 2006 butprosecutions inthe Anglo-leasing case are awaiting the completion of investigations by the KACC. The ongoing investigation andthe status o flegal action inthe Anglo-leasing affair havebeenmuch inthe news recently. InOctober 2006, the Attorney General sent the investigative files o f 12 prominent individuals (including former Cabinet members), who hadbeenrecommended for prosecution, back to the KACC for lack o f evidence that would sustain prosecution. InlateNovember 2006, the Presidentreappointed two Ministerswho hadearlier left Cabinet because o f their alleged involvement incorruption scandals (both hadundergone judicial processes that appear to have cleared them o f criminal wrongdoing). OnJanuary 19,2007, localjournals reported that the Attorney-General had cleared all four Ministers implicated inthe scandal o f any wrongdoing, and this was receivedwith a large-scale public outcry against the decision. The Attorney-General has, however, issueda statement indicatingthat in fact investigations are ongoing and that there has not been a judicial clearance on substantive issueso f corruption. 58 8. Other Measures. Separately, the President hasrequiredthat members o fthe new cabinet sign a code o fconduct, and that the KACC verify their declaration o f assets. These declarations are now being vetted by the KACC. The Government has ended `land grabbing' and state sponsored `harambees' or fund-raising. It also set up the Ndung'u Commissionto look into the illegal allocation o fpublic lands and after makingpublic the report inFebruary 2006, gave individuals andorganizations implicated a three month period to return land that was obtained illegally (whether deliberately or not). That period has now expired and further action by the Government i s awaited. As o f January 2007, 133 title deeds for illegally or irregularly acquired public landhadbeen surrendered to the Ministry o f Lands. Measures were also taken to improve the governance o fpublic finances. They included enhancing the capacity o f the National Audit Office, which was then able to clear the long-standing backlog o fpublic accounts audits. Inaddition, inOctober 2005, the government established independent audit committees inall ministries, departments, state corporations and local authorities. This step i s part o f a new risk-based internal audit approach, supported bythe World Bank and other donors, that involves identifyingthe potential for fraud inadvance andbuildingthe necessary riskmitigation processes into the design o f government systems andprocesses. The prospects for reducingrent seeking were Wher enhanced inNovember 2005 through additional measures such as the liberalization of coffee marketing (after over a decade o fpolicy debate about it). Under the ongoing licensingreformprogram, about 9 percent o f licenses have beenabolished, and another 50 percent are scheduled for harmonization, simplification, or elimination by December 2007 (including about 23 licenses that the private sector has identified as priorities). 111.Assessment 9. Despite the range o f actions on legislative, administrative, political and other fronts discussed above, the Government has acknowledged that the fight against corruption i s an uphilltask. At a National Stakeholder Conference convened inlate May 2006 by the Government to discuss future plans for fighting corruption, the Minister o f Justice and Constitutional Affairs notedthat efforts so far `have only scratched the surface'. Meanwhile, the peer review bythe New Partnershipfor Africa's Development (NEPAD) indicates that 60 percent o fKenyans feel that the government has not gone far enoughinthe fight against corruption andover 90 percent believe that there is still corruption ingovernment. 10. Doubtsabout the Government'sCommitment. InJanuary 2006 the former Permanent Secretary for Governance and Anti-Corruption alleged that some Cabinet ministersand other senior civil servants inthe new government were involved inbig graft. InMarch2006, hoodedmenraided the headquarters o f the Standard Media Group late at night, allegedly for national security reasons. InOctober 2006, the Attorney General sent the investigative files o f 12prominent individuals (including former Cabinet members),who hadbeenrecommended for prosecution, back to the KACC. Inlate November 2006, the President reappointed two Ministers who had earlier left Cabinet because o ftheir alleged involvement incorruption scandals (both had undergonejudicial 59 processes that appear to have cleared them o f criminal wrongdoing, but public confidence intheseprocessesis quitelow). InJanuary 2007 two other Ministers were cleared bythe KACC o f interference with an investigation. Other allegations against them are being looked into. Overall, Kenyans continue to cite governance as the most pressing concern, andwant more actionon it, but some are concerned about the Government's commitment to the fight. 11. Measuring Results to Date. While there i s a broad domestic and international consensus on where Kenya i s coming from on corruption (historically) and where it needs to go, there i s much less agreement on the results that have been generated so far, and on the prospects for winningthe fight. Transparency International's Annual Corruption Perceptions Index has consistently placed Kenya towards the bottom o fthe list (in2006 it ranked 142 o f 163 countries, whereas in2005 it had ranked 144o f 159 countries). InJune 2006, Transparency International (Kenya branch) reportedthat bribery increased in2005 following declines in2003 and 2004. Rankingpublic institutions for the occurrence o fbriberyinclude the police, state corporations, and local authorities. Roughly 55 percent o fKenyans felt that corruption was unchanged, the same number as in2003. But while 13 percent felt it hadworsened in2003, the number jumped to 19percent in2006. A largerhouseholdsurveyreleased inearly July 2006, conducted bythe KACC and covering 21 districts inall provinces, found that public awareness o f corruption has risen from about 75 percent in2000 to 99 percent in2005. The survey concurred that the police, the Ministries o fHealth andLands, and local and district governments were perceived as the most corrupt. Roughly 41 percent o f respondents believedthat corruption has decreased from a year ago, 22 percent believed that there has been no change and 37 percent believe that it has worsened. About 60 percent felt that the Government was performingbadly on corruption, a figure similar to the NEPAD assessment. Contrasting with these more negative findings, Kenya's score o f 3.0 (of a possible 6) on the questionon "Transparency, Accountability and Corruption in the Public Sector" inthe most recent Country Policy and Institutional Assessment (CPIA) conducted globally by the World Bank andreleased at end-May2006 places Kenya at roughly the mid-point among the 79 low income developingcountries covered inthe exercise. Meanwhile, the 2006 Global Integrity Index, released inJanuary 2007, gives Kenya a score o f 71 out o f 100, up from 61 in2004, placing it the same cluster o f "moderate" performers as Argentina, Uganda, and Brazil, well ahead o f Mozambique, Russia, and Senegal, and far ahead o f Tanzania, Egypt, andVietnam. 12. Synthesis. Notwithstanding important legislative andinstitutional developments andthe beginningso fpolitical accountability, more needs to bedone to assurethe public o f its commitment to fighting graft. This will ensure that the efforts already made and ongoing and that planned initiatives will produce tangible and measurable results. Pursuit o fthis aim would require strong leadership at all levels, with an almost single- mindedfocus onreversingbehaviors that havebeenentrenched, politically, socially and culturally for decades. 60 IV. Further Steps towardBetterGovernance 13. Broad-basedStakeholdersParticipation. There appears to be a growing realization among governance reformers inKenya that the war against corruption requires the mobilization o f a broad range o f stakeholders, including civil society, the media, private sector, faith-based organizations andprofessionalbodies. For example, as recent experience indicates, civil society and the media can have a powerful impact as sources o f information on corruptionand as advocates for change. There i s some evidence that the reformers inKenya might wishto reach out to these groups ina more systematic way. For example, the June 2006 Stakeholder Conference on the Draft National Anti-corruption Strategy, the largest o f the three held since September 2005, brought together Kenyansfrom the executive, parliament, thejudiciary, the private sector, the media, trade unions, faith-based organizations, professional bodies, andNGOs to consider the government's national multi-year strategy for fightingcorruption. The Draft Strategy itself arose from a process conducted years ago andupdated recently that involved grass-roots inputs and consultations inall eight provinces. The other recent broad-based consultations have focused on the Strategic Plano fthe Kenya Anti- corruption Commission. A particular challenge is to ensure that all the broad-based participation and consultations cohere around a focused set ofworkable initiatives oriented toward demonstrable results, while leaving participants the freedom they needto serve as both advocates and critics. 14. Formulationofthe Governmentof Kenya's updatedGovernanceStrategy andActionPlan. Concurrently with these stakeholder consultations, Bank-sponsored audit work at the project level (the Department o f Institutional Integrity(INT) led Detailed ImplementationReview [DIR]) and at the level o fnational and sectoral policy (theWBI-led InitialGovernance Assessment [IGA]) gave freshinsights into anti- corruption measures that the Government itself could take. These inputs all contributed to the formulation o fthe Government's Governance Strategy and Action Plan(GSAP) through December 2007. The GSAPreviews progress interms o f legislationpassed since 2003, administrative actions taken, public sector and financial management reforms, the role for the private sector, public education efforts, investigatiodprosecution, and restitution o f stolen assets. It sets forth a matrix o f specific, time-bound actions accompanied by progress indicators inareas that include (a) strengthening the legislative platform for the fight against corruption (e.g., legislation for witness protection, anti-money launderingand greater disclosure o fpersonal wealth declarations o f government officials); (b) facilitating transparency andpublic access to government information; (c) deepening public financial management reforms; (d) deepening procurement reforms; (e) scaling down the role o f government; and (f) strengthening capacity for investigation andprosecution o f corruption. 15. Transparency,PublicAccess to Informationand PublicEducation. The Government is at an advanced stage o f assuring public access to information through the proposed Freedom o f Information Bill, which seeks to empower members o f the public to have free access to information heldby Government. The Media Bill, the second bill, also at an advanced stage, will promoteand protect a professional, self-regulating free 61 andindependent media. The rightofthe mediato access anddisseminate information will hrther enhance transparency andaccountability. The MediaBillseeks to establish a Media Council o fKenya andenshrine the "freedom to hold opinions without interference and to seek, receive and impart information and ideas through any Mediaregardless o f frontiers." Parliament reconvened inMarch2007, and it was expected that boththe above bills will be submitted. These legislative developments complement another initiative by Government to establish a National Bureau o f Statistics, through the Statistics Billo f 2006. The Bureau, which will replace the Central Bureau o f Statistics, will collect, compile, analyze, andpublishstatistical information, andwill be guidedby explicit provisions for public access anddissemination. A related aspect o f these transparency initiatives i s heavy investments ine-government, including e-procurement, andcontinuedinvestment inpublic education and awareness-raising. To improve accountability inbudgetimplementation, the Budget Monitoring Unit at Ministryo f Financewill be revamped, initially payingparticular attentionto roads and water programs. The Unitwill prepare comprehensive quarterly reports on budget implementationfor dissemination to the public. 16. Further LegislativeAdvances. A number o fbills were on the parliament's list to bepassedinto law inlate 2006. The Witness Protection Act was passed but Bills on anti-money laundering andpolitical party financing were not acted uponby the time Parliamentrecessedinearly December. Parliamentreconvened inMarch 2007 and it was expected that they will be considered. The pendingStatute Law (Miscellaneous Amendment) Billproposes to amend the following laws, namely; the Judicature Act, (Cap 8) to increase the number ofjudges o f the HighCourt from fiRy to seventy and those inthe Court o f Appeal from eleven to fourteen; the Constitutional Officers (Remuneration) Act, (Cap 423) to implement the new salary structure for constitutional office holders; and the Anti-Corruption and Economic Crimes Act (ECA), 2003, to disallow applications for stay o fproceedings incases involving economic crimes and corruption. The MiscellaneousAmendments Billwill also harmonizethe penalties for offenses that can be prosecuted underboththe ECA andthe Penal Code and amend the Public Officer Ethics Act, 2003, to regulate the public officers' declaration o fwealth. The Witness Protection Bill, 2006, ifpassedwill provide for the regulationand operation o f a scheme for the protectiono f witnesses incriminal cases, commissions o f inquiries and similar proceedings that are critical to the prosecutiono fcorruption cases. The proposed scheme under this Billwill be established and coordinated by the Attorney General. Legislation on political party financing i s also proposed. 17. Capacity to Prosecute. Despite improvements inthe investigation o f corruption cases, the current capacity to prosecute i s still inadequate. This has affected efforts to effectively prosecute past andon-going cases on corruption. A number o ftraining programs have been launched to strengthen the capacity o f the State Law Office (SLO) and the Director o fPublic Prosecutions (DPP) inthe Attorney General's Office. The government i s inthe process o frecruiting additional lawyers, (130), includingspecialized andcompetent prosecutors with proven integrity. O fthese, 65 will serve the State Law Office, 42 to the Department o fPublic Prosecutions to make a total o f 104 and 23 to the Civil Litigation Department. Other initiatives include addressing legal challenges arising 62 from corruption prosecutions (see paragraph 15) by, among others: publishingjudgment and court statements; and establishing open hearings. 18. DisposalofCases. In2005, there were 503,948 new cases filed together with those pendingat the beginningo fthat year, bringingthe total number to 1,074,602 cases. Ofthese, the courts were only able to deal with 541,167 cases, rolling over 535,840 to 2006. As part o fthe effort to address this challenge, the following initiatives will be implemented. As indicatedinthe Miscellaneous Bill, the number o fjudges will be increased to 70 from 50. Inaddition to the absence ofjudicial officers, the Government's efforts to effectively dispose o f cases (including corruption cases) have beenhampered also bythe lack o fbasic facilities such as court rooms, manual filling andretrieval o f cases, lack o f equipment such as computers, poor remunerationandterms o f service for thejudiciary especially for the magistrates. The World Bank-financed Financial Legal andTechnicalAssistance Project is currently supporting the training o fjudges and modernization o f the court systemthrough automation o fthe courts. It will also finance the recording o f court proceedings, better case management methods and improvement o f court administration. Meanwhile, thejudiciary has proposed amendments to the Civil Procedure Rules to simplifythe court processes andinclude alternative methodsof disputeresolution to shorten the time taken to dispose offcases and reduce the backlog. The Chief Justice also issueda circular (January 2007) to address the problem o fmultiple suits on the same issue being filed indifferent courts. 19. Implementationof ProcurementReform. Inorder to enforce the Procurement Act, passedbyParliament and assentedto bythe President inNovember 2005, gazettement o f the Public Procurement Regulations and establishment o f an independent Public Procurement Oversight Authority receivedParliamentaryapproval (December 2006). The main objective o f the proposed procurement reforms i s to strengthen the institutional capacity o fthe public procurement inorder to enhance accountability and effectiveness by reducingrent-seeking opportunities and corruption. Among the initiatives proposed for implementation over the next one year are: (i) establishing and makingfully operational the PublicProcurement Oversight Authority ensuring its independence and objectivity, and fully rolling out o f the new procurement regulations andguidelines; (ii) on the ministries' websites all information on contracts, posting includingnames o f contractors, decisions o f Procurement Appeals Board, bidders and tender outcomes, and contractors' performance; (iii) introducing a transparent Vetting System to pre-qualify companies interested inbiddingfor contracts to address conflict o f interest and to enable exposure o f fraudulent companies; and (iv) blacklisting companies found to have been involved incases o f corruption inaccordance with the new procurement law, and make this informationpublicly available. 20. Implementationof Privatization. Furtherparticipationofthe private sector in the economy will be enhanced over the next year through privatization, restructuringo f the public sector and removal o f administrativebarriers to trade. Among the initiatives to be implementedover the next year to enhance efficiency inthe economy and encourage private sector participation include: (i) establishment o f a privatization commission by the end o fMarch2007. The privatization commission will pavethe way for a transparent and accountable process o fprivatization, thereby making it difficult to disguise 63 corruption inthe privatization transactions; (ii) restructuring/privatization o fTelkom Kenya is moving forward with IFC technical assistance(e.g. retrenchment completed, Ksh5.6 billion securedbyTelkom from localbanks, etc.). while the NationalBank o f Kenya (NBK) will berestructured intandem with privatization (GOK's 06/07 budget includes Ksh 20 billion for the NBKrestructuring approved by Cabinet); (iii) sale o fpart o f government shares inMumias Sugar Company was completed end-December 2006, andthe action plan for further divestiture o fthe Kenya Reinsurance Company, and KenGen for March2007 remains inforce; (iv) plans for increased private sector participation also remain inplace for the ports: and (v) liberalization o fthe telecomm sector has already happened, including a recent CCK decision approving an application from Reliance Consortium for the second fixed line license; (vi) including inthe finance bill for 2007/08 the elimination ofbusiness licenses foundnot to serve a usefulpurpose; (vii) initiating a legal andinstitutionalframework to operationalize public-private partnership, allowing the private sector to participate inthe provision o fwater, energy, roads andtransport services and limit the potentialrisks from contingent liabilities that may arise insuch operations; (viii) submission to Cabinet o f a market-orientedfinancial sector reform strategy by March2007; and (xi) a diagnostic audit o fNational Social Security Fund(NSSF) will be undertaken to form the basis for restructuring and reforms o f its governance. 21. Public FinancialManagement. Planned public financial management reforms . (PFM) include: . preparing and publishing external audit reports o f the Controller and Auditor General ina timely fashion in accordance with ThePublic Audit Act 2003; adopting a risk based internal audit approach, including establishment o f the ministerial audit committees expected to provide oversight. Empowering the Ministerial Audit Office and providing them a mandate for ensuring implementationo f audit recommendations. And, develop audit's post- implementation reviews by the National Audit Office, communicate the . results to the Public Accounts Committee, andpublish them; enhancing transparencyand broader stakeholder participation, including members o fparliament and public inthe preparationo f 2007/08 budget cycle; conducting expenditure-tracking surveys inat least one ministry to inform budget implementation and improve its effectiveness inachieving . development goals; strengthening management and audit capacity for efficient and effective use o f devolved funds under the Local Authority Transfer Fundandthe Constituency Development Fund, Constituency Roads Fundand Bursary Fund, among others; 64 . accelerating the implementation o f integrated financial management and information system(IFMIS) and make it operational infour spending ministries (including education, health) for the management o fthe 2007/08 . budget; and developing and enforcing objective criteria for granting tax exemptions and waivers to regulate the exercise o f discretionary powers and improve transparency and accountability inthe tax exemption regime. This will be complemented bypublication o f tax expenditure budgets from FY2007/08 onward. Othermeasures being taken includepreparingandpublishingexternal audit reports ina timely fashion inaccordance with the Public Audit Act 2003 and adopting a risk based internal audit approach, including establishment o f the ministerial audit committees. These measures are expected to improve Parliamentary oversight on the executive's use o fpublic funds. 22. ResultsMeasurementandPerformanceManagement. Government is deepening the focus on results as an integralpart o f good governance, and i s making progress inrolling out the RBMsystem inthe public sector. Now that a Results office has been established within the Public Sector Reform andDevelopment Secretariat, additional steps related to the RBM's implementationinclude developing systems for performance management andintegrated performance appraisal, performance audits and monitoring andevaluation. Other actions include introducing service charters and score cards for selected Government ministries anddepartments. 23, Governance and Accountability Programs in Selected Key Ministries. Several Ministries that are central to the achievement o f ERS objectives are putting in place governance and anticorruption programs. Here are some examples: 0 Health. The health sector faces substantial governance strengtheningchallenges. The management structure is not alignedto the implementationo fthe national healthplan; accountability and transparency are weak; there is poor utilization o f information for monitoring purposes; andtendering has beenplaguedby accusations o f corruption, failure to follow procedures anddelays. Inrecent months, however, there have been some important developments. These include the initiation o f a SWAP approach, with teams appointed to work on key issues, including procurement, financial management, andmonitoring and evaluation. The Ministry o fHealth has developed a riskmanagement approach to internal audit, and initial steps have beentaken to improve procurement procedures, including through support from the MillenniumChallenge Corporation with the redrafting o fprocurement regulations for the Government as a whole (but with the Ministry o fHealth as a lead sector for the reforms). Service delivery will be addressedthrough the adoption of a risk-based management approach to internal audit; monitoring full implementationo fthe recommendations by KACC into the operations o f the Kenya Medical Supplies Agency (KEMSA); and improved 65 management o fthe GFATMProgram. Weaknesses inthe area o f procurement, financial management and governance identified by the World Bank's Detailed ImplementationReview will be addressedas follows: (0 Procurement: finalization o fthe sector specific procurement manuals, independent procurement actions, scaling up the capacity and involvement o fKEMSA inprocurement andpublic notification o f contract awards; (ii) DARE:undertakeacomprehensiveupdateofprogressonactionplan from forensic audit; recruit auditors; and investigate andwhere necessary prosecute those found guilty; and (iii) Financialmanagement:remittanceoffundsdirectlytohealthfacilities usingcommercial banks, institutingeffective internal andexternal audit functions usinga risk-based framework, disclosure o f information on financing and support to community monitoring over expenditure. 