Document of The World Bank FOR OFFICIAL USE ONLY Report No: 52895-NP PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 44.816 MILLION (US$69.652 MILLION EQUIVALENT) INCLUDING SDR 14.74 MILLION (US$22.90 MILLION EQUIVALENT) IN PILOT CRISIS RESPONSE WINDOW RESOURCES AND A PROPOSED GRANT IN THE AMOUNT OF SDR 38.284 MILLION (US$59.5 MILLION EQUIVALENT) INCLUDING SDR 13.67 MILLION (US$2 1.25 MILLION EQUIVALENT) IN PILOT CRISIS RESPONSE WINDOW RESOURCES TO NEPAL FOR A SECOND HNP AND HIV/AIDS PROJECT MARCH 17,2010 Human Development Sector Unit Nepal Country Management Unit South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective Date = January 3 1,2010) Currency Unit = Nepalese Rupees NRs73.87 = US$1 US$O.Ol = NRS 1 FISCAL YEAR July 16 - July 15 ABBREVIATIONS AND ACRONYMS AAA Analytic and Advisory Activities ADB Asian Development Bank AG Accountant General AIDS Acquired Immunodeficiency Syndrome APL Adaptable Program Loan AusAID Australian Agency for International Development AWPB Annual Work Program Budget BCC Behavior Change Communication CA Constituent Assembly CBO Community Based Organization CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment DALY Disability Adjusted Life Year DDC District Development Committee DfID Department for International Development DHO District Health Office DHS Demographic and Health Survey DO Development Objective DoHS Department of Health Services DPs Development Partners DPHO District Public Health Officer EDP External Development Partner EHCS Essential Health Care Services FM Financial Management FCGO Financial Comptroller General?s Office FCHV Female Community Health Volunteer FHI Family Health International FPMCH Family PlanningMaternal and Child Health FMIS Financial Management Information System FSW Female Sex Worker GAAP Governance and Accountability Action Plan GDP Gross Domestic Product NCB National Competitive Bidding NCASC National Center for AIDS and STD Control NGO Non Governmental Organization NFHP Nepal Family Health Program NFDIN National Foundation for Development of Indigenous Nationalities NH SP-1P Nepal Health Sector Program - Implementation Plan NPC National Planning Commission NPV Net Present Value OAG Office of Auditor General PAC Procurement Assistance Consultant PAD Project Appraisal Document PDO Project Development Objective PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PHCC Primary Health Care Center PMS Poverty Monitoring System PPICD Policy, Planning and International Cooperation Division PRSP Poverty Reduction Strategy Paper SBA Skilled Birth Attendant SDC Swiss Development Cooperation SDS Service Delivery Survey SHP Sub Health Post SIL Sector Investment Loan SLTHP Second Long-Term Health Plan (1 997-20 17) STI Sexually Transmitted Infection SWAP Sector Wide Approach TA Technical Assistance TB Tuberculosis TFR Total Fertility Rate UNDP United Nations Development Program UNFPA United Nations Population Fund UNICEF United Nations Children?s Education Fund us United States USAID United States Agency for International Development VCDP Vulnerable Community Development Program VDC Village Development Committee WFP World Food Program WHO World Health Organization Vice President: Isabel M. Guerrero Country Director: Susan G. Goldmark Sector Director: Michal Rutkowski Sector Manager: Julie McLaughlin Task Team Leader: Albertus Voetberg NEPAL SECOND HNP AND HIV/AIDS PROJECT CONTENTS Page I . STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 A . Country and sector issues .................................................................................................... 1 B . Rationale for Bank involvement.......................................................................................... 5 C. Higher level objectives to which the program contributes .................................................. 6 I1. PROGRAM DESCRIPTION ............................................................................................... 7 A . Lending instrument .............................................................................................................. 7 C. Project Components............................................................................................................. 7 D . Lessons learned and reflected in the program design ........................................................ 10 E . Alternatives considered and reasons for rejection ............................................................. 12 I11. IMPLEMENTATION ..................................................................................................... 14 A. Partnership arrangements .................................................................................................. 14 B . Institutional and implementation arrangements ................................................................ 14 C. Monitoring and Evaluation ................................................................................................ 15 D . Sustainability ..................................................................................................................... 16 E . Critical risks and possible controversial aspects ............................................................... 17 F. Loadcredit conditions and covenants ............................................................................... 20 IV. APPRAISAL SUMMARY .............................................................................................. 22 A. Economic and financial analyses....................................................................................... 22 B . Technical ........................................................................................................................... 23 C. Fiduciary ............................................................................................................................ 24 D . Social ................................................................................................................................. 27 E . Environment ...................................................................................................................... 27 F. Safeguard Policies ............................................................................................................ -29 G. Policy exceptions and readiness ........................................................................................ 29 Annex 1: Country and Sector or Program Background .......................................................... 30 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 36 Annex 3: Results Framework and Monitoring ......................................................................... 38 Annex 4: Detailed Project Description ...................................................................................... 48 Annex 5: Project Costs ................................................................................................................ 55 Annex 6: Implementation Arrangements .................................................................................. 56 Annex 7: Financial Management and Disbursement Arrangements ..................................... 59 Annex 8: Procurement Arrangements ....................................................................................... 68 Annex 9: Economic and Financial Analysis .............................................................................. 73 Annex 10: Safeguard Policy Issues ............................................................................................. 80 Annex 11: Governance and Accountability Action Plan ......................................................... 94 Annex 12: Project Preparation and Supervision .................................................................... 104 Annex 13: Documents in the Project File ................................................................................ 106 Annex 14: Statement of Loans and Credits............................................................................. 108 Annex 15: Country at a Glance ................................................................................................ 109 Annex 16: Map IBRD 33455 ..................................................................................................... 111 NEPAL Second HNP and HIV/AIDS Project PROJECT APPRAISAL DOCUMENT SOUTH ASIA SASHD Date: March 17,2010 Team Leader: Albertus Voetberg Country Director: Susan G. Goldmark Sectors: Health (100%) Sector Director: Michal Rutkowski Themes: Population, Nutrition and Sector Manager: Julie McLaughlin reproductive health (25%); Child health (25%); Health system performance (20%); HIV/AIDS (15%); Other communicable diseases (15%) Project ID: P117417 Environmental category: Partial Assessment Lending Instrument: Sector Investment and Maintenance Loan [ ] Loan [XI Credit [XI Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): 129.152 (Credit 69.652 and Grant US$59.5) Recipient: NEPAL Ministry of Finance Singha Durbar Kathmandu Nepal Tel: 977-1-425-9820 Fax: 977-1-425-7854 http://www.mof.gov.np/ Implementing Agency: Ministry of Health and Population Singha Durbar Kathmandu Nepal Expected effectiveness date: July 16,2010 Expected closing date: July 15,2015 Does the project depart from the CAS in content or other significant respects? [ 3 Yes [XINO Does the project require any exceptions from Bank policies? [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? :X:Yes : ]No Does the project meet the Regional criteria for readiness for implementation? 1X:Yes ] No Component 1: Health Service Delivery The component will focus on the following activities: (i) Increasing access to, and utilization of, an affordable package of essential health services by the underserved and poor in line with MOHP's Gender and Social Inclusion Strategy. (ii) Improving the nutritional status of children and pregnant women (iii) Expanding coverage and improving the effectiveness in the response to HIV and AIDS (iv) Further reducing the mortality and morbidity associated with pregnancy and child birth Component 2: Health Systems Strengthening: The component will focus on the following activities: (i) Improving the availability of human resources for health, especially in under-served areas (ii) Improving the sustainability of financing the sector and designing mechanisms to provide protection against impoverishment due to ill health (iii) Strengthening and expanding the scope of Monitoring and Evaluation (iv) Improving governance and accountability in the health sector The following safeguard policies are triggered: Environmental Assessment (OP/BP 4.0 1) Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OP/BP 4.10) Significant, non-standard conditions, if any, for: Board presentation: none Loadcredit effectiveness: none Covenants applicable to project implementation: Not later than January 30 of each year the Recipient shall hold a Joint Annual Review with the Pooling Donors to review the progress of Project implementation during the previous fiscal year. Not later than two (2) weeks before each Joint Annual Review referred to in the previous paragraph, the Recipient will cause MOHP to prepare and furnish to the Pooling Donors for its review a report including, inter alia (i) a report on the Project's progress against the performance indicators agreed with the Association; (ii) a review of the status of the Recipient's compliance with the Governance and Accountability Action Plan (GAAP); (iii) a review of the status of the Recipient meeting the financial management, disbursement and procurement requirements under the Project; (iv) a review of the technical assistance provided, including findings of studies and research undertaken under the Project; (v) lessons learned and obstacles in the implementation of the Project; and (vi) recommendations for the strategic directions and expenditure priorities for the next Annual Workplan and Budget (AWPB). The Recipient, through MOHP, shall consult with the Pooling Donors at all stages of the development of each AWPB, including at a minimum at the end of each of the months of March, May and June of the relevant year, in order to ensure consistency between the AWPB agreed on by the Pooling Donors and the final AWPB as presented to the Recipient's Parliament. The Recipient shall promptly furnish to the Pooling Donors the final AWPB upon formal approval by the Recipient. The Recipient shall ensure that: (i) the Project (including Subprojects) is implemented in accordance with the provisions of the Environmental Management Framework, the Environmental Health Impact Assessment Plan, the Framework for Land Acquisition and Resettlement, the Indigenous People's Development Framework, and the Gender Equality and Social Inclusion Strategy; and (ii) no action is taken which would prevent or interfere with such implementation. The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Governance and Accountability Action Plan. The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Anti-Comption Guidelines. I. STRATEGIC CONTEXT AND RATIONALE A. COUNTRY AND SECTOR ISSUES 1. Country context: Nepal is a landlocked country with an average per capita GDP of US%470. Its population of 28 million is culturally, ethnically and religiously diverse, comes from more than 100 caste/ethnic groups, and speaks more than 90 different languages and dialects. There are three distinct eco-zones- the mountains, the hills and the terai plains - running north to south and five east-to-west development regions. Poverty is widespread with 3 1 percent of the population living below the poverty line, increasing to 35 percent in rural areas where about 85 percent of the population lives. Various forms of social exclusion based on caste, religion, language and ethnicity have exacerbated poverty with higher poverty rates among minorities, lower caste and certain tribal groups. 2. The political transition from a constitutional monarchy to a republican state in 2006 has opened a new chapter in the history of Nepal. The country emerged from prolonged conflict with the signing of the Comprehensive Peace Accord in November 2006, laying out a roadmap to a lasting peace and the construction of a new governance structure. Constituent Assembly (CA) elections were peacefully held on April 10,2008, creating the structure to draft a new constitution. The political transition is challenging, and the security environment is not fully under control. 3. Despite the decade-long conflict, Nepal has made significant strides in reducing poverty in the past decade. The headcount poverty rate decreased dramatically from 42 percent in 1995/96 to 3 1 percent in 2003/04. The incidence of poverty in urban areas declined from 22 percent to 10 percent, while poverty in rural areas also declined notably from 43 percent to 35 percent, but remains high and some groups have poverty rates much higher than the national average (i.e. hill Dalits 48 percent, Tarai Dalits 46 percent, hill Janajati 31 percent, etc.). The overall declines in poverty rates have been across all of Nepal's development regions and ecological belts driven in part by a decrease in the dependency ratio which in turn was a result of the decline in fertility that began in the 1980s. 4. Sector issues: The Sector Wide Approach (SWAp), which started in 2004, aims to reduce transaction cost to the government by aligning external support with government's sector plan and strengthening harmonization among the development partners in the health sector. All the main health donors' are participating in the sector-wide approach (SWAp). The International Development Association (IDA), the Department for International Development, UK (DFID) and Australian Agency for International Development (AusAID) are currently pooling funds. Under the overall government's leadership, the approach is endorsed by the donors who support a common sector program - the Nepal Health Sector Program. The list includes AusAID: Australian Agency for International Development, DFID: Department for International Development (UK), GAVI: the Global Alliance for Vaccines and Immunization, GTZ: Deutsche Gesellschaft ftir Technische Zusammenarbeit, KFW: Kreditanstalt ftir Wiederaufbau, SDC: Swiss Development Corporation, UNAIDS - UN Joint program on HIV and AIDS, UNFPA: United Nations Population Fund, UNICEF: United Nations Children's Fund, USAID: United States Agency for International Development, WHO: World Health Organization, and WB: World Bank. 1 The performance of the program is jointly reviewed by all stakeholders (i.e. External Development Partners (EDPs), non-state actors and the government including the Ministry of Health and Population (MOHP), the Ministry of Finance (MOF), and National Planning Commission (NPC) on a yearly basis. Nepal is also one of the seven first-wave countries to benefit from the International Health Partnership (IHP). This partnership strives to further consolidate harmonization and further strengthen the SWAP in coming years. 5. The health sector has made impressive progress in the past few years. Infant mortality declined by 39 percent over the last fifteen years from 79 deaths per 1,000 live births in 1991-94 to 48 deaths in 2001-2005 (DHS 2006). An even more impressive decline was observed in under-five mortality, which declined by 48 percent from 118 to 6 1 deaths per 1,000 live births over the same period while neonatal and postnatal mortality also decreased by 34 percent and 48 percent, respectively. These declining trends in mortality rates continue as confirmed by a recent survey where both infant and under-five mortality have further declined to 41 and 50 per 1000 live births respectively in 2004-2008 (NFHP 2009). Similarly, maternal mortality declined significantly from 530 per 100,000 live births in 1996 to 281 in 2006 (DHS 2006), a trend consistent with the data from the maternal mortality survey in 2009 which showed an Maternal Mortality Ratio (MMR) of 229 (Maternal Mortality and Morbidity Survey, 2009). Coverage of maternal and child health services increased significantly in the five years preceding 2005. Skilled antenatal care increased from 34.9 percent in 2001 to 43.7 percent in 2006 (DHS 2001, 2006) and the rate of skilled birth attendance increased by 72 percent, from 10.9 to 18.7 percent during the same period. Similarly, coverage of DPT3 increased from 72 percent in 2001 to 89 percent in 2005 and full immunization increased from 66 percent to 83 percent. Several of Nepal's nutrition programs are also performing very well. For example, more than 90 percent of children aged 6-59 months receive Vitamin A supplementation and de-worming twice yearly, and Iron and Folic Acid (IFA) supplementation coverage during pregnancy increased from 23 percent in 2001 to 60 percent in 2006, with a related decrease in maternal anemia. Most of the salt consumed in the country contains some iodine to protect newborns from mental impairment. Reviews of the current sector program concluded that it is performing well and has achieved good progress. The Mid-Term review of the implementation plan of the ongoing health program supported by the Bank (Nepal Health Sector Program Implementation Plan - NHSP-IP) found that overall progress was satisfactory, and that a number of the targets of NHSP-IP had already been met by 2006. The NHSP log-frame was subsequently revised, updating the targets for 20 10 in areas where progress had exceeded earlier targets. 6. Despite the progress made, enormous challenges remain. Not all segments of society have equally benefitted from the improvements recorded and the inequity in health outcomes needs to be addressed urgently. Progress in the areas of nutrition and HIV/AIDS indicate that Nepal is not on track to achieve the related MDG targets by 2015. Increased efforts are also required to build on the gains made in reducing maternal mortality, Vitamin A supplementation and immunization coverage. 2 7. There is wide disparity in health conditions as reflected in some of the health outcome indicators. Infant mortality in rural areas, for instance, is 73 percent higher than urban areas and those of mountain zones is more than twice of the hill zones. Similarly, infant, child, under five and maternal mortality rates among the poor are significantly higher than the non-poor (DHS 2006). The gains made in health outcomes are thus unequally spread among the various caste/ethnic groups. 8. Progress in nutrition remains limited. Nutritional outcomes are far from ideal and some of the successful nutrition programs have yet to be scaled up. Chronic energy deficiency in women (as measured in Body Mass Index - BMI) remains unacceptably high at 24.4 percent in 2006, only slightly down from 28.3 percent in 1996. The prevalence of low birth weight babies is reported as between 20-32 percent in hospital based studies and 14-19 percent in community- based studies. Child underweight has shown a slight improvement between 1996 and 2006 but more than a third of children weigh less than they should for their age. It is alarming that wasting, which reflects more short-term under-nutrition or increase in infections, became worse during the 1996-2006 period and currently stands at 13 percent. 9. Nepal has the highest HIV prevalence in South Asia with 0.49 percent of the population aged 15-49 being infected with HIV2. Like other South Asian countries, Nepal's HIV epidemic is concentrated with HIV affecting mainly high risk populations such as injecting drug users (IDU), male and female sex workers (SW) and their clients, men-having-sex-with- men (MSM), and migrants to high risk districts in India (especially Mumbai) and their partners. Although Nepal has some effective prevention, diagnosis, treatment and care programs already reaching some of the key risk groups identified above, as found by the 2009 round of Behavioral Surveillance Surveys (2009), there are currently large areas of the country with an unknown prevalence and where no programs are being implemented. Moreover, current coverage needs to be sustained, and intervention effectiveness improved as HIV prevalence has increased slightly amongst FSW and MSM. 10. The Interim Constitution, informed by a comprehensive vision of an inclusive society, gives Nepali citizens the right to publicly financed basic health services that are free to the user. In accordance with this vision, and in an effort to increase Nepal's ability to meet the MDGs, the Government of Nepal (GoN) established universal free3essential health services at the health post and sub-health post levels. The government also introduced targeted free health care in Primary Health Centers and District Hospitals, and plans to expand these programs up to regional and national level facilities. 11. The sustainability, efficiency and feasibility of publicly financed universal free care policy need to be reviewed. Although the universal free care policy has probably contributed to increased utilization of health care services by the poor and marginalized, anecdotal reports suggest that resources to adequately supply health facilities have decreased by abolishing user fees, thus limiting the benefit of the policy. For instance, with the universal free care program, where health service at health posts and sub-health posts are free at point of use for all, drug stock-outs occur at 66.8 percent of the facilities. Under the targeted free care program, on the Estimates for 2008 (HIV, AIDS and STI Control Board, Government of Nepal, 2009). Free health care in refers to the publicly financed free-to-user services. 3 other hand, where free care is targeted to the poor and vulnerable, the utilization also has increased and drug stock-outs only occur at 25 percent of the health facilities. This shows the potential gain from further refining the free care policy to better benefit the poor and vulnerable groups. 12. However, the global financial crisis is having an impact on Nepal and on its ability to continue financing the health sector and nutritional interventions. The growth in remittances from Nepali workers abroad has slowed from 40-50 percent during the fiscal years 2007/08 and 2008/09 to 15 percent in 2009/10. As the growth in remittance flows has declined, revenue collection is being affected through a slowdown in import tax and VAT collection. At the same time, pressure on public expenditures in the health sector is intensifying to finance pro- poor and inclusive programs, due to the combined impact of abolition of user fees, the associated increase in demand, and the decrease of revenue from private contributions. Exacerbating the trends in public health finance, Nepal has also been badly hit by a food crisis, with an estimated deficit of 400,000 metric tons of food grain in 2010 and 3.7 million people remaining food insecure. Consequently, the Government needs to find additional public resources to cover increased spending on nutrition and food security interventions, at a time when revenue collection is becoming more vulnerable and the prices of staple commodities have increased between 30 - 70 percent (partly due to demand from Indian food-insecure areas bordering Nepal). In response to the impact of this dual global and regional crisis, resources are being made available through the IDA Crisis Response Window to the Government of Nepal for the proposed project in order to safeguard core spending in the health sector, so that provision of essential health services and interventions to improve the nutritional status of children and pregnant women can be maintained and accelerated. The objectives of the project, both protecting core spending for the poor and the longer term development of the sectors, are consistent with Crisis Response Window objectives. 13. In summary, the main challenges facing the sector include: (i) Access, social inclusion and equality in health service utilization: though the country has made significant progress, not all segments of the society equally benefit from the progress. Inequality in health outcomes, access and service utilization remains high. The poor have the largest unmet demand for family planning, make the lowest use of maternal care, have the lowest vaccination coverage, and are least likely to seek care when ill. The poor also have the lowest physical access to health care. The average time to travel to a health facility for the poorest is more than 4.6 times longer than the time to takes for the rich. In geographical terms, the mid and far west regions have the worst access to health services. Earlier surveys have shown that Dalits and ethnic and religious minorities have lower utilization of health services; (ii) MDG targets for nutrition, and HIV/AIDS are not on track; as described above, additional efforts will be required to make progress in improving the nutrition and HIV/AIDS indicators; (iii) Governance and accountability: governance issues in Nepal are exacerbated by the fluid political situation and resulting uncertainty surrounding law and order. The continued volatility in the political climate has resulted in reshuffling of personnel and responsibilities within the Government and Ministry and reforms may take longer than expected to materialize. Additionally, there are significant fiduciary risks, especially with regard to financial management and procurement where procurement processes have been interfered with through collusion, intimidation and corruption; (iv) Working multi-sectorally across ministries poses significant coordination challenges: the most significant gains in health status are likely to be dependent on more complex multi-sectoral 4 activities and community participation, particularly in the area of water, sanitation and hygiene, in the area of nutrition and in the area of road safety; and (v) Maintaining the gains made so far in reducing maternal mortality and increasing Vitamin A and immunization coverage: Nepal has made impressive progress made in reducing maternal mortality and in increasing the coverage of vitamin A supplementation and immunization. Experience elsewhere shows that such achievements could easily lead to complacency. The challenge is maintaining the focus so that these services would not slip. B. RATIONALE FOR BANKINVOLVEMENT 14. The proposed project builds on current successful support to Nepal's health sector. The Bank has been working closely with the government of Nepal and development partners in supporting the government's sector program (the Nepal Health Sector Program-NHSP) since 2004. The current Sector-Wide Approach (SWAp) modality helps the government coordinate development assistance to the health sector. The Bank has significant experience in SWAp, and is well-placed to assist the Ministry of Health and Population (MOHP) in strengthening partnership arrangements under the SWAP framework. As under the current program, the Bank's financial inputs will supplement those from government and other partners, while its technical expertise in nutrition, health care financing, governance, pro-poor health strategies, multi-sectoral action for AIDS, and monitoring and evaluation will complement that of other partners. The expansion of essential health care services to the population, central to the program, was faster than planned and translated into an early achievement of program targets, with the notable exception of the MDG targets set for HIV/AIDS and nutrition. The US$50 million of IDA resources under NHSP-IP 1 were absorbed more quickly than anticipated and additional financing of US$50 million was approved in 2008. The preliminary and early assessment of the outcomes of the Bank's support to the health sector has been rated as satisfactory4 and the Bank is well placed to continue its engagement in the sector and build on its knowledge and on past achievements. 15. The Bank has a key role by catalyzing the integration of HIV/AIDS into the SWAp. The project would broaden the scope of the existing operation to include non- governmental entities and involvement of other sectors to provide, among other services, HIV and AIDS prevention, mitigation, and treatment services. Bank financing would build on long-term technical assistance provided both to establish institutional options to address non-health based interventions, funding innovative pilot projects to address stigma, a mapping and size estimation study of most-at-risk groups to better target the program, and the development of quality assurance instruments. To date, most financing for HIV/AIDS has come through earmarked project financing (USAID, DBD, and GFATM) with services being delivered primarily through contracts with NGOs managed by UNDP, Family Health International and other International NGOs (INGOs). Financing from these sources is declining. The Department for International Development, UK (DBD) expects to complete its bilateral parallel financing in March 20 11, and funding through Round 9 of GFATM, the main remaining funder, has not been approved. Thus, several of the ongoing programs are at risk of being under-funded. IEG, Nepal Country Assistance Evaluation, 2009. 5 16. The Bank has been one of the main advocates for increased attention to nutrition outcomes and has also taken the lead in a Nutrition Assessment and Gap Analysis (NAGA). The NAGA, led by the government and supported by a wide range of other partners, including UNICEF, WHO and USAID, has catalyzed commitment within the Ministry of Health and Population and other Ministries to intensify national efforts to address nutrition. The financial resources and technical assistance provided through the project would enable to government to further scale-up successful interventions as well as pilot innovations to address some of the gaps identified in the NAGA process. The Bank's support to nutrition within the project would also position the Bank well within Nepal to play an important role to develop, with the Government of Nepal, a costed multi-sectoral (beyond the health sector) plan of action which will enable better coordination and a more comprehensive approach to addressing nutrition. 17. The Bank has a key role to play in promoting a more inclusive SWAp, both regarding program content and regarding aid architecture. The project will support the government's program that responds to the people's expectations of inclusive and accountable public services. The geographic coverage of essential services' will be expanded, and policies aimed at increasing access and utilization by the poor and thus far under-served populations would be more systematically implemented. All the main health partners are participating in the SWAP and have committed to align their expenditures to the overall government-led programmatic goals and agreed-upon priorities. Currently IDA, DfID and AusAID are pooling funds with the government and efforts are on-going to further align reporting and financial management arrangements with non-pooled funding partners as well. In order to further enhance the harmonization agenda and build a sustainable health system in Nepal, the MOHP and eight external partners, including the World Bank, signed the compact of the International Health Partnership in February 2009, while the other partners have included their commitment to the sector program through a separate joint letter. c. HIGHER LEVEL OBJECTIVES TO WHICH THE PROGRAM CONTRIBUTES 18. The project will contribute to the third pillar of the Nepal Interim Strategy Note (ISN) by enhancing equitable access to health services. Emerging from a decade long conflict, the Government of Nepal is trying to address the two issues that have long remained unaddressed: i) the feeling of exclusion by segments of the society which may have led citizens to take-up arms and gamer substantial support; and ii) the lack of legitimacy of the state when it could not deliver services in an equitable and inclusive manner. The proposed project emphasizes the need to address health sector inequities through expanding service coverage and access by the poor and excluded groups of the population. The expression "essential health care services" (EHCS), or "essential services" for short, used throughout the document, refers to a specific package of cost-effective interventions which seek to improve reproductive, maternal and child health and to control communicable and non-communicable diseases. 6 11. PROGRAM DESCRIPTION A. LENDING INSTRUMENT 19. A Sector Investment and Maintenance Loan (SIM) is chosen because the project will focus on the sector's entire expenditure program (as described by the medium term expenditure framework- MTEF) and will help to strengthen the health systems of the country. A SIM brings sector expenditures, policies, and performance in line with a country's development priorities and helps develop the country's institutional capacity. Program development objective and key indicators 20. The development objective for the proposed project is to enable the Government of Nepal to increase access to essential health care services and their utilization by the underserved and the poor. Progress towards achieving this objective will be tracked using an agreed upon set of indicators disaggregated by income, geographic and social characteristics. These indicators include both health service delivery and health system indicators (see Annex 3, Table 3.1). B. COMPONENTS PROJECT 21. The project will support the government's five year (2010/11-2014/15) sector program (NHSP 2) and comprises two components: (i) Health Service Delivery and (ii) Health Systems Strengthening. The government's five year program, although wide in scope, consolidates multiple projects and non-project activities, and encompasses technical and material support from numerous development partners. 22. The total program cost is estimated at US$1527.33 million over five years, equivalent of which DFID, AusAID and IDA will provide approximately US$240 million through pooled funds. IDA'S total financing of US$129.152 million includes US$44.152 million made available through the IDA crisis response window. The total IDA financing will comprise a grant of US$59.500 million and a credit of US$69.652 million. IDA'S financing will disburse against the entire program expenditure, which follows an agreed Annual Work Plan and Budget (AWPB). To the extent relevant, the Bank's and other partners' engagement in policy and strategic dialogue with the government will be reflected in the AWPB. Although IDA resources will be disbursed against the reviewed and approved total annual work plan and budget, there are a number of areas of special attention within the two components as described below. Results, rather than financing, in these areas will be "ring-fenced" and treated as high priority. The results framework for the project reflects the results framework of the sector program and is not limited to IDA funding. Component 1: Health Service Delivery 23. Increasing access to, and utilization of; an affordable package o essential health f services by the underserved and poor in line with MOHP's Gender and Social Inclusion strategy: More than 70 percent of the MOHP's budget finances "essential health services", referring to a specific package of cost-effective interventions which seek to improve reproductive, maternal and child health, to prevent the impact of non-communicable diseases and 7 to control communicable diseases. The project will support the expansion and strengthening of these services with a focus on better reaching the poor and excluded segments of the society. In Nepal this includes women, disadvantaged indigenous peoples known as Adivusi Junujutis, the formerly "untouchable" occupational castes known as Dulits, religious minorities (including Muslims), people from the Madhesh or southern plains belt of Nepal and those from the remote Far West region. The means by which this result will be achieved is anticipated to be a combination of interventions related to improved human resource availability in underserved areas, exemption and incentive schemes for the poor and underserved to utilize specified health services, improving and expanding physical infrastructure and the introduction of feedback mechanisms for communities to raise issues of quality of care, any form of discrimination, and governance of health facilities. These approaches are all reflected in MOHP's Gender and Social Inclusion strategy, the implementation of which will be supported by the project. 24. Improving the nutritional status of children and pregnant women: The project will support the Government of Nepal's strategy to reduce malnutrition with a particular focus on the "critical window" of opportunity of -9 to +24 months (during pregnancy and up to 2 years of age). The project will support the consolidation of existing government programs that are currently operating at scale (e.g. Vitamin A supplementation and de-worming for children 6-24 months, IFA supplementation and de-worming for women during pregnancy, iodized salt promotion) but which require additional inputs to enhance sustainability and improve equity. It will also support increases in coverage of well-proven nutrition interventions that are within the responsibility of the MOHP to deliver (e.g. zinc supplementation along with ORS for the treatment of diarrhea, interventions to promote and support early and exclusive breastfeeding as well as appropriate complementary feeding). Interventions with less evidence in the Nepal context will be evaluated to determine their appropriateness for further scaling-up. Special focus will also be given to strengthening the capacity to strategize and plan multi-sectorally (e.g. health, water and sanitation, agriculture, local development, education, etc.) to address more comprehensively the underlying factors (e.g., food security, food safety, water and sanitation) that are hindering progress in reducing basic under-nutrition. The project will promote the establishment of a high-level multi-sectoral coordination mechanism for nutrition and food security to enable better planning for nutrition within relevant ministries. Much of the remaining effort to eliminate under-nutrition involves behavior change and this, in turn, requires working with non-government entities at various levels. The project will pilot innovative approaches to engage communities, including the private sector, more pro-actively in addressing nutrition challenges. 25. Expanding coverage, and improving the effectiveness in the response to HIV and AIDS: The project will support the expansion of coverage of interventions (prevention, diagnosis and treatment) for underserved high risk groups and the quality of services provided by: i) contracting out service delivery targeting these groups to non-state entities; ii) improving the targeting of existing services; iii) developing quality assurance mechanisms; and iv) strengthening monitoring. It will also expand the coverage and quality of public health facility based services including diagnosis and treatment of HIV/AIDS, sexually transmitted infections and opportunistic infections. As part of preparation, a geographic prioritization study and an assessment of best practice interventions and development of service standards are being carried out to guide targeting of both state and non-state response and improve quality. Services to be delivered by NGOs will include prevention services for most at risk groups (including 8 comprehensive harm reduction activities, behavior change communication, condom promotion and distribution), community based services and referrals for diagnosis, treatment and care of STIs and HIV/AIDS. 26. Further reducing the mortality and morbidity associated with pregnancy and child birth: The project will continue its efforts to further reduce maternal mortality by increasing the percentage of births attended by trained health workers, especially among the poor and under- served. Ante-natal attendance will be improved by providing incentives for pregnant mothers to attend at least four ante-natal consultations and a behavior change communication campaign will target reducing teen-age pregnancies. Component 2 -Health Systems Strengthening 27. Improving the availability of human resources for health, especially in under-served areas: The MOHP will initiate an organization and management survey to assess the human resource requirements of the ministry, including a focus on supply, recruitment, deployment and retention of in remote areas. The results of the survey, together with staffing norms, will be used to obtain approval for new positions and fine-tune the strategies for the deployment and retention of staff in remote areas, such as selectively recruiting trainees from remote and disadvantaged groups to medical training programs and providing career incentives to those willing to work in remote areas. Possible bursaries for post-doctoral training and opportunities to expand the tklemedicine program will also be explored as incentives to work in hard-to-reach areas. The outcome of these strategies will be assessed regularly to improve performance. A transition to a federal structure of government during project implementation will have significant consequences for the human resource requirements at the levels of state and federal government and the necessary adjustments will be accommodated in the MOHP transition plan towards federalism. 28. Improving the sustainability o financing for the sector and designing mechanisms to f provide protection against impoverishment due to ill-health: The project will assist with analytical work to provide a means to engage government, local stakeholders and development partners in exploring options of health care financing in Nepal that respond to emerging interest in publicly financed and provided health care and financial protection against health shocks. This work would also assist the government and its partners to develop options to increase the long-term sustainability of health care financing in Nepal. It is envisaged that the analytical work and the consultations will help MOHP develop a sound health care financing strategy. 29. Strengthening and expanding the scope of Monitoring and Evaluation: This activity will support the MOHP's effort to continue monitoring progress towards the objectives of the health sector program including quality of care and inclusion aspects. This ensures the MOHP collects, analyzes and uses information for regular monitoring as well as for evaluation of its policies and programs. The project will also support the government's effort to collect disaggregated data using the Health Management Information System (HMIS) so that key indicators are disaggregated by gender and social characteristics and better connected into the NPC's Poverty Monitoring and Analysis System (PMAS). To complement data generated by the existing systems, including HMIS, the project will support annual facility surveys, one household survey and a social auditing system including the use of community score cards. 9 Through these activities, the project aims to build the MOHP's capacity to undertake similar activities independently. The community score card will be incorporated into the overall social audit the MOHP is designing. Moreover, the current practice of conducting studies on the governance aspect of quality and availability of drugs, the functioning and specification of equipment, and civil works will continue as part of the Governance and Accountability Action Plan (GAAP). At least one equipment study, one civil works study and two drug studies will be conducted during the life of the project to better understand whether equipment, infrastructure and drugs supported under the program are of quality, being delivered and used by the intended facilities. To assess the impact of community based interventions in HIV/AIDS related services, Integrated Bio-Behavioral Surveillance Surveys (IBBS) will be carried out. 30. Improving governance and accountability in the health sector: The project will support MOHP's efforts to improve governance arrangements in the sector, with the goal of improving efficiency in service delivery and value for money. Based on an assessment of strengths and areas of vulnerability a GAAP has been developed comprising actions to address the risks related to procurement, financial management, exclusion, and monitoring and evaluation. In view of the challenging governance environment, a procurement arrangement has been agreed that will help shield the MOHP against inefficiency and other risks of fraud and corruption. Progress in the implementation of the GAAP will be reviewed regularly during the Joint Annual Review. 31. The project will support a further expansion o the results focus and results-based f mechanisms in the ministry's program: Various results oriented initiatives are being implemented in the form of conditional cash transfers, for instance for women who deliver in health facilities, and output-based payments, for instance for health providers who treat women for uterine prolapse. The project will support MOHP during the first year of implementation of results-oriented programs in three areas: a) an in-kind transfer of fortified food for pregnant women once they present themselves for antenatal care and for children 6-24 months when they are brought for growth monitoring and promotion, in a limited number of food insecure districts (phase 1 districts); b) an additional 2,000 of skilled birth attendants (SBAs) and, upon deployment of these SBAs, the associated additional recurrent costs; and c) the expansion and quality improvement of the ongoing incentive program for health facilities who offer delivery services free of charge to the client. Targets will be agreed upon for subsequent years as part of the annual programming cycle. 32. The additional resources required for these initiatives will be generated through accelerated disbursement of IDA resources; As MOHP implements these initiatives it will need to increase its expenditures and the Association will respond by disbursing a larger share of the budget each year. If the performance-based mechanism is successful it would result in faster disbursement of IDA financing than presented in the baseline scenario. c. LESSONS LEARNED AND REFLECTED IN THE PROGRAM DESIGN 33. The experience under the first Health SWAP has provided useful lessons. The design of the first Nepal Health Sector Project (NHSP 1) benefited fiom extensive sector analyses carried out by GoN, External Development Partners (EDPs) and the Bank. Five years of implementation of NHSP 1 under a sector wide approach, using government systems and financing a share of MOHP's annual budget, has demonstrated that substantial progress towards 10 the MDGs can be made. The fact that this took place during a period of rapid political and social change, historic and sometimes chaotic, provides additional useful insight. More information on lessons learned is provided below. 34. An environment of unstable law and order can undermine efforts to improve governance and institutional capacity. In Nepal's health sector, this particularly affected procurement. Although procurement staff have improved their capacity to carry out procurement in an effective manner, procurement processes are interfered with through collusion, intimidation and corruption. Risks related to procurement need to be mitigated through other means, including the contracting of an independent procurement assistance consultancy and greater use of surveys on the quality of drugs and equipment procured. The project design, therefore, includes the use of independent procurement assistance consultants, the use of local communities for health facility management as stakeholders in monitoring activities, and the use of independent sources of data for monitoring. 35. Progress is possible even during periods of conflict. Part of the reason is that the government has had strong incentives to expand the reach of essential services to the population in need. However, expansion has not always translated to improved health. While there has been success in expanding public health interventions, including immunization, Vitamin A provision, control of anemia among pregnant women through IFA supplementation and de- worming, other areas such as curative care, control of neonatal tetanus, community-based management of childhood illness, and an increase in deliveries by skilled attendants have been less successful due to the poor quality of services provided. In order to remedy this, quality of services will be regularly monitored under the proposed project, particularly in view of the fact that the "free care" policy eliminated sources of income that facilities previously relied on to address occasional stock-outs and to support quality improvements. This will be done through a range of activities, including the scaling up of social auditing mechanisms, periodic surveys and reviews of goods and works procured, and periodic facility surveys. 