0 Education. The Government has developed its policy for strengthened governance and accountability inthe education sector around the following themes: (i) community involvement through decentralized financing andprocurement; (ii) resource allocation; (iii) consultation and social accountability; (iv) teacher management; and (v) public expenditure and management. The plan shows commitments for the hture towards a more transparent and accountable environment inthe education sector, but it also shows importantprogress already made. An independent public expenditure tracking survey has already been completed, and it concludedthat "Overall, the flow o f funds has been efficient, with schools receiving funds allocated ontime. Bottlenecks encountered inthe flow are being addressedby the ministry. At school level, funds receivedhave beencorrectly recordedand used for intendedpurposes. A large majority o fthe schools haveput inplace systems that ensure transparency and value for money. 0 Water. Since mid-2003, the Government through the Ministry o fWater and Irrigation has embarked on far reachingreforms inthe water sector based on the Water Act gazetted inlate 2002. These reforms have involved comprehensive institutional reforms andincreased investments inwater supply and sanitation to remove the bottlenecks to achieving safe and sustainable services. The continuing reforms include: (i) separation o f functions between each aspect o f service delivery -policy making, regulation, and service delivery; (ii) clarifying the role andresponsibilitieso f eachnew institution; and (iii) ensuringthe new institutions are given the mandate and autonomy to perform, but at the same time are made accountable inmeeting their responsibilities. 0Road Sector. Governmentplans to establish three autonomous road authorities to streamline ownership, management, accountability and financing o f all road 66 network activities inthe country. This action will be implemented as soon as Parliament approves the legislative instruments. On-going actions to improve governance inthe roads sub-sector include: (i) re-enforcement o fprocurement regulations - (for example, GOK fundedcontracts are no longer "given out" but advertised; and award o f all contracts i s basedon contractor capability, current workload and past performance to encourage competition andfairness); and (ii) in-depth analysis o f the cost o froadconstruction inKenya and other countries in the region to update market prices andimprove project cost estimation. In addition, at least two actions agreed with government in2004 have already been effected. First, road sub sector staff who previously owned road construction companies removed themselves from such companies and kept their jobs, or left government to manage them. Second, lengthy payment procedures requiring23 approvals and signatures, which ledto delays inpayments and cost inflation, were reduced to 6 approval steps, andthe oversight function was also strengthened. 24. MeasuringProgressin GovernanceandAnti-corruption. The KACC household (2006) survey cited earlier will be done annually. Inaddition, the Government has resolvedto carry out a nation-wide assessmentto measure how corruption and other issues related to public sector performance ingovernance are perceivedbythe public. The assessment will examine public service delivery, functioning o f government staff, financial management andprocurement. The activity i s intendedto support a unified vision and design for a statistical development strategy that will improve policy and decisionmakinginthe area o f governance. Itwill facilitate monitoring the progress made inbroad governance indicators, including targets specified inthe IP-ERSand the Anti-corruption Action Plan. To ensure integrity andbroad participation, the Government intends to establish a Steering Committee comprising o fPermanent Secretaries andrepresentatives o fthe private sector, civil society, media, Parliament and development partners. Inaddition, to ensure independence o fthe diagnostic process from the executive andcredibility o f the process, data collection and analysis will be undertaken by an independentfirm. The time frame for this assessmenti s currently under discussion, but is expected to be carriedout inAugust-September, 2006. The results are to be widely shared, including through workshops at local and national levels. Currently, the Bank andother development partners, through the Statistical Capacity BuildingProject, are supporting the collection and analysis o fjustice andcrime statistics which would measure the impact o fcrime on the public andthe working o fthe criminal and civiljustice systems. InMarch2006, the project provided computers, software and training for the police, prisons, thejudiciary and the probation department to improve the quality and timeliness o f statistics. Government plans to publishthese statistics regularly andto placethem inwebsites from mid-FY2006/07. These steps, andothers, havebeen integrated by Government into the Governance Strategy for Buildinga Prosperous Kenya (GSPK). V. WorldBankInvolvementinthe FightAgainst Corruption 25. The BankGroupis DirectlySupportinga Subset of PriorityActionsin Kenya's GAP. Giventhe prominence o fthe corruption issue inKenya, the Bank's 67 Country Assistance Strategy 2004-2007 (now extended through June 2008) has recently been updated to account for the findings o f the numerous audits and analyses o f governance at the general and the sector level. Insupportingthe GSPK and the GAP, the Bank will focus on transparency initiatives (including transparency inthejudiciary, and capacity buildinginthe prosecutorialandjudicial services); broadening stakeholder involvement, including additional private participation ininfrastructureservices such as the ports; accelerating public financial management reforms; and improving governance inhigh-priority sectors-education, HIVandAIDS, health, androads. Analytic work in such areas as media development, parliamentary andjudicial capacity, and police oversight mechanisms will help lay the foundation for the development and governance agenda beyond this GSPWGAP and for the next CAS. 26. Bank's ComparativeAdvantage. Inidentifying priorities for Banksupport, we take account of the importance (drawing inpart on empirical evidence inthe IGA and the findings o fthe DIR)andpotentialimpact o fthe actions; the Government's leadership and readiness for implementation; the comparative advantage of the Bank Group; andwhat other partners are doing. It should be emphasized that while the GAP i s a short-term strategy, focused on actions inthe year 2007, the challenges o f governance and corruption are large inscale andwill require sustained efforts over an extended period o f time. Our analytic work (including ongoing audits at the level o fprojects and government systems) will focus on longer-term objectives and how policy and investments can reinforce them, while laying the groundwork for future operations. Operations-for example, the Institutional Reform and Capacity Building(IRCB) project, but also sectoral projects-will also continue to focus on the longer term by supporting the Government inbuildingthe capacity o f its systems to control corruption. 27. TransparencyInitiativesare the FirstGovernancePriorityArea for Bank Support. A major pillar o fthe updated GAP is the Government's significant "transparency deficit." A Transparency and Communications Infrastructure project, which i s part o f a regional ICT initiative, will support the implementation o f "e- government," which will both vastly increase public access to Government information and advance the eventual implementation o fpending freedom-of-information legislation. The Bank is also providing additional support for transparency inspecific areas o f potential impact. For example, the Bank has provided technical support for the recently passed Statistics Act (2006) and i s collaborating instrengtheningnational capacity to collect, compile, analyze, andpublishstatistical information. Its assistance inthis area will be channeled through a Statistical Capacity BuildingProject (Statcap), which will also include support for in-depth governance surveys. Another example i s a pilot program to record and disclose court proceedings, incollaboration with the National Council o f Law Reporting (NCLR). The ongoing Financial and Legal Technical Assistance Project i s supporting this pilot and other measures to improve performance along the judicial chain. 28. BroadeningStakeholderInvolvementis the SecondGovernancePriority Area for Bank Support. GivenKenya's history o fpatrimonialpolitics, a central challenge i s to identify and support interventions that can "crowd in" more stakeholders 68 to ensure that public resources are efficiently and effectively usedfor the purposes intended. A greater focus on stakeholder involvement will include the following kinds o f initiatives: 0 Those that involve informed communities and service users inthe delivery and oversight o f service provision at the front line, including oversight o f procurement-for example, parents inschool committees inthe education sector- wide approach (SWAP), or community-driven development inthe Arid Lands Additional Financing project. Those that foster competitive arrangements for service provision-for example, by supportingprivate sector participation inthe provision o fwater, energy, roads (including a toll-road concession for a stretch o f 77km inand around Nairobi), and port services while limitingthe potential risks from contingent liabilities that may arise in such public-private partnerships. Inaddition, IFC has extended a pilot program originally developed inGhana to support private educational institutions inKenya and has invested US$32 million inthe Kenya-Uganda railways. MIGA i s providing support for a 45 MW private geothermal power plant. Those that promote synergies betweengovernance and equity-for example, by improvingpoor people's access to justice, and increasing opportunities for participation incommunity-level development planning, monitoring, and evaluation. 0 Those that hrther develop, deploy, and integrate practicaltools for systematic citizedstakeholder participation and monitoring. Those that create pilots aimed at testingnew participatory approaches for service delivery with built-insocial accountability. 29. SelectedPublicFinancialManagementandLicensingReformsare the Third GovernancePriorityArea for BankSupport. HereBanksupport will focus on (i) procurement reform, including related transparency initiatives; (ii) accelerated implementation o f an integrated financial management andinformation system (IFMIS); (iii) forrisk-basedauditingthroughoutthegovernment; and(iv)licensing support reforms under which about 9 percent o f licenses have been eliminated, and another 50 percent are scheduled for harmonization, simplification, or elimination by December 2007 (including about 23 licenses that the private sector has identified as priorities). The financial management activities will be supported mainly through ongoing programs, principally the IRCB project. They will also involve scaled-up attention to standards in the accounting professionthrough a new partnershipwith the umbrella professional body, the Institute o f Certified Public Accountants o fKenya. Inaddition, the Bank Group will scale up its advisory services on licensing reform. I 69 30. GovernanceReformsinHigh-PrioritySectors-Education, HIV andAIDS, Health,Roads, and the Judiciary-are the fourth area for Banksupport. For education, the governance agenda is being extended to the secondary andpostsecondary levels and to the Teachers Service Commissionunder the Bank-supported education SWAP. Inthe health sector, the Bank i s proceedingon three tracks: (i) through the existing IRCB project, it is providing assistance for the rollout o f IFMIS inthe Ministry; (ii) chairofthedonorsubgrouponhealth,itisheavilyinvolvedwithothersin as developing a SWAP for health for which the centerpiece will be community-based management o f health facilities, with strong fiduciary safeguards, to support piloting this approach);' and (iii)will partnerwith others to scale up successful preventive efforts." it For roads, the key governance actions proposed include establishing three autonomous road authorities to streamlined ownership, management, accountability, and financing o f all road network activities inthe country. These activities (andphysical investments) are beingsupported underthe ongoing NorthernCorridor Transport ImprovementProject (NCTIP), and additional financing would be considered inline with progress inthese reforms. Working with development partners,inGovernance Justice Law, Order and Security (GJL0S")-where the Bank heads the sub-committee on thejudiciary-the Bankwill providesupport for improving the performanceo fKenya's judiciary(including clearing the 1.1million case backlog) through such measures as improved case management, process re-engineering, initiatives such as piloting ajudicial clerkship program for top Kenyanlaw students, and training inAlternative Dispute Resolution methods. It will also support the full automationo f the recordingo f court proceedings, buildingonthe pilot exercise. 31. VigorousEffortswill beRequiredDuringandWell Beyondthe CAS Period. Given the history and scale o f Kenya's governance problems, it will take vigorous actions on abroad front over the mediumterm to achieve sustained gains. The dynamics o fthe election year are also likely to make significant reforms difficult, although not impossible. The Government has enumerated priority actions-fiom a larger work program-that it believes it can achieve inthe short run.Inareas inwhichpreparationfor implementationis already well advanced-for example, procurement and other financial management reforms-such progress is very likelyto occur. We are also working to help consolidate governance improvements inwater and sanitation, which the Bank has been supporting since 2004 through a technical assistanceproject. Other areas that require Parliamentaryapproval, such as the increase inthe numbero fjudges, could be delayed. Meanwhile, analytic work insuch areas as media development andparliamentary capacity, and police oversight mechanisms will helpprepare the governance agenda beyond the timetable set out inthe GAP. 32. SafeguardingBank-fundedOperations. Experience highlightsthe importance of attentionnot only to broad strategic aspirations, but also to practical issues o f A staff-monitoredprogram(without financing) is inplace, with monthlyreportingandverificationof progress. lo One example is theprivatesectorkivil society's GlobalWater Challenge,which involvesmultinationals, internationalNGOs, and UNICEF to deliver cleanwater, sanitation, and hygieneeducationandsupport. GJLOS seeks to improvetransparencyandaccountability,empower the poor, marginalizedandthe vulnerable inter alia by promotingequal access tojustice, andpoliceandpenalreforms. 70 implementation, such as the risk o f corruption duringproject execution, operational staffing andbudgets, and partnerships. 33. AdditionalMeasureswill Address Systemic CorruptionRisksinLending.All Bank-fundedprojects benefit from arange o fmeasures (e.g., results-based auditing) beingrolled out across Government. Inaddition, recently approved operations contain a range o fprovisions that reflect the Bank's selective engagement with ministries, agencies, and institutions that champion good governance, and make clear that funds must be used for their intendedpurpose. For example, the Education Sector Support Program andArid Lands Additional Financing Projects contain enhancedpublic disclosure provisions, mechanisms for community monitoring, and independent complaints mechanisms. We will use similar measures to ensure that both existing and new Bank-supported lending operations address issues o fgovernance. Inaddition, beyondthe regular project supervision that addresses policy andinstitutional issues, each year beginning inFY07the Bank will undertake an integrated andin-depth technical, procurement, and financial management review o fprojects with highfiduciary risk. This review may include samplingcontracts, visually inspecting the actual delivery o fwork, following up on audit findings and recommendations, andreviewing interimfinancial management reviews. The Bank will also agree with the Government on the release o f certaindocuments that will help enhance the transparency and accountability o f Bank- financed projects-for example, aide-mkmoire o f implementation review missions, audit reports andthe Government's formal responses to them, procurement plans and schedules, biddingdocuments and requests for proposals, shortlists o f consultants, and summaries o fbid evaluations that do not reveal confidential commercial information provided bybidders. 34. Work to BuildCountrySystems will Continueto be an IntegralPartof ManagingProjectCorruptionRisks. Withoverall donor support accounting for only about 5 percent o fKenya's development spending, measures aimed at protecting externally fundedprojects (including activities supported by the World Bank Group) are beingcarefully tailored to maximize impact bybenefiting all Government spending. For example, after forensic audits o fBank operations in2005 showed problems relatedto faulty accounting practices, lack o f fraud risk management, weak oversight by senior Government officials, inconsistent application o f the Bank's Procurement Guidelines, and failure to share lessons learned andbestpractices, the Bank initiated a dialogue with the Government over systemic anticomptionmeasures (such as risk-based audit procedures) that the Government has since applied to Bank operations, andmore broadly, to strengthen Kenya's systems. Inthe same spirit ofKenyan system building, side letters are also beingusedinproject agreements with the World Bank to reinforce implementing agency staff compliance with Kenyan anticomption laws such as asset declaration, and to promote other transparency measures such as disclosure o f financial statements and audit reports. 35. BankStaffing, Processes,andInternalOrganizationwill BetterReflect OperationalPriorities. A field-based governance adviser will berecruitedfor the Nairobi office to guide the Bank's work on governance, and recruitment o f additional 71 field-based staffprocurement and financial management specialists is inprocess. A cross-sectoral Operations Risk Mitigation Teamwill be established, to be chaired bythe governance adviser, with a mandate to oversee risk-mitigation actions, advise task teams inthe design andpreparationofprojects, share anddisseminate informationonrisks, advise the country management team on strategy for mitigating governance risks, and interface with INT as necessary. Inaddition, the rolling intensive Country Program Review process will sharpen its focus on corruption issues. 36. DevelopmentPartnershipswill beDeepened. As we intensify the equity and governance agenda inthe Bank assistanceprogram, it will be important to partner meaningfully andtransparently with other stakeholders inthe spirit o fmutual accountability. The Bank's comparative advantage i s ESW, grounded inqualitative and quantitative research and comparative analysis. But even here the Bankwill seek partnerships with other development and research agencies. Duringthe rest o fthe CAS period, we will also mobilize a small team o f external reviewers comprising a representative from each o fthe following: (i) the donor subgroup on harmonization, alignment, and coordination; (ii) the relevant donor sector working group; (iii)the relevantprofessionalassociation; and (iv) the civil society/governance network. This team will review all projects proposed for Bank financing. The Bank has also committed to preparing the next Kenya CAS inthe context o f a Joint Country Assistance Strategy, andto identifying opportunities for greater selectivity anddivision o flabor based on comparative advantage. A particularly important partnership has been that with the IMF: for example, inrecent months there has been close collaboration and information sharing betweenstaff o fthe two organizations on issues o f governance, structural reforms, and the growth outlook.duringthe preparation for and discussions on the secondreview under the IMF'sPRGFarrangement andtheArticle IVconsultation. IMF staff also participated inaBank-ledgovernance missioninJuly2006. This close partnershipis expected to continue. 37. CivilSociety Partnershipswill Receive AdditionalSupport. Within Kenyan society, we propose deepening our partnershipswith the private sector, professional bodies, faith-based organizations, youth groups, foundations, andtrade unions, and our engagement with parliamentarians andnongovernmentalorganizations. For example, through the World Bank's Parliamentary Network, parliamentarians have engaged the Bankon such issues as the need for analytic work on the functioning o fParliament, collaboration inmonitoring and evaluation at the community level, and technical support for key oversight committees. The Institute o f Certified Public Accountants o fKenya has approached the Bank for institutional strengthening support to help ensure the quality o f the professional accountingpractice and adoption o fbestpractice, including enforcing compliance with international standards. The Bank will seek trust-funded resources to finance a multiyear grants program to support such partnerships. 72 \ Annex 2: The HIV and AIDS Epidemicin Kenya KENYA: TotalWar Against HIV andAIDS (TOWA) Project Key Issues of the HIV Epidemicin Kenya 1. Knowledge 0 58 percent o f women and 70 percent o f menreportedknowing that o f HIV risko fHIVinfectioncanbereducedbyusingcondoms andlimiting prevention. the numbero f sexual partners. 2. Age at first 0 Median age at sexual debut rose from 16.7 in 1998 to 17.8 in2003 for sex. women. 3. Knowledge NumberofVCT sites has increased from 650 to 840, and the number o f HIV ofpeople benefiting has also gone dramatically from about 440,000 to status. 760,000 in2006. Upto 15percent ofwomen and 16percent o fmeninthe age group 18-49 have been tested and counseled for HIV,with majority having received their results. 0 Between 400,000 - 500,000 couples inKenya are discordant. 4. Feminization 0 65 percent o fpeople livingwith HIV inKenya are women. o f the 0 Average HIV prevalence inwomen 15-49 years o f age is 8.7 percent, epidemic and compared to 4.6 percent inmeno fthe same age group. vulnerability 0 Infectionrates for women dramatically worsens among young women o f young 15-19 years o f age, with infection rates that are six times higher than women. among young menofthe same age group. 0 Prevalence rates among youngwomen peaks at 25-29 years o f age, while those o fthe malepeak at the 40-44 years age group. 0 Marriedcouples instable relationships have significantly higher HIV prevalence at 8 percent for women and7 percent for men, compared to single women (5.6 percent) andmen(1.6 percent). Widows and divorcedseparatedwomen are particularly at highrisk (3 1.8 percent and 14.6 percent, respectively). 