36. A critical assessment of the financial sustainability of new policies is necessary. In order to improve access to the poor, the government abolished all fees for essential health services, and more recently began to provide monetary incentives for specific services. While coverage may have increased as a result, it has also greatly increased costs to the public sector, raising questions as to the long-term sustainability of the program. The Government faces increasingly difficult choices as to which services it will continue to finance as the cost of health care services increases. Support will be given to develop analytical work to provide a means to engage the Government and key stakeholders in exploring health care financing options to respond to the government's interest in expanding its health care program and providing protection against health shocks, and ensuring the long-term sustainability of health sector financing. 37. Adherence to the agreed work plan and budget and the budget allocation process is critical in order to expedite annual commitments by pooled funding partners. A background document for the Mid-Term Review of NHSP 1 noted that the cost and budget provisions for major new policy initiatives cannot be identified both in the detailed line item budget and in the separate annual work plan and budget. Most importantly the budget provision for free basic services cannot be identified in either document. To ensure the budget allocation 11 reflects the consultations with EDPs, the consultative process will be a continuous process. Such process will also enhance consultations around new initiatives and their budgetary implications and improve the consistency between budgets and sector strategy. Hence, not only does transparency regarding budget allocations need to be increased, but proposed allocations will also be consulted with EDPs so that the budget reflects the agreed upon work plan and budget. The health sector will pilot the use of computerized tracking of budget expenditures and agreed budget outputs in FY20 10/2011. 38. Having an independent performance assessment will enhance the joint review process. At present, HMIS generated data and process targets for the various areas are used to prepare the Annual Progress Report of the government generated report. Given the variable quality of the HMIS data, future JARS will use an independent party to carry out the assessment to provide an independent view of program progress. Similarly, an independent assessment of the performance of external development partners' is planned to add value to the joint reviews. 39. The management of the SWAP arrangement needs more clarity on the roles of all players. The roles of pooled and non-pooled hnding partners are often not clear, leading to disagreements regarding how decisions with partners are to be made and implemented. The rules of engagement between poolednon-pooled fbnding partners need to be made explicit. The understanding of the rules of engagement for coordination and management of the SWAP will be firther refined, to ensure decisions are taken swiftly, that time is not consumed by numerous meetings to reach consensus, and in order to maintain the focus of the program. 40. Performance-based incentives have the potential to achieve results. Drawing from experiences elsewhere and past projects in Nepal, the current support will have a special focus on measuring results. Particular emphasis will be given to feasible results or reform areas where performance has been lagging. Performance incentives will be disbursed against achievement of the stated and verified results or reforms. Existing schemes including the maternity incentive scheme, where demand as well as supply side financing to promote maternal health and to achieve MDG 5, will be strengthened. The focus will be in reducing inequality across income, geographic, ethnic and religious groups in access and utilization of services by increasing the number of Skilled Birth Attendant, Female Community Health Volunteers (FCHV) and village health workers. D. ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION 41. The team considered and rejected a program to support policy reform. Though there are areas requiring wide-ranging reforms, the political environment and the institutional capacity to manage change is limited and pushing for significant new policy reforms would be risky. The project takes rather a pragmatic approach by focusing on the achievements of results, supporting reforms that are underway while strengthening the health system. 42. A separate, free-standing operation to address HIV and AIDS was considered but rejected in view of the Government's desire of consolidation of smaller projects (and reduced transaction costs). Although reaching most-at-risk groups through a health SWAp will require some challenging institutional arrangements, the necessary instruments to ensure adequate targeting and quality assurance are being prepared. Working within SWAP will ensure that 12 GoN's ability to lead its HIV/AIDS response will be strengthened. The fact that there is already a roadmap for HIV/AIDS investments that has involved all stakeholders will facilitate the process. 13 111. IMPLEMENTATION A. PARTNERSHIP ARRANGEMENTS 43. Three development partners, IDA, DfID and AusAID, have agreed to pool financing which will be disbursed against the MOHP annual work plan and budget. Development partners who are involved in the SWAP arrangement but who do not pool their funding provide significant and important technical and/or financial assistance to the implementation of the annual work plan and budget. Detailed arrangements for disbursing, managing and reporting upon the use of the pooled fund are described in a Joint Financing Arrangement ( F A ) between the GoN and the pooled funding partners. The F A is under revision to include harmonized arrangements for non-pooled funding partners as well and some Development Partners have shown interest to sign it in the near future. Consultations between MOHP and all development partners will be improved through the resuscitation of the Partnership Forum and the regular consultations between development partners will continue. 44. The SWAP partners jointly assessed the draft government program using a joint assessment tool and found sufficient ground to continue supporting the program. Similar exercises could provide a basis to jointly assess performance in implementation as well. In this regard the joint assessment could serve as a tool to harmonize overall program monitoring and evaluation. B. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 45. The project supports the sector program developed by the government and implemented by the MOHP with its existing structures. The government is responsible for the implementation of the program and will take the lead in areas that require the collaboration of other ministries for successful implementation. The MOHP takes the overall responsibility for implementation. Internationally recruited Technical Assistance (TA) will advise the Ministry in the implementation of the sector program. On behalf of the pooled funding partners, DfID will procure an agreed TA package following a consultation process with MOHP. 46. Under the leadership of the Ministry, the Department of Health Services (DoHS) will be responsible for implementing the health service delivery component. Specific divisions under this department will be responsible for the respective Essential Health Care Services (EHCS) interventions. Similarly, the nutrition unit under the child health division will be responsible for implementing the subcomponent of improvement in the nutritional status of children and pregnant women. The National Center for AIDS & STD Control (NCASC) will be responsible for the implementation of the both state and non-state response. It will oversee the delivery of services through the MOHP's network of health facilities and health workers and will be responsible for contracting out NGO-delivered prevention, diagnosis and treatment services to reach most at risk populations in their communities and ensure the quality of services. The capacity of NCASC to manage contracts to NGOs will need to be strengthened, including but not limited to, the appointment of an experienced manager and financial management specialist. NCASC will build the capacity to effectively undertake its tasks. The HIV/AIDS and STI Control Board (HSCB) will coordinate the overall national, multi-sectoral response through strategic planning exercises and overall national policy formulation. 14 47. Pooled funding support from IDA, DfID and AusAID will finance a share of the government's budget expenditures. The proportion of MOHP expenditures under its budget to be financed by IDA will be determined annually. The annual work plan and budget to be agreed with EDPs will form the basis for program implementation and disbursement. The government's planning and budgeting cycle consists of three trimesters, and the annual work program and budget is divided into three trimesters. On the basis of agreed pro-rata share of financing, each pooled funding partner will initially provide an advance equivalent to two trimesters' budget into the Foreign Currency Account (which operates like a Project Account). The government will pre-finance all expenditures including that of pooled funding partners. MOHP will transfer the funds from the Foreign Currency Account to the government's consolidated fund based on actual expenditures in the agreed proportion for each pooled funding partner. The Financial Monitoring Report (FMR) will then reconcile the Foreign Currency Account against the documented expenditures and calculate the further advance required to the Foreign Currency Account. This system has been successfully implemented in the ongoing NHSP 1. The Joint Financing Arrangement to be signed by IDA, DBD, AusAID and the Ministry of Finance will govern the use and processing of these funds. Program support from non-pooled funding partners will disburse in parallel, subject to bilateral agreements, and a number of partners have shown interest in a revised JFA that would include harmonized arrangements for those partners that are unable to pool their resources. c. MONITORING EVALUATION AND 48. The MOHP will continue to monitor progress towards the results as described in the results framework for the sector program, including the results for the project (Annex 3). The MOHP will prepare annual reports on the overall progress in achieving the program's development objectives. Such reports will feed into the Joint Annual Review (JAR) where EDPs, the ministry and others stakeholders come together to assess performance and discuss the strategic priorities for the following year. The JAR process has proven to be a useful tool for joint assessment of the sector program and for identifLing gaps. During the implementation of the current project the practice of JAR will be further strengthened to allow for substantive dialogue with MOHP and relevant ministries on the annual work plan and budget that is linked to the MTEF to allow for timely agreement on changes in policies and priorities. The AWPB as approved by Parliament will serve as a trigger for release of funds. 49. Data generated from various sources will be used to assess and monitor the progress of the sector program throughout its implementation. Data generated fiom the HMIS will be one source of data. To complement data generated by the existing systems, including HMIS, facility surveys, household survey and community score cards are required. These surveys and community score cards will provide independent sources of information on quality of care, client perceptions, service utilization and coverage. The use of community score cards, after it has been piloted, and if found appropriate, will be rolled out as a component of the overall social audit the MOHP is designing which could also use technologies, such as mobile phones, at the community level. Community based bio-behavioral surveillance will be carried out to assess coverage and effectiveness of the HIV/AIDS program. 15 50. At least one household survey will be conducted to provide end of project data on the program's performance and inform an end of program evaluation. The Demographic and Health Survey to be conducted in 201 1 will be used to track progress in implementation. Facility surveys and community score cards will be conducted annually. As in the current practice, these activities will be financed by DfID, in parallel to the pooled funding arrangement as part of technical assistance to MOHP. 5 1. The current practice of conducting studies on the governance aspect of quality and availability of drugs, the functioning and specification of equipment, and civil works will continue as part of the GAAP. One equipment study, one civil works study and two drug studies will be conducted during the implementation of the project. The timing of each of the studies will be made such that during the first year of the project, the drug study will be completed followed by the equipment study in the second year and the civil works study in the third year. 52. The MOHP is currently revising its Monitoring and Evaluation Plan, specifying the roles, responsibilities and institutional arrangements with regard to monitoring and evaluation. The revised M&E Plan will be part and parcel of the Nepal Health Sector Program document. D. SUSTAINABILITY 53. The GoN's program for the Health Sector Program 2011-2015 has broad and sustained support from all major stakeholders. Stakeholder consultation has been extensive in its preparation and will be an ongoing process during implementation to sustain the support from government entities, External Development Partners and non-state actors. The community score card generation process will ensure regular participation of the community. 54. Institutional: The project will be implemented through the regular government system and does not entail establishment of new units or institutions. The Bank seeks to strengthen government structures at all levels by using the existing institutional structure and providing technical assistance. The project will further strengthen the inter-sectoral collaboration to address nutritional problems and provide technical assistance for the strategic planning and monitoring of nutrition interventions across the wide variety of stakeholders and actors. The project will provide support to MOHP in the planning of a transition to a federal structure of government. 55. Financial: The space for increasing public spending is limited. The revenue gap, self imposed restraints in domestic borrowing and limited external assistance limit space for additional resources. Projections indicate that maintaining the current level of government spending from the domestic resources base is unsustainable. Assuming an optimistic scenario of a real GDP growth of 4 to 5 percent and revenue increasing to 16 percent of GDP, maintaining the government spending at its current nominal level would require increasing fiscal deficit to 5.3 percent throughout the years 2010-20 15. The potential to generate space through effective prioritization with the MTEF exercise and enhancing absorptive capacity is limited. The MOHP is able to spend more than 84 percent of its budget and more than 70 percent of the budget is allocated for package of essential health care services containing cost-effective interventions. 16 Hence maintaining public spending in health at its current level of 7 percent would continue to require mobilization of external resources. 56. The use of Crisis Response Window resources in this project will be consistent with CRW objectives. Even if CRW resources are not earmarked, countries are encouraged to give priority to use the resources to protect core spending. For the very near fiture the resources will improve the financial sustainability of the program in the wake of the global financial and food crises. 57. Though the government demonstrated its commitment to the program, sustainable financing remains a risk. The share of health in total public expenditure has increased consistently from 5.2 percent in 2003/04 to 6.0 percent in 2005/06 and to 7.3 percent in 2006/07. The government is committed to maintain the share of public health expenditure in the coming years. Maintaining the current level of public spending in health requires a significant increase in external resource mobilization. At the projected level of GDP and revenue growth, maintaining the current level of spending requires an increase in grant to 3.6 percent from the 2008 level of 2.5 percent and an increase in net external borrowing to 0.5 percent from the 2008 level of 0.1 percent. 58. A comprehensive health financing strategy is crucial to address the risk to the program in terms of sustainable financing. The project will support the GoN to develop a health financing strategy to enhance its strategic thinking about the long-term sustainability of the sector financing and on the efficiency of spending. Such strategy will define options for financing the sector. E. CRITICAL RISKS AND POSSIBLE CONTROVERSIAL ASPECTS Risk Risk mitigation measures Risk rating with mitigation To project development outcomes Macroeconomic (i)The Bank will continue its monitoring of the Substantial (i) Overall macroeconomic framework macroeconomic situation, in particular, fiscal and fiscal policy is consistent with management, dialogue with key policy makers, and macroeconomic stability; (ii) While encourage timely policy actions; (ii) Efforts continue revenue performance has improved over to be made to improve tax policy and enhance the last few years, spending pressures are administration to maintain good revenue also mounting, as calls for more public performance. To avoid negative impact of services, subsidies, and transfer payments unexpected revenue shortfalls, disbursements are are intensifying. These increasing managed so that they are in line with actual revenue demands can pose risks to the fiscal collection and resort to large domestic borrowing is framework-specially if programs are not needed; (iii) Monetary and fiscal policies are not well-designed and targeted; (iii) being coordinated to reel in inflationary pressure Inflation is 12-14 percent, which is higher through both demand and supply side management. than neighboring countries. County Governance (i) Risk reviews have been conducted for all projects. Substantial (i) In the current environment, the state A "red line" framework has been developed for each and rule of law are weak. Political project to spell out whether I how to work in weak interference in the policing/judicial security areas; (ii) The Bank's focus on community process has resulted in occurrences of oriented operations has fostered local ownership of 17 Risk Risk mitigation measures Risk rating with mitigation impunity and lack of accountability for projects, thus making them somewhat independent crimes and abuses of power; (ii) The from these delays and governance issues. absence of an effective system of decentralized governance and delays in local level elections are major risks to peace-building and creating a platform for delivering law and order and public services to the poor and marginalized groups. Systemic corruption (i)The IDF grant for strengthening Public Substantial (i) Although a Public Procurement Act Procurement Monitoring Office (PPMO) and the has been enacted to reform the regulatory ADB's technical assistance (TA) to strengthening framework for public sector procurement, PPMO aim to increase capacity to implement the its effective implementation continues to Procurement Act; (ii) An Action Plan to address be a major challenge; (ii) Physical procurement collusion and intimidation has been intimidation and coercion by criminal endorsed by a GoN Steering Committee and its elements are distorting the functioning of implementation is underway; (iii) Project supported the public procurement system and are activities, including those at the community level, undermining transparency and competi- will incorporate social accountability measures to tion; (iii) There is the risk that local level ensure checks and balances. Supervision efforts are corruption and conflicts of interest may being reinforced. distort the implementation of laws and policies. Natural Disasters A joint Bank-ADB-UN effort is underway to design High Nepal is prone to flooding and droughts support to the GoN to strengthen disaster response and is at risk for earthquakes, but the systems. The Bank is also providing other government does not have well-developed emergency support (avian flu, emergency food crisis disaster preparedness response systems. programs). The project will support the MOHP disaster response preparedness plan as well as its implementation if required. Sector Governance (i) Through the mechanism of the SWAP, the Moderate (i) Reforms may be difficult to pursue or Development Partners will collectively convey the implement with frequent political changes importance of maintaining socially inclusive, and there may be potential for interest evidence- and rights based policies, interventions groups to use the political transition to and reforms to the Government; (ii) The project will their advantage; (ii) A tendency to support the implementation of the GESI strategy and increase the scope of, rather than the ensure that adequate attention to it is paid in the access to, basic health services would Annual Work Plan and Budget. Disbursements will pose a risk to efforts to improve equality; be made only once the Annual Work Plan and (iii) the transition to a federal structure of Budget has been approved by the development government will modify the responsibil- partners, thereby providing some checks as to the ities for health service delivery and may content of the program; (iii) The SWAP will support affect the achievement of the sector's MOHP's efforts to develop a transition road map results. towards a federal structure of government. To component results Stakeholders (i) The Governance and Accountability Action Plan Moderate (i) The risk of not addressing governance has been agreed upon and its implementation will be issues adequately may discourage partners closely monitored; progress in the implementation of to join or remain in a pooled funding the GAAP will be reported during the Joint Annual arrangement and withdraw their support Reviews. The pooled funding partners have agreed to strengthening government systems; (ii) on the use of a procurement assistance consultant results in HIV control are likely to be with a significant oversight and review function; (ii) verv limited if the uartnershiu between If MOHP will not have signed contracts with Risk Risk mitigation measures Risk rating with mitigation MOHP and civil society in addressing (1)NGOs for the prevention of HIV among the Most- HIV/AIDS does not become effective. At-Risk populations by March 31, 2011, the Bank, on behalf of the pooled funding partners, will cancel resources out of the pooled funding arrangement, and an alternative arrangement will be identified. Security Experience during the armed conflict suggests that Low Interruptions of service delivery through eventual service delivery interruptions will be strikes, protests and other forms of civil limited and not pose a major risk to the achievement unrest. of results. Implementation Capacity (i) The human resource development plan will be Moderate (i) Central, regional, district and health revised and will be supported under the project; facility levels: gaps in human resources, health facilities will be supported in better accessing knowledge and skills, technology, communication and transport facilities; (ii) Multiple communications, etc.; (ii) Meaningfully stakeholders have agreed on a multi-sectoral addressing the nutrition issues requires coordination mechanism on food security and multi-sectoral collaboration that might nutrition under the leadership of the National fail to materialize. Planning Commission. TechnicaVdesign The project aims to "ring-fence" results by - - - Moderate Under pooled funding arrangements and a prioritizing resource allocation across programs and Sector Wide Approach one cannot ring- employing performance incentives to increase the fence resources for selected activities, chance that specified results will be achieved. In running a risk that insufficient resources addition, disbursements will be made only once the will be allocated to those activities. Annual Work Plan and Budget has been approved by the development partners, thereby providing some checks as to the content of the program. Fiduciary Financial Management (i) Completion of a computerized FMIS at least at Moderate (i) A credible financial management the central level is targeted to be completed before information system (FMIS) has been the end of June 2010; (ii) MOHP has a working established. A computerization effort is group in place to ensure timely preparation of now being initiated first at the central financial statements and compliance to various level which will gradually be extended to guidelines already in place as social accountability decentralized levels; (ii) There is a risk tools; (iii) An annual Fiduciary Risk Assessment will that the preparation of financial be carried out to assess improvement in the fiduciary statements will not be completed on time; environment. TA in the area of financial (iii) the fiduciary risks may increase management will be provided in parallel to the during the project period. pooled funding arrangement. Procurement (i) The elaboration of a "whistle blower" policy, Substantial (i) There is evidence of increased allowing for the reporting of bribes and solicitation interference in public bidding through or extortion by procurement officials will be pursued intimidation; (ii) Competition is very and,; (ii) The pooled funding partners have agreed limited and prices paid may not be very with MOHP on the hiring of a procurement agency competitive; (iii) District level with considerable oversight in the procurement procurement of drugs has proven to be process, market analysis and independent validation very inefficient. of technical specifications; (iii) The procurement of drugs at district level will be limited to small value emergency procurement of goods and small value orocurement of works and services. Environment (See also Natural Disasters, above) Moderate (i) Inappropriate disposal of medical (i) The revised health care waste management plan waste; limited access to clean water and and related practices will be reviewed, monitored, adequate sanitation facilities; health and reinforced where and when necessary. 