0 Up to 16percent o fwomen surveyed in2003 reported havingbeen sexuallv violated. 5. Condom use. 0 Percentage o f adult Kenyans who reportedmore thanone sexual partner inthe last 12months declined from 4.2 percent amongwomen and 24.1 percent among men in 1998 to 1.8 percent and 11.9 percent respectively, in2003. 0 18 percent o f women and 40 percent o fmenreported engaging in higher-risk sex (i.e. with non-marital, non-cohabitatingpartner) inthe previous 12 months. An increased figure o f24 percent o fthe women and 47 percent o fthe menreported condom use inlast higher-risk sex. 6. Prevention o f 0 About 1.O million pregnant Kenyan women intotal need to be reached annually with routine offer o f HIVtesting and counseling. 73 child 0 Approximately 86,000 needto bereached with prophylaxis to prevent transmission mother-to-child transmission. (PMTCT). 0 In2004,40 percent ofallwomenvisitingthe Ante-natal Clinic (ANC) were reached with PMTCT services. 7. Most-at-risk 6 percent o f women aged 15-49 reported having receivedmoney, groups. favors or gifts inreturnfor sex inthe past 12months; among girls 15- 19 years o f age, the figure rises to 16%. Close to 4 percent of young men aged 15-24 reported having paid for sex inthe past 12months. There are an estimated 80,000 female sex workers inKenya, with infection levels o f up to 80 percent. There are an estimated 600 male sex workers work inNairobi, servicing bothmale and female clients. There are an estimated 20,000 injecting drug users inKenya. More than 50 percent o f injecting drugusers inMombasa andNairobi are estimated to be HIV positive. Studies from the lake communities inWestern Kenya, as well as those carried out along the maintransport routes, indicate highprevalence o f routine riskpractices. 8. Emerging HIVprevalence among circumcisedKenyanmenis 3 percent, issues. compared to 13 percent among non-circumcisedmen. 0 Recently announced results from the Kisumu trial confirmed a 53 percent protective effect o fmale circumcision on HIV infection. 74 Annex 3: Letter of Sector Policy KENYA: TotalWar AgainstHIV andAIDS Project REPUBLIC OF KENYA MINISTRY OF FINANCE CMfkeof the Minister Telegraphic Address: 2292 1 THE TREASURY FINANCE NAlROBl - P.0. Box 3aXl7-00fQO Telephone:252249 NAIRO6.I Whenreplyingplease quote KENYA Ref: EA/FA 62/240/04 /G/(48) 12April 2007 Dt Pawl Walfawltz t & PRSIDENT i -:.. The World Bunk 1818H STREET WASHINGTON DC 20433 USA RE: TOTAL WAR AGAINST HIV AND AIDS (TOWA) PROJECT: LETTER OF SECTOR POUCY 1. I would like to toke this opportunity to confirm $0 the World Bank that the Government of Kenya is fully committed to the principles of transparency and accountability, the enhancement of governance and fighting cotwption in our country. As you are aware, Parliament passed the Public Officer Ethics Act and the Anti-Corruption and Economic CrimesAct, in 2003. 2. The Government has alsa enacted key legislations aimed at Improving governance and service delivery, including the Government Financial Management Act {2OO4]. the Public Audit Office Act (2304). the Privatization Act and the Public Procurement Disposal Act. More recently, the Government -developedaandis Governance Action Pian for the period July 2004 June 2007, committed to its implementation. s 75 3' Below are highlights of the Health sector issues and strategies for intervention that hove been developed os a result of lessons learnt from the Kenya HIV and AID$ Disaster Response Project (KHAOREP):- 0Emergingchallenges awing tu the phase of the HlV and AIDS epidemic in Kenya: 8ChQIlenges pertainingto inst1tutional management; 8The Government's commitment to good governance and dealingwith corruptionissues; and 0The National response to HIV and AIDS to be guided by the Kenya National HIV and AIDS Strategic Plan (KNASPJ,2005- 2010. 4. HIV and AIDS spread rapidly in Kenyo in the 7990s reaching prevalence rates of 2040% in some area$of the country, The result of this was not only an increased burden on the health sector but also major economic and social impact at all levels of the saciety. More important is the ccrnosive effect of WIV and AIDS to poverty reductionefforts by virtue of its impact on economic growthanddevelopment, 5. It is in the realization of the multi-sectoral impact of HIV and AIDS that the Government of Kenya dect'ared HIV and AIDS a national disaster in 1999 and established the NATIONAL AIDS CONTROL COUNCIL (NACC) through a legal notice to co- ordinate a multi-sectorolnafionalresponse. 6. Significant steps have been made in the war against HIV and AIRS as evidenced by the drQp in the national prevalence rute to below 7% increased awarmess, increased condom use, scaled up ART, omong others, The Government greatly appreciates the support from Development Partners and mare specifically the World Bank through the Kenya HlV and AIDS Disaster Response Project {KHADREP) implemented between 2000 and 2005, Other support has also been received fram Global Fund to fight HIV and AIDS, T3 and Malaria a$well as EilateraD Partners such as USAID, DFID, JIGA, SIDA, GTZ among others. 2 76 7, The goals of the KHADREP inclwded expansion of the Government multi-sectotal Interventions to reach the community level, establishment of HIV and AIDS programme institutionul arrangements and enhancing cupucities of all participating agencies os well os delivering funds for prevention, treatment core and support services by private sector and civil society organizations. 8, The NACC through the KHADREP and assistance from other Development Partners has established and built capacity of institutional structures at National, District and constituency levels. Funds for community initiatives are disbursed through Financial Management Agency 1FMA) .in a needs-based manner. Communitybused orgunizations, non-Governmental organizations and faith-based organizations generated proposals that were evaluated and approved by the respective Constituency AIDS Control Committees [CACCs), CACCs also monitored and supervised implementation crf programmes. 9. The strategies of the NACC and Development Partners particularly, under the KHADREP yielded positive results as demonstrated by increasedcommunity participationand civil society demand for funding of proposals and decline in prevalence rates, partially a5 a result of inkreasedawareness and behaviourchange, 10. However, new challenges have emerged during this period, as detarled in the NACC Joint InstitutionalReview (NJIR) report of February 2004. These include the need to improve the effectiveness of the Cowncil, build effective Council and Cabinet Committee relations, create a Council Executive Committee to complement a Non-Executive Council, reforming the NACC Secretariat, public sector mainstreaming and stakeholder coordination, and building of effective Constitwency AIDS Controi Committees with functional oversight Boards at the District Iw%l (District Technical Committees), There were also issues of governance and 3 77 suspected fraud within the operations of KHADREP from EMU and ForensicAudit Reports. 1 1 . New chalienges have aiso emerged in the nature of the epidemic and its impact, This os crutlined in the Kenya National HIV AND AIDS Strategic Plan (KNASP) 2OO5/6-2Oo9/10, including, the unacceptably high rate of new infections, particularly among vulnerable groups, the socio-economic impact of HIV and AIDS including the rising numbers of orphans and other vulnerable children and the need to improve the qualify of life of the people infected and affected by HIV and AIDS. 12. To enhance HIV and AIDS intervention, the Government has declared "TOTAL WAR AGAINST HIV and AIRS" at the Community level and has also established a Cabinet Committee on HIV and AIDS to provide impetus for the national response. The Government is thus, committed to lead a multisectoral national response to HiV and AIDS and has mandated the NACC as the national coordinating authority to provide the required leadership within the principles of "three ones" namely; e One agreed HIV and AIDS action framework that provides for coordinatingthe work of all partners, One Nationui HIV and AIDS coordinating authority with a broad based multisectoralmandateand, e One agreed country level Monitoring und Evaluation (M& E] systeM, 13. The NACC, working closely with Development Partners and other stakeholders has developed the KNASP 2005/2006- 2009/2(210which aims at sustaining the war against HIV and AIDS by addressing the emerging challenges while consolidating !he gainsachieved so far,The KNASP focuses on the key sector issues such as prevention of new infections, irnprcrvernentof the quality of life for the people infectedand affected by fllV and AIDS and mitigation of the socio- economic impacts. 4 78 COVERNANCE AND ANTI-CORRUPTlON STRATEGJES 14. Since the Government developed and has maintained a policyof zero tolerance to conuption, When this Government came to power it realized that the war against corruption could nat be won without effective institutions to develop appropHate policies, conduct investigaticsns, undertake prosecution, determine cases and create awareness against the vice. The Government therefore immediately commenced the process of creating and/or strengthening anti-corruption institutions. It also started developing the enabling poky and legal environment for a sustained war againstcorruption. t 5.The Government passed the Anticorruption and Economic CrimesAct, 2003 (No.3of 20031. The Act allawed setting upof the legal and institutional framework for fighting corruption in the Country. Under this Act we have a new category of offences called corruption and economic crimes such as embezzling public funds and implementation of projects without apprQvf?d plans. The Act also provided for the establishment of the Kenya Anti-Conilption Commission (KACC), which is now fully operational and its functions include the enforcement of the Act, litigation and civil recovery of unexplained assets. To ensure efficient and expeditious determination of corruption cases, special magistrateshavebeenappointedus providedfor inthe Act. 16. The Public Officer Ethics Act, 2003 [No. 4 of 2003) which was operationalized on May 2, 2003, is yet another important piece af legislation in the fight against corruption. Its main purposeis to enhance the Ethicsof public officers by providing for a Code of Conduct and Ethics for public officers and requiring financial wealth declaration from certain pubfic officers, among other purposes, NACC being a stub cowration is bound by this Act and all senior staff of NACC ure therefore required by law to declare their wealth and can be prosecuted where conflict of interest has been demonstrated. The Act also provides for the independent 5 79 verificationof their wealth and the attendant penalties where a crime mayhave beencommitted. 17. The Government also pubfishedthe Witness Prufection Act 2006.This Act seeks to protect witnesses and "Whistle Blowers" in cases of corruption and economic crimes and thus, encourage increased public participation. Inline M h this, the Audit Committee of the Council has recommended the institutionalization of Whistle Blowen into the policy that has beendeveloped, Hutlinesfor reportingall urgent cases mainly fraud have been put inplace. ISSUES ARISING FROMTHE VARJOUS REPORTS AND NACC PiolDCY ON GOVERNANCEAND ACCOUNTABILltY 18. Arising from the reports of the Cclntrofler and Auditor General in 2003, the EfficiencyMonitoring Unit of 2003, the NJIR of 2004 and the recent Forensic Audit, there have been issues concerning NACC governance and accountability. The key issuesidentifiedinthe reportsinclude the need to: Strengthen the overall governance environment for HIV and AIDS activitr'es, Increase managerial accountability and effectiveness of the NACC secrelariat, e Reduce the risk of fraud, * Improvethe functioning of CACGs, Accelerafe mainstreaming and make mare effective the HIV AND AIDS activities in the pwblic sector; and e Enhance stakeholder co-QrdinatiQnand support. Strengthenthe overall governanceenvironment for HIV and AIDS activities 19. The Government is cammittad t-o providing u conducive political and legal environment for the NACC, development partners and all stakeholders to redize their goals and enacted the HW and AIDSPreventionand Control Act 2006. 20. The process to address the above issues is ongoing, To strengthen the management of HIV and AIDS activities, the 6 80 Government has completed restructuring the council. A numberof Committees have beenestablished to improve the efficiency of the council, all these committeesmeet quarterly, The ExecwfiveCommittee 0 The ProgrammesCommittee .I The Financeand Administration Committee e The Audit Committee * The Tender Committee 21. The Council has olsu developed several policies to enhance the management of HIV and AIDS activities inthe ccrwntry,This has been done in conswlfation with Stakeholders and with technical assistance from development partners. The policy docwments so Far developedinclude: The Kenya National H1V and AlDS Strategic Plan(KNASPJ2005- 2010, to guide the nationalresponse against HIV and AIDS for the next five years. Itidentifies the priorityareas for intervention by the stakeholders including the Government, the civil society, the private sector and Donors. e It is expected that the KNASP xlo5-2c)10 will be signed by His Excellency the President and be ready for the launch by the Minister in-charge of Special Programmes as soon us it is signed. a The staff harmonizationp~licyand terms of service have also beendeveloped. This is to ensure competitive andtransparent hiringof skilledstaff and retainingthem within NACC. e The M & E framework has beendeveloped and was launched in August, 2005. This will strengthen the monitoring and evaluation of HlV and ADS activities in the country tu ensure lessons learned inform policy and influence best proctices in our programmes. 22. In line with the Government policy on Results Based Management [RBM) approach, NACC has developed a performance management system, which was signed 7 81 between the Government and the NACC Council on July 8, 2006 fur the year 2006/2007. The Gouncii and the Director sigwd the performancecontract on November 17,2006 and the Director and the Deputy Directorssignedon November 29, 2oQ6. All senior staff of NACC will adhere to a strict Code of Conduct which requires managerial accountability, declaration of assets and avoid conflict of interest. The Council and the Government will closely monitor the implementationof these contracts. 23. The Councif is increasingly playing the mle of technical advisor tu the Cabinet Committee on poky development, strategic planning, resource mobilization, national response research, monitoring and evaluation of resource utilization. We expect the legal notice establishing NACC to be changed allowing appointment of mare professional Council members, This will enable the Council performits functions more effectively. HIV and AIDS programme activities under NACC cooordinationwill be supervised by the Oversight Board, whose membership include the Permanent Secretary, Secretary $0 the Cabinet and Head of Public Service and Secretary to the Cabinet as Chairman. Permanent Secretary in the Office of the President in charge of Special Programmes and the Chairman of the NACC Council. Although the oversight Board h a not met regularly,it is scheduledto meet twice a year. lncreusemanagerialaccountublftfy and effecdveness of the NACC secretadat 24. The Governmentis implementingfherecommendations of the NJIR report and the process of restructuring NACC to make it more effective and focused is almost complete. The NACC has devekoped a staffing structure with assistance from the Department of international Development (DFID)under which Q team of professionals have been hired including Deputy Directorsand Heads of Divisions,in the three departments with International Technical Assistance, R e departmentsare; the - Department of Finance and Administration, the Department of Ceordination and Swpport and the Department of Policy, Strategy and Communication. The positions have been filled 8 82 except the one for the Deputy Director (Finance and AdministruJion),which is currently occupied by a competent officer seconded by the Government on an acting capacity. It will was substantivelyfilled on a competitiveand transparent basis in November, 2006. NACC has completed recruiting middle cadre staff competitively,transparently and eqwitably in line with insk'tutional needs and agreed positions. This exerciseis expected to becompletedby June, 2007. Reducethe rhkof fraud 25. We recognize that the Council is responsible for managing instltutional risks. In this regard, the NACC Council with international technical assistance has developed o comprehensive Risk Management Policy to effectively manage fraud and corruption risks. The risk management policy has been discussed by all the Stokehdders and was adapted by Council inAugust 2006. eThis policystipulatesamong others: eThe strengthening of the Internal Audit Unit with the hiring of staff, mthe establishmentof the Anti-cormptbn hotlinesand e Institutionalizationof whistle blowers for suspected corruption cuses. 26. Italso emphasizes increasedtransparency of the procuremant system andimptm%?dsocialaccountability. 27ITo reduce the risk of fraud at NACC and amongst Stakeholders, specific measures have been put in place. These include training of all new senior staff in financial management and fraud detection, strengthening of She internalaudit unit and provision for technical audits as well as spotchecks, 9 83 28. NACC with assistance from the Government has also strengthened procurement processes and in this regard, information about all procurements has been posted on the NACC website and Notice Boards at the Regional at the Regional,Districtand Constituencylevels. 29, NACC has also taken actian against past cases of swspected corruptionlfraud arising from EMU recommendations. As Q result the Ccruncil investigated th0 former Director leading to her prosecution, imprisonment and the proposed recovery of Kshs, 27 million from her is in Court. NACC has also recovered allowancesirregularly paidto other staff, , 30. NACC has investigated mare than 131 organizations, It is currently pursuing 44 CBOs, 11 of which have been handed over to KACC and33 Criminal Investigations Department [ClO) and 5 cases are already in court while 22 others are still under investigation. The Government has instructed KACC to investigate all the suspected cases of financial mismanagement involving the NACC staff, the FMA staff as well as NGO, CBOs and FBOs. Meanwhile NACC has blacklisted 9 advenedy mentionedorganizations and withheld funding to them. The Government is committed to taking timely and appropriate action within the country's legal framework. 31. Specific measures aimed at munaging risks inherent in KHADREP have been put in place, These include strict adhererice by NACC of the accounting practices acceptable to the Government of Kenya and where necessary, specific accounting policies and reporting requirements set out in grants agreements with the development partners. ORthe positive nate NAGC has been submitting quartefly Project Management Report (PMR) to the World Bank and will continue submitting quarterly Financial Management Reports (FMRs) to the Bank. NACC has strengthenedthe InternalAudit Divisionos part of its mitigation measures towards n'sk. Personnel have been recruited and have reportedon duty. 84 32. An independent auditor who will be appointed by NACC, in liaisonwith the Controller and Auditor Generalwill carry out an audit of the CBOs/NGOs/privote sector organizations receiving funds from NACC, Reports from these audits will be submitted to the Bank within six (61 months of the end of the financial year. If is also a requirement that NACC accesses financial management records of beneficiaries for periodic reviews,inspectionsand audits. 33I While appreciating the importance of annual financial reviews, we realize that these ate insufficient in determining value for money and therefore provide for regular technical audits. It is envisaged that a consultant, competitively owtsclurced will undertake a quarterly technical audit to ensure that the funds released to NGOs/CROs are indeed usedforthe intendedpurpose. This willServeto reducetherisk the NACC may be exposed to in terms of ensuring that the funds under TOWA are utilized for the purposes for which it is intended and os per the work plan. In addition, spot checks will be made regularly to strengthen the audit system. The technical monitoring will be closely linked to the financial audit so as to realize the impact of the project. 34. The NACC has also strengthened its capacity and that of other Stakeholders in financial management. To this end, improved terms of reference fur Q better Financial Management Agency (FMA) has been developed. The FMA for the TOWA project will be recruited before disbursement of funds to the Communities is commenced. The terms of reference of the FMA will cover FMA invotvement in disbursement of funds to ACUs, as well as NGOs and Private Sector. NACC has also strengthened its lnternai Audit Divbion and Stokehokh procurement procedures. NACC with international technical assistance has also developed a financial management syskrn in consuitation with fhe stakeh01 ders throvgh the Inter-Agency Coordinuting Committee. In addition to this policy, NACG has also put in place a transparent procurementsystemwhere allinformation will be available on NACC Wsbsite and shared through 85 internet os well as community communicationchannels at the DTC andCACC levels. 35. The Kenya National Audit Office (KNAO) conducts annual audits. Previously,NACC used to submit annual audit reports late; howeverthis changed from 2004. The audit report for the financial year ended June, 2004 was submitted on time. Fur the financial year ended June, 2006, NACC audited reports were ready by December 31, 2006 as per statutory requirement, Improvethe functioning of CACCs 36. The functioning of CACCs has been strengthened to cope with their role of eo-coordinating WIV and AIDS activities at the Community level. The capacity of CACCs has been built through training, The Government has provided offices and secretun'al staff. The NACC has also increased operational allocation to improve their efficiency in monitoring and coordination of the project activities. The CACCs have been trained an M 2% E and continuous training will be provided as the programmeis rotledout. 37. The District Technical Committees (DTCs) have been formed to pruvide technical support to CACCs and act as an Oversight Boards.The OKs have been trained on M & E and funded to carry out their mandate and functions including supervision of CACCs, The training will be expanded to include fraud risk management. With effective and efficient DTCs in place a decentralized management of the programmewill greatly improve. 38. To ensure increased social accountability, hence create confidence in the NACC, an open daor PQkY has been adopted. This is aimed at improving communication with Stakeholdersat all levels, To bufferthe NACC from perceived political interference and accusations of bias, specific measuresmeantto ensure irnpartiallty have been put inplace and are addressed in the Operations Monuol. The call for proposals will be communicated through the media, A 12 86 communication strategy that will ensure ffow of informationto all Stakeholders at all levers has been developed. A similar communication strategy devebped for use in the education sector with support from W d d Bank has proven successful and we intend to borrow from it to improve on the TOWA project, 3P. Information about received proposals, approved projects as well as those rejected and reasons for their rejeckm will be postedat She CACCs, DTCs, and ProvincialAdministration and at the Co-ordination desk at NACC headquarters. Some CACGs in Nairobi and Rift Valley Provinces already have notice boardswhere information on the process of funding of HIV AND AlDS activities is displayed. The amownts of grants and status of implementation of this project will also be communicated in a similar channel. Review of proposalswill be done by the CACCs, DTCs and the relevant Technical Committees while the NACC secretadd will impartially play a coordination and support role. Membership of the Technical Committees will be based on professional competence and will be subjectto approvalby the ICC. Accelerate mainsfreaming and make mere effective the HIV and AIDS actlvftlos In the! public sector 40. The Government is committed to ensuring that public sector response to HIV and AIDS activities is both effective and efficient. In this regard, overalt resource allocation and utilization for HlV and AIDS has been reviewed through the Natlonal Resource Envelope (NRE)and the Public Expenditure Review processes and all Ministerial Permanent Secretarks have made commitment to take personal responsibilities far integrating HIV and AIDS activities into their core policies and operations. The Government has put in place specific measures to ensure public sector mainstreaming and enhanced stakeholder coordination, This includes the fact that NACC will have held meetings with all Permanent Secretarks by the end of June 2037 based on a recent sitvation analysis in the Ministries aimed at improving the performanceof the AIDS Control Units, All ministries now have 13 87 Budget Lines and effort is still being made to raise more resources for the public sector. Resource allocation to the line ministriesincludedin the projectwill be performance based. Enhonee Stakeholder co-ordinutjonand suppcrrt 41. While admitting that the Government will play a lead role in the fEght against HIV and AIDS thrclugh the NACC, the contribution of the privatesector partnerships and civil society cannot be over emphasized. The Government will therefore strive to promote and support public-private sector partnerships. In this regard, the NACC has created a public- private secfor coordinationdesk which has so far estaldished several ndworks inclwding the Network fur people living with HIV and AIDS in Kenya (NEPHAK), the Kenya Inter Religious Consortium on HIV and AOS {KIRAC) and the Private Sector Advisory Network. This will ensure that PrFvate Sector, civil society and faith-based organizations including the hard to reochgroups play a more central rule in the nationalHlV AND AIDS responseat all levels, 42. The NACC is working closely with Development Purtners ta strengthen donor harmonization. The council has approved and implemented the creation of a donor coordination desk at the NACC secretariat to enhance coordination of donor activities, The Government has also started bi-monthly donor coordinating meetings. A resource mapping datobase has beendesigned inconsultationwith devebpment partners and all stakeholders. 43. The purposeof this database is to;- * Map resource allocations for various activities and funding sources * Identify gaps inresource allocationand, Avoid duplicatefunding ta irnplementers 44. It is designed to capture implementers' details in addition to geographic areas of intervention, descriptions of intervention, priorityprogrammeareas and Fundingdetails. 14 88 45. Immediately after the pilot was designed, NACC and Development Partners including Global Fund, PEPFAR and DFlD provided information to register the various NGOs, CBOs, IiB'Os,Private and Public Sector h-tplernenters.Currently 7,000 implernenters are registered. NACC will continue to provide this informationduringthe TOWA project. 46. The NACCis also ensuringincreasedstakeholder participation. mainly through the monthly Inter Agency Committee [Ice) In this regard, stakeholder coordination has been improved meetings and the revitalization of the Monitoring and Coordinating Groups [MCGs) leading to the JAPR, NACC is proud to have pioneered the Joint HIV and ADS Programme Review {JAPR} process andwe hold them regularly. Five JAPRs have been held and one is scheduled far the end of August 2007. 47.lhe JAPR process is envisaged to play a significant role in the implementation of the KNASP 2005-2010 including the TOWA project. The regular ICC rnsefings ure meant to ensure that existing coordination structures are regularfy and effectively used, thus tinking the JAPR process to allocation of resources and issuingCalls for Proposalson priority areas. In additionthe information available in the resourcemappingdatabase will be shared at the JAPR, for efficient resource utiljzation by identifying the gaps and avoiding duplicate funding among other checks, 48.Lessonslearnedfromthe KHAOREPincludedthe existence of a weak link betweenM & E and the programmes. The role of a strong M & E framework in ensuring efficient utilization of resources is therefore of utmost importance. In this regard NACC has developed and launched a strong N & E framework which was launched in August 2005 and the drafting of its implementation plan is complete. Capacity building for ali stakeholders to ensure effective implementcrbn Of the system at all levels including CACCs, civil society and privatesector is on going has been rolled out in al the 210 Constituencies, 15 89 49. The Country has a communication strategy developed to guide HIV and AIDS intervention activities. The national strategy will regularly be reviewed tcr address emerging changes in the intervention programmes, A comrnunicatjcrn strategy that is specific to TOWA project has been developed and incorporated in the Operations Manual QS mentioned eartier. 50 A new Management Information Systems [MiS) Division has also been created within NACC aimed at cuptwnng and managingthe informationcollsctsd through CACCs.The new functions will integrate with stakeholders for information agQregation through development of tools such os Inlranet/Extranet, decision support and intelligence to avail information throughout NACC and its stakgholders for prompt d8cision-makin9 I Concluslan 51. HIV AND AIDS is the single most important threat to Kenya's Economic Recovery Strategy {ERS], Vision 2030, Poverty Reduction Strategic Pian (PRSP) and her efforts to attain the Millennium Development Goats [MDGs]. In developing the KNASP 2005 -2010the rnoltisectora! Impact of HEV and AIDS particularly its impact on the education, agricultorat, industrial and health secton have been taken info account. Efforts to mainstream gender in the Economic Recovery Strategy must mcugnize the gender disparity inherent in the HIV and AIDS economic impact and the two programmes must be in tandem for any gains to be remlhed, To attain the MDGs the gains made against HIV ond AIDS must be sustained to avoid the real risk of all progress made su far being eroded by the scourge. 52. Mr. President. in cr;rnclwsion. let me reiterate the Kenya Government's appreciation of the financial as$istance the Bank has continued to provide towards our development programmes, Allow me t~ single out the KHADREP for the positive impact it has made on the lives crf the Kenyan people 16 90 and the compelling need to build on it by availing further assistance through the proposed TOWA project. Kenya remains committed to a close working relationship with the Bank and other partners. 53. We assure you bat the assistance we are seeking to support the TOWA project wlil be used prudently to scale up the intended HIV and AIDS activitiesinKenya. We are certain thot the enabling environment the Government continues to provide for all strategic development programmes will successfully support the implementation of TOWA and contribute significantly to the realization of our vision as Q people. Warm Regards rj'on. Amos Kimunyu, EGH, MP MIN1STER FOR FINANCE CC: Mr.Colin Bruce Country Director Comoros, Eritrea,Kenya,Seychelles and Somalia World Bank Offices Nairobi 17 91 4E u Yz.. w % Y -8 8 v, m 0 0 0 0 m r; 0 0 N . . . . . . e .A .3 s .3 9 a, 29 .3 c, d 8 ee, c0 & c.' cd m rcc 0 `2 2 E -3 0 0 0 0 9Q) a"=h 4 2 s d a rz: 0 0 N e e e e v1 2 ea, 0 Y 8 3 8 e, PRICEWATERHOUSE COOPERS (PWC)RISKMANAGEMENT REPORT The Table below summarizes the significant control gaps identified and recommended actions: ControlGap ActionRecommended Action Taken NACC Council The Council should encourage A number o fcommittees have effective participation by the been established to improve the N o n attendance o f meetings by Council Members. There should efficiency o fthe Council; all members, who prefer to delegate be clarity o f agenda and follow up these committees meet quarterly to junior staff that cannot drive mechanisms for the Council and have clear terms o f major policies. meetings. Key areas o fpolicy, references, namely: budgets and management reports The Executive Committee. Inactive committees and diverse should be adequately addressed. 0 The Programs Committee. agendas o f members threatening 0 The Finance and the Council's ability to deliver. Administration Committee. 0 The Audit Committee. The Tender Committee. Inadequate financial Define accounting and reporting An Audit Committee Charter was managementcapacity. requirements, design an developed and adopted by the accounting structure and establish Council on August 2,2006. Inappropriate accounting systems. structure and failure to migrate to Strengthened InternalAudit appropriate accounting software Provide training to staff and Division to mitigate towards risk. have created higherror risk and monitor systems to ensure The Head o f InternalAudit and inefficiencies inpreparation o f efficient generationo f reports. an InternalAuditor were recruited financial reports. This risk has inFebruary, 2006. AnInternal been increased by inadequate Audit Charter to guide the skills among the finance staff to internal audit work was operate computerized systems. developed and approved by the Council on August 2,2006. All senior financial management positions permanently filled. A new financial management system i s under procurement. Grants management. NACC should contract out grants The terms o freference for the management and: FMA are revised. The tender A number o f control gaps have Establish an effective process is ongoing. been identified with respect to the community support A Grants Management Unit grants management function. monitoring and evaluation established and will function as a These include: system to minimize the counterpart to the FMA. 0 CBOs/NGOs failure to identifiedrisks and enhance adhere to funding accountability. agreements. Strengthen the capacity o f 0 Inadequate accounting CACCs and DTCs to capacities o f CBOs/NGOs. coordinate and monitor 0 Untimely accounting for CBOs/NGOs. funds disbursedto D Anupdateddatabase o f CBOs/NGOs. CBOs/NGOs should be 106 ControlGap Action Recommended ActionTaken Lack o f mechanismto ensure maintained andpersons CBOs canbe traced for responsible for approval o f audits and monitoring. proposals, monitoring and Monitoring, evaluationand evaluation, and audits audits that do not cover all allowed access to the the FMAswork. database. Audit Terms o fReference should be widened to include assessment o f value for money with respect to CBOs expenditure. Monitoring, evaluation and audits should include the reviews by the FMAs to ensure they are effectively conducted. Inadequatehumanresources NACC to develop internal human Humanresourcespolicies and managementpoliciesand resourcespolicies andprocedures procedures are developed and procedures. covering all aspectso f documented in(among other recruitment, performance places) the TOWA Operations NACC observes GOK human management, staff development, Manual. resources management promotions and code o f conduct. regulations but has not These should be inline with GOK customized them into specific regulations but tailored to address policies andprocedures. An specific NACC requirements. internal recruitment and development policy that would cushion it against external pressures to deviate from merit- based approachesinrecruitment, development andpromotions i s required. Ineffectivemanualoffice MISstaffto enhancethe internal A comprehensive management systems. office system to facilitate control information systemunder o f operating costs and enhance development, which will be NACC i s operating a manual administrative efficiency. strengthened with financing under office system, making it TOWA support extremely difficult to ensure compliance with operating cost control measures. Absence ofM I S strategyand NACC to develop MIS strategy See above. sub-optimalcomputerization. andpolicies, anddetermine :omputerization requirements in NACC does not have an MIS theNACC operations. Ensure strategy andpolicy leading to less :stablishment o fproperly than optimal computerization. integrated systems and skills Most processes at NACC training to staff to enhance including human resources, fixed itilizationo f MIS. assets, vehicle management and other operating costs management are running on manual systems. 107 ControlGaD Action Recommended Action Taken Stakeholdercoordination. Ensurecommitment of Fora for all kinds o f stakeholders stakeholders to the three ones established. The annual Joint Dueto the large number of identifiedinthe Strategic Plan HIV andAIDS ProgramReview stakeholders and diversityo f (2005/2010) for the national expanded to cover all levels from interests, NACC faces the risk o f response to HIV andAIDS. Hold constituency to national level, stakeholders championing their necessary forums to advocate for thus ensuring opportunities for own interest at the expense o fthe transparency andbalanced stakeholders at all levels to greater HIV andAIDS agenda. implementation o f activities. contribute to the review process. There are instanceswhere the players have not beentransparent with respect to the activities they undertake, sending inconsistent messages and making coordhation difficult. Information on the pandemic. Obtain commitment from The community basedreporting subsystem to ensure correct and system (COPBAR) rolledout Informationfrom subsystem is timely submission o f information with 205 out of 210 CACCs submitted inanuntimely manner, requiredfor monitoring and reporting their activities to the making it unrepresentative o f the policy decisions. NACC. Facility based reporting; true situation. however, still remains a problem and solutions are sought to remedythe situation. 108 Annex 5: Major RelatedProjectsFinancedby the Bankandother Agencies KENYA: TotalWar Against HIV andAIDS Project LatestSupervision(PSR) Ratings(Bank-financed Sector Issue Project projectsonly) 1. Bank-financed Implementation Development Progress (IP) Ongoing Health and HIV Objective (DO) Project. Improving HIV andAIDS Decentralized HIV and services. AIDS andReproductive HealthProject (2001) US$50 million. Completed Projects. Intensifyingthe multi- Kenya Disaster Response sectoral response to HIV Project (2001) US$50 andAIDS and accelerating million. the process o f achieving the targets elaborated inthe national Strategic Planwith broadparticipation. Promoting preventive Sexually Transmitted [DO) S (IP)MS measures to reduce the risks hfectionProject o f STItransmission. [1995) US$50 million 2. Other Reduce the spread PEPFAR o fHIV; improve the '2005-2006) quality o fthose k ~ 7 5 . million. 4 infected including provision o f ARVs. Support to the IFID(HAPAC) national program in :2005 to 2007) addressing HIV and JS$20 million AIDS program. 109 Support the national GFATM program in (2005 to 2007) addressingHIV and USs38.9million AIDS program includingprovision o fARV. Capacity buildingof The Maanisha Project CSOs and financing implementedbyAMREF CSOs inWestern under SIDA funding Province. (2006-2008) US$6 million Support the national ClintonFoundation HIVprogram (2005-2007) includingprovision US$18 million. ofhumanresources andprovision of ARVs to children. 110 Annex 6: Results Framework and Monitoring KENYA: TotalWar Against HIV and AIDS Project The following table focuses on indicators monitoring the support being provided through the TOWA to the NACC for the implementation ofthe KNASP. II Projeet Development ProjeetOutcomeIndicators Use of ProjectOutcome Objectives Information The Project development NACC composite score on the annual Assess overall NACC performance objective is to assist independent performance evaluation(see OM and needs for further institutional Kenyato expand the for definitions). strengthening and technical coverage o f targeted HIV assistance. andAIDS prevention and Proportion o f overall targets met for NACC- Assess the effectiveness o f the NACC mitigationinterventions fundedprograms in: indirectlyfunding andimplementing through: (i) sustaining the civil society/private sector programs and identifyareas for improved institutional (beneficiaries); and further strengthening andtechnical performance o fthe assistance. NACC; and (ii) supporting public sector (beneficiaries the implementation o f the Key outcome indicators for prevention and Assess impact o fNACC's KNASP. mitigation: performance inimplementation o f the Proportiono f youth aged 15-24 reporting KNASP inthe areas o fprevention anc condomuse inthe last sexual encounter mitigation. Most o fthe ACTAfrica with a non-regular partner (of those Scorecard indicators are included in reporting sexual intercourse with a non- the TOWA Project Results regular partner inthe last 12 months) Framework. Those Scorecard [M&E 6, SC 51. indicators that are not in the Results 0 Proportiono f sexually active youth 15- Framework were omitted because the 24 who report having had sex with a Project will not directly support non-spousal, non-regular partner inthe activities that depend on those past 12 months [M&E 5, SC 4a.l. indicators. Number ofpersons who undergo testing and counseling inthe last 12 months [M&E 31, SC 91. OVC receiving careisupport inthe past 12months [M&E 93, SC 81. Number o f male and female condoms distributedinthe last 12months (SC 10). 111 I Governance and CoordinationCapacity IntermediateOutcome and Output Use of Intermediate Outcome indicators Monitoring NACC effectively Outcome: Assess the NACC's ability to mobilize coordinating program Stakeholder satisfaction with NACC as the participationo fpartners ina implementation. shown inthe bi-annual Stakeholder coordinated response to the epidemic. Satisfaction Survey conducted [KNASP 4.4.41 Assess needs for supervision and The proportion o f CACCs and DTCs training o f the NACC's decentralized which function according to performance structures with regard to each o f their indicators (see OM for definition) [similar primary responsibilities: coordination, to KNASP 4.4.31 [See OM for definitions]. reporting and grant-approval. Outputs: Coordination meetings held with participation from key stakeholders (ICC meetings and MCGmeetings) [similar to KNASP 4.5.51. JAPRwithparticipation fromprincipal development partners, implementing partners from civil society, private sector andpublic sector K N A S P 4.5.71. Strengthened NACC Outcomes: Identify areas for strengthening in accountability and Annual Audit Report for NACC NACC's performance and need for financial management. demonstrating transparent and accountable support and technical assistance. financial management [KNASP 4.3.51. Proportiono f funds available to the Absorptive capacity o f the NACC to NACC that are expendedeach year [KNASP operationalize its programs. Identify 4.3.61. bottlenecks to effective program implementation. Ournuts: Annual ExternalAudit Report W A S P Identify the specific departments and 4.3.51. divisions requiring training and TA in Number o f costed annual workplans planning and costing activities. developed (by division). Operational M&Esystem Outcomes: Assess the completeness and inusefor planning,project The proportion o f W A S P M&E timeliness o f the national M&E design and indicators included in the annual M&E system (including those areas outside implementation. report, disseminatedand available on time the direct control o f the NACC), and for the JAPR [ W A S P 4.1.7 and 4.5.7, SC identify areas requiring further sumort and coordination12. Capacity o f implementing Outcomes: Assess the adequacy o f the C P partners to respond Number and proportion o f proposals process, training needs for CACCs, effectively to identified receivedby the CACCs, DTCs and the DTCs and implementers and the needs. N A C C that are rated as meeting C P criteria ability o f all to respond effectively to for approval each year. [Not inKNASP--- identifiedneeds. TOWA-specific]. 12This indicator is linked with the ability to monitor indicators for the Afkica RegionHIV and AIDS Scorecard. 112 dementation Use of IutermedinteOutcome Monitoring 1Strategic and targeted Outcome: programs implemented Proportionof overall targets met for Assess adequate implementation o f effectively through civil NACC-funded programs incivil society and civil society andprivate sector society and the private private sector. [not inKNASP-TOWA programs sector. specific] Proportionof registeredCBOs reporting through COBPAR at the time o f the JAPR. [TOWA specific-similar to KNASP 4.1.41 output: Identify implementers, CACCs and 0 Number of civil society and private sector DTCs requiring further training and organizations supported [SC 111. support. Assess completeness o f dat Number o f grant proposals received per for assessing degree o f achievement year. o f national targets. Identify CACCs requiring further support and supervision. Programs inkey sectoral Outcome: ministries expanded and Number o fpriority sector entities Assess needs for strengthening pub1 mainstreamed. (ministries, divisions, etc.) that have sector mainstreaming support. identifiedtheir needs inHIV andAIDS programs, have costed them, have engaged the MTEFprocess to fundthem and are able to monitor and report on expenditures [similar to KNASP 4.5.81. Identify entities that require further Outputs: support from the NACC. 0 Number o fpublic sector organizations supportedinmainstreaming. Outcomes: essential commodities. Proportiono f youth aged 15-24 reporting As above. condomuse inthe last sexual encounter with a non-regular partner (of those reporting sexual intercourse with a non- regular partner inthe last 12 months) [M&E6, SC 51. Ournuts: Number o f male and female condoms distributed. 0 Number o fbed nets distributed. Number o fTB drugs distributed. 1. Whereas it has beennoted that M&Ewas weak under the KHADREP, the NACC has made significant progress instrengthening M&E systems inthe interimbetween the end o f KHADREP and TOWA. The NACC has demonstrated its strong commitment to improving 113 M&Eby implementing almost all o fthe activities outlined inthe TOWA first-year M&Ework- plan,usingalternative fundingsources inspite ofthe delay inTOWA effectiveness. 2. The rationale for not having indicators towards specific target groups i s that the priority areas (andthus the groups) to be targetedinthe country will depend on the prioritization process developed from the JAPR up to and including the Calls for Proposals. The concept pursued i s to have an evidence based targeting o f interventionstowards the defined results inthe results framework that are considered most urgent to address. As priorities will dependon what one will determine to be the most important areas o f interventions, on an annual*basis,the groups and results to be targeted will vary over time. The indicator that can measure success over time i s therefore not specific to the different groups, but has to be more general. The progress interms o ftarget groups will, however, be defined inthe calls for proposals process andperformance will be monitoredbythe performance audit and incorporated inthe National results framework. 