19 Risk Risk mitigation measures Risk rating with mitigation facilities that are inappropriate from Implementation will be closely monitored; (ii) The climatic considerations (temperature, emergency preparedness of the MOHP will be light, ventilation etc); (ii) Disasters from strengthened, disease surveillance for vector-borne floods, landslides, earthquakes and diseases (Dengue fever, malaria, Japanese droughts; emerging diseases from the Encephalitis etc.) will be supported and the project consequences of climatic change; (iii) will collaborate with agencies responsible for food Lack of awareness and capacity at the security in order to further the nutrition agenda. The periphery, particularly at health facility project will support the use of solar energy in health level, regarding environmental and social facilities and promote low carbon technologies; (iii) inclusion guidelines could constrain The MOHP has an explicit policy of inclusion and effective implementation of the equity. The implementation of the Gender and environmental and inclusion standards; Social Inclusion strategy (GESI) will be supported (iv) The GESI strategy is not translated and its implementation monitored. The utilization of into concrete implementation measures essential health services is monitored by income with clear lines of accountability and not quintile, gender, caste and religion; (iv) Annual implemented as in early operations. social audits to be carried out with a focus on underserved areas & socially excluded populations with due diligence in during the AWPB process and in implementation supervision. Overall risk rating I Substantial Risk Kating - H (High Kisk), S (Substantial Kisk), M ( 59. Mitigation actions included above have been identified through the application of a range of instruments, including a Peace Filter, a vulnerability to fraud and corruption assessment, and a governance and accountability assessment. 60. The envisaged move towards a federal form of government in Nepal will certainly come with significant challenges to the organization and governance of health service delivery in the country. Although the details about the state restructuring are largely uncertain until the new constitution will be agreed upon, the MOHP has initiated the elaboration of a transition plan and organized a related workshop with all partners to anticipate the preparation of a federal model and the consequences for the health sector. Any developments towards federalism will be closely monitored and appropriate action taken when the opportunity or need arises. This issue will continue to be assessed during implementation, and a transition road map is in preparation to facilitate the shift to a federal arrangement. F. LOAN~REDIT CONDITIONS AND COVENANTS Covenants 0 Not later than January 30 of each year the Recipient shall hold a Joint Annual Review with the Pooling Donors to review the progress of Project implementation during the previous fiscal year. 0 Not later than two (2) weeks before each joint annual review referred to in the previous paragraph, the Recipient will cause MOHP to prepare and furnish to the Pooling Donors for its review a report including, inter alia (i) a report on the Project's progress against the performance indicators agreed with the Association; (ii) a review of the status of the Recipient's compliance with the Governance and Accountability Action Plan (GAAP); (iii) a 20 review of the status of the Recipient meeting the financial management, disbursement and procurement requirements under the Project; (iv) a review of the technical assistance provided, including findings of studies and research undertaken under the Project; (v) lessons learned and obstacles in the implementation of the Project; and (vi) recommendations for the strategic directions and expenditure priorities for the next AWPB. The Recipient, through MOHP, shall consult with the Pooling Donors at all stages of the development of each AWPB, including at a minimum at the end of each of the months of March, May and June of the relevant year, in order to ensure consistency between the AWPB agreed on by the Pooling Donors and the final AWPB as presented to the Recipient's Parliament. The Recipient shall promptly furnish to the Pooling Donors the final AWPB upon formal approval by the Recipient. The Recipient shall ensure that: (i) the Project (including Subprojects) is implemented in accordance with the provisions of the Environmental Management Framework, the Environmental Health Impact Assessment Plan, the Framework for Land Acquisition and Resettlement, the Indigenous People's Development Framework, and the Gender Equality and Social Inclusion Strategy; and (ii) no action is taken which would prevent or interfere with such implementation. The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Governance and Accountability Action Plan. 0 The Recipient shall ensure that the Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines. 21 IV. APPRAISAL SUMMARY A. ECONOMIC FINANCIAL ANALYSES AND 61. While the government has demonstrated its commitment to increase public spending in health, the fiscal space for increasing public spending is limited. While the revenue gap, self imposed restraints in domestic borrowing and limited external assistance limit the space for additional resources, public expenditure remains higher than domestic resources. Expenditure hovers around 25 percent of GDP, while resource mobilization from domestic sources fluctuates around 16 percent of GDP. The potential to generate fiscal space through effective prioritization with the MTEF exercise and tightening of the revenue administration is very much limited. Within these limits the government has demonstrated its commitment to increase access to health services to the poor and marginalized. Over the past three years, the budget allocation to MOHP has increased from 6 percent of the national budget in 2005/06 to 7.15 percent in 2007/08. Indications from the current MTEF are that this trend will be maintained. 62. Within the health sector, spending is prioritized by allocating an increasingly larger share of the budget to essential health care services. The budget share of essential health care services will be at least 70 percent throughout the current program. Such focus on essential services rather than secondary and tertiary care would enable expansion of cost-effective services to the poor and marginalized. Programs and interventions in the EHCS are either public good in nature or have significant positive externalities that justify public intervention. These include immunization programs, infectious disease treatment and control, epidemiological surveillance, provision of health information, education and communication. Expansion of these services, which are by in large income inelastic, to remote areas and marginalized groups is expected to reduce inequality in services utilization. 63. A cost-benefit analysis of the sector program shows that the investment is justifiable. The following paragraph presents the summary of the results obtained fiom a cost- benefit analysis based on the estimated costs and benefits from successful implementation of NHSP 2. In summary, the project would yield a net present value (NPV) of benefits of $6,680 million over a ten year period. The results show that the project investment is highly justifiable. The robustness of these results is demonstrated in the sensitivity analysis that estimates a NPV of $4,401 million, even with a 50 percent reduction in the benefits of the program, and a NPV of $4,135 million with a reduction of the time horizon to 5 years. The table below summarizes the main results. Table 1: Summary of estimated costs and benefits Alternative scenarios NPV (in 000,000 USD) Base: 10 years horizon; 10% 6,680 discount rate Reduced benefits: 50% 4,401 I reduction in benefits I I I Reduced time horizon: 5 years I 4,135 22 B. TECHNICAL 64. The project builds on the current IDA supported Nepal Health Sector Program and is designed to scale-up a well performing sector-wide program and enhance its impact. The project will also broaden the scope of the existing operation to include non- governmental entities and partnerships with other government sectors to provide, among other services, HIV and AIDS prevention and treatment services and scaled up nutrition interventions. The project will support the third pillar of the Nepal Interim Strategy Note and support GoN to enhance equitable access to services and improve social inclusion. 65. Under the project, the geographic coverage of essential services will be expanded, and policies aimed at increasing access and utilization by the poor and thus far under- served populations will be more systematically implemented. Under component 1 (service delivery) the project will support i) the delivery of a specific package of cost-effective interventions to improve reproductive, maternal and child health, the control of communicable diseases and to prevent the impact of non-communicable diseases; ii) improvement in the nutritional status of children and pregnant women; and iii) improvement in the efficiency and effectiveness in the response to HIV and AIDS. Under component 2 (health system strengthening) the project will provide specific support to health system components preliminarily identified as health care financing, human resources for health, monitoring and evaluation, and governance. 66. Program Design: The project is designed as support to the overall Nepal Health Sector Program under a SWAp. The SWAP supports a country-owned, comprehensive sector program in a flexible and coordinated manner and disburses Bank and other external development partners (EDP) funds against public sector budgeted expenditures, rather than against particular project expenditures. The government, IDA and other partners finance a sector program rather than a particular project based on a clear sector strategy, clear priority results to be achieved and an agreed medium term expenditure fiamework. There is increasing evidence that the SWAP reduces the government's transaction costs in coordinating partners and that it strengthens country systems. All the main health partners are participating in the SWAP and have committed to align their financing with the overall government-led programmatic goals and agreed-upon priorities. Currently IDA, DflD and AusAID are pooling funds with the government and other development partners have expressed interest in joining the pooled funding arrangement during the project period. Technical assistance to strengthen the capacity of the MOHP to design and implement policy and program reforms in Nepal's health system will be financed by DfID, in parallel to the pooled funding arrangement. In order to harmonize and align international support to strengthen Nepal's health system, the MOHP and eight external partners, including the Bank signed the compact of the International Health Partnership in February 2009. The nature of the project design is agile enough to accommodate possible changes in the administrative structure (including federalism). 67. Focus on priority results within a pooled funding arrangement: MOHP and the pooled funding partners have agreed to prioritize results to be achieved in a number of areas where progress against the MDG targets is insufficient (nutrition, HIV/AIDS), where the distribution of progress shows significant inequalities (maternal and child health), where systemic obstacles slow further progress (human resources for health, governance, monitoring 23 and evaluation) and where sustainability has become a reason for concern (health care financing). The prioritization of specific results in these areas, rather than ring-fencing of resources, is in line with the GoN's move towards results-based management and budgeting (GoN, Nepal Portfolio Performance Review 2009). The addition of incentives to achieve results in these areas is designed to increase the probability of achieving priority results. C. FIDUCIARY Governance and Accountabilitv Action Plan 68. The Governance and Accountability Action Plan will be the main instrument to mitigate fiduciary and other governance risks. As part of the preparation of the NHSP 2, the GoN and the EDPs together prepared a Governance and Accountability Action Plan (GAAP). This combines several action plans under a single instrument and summarizes the GoN's effort to establish practices of good governance. The GAAP is expected to help mitigate and address key risks of a fiduciary nature, and other key programmatic risks. The GAAP addresses governance issues such as ensuring adequate number of health workers, timely availability of drugs, equipments and supplies, improving quality of health services, timely distribution of grants to health facilities, improving financial management, procurement management and M&E capacity, implementing social accountability tools for more vigilance in service delivery, and strengthening human resource capacity development. 69. The GAAP is also expected to help address the issue of weak internal controls identified in institutions in Nepal. The weak internal controls are a reflection of the high fiduciary risk environment in Nepal and not necessarily sector specific. However, to address this issue, the project focuses on developing and strengthening alternative control mechanisms centered on health services and facilities, as well as including arrangements for third party monitoring, social and performance audits, and special reviews as part of its design. 70. Implementation of the GAAP will be regularly monitored jointly by the GoN and SWAP partners. In order to ensure adequate focus and attention to governance and accountability arrangements (including financial and procurement management), the GAAP has been integrated into the JFA to be signed by pooled funding partners - and possibly non-pooled funding partners - and the Government of Nepal who have agreed to harmonize procedures. Capacity will be developed both in technical areas as well as in overall sector management, including financial management. On staffing, the Government will put in place a qualified and competent team of staff, to be supplemented by consultants when needed, to sustain the successes being achieved in the ongoing project. Social audits, financial audits and performance audits will be various means of ensuring better accountability and improved governance in NHSP 2. Procurement 71. Procurement for the proposed project will be carried out in accordance with the Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, revised October 2006, and the provisions stipulated in the 24 Legal Agreement. For each contract to be financed by the pooled fund, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time fiame will be agreed between the GoN and the Bank (on behalf of pooled funding partners) in the procurement plan. The procurement plan will be updated at least annually or as required to reflect the actual program implementation needs and improvements in institutional capacity. 72. The weak governance environment increases the risk to procurement. The main factors contributing to procurement risk include: (i) susceptibility to outside interference in the procurement process; (ii) limited availability of trained personnel to handle procurement; iii) very limited competition experienced under the current project; and iv) the non-adherence to existing guidelines and lack of adequate oversight. At the decentralized levels, there have been growing instances of interference in, or capture of, contracts invited at district levels. To mitigate this risk MOHP has abandoned the practice of tendering for medicine at district level and has developed a system of "Central Bidding and Local Payment". Only small value procurement of works for the renovation of health facilities in a district and emergency small value procurement of goods (including drugs, contraceptives, surgical supplies and equipment) shall be undertaken by the concerned DHO/DPHO. 73. In order to mitigate the procurement related risks, MOHP and the pooled funding partners have agreed to expand and modify the procurement arrangement for essential drugs as used by KfW during previous years. This arrangement was agreed upon after a technical and fiduciary assessment of the existing arrangement with KfW. This assessment concluded that the procurement-related risks in the project remain high, mainly due to the continuing risks at central level. The new arrangement provides for significant check and balances during the procurement process and significant technical oversight through the technical assistance. Key functions of this assistance includes selling of bid documents and receiving bids, preparing minutes of pre-bid conference with draft answers to the questions of prospective bidders, preparing preliminary bid evaluation reports and submitting these documents to MOHP for review, adoption and further action. The TOR for the procurement assistance has been discussed with MOHP in detail. The expansion of the previous arrangement with KfW refers to the inclusion of all procurement, not only essential drugs, by MOHP. The modification of the arrangement includes the adoption of Bank procedures as per the above mentioned guidelines and the inclusion into the consultants assistance team of i) a biomedical engineer, ii) a market analyst, iii) a procurement specialist designated to build procurement capacity in the MOHP; and iv) a civil engineer. 74. Various in-depth studies and assessments have informed the procurement arrangement for the project. An extensive procurement capacity assessment was carried out, special surveys on drugs and equipment have been conducted and the risk perceptions of the pooled funding partners were shared and analyzed. The preventive department of the Bank's Integrity Vice Presidency further provided useful input and support to assess the risks and guide the mitigation measures. 25 Financial ManaPement 75. Under the NHSP 1, considerable progress was made in strengthening financial management (FM) related aspects of the program. A Financial Management Improvement Plan (FMIP) was developed and agreed to between the GoN and the EDPs, and its implementation was closely monitored. This has led to several key achievements including inter alia (i) streamlining of budget heads reduced to 35 from 50 which will be implemented during NHSP 2; (ii) introduction of an Electronic Annual Work Planning and Budgeting (e-AWPB 1.O) system in English and Nepali through the Health Sector Reform Support Program for use by MOHP to facilitate the planning and budgeting; and (iii) implementation of a logistics management information system. All of these will be further deepened and expanded during the implementation of NHSP 2. 76. The financial management initiatives undertaken during NHSP 1 implementation will be further deepened. Overall, FM arrangements currently in place are considered to be adequate. From operational and financial management perspectives, arrangements as adopted in NHSP 1 will be followed by harmonizing with the government's planning, budgeting, accounting, reporting and auditing systems. During the NHSP 1 implementation, substantial efforts were made in improving overall financial management and accountability arrangements at the central and district levels and at the beneficiary level. The strategy for financial management focuses on ensuring that the lessons from NHSP 1 are incorporated into NHSP 2. The achievements made during the implementation of NHSP 1 will be consolidated and firther strengthened during the implementation of the proposed operation. Risk mitigation and supervision strategies have been developed that incorporate features that make it possible to supervise a SWAP type operation. 77. The current financing arrangements adopted in NHSP 1 will continue within NHSP 2 with an arrangement for pooled partners to share an agreed percentage of total NHSP 2 expenditures. In terms of arrangements for supervision of NHSP 2 from an FM perspective, the implementation of the GAAP is an important mitigating measure to address risks identified in the project and lower the residual risk during implementation. The Bank will continue to take the lead in reviewing all FMRs (or Interim Unaudited Financial Reports - IUFRs) and audit reports and take necessary follow-up actions as per the Bank's procedures. The supervision strategy is based on several mechanisms that will enable enhanced implementation support to the Government and to enable timely and effective monitoring. The supervision thus comprises: i) joint reviews; ii) regular visits by the EDPs and technical consultants between the formal joint reviews; iii) internal monitoring by the Government; iv) in-built independent third party monitoring/validation; and, v) internal audit and financial management reporting. The coordinated approach applied during the design phase will continue through the implementation phase to ensure high level attention is given to fiduciary matters. 78. A provision for retro-active financing has been agreed between the Recipient and the Association, allowing withdrawals up to an aggregate amount not to exceed US$5 million equivalent for payments made prior to the date of signing of the Financing Agreement but on or after March 1, 20 10 for eligible expenditures. 26 D. SOCIAL 79. The sector program has a Gender Equity and Social Inclusion (GESI) strategy that aims to provide equitable and inclusive access to quality medical services for all segments of the population. The program will place special emphasis on extending the service coverage to the vulnerable and excluded communities of the Nepali society. Towards this end, the MOHP, with active support from development partners, has developed and approved the GESI strategy for the public health sector. 80. The GESI strategy is based on the extensive research and operational experiences in the past few years. It targets the poor, socially, economically, geographically excluded population, including women and children with low health status, vulnerable groups, and marginalized castes and ethnic groups. It aims to enhance the capacity of service providers and ensure equitable access to and use of health services by these groups and improve their health seeking behavior. The strategy includes a GESI framework and outlines steps to develop policies, strategies, procedures, behavioral changes and incentives needed to institutionalize the GESI strategy in Nepal's health sector. The GESI strategy has also outlined an institutional structure at various levels to implement the strategy as well as a monitoring and evaluation framework. The GoN has agreed to develop a time-bound action plan to implement the GESI strategy and mainstream it into various health sector programs. This will include enhancement of the HMIS to be able to track key service and outcome indicators by gender and social group, a social auditing system to be designed as part of the monitoring and evaluation system as well as a public information dissemination strategy for the entire health program. 