3. The KNASP M&EFrameworkwas officially launched. The N A C C elaborated the KNASP M&EImplementationManual, which is quite comprehensive, andhas recently been complemented by the TOWA M&E Implementation Manual. KNASP was formally launched in 2006. Together, these documents detail procedures for the new community-based monitoring system, procedures for reporting by ACUs, and key sectoral public sector entities, and interagency coordinating arrangements for nationalreporting. The M&EDivisionhas produced a much-utilized "Data Booklet" summarizing the principal up-to-date information about the epidemic, and has produced its first M&E Report outlining progress toward strengthening the M&E system. The NACC M&EDivisionhas also coordinated the elaborationo fan HIV and ADS strategy for coordination andresource mobilization for HIVandAIDS research. 4. The NACC has proceeded with the enlargement o f the M&E Divisionbyrecruiting and training an M&E Coordination Specialist. The MIS unit has added a Database Specialist and programmers as well. This unithas successfully designed the community-based activity reporting system database, which i s now accessible over the NACC's new LAN. The M&E Technical Working Group has beenrevivedandi s active incoordinating M&Eactivities, standards, and essential funding for M&E. The NACC throughthe M&EDivisionandM&E Technical Working Group have carried forward the design and rollout o f the comprehensive CBO database and COBPAR System even inthe absence o f TOWA support. Inaddition, formal linkages have beenestablished with entities responsible for other sources o f data. 5. The stage is now set for the NACC to fully coordinate the national response to the epidemic usingconcrete M&E data for analysis, the JAPR process for coordination determinationofpriorities, andimplementation through a CfP process that i s results-based. 6. Furtherprogress to continueimplementationo fthe M&Eworkplan will require the significant ongoing support to beprovided by the TOWA Project. The TOWA Project will place a strong emphasis on program improvement andlearning by doing, andresults-based management, which requires an effective M&E system. The following activities will, therefore, beundertakenor continuedto strengthenthe M&Esystem further: (i) training and ongoing supervision o fnational andregional M&E personnel; (ii) follow-up training andsupervision for 114 the program activity monitoring systems for community-based activities at the NACC, including training for data use; (iii) supporting the NACC M&E Coordination Specialist instrengthening the newly established interagency coordinating mechanisms; (iv) strengthening M&E dissemination and data use mechanisms at boththe central and local levels; (v) the coordination andintegrationo finformation from the new Ministry o fHealthmonitoring andreporting system at the NACC level, as well as some limited stafftraining (to be carried out together with other partners); (vi) the national implementation o f the LQASoutcome measurement survey andits integration into regular M&E system; and (vii) the development and implementation o f mechanisms both centrally and locally to link data with program management. 115 4 3z+ % za x + Y s?- n 6ti * 6ti - % $ $ 2 , b E *c-4 3X .E ** 0 0 9 - b E X 9-8 .E ** 8U %E u 6 1 1 I &u m i z .-C E i Z ?L 4 3 d g g b m 4Z 4Z 8 .C 39 m d -3 0 .3 2 2 m m ?L t c 8 t E aJ L n 2 n n 2 P 4 P 4 L t; PaJ z E 3 zS 2 I vi - n 3 U U - 4P I h 8 E 8E ; n VI rl 3 3 I L ,t f Y t U a -m3 .-c0 E 8 8 E e Y v L d - z! gEdz! -V s L U C a aJ S E a E - z=I Y Y Y Y C Y a aIo z Y C C Io C C C a Io aIo - U z 0 I! 0 0 0 s s s s g s L L L L L n v, 3 vi si a U C Io 2 I PL m U S .-U E E E -Io 8 ?U rl vi rl rl TOWA ResultsFrameworkandthe ACT Africa RegionalScorecard Most o f the ACTAfrica Scorecard indicators are included inthe TOWA Results Framework. Those Scorecard indicators that are not inthe Results were omittedbecause the project will not directly support activities that depend on those indicators. Those indicators that are not included are the following: 4b. Condomuse: Sex workerswho reportusinga condomwith their most recentclient (of those surveyedhavingsex with any clientsinthe last 12 months). This indicator (along with the number of sex workers inthe capital city) were not includedbecause there isno certainty that the JAPR process will identify sex workers as a priority, and therefore that TOWA will hndactivities inthis area. However, it is likely that sex workers will betargeted. The condom use indicator i s collectedthrough the BSS, which has beendone inthe past. TOWA includes hnds for special studies, and ifsex workers are included as a priority to be hnded through TOWA, then a study will be commissioned. Ifnot, one will be commissionedfor the next UNGASS report. Ineither case, the data will be available. 6. Men andwomen with advancedHIV infectionreceivingantiretroviralcombination therapy. 7. Pregnantwomen livingwith HIVwho receive a completecourse of antiretroviral prophylaxisto reducethe riskof MTCT. Botho fthe above indicators relate to MOWNASCOP supported activities that are not supported under TOWA. However, both of these indicators are included inthe KNASP M&E framework and are collected by the NASCOP M&E system.There are some concerns about the completeness o freportingthrough this system, butthe data are available annually to the NACC from NASCOP. All o fthe financial indicatorscanbe obtained either from NACC FinancialDepartment or the World Bank. 123 Annex 7: DetailedProjectDescription KENYA: TotalWar AgainstHIV andAIDS Project PROJECT DESIGN 1. The Project is an integral part o fthe implementationo fthe KenyaNationalHIV and AIDS Strategic Plan2005/06 to 2009/10 (KNASP), which is built around the principles o f the Three-Ones: 0 One strategic action framework; 0 One coordinating authority; and 0 Onejoint monitoring andevaluation framework. 2. The KNASP outlines three priority areas for the period 2005-10: 0 Preventionof new infectionswith the objective to reduce the number o fnew infections inbothvulnerable groups and inthe general population. 0 Improvethe quality of life ofpeople infectedand affectedby HIV andAIDS with the objective to improve treatment andcare, protectiono frights and access to effective services for infected and affectedpeople. 0 Mitigationof socioeconomic impactwith the objective to adapt existingprograms and develop innovative responsesto reduce the impact o f the epidemic on communities, social services and economic productivity. 3. The priorities will be set within the priority areas and strategic objectives o f the KNASP, strategically detailed each year through the Joint HIV andAIDS Program Review (JAPR) process. Defined results will be derived from the results framework o fthe KNASP, and monitoring will be done by the Monitoring and Coordination Groups (MCGs) set up to monitor the progress against the KNASP generally. The TOWA will bejointly funded by IDAand DFID. As much o fthe designwork has beendone incollaboration with DFID, it also provides aformidable platform for enhancedharmonization and alignment with other programs fundedby DFID, especially the UN-project currently under design andthe AMREF-implementedManaishaProject whichisjointly fundedbyDFIDand Swedish SIDA. 4. The Project comprises the following components: ComponentOne: StrengtheningGovernanceandCoordinationCapacity. This would support the continued development o fthe coordinating function andthe M&E framework o f the KNASP I1through the following sub-components: Sub-Component(a): StrategicLeadership:Over the years, andwith anaccelerated pace over the last year, NACC's capacity to effectively deliver on its coordination and leadership role has improved as the organizationhas undergone extensive restructuringand strengthening. NACC and its decentralized structures have become 124 the place where all stakeholders involved inHIV andAIDS meet anddiscuss concerns, priorities and solutions inthe implementation o fW A S P 11. The processes thereby developed are based on inclusiveness, transparency and accountability. Thus, the NACC does not make decisions on behalf o f anyone; instead it provides the fora andmechanisms inandthrough which decisions are made. The Project will support the continued development o fthese structures andprocesses through: Financingregular reviews, especially the annual Joint HIV and AIDS Program Review (JAPR). As much o fthe processes for setting the priorities depend on the JAPR process, it i s imperative that it i s hrther developed to be the forum where all stakeholders share their successesand failures duringthe past year. The process has already been decentralized to cover more that 50% o fthe districts in the country, but it will be necessary to makeit all inclusive. Supportingthe operations at all levels. Inimplementing sub-component 1.1, much of the decision making andmonitoring depend on the NACC decentralized structures, the DTCs and the CACCs, both for awarding proposals and for monitoring progress. Their capacity must therefore be ensured andthe additional costs for supporting the TOWA Project financed, projects covered. Buildingcapacity o f staff and stakeholders. Apart from buildingthe technical capacity at all levels, this will also includetraining all levels ingovernance principles, risk management, and operational procedures for the NACC and its decentralized structures. Ensuringsocial accountability by communicating results and experiences to stakeholders, which will finance the communication o f results inline with the communication strategy for the NACC. This strategy has been developed as an integral part o fthe operations manual for the Towa Project. Sub-component(b): Accountability andVerification: The previous project (KHADRE)providedanumber ofcrucial lessonsinterms o fthe needto ensurethere i s accountability, efficiency and effectiveness inmanagement o f Community Grants that are at the core o f the Project. Inparticular, authenticity andprudent management o fthe fbnded community level sub-projects will have to be verified and closely monitoredto ensure value for money and utmost transparency. This will have to be done on continuous basis. Apart from the traditional independent external Financial Audits, the Project will finance: An independent FinancialManagement Agent responsible for managing'the financial aspects o fthe Project, bothinthe public and the private sector. 0 An independent Compliance Verification Agent checking compliance at all levels with the laiddown rules inthe processing and approval ofproposals. 0 An independent Performance Auditor to assess andcompare the results verifiably achieved with the results claimed; 0 An independent Procurement Monitoring Agency. Verifyingthat procurement in the NACC structures i s made following Government and/or World Bank regulations and procedures. 0 Sub-component(c): Information-basedManagement:The JAPRprovides an opportunity for all stakeholders to participateinthe development o f the continued response through an annual results monitoring and priority-setting exercise. 125 However, it is also imperative that the strategies chosen and the priorities selected are based on sound evidence, both interm o fprogress inimplementationandinselecting interventions. For the Information-basedManagement sub-component, the project will support: The development of the Management Information System (MIS). Through: (i) Procurement o f Hardware (server) for the MIS; and (ii) Procurement o fnew financial managementsoftware, this component will improve the technological platform for storage andprocessing o f data. Furthermore, the interventionwill facilitate the integration ofperformance and financial databy also including the evaluation andprocurement o f a new modernized financial system. Inthe long term, the component will also contribute to transparency and accountability by makinginformation available on line, over the Web for all stakeholders. 0 The continued development o f the Monitoring andEvaluation (M&E) system. Significant progress has beenmade inimplementingand strengthening the MIS, especially interms o f the Community-based interventions. However, without additional funding, the achievements made will be at peril. The fundingi s required to hrther strengthen the M&E andto runthe community-based system. Inrelationtothis, aprojectpreparationfacilityhasbeenrequestedto secure achievements made. The Operations Research agenda. Operations research is crucial to understand how interventions implementedcan be improved, what works andwhat does not. Therefore, the prioritization of operational research must be an integralpart o fthe JAPR. Two areas that should be evaluated as part o f the operations research are the JAPR process andthe approach for mainstreaming support to public sector programs. Sub-component(d): CapacityBuildingofImplementingPartners:The aim o f this sub-component is to strengthenthe overall civil society organizations particularly at grass-root level to effectively participate inthe national response to HIV and AIDS. This take cognizance o fthe capacity gaps that are there particularly among small NGOsandCBOs on issues such as grant management andaccountability that is key to success o f TOWA. A set o f selected national-level NGOswith the necessary capacities will act as `facilitating agencies' to buildcapacity of localNGOs and CBOs. These `facilitating agencies' willbe supported to provide technical assistance andcapacity-building only usingapre-determined "capacity buildingpackage" for NGOs and CBOs within agreed geographical areas. There is no intention that actual grant-makingfunds should flow through them from the project. As capacity is built across the country, it i s expected that the need for this facilitation will become less and less over time. The support is limitedto the technical contents, as it i s within the Terms o fReference o f the FinancialManagement Agent to provide administrative and financial capacity buildingo fimplementingpartners. ComponentTwo: Support for ProgramImplementation.This component would make financial resources available to civil society, public sector, private sector, andresearch institutions, focusing on initiatives inline with the W A S P , responding to priorities identified bythe JAPR. The component would include three sub-components: 126 Sub-Component(a): Grant Awards: This sub-component aims primarilyat financing the agreed priority civil society andprivate sector sub-projects, as well as research, and will focus on proposals and activities achieving defined results. Comparedwith the precursor KHADREP, where proposal development was not guided, the approach for TOWA Project will be to provide very specific guidance on priority areas, interventions and expected results incalls for proposals based on KNASP 11. The prioritized results areas will be selected annually within the framework o fthe KNASP and based on areas identified as priorities inthe JAPR. Project proposals from the civil society organizations, private sector and research institutions would be invitedina more focused and structured manner through the mechanismo f "Call-for-proposals (CFP)". Actual interventions and implementers will be selected based onproposals received andafter assessingwhich proposals will potentially achieve optimal results. The focus will be on results achieved, not on inputsgiven. Awardingproposals to civil society organizations, private sector agencies andresearchinstitutions will be done at three levels: Level I: CACC-based proposals with fundingup to US$5,000. Level 11: DTC-basedproposals with fundingrange o fUS$5,001 -25,000. Level 111: National basedproposals with funding range o fUS$25,001 - 100,000. Should a project proposal exceed US$lOO,OOO, approval i s subject to IDNDFID consultations prior to awarding. It is envisaged that the grants will be allocated primarilyto lower levelswith about 70 percent (US$32 million) going to the lowest level, 20 percent (US$9 million) going to the district level and 10percent (US$5 million) going to national projects, as the ability to channel funds to the lowest level has proven to be the comparative advantage o f the World Bank. Target groups selected will be based on the framework o f KNASP vulnerable groups that are more exposed to the epidemic or are more at risk o fbeinginfected. Inthis context, vulnerable population groups include, but are not necessarily limited to: (i) commercial sex workers (CSW); (ii) orphans and vulnerable children (OVC); (iii) migrant workers; (iv) Women (including widows and grandmothers); (v) youth (including young girls); (vi) Workers insmall and medium-sized enterprises, micro- enterprises, and the informal sector; (vii) People with disabilities; (viii) People exposed to sexual violence; (ix) MSM; (x) IDUS;and (xi) pastoralists. 0 Sub-Component(b): MainstreamingPublicSector Program:Generally, the Ministries' response to HIV and AIDS to-date inKenya has beencharacterized by: (i) a focus on internal awarenessbuildingamong ministerial staff. Though largely successful, it has not, however, been a sufficiently comprehensive response to HIV andAIDS; (ii) reliance on funding from NACC for HIV andAIDS activities. Very few ministries allocated funds for HIV and AIDS activities out o ftheir own budgets; (iii) reliance on NACC funding resulted inmost AIDS Control Units (ACUs) working independentlyo fthe mainstream ministry structures such as Central Planningand 127 Project Monitoring Units andFinance Departments thus makingtheir HIV and AIDS activities, plans and fundingbe geared towards respondingto NACC rather than existing overall ministryneed; and(iv) limitedinvolvemento f decentralized levels in planning, budgeting and implementation o fmulti-sectoral response to HIV and AIDS. The objective o fNACC's work inmainstreaming is to strengthen the multi-sectoral response to HIV andAIDS inKenya by assisting key sectors to secure additional hndingfor HIV andAIDS activities which address the distinctive opportunities and challenges presented by the on-going work o fthe sector. Inorder to advocate for additional hnding, HIV and AIDS needs to be captured as an integral part o fthe sectoral and line Ministries' strategies and plans. Therefore, this sub-component will provide support to mainstreamingHIV and AIDS within the Public Sector response. The focus will be to catalyse andaccelerate HIV and AIDS onprogramming inthe public sector based on KNASP 11priorities. The support will emphasize external rather than internalmainstreamingbythe Public Sector. Fundswill be used to amplifyand fortify interventionsdesigned bythe targeted sectors within their own MTEFs, Budgets and Annual Plans o f Operations andnot to fund separateprojects or work plans. The sub-component i s closely linkedto the UN-program as this program will provide the essential technical support requiredto develop the evidence based analysis and suggestedinterventions for the priority Ministries. 0 Sub-component(c): EssentialCommodities:The component will support the procurement o f essential commodities required inthe nationalresponse against HIV and AIDS. Commodities related to the response to HIV and AIDS and its linkages with the malaria and TB programs will be eligible for financing underthe project, and include drugs, test kits and laboratory equipment and supplies. TOWA will respond to priority needs for these commodities ina flexible manner. However, the project plansto focus on some key commodities for which there is a hndinggap by contributing: (i) million for condoms; (ii) million for first-line TB US$12 US$4 drugs; and (iii) millionfor ITNbednets for free distribution among PLWHA US$4 who live inmalariazones. Although ARV drugs are also an important HIV commodity, they are beinghndedby other sources (GFATM, PEPFAR). TOWA will therefore focus its commodity support on the above-mentioned areas. Adjustments to the procurement o fHIV commodities under the project may be made duringproject implementation, takinginto account available fundingfrom other sources. They will be responsive to the development o f the national condom program being supported by the Joint UNPlanwith DFID support. This will allow for flexibility and enable the project to respond to emerging commodity priorities. HIV commodity procurement underTOWA will be conducted accordingto the project procurement plan, which will be linkedwith the national HIV commodities procurement plan. HIV commodity procurement under TOWA will also be conducted inclose coordinationwith procurement o fHIV commodities financed by the Government, the GFATMas well as other development partners such as PEPFAR, PMIandDFID, etc. The commodity procurement under TOWA is expected to take place inthe first three years o f the project. All o fthe commodities will beprocuredthoughnon-Government procurement agencies. Possible 128 arrangements include: (i) UNICEF for ITNs; (ii) UNFPA for condoms; and (iii) the Global Drugs Facility (GDF) for TB drugs. From the fourth year onwards, the Government's procurement system,which i s expected to be strengthened under the Kenya Health SWAP, will take over. COMPLEMENTARYDFID-SUPPORTED ACTIVITIES Underits new program o f support for the KNASP, DFIDis a co-financier ofthe TOWA Project, along with support to the UNSystem inKenya, and co-funding o f AMREF with SIDA. The primary approach o fDFIDinthis new program o f support i s not what particular set of primaryneeds DFIDshould try to address, but rather how best DFIDcan add value. The DFID support operates through three delegated partnerships: the World Bank (through the TOWA), the UNsystem, and SIDA supported AMREF model. a Support to NACC throughTOWA, channeledthroughthe World Bank(US$33 million). Throughthe TOWA Project, DFIDfkds arepooledwith the World Bank (IDA) Credit. a Supportchanneledthrough the UN. Further support for technical assistanceto, and public sector implementation o f the KNASP, i s through the UNsystem: DFID funds support a Joint UNProgram for HIV. a Support channeledthroughSIDA to AMREF. Support for strengthening integration and coordination between civil society and government for implementationo fKNASP through capacity building, networking, documentation of lessons learned, and active collaboration, is through support to AMREF: DFIDfunds are pooled with the existing SIDA support to AMREF to strengthen the capacity o f civil society to participate. This kindof support could be extended to other facilitating NGOs with the necessary capacities to operate indifferent regions inthe country with TOWA funding(Component One (d): Capacity Buildingo f ImplementingPartners) 129 Annex 8: Project Costs KENYA: Total War Against HIV and AIDS Project The total finding o fthe TOWA Project i s US$115 million (IDA, US$SOmillion; DFID, US$33 million; and Government, US$2 million). The allocation by component i s shown below. Activity Details TOWA Fkrancing World DFlD ' (USS'0601 Got( Bank (USSDW)) I CapacityStrengthening 29.758 I II 2,000II I Strategic reviews Sustaining program operations Institutionalcapacity building Trainingof 210 CACCs and 71 DTCs 685 0 485 200 Trainingof 4 MCGs 160 0 113 47 l l Program targeting Technical support for targeting particularpopulation sub-groups (women, adolescents, youth, and other vulnerable groups). 500 354 146 Strategic IEC materials, WAD, Advocacy Communications 1,000 708 292 13,402 2,000 8,076 3,326 Financial Contracting of the FMA Management Agent 3,656 2,588 1,068 Performance Contracting of the Audit Agent for the Auditors PerformanceAudit 1,250 885 365 External Auditor Contractingof the ExternalAuditorto conduct NACC accounts Audit 1,600 1,133 467 Procurement Contracting of an agent for monitoring monitoringprocurement. 500 354 146 Compliance TA for checking complianceof verification CACCs, DTCs and National Proposals to CFPs 1,500 1,062 438 8,506 6,022 2,484 130 Evidence-Based Management Sub-total Capacity building of implementing partners I ' grantees (capacity building and facilitation) l l 2,800 1,982 818 Sub-total 2,950 2,088 862 Component A Total - 29,758 2,000 19,655 4103 Component B: Program I Sector Programs DisbursementSchedule (IDA andDFID funds) ICumulative - I I 6.0I13.0 20.0 I I27.0 I 34.0 42.0 50.0 I I I 58.0 66.0 75.0 I I I84.0 93.0 I I102.0 I109.0 113.0 I I Expecteddate of effectiveness: October 1, 2007 Completiondate: June 30, 2011 Closing date: December 31,2011 131 Costs By Category Contracting of the Audit Agent for the Performance/Va/uefor Money Audit 1,250 1,250 Contracting of the ExternalAuditor to conduct NACC accounts Audit 1,600 1,600 Contracting of an agent for monitoring procurement. 