8 1. The Ministry of Health and Population has also developed two social frameworks to guide implementation. They are the Land Acquisition and Resettlement Framework and the Framework for Indigenous Peoples Development. The former is developed in line with the Land Acquisition Act 1977 and Bank operational policy (OPBP 4.12) on Involuntary Resettlement. It will guide screening, planning and compensation activities in case land acquisition under eminent domain becomes necessary for new health facilities. The latter is developed in line with relevant government laws, policies and Bank OPBP on Indigenous Peoples. The project is not expected to have any negative impact on indigenous peoples who are mainly the socially disadvantaged communities such as Adivusi Junujutis. The framework fbrther elaborates the objectives and principles in the GESI strategy that will ensure that indigenous communities are equitably served with culturally appropriate benefits under the project. E. ENVIRONMENT 82. Environmental concerns of the proposed NHSP 2 are related to: (i) infrastructure development, and (ii) Health CareMedical Waste generated at health facilities. 83. Infrastructure. Over the project period, GoN will improve, expand and develop physical infrastructure, which are likely to be relatively small scale, spread in different location across the country, and most likely to be located within the existing health premises. The minor and localized impacts may arise from constructiodupgrading of small buildings. In order to manage these impacts, GoN has prepared an Environmental Management Framework (EMF) for Physical Infrastructure Works, which defines simplified procedures and guidelines for use during 27 development of physical infrastructure under the project. Earthquake resistant designs will be applied in all infrastructure works following the National Building Codes of Nepal as well as other guidelines suggested by the Public Works Directives. 84. Health CareMedical Waste. Management of health care/ medical waste generated at the health facilities is an existing problem. As the health services expand with support from the project, it is likely that additional health care waste will be generated. Improper management of healthcare waste can pose risks to both people and the environment as they contain infectious materials and other hazardous substances. The Environmental Impact Assessment (EIA) of Nepal Health Sector Program - Implementation Plan (NHSP-IP 2004-2009) carried out by the GoN in 2003 concluded that healthcare waste management (HCWM) was a significant environmental problem for the sector. This conclusion is still valid. Although the GoN, during NHSP-IP 2004-2009, prepared a framework strategy and action plan for improvement of healthcare waste management in Nepal, its implementation remained partial and actual impact on the ground has been limited. The proposed project will emphasize implementation of the appropriate healthcare waste management in the health facilities. 85. Environmental Assessment (OP/BP 4.01). The NHSP 2 is categorized as Environmental Category B. It triggers Environmental Assessment (OP/BP 4.01). The environmental issues range from increasing the risk of spreading infections to increasing exposure to toxic and radio-active wastes, and issues arising from small-scale construction or upgrading of health care facilities. Therefore, under the EA OPBP 4.01, preparation and implementation of a national HCWM Plan is necessary as part of the sector program as well as a framework to deal with environmental concerns that may arise from small-scale construction or upgrading of physical facilities. 86. Building on the lessons learned and also considering the emerging issues, the GoN has prepared an Environmental Health Impact Assessment Plan (EHIA-Plan) revising/ updating the Healthcare Waste Management Strategy and Action Plan of the previous program, NHSP-IP 1. In early December 2009, the NHSP 2 Program Development Team of MOHP (Thematic Group on Cross Cutting Issues) broadly reviewed the current status of health care waste and its management. The EHIA-Plan takes into consideration the suggestions emanating from this review, specifically that: (i) MOHP should develop specific standards on HCWM and for the disposal of various categories of health care waste; (ii) MOHP develops waste management strategic action plans for each health care institution; (iii) each health care facility should segregateheparate health care waste; (iv) MOHP deploys dedicated personnel with proper guidelines and protocol to manage waste; (v) DoHS should apply its supervisory capacity to enhance compliance with respect to good practice in HCWM; and (vi) DoHS needs to ensure the proper use of syringes and safety boxes in routine as well as supplementary immunization activities. 87. The EMF and EHIA-Plan include capacity strengthening measures for their implementation. The Program Development Team's Thematic Group also concluded that MOHPDoHS needs to increase its capacity building efforts in terms of institutional set up and human resources to implement the HCWM program. At present, capacity at all levels in dealing with health care waste is limited. The capacity building measures recommended include provision of fill-time designated staff, enhancing environmental & health care waste 28 management competency through technical assistance, training and orientations, and ensuring allocation of annual budget. F. POLICIES SAFEGUARD Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP 4.01) [XI [I Natural Habitats (OPBP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Physical Cultural Resources (OP/BP 4.1 1) [I [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OPBP 4.10) [XI [I Forests (OPBP 4.36) [I [XI Safety of Dams (OPBP 4.37) [I [XI Projects in Disputed Areas (OPBP 7.60); [I [XI Projects on International Waterways (OPBP 7.50) [I [XI G. POLICY EXCEPTIONS AND READINESS 88. No policy exceptions are sought. The project's implementation, fiduciary and monitoring and evaluation arrangements are in place (with baseline data available for key performance indicators) satisfactory to IDA. Furthermore, the region's readiness criteria for implementation have been met. * By supporting theproposedprogram, the Bank does not intend to prejudice thejnal determination of theparties` claims on the disputed areas 29 Annex 1: Country and Sector or Program Background NEPAL: Second HNP and HIV/AIDS Project 1. Country context: Nepal is a landlocked country with an average per capita GDP of US$470. Its population of 28 million is culturally, ethnically, religiously diverse and comes from more than 100 caste/ethnic groups, speaking more than 90 different languages and dialects. There are three distinct eco-zones- the mountains, the hills and the terai plains - running north to south and five east-to-west development regions. Poverty is widespread with 31 percent of the population living below the poverty line. Poverty is slightly higher, at 35 percent, in rural areas where about 85 percent of the population lives. Various forms of social exclusion based on gender, caste, religion, language and ethnicity have exacerbated poverty with higher poverty rates among minorities, people belonging to lower castes and tribal groups. 2. Over the past decade, despite the conflict, Nepal has made significant strides in reducing poverty and progress on a number of social indicators. The head count poverty rate decreased dramatically from 42 percent in 1995/96 to 31 percent in 2003/04. The incidence of poverty in urban areas declined from 22 percent to 10 percent while poverty in rural areas declined from 43 percent to 35 percent. Poverty rates declined across all of Nepal's development regions and ecological belts driven in part by a decrease in the dependency ratio which in turn was a result of the decline in fertility that began in the 1980s. Between the mid-1990s and mid-2000s several MDG indicators such as primary enrollment, educational gender parity, under-5 mortality, IMR and immunization coverage improved markedly. 3. The political transition from a constitutional monarchy to a republican state in 2006 opened a new chapter in Nepal's history. The country emerged out of a decade long conflict with the signing of the Comprehensive Peace Accord in November 2006, laying out a roadmap to a lasting peace and the construction of a new governance structure. Constituent Assembly (CA) elections were peacefully held on April 10, 2008, creating the structure to draft a new constitution. The political system, however, remains unsteady and the security environment remains delicate. 4. Sector issues: The SWAp, which started in 2004, aims to reduce transaction cost to the government by aligning external support with GoN`s sector plan and strengthening harmonization among the development partners in the health sector. All the main health donors are participating in the SWAp. Though only IDA, DFID and AusAID are currently pooling funds, several other donors have expressed interest to join the pooled funding arrangement and several partners who are unable to pool their resources have expressed interest in improved harmonization arrangements through a revised JFA. Under the Overall GoN's leadership, the approach is endorsed by the donors who support a common sector program - Nepal Health Sector Program. The performance of the program is jointly reviewed by development partners and GoN on a yearly basis. Nepal is also one of the seven first-wave countries to benefit from the International Health Partnership (IHP). This partnership aims to further consolidate harmonization and further strengthen the SWAP in coming years. 30 5. The health sector has made significant progress in the past few years. Infant mortality declined by 39 percent over the last fifteen years from 79 deaths per 1,000 live births in 1991-94 to 48 in 2001-2005 (DHS 2006). An even more impressive decline was observed in under-five mortality, which declined by 48 percent from 118 to 61 deaths per 1,000 live births over the same period while neonatal and postnatal mortality also decreased by 34 percent and 48 percent, respectively. These declining trends in mortality rates continue as confirmed by a recent survey where both infant and under-five mortality have further declined to 41 and 50 per 1000 live births respectively in 2004-2008 (NFHP 2009). Similarly, maternal mortality declined significantly from 530 per 100,000 live births in 1996 to 281 in 2006 (DHS 2006), a trend consistent with the data from the maternal mortality and morbidity survey in 2009 which estimated an MMR of 229. Coverage of maternal and child health services increased significantly in the five years preceding 2005. Skilled antenatal care increased from 34.9 percent in 2001 to 43.7 percent in 2006 (DHS 2001, 2006) and the rate of skilled birth attendance increased by 72 percent, from 10.9 to 18.7 during the same period. Similarly, coverage of DPT3 increased from 72 percent in 2001 to 89 percent in 2005 and full immunization increased from 66 percent to 83 percent. Several of Nepal's nutrition programs are also performing very well. For example, more than 90 percent of children aged 6-59 months receive Vitamin A supplementation and de-worming twice yearly, and IFA supplementation coverage during pregnancy increased from 23 percent in 2001 to 60 percent in 2006, with a related decrease in maternal anemia. Virtually all the salt consumed in the country contains some iodine to protect newborns from mental impairment. Nepal's HIV epidemic remains concentrated in most at risk populations (MAWS) as a result of its years of efforts to contain the epidemic amongst these groups. Nepal has some well developed and effective HIV prevention, diagnosis, treatment and care programs already reaching some of the most at risk groups including injecting drug users (IDU) and female sex workers (FSW) and their clients, some less developed interventions targeting men-having-sex-with-men (MSM), and programs which have not been rigorously evaluated for migrants to high risk districts in India and their partners. 6. Despite the progress made, enormous challenges remain. Coverage of basic health service remains low with approximately one third of the Nepali population having no access to health care. Among the poor, 43 percent could not get any health services and fewer than half of the sick went to government health facilities in 2004 (Central Bureau of Statistics). Inequality is a major issue that needs to be addressed. There is wide disparity in health conditions as reflected in all health outcome indicators. Infant mortality in rural areas, for instance, is 73 percent higher than urban areas and those of mountain zones is more than twice of the hill zones. Similarly, infant, child and under five mortality rates among the poor are significantly higher than the non- poor (DHS 2006). 7. While Nepal has the highest HIV prevalence in South Asia with 0.49 percent of the population aged 15-49 infected with HIV, the majority of the infections are concentrated in high risk groups. However coverage of these most at risk groups with prevention interventions is low (UNGASS, 2008) and quality is insufficient. UNAIDS estimates that injecting drug users, female sex workers and clients and men-having-sex-with-men receive, respectively, 15 percent, 12 percent and 9 percent of prevention spending, a 36 percent share of total prevention spending despite the fact that they contribute about 95 percent of HIV transmission in Nepal (UNAIDS 2008). The estimates indicate that coverage of most-at-risk-groups is 30.6 percent for injecting drug users, 80.6 percent for female sex workers, and 34.1 percent for men-having-sex-with-men. 31 Coverage of clients of sex workers, including migrants, truckers and others, is unknown. With some exceptions, there are no standard operating procedures or guidelines for targeted interventions and systematic technical support and supervision are limited. Lack of coordination of all existing efforts has also led to some inefficiency. 8. Chronic energy deficiency in women (as measured in BMI) remains high at 24.4 percent , in 2006, only slightly down from 28.3 percent in 1996. The prevalence of low birth weight babies is reported as between 20-32 percent in hospital based studies and 14-19 percent in community-based studies. Child underweight has shown a slight improvement between 1996 and 2006 but more than a third of children weigh less than they should for their age. It is alarming that wasting, which reflects more short-term under-nutrition or increase in infections, became worse during the 1996-2006 period and currently stands at 13 percent. 9. Child under-nutrition rates are higher among children in lower wealth quintiles and the gap by wealth quintiles increased between 2001 and 2006. The Western and Mid-Western geographic regions are performing significantly worse than other regions and under-nutrition is significantly more prevalent in rural than in urban areas. Under-nutrition is also more prevalent in certain caste and ethnic groups in different areas of the country (e.g. Dalits and Muslim children have higher rates of stunting in the terai area). While the gender gap in child under- nutrition is declining in rural areas, there are still significant differences between girls and boys in urban areas. 10. The main challenges facing the sector include: Enhancing Access, Social Inclusion and Equality in health service utilization: though the country has made significant progress, not all segments of the society equally benefit from the progress. Inequality in health outcomes, access and service utilization remains high. The poor have the largest unmet demand for family planning, make the lowest use of maternal care, have the lowest vaccination coverage, and are least likely to seek care when ill. The poor also have the lowest physical access to health care. The average time to travel to a health facility for the poorest is more than 4.6 times longer than the time it takes for the rich. In geographical terms, the mid and far west regions have the worst access to health services. Earlier surveys have shown that Dalits and ethnic and religious minorities have lower utilization of health services. MDG targets for nutrition, maternal health and HIVIAIDS are not on track; as described above, additional efforts will be required to make progress in improving the nutrition and HIV/AIDS indicators. Governance and accountability: governance issues in Nepal are exacerbated by the fluid political situation and resulting uncertainty surrounding law and order. The continued volatility in the political climate has resulted in reshuffling of personnel and responsibilities within the Government and Ministry and reforms may take longer than expected to materialize. Additionally, there are significant fiduciary risks, especially with regard to financial management and procurement where procurement processes have been interfered with through collusion, intimidation and corruption. Working multi-sectorally across ministries which poses signijkant coordination challenges is key for additional gains in health outcomes: the most significant gains in health status are likely to be dependent on more complex multi-sectoral activities and community participation, particularly in the area of water, sanitation and hygiene, in the area of nutrition and in the area of road safety. The response to the recent outbreak of diarrheal disease highlights the need to coordination and the challenge to working multi-sectorally. Maintaining the gains made so far reducing maternal mortality and increasing Vitamin A supplementation and immunization coverage: Nepal has made 32 impressive progress made in reducing maternal mortality and increasing the coverage of Vitamin A supplementation and immunization coverage. Experience elsewhere shows that such achievements could easily translate to complacency. The challenge is maintaining the focus so that the coverage of these services would not slip. 11. Inclusion and Equality in health service utilization: Inequality in health outcomes, access and service utilization remains high. The poor have the largest unmet demand for family planning, make the lowest use of maternal care, have the lowest vaccination coverage, and are least likely to seek care when ill. The poor also have the lowest physical access to health care. The average time to travel to a health facility for the poorest quintile is more than 4.6 times longer than the time it takes for the wealthiest quintile (NLSMS 2002/03). In geographical terms, the mid and far west regions have the worst access to health services. Earlier surveys have shown that Dalits and ethnic and religious minorities have lower utilization of health services. 12. Access to health services: National level reductions in maternal and child mortality mask gaps in access, coverage and equity of EHCS being delivered and the significant disparities that exist between geographical regions, rich and poor and certain ethnic groups. For example: 0 Only 50 percent of the poor have access to a health facility within half an hour of walking distance. SBA delivery in the poorest wealth quintile is 4.8 percent compared to 57.8 percent in the wealthiest quintile. 0 SBA delivery in rural areas is 13.5 percent whereas it is 47.8 percent in urban areas. 0 40 percent have access to a health facility within half an hour of walking distance in mountain areas compared to around 80 percent in the terai and about 55 percent in hills. 13. The 2007 Mid-term Review (MTR) of the Nepal Health Sector Program highlighted issues with the implementation of curative services on both the supply and demand side. On the supply side, the quality and availability of services is compromised by staff shortagedabsence, lack of sufficient drugs, and the location and standard of physical facilities in some areas. On the demand side, high out of pocket costs for perceived low quality services that are unavailable where and when needed lead to low utilization. Access to district hospital level services and secondary and tertiary levels of treatment is contingent upon the ability of the user to pay which means the poor and vulnerable are often unable to access health services at this level. Conditions such as severe diarrhea and severe pneumonia, leading causes of morbidity and mortality, and impediments to achieving the MDGs, cannot be treated on an outpatient basis but need to be treated at the hospital level. 14. Expansion of health services: The geographic coverage of essential services will be expanded, and policies aimed at increasing access and utilization by the poor and thus far under- served populations will be more systematically implemented. It has been proposed that new health posts and sub-health posts be established in order to increase access to PHC services (to 1/3000-5000 from the current 1/7000-8000). This would decrease the amount of time it takes people living in mountain and hill districts to reach a health facility. The number and location of the new facilities will be determined to ensure access by the poor and marginalized. Other measures will also be taken to expand health services. For example, health workers will be recruited for the new and existing sub-health and health posts and efforts will be undertaken to 33 ensure the availability of essential drugs and reduce stock outs. The free health care policy will be expanded up to the district hospital level while the existing free bed policy in secondary and tertiary care Government hospitals will be reviewed. Qualitative studies will help inform demand and supply side barriers which prevent certain groups from accessing services and inclusive strategies to increase uptake would be developed in consultation with those communities and implemented and monitored. HIV-related services will be expanded to cover MAWS who are currently underserved. MOHP has agreed to contract NGOs to deliver prevention, diagnosis and treatment services to these populations and to strengthen the coordination of the overall response. Targeting will be done on the basis of the results of a geographic prioritization assessment and a mapping of existing resources and coverage to be carried out before June 20 10. 15. The Interim Constitution, 2063 (2007) gives Nepali citizens the right to free basic health services and is based on the vision of an inclusive society, where people of all ethnic groups, castes, religions, political persuasions, social and economic status, and genders live in peace and harmony, and, enjoy equal rights without discrimination. Based on this vision, and in an effort to increase Nepal's ability to meet the MDGs, GoN established universal publicly financed and provided essential health services, at no cost to the user at the health post and sub-health post levels, and targeted publicly financed and provided health care in primary health centers and district hospitals, and plans to expand these programs up to higher levels. Most recently, an incentive scheme for institutional deliveries was made operational country-wide from mid- January, 2009. 16. Quality o care and quality assurance: Quality assurance concerns relate to imperfect f information on the quality of data within the HMIS, the limited data on the quality of service delivery, and the limited information on the quality of goods and works procured. Measures will be implemented in order to address these concerns, including the scaling up of social auditing mechanisms, periodic surveys and reviews of goods and works procured, the conduct of periodic facility surveys and the introduction of a community score card. In addition, the Office of the Auditor General would continue with Performance Audits as per the arrangements under the previous project. 17. Governance and procurement: Public sector procurement for the health sector has been faced with a number of issues including collusion and lack of competition, resulting in a long and drawn-out procurement processes, posing a serious risk of value for money and risks of poor quality of goods and works procured. The government has started to address some of the most serious issues by revisiting the procurement of drugs at district level and addressing the immediate requirements as stipulated in the recently concluded "Capacity Assessment on Procurement Health Sector" report. Furthermore, GoN has agreed to revise the annual comprehensive procurement plan and proceed with the practice of multiyear framework contracts. Risk mitigation measures for procurement and financial management issues will be integrated into the GAAP which is a separate section in the F A to provide assurance of adequate resources for GAAP implementation. Resources for such implementation will be integrated into the annual work plan and budget (AWPB) and discussed with the EDPs. 34 18. Multi-sectoral activities: Significant gains in health status are likely to be dependent on multi-sectoral activities, particularly in the area of water, sanitation and hygiene, in the area of nutrition and in the area of road safety. Working multi-sectorally across ministries can pose challenges regarding coordination. In the area of nutrition, the formation of an inter-sectoral coordination mechanism will enable health and other sectors to coordinate their efforts for nutritional status improvement and special focus will be given to strengthening the capacity to work multi-sectorally (e.g. health, agriculture, local development, etc) to address more comprehensively the underlying factors (e.g. food security, food safety, water and sanitation) that are hindering progress in reducing basic under nutrition. The proposed project will promote the establishment of a high-level multi-sectoral coordination mechanism for nutrition to provide leadership and enable better coordination between Ministries, financing agencies, stakeholders and actors across sectors. 35 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies NEPAL: Second HNP and HIV/AIDS Project Donodproject Description/objectives Amount and period of implementation World Bank Expanding access to, and increase O $1O m for 2004-20 10 Health SWAP Nepal Health Sector the use of, essential health care Program Support services, especially by underserved project (NHSP I ): populations Credit No 3980, Grant No H125 and H 368 Nepal Avian Influenza Controlling Highly Pathogenic $7.52m for 2007-201 1 AICP Control Project (AICP) Avian Influenza (HPAI) infection HUMAN HEALTH component Human Health : Grant among birds, especially domestic No H268 poultry to minimize the threat posed to humans; and prepare for, control, and respond to possible human infections, especially an influenza epidemic and related emergencies. DFID DffD's support to the health sector $1 15m for 2004-20 10 is to contribute to poverty reduction through progress towards MDG goals on IMR, MMR, and HIV/AIDS. AusAID Supports Nepal's health SWAP as $5.3m for 2008-2010 new entrants to the pooled arrangement. Kfw/GTZ KFW provides essential drugs, $13.3m for 2009-201 1 contraceptives and some renovation of health facilities. GTZ/HSSP support is in the areas of health system strengthening, reproductive health, physical asset management, human resource development and community drug program. USAID Reducing maternal, child and infant $84m (2004-2010) mortality, increasing access to and use of voluntary family planning preventing transmission of HIV and other sexually transmitted infections (STIs) and establishing care and support services, support to infectious diseases by improving surveillance system and minimizing antimicrobial drug resistance. 36 Donor/project Description/objectives Amount and period of implementation JICA JICA implements projects in -$5m coordination with MOHP and the Ministry of Education at the central and community level to empower the community. The support is mainly in school health and nutrition. UN agencies UNFPA supports are to improve $17m for 2008-2010 reproductive health and to bring a balance between the population dynamics and socioeconomic development. It also provides support for advocacy, HIV/AIDS and gender issues. UNICEF support is focused in IMR, $6.8m for 2008 to 2010 USMR, MMR, malnutrition, micronutrient disorders and to develop a sustainable community drug program. WHO provides technical assistance $6.2m for 2008-2009 in health system development and supporting priority programs through technology support and training. GFATM GFATM is providing financial $77m for 2007-2012 support for prevention, care, support and treatment of HIV, TB and malaria. GAVI GAVI's support is in the area of $8m for 2008-2010 child immunization and health system strengthening. 37 Annex 3: Results Framework and Monitoring NEPAL: Second HNP and HIV/AIDS Project Table 3.1: Results Frame ork I Project Development Results Indicators Use of Results Information Objective To enable the Government of Nepal Skilled attendance at birth will have Track progress in increasing access and to increase access to essential health increased from the 2009 level of use of these services by the targeted care services and their utilization by group in Joint Annual Review and Mid 28.8% to 35%; and for the poorest the underserved and the poor. Term Review of the Project. Based on income quintile it will have increased the findings, the strategy to achieve from the 2009 level of 8.5% to 25%. stated targets would be continued or modified. Percentage of fully immunized children will have increased from Information will be obtained from the 2009 level of 88.8% to 90%; and for HMIS, Demographic and Health Surveys - to assess the effectiveness of the "pro- the poorest income quintile it will vulnerable groups" approach of the have increased from the 2009 level of strategy. 82.6% to 88%. Provide evidence base for dialogue with Percentage of mothers who during the ministry and support evidence-based pregnancy of the last child took iron decision making. and folic acid (IFA) will have increased from the 2009 level of 81.3% to 87%; and for the poorest income quintile it will have increased from the 2009 level of 70.5% to 75%. Intermediate Results by sub- Results Indicators for Each component component Component 1: Health Service The current use of modern Program monitoring through the JAR Delivery contraceptives among women aged process and to promote accountability. 15-49 will have increased from the NB: Once baseline values are 2009 level of 45.5% to 55%. Low levels of coverage may indicate established, these intermediate lack of appropriate inputs, poor service delivery indicators will be TB treatment success rate will have management or both. At the JAR and tracked disaggregated by income. increased from the 2009 level of 85% MTR, this indicator would be monitored, to 89%. based on HMIS, gaps identified and appropriate actions agreed to fill them. The percentage of children exclusively breastfed in the first 6 Detailed indicators for each intervention months will have increased from the will be monitored by respective program 2007 level of 53% to 60%. managers. The percentage of pregnant women attending at least one ante-natal consultation will have increased from 2009 level of 87% to 92%. Percent of diarrheal cases among under-five children treated with Zinc and ORS will have increased from 2009 level of 7% to 40%. Vitamin A coverage maintained at to it least 90% in children aged 6-59 months. 38 Coverage of IDUs and MSM population with prevention services will have increased from the 2009 baseline of 30% and 3 1% to 50% and 50% respectively. Coverage for FSWs maintained at 80% at least. Percentage of married women age 15-49 with unmet need for family planning will have reduced from the 2009 level of 26 % to 18%. Component 2: Health systems - At least 75 % of MOHP budget will The MOHP has identified separate strengthening be allocated to EHCS. budget-heads and line items financing EHCS. This indicator will signal more Percentage of PHC facilities with effective public expenditure allocation; essential drugs stock out lasting more lack of progress will indicate inability to than a week will have decreased from implement tough decisions. the 2009 level of 67% to 50%. At least 5,000 additional Skilled Determine the performance of the system Birth Attendants will have been to procure timely and efficiently; hire recruited and deployed. and retain diverse health workers staff; and expand services. 90% of actions identified in governance and accountability action Downward accountability of health care plan implemented. providers improves and health care is more responsive to patients from all At least 25% of health facilities will economic levels and social groups. have social audits implemented. A comprehensive health care finance Confidence of SWAP partners increases strategy will have been developed. and there will be interest from additional donor partners to join the pooled funding Percentage of Primary Health Care arrangement. Centers (total 201 in 2009) that provide Basic Emergency Obstetric Services (including SAC and 5 FP Helps the ministry maintain a balance methods) will have increased from between the objectives of resource 2009 level of 23 % to 70% generation, containing costs and protection of the population against At least 5,000 additional Female catastrophic expenditures due to ill- Community Health Volunteers health. (FCHVs) will have been recruited and deployed (48,5 14 in 2009) 39 1. The MOHP and the joint partners have agreed to use a limited number of relevant and meaningful "tracer" indicators to measure the progress against the objective of reducing inequity in health service utilization. The indicators are the percentage of women who deliver with the aid of a Skilled Birth Attendant, the percentage of children between 11 and 23 months who are fully immunized, and the percentage of pregnant women who receive IFA supplementation. The baseline data reflected are derived from the various Demographic and Health Surveys (DHS) and "mini-DHS", conducted in 2009 in 40 out of 75 districts. The data from this mini-DHS are skewed toward rural districts but nevertheless contribute to the estimates for the baseline available. The trends observed in the three indicators mentioned will be verified using a more complete set of indicators available through other surveys such as the DHS 201 1. Trends in these indicators by ethnicity, caste religion, income group and geographic area are presented at the end of this annex. 2. The intermediate results indicators are chosen to reflect a proxy of key program performance: Contraceptive prevalence rate in combination with skilled birth attendance for the performance of the reproductive health program, tuberculosis treatment success rate for the performance of the TB control program, coverage of most-at-risk populations for the performance of HIV/AIDS control program, Vitamin A, and IFA supplementation coverage for the nutrition program. The sector program monitors a much broader range of indicators that will be reviewed and discussed during the joint annual reviews. 3. The project will report against the following IDA Core indicators that are relevant to the project through the Implementation Status Reports: 1. The percent increase of people with access to a basic package of health, nutrition and population services 2. The number of health personnel having received training 3. The number of health facilities constructed, renovated andor equipped 4. The number of children immunized 5. The number of pregnant women having received antenatal care and 6. The number of children having received a dose of Vitamin A 4. The IDA Core Indicators related to malaria and HIV/AIDS are not relevant to the project since the activities related to those indicators are financed by the Global Fund to Fight AIDS, Tuberculosis and Malaria. Arrangements for results monitoring 5. The project provides strong support for monitoring the sector program. A number of complementary monitoring tools will be used to monitor progress in the process as well as the results. Data generated through these tools will inform the Joint Annual Review where MOHP, EDPs and other stakeholders come together to assess performance and agree on changes and inform ex-post changes if called for. In addition to the annual review process, routine implementation support missions and a mid-term review by January 2013 will use these data for monitoring purposes. 40 6. Institutional arrangement: The MOHP will lead the overall monitoring process and will be complemented by community level monitoring. Under the leadership of the secretary, various divisions and unit of the MOHP will be responsible for implementation of monitoring activities. Technical assistance for monitoring and evaluation activities will focus on building the capacity of these departments to complement the project management. 7. MOHP is currently revising its Monitoring and Evaluation Plan, specifying the roles, responsibilities and institutional arrangements with regard to monitoring and evaluation. The revised M&E Plan will be part and parcel of the Nepal Health Sector Program document. 8. The MOHP will engage a consultant to develop periodic pro-poor monitoring system including indigenous communities. Information collected through this means is expected to be channeled through a communication strategy aimed to inform beneficiaries of their rights and obligations and monitor the implementation of this framework and GESI Strategy. The consultant will design the monitoring and evaluation system with input from GESI Unit. 9. Data collection: Data will be generated from the HMIS, household surveys, facility surveys, social audits and community based bio-behavioral surveillance. These data will be triangulated to provide an independent source of information on quality of care, client perceptions, service utilization and coverage. Where feasible, data from these sources will be collected and analyzed to allow assessment of access and outcomes disaggregated by gender and social characteristics as well as economic status. During the project implementation, at least one household survey will be carried out to track the program's performance. The Demographic and Health Survey, to be conducted in 201 1, will be used to construct baseline data for the program. Facility surveys, community score cards, and assessment of healtwmedical care waste management status will be conducted annually. These activities will be financed by DfID, in parallel to the pooled funding arrangement as part of technical assistance to MOHP. 10. Moreover, the current practice of conducting studies on the governance aspect of quality and availability of drugs, the functioning and specification of equipment, and civil works will continue as part of the GAAP. At least one equipment study, one civil works study and two drug studies will be conducted during the implementation of the project. These studies will be conducted by independent bodies. The cost of the studies will be borne by the project. 11. Capacity: The household and facility surveys, social audit, and community bio- behavioral surveys will be part of the technical assistance and will be conducted in close collaboration with MOHP. In addition, relevant departments of the MOHP will be involved in data analysis and interpretation with the aim of building local capacity. 12. Arrangements for the use of monitoring data: Various monitoring reports will be assimilated prior to, and presented during, the joint annual program review. These reports include a) a report on the progress against the indicators in the NHSP-IP2 results framework; b) a progress report against the NHSP 2 Governance and Accountability Action Plan (GAAP); c) a progress report on the performance in financial management, including any audit questions raised and the actions taken to address them; d) a progress report on the performance with regard to procurement; e) a review of the Technical Assistance provided; f) a report on progress made in 41 the partnership arrangements and harmonization; g) a report on the main opportunities and obstacles in the implementation of NHSP-IP2; and h) a report on the findings of study, pilot and research undertaken. Based on these reports MOHP will suggest, during the same JAR, any consequences of the findings of the review for the strategic directions and expenditure priorities for the next AWPB. The mid-term review in January 2013 will serve to make adjustments to the program as necessary. The end-of-program evaluation will be conducted during the first six months of the year 2015, serve to inform the next Nepal Health Sector Program 2015-2020, inform the EDPs about the effectiveness of their aid modalities and suggest any improvements to be made in both the Health Sector Program and the support thereto. 42 B E B E b 0 E I M d m s s s 2 c? 'c! I- 'c! 3 0 00 00 00 I I * cd e 8 a 8 %i 3 E 3 E 3 E a ti 2 00 0 0 E: 2 00 g N 0 0 0 N g w E /m g s m 00 N 0 0 m s m N I s 0 m 9 IS I I s m 5 1 0 m s m N I Trends in the PDO indicators By caste, ethnicity, religion, income group and geographic area. Features 1996 2001 2006 2009 National 9.0 10.8 18.7 28.8 Average BrahmidChetris 12.3 15.6 25.6 36.8 Dalits 6.6 6.5 10.5 20.3 Newars 31 31.7 49.7 NA Janiatis 5.4 8 14.3 29.9 Other terai I 8.3 I 7.6 I 15.8 23.7 I ProuDs I I I I I First (poorest) 2.6 2.5 4.3 8.5 Second 4.9 4.7 9.3 26.8 Third 6.1 6.7 11.9 22.6 Fourth 7 12.6 21.7 38.9 Fifth (wealthiest) 35 43.9 55 57.7 Hill/ Mountain 19.5 Terai 31.6 First (poorest) 30 55 67 82.6 Second 34 55 82 87.3 Third 42 63 87 85.7 Fourth 49 79 89 92.1 Fifth (wealthiest) 73 86 95 98.2 I Geography Hill/ Mountain 89.1 Terai 88.7 46 Features 2006 2009 National 64 81.3 Average BrahmidChetris NA 85.5 Dalits NA 83.9 Newars Other terai Muslims NA 83.3 First (poorest) NA 70.5 Second NA 82.9 Third NA 79.5 Fourth Geo ra h Hill/ Mountain 67.4 Terai 85.3 47 Annex 4: Detailed Project Description NEPAL: Second HNP and HIV/AIDS Project 1. The project supports the sector program of the MOHP during the years 2010-2015 by financing a proportion of the MOHP budgeted expenditures and through related technical support. This project builds on the success of the project ending in 2010. The follow-on sector program has been prepared in close collaboration with key development partners and other key stakeholders. In view of the SWAp, this annex relates to the overall health sector program that the project supports and not merely to IDA financed activities. However, emphasis is placed on essential health care services because it is a key aspect of the sector program and is expected to absorb more than two thirds of the budget. 2. The SWAp, which started in 2004, aims to reduce transaction costs to the government by aligning external support with GoN's sector plan and strengthening harmonization among the development partners in the health sector. All the main health donors are participating in the sector-wide approach (SWAp). IDA, the Department for International Development, UK (DFID) and the Australian Agency for International Development (AusAID) are currently pooling funds. Several other donors have expressed interest to join the pooled funding arrangement and several partners who are unable to pool their resources have expressed interest in improved harmonization arrangements through a revised F A . Under the Overall GoN's leadership, the approach is endorsed by the donors who support a common sector program - the Nepal Health Sector Program. The performance of the program is jointly reviewed by development partners and GoN on a yearly basis. Nepal is also one of the seven first-wave countries to benefit from the International Health Partnership (IHP). The IHP will serve to further consolidate harmonization and further strengthen the SWAP over the life of the project. The Health Sector Program 3. The sector program envisions the improvement of the health status of the Nepalese population by ensuring equal opportunity to quality health care. It builds upon the previous program and is aligned with the national development plan of the country. The main focus areas identified under the project reflect continuity with the previous sector program and include (a) provision of universally available essential health care services to ensure access to EHCS, especially for the underserved; (b) decentralization of the management of health services delivery to local bodies; (c) ensuring quality of services; and (d) development of comprehensive health care financing strategy. 4. The program identifies specific results from the reform measures, such as better value for money from private sector services; assured access to EHCS for the underserved; greater efficiency of public health services; and more effective monitoring and evaluation of sector performance 48 Component 1: Health Service Delivery Increasing access to and utilization o an affordable package of essential health care services: f 5. The EHCS consist of a package of cost-effective interventions which seek to improve reproductive, maternal and child health and to control communicable and non-communicable diseases. The project will support the expansion and strengthening of these services with a focus on better reaching the poor and excluded segments of society. The expansion involves: 6. Establishment of new satellite clinics and upgrading of Health Posts and Sub-Health Posts to increase access to PHC: Establishment of sub health posts will be based on improving the current distribution of health facilities. With new facilities, the share of the population within half an hour of travel time to a health facility will be increased, with special emphasis on people living in remote mountain and hill districts. 7. Programs for community empowerment: Health facilities at all levels will have management committees trained and empowered with financial authorities. Community empowerment will also be achieved through the strengthening of the existing FCHV program by increasing their numbers. Priority will be given to mountain and hill regions. 8. Family health including safe motherhood and reproductive health: the project seeks to increase the accessibility and availability of integrated RH/FP services, expand the number of functioning comprehensive and basic emergency obstetric care centers with the aim of attaining national coverage, and strengthen the training of FCHVs. Child health: A number of programs are being implemented including: 9. Immunization: the strategies for expansion include: i) strengthening routine immunization through local recruitment of vaccinators, partnerships with private and social organizations, schools, traditional healers and a focused policy for urban areas on vaccination; ii) introduction of new vaccines; and iii) strengthening the cold-chain system. 10. IMCIhewborn health: community based integrated management of childhood illness will be revitalized to maintain quality, scale-up the newborn care package and integrate newborn care with IMCI and safe-motherhood. Access to community based IMCI services will be increased and community based IMCI will be institutionalized in pre-service curricula for health workers in all medical colleges, and other training facilities. The use of zinc for the treatment of diarrhea, in combination with Oral Rehydration Solution (ORs), will also be scaled up. Communicable disease and vector borne disease control and disaster response: 11. Pandemic preparedness and influenza control prom-am: Strategies include: i) revising the national pandemic preparedness plan; ii) preparing pandemic preparedness plans for districts; iii) strengthening capacity for case management of severe cases of influenza with intensive care facilities; and iv) health worker training. 49 12. Strengthening of epidemiological surveillance: Key activities include: i) developing an integrated disease surveillance system; and ii) mobilizing rapid response teams in districts for epidemic response. 13. Control of infectious diseases and zoonoses: Key activities include ensuring and managing essential medicines and vaccines, and capacity building. These are needed at all levels for disease outbreaks such as acute diarrheal disease, typhoid, hepatitis (A & E), measles, acute respiratory infection; zoonoses like rabies and Japanese encephalitis; and snakebite management. Mobilization of local rapid response teams during outbreaks is an important strategy. 14. Tuberculosis: Strategies include: i) expanding DOTS to all patients registered in the National Tuberculosis Program and to the community level; ii) building the capacity of the National Tuberculosis Control laboratory to act as a national reference laboratory; iii) expanding public and private diagnostic and treatment sites to improve access and coverage, and maintaining quality; iv) establishing a treatment center and sub-center in health posts and sub- health posts and/or in the community; (v) collaborating with the HIV/AIDS program on TB/HIV co-infection; and (vi) conducting studies to deal with emerging issues, e.g., drug resistance. 15. Leprosy: Strategies include: (i) accelerated efforts to detect remaining leprosy cases by bringing service closer to the community; (ii) expansion of multi-drug therapy (MDT) provision to all registered treatment cases; (iii) disability prevention by early case detection and treatment; and (iv) reducing social stigma by increasing awareness about the disease. 16. Malaria and kala-azar control program: Strategies are rapid diagnosis and treatment, community surveillance for early detection, drug resistance monitoring and complete treatment of malaria and kala-azar, and containment of outbreaks with focal household spraying. In addition, the distribution of treated bed nets will be expanded. 17. Japanese encephalitiddengue: Strategies include conducting surveillance and case treatment and adding Japanese Encephalitis immunization in 12 endemic districts. 18. Prevention of non-communicable diseases (NCD) risk factors: As the burden of disease from NCDs increases, there is an urgent need to address the problem. The strategy is focused on behavior change through promotion of a healthy lifestyle. To this end, an integrated NCD prevention and control strategy will be adapted and implemented in Nepal with particular emphasis on diet, exercise and life style changes. Special focus will be given to reducing obesity and smoking among women of child bearing age. 19. Strengthening delivery of preventive and curative services up to district hospital: The strategy includes the upgrading and strengthening twenty district hospitals in mountains and hill districts in the Midwestern and Far Western region where IMR and MMR are the highest. Such strengthening will involve concentration of physical facilities, equipment and human resources to enable the facilities to provide critical Basic Emergency Obstetric Care and Comprehensive Emergency Obstetric Care services and care for newborns. 