500 500 TA for checking compliance of CACCs, DTCs and National Proposals to CFPs 1,500 1,500 Technical support for targeting particular populationsub-groups (women, adolescents, youth, and other vulnerablegroups). Grants 3,900 61,000 64,900 Mid-Term Review 100 100 JAPR Process 1,000 1,000 Strengthening grant performance by provision of technical support for grantees (capacity building and facilitation) 2,800 2,800 Grants to NGOs, CBOs privatesector based on CFPs 53,000 53,000 Support to mainstreaming in public sector institutions 8,000 8,000 Operating costs 9533 0 9,533 CACCs Operational Costs 5,129 5,129 DTCs Operational Costs 1,622 1,622 FO Operational Costs 282 282 Monitoringand evaluation 1,500 1,500 Operational research 1,000 1,000 Unallocated 4,242 Total 29,758 81,000 115,000 132 Annex 9: FinancialManagementandDisbursementArrangements KENYA: TotalWar AgainstHIV andAIDS Project FinancialManaPementAssessment Summary 1. This assessmentcovers the financial management functions o fthe project's implementing entities. The assessment is carried out inaccordance with Bank financial management operational guidelines". The purpose o f the project's financial management assessmenti s to determine whether the financial management system is capable o f producing timely, understandable, relevant, and reliable financial information that would allow the Bank, other donors and Government to planand implement the project, monitor compliance with agreed procedures, and appraise progress towards its objectives. The assessment aimed at: (a) ensuring that effective institutional riskmanagement arrangements are inplace byproject effectiveness and (b) determining the project's readiness to adopt report-based disbursement, the preferredmethsd o f disbursement for the region's Multi Sector AIDS Program (MAP)projects. 2. The overall conclusion o fthe assessmentis that financial mana ement arrangements for the project satisfy the Bank's minimumrequirements74 and are adequate to provide, with reasonable assurance, accurate andtimely information on the status o fthe project requiredby IDA. The financial management risk is rated modest giventhat most o fthe project's proposed institutional arrangements have been implemented satisfactorily. Institutional arrangements comprise (i) the establishment o f acceptable financial management systems; and (ii) safeguards that respond to country and project level fiduciary risks o fweak governance and corruption. CountryIssues 3. Financial management reforms. Through the Public Financial Management Reform Strategy, the Government remains committed to strengtheningfiduciary safeguards with a view to achieve economy, efficiency and effectiveness inthe use o f public funds. With the support o f a numbero f development partner-assisted initiatives, including the IDA-fundedInstitutionalReform & Capacity Building Project (IRCBP), Government is seeking to rapidly enhance the financial accountability framework, particularly through strengtheninglegislation related to public financial accounting, audit and independent oversight. 4. Diagnostic reviews. The most recent piece o f diagnostic work that provides an upto date critical assessmento fissuesthat mayimpact on this operation is an 13"Financial Management Practices inWorld Bank-FinancedInvestment Operations" issued by the Financial Management Sector Board on November 2,2005. l4As provided under Operational PolicyBank Policy OPBP 10.02 133 ongoing Country Integrated FiduciaryAssessment (CIFA). The assessment, together with the current Country Assistance Strategy (CAS) that was effectedinMay 2004 review Government's performance since the last Country Financial Accountability Assessment (in2001) and CAS (in 1998). A recurring theme is that policy changes agreed under past and ongoingprojects have not been implemented consistently. Project implementationhas generally been slowed downby constraints inthe flow o f resources and limitedabsorptive capacity arising from bureaucratic processes in Government. 5. Portfolio review. The 2005 Country Portfolio Performance Review (CPPR) follow-up review highlightedGovernment's commitment to improvingportfolio performance. Agreement was reached on several key issues, some o f which have been applied inthe design o f this operation. These include actions to improve audit compliance, closer monitoring o fproject performancebyMOF and improvements in the flow o fproject resources. 6. Forensic audits. The findings o f forensic audits o f Government commissioned forensic audits o f selected projects inthe country portfolio (November 2004 and June 2005) includethe following financial management related issues: (i) projects were generally not controlled usinga balancing general ledger system that was fully integrated andregularlyreconciledwith the rest o f the government's central accounting system; (ii) project designs didnot identify fraud risks and fraud risk management was not an integral part o f eachproject; (iii) government senior oversight o f the projects was weak; (iv) management accounts andproject quarterly reports reflect levels o f activity but do not necessarily identify major issues so that they can be actioned; and (v) lessons learned andbest practices are not shared among similar projects or passedinto the wider government structure. ProjectDescriptionandFinancialManapementArranpements 7. The project development objective is to assist Kenya to expand the coverage o ftargeted HIV and AIDS prevention andmitigation interventions through: (i) sustaining the improved institutionalperformance o fthe NACC and (ii) supporting the implementation o f the Kenya National AIDS Strategic Plan. The project will be implementedby the National AIDS Control Council, a body corporate whose governance structures include a Council comprising various stakeholders. The Council includes an Audit and Finance Committee. NACC has a full fledged management structure headedby a Director, with the Financial Management function headedby a Deputy Director, Finance & Administration. It also has an internal audit function that ultimately reports to the Council Audit Committee. 8. The Projectwill, as much as possible, rely onmainstreamGovernment financial management systems as modified inthe National AIDS Control Council (NACC) institutional arrangements. Itwill also buildon existing systems relied upon duringimplementationo f an ongoing IDA-financed project, KHADREP. 9. Implementing agency. Financialresources will be included inthe 134 Government budget and channeled from Ministryo f Finance to the Office o f the President (OP) for onward remittance to NACC. Accountability will bemonitored through the same channel andultimately included inthe Government financial reporting system. This arrangement i s consistent with IDA-funded projects inKenya. 10. Planning and budgeting. Budgetingfor the project has beenundertaken centrally by NACC inconsultation andwith extensive detailed input by the respective implementing entities. The budget i s based on the Government Medium Term ExpenditureFramework (MTEF). Proposed periodic reporting guidelines require periodic activity, cash flow andprocurement projection, analysis andreview on an ongoing basis, included inquarterly FMRsthat will form the basis o frequests for reimbursement o f funds. 11. Books of account and list of accounting codes. The project's accounting records will be maintainedon NACCs computerized accounting system, Great Plains DynamicsTM. The codes relatingto the project are integrated inthe NACC's Chart o f Accounts that matches the classificationo f financial statements. 12. Internal controlsandfinancial management guidelines. The project's internal controls are based on the NACC's established accounting and internal control systems and documented infinancial operations manual and guidelines. The manual has recently been revised andis subject to review by IDA. 13. Internal audit. There are ongoing initiatives at the Government Internal Auditor General's department to realign the h c t i o n i n go f internal audit along best practice guidelines issuedby the international Institute o f Internal Auditors, including implementationo f systems compliance and risk based approach. The effectiveness o f internal audit i s expected to be complemented by the institution o fNACC Audit Committees that will support the demand for internal audit services and follow-up o f internal audit findings. 14. External audit. Under Kenyan legislation, the responsibilityto audit all Government funds and activities i s vestedinthe Kenya National Audit Office (KNAO), which i s mandatedto subcontract such services inthe event o f capacity or other constraints. There have been significant improvements inthe office's ability to ensure timely auditing and reporting. The office is considered to be sufficiently independent, applyinginternationally acceptable auditing guidelines and therefore, acceptable to IDA. The KNAO will confirm to the Bank that the audits o fthe TOWA will cover grants made to CSOs, NGOs, etc. 15. Interimfinancial statements. The form and content o finterim financial statements was agreed duringproject negotiations. Primary contents will comprise: (i)financial accountability reports, including a statement o f sources and uses o f funds by fundingsource, a statement ofuses o f funds by project activity/component; and fundbalance statements supported bybank statements; (ii) physical progress (output monitoring) report; and (iii)procurementplanandprogress report. The reports will a cover all project activities, includingGovernment counterpart funding, resources 135 provided by other Development Partnersandnon-cash contributions wherever reasonably quantifiable. 16. As interimfinancial statements will form the basis o fperiodic funding disbursements by IDA, they will include a detailed report ofprojected cash requirements for each ensuing6 months period supported by: (i) a procurement progress report andrelatedcash flow projection; (ii) disclosure ofprocurement contracts subject to and not subject to IDAprior review; and (iii) fundbalance statements supported by certificates o fbank balances andbank reconciliation statements. 17. Annualfinancial statements. NACC financial statements shall be prepared inaccordance with InternationalPublic Sector Accounting Standards (which inter alia includes the application o f the cashbasis o f recognitionof transactions). Indicative formats o f interim financial statements were agreed duringnegotiations. IDAfundingagreementsrequire the submission o faudited financial statements' within six months after the year-end. 18. Disbursement arrangements. The project has adopted the report-based method o f disbursement usinginterimfinancial statements as the basis o frequesting andaccounting for funds. Requests for disbursement byIDAwill bemade onthe basis of approved work plans andcash flow projections for eligible expenditures. IDAwill make advance disbursements inagreedproportions from the proceeds o f respective Credits into the project Special Account to expedite project implementation. Advances will be usedby the borrower to fund eligible project expenditures and evidenced inquarterly financial statements. The project will also use the directpayment method o f withdrawing funds, involving direct payments to suppliers for works, goods and services upon the borrower's request. Payments may also bemade to a commercial bank for expenditures against pre-agreed special commitments. Direct payment amounts will be included inquarterly financial statements. 19. The IDADisbursementLetter will stipulate the minimumapplicationvalue for direct payment and special commitment procedures as well as detailedprocedures to be complied with under respective funding arrangements. 20. Flow ofFunds. Funds flow arrangements for the project shall be as follows: (i) willmakeaninitialadvancedisbursementfromtheproceedsoftheCreditby IDA depositing into the Borrower-operatedSpecial Account; (ii) expenditure will Actual be reimbursed through submissiono fWithdrawal Applications and against Interim Financial Statements; and (iii) counterpart funds andtransfers from the Special GOK Account (for payment o f transactions inlocal currency) will be deposited inthe Project Account in accordance with GOK exchequer control andfinding l5Auditstobeguidedby"Guidelines:AnnualFinancialReportingandAuditingforWorldBank-FinancedActivities"dated June 30,2003. 136 arrangements. 21. The following bank accounts will be usedto channel project resources: Special Account. GOK will establish a U S dollar special account that will receive dollar depositdtransfers from the credit account. This account will be managedby MOF inaccordance with GOKprocedures for the management o foffshore bank accounts. Project Account. A local currencyproject account ina local bank would be opened to form the primarysource o f finance for project activities and will be managed directly byNACC. Remittances from the Special Account will flow through the OP Paymaster General account, again inline with GOK procedures. The initial deposit bythe Government into the ProjectAccount wouldbe Ksh20 million. Respective bank accounts are expectedbe operational by credit effectiveness. Initial cash flow forecasts uponwhich the advance disbursement will be made from the IDA Credit should also be prepared bythe same date. 22. Counterpartfunds. The OP will ensure advance availability o f counterpart fundingcontribution by depositing amounts equivalent to estimated quarterly cash requirements into the project account. Counterpart finds will be allocated through the normal central government budgetaryprocess. 23. Remediesfor non compliance. Ifineligible expenditures are found to have beenmade from Special Account, the borrower will be obligated to refund the same. Ifthe SpecialAccount remains inactivefor morethansix months, IDAmayreduce the amount advanced. Ifineligible expenditures are found to havebeen made from the Special Account, the borrower will be obligated to refundthe same. IfSpecial Accounts remain inactive for more than six months, IDAmay reduce the amount advanced. IDA will have the right, as to bereflected inthe funding agreement, to suspend disbursement o f the funds ifsignificant terms o f fundingagreements, including reporting requirements, are not complied with. 137 FinancialManapementAssessment Findinm 24. Risk management and internal control arrangements. A number o f significant fund accountability weaknesses andfraudcorruption risks observed inKHADREP are attributed to the absence o f an effective institutional risk management function. The following institutional arrangements have been established to address risk management concerns: (a) Institutional risk manazement. NACC has recently carried out a comprehensive institutional risk assessmentanddeveloped a mitigation actionplan contained inthe Institutional Risk Management Policy Framework. The NACC Council is responsible for monitoring implementationo fthe framework and action plan. (b) Role of NACC Council oversight committees. The mandate, composition and hnctioning16 o f financial management sub-committees o f the NACC Council have been instituted.The Committees are staffed with appropriately experienced persons andmeet regularly, at least once each quarter. Theyhave operational charters approved by the NACC Council and which are assessedas consistent with Corporate Governance best practice guideline^'^. 0 The Audit Committee has includedinits mandate: (i) responsibility for operationalisation o fthe RiskManagement Policy Framework; (ii) monitoring and ensuring timely effectiveness o faudit and operational review recommendations o f various fiduciary oversight responsibilitiesincluding, internal and external auditors, Government project monitoring agencies and IDA review and supervision missions; (iii) overseeing the effectiveness o f accounting and internal control standards, policies and practices; (iv) ensuringcompliance with legal covenants and terms o ffunding agreements; and (v) monitoring the performance o fkey internal audit staff and contractors against approved performance contracts. 0 The Finance Committee has includedinits mandate: (i) responsibility for comprehensive review o f Interim Financial Statements; (ii) approval o fperiodic operational budgetsand monitoring financial performance; (iii) reviewing and approvingannual financial statements, and(iv) monitoring the performance o f key financial management staff against approved performance contracts. (c) Internal audit function. An independentand effective internal audit arrangement responsible for oversight o fthe activities of the NACC accounting and internal control functions, the activities o fthe FMA, ACUs, DTCs and CBOs has beenestablished. The 16Basedon GovernmentTreasuryCircularNo 16/2005 titled "Establishment andOperationalisationof Audit CommitteesinPublic Service" dated October 4,2005. "AsrecommendedbytheInstituteofInternalAuditors. 139 function i s also requiredto conduct independent institutional risk management on an ongoing basis, monitoring compliance with laid downpolicies and procedures, and reviewingandrecommending enhancement of accountingandinternal controls. For enhanced effectiveness, it i s proposed that this function be carried out under partnership betweenthe NACC Internal Auditor and Government Internal Auditor General and be supported by external technical support as and when required. External support will mainly be in(i) oversight o fperiodic risk assessment and audit planningprocesses; the and(ii) operational quality assurance. The Internal Audit function ultimately reports directly to the Council Audit Committee, presenting reports on, at least, a quarterly basis. (d) Oversight role of CACCs and DTCs. Project oversight, monitoring and supervisory roles o f CACCs andDTCs, including reporting arrangements havebeen set out insimplified operations manuals. CACCs and DTCs are excluded from handling CBO and other project implementation funds other thantheir own administrative support resources. 25. Public disclosureand anti corruption hotlines. Given the dispersion o fthe project's activities and the adoption o f simplified community based fiduciary arrangementsproactive and innovative internal control and oversight functions have been developed and adopted to address associated risks. The followingpractical arrangements for public oversight have beenestablished: 0 Public disclosure o f informationregarding: (i) for selection o fbeneficiary criteria entities to which funds are disbursed; (ii)periodic listings o fbeneficiary entities including their location, amounts and purpose for which funds are disbursed; (iii) details o f fund accountability defaulting entities; and (iv) sharing o f experiences o fbest practice beneficiary entities. Arrangements include prominent disclosure o f such information inthe media andpublic bulletin boards at all possible locations andregular update o f information. Anti-corruption and complaints handlingarrangements including toll free communication lines have beenestablished with explicit arrangements for collation o f information, follow-up action andpublic reporting. The collation and follow-up responsibilities are vested inInternal Audit and overseen by the Council Audit Committee. 26. Fundsflow and accountability arrangements. While it is intendedthat reliance be placed, as far as possible, on mainstream Government funds flow arrangements, the following systemweaknesses have been identified and addressed: (a) Hiring of a-financial management agent. Inorder to facilitate the disbursement o f funds andmonitor accountability by all grant fundrecipients, NACC will contract a financial management agent (FMA) undermutuallyagreed terms o freference. The terms o freference have been reviewed andcleared by IDA andprocurement i s inprogress. FMAcontractingis a credit effectiveness condition. 140 (b) Simplification of accounting processes. Unnecessarily long fund remittance and payment processes have been reviewed inorder to improve efficiency, effective control andtimeliness. Key considerations inthe process include: (i) adoption o f simplified accountability guidelines andprocedures for CBOs; (ii) realigning the role o ftechnical oversight function from involvement inroutine transaction processing to conducting independent reviews; (iii) developing effective accountability follow-up processesby consolidating the responsibilityunder the FMA; and (iv) active involvement o f CACCs in the follow-up o f accountabilities by CBOs. NACC has also developed benchmark processing timelines to be adopted andmonitored. (c) Operation qf the Suecial Account. Bureaucratic delays inthe remittance o f project funds from the Special Account through CBK, MOF, OP and ultimately to the Project Account have be reviewed and unnecessary approval processes eliminated. (d) Financial statements reporting. Quarterly financial reports' have been identified as the preferredbasis o f funding disbursement. This method i s already adopted by the KHADREP. Envisaged difficulties have been addressed as follows: 0 Collation o fmonthly accountabilities. Giventhe large number o freporting entities, it i s critical that the capacity o f reporting units to preparecomprehensive, yet simplified and standardized monthly statements o f expenditure and fund balances is developed as soon as possible. Underthis arrangement, it i s expected that the FMA collates and submits implementing entities' financial accountability andproject implementation progress information on a timelybasis. This responsibilityhadbeen included inthe FMA terms o freference. Quarterly financial statements preparation capacity. NACC's capacity to prepare and submit quarterly financial reports has been enhanced by the recent employment o f appropriately qualified and experienced personnel. A training plan i s inplace and complied with. The plan also provides for capacity building o f DACC, CACC and CBO personnel. (e) Financial management manual. NACC's accounting and internal control procedures are documented ina Financial Management Manual. The manual incorporates M O F financial management guidelines. The manual has recently been revised to take account o fproposals inthis assessment, notably: (a) the role Council Committees and internal audit; (b) arrangements for public disclosure o f information and anti corruptionhotlines; (c) the revisedrole o f CACCs and DTCs; and (d) the revised responsibilityo f the FMA. The manual also includes simplifiedguidelines for operations o fDTCs, CACCs and CBOs. It has been subject to review and approval by the IDA. (audit f ) Independent audit arrangements. Under Kenyan legislation, the responsibilityto all Government funds and activities i s vested inthe KenyaNational Audit Office Basedon "Financial MonitoringReportsfor World BankFinancedProjects: Guidelines for Borrowers" publishedby IDA onNovember 30,2002. 141 (KNAO), which is mandated to subcontract such services inthe evento fcapacity or other constraints. Due consideration will be taken of the KNAO capacity and commitment to ensuring compliance with Government and Development Partners' requirements for timely auditing and reporting. There has been significant improvement inthe office's ability to ensure timely auditing and reporting o f donor-fundedprojects' financial statements. The KHADREP audit has, however, suffered from an inefficient substantial outsourcing o f CBO audits that had threatened timeliness o freporting andthe quality of reviews. The Controller & Auditor General's confirmation o f agreement to place reliance on the work o f internal audit and other internal review mechanisms, subject to the effectiveness o findependent internal oversight arrangements, will be discussed and agreed ahead o fProject effectiveness. Written confirmation from the KNAO that it accepts responsibility for auditing the grant awards will be a condition o f disbursement for the respective sub-component o fthe TOWA. 27. Financial management actionplan - The outcome o f this review is includedina financial management improvement plancomprising actions to be completed prior to credit effectiveness and ongoing actions to be followed up duringproject implementation. RiskAssessment andMitigation 28. Financial management risk i s ratedmodest giventhat most o f the project's proposed institutional arrangements have been implemented satisfactorily. Institutional arrangements comprise (i) the establishment o f acceptable financial management systems; and (ii) safeguards that respond to country and project level fiduciary risks o f weak governance and corruption. 29. The summary o fthe assessmento fcountry, implementingentity and project- specific risks andproposed mitigatingarrangements i s as follows: 30. Inherent Risk. Risks associated with the environment inwhich the project i s situated. 142 E E E l? d -"8 Y E a e . e e m e, u , 8g 0 0 M 4"8 ?i E E e e w E li 3 E . . e . m E m E d E Z a e e e CA tn Conditionality 33. Actions agreed upon during Projectnegotiations. Action a) Quarterly financial monitoringreporting arrangements are inplace and formats have been agreed. b) Project independent audit arrangements have been confirmed. 34. Action required prior to credit effectiveness: Action a) Completion o f contracting o f the Financial Management Agent. 35. Action required following credit effectiveness: Action a) Compliance with the Financial Management capacity buildingplan covering all levels. Implementation Support Plan 36. Based on the outcome o fthe financial management riskassessment, the following implementation support plan i s proposed. The intensity of supervision will be increased as necessary inthe first year of the project. FMActivity Frequency FMDeliverable Deskreviews a) Interim financial statements Quarterly Financial statements review review report b) Audit reportreview Annually Audit review report On site visits" c) Review o f controls Four monthl?' Clearance o f FMeffectiveness conditions. FMreview report d) Transactionreviews Annually FMreview report Capacity building support e) In-house FMtraining sessions Six monthl?' Delivery o ftraining sessions f ) Participationinregional Annually Information on available training specialized training workshops programs l9 Respectivereviewswill be basedonmutually agreedtermsofreference 2o These will include a specific follow-up o f FMeffectivenessconditionsthat comprisethe underlyingreasonfor a Substantial FMriskrating. 2' To be basedon existingarrangementsinconjunctionwith the LoanandProcurementDepartments 148 37. The objectives ofthe implementation support planaims at ensuring that strong financial management systems i s maintainedthroughout the project life. Inaddition, Detailed Financial Management Reviews will be carried out regularly to ensure that expenditures incurredby the project continue to remain eligible. 149 Annex 10: ProcurementArrangements KENYA: TotalWar AgainstHIV andAIDS Project A. ProcurementEnvironment 1. Kenya's first National Procurement Law (The Public Procurement and Disposal Act 2005) was passed by Parliament inOctober 2005 came into force inJanuary 2007. The Regulations supportingthe Law were also publishedby the Ministerfor Finance in January 2007. Prior to the coming into force o f the Law, procurement under the public sector hadbeen governed by a set o fRegulations (the Public Procurement Regulations 2001) issuedby the Minister for Finance in2001 and amended in2002. 2. The Public Procurement andDisposal Act (2005) creates a centralPublic Procurement Oversight Authority (PPOA) to replace the Public Procurement Directorate (PPD) created under the Regulations (2001) inthe Ministry o f Finance. The Act also establishes the Public Procurement Complaints, Review andAppeals Board (the Appeals Board) which hadbeen inoperation since 2001. Inaddition, all public procuring entities have a Procurement Unit and a Tender Committee which are responsible for the implementation o fprocurement process o fthe procuring entities. The Executive Officers ofthe procuring entities together with their Tender Committees are accountable for the procurement decisions o f their entities. 3. Public Procurement inKenya i s recognized as a very important process via which over 70% o fpublic funds (excluding staff emoluments, debt servicing and other statutory payments) are spent. A major challenge inKenya i s to ensure sound and efficient public procurement systems that ensure value for money, efficiency inservice delivery and transparency, including providing equal opportunity to the biddingcommunity. It also recognizes that corruption inpublicprocurement i s a major issue inKenya as it i s very erosive ofpublic fimds intendedfor public good and its resultant economic growth. 4. Among the overarching features o fthe Procurement Law towards promoting transparency and accountability o fpublic procurement decisions include specific provisions for administering security-related procurement which has hitherto been vulnerable to corrupt practices. Inaddition, the Government has established a number o f complimentary anti-corruption legislative and administrative instruments. In2003, it enacted an Anti-Corruption and Economic Crimes Act which creates the Kenya Anti- corruption Commission (KACC) - an independent body corporate with immense powers relatingto the fight against corruption, accountable to Parliament, and the Kenya Anti- Corruption Advisory Board (KACAB). The K A C A B members were drawn from the civil society, professional bodies, trade unions, andreligious sectors, vetted by Parliament and appointed by the President. Inthe same year, a Public Officer Ethics Act was passedand enforced. This Act provides for Codes o f Conduct and Ethics for all public officers to enhance ethics andintegrity inthe Public Sector and govern the wealth declaration process. The Government introducedPerformance Contracting for public agencies 150 (parastatals in2004/05 and Government Ministries and Departments in2005/06). Chief Executives o f all public agencies are required to sign Performance Contracts on behalf o f their respective agencies. One aspect o fperformance contracting, which every agency i s assessedon, i s the initiation o f anti-corruption measures to curb corruption. 5. Under its Governance Action Plan, the Government has included implementation o f the following procurement reform actions: inject sunshine principles inbiddingandprocurement contracts including: (i) ensuring all Ministries, Departmentsand agencies publishthe inform on contracts required by law on a Government website; and (ii) ensuring the website i s working effectively and is accessible to the public; introduce a Vetting System to pre-qualify companies interested inbiddingfor Government contracts to address the issue o f conflict o finterest; establish a mechanism for reporting and enforcing the current provision o fthe law on "Blacklisting" companies; and 0 introduce e-procurement. B. ProcurementInstitutionalArranpements 6. Procurement under the project will be carried out at three levels: 0 the national level bypublic institutions, namely NACC and ACUs, 0 through non-public organizations, i.e. NGOs, CBOs, CSO, FBOs andprivate sector organizations (PSOs) at the district level; and at the constituency level, byunits o fthe public institutions and through NGOs, CBOs, CSOs, FBOs, and PSOs. Ofthe public institutions, the NACC is the implementingentity for the Project and accountable for the procurement decisions under the Project. ACUs will implement activities through budget releasesbyNACC against an agreed annual workplan. In addition to its responsibility for the implementationo f its own procurement, NACC will overseeprocurement implementation inthe districts andconstituencies by the DTCs and CACCs respectively, as well as well as byACUs and non-public organizations contracted by the NACC. The NACC and its local offices will administer procurement processes and award contracts inaccordance with the procurement provisions o fDCA, Public Procurement Regulations (2006), and the Project Operations Manual. NACC, DTCs and CACCS will contract andprovide grants to non-public institutions on the basis o f the latter's eligibility to apply for implementation o f sub-projects and evaluation criteria o fproposals laid down inthe Project Operations Manual. DTCs and CACCs will not handleany major procurement. 151 C. ProcurementRiskAssessment andMitigation 7. An assessmento fthe capacity o fthe NACC Secretariat (based on the lessons learned from its performance inprocurement implementationunder the KHADREP Project) was carried out duringProject appraisal to implement procurement actions for the Project. The assessmentreviewed the organizational structure for implementingthe Project and the interaction betweenthe Project's staffresponsible for procurement and the Ministries and agencies for administration and finance. The capacity assessment o f NACC Secretariat rates the procurement risk "high" 8 Because o f their size and geographically spread inthe country, it was not possible to carry out capacity assessment o fDTCs or CACCs inprocuring their requirements, selecting eligible andtechnically qualified non-governmentalorganizations, or reviewing proposals to be submitted by the organizations. 9. The key issues andrisks concerning procurement for implementationo fthe project havebeenidentified andare tabulated inTable 10-1. The recommended mitigation actions are also presented inTable 10-1.: 152 * ai .$I B v) 3 sx 2 0 a 8 0 e, e a .e3 4 0 0 0 0 0 0 0 m In 3 0 *0 D. ProcurementArrangements 10. Procurement for the proposed project would be carried out inaccordance with the World Bank's "Guidelines: Procurement underIBRDLoans andIDA Credits" current edition; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" current edition, andthe provisions stipulated inthe LegalAgreement as well as inaccordance with the Kenya Government Public Procurement andDisposal Act, 2005, Public Procurement and Disposal Regulations, 2006 andProject Operations Manual. The various items under different expenditure categories are described ingeneral below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank intheProcurement Plan. The Procurement Planwill beupdated at least annually or as required to reflect the actual project implementation needs and improvements ininstitutional capacity. (a) ProcurementofWorks: (US$1 million) 11. N o major works contracts are expected to be financed under the project. However minor works such as repairs or renovations o f existingbuildingsthat may be considered necessary for achieving the project implementationobjectives will be eligible for fimdingunder the Credit. Minor works will be carried out through contracts awarded inaccordance with procedures set forth inthe Project Operations Manual submitted to and agreed with IDAprior to negotiations. Works with an estimated value above US$250,000 per contract will beprocured through International Competitive Bidding(ICB). No works o fthis magnitude were proposed duringthe appraisal. Works with an estimated value o fUS$250,000 or less may be procuredthrough National Competitive Bidding (NCB), and those below US$50,000 through shopping. (b) Procurementof Goods: (US$24.6 million) 12. Goods procured under this Project will include IT equipment, other office equipment and office furniture, TB testing kits, condoms, andmalaria diagnostic kits. To extent possible, goods (other thanmedical goods) that could be procured from one supplier would be grouped into contract packages, andpackages estimated to cost above the equivalent of US$250,000 would be procured under ICB procedures. Goods (other thanmedical goods) contracts estimated to cost between US$50,000 and US$250,000 will be procured inaccordance with the N C B procedures. Limited InternationalBiddingmaybeusedwhen there is only a limited number o fknownsuppliersinthe world. Procurement through ICB or LIBprocedures will be based on the Bank's StandardBidding Documents (SBDs). National Standard BiddingDocuments and forms acceptable to the Bankmay be used for awarding contracts throughNCB or shopping procedures, the latter o fwhich couldbe used for items less than US$50,000. ICB contracts estimatedto cost equal to US$150,000 equivalent or above for goods per contract and all direct contractingwill be subject to prior review by the Bank. 155 13. Direct ContractingProcurementof Goods: Any disruption inthe procurement process for health commodities can lead to major stock-outs and putpeople at risk o f dyingor contracting o f HIV. InJune 2006, UNFPAhadto respondto assistthe Governmentto avoid atotal stock-out of condoms, due to delays inexecuting a WB funded tender. This was a hugereputational risk for both the NACC and the Bank; and, without the UNFPAresponse, more peoplewould have become infected with the HIV virus. The procurement o fpharmaceuticals (TB drugs, anti-malaria drugs) and medical devices (condoms) i s also highlycomplex, because o f the quality and strict regulatory requirements, andthe need to ensure continuous availability. Given the risks already identifiedo f the ability o f the government to execute these procurements; the project proposes to use sole-source procurement method through UNagencies. These would include procurement o f condoms from UNFPAo fthe amount o fUS$12 million, procurement o fAnti-TB drugs from Global DrugFacility (GDF) for the amount o fUS$4million andmalariabednets from UNICEF for the amount o fUS$4 million. These procurement arrangements are subject to prior approval by the Bank. As specified in the PAD earlier, the use o fUNagencies is considered a temporary approach. Bythe fourth year onwards, the Government's procurement system, which i s expected to be strengthened under the Kenya Health SWAP, will take over. (i)Condoms. Asdiscussedearlier inthePAD,theHIVandAIDSpandemichascontributed significantly to the poverty o fKenyans, with 1.3 millionpeople infected and over 100,000 additional newpeoplebecoming infected every year. Condoms, (a medical device, andthus highlyregulated), has shownto preventHIV and is considered akeypublic health interventionfor reducingnew HIV infections. Inaddition condoms are also important for sero-discordant couples (where one partner i s HIVpositive and the other HIV negative). The procurement o f condoms requires extensive knowledge o f quality assuranceto be maintained inthe manufacturing and shippingprocess, which is significantly different from other healthcare products. Condoms can degrade ifnot appropriately formulated andpackaged. They require strict quality controlprocedures to ensure LOT-to-LOT consistency, all of which needs to be translated inappropriate specifications and ability to understandand monitor audit reports. Ifpoor-quality condoms are procured, it could lead to inadequate protection andnegative publicity, and could destroy the credibility o f the HIV prevention program. The UNFPA is the largestprocurer o fcondoms globally andhas extensive in-house knowledge about condom quality assurance requirements and the condom marketplace, as manufacturers' ability to assure quality over time can vary. Inaddition, it also achieves significant savings through competitive pricing due to highvolumes. It provides highquality condoms that strictly adhere to WHO guidelines and specifications and has sound quality control mechanisms inplace to ensure delivery o f quality products to the client countries. It provides the value-added service o findependentpre-inspection testing prior to shipment of the condoms. It has a web-based ordering and tracking systemthat provides visibility o f the procurement order to at least its UNFPA field offices. Other additional services that UNFPA provides through its headquarter and country programs include on-going technical support as required, such as, assisting inforecasting, developing financial gap analysis to sharing the list o f suppliers etc. InKenya, UNFPAhas the track record o f supplyingcondoms to the 156 Government. Just inthe last year, UNFPA procured 24 million condoms onbehalf o fthe Government inresponse to a condom shortage. (ii)Anti-TBdrugs. AsdiscussedearlierinthePAD,around30percentofTBpatientsare HIV-positive. The threat o fMulti-DrugResistant (MDR) and Extensively-DrugResistant TB (XDR)especially among People LivingWith HIV/AIDS (PLWAs) is a growingconcern. Inthe caseofanti-TB drugs, itis importantto ensurethat the full course ofeight months is readily available inorder to reduce the risk o fMDR or XDR. Given the need to ensure continuous availability at all times, a most predictable, reliable procurement method and agency needs to be usedthat will ensure continuous availability and best price. GDFis the largest procurer o fTB drugs globally. Itsecures affordable anti-TBdrugprices through pooled procurement, standardization, prompt payment polices and innovative procurement strategies, linkingdemandfor drugs to supply andoutsourcing all its services on a competitive basis. As the result, GDF i s able to get muchbetterprices from manufactures than an individual country. The products are o f a high-quality that are either prequalified underthe WHO TB PrequalificationProject, or are approved for supply through a transparent,independent expertcommittee, pendingprequalification. This step is absolutely essential inensuring that only highquality, effective products are being deliveredto TB patients. The packaging o f the products i s specially designed to ensure ease o fuse from a patient perspective and also protect against damage and humidity.GDF also provides a web- based ordering and tracking system that GDF clients can use for monitoring the status o f its order and finally, GDF provides a holistic approach to procurement including value-added service o f technical assistanceto areas such as; product selection, drug forecasting, quality assurance and registration. InKenya, GDF has been supplying TB drugs for the country the past 3 years. (iii)Bednets. RecentstudiesinLancet clearlyshowthelinkofmalariaandHIV.The project will provide free long-lasting bednets for PLWA. Currently there are three manufacturers inthe market that provide ITN.However, the number o f manufacturers coming onto the marketi s growing and it i s difficult to keep pace with the new developments inthisproduct category. Giventhe fact that the ITNarepesticide treated, it isimportantto have an understanding o f the integrated approach to vector control management and also the rules and regulations that govern the importation o fpesticides. UNICEF bringsboth the programmatic experience and country presence. UNICEF is also the world's biggest procurer o f ITNandtherefore has the leverage with the manufacturers in terms o fpricing and availability. The latter i s especially important as the demandfor ITNfar exceeds the supplywhich often results inlongwaiting time. UNICEF also has a track record o fprocuring I T Nfor Kenya. In2006, the agency sourced for the Ministryo f Health 3.4 million nets at the total cost o fUS$16.5 million. 157 (c) Procurement of Consulting Services: (US$9.2 million) 14. Selection of Consultants: Consulting services, including a Financial Management Agent, an independent procurement monitoring agency, an independent perfonnance auditor, external auditors, and anindependent compliance verification agent costing US$4.2 million will be procured. 15. The World Bank's standard Request for Proposals (RfP) documents will be used with appropriate forms o f contract (Lump-sum,Time-based, and simplified contracts for short-term assignment and individual consultants). Proposal evaluation reports shall be prepared usingthe World Bank's Sample Form o f EvaluationReport for the selection o f consultants. The methods that will beused for selection o fconsultants include: 16. Quality and Cost Based Selection (QCBS): QCBS will be used under such circumstances when: (a) the type o f service required i s common and not too complex; (b) the scope o fwork o f the assignment can be precisely defined and the TOR are clear andwell specified; and (c) the staff time, the assignment duration, and other inputsandcost requiredo fthe consultants can be estimated with precision. Contracts for which short lists may consist exclusively o f local consultants will be determined inthe procurement plan on the basis o f its nature and an availability o f firms. NGOs and CBOs maybe hiredto provide services related to the implementationof community micro-projects intheproject districts inaccordance withparagraph 3.16 o fthe Consultants' Guidelines, andonthe basis o f the eligibility criteria andproposal evaluation criteria set forth inthe Project Operations ManuaL 17. Selection Based on Consultants' Qualifications (CQ): CQ may be used for assignments costing equal to or less thanUS$lOO,OOO equivalent andfor which the full-fledged preparingand evaluating proposals would be notjustified. 18. Quality Based Selection (QBS): QBS may be usedfor assignments such as: (a) complex sector and multidisciplinary studies; (b) important and far-reaching strategy studies; (c) assignment inwhich consultant organizations with different cost structures are requiredto compete; (d)when the scope o fwork, the duration o fthe assignment; and (e) the TOR requirea degree flexibility. 19. Fixed Budget Selection (FBS): FBS would be appropriate when the budget cannot be exceeded; and the objective andthe TOR are very precisely defined. 20. Least Cost Selection (LCS): LCS may be usedfor assignments o f a standard and routine nature such as financial audits andother repetitive services that are estimated to cost equal to or less thanUS$lOO,OOO. 21. Single-Source Selection will be applied only inexceptional cases when selection o f consultants through competitive process i s not practicable and upon Bank's concurrence o fthe decision on the Single-Source Selection method. 22. Selection of IndividualConsultants: Consultants for services meeting the requirement o f Section V o fthe Consultants' Guidelines will be selected under the provisions for the Selection of Individual Consultants (IC) method. Individual Consultants will be selected through comparison o f 158 job descriptionrequirements against the qualifications o fthose expressing interest inthe assignment or those approached directly. 23. Consultancy services estimated to cost US$lOO,OOO or more per contract and direct contracting selection o f consultants (firms) for assignments estimated to cost US$50,000 or more will be subject to prior review by the Bank. 24. Contracts for which short lists may consist exclusively o f local consultants will be determined inthe procurement planon the basis o f its nature and an availability o f firms. (d) OperatingCosts: (US$9.7 million)andTraining (US$1.1 million) 25. Other sundry Project implementationrelated expensesthat are eligible for fundingunder the project will be procured usingNACC's administrativeprocedures inaccordance with the Public Procurement & Disposal Act (2005). Incremental operating costs include expenditures for maintaining equipmentand vehicles, fuel, office supplies, utilities, consumables, travel per diems and allowances, travel and accommodation (excluding salaries o fofficials). (e) SelectionofNGOs,FBOs,CSOs andprivatesector: (US$64.9 million) 26. NACC, DTCs and CACCs will contract and provide grants to non-public institutions on the basis o f the latters' eligibility to apply for implementation o f sub-projects inline with procedures and evaluationcriteria o fproposals laiddown inthe Project Operations Manual. (f) Procurementby non-governmentalorganizations: 27. Procurement under Grants to non-governmental organizations (including civil society organisations, community-based organisations, faith-based organisations and private sector entities) will be carried out with well-established private sector or commercial practices that havebeen determined by the Bankto be acceptable to it. These principles are covered inthe Operations Manual already developed and agreed upon. E. Bank's ReviewThresholds 28. Works andGoodsvalued at the equivalent o f equal to US$150,000 per contract or more will be subject to prior review ofthe Bank. Consultancy contracts for consulting firms costing the equivalent o fUS$lOO,OOO or more, and for individualconsultants contracts estimated to cost the equivalent of US$50,000 or more, will subject to the Bank's prior review. All contracts procured throughDirect Contracting, regardless o ftheir value, are subject to prior review by the Bank. 29. All other contractswill be subject to post-review andprocurement audit bythe Bank. All implementing agencies will maintain accurate records o f all procurement activities and documents related to the Program. The procurement files will be maintained for review by the Bank's supervision missions and independent auditing, including consolidating procurement activities into Quarterly and Annual Progress Reports. 159 F. ProcurementPlan 30. The Borrower, at appraisal, developed a procurement planfor project implementationwhich provides the basis for the procurement methods. This planhas been agreed between the Borrower andthe Project Team onMarch7,2007and is available at theNACC. Itwill also be available inthe project's database and inthe Bank's external website. The Procurement Planwill be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs andimprovementsininstitutionalcapacity. G. Frequencvof ProcurementSupervision 31. Inadditionto thepriorreview supervision to becarried out from Bank offices, supervision missions will visit the field to carry out post review o fprocurement actions at least once every six months. H. Detailsofthe ProcurementArranpementsInvolvinpInternationalCompetitiveBidding (a) Goods, Works, andNonConsultingServices 32. The following is a list o fcontract packages to beprocuredunder various non-ICB anddirect contracting procedures: 1 2 3 4 5 6 9 Ref. Contract Estimated Procurement P-Q Domestic Comments No. (Description) cost (US%) Method Preference (yeslno) Printing of Post) 1. Policy Guidelines 165,000 Various NIA No (under multiple methods contracts) 2. Printing IEC Materials 640,000 Various NIA No Post (under multiple methods contracts) (b) ConsultingServices 1 1 1 1 1 1 1 1 1 2 3 4 5 6 7 Ref. No. Description Estimated Selection Review Expected Comments of Cost(US%) Method byBank Proposals Assignment (PriorI Post) Submission Date 1. FMA 3,650,000 QCBS Prior 6/6/07 2. Independent 1,000,000 QCBS Prior 6/6/07 Compliance J 160 IVerification Agent 3. Procurement 250,000 QCBS Prior 6/6/07 Monitoring Agent 4. Performance 1,250,000 QCBS Prior 9/6/07 Auditor 5. External 1,000,000 QCBS Prior 9/6/07 Auditor 161 Annex 11:Compliancewith RepeaterProject Requirements KENYA: TotalWar AgainstHIV andAIDS Project Compliancewith basic repeaterrequirements22 1. Prior to the governance reviewconducted inJune 2005, the on-going KHADREPwas rated as satisfactory. Challenges noted inimplementationprogress were largely resolvedin 2004, with the NACC's fulfillment o f ajointly developed action planto address indicated bottlenecks. The impact o fthe project has exceeded envisionedtargets ina number o f critical areas, andthere are no unresolved environmental, social, or safeguards problems. However, in recent months, with the detailed focus and exploration o f governance issues, the deptho f governance and corruption challenges have become increasingly evident. 2. The TOWA Project would be continuing inits role as "financier o f last resort," and consequently would only be financing critical implementationgaps that other agencies are unable and/or unwilling to support. The proposed operationwould be a critical follow-on contribution towards long-term national development goals, which would not be feasible to achieve merelythrough supplemental funding. Compliancewith MAPrepeaterreq~irements~~ 3. Duringthe Project Concept Note (PCN) review onFebruary 8,2005, Bankmanagement concurred that the proposed project design follows requires established for "repeaters" under the Multi-Country HIV and AIDS Program (MAP) for Africa. The National HIV andAIDS strategy has been finalized througha broad, national, participatory process. The methodology for the development o f the framework has systematically included a wide range o f stakeholders, including those at the community level. The new strategy combines a five-year "vision" document and an annual results framework. The signing and official launcho fthis strategy constitutes a core project effectiveness condition. 4. The NACC exists as a coordinating and facilitating (rather than animplementing)body, and there will be an FMA tasked with grants-making for the MAP funds. Underthe TOWA Project, the FMA role will be extended to handle all public sector disbursements, inaddition to continuation o f civil society and private sector grants. An independent NACC committee supports various "harmonization" activities, such as the current development of a database o f civil society organizations and their financing, the development o f a technical assistanceplan, andattentionto harmonizedprocedures andforms. There has been substantial recent progress on the development o f a national M&E system, with a national M&E framework drafted and launched and a detailed implementation manual completed. Disbursements underKHADREP are on track and accelerating, with overall disbursements already higher than inany other MAP projects inthe Africa Region. 22OPCSGuidelines. 23MAP2 RepeaterRequirements,AIDS CampaignTeamfor Africa (ACTAfiica),2004. 162 Annex 12: Project Preparationand Supervision KENYA: TotalWar AgainstHIV andAIDS Project Planned Actual P C Nreview February 8,2005 February 8,2005 Initial PID to PIC February 11,2005 February 11,2005 Initial ISDS to PIC March 17,2005 March 17, 2005 Appraisal August 2-15,2005 October 17-28,2005 Negotiations April 11-12, 2007 April 11-12,2007 Board approval June 5,2007 Planned date o f effectiveness October 1,2007 Planned date o f mid-term review September 15, 2009 Planned closing date December 31,201 1 Keyinstitutionresponsiblefor preparationof the Project: NationalAIDS Control Council, Kenya UNAIDSstaffcollaboratingwith the WorldBankto jointly preparethis Projectincluded: Name Title Unit Kristan Schoultz Country Coordinator UNAIDS, Kenya Annalisa T r a m ProgramOfficer UNAIDS, Kenya Jane Kalweo ProgramOfficer UNAIDS, Kenya Bankstaff andconsultants who worked on the projectincluded: Name Title Unit MichaelMills Lead Economist/Task Team Leader AFTH1 Sheila Dutta Senior Health SpecialistKO-Task Team Leader AFTH1 Albertus Voetberg Lead Health Specialist AFTHV Wacuka Ikua Senior Operations Officer AFTH1 Adam Lagerstedt Senior Health Specialist AFTH1 Son Nguyen Senior Health Specialist AFTH1 Joseph Valadez Senior Monitoring & EvaluationSpecialist HDNGA Donald Whitson Consultant (M&E) HDNGA David Wilson Senior Monitoring & EvaluationSpecialist HDNGA Moses Wasike FinancialManagement Specialist AFTFM Dahir Warsame Senior Procurement Specialist AFTPC Nightingale Rukuba-Ngaiza Senior Counsel LEGAF Christine Onyango Consultant LEGAF Stella Manda Coordinator, AIDS & Education AFTH1 Elizabeth Ashbourne Senior Operations Officer AFTHV Randa El-Rashidi Operations Officer HDNSP Jean Jacques de St. Antoine Lead Specialist AFTH1 Donald Bundy Lead Specialist HDNED Shiyan Chao Senior Economist ECSHD Jacomina de Regt Lead Specialist AFTSD Alison Rosenberg Lead Partnership Specialist AFRVP Susan Stout Manager OPCRX 163 Eva Jarawan Lead Specialist AFTH3 Paul Francis Senior Social Scientist AFTS2 Nyambura Githagui Senior Social Development Specialist AFTS2 Christopher Walker Lead Specialist AFTHl Didem Ayvalikli Operations Officer AFTHV Joy Mukaire Consultant (M&E) HDNGA RichardMatikanya Consultant (M&E) HDNGA William Wiseman Economist AFTH3 Debbie Peterson ProgramAssistant AFTH1 Victoria Fofanah ProgramAssistant AFTH1 Monica Okwirry ProgramAssistant AFCE2 Bankfunds expended to dateon Projectpreparation: 1. Bank resources: US$300,000 2. Trust funds: N o direct TF expenditure (although financial and technical support from the Global HIV/AIDS Monitoring and EvaluationTeam (GAMET) i s gratefully acknowledged). 3. Total: US$300,000 EstimatedApprovaland Supervisioncosts: 1. Remaining costs to approval: US$O 2. Estimatedannual supervisioncost: US$lOO,OOO (detailed below) SupervisionStrategy for TOWA 1. The overall TOWA supervision strategy will adopt the concept o f a rolling intensive Country ProgramPortfolio Review (CPR). This approach i s intended to establish a "living" process whereby responsible government units (such as the NACC), oversight ministries (Office o fthe President, inthis case) andthe World Bank maintain a monthly forum wherein issues are discussed, actions are agreed, and follow-up takes place on a continual basis. The envisioned outcome of this approach would include: (a) the concerns o f Kenyan authorities and development partners to accelerate project strengthened implementationandmore timely financial disbursements, with respect to HIV and AIDS prevention andmitigation; (b) the performance contracts o f the ministrieddepartmentsconcerned; (c) strengthened supervision, including timely attentionto fraud andother relevant risks; andultimately (d) achievement or improvement o f demonstrable development results within an agreed timeframe. 2. The supervision and implementation support for the proposed TOWA project will be conducted from the World Bank offices inNairobi, London, andWashington, D.C. Missions will continue to be conductedjointly with UNAIDS. Additionally, other key development partnerswill be invited to participateinmissions to ensure the complementarity ofinterventions, enhance existing strong partnerships, and facilitate inter-linkages o fprograms (as appropriate). Other Bank staffworking onKenya would also provide implementationsupport, inparticular staff working on education, community-driven development, agriculture, and transport projects. 3. The Project will require intensivesupervision given its multi-leveland multi-sectoral implementation arrangements, innovative approach. The continuing challenge posedby 164 governance with additionally increase supervision demands. It is envisionedthat two major implementation support missions will take place annually (typically inNovember and June). The November mission willbeplannedto overlap with the JAPRprocess. Technical experts, particularly with respect to M&E, will schedule interim missions to Nairobi to continue on-going intensive support. Given the very weak progress inthis area over the five years o f KHADREP implementation, very close oversight on M&Eprogress under TOWA will be required. 4. Multiple skills for supervision will be needed on a regular basis, while others will be required on an ad hoc basis. A core supervision team will comprise staff addressing the major interventions financedby the project. The core team will include the following: (i) TTL; (ii) health specialists; (iii) operations specialist; (iv) M&E specialist; (v) community response specialist; (vi) financial management specialist; and (vii) procurement specialist. Non-core members, or technical experts that will be required on an ad hoc basis, will likely include: human resources management specialist, IECBCC specialist, social protectionspecialist (particularly with respect to OVC issues), school health specialist, inadditionto sector specialists as needed. Supervision Plan (per fiscal year) Role StafsWeeks Core Team: Task Team Leader (London) 4 Health Specialist (Nairobi) 6 Operations Specialist (Nairobi) 6 Health Specialist (HQ) 4 M&ESpecialist(s) 8 Community Development Specialist (Nairobi) 2 Financial Management Specialist (Nairobi) 3 Procurement Specialist (Nairobi) 3 Other Technical Experts: HumanResources Management Specialist 2 IECDCC Specialist 2 Social Protection Specialist 2 TotalStafsWeeks: 42 165 Annex 13: Documents inthe Project File KENYA: TotalWar AgainstHIV andAIDS Project World BankDocuments 1. Project Concept Note 2. Minutes from Project Concept Note Review Meeting 3. Minutes from Project Informal Review 4. Aide-Memoire from Identification Mission (December 2004) 5. Aide Memoire from Preparation Mission, (March 2005) 6. Aide Memoire from Pre-AppraisalMission, (August2005) 7. Kenya Country Assistance Strategy 8. Kenya HumanDevelopment Brief (September 2004) 9. Waste Management Plan 10. Fiduciary Risk Assessment for Government o fKenya Healthprojects 11. Decision Meeting Minutes, October 13,2005 12. Country Team Project Informal Review Minutes, February20,2007 13. FinancialManagement Assessment Report (October 25,2005) 14. Aide-Memoire from Appraisal Mission (November 2005) GovernmentPolicyDocuments 15. Kenya NationalHIV andAIDS Strategic Plan, 2005/06-2009/10 16. Investment Program for Economic Recovery Strategy for Wealth andEmployment Creation 2003-2007 17. Ministerial Public ExpenditureReview (February 2006) 18. NACC Operations Manual (2007) 166 *7 KENYA Statement of IFC's Held andDisbursedPortfolio As of 07131/2006 Held Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2000 AEF AAA Growers 0.18 0 0 0 0.18 0 0 0 1997 AEF Ceres 0.93 0 0 0 0.93 0 0 0 1997 AEF DerasLtd. 1 0 0 0 1 0 0 0 2000 AEF Lesiolo 2.5 0 0 0 2.5 0 0 0 1998 AEF Locland 0.08 0 0 0 0.08 0 0 0 2000 AEF Magana 0.6 0 0 0 0.6 0 0 0 1997 AEF Redhill Flrs 0.28 0 0 0 0.28 0 0 0 2005 BARCLAYS BK KEN 10 0 0 0 0 0 0 0 1982 DiamondTrust 0 0.8 0 0 0 0.8 0 0 GTFP Barclays Ke 14.31 0 0 0 14.31 0 0 0 GTFP I& MBANK 2.71 0 0 0 2.71 0 0 0 2001 Gapco Kenya 12.78 0 0 0 7.78 0 0 0 2005 IMBank 3 0 0 0 3 0 0 0 IPS(K)-Allpack 0 0.36 0 0 0 0.36 0 0 IPS(K)-Frigoken 0 0.06 0 0 0 0.06 0 0 IPS(K)-PremFood 0 0.11 0 0 0 0.11 0 0 1994 Intl Hotels-Ken 0.86 0 0 0 0.86 0 0 0 1996 K-RepBank 0 1 0 0 0 1 0 0 1999 K-RepBank 0 0.43 0 0 0 0.12 0 0 2006 KingdomHotel 20 0 0 0 0 0 0 0 2005 Kongoni 1.96 0 0 0 1.96 0 0 0 2000 Mabati 2.5 0 4.5 0 2.5 0 4.5 0 2004 MagadiSoda Co. 22 0 4 0 18.9 0 4 0 2005 MagadiSodaCo. 2.5 0 0 0 0.57 0 0 0 1994 Panafrican 10.28 0 0 0 10.28 0 0 0 1996 Panafrican 15.55 0 0 0 15.55 0 0 0 2006 PanariCenter 6.3 0 1 0 0 0 0 0 1972 TPS EA Ltd. 0 0.04 2.2 0 0 0.04 2.2 0 2000 Tsavo Power 9.91 0.83 0.85 13.91 9.91 0.83 0.85 13.91 Total Portfolio: 140.23 3.63 12.55 13.91 93.9 3.32 11.55 13.91 Approvals PendingCommitment Loan Equity Quasi Partic 2006 Greenlands 2.07 0 0 0 2005 Barclays-Kenya 10 0 0 0 2006 Adv Bio-Extracts 6 0 3 0 Total PendingCommitment: 18.07 0 3 0 168 Annex 15: CountryAt A Glance KENYA: TotalWar AgainstHIV andAIDS Project Sub- POVERTYand SOCIAL Saharan Low- Kenya Afrlca Income Developmentdiamond' 2005 Population,mid-year(millions) 34.3 741 2,353 GNIper capita (Atlas method, US$) 530 745 560 Lifeexpectancy GNI (Mas method, US$billions) 16.2 552 1,364 Average annual growth, 1989.05 Population(%) 2.2 2.3 1.9 Laborforce (%) 2.6 2.3 2.3 GNI Grosa per prima0 Most recent estlmate (latest year avallable, 1889.05) capita enrollmen Poverty(% ofpopulationbelownationalpoverlyline) Urbanpopulation(% of totalpopulation) 21 35 30 Lifeexpectancyat birth (years) 48 46 59 I Infantmortality(per 1.000live birlhs) 79 100 60 Chiidmalnutrition(% of childrenunder5) 20 29 39 Access to improvedwater source + Access to an improvedwater source(% ofpopulation) 61 56 75 Literacy(% ofpopulation age 75+) 74 62 Grossprimaryenrollment (% of school-agepopuiation) 111 93 104 Male 114 99 110 -Kenya Low-incomegroup Female 108 87 99 KEY ECONOMIC RATIOSand LONG-TERMTRENDS 1985 1885 2004 2005 Economicratios. GDP (US$ billions) 6.1 18.1 18.0 GrosscapitalformationlGDP 25.3 18.3 25.4 Exportsof goodsand servicesiGDP 25.3 26.2 24.7 Trade Grossdomestic savingslGDP 20.5 12.6 19.2 Grossnationalsavings/GDP 18.4 16.9 23.6 Currentaccountbalance1GDP -6.9 -1.4 -6.0 Interestpayments/GDP 2.7 0.4 Capital Total debtlGDP 86.1 42.4 savingsDomestic formation Total debt servicelexports 39.2 30.4 8.5 Present valueof debtlGDP 31.3 Present valueof debtlexports 118.0 Indebtedness - I98545 199545 2004 2005 200549 (average annualgrowth) GDP 3.2 2.4 4.3 2.8 4.8 GDP per capita 4.1 0.1 2.0 0.4 3.9 Kenye Low-incomegroup Exportsof goods and services 7.4 3.1 19.8 -16.5 13.6 STRUCTUREof the ECONOMY lBg5 II (% of GDP) I '" Growth of capitaland GDP ('A) "- I Agriculture 32.8 25.6 27.4 Industry 19.1 17.2 17.6 10 Manufacturing 11.7 11.1 12.4 0 Services 48.3 56.1 54.9 . I O Householdfinal consumptionexpenditure 62.1 70.4 69.6 V -20 1 General gov'tfinal consumption expenditure 17.5 17.0 11.0 Importsof goodsand services 30.1 31.8 30.9 -GCF -0-GDP (average annualgrowth) Agriculture 1.8 2.6 1.4 0.7 30T I Industry 3.3 1.3 3.4 1.4 15 Manufacturing 4.0 0.8 4.1 1.4 Services 4.2 2.6 5.3 1.6 0 00 01 Householdfinal consumptionexpenditure 3.7 2.8 4.2 General gov't final consumption expenditure 7.0 0.7 4 . 8 Gross capitalformation 0.1 5.2 6.8 8.8 -Exports -0-Imports Importsof goods and services 8.9 4.5 15.3 2.8 Note: 2005 data are preliminaryestimates. This tablewas producedfrom the DevelopmentEconomicsLDB database. * The diamonds showfour keyindicatorsin the country(in bold) compared with its income-groupaverage.If data are missing,the diamondwill be incomplete. 169 PRICES and GOVERNMENTFINANCE 1985 1995 2004 2005 Domestic prices Inflation(Ye) I (% change) I i 5 Consumer prices 13.0 1.6 11.6 10.3 i o ImplicitGDP deflator 8.3 6.9 3.7 Governmentfinance 5 (% of GDP, includescurrentgrants) 0 Current revenue 24.2 21.1 21.4 00 01 02 03 04 55 Current budgetbalance 0.8 2.2 1.4 Overall sumlus/deficit -GDP deflator -CPI -4.0 2.1 -2.9 I TRADE 1985 1995 2004 2005 (US$ millions) Exportand Importlevels (US$ mill.) Total exports (fob) 940 1,924 2,641 2,820 6,000 T Petroleum 118 95 3 3 Coffee 281 282 101 111 Manufactures 108 467 599 619 4 000 Total imports(cifl 1,486 2,666 4,358 5,065 Food 112 96 185 185 2 000 Fuel and energy 461 401 955 901 I Capitalgoods 340 995 1,183 1,601 0 Exportpriceindex ~2000=100) 104 96 100 101 88 00 01 02 03 04 Importpriceindex (2000=100) 109 93 111 110 P Exports # Imports Terms of trade (2000=100) 96 O5 103 90 92 BALANCE of PAYMENTS 1985 1995 2004 2005 (US$ millions) balanceto GDP (%) Exportsof goods and services 1,552 2,948 4,207 4.843 Importsof goodsand services 1,850 3,542 5,114 6,572 Resourcebalance -297 -594 -907 -1,729 Net income -209 -320 -130 -110 Net currenttransfers 81 404 817 767 Currentaccount balance -425 -509 -220 -1,073 Financingitems (net) 518 381 473 1,200 Changesin net reserves -92 129 -253 -127 Memo: Reserves includinggold (US$ millions) 417 473 1,563 2,043 Conversionrate (DEC,locaVUS$) 16.4 51.4 79.2 75.6 EXTERNALDEBT and RESOURCEFLOWS 1985 1995 2004 2005 (US$miilions) Composition of 2004 debt (US$ mill.) Total debt outstandingand disbursed 4,181 7,309 6,826 iBRD 751 435 1 0 1 II IDA 409 I 1,977 2,882 2,663 735 Total debtservice 621 904 364 IBRD 85 144 5 1 IDA 5 24 73 77 Compositionof net resourceflows Official grants 195 242 373 Officialcreditors 135 274 6 Private creditors 8 -163 -111 II Foreigndirectinvestment(netinflows) 29 32 46 Portfolioequity(net inflows) 0 6 3 I 543 lo3 World Bank program Commitments 6 65 354 E Bilateral Disbursements 113 159 79 34 B IDA - D Other multilateral - F Private Principalrepayments 35 110 57 55 IC-IMF G Short-term --- Netflows 77 49 22 -21 Interestpayments 55 68 22 23 Nettransfers 22 -8 0 -44 Note:This tablewas producedfrom the DevelopmentEconomics LDB database. 8/13/06 170 MiIIennium DeveIoDment GoaIs Kenya I With selected targets to achieve between 1990 and 2015 (estimateclosest to dateshow, +/-2years) Goal 1. halve the rates for S I a day poverty and malnutrltlon 1990 lSS5 2000 2004 Povertyheadcount ratio at $iaday(PPP,%ofpopulation) 33 5 228 Povertyheadcount ratio at nationalpovertyline (%of population) 520 Share of income orconsumption to thepoorest qunitile(%) 6 0 Prevalenceof malnutrition(%of children under5) 23 21 20 Goal 2: ensure that children are able to complete primary schoollnp Primaryschoolenrollment(net,%) 67 76 Primarycompletion rate(%of relevant agegroup) 92 Secondaryschool enrollment(gross,%) 28 39 48 Youth literacyrate (%of peopleages 15-24) 80 Goal 3: ellmlnate gender dlsparlty In education and empower women Ratio of girls to boys in primaryandsecondaryeducation(%) 94 98 Womenemployedinthe nonagriculturalsector (%of nonagriculturalemployment) 21 27 34 39 94 ,I Proportionof seats heldbywomen in nationalparliament(%) 1 3 4 7 , Goal 4: reduce under-5 rnortallty by two-thlrds I Under-5mortalityrate (per 1000) 97 ni W QO I Infant rnortalityrate (per 1000livebirths) 64 72 77 79 1 Measles immunization(proportion of one-yearolds immunized,%) 76 83 75 73 Goal 5: reduce maternal mortallty by three-fourths Maternalrnortalityratio (modeledestimate,per UO.000 livebirths) zoo0 Births attendedbyskilled healthstaff(%of total) 50 45 44 42 Ii Goal 6: halt and b-egln to reverse the spread o f HIV/AIDS and other major diseases I ~ Prevalenceof HN(%of populationages 15-49) 6 1 ContraceDtiveDrevalence(%of women ages 15-49) 27 33 39 39 Incidence'oftuberculosis (per UO.000 people) U8 6 8 Tuberculosiscases detectedunderDOTS(%) 56 46 46 Goal 7: halve the proportlon o f people without sustalnable access to basic needs Access to an improvedwatersource(%of population) 45 62 Access to improvedsanitationfacilities (%of population) 42 48 Forest area(%of total landarea) 6 5 8 3 62 Nationallyprotected areas (%of total landarea) 8 0 C02 emissions (metrictons percapita) 02 0 3 0 3 02 GDP perunitofenergyuse(constant2000PPP $ perkgofoilequivalent) 2 2 2 2 2 0 2.1 Goal 8: develop a global partnership for development Fixedline and mobileDhOnesubscribers(per 1000people) 7 U 14 85 Internetusers(per ~ O O Opeople) 0 0 3 45 I Personal computers (per 1000people) 0 1 5 0 1 Youth unemployment(%oftotal laborforce ages 15-24) .. I Education lndlcators (%) Measles lmmunlzatlon (% o f 1- year olds) Il O 0 1 '0°1 75 50 25 5 0 4 , , , , , , , I 1888 2000 2002 2004 0 1880 P85 2000 2004 2000 2002 2004 -+-Primrynet ~nrollmntratio -Ratioofgirlsto boysinprimryg 0 Kenya 0Sub-SaharanAfrica I 0 Fixed+mblleoubocrlbers semrdarv education minternetusen Note Figuresinitalics arefor years other than those specified indicatesdataare not available Draft '17 - 6/9/06 DevelopmentEconomics, DevelopmentDataGroup(DECDG) II 171 Annex 16: MAPS IBRD 33426 172 IBRD 33426 KENYA SELECTED CITIES AND TOWNS MAIN ROADS PROVINCE CAPITALS RAILROADS NATIONAL CAPITAL PROVINCE BOUNDARIES RIVERS INTERNATIONAL BOUNDARIES 34°E 36°E 38°E 40°E 42°E SUDAN To Murle To Karungu Juba Lotikipi E T H I O P I A Plain Lokichokio Chalbi 4°N To Desert 4°N To Ramu Mandera Imi Kakuma Dila Lake Hills Turkana North Horr Sololo Moyale Lodwar Turkwel Danissa Buna El Wak ak UGANDA Lokichar South Horr Marsabit Tarbaj R I F T VA L L E Y 2°N Suam Kangatet Ndoto Mtns. 2°N Wajir Cherangany LogaBogal Lak Bor Hills Milgis SOMALIA To Maralal Ng'iro Bilesha Plain Mbale Kitale Kapedo Mando Archer's Archer' Ewaso Gashi N O R T H Post Garba To Tula E A S T E R N Kampala Eldoret Marigat WESTERN Kakamega Mbalambala Isiolo Lak Dera To Butere Nyahururu Kismaayo Falls E A S T E R N 0° Nanyuki 0° Kisumu Mt. Kenya (5,199 m) Tana Nakuru Nyeri N YA N Z A Kericho Garissa Gilgil CENTRAL Embu Nguni Lake Karungu Mara Thika Victoria Bura To Narok To Musoma Lolgorien Mau Kolbio Bur Gavo NAIROBI Escarpment Kitui Machakos Thua Ngangerabeli Plain Konza C O A S T Magadi Bodhei 2°S To Yatta Ikutha 2°S Seronera Kibwezi Plateau Athi Garsen Lamu Namanga To Arusha Tsavo Tsavo Galana To Malindi Moshi Vol Vol INDIAN KENYA TANZANIA Mackinnon Park OCEAN This map was produced by Mombasa the Map Design Unit of The 4°S World Bank. The boundaries, Kwale colors, denominations and 0 40 80 120 160 200 Kilometers any other information shown on this map do not imply, on Shimoni the part of The World Bank Group, any judgment on the 0 40 80 120 Miles To Dar Es Salaam legal status of any territory, or any endorsement or a c c e p t a n c e o f s u c h 34°E 36°E 38°E 40°E boundaries. NOVEMBER 2004