20. Health and Climate Change: The project will support the government in anticipating - and responding to - the implications of climate change on health, nutrition, migration, and water and sanitation through a wide range of activities including the support to a disaster preparedness 50 plan, intensified surveillance for vector borne diseases and cross-sectoral collaboration in the areas of nutritiodfood security and water and sanitation. It will also support MOHP in reducing its output of greenhouse gases through the replacement of kerosene-powered refrigerators by solar-powered refrigerators, focusing initially on remote areas. Improving the nutritional status of children and pregnant women 21. Critical window of opportunitv: The project will support the GoN's strategy to reduce malnutrition, with a focus on enhancing the nutritional status of pregnant women and children under two years of age. 22. Consolidation of existing programs at scale: Further support will be given to programs that have been successful to scale-up well-proven nutrition interventions (Vitamin A supplementation and de-worming for children 6-59 months and pregnant women, promotion of adequately iodized salt, and IFA supplementation). 23. Infant and young child nutrition: A comprehensive program to address the barriers to early and exclusive breastfeeding as well as for improving practices for complementary feeding will be implemented, building on existing growth monitoring and promotion platforms and Nepal's experience in using innovative products to support good complementary feeding (e.g. multiple micronutrient powders, fortified complementary foods). 24. Zinc supplementation (with ORs) for treatment of diarrhea: Building on the initial progress in recent years in rolling out zinc supplementation (along with ORs) for the treatment of diarrhea in children, the project will support scaling-up the use of zinc and ORS using government delivery channels as well as partnering with the private sector. 25. Severe acute malnutrition: The pilots currently underway to address severe acute malnutrition (SAM) will be evaluated before scaling-up the community-based management of severe acute malnutrition. 26. Multi-sectoral coordination: The project will promote the establishment of a multi- sectoral coordination mechanism (e.g. within the National Planning Commission) to enable better planning and coordination among the various ministries, financiers and other actors to ensure broader response to issues of poverty and food insecurity. It is expected that the MOHP would take a lead role on technical matters within this coordination mechanism. 27. Innovations: Innovative approaches will be used to explore ways of addressing general maternal and child under-nutrition. Examples of such innovations include: conditional social transfer to increase fortified food intake during pregnancy and the first two years of life in food insecure districts, a community challenge fund to engage community-based organizations to design and implement innovative approaches to improve child and maternal nutrition, and double-fortified salt (iron and iodine) to address iron deficiency and anemia. 51 Expanding the coverage and improving the effectiveness in the response to HIVIAIDS: 28. The goal is to expand the coverage of interventions (prevention, diagnosis and treatment) for underserved most at risk groups and the quality and effectiveness of services provided by: i) contracting out service delivery targeting these groups to nationalhternational NGOs; ii) improving the targeting of existing services; iii) developing quality assurance mechanisms; and iv) strengthened monitoring. Services to be delivered by NGOs will include prevention services for most at risk groups (including comprehensive harm reduction activities, behavior change communication, condom promotion and distribution), community based services and referrals for diagnosis, treatment and care of STIs and HIV. Support will also provided for strengthening of targeted public health facility-based services including diagnosis and treatment of HIV/AIDS and sexually transmitted infections and opportunistic infections. IBBS of populations served would be carried out every two years to assess impact both in terms of improvements in the adoption of safe behaviors as well as impact on HIV and STIs prevalence. To improve targeting and reduce duplication, a geographic prioritization study and an assessment of available resources are being carried out to guide resource allocation. And, to improve quality of services, an assessment of best practice interventions is being carried out for each target group which will be used to develop service delivery standards and guidelines to guide implementers, ensure consistency of approach and ensure quality. Further reducing the mortality and morbidity associated with pregnancy and child birth: 29. The project will continue its efforts to further reduce maternal mortality by increasing the percentage of births attended by skilled health workers, especially among the poor and under- served. Ante-natal attendance will be improved by providing incentives for pregnant mothers to attend at least four ante-natal consultations and behavior change communication campaigns will aim to reduce teen-age pregnancies. Disaster preparedness: 30. A joint Bank-ADB-UN effort is underway to design support to the GoN to strengthen disaster response systems. The Bank is also providing other emergency support (avian flu, emergency food crisis programs). The project will support the MOHP disaster response preparedness plan as well as its implementation if required. Component 2 -Health Systems Strengthening Improving the availability o human resourcesfor health, especially in under-served areas: f 3 1. The aim is to help address the apparent imbalance in the distribution of health workers and the problem of staff absenteeism. The MOHP will initiate an organization and management survey to assess the human resource requirements of the ministry, including a focus on supply, recruitment, deployment and retention of in remote areas. The results of the survey, together with staffing norms, will be used to obtain approval for new positions and fine-tune the strategies for the deployment and retention of staff in remote areas, such as selectively recruiting trainees from remote and disadvantaged groups to medical training programs and providing career incentives to those willing to work in remote areas. Possible bursaries for post-doctoral training and opportunities to expand the teldmedicine program will also be explored as incentives to work 52 in hard-to-reach areas. The outcome of these strategies will be assessed regularly to improve performance. A transition to a federal structure of government during project implementation will have significant consequences for the human resource requirements at the levels of state and federal government and the necessary adjustments will be accommodated in the MOHP transition plan towards federalism. Improving the sustainability of financing for the sector and designing mechanisms to provide protection against impoverishment due to ill-health: 32. The project will assist with analytical work to provide a means to engage government staff, local stakeholders and development partners in exploring options for health care financing in Nepal that responds to the emerging interest in free health care and the need to provide financial protection against health shocks. This work would also assist the government and its partners to develop options to increase the long-term sustainability of health care financing in Nepal. The analytical work and the consultations will help MOHP develop a sound health care financing strategy. 33. Although the universal free care policy has probably contributed to increased utilization of health care services by the poor and marginalized, anecdotal reports suggest that resources to adequately supply health facilities have decreased, thus limiting the benefit of the policy. For instance, with the universal free care program, where health service at health posts and sub- health posts are free for all, drug stock-outs are much higher at 66.8 percent of the facilities. Under the targeted free care program, on the other hand, where free care is targeted to the poor and vulnerable, the utilization also has increased and drug stock-outs are less at 25 percent of the health facilities. This shows the potential gain from further refining the free care policy to better benefit the poor and vulnerable group of the society. Strengthening and expanding the scope of monitoring and evaluation: 34. This activity will support the MOHP?s effort to continue monitoring progress towards the objectives of the project and, in addition, enable MOHP to monitor quality aspects. This ensures the MOHP would be able to collect, analyze and use information for regular monitoring as well as for the evaluation of its policies and programs. To complement data generated by the existing systems, including HMIS, annual facility surveys, a household survey and a social auditing system including the use of community score cards will be implemented, among others to provide a basis for performance based incentives. The community score card will be integrated in the overall social audit program the MOHP is designing which could also use technologies such as mobile phone at the community level. Through these activities, the project aims to build the MOHP?s capacity to undertake similar activities independently. Moreover, the current practice of conducting studies on the governance aspect of quality and availability of drugs, the functioning and specification of equipment, and civil works will continue as part of the GAAP. At least one equipment study, one civil works study and two drug studies will be conducted during the life of the project to better understand whether equipment, infrastructure and drugs supported under the program are of quality, being delivered and used by the intended facilities. 53 Improving governance and accountability in the health sector: 35. A description of activities is reflected in the GAAP, referring to actions that will mitigate the risks related to procurement, financial management, and monitoring and evaluation. The implementation of these actions will be supported by the project. At the same time, while the governance environment remains precarious, a procurement arrangement will be put in place that will help shield the MOHP against inefficiency and risks of fraud and corruption. 54 Annex 5: Project Costs NEPAL: Second HNP and HIV/AIDS Project 1. The sector program cost is estimated at US$1,527.33 million over five years from July 2010-July 2015. Cost breakdowns (current Nepalese Rupees and current US dollars) by program areas are summarized in Table 1 below. Costs were estimated in 2009 prices and translated into current prices, using projections of US dollarhpee exchange rates. No separate provisions were made for price contingencies. Note: The following exchange rates have been applied for 201 1- 2015: -- US$l=Rs.74.55, Rs. 77.55; Rs. 80.55; Rs. 83.55; Rs. 86.55 respectively. The assumption used for years 2 to 4 costs were based on the estimate from MTEF. The year to year changes in projected expenditures vary significantly with the minimum of 10.6% and a maximum of 34%. For extrapolating the projection beyond 201 1/12, a 10% annual increased was assumed. The amounts exclude additional resources that are executed by donors directly. 2. The program will have three sources of funding: The GoN, pooled funding partners and other partners. The IDA Credit and Grant proceeds together with DfID grant and AusAID will be pooled with GoN resources to finance the program, using the government financial management system to disburse and account for the funds. Non-pooled funding partners support the program support in parallel. Several donors have expressed interest to join the pooled fbnding arrangement and several partners who are unable to pool their resources have expressed interest in improved harmonization arrangements through a revised JFA. 55 Annex 6: Implementation Arrangements NEPAL: Second HNP and HIV/AIDS Project 1. The proposed project would be a continuation of current support to Nepal's health sector and will support the government's next five year (2010/11-2014/15) sector program. Implementation arrangements are expected to remain generally the same, with the exception of some adjustments made to better address fiduciary risks identified during the implementation of the ongoing project, arrangements needed to incorporate results-based financing, and the management of some areas of intervention that will require the contracting out of services to non-government organizations. 2. Partnership arrangements: Development partners who are involved in the SWAP arrangement but who do not pool their funding provide significant and important technical andor financial assistance to the implementation of the annual work plan and budget. Detailed arrangements for disbursing, managing and reporting upon the use of the pooled fund are described in a Joint Financing Arrangement (JFA) between the GoN and the pooled funding partners. The JFA is under revision to include harmonized arrangements for non-pooled funding partners as well and some Development Partners have shown interest to sign it in the near future. Consultations between MOHP and all development partners will be improved through the resuscitation of the Partnership Forum and the regular consultations between development partners will continue. 3. Institutional and Implementation Arrangements: The project will support the sector program developed by the government and will be implemented by the MOHP with its existing structures, as is being done under the current project. The government will be responsible for the implementation of the program and would take the lead in areas that require the collaboration of other ministries for successful implementation, as in the case of HIV/AIDS and nutrition. Internationally recruited technical assistance will advise the department in the implementation of the sector program. On behalf of the pooled funding partners, DfID will procure the TA in consultation with MOHP. 4. Pooled funds from IDA, DflD and AusAID will finance an agreed share of the government's budgeted expenditure. The proportion of MOHP expenditures to be financed by IDA will be determined annually. The annual work plan and budget is to be agreed with pooled funding partners every year during the JAR. The estimated budget is divided into trimesters and one-third of each year's projected financing will be disbursed from the pooled donor funds to the government's Consolidated Fund in three installments. Further details on fund flow and accountabilities for financial reporting are addressed in Annex 7 . 5. MOHP Structure and Core Functions: The Ministry of Health and Population is responsible for policy, planning and research, provision of health services, monitoring and evaluation, regulation, human resource policies, health financing, sector coordination, health information and population policy. It consists of three departments, including the Departments of Health Services (DoHS), Department of Ayurveda (DOA) and Drug Administration (DDA) and Divisions (Policy, Planning and International Cooperation; Curative Services, Public Health Administration, Population Division, Human Resource and Financial Management Division, and Monitoring and Evaluation). 56 6. A Director General (DG) heads the DoHS with seven divisions, each headed by a Director, including Management, Family Health, Child Health, Epidemiology and Disease Control (Leprosy) and Logistics Management. Additional units supporting implementation include five centers, each with a degree of autonomy, including: the National Health Training Program; the National Health Education, Information and Communication Center; the National Tuberculosis Control Center; the National Center for AIDS and STD Control; the National Public Health Laboratory, and the division of Revitalization of Primary Health Care. Additionally, in 2007 the semi-autonomous HIV/AIDS and STI Control Board was established to assist in the implementation of the response to HIV and AIDS. 7. There are five Regional Directors who directly report to the MOHP. They are responsible for program supervision and technical backstopping. Regional and Zonal hospitals have decentralized authority through the Hospital Development Boards. At the regional level, there are also Regional Training Centers, TB centers and medical stores. 8. At the district level and below, District Development Committees (DDCs) and Village Development Committees (VDCs) are responsible for the delivery of health services. The MOHP district management structure varies: sixty-one districts are managed by the District Health Officers with support fiom the District Health Officers (DHO), and the remaining 14 are managed by the District Public Health Officers (DPHO). Below the district level are primary health care centers, health posts and sub-health posts. Local health facility management committees under the VDC chair will be socially inclusive. 9. Implementation Responsibilities: The MOHP through its health service delivery department will be responsible for implementing Component 1 (Service Delivery). Specific Divisions will be responsible for the respective EHCS interventions. Similarly, the child health division will be responsible for implementing the subcomponent of improvement in the nutritional status of children and pregnant women. The National Center for AIDS & STD Control (NCASC) will be responsible for the implementation of the both state and non-state response. It will oversee the delivery of services through the MOHP's network of health facilities and health workers and will be responsible for contracting out NGO-delivered prevention, diagnosis and treatment services to reach most at risk populations in their communities and ensure the quality of services. The capacity of NCASC to manage contracts to NGOs will need to be strengthened, including but not limited to, the appointment of an experienced manager and financial management specialist. The NCASC will build the capacity to effectively undertake its tasks. The HIV/AIDS and STI Control Board (HSCB) will coordinate the response through a strategic planning exercise and policy formulation. Component 2 (Strengthening of Health Systems) will be implemented by MOHP through its various departments, divisions and units. The MOHP is currently revising its Monitoring and Evaluation Plan, specifying the roles, responsibilities and institutional arrangements with regard to monitoring and evaluation. The revised M&E Plan will be part and parcel of the Nepal Health Sector Program. 10. Addressing capacity constraints identified during the current project's implementation: A number of fiduciary weaknesses were identified during project implementation. On financial management there were delays in submission of FMRs, problems in the control of bank accounts, timeliness and quality of external audits and continued understaffing on financial management. On procurement, more serious issues were identified, including interference in 57 public bidding processes, lack of procurement capacity, insufficient investigative and prosecuting capacity or effectiveness within existing institutions, and lack of supplier interest due to the fiduciary environment. A GAAP was prepared and committed to address many of these issues. A Procurement Capacity Assessment has been carried out to form the basis of a separate risk and risk mitigation matrix to specifically address procurement issues. Activities contained in the GAAP will be implemented by MOHP. Some of the studies (such as the drug study and the equipment study) to be carried out to assess efficiency of procurement will be managed outside MOHP to ensure independence. Development partners will provide TA for capacity building of the MOHP which would also provide services to implement the GAAP. Details on fiduciary measures included in the GAAP and the risk and risk mitigation matrix for procurement are included in Annexes 7 and 8. The Government concluded that MOHP/DoHS needs to increase its capacity building efforts in terms of institutional set up and human resources to implement the HCWM program. 58 Annex 7: Financial Management and Disbursement Arrangements NEPAL: Second HNP and HIV/AIDS Project Summary of Nepal Health Sector Program 2 and Implementation Modality 1. The proposed project builds on the on-going and evolving support to Nepal's health sector. The Bank has been working closely with the government and other development partners in supporting the Nepal Health Sector Program since 2004. The current Sector-Wide Approach (SWAp) modality helps the government coordinate development assistance to the health sector. The Bank has significant experience in sector programs, and is well-placed to assist the Ministry of Health and Population (MOHP) in further strengthening the partnership arrangements under the SWAP framework. The Bank's financial inputs will supplement those from government and other partners, while its technical expertise in nutrition, health care financing, governance, pro- poor health strategies, multi-sectoral action for AIDS, monitoring and evaluation will complement that of other partners. The World Bank has supported the health sector initially through a Poverty Reduction Strategy Credit (PRSC) and from 2004 to 2008 onwards through a Sector Investment and Maintenance Loan, designed as a Sector-Wide Approach operation. The expansion of essential health care services to the population, central to the program, was faster than planned and translated into an early achievement of MDG related targets, but with the notable exception of the targets set for HIV/AIDS and nutrition. The US$50 million of IDA resources under the NHSP were absorbed more quickly than anticipated and additional financing of US$50 million was approved in 2008. This allowed interventions in the sector to be harmonized with country systems, and helped ensure the support from a range of development partners (DPs) which was aligned with the Government's program. Furthermore, the adoption of a SWAP provided an opportunity to make meaningful changes in those areas where the risks of using country systems were perceived to be "substantial" or "high". 2. Lessons on financial management learned during the implementation of the ongoing project will be applied to the proposed project and further strengthened to deepen the harmonization efforts by EDPs and to further align their support with the country's system. The proposed project will be guided by a Joint Financing Arrangement ( F A ) that sets forth the joint provisions and procedures for financial support to NHSP 2 and serves as a coordination framework for consultation between the signatories for NHSP 2 monitoring and decision- making. Learning from the implementation experience of the ongoing project, the JFA has been modified for NHSP 2 with a heightened focus on the governance and accountability agenda. Given the high fiduciary risk country environment, the Governance and Accountability Action Plan (GAAP) (see Annex 11) has been discussed and agreed by the government and all DPs. This will be integrated into the JFA to draw close attention to this agenda during implementation. In addition to the JFA, the EDPs will further refine the rules of engagement for coordination and management of the SWAP, to ensure decisions are taken swiftly, that time is not consumed by numerous meetings to reach consensus, and to maintain the focus of the program. 3. The total expected program cost for NHSP 2 for five years is estimated at US$1,527.33 million of which the government is expected to finance about US$489.8 million, the pooled funding partners (IDA, DBD and AusAID) to finance about US$240 million, while the rest is expected from other multilateral and bilateral support. Based on an Annual Work Program and Budget (AWPB), the annual pro-rata share for each pooled funding partners will be determined on an annual basis which will be decided during the joint review of the AWPB. 59 4. The SWAP design has been strengthened to provide greater impetus to the governance and accountability framework with a specific focus on procurement and financial management, and social accountability tools as alternative assurance arrangements. These are intended to bring systemic reforms in the entire health sector. Periodic preparation of Implementation Progress Reports measuring implementation progress on outputs, with detailed analysis of financial information and procurement management, has been internalized. MOHP's reporting formats are now output-based and incorporate details of financial transactions incurred during the trimester. This has facilitated quality progress reporting on a trimester basis. MOHP will focus on institutionalizing a coordinated system within the sector so that physical and financial reports are linked and reported on in a cohesive and integrated manner. Furthermore, MOHP is working on developing its own computerized system linking all cost centers and exploring using the Logistics Management Information System (LMIS) software to generate financial information. This initiative has not only improved transparency in reporting, but is also being used as a management tool. 5. Financial management in the ongoing NHSP has been rated as "Moderately Satisfactory". The main challenges and issues based on recent review as well as the review of the latest audit observations include: a) delay in preparation of implementation progress reports which include financial monitoring report and sector financial statements; b) weak monitoring and follow-ups; c) weak internal control environment that includes not adhering to policy directives, not maintaining books of accounts or records as required by directives issued by the Ministry, payments made without adequate supporting documents, financial procedure rules not followed especially in case of taking action to freeze the unspent balance at the end of fiscal year or refunding unused advances; d) low budget outturn; e) weak management and control of bank accounts in the health sector; f) no/weak/insufficient arrangements for fiduciary control beyond district offices; g) inadequate of follow-up on the audit observations and irregularities; h) weak capacity in financial management which include the issue of understaffing at the central level; and i) weak asset management. 6. These are partly due to the overall effects of a high risk country environment. Working under a fragile political environment, the Ministry and the Department of Health Services have made efforts to mitigate these challenges. In order to provide priority focus on these matters, actions related to these have now been integrated into the GAAP which will be closely monitored by EDPs during quarterly meetings and annual joint reviews with the government. Necessary resources will be built into the AWPB to ensure that envisaged actions are adequately resourced. A high level focus will be provided together with EDPs for oversight in program implementation, including: (i) policy and guidelines formulation; (ii) coordination among government agencies and other stakeholders; (iii) approval of AWPB and overseeing its implementation. 7. The government is responsible for the implementation of the program and will take the lead in areas that require the collaboration of other ministries for successful implementation. Policy related matters will be dealt with by the high level sectoral committee chaired by the Health Minister. Internationally recruited technical assistance will advise the department in the implementation of the sector program. 60 8. The partnership arrangements between the GoN and the EDPs will be further strengthened in the proposed project. The government has gained considerable experience during the implementation of the NHSP SWAP of a new model of engaging with the development partners, through a modality of pooled funding where domestic resources are combined with support from development partners for financing the sector. The most important aspect of this partnership is that the development partners largely rely on Government systems to account for and report on the use of these resources, and also provide inputs to the process of strengthening country systems where improvements are warranted. Furthermore, the adoption of a common monitoring and evaluation framework under the SWAP has streamlined data collection and analysis systems, and built capacity at the district and central levels to produce more timely and reliable information on program outputs and outcomes. All development partners are coordinated by the MOHP. MOHP will convene regular meetings of the local representatives of all partners including those providing parallel financing. Country Fiduciary Environment 9. The Nepal Country Financial Accountability Assessment (CFAA) that was conducted jointly by the Government of Nepal and IDA in 2002 and subsequently updated in 2005, concluded that the failure to comply with the impressive legal and regulatory fiduciary framework makes the fiduciary risk in Nepal "High", but the risk is similar to that in most developing countries. The situation has not significantly changed. The Public Financial Management (PFM) Review (May 2007) reaffirmed that the PFM system in Nepal is well designed but unevenly implemented. The PFM benchmarks, established in 2008 based on the Public Expenditure and Financial Accountability (PEFA) framework led by the government with technical assistance of the World Bank, have endorsed the continuing "high" fiduciary risk with several PFM indicators rated at low scale. Joint DfID and World Bank progress reviews carried out in September 2008 and February 2009 revealed little progress on implementation of the PEFA action plan. Some of the prevailing country level risks include deteriorating control environment, insufficient monitoring, and increasing threat of collusion and intimidation to bidders, weakening oversight agencies with the absence of institutional leaders which include the Auditor General and the Chief Commissioner of the CIAA have a wider impact on the country's accountability environment including at the sectoral or program level. While these challenges prevail, improving the overall financial accountability framework remains a high priority of every government in transition. Frequent transition of political leadership in the government has been the main cause of slow movements in accelerating PFM reforms as envisaged by the PEFA action plan. Some of the actions undertaken during the challenging transition period such as promulgation of the Public Procurement Act and Public Procurement Regulations in 2007, amendment of the Financial Administration Regulations in 2007, the self-assessment of various PFM Indicators as per PEFA Guidelines in 2007 and the preparation of PFM Strategy Phase I (2010-20 12) are some examples of government's continued commitments. Implementation of these frameworks through an integrated PFM reform package through a set of mutually supportive actions that are realistic and can generate positive impacts is critical to mitigate fiduciary risks. Such a package has been reflected in the PFM Strategy Document Phase I. A high level steering committee chaired by the Finance Secretary provides the necessary forum for close monitoring on implementation with continuation of collaborative support from development partners, 61 Health Sector Fiduciary Environment and Risk Assessment 10. High fiduciary risk at the country environment level bears a direct impact at the sectoral level. While many of risk factors may go beyond the control of the sector, there are still a number of initiatives that are or can be undertaken at the sectoral level to mitigate the risk environment. A detailed fiduciary assessment (procurement and financial management) carried out by the World Bank in 2006 and a fiduciary risk assessment in the sector carried out by DfID in September 2007 concluded that the overall risk in the health sector was "high" mainly attributable to the risk associated with deteriorating procurement environment in the sector and weak procurement capacity. Subsequent to the detailed assessment by the Bank at the time of providing additional financing, an action plan for Financial Management Improvement was agreed upon with the government which was closely monitored by DPs during joint reviews. Some key results achieved include: (i) streamlining of budget heads reduced to 35 from 50 which will be implemented during NHSP 2; (ii) introduction of an Electronic Annual Work Planning and Budgeting (e-AWPB 1.0) system in English and Nepali through the Health Sector Reform Support Program for use by MOHP to facilitate the planning and budgeting; and (iii) implementation of logistics management information system. 11. The financial management system in the health sector was poor before the implementation of NHSP. Through sustained efforts of the NHSP SWAp and with intervention of DfID TA, a solid foundation is now in place to ensure good governance in the health sector but this need to be substantially accelerated to ensure sustainability of these efforts. Continuing efforts of the DfID TA will help to further accelerate the focus as well as implementation in the area of governance and accountability. All these initiatives as well as identification of other governance actions have now been integrated into a GAAP which is proposed to be the central focus of the Joint Financing Arrangement to ensure close monitoring on the implementation of GAAP. In addition, all EDPs have also committed to ensure that resources required for implementing human resource development plan are also integrated and discussed during review of AWPB. The fiduciary risk environment at the sectoral level, considering all the high risks and measures being taken and proposed is "Moderate". Adequacy of Fiduciary Arrangements 12. Experience gained through the implementation of NHSP for almost five years, increased focus on governance and accountability both by the government and DPs, increased demand for alternative assurance arrangements such as social audit at the community level, arrangement for performance audit through the Supreme Audit Institute and arrangements for third party verification ffom time to time by DPs on specific technical areas are the basis for increased comfort on fiduciary arrangements. Further, the proposed integration of GAAP into the JFA is mainly to draw close focus and attention on this agenda by the government and DPs during periodic reviews. The overall thrust is to embed the governance and accountability agenda into the sector program. With all these initiatives, the proposed financial management arrangements will be adequate to manage NHSP 2. 62 Strengths 13. The proposed project builds on an on-going support project and will be implemented under the implementation arrangements developed and used under NHSP I . The Government and DPs have agreed to remain flexible for required modification in implementation modality following the new Constitution which is expected to define the firm sub-national structures. Through successful implementation of NHSP, the sector has gained a number of strengths that have a positive impact on financial management: (i) high-level government commitment for the sectoral program and the government taking the lead in implementing NHSP 2 ; (ii) effective coordination amongst DPs; (iii) in order to further enhance the harmonization agenda and build a sustainable health system in Nepal, the MOHP and eleven DPs, including the World Bank signed up to the compact of the International Health Partnership in February 2009; (iv) incorporating lessons learnt from the NHSP to the implementation design of the proposed NHSP 2; (v) an effective harmonization including signing a joint financing arrangement by the government and the pooled funding partners; (vi) a central focus to the governance and accountability agenda through integrating the GAAP into the F A ; (vii) adoption of a common monitoring and evaluation framework; (viii) priority to capacity building and human resource development by integrating such program into the AWPB; and (ix) oversight arrangements through the country system as well as periodic reviews by DPs. Principles of Harmonized Financial Management Approaches as specified in the Joint Financing Arrangement (JFA) 14. The three pooled funding partners have committed themselves to the principles of harmonization in the spirit of the Paris Declaration on Aid Effectiveness and Accra Agenda for Action and have strived to reach the highest degree of alignment with the budgetary and accountability system and legislation of Nepal. Following are key principles related to financial management: NHSP 2 Budgets. The government will reduce the NHSP 2 budget heads to about 35 which will be indicated in the GoN Estimates of Expenditures (Red Book). All activities under these budget heads will be funded jointly by the GoN and pooled funding partners. These budget heads will comprise the NHSP 2 for financial reporting purposes. 0 Roles and Responsibilities of GoN. Roles and responsibilities of the GoN are clearly defined. The GoN has the overall responsibility for (i) the planning, administration, procurement, financial management and implementation of the NHSP 2 as per the country system, (ii) maintaining a financial management system adequate to reflect the transactions, resources, expenditures, and assets under the NHSP 2 and ensure that the GoN is able to produce timely, relevant and reliable financial information for planning and implementation of the NHSP 2 , and monitoring of progress toward its objectives that will also allow the pooled funding partners to evaluate compliance with agreed procedures, (iii) providing sufficient trained personnel and release all financial and other resources that are required over and above the funding from the pooled funding partners for the successful implementation of the NHSP 2; and (iv) ensuring that resources are channeled to the end user on a timely basis. 63 Review Mechanism. The GoN and funding partners will conduct joint meetings two- three times a year. In addition, they will also meet periodically as required. Pooling and Fund Flow Mechanism. The indicative funding levels of the pooled funding partners for the following fiscal year will be discussed in the Joint Annual Review. The pooled funding partners will provide a funding commitment in the annual review meeting to be presented to the GoN in a schedule showing the amount and the time of contribution by each pooled funding partners conditional upon a satisfactory review of the AWPB and also taking into account the budget and cash forecast statement. In light of these commitments, the pooled funding partners determine their share of funding for the coming fiscal year for the total NHSP 2. The pooled funding partners will make an advance deposit into the Foreign Currency Account (FCA) with at least their share of the first two trimesters? expenditure estimates for the fiscal year from which GoN will make their withdrawal for reimbursing the NHSP 2 equivalent to the pooled funding partners? share based on actual expenditures during the period. GoN will present Financial Monitoring Reports (?FMRs?. i.e. Interim Unaudited Financial Reports or ?IUFRs?) showing funds utilized during the trimester, the cash balance position of the FCA, and the cash forecast for the remaining fiscal year. In the event of the cash balance position in foreign currency being more than the funds required for the next two trimesters, no transfers of funds would need to take place from the pooled funding partners to the FCA. Any outstanding advance may be liable for repayment or deduction against the advance for the following fiscal year. Pooled funding partners, as suitable to their respective funding cycle, may advance to the FCA the full amount as committed for the fiscal year or for the full program or to any amount as convenient to them with the assurance that the funds so transferred will be closely monitored, tracked and reported by the FMRs. The FCA will be used only for the purpose of reimbursing the amount to GoN?s consolidated fund following the certification of actual expenditures. There will be no direct expenditure on the procurement of imported goods and services from the FCA. Upon MOHP requests, foreign exchange currency payments will be promptly facilitated by GoN as per GoN regulations. Financial Reporting, Monitoring and Disbursement. As part of progress reports, MOHP will submit the implementation progress report (IPR) on a trimester basis of which financial monitoring report will form the basis of disbursement to the foreign currency account (FCA) by DPs. MOHP will submit the IPR within 45 days of the end of each trimester on current and year-to-date: (a) transfers of funds to and from the foreign currency account, (b) expenditure statements against each budget head by detail classification according to the chart of accounts, as funded for the NHSP 2, (c) a cash forecast statement for the following two trimesters accounting for the current balance in the FCA, (d) an output based progress report, and (e) an update on the procurement plan. Monitoring. Multiple monitoring mechanisms will be adopted. These include annual review meetings, external technical review, mid-term review of NHSP 2 progress to assess program outcomes, performance audit to be carried out by Supreme Audit Institute every two years, external evaluation during the last year of the NHSP 2 and 64 detailed fiduciary review covering both procurement and financial management to be carried out by the World Bank every two years. 0 External Audit. An annual audit report of the NHSP 2 covering all budget heads assigned to it will be submitted within six months after the end of the fiscal year. Given the reality that audit reports cannot be submitted within the defined period, a four months grace period will also be provided. Disbursement Arrangements. Disbursement arrangements will be the same as applied for NHSP 1. Disbursements will continue to be report-based based on FMRs/IUFRs in a format acceptable to pooled funding partners. All pooled funding partners will continue to disburse their portion of funds as determined by the financial monitoring report to the designated FCA maintained at the Nepal Rastra Bank. The project will finance a number of different initiatives including inter alia, grants to health facilities, drugs, supplies, equipments, health service delivery, and for strengthening of a monitoring and evaluation system. Of the total expenditures incurred under NHSP 2, each pooled funding partners will finance as per the agreed pro-rata share. External Audit Arrangements Implementing Audit Auditors Audit Due Date Agency MOHP NHSP 2 Financial Office of the Auditor 6 months after the Statements General (OAG) end of each fiscal year (January 15') Audit observations of NHSP for FY2007/08 16. The audit report of NHSP for FY2007/08 contains a number of qualified observations. The Auditors have expressed their concern about the non-submission of supporting documents for audit for a few donor funded programs. Similarly, concerns have been raised for the lack of record in the Department of Health Services, violation of Public Procurement Act, non- compliance with the Budget Authority and outstanding advances to be settled. The Auditor's report, in general, reflects the need to improve overall financial accountability of the Ministry in the following areas: (1) strengthening internal control system, (2) improving procurement management and monitoring systems, and (3) ensuring proper documentation of all expenses funded by other development partners and ensuring their audits. Based on these, the Bank sent its management letter to the MOHP requesting for clarifications or actions on audit observations. MOHP responded with clarifications on specific issues and commitment to improve in the broad areas as indicated above. Recognizing these weaknesses, actions are incorporated into GAAP to address these concerns. 65 Performance Audit 17. The performance audit of the health sector was carried out by the Office of the Auditor General of Nepal (OAG/N) during FY2008/09, in close coordination with the MOHP and DPs, and will be reported in the Auditor General's 2009 Annual Report. During the project implementation period two performance audits will be carried out, as reflected in the GAAP. Internal Controls 18. Many of the indicators that deal with financial management are due to weak country environment. The high risk environment in Nepal clearly reflects a need for substantial PFM reform at the national level. This dialogue is being pursued separately by the development partners with the government. At the sectoral level, all possible interventions including the observations of the auditors are being addressed through the GAAP. The GAAP will be incorporated into the F A . This means that implementation of the GAAP will be ensured of adequate resources and will be subject to close scrutiny by development partners during reviews. While weak internal controls are the fact that aligns more with the high fiduciary country risk, the GAAP provides an opportunity to mitigate such risks at the sectoral level. Implementation Progress Reports (IPRs) including Financial Monitoring Reports (FMRsfiUFRs) 19. Generally, FMRs have been of acceptable quality but were usually delayed. Financial Covenants 20. There are two FM-specific financial covenants: (i) submission of annual audited financial statements, and (ii) submission of FMRs/IUFRs every trimester. Retro-active Financing 21. A provision for retro-active financing has been agreed between the Recipient and the Association, allowing withdrawals up to an aggregate amount no to exceed US$5 million equivalent for payments made prior to the date of signing of the Financing Agreement but on or after March 1, 2010 for eligible expenditures. Supervision 22. The World Bank will take the lead on fiduciary matters and will closely coordinate with the pooled funding partners for dissemination of any findings with the consensus of pooled funding partners' view. Implementation of financial management actions contained in the GAAP will be closely monitored. Arrangements for detailed joint procurement and financial management review will be undertaken by the World Bank on behalf of the pooled funding partners once every two years. As under NHSP 1, the World Bank will take lead in reviewing all FMRs and audit reports and take necessary follow-up actions as per the Bank's procedures. The supervision strategy is based on several mechanisms that will enable enhanced implementation support to the Government and enable timely and effective monitoring. The supervision thus comprises: a) Joint Reviews; b) regular visits by the DPs and technical consultants between the 66 formal joint review missions; c) internal monitoring by the Government; d) independent monitoring/validation; and, e) internal audit and financial management reporting. RISKS INHERENT Table 7.1: Risk Rating Sum Risk Previous Risk Assessment `d Risk Mitigating Measures Residual Risk Country level H H - Quality of PFM institutions Implementation of PEFA (see PEFA-PMF, CFAA, Action Plan; PFM sector CPAR, CPIA & other dialogue and diagnostics), standard of implementation of financial accounting, actions. reporting and auditing, quality of FM profession. Entity level S Implementation of M - Independence of entity's monitoring arrangement management, appropriateness stated in Joint Financing of the organizational Arrangements ( F A ) and structure, impact of civil GAAP implementation. service rules Project level s M - Relative size of the Bank Implementation of loan, type of lending monitoring arrangements instrument, complexity of the stated in Joint Financing project (e.g. sectors involved, Arrangements (JFA) and number of implementing and GAAP implementation. sub-implementing entities, multi-donor etc.) OVERALL INHERENTRISK Implementation of M monitoring arrangements stated in Joint Financing Arrangements (JFA) and GAAP implementation. CONTROL RISKS Budget Accounting S Placement of qualified M and experienced staff; use of consulting services and DfID TA; close monitoring Internal Controls H GAAP implementation S Funds flow M M Financial Reporting S Same as in Accounting M Auditing S Same as in Accounting M OVERALL CONTROL S M RISK RESIDUAL RISK SUBSTANTIAL I MODERATE RATING I - High S - Substantial L - Low 67 Annex 8: Procurement Arrangements NEPAL: Second HNP and HIV/AIDS Project 1. The proposed project will be carried out in accordance with the 2006 Anti-Corruption Guidelines and procurement shall be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004 (revised October 2006); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 (revised October 2006), and the provisions stipulated in the Legal Agreement. For each contract to be financed under the program, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. Although the Logistics Management DivisiodDepartment of Health Services (DoHS) under MOHP will be the responsible agency for overall procurement, under the proposed implementation arrangements, procurement will be carried out at three levels: 3. Central level: MOHP and LMDDoHS will be responsible for the procurement of centrally procured: (a) minor civil works; (b) consultants for studies and technical reviews; and (c) health sector goods including drugs and pharmaceuticals, surgical supplies and equipment. 4. Civil Works contracts estimated to cost the equivalent of US$l,OOO,OOO or above and contracts for goods estimated to cost the equivalent of US$500,000 shall be procured through ICB following World Bank procedures. Procurement of consultants shall be carried out following Bank procedures. For contracts whose estimated value is less than US$lOO,OOO equivalent, the shortlist may comprise entirely of National consulting firms. 5. All other procurement shall be carried out using local procedures as detailed in the Public Procurement Act and Regulations with certain exceptions as listed in the attachment to this section. The procedures shall also be elaborated in the Procurement Manual which shall also contain format of the documents to be used and instruction on how these are to be finalized for a particular procurement. 6. If it becomes necessary to supplement the stocks in the districts under their jurisdiction, the existing regional MOHP offices may carry out some small value procurement of essential drugs, for an aggregate value of approximately 10 percent of the total budget outlay in the concerned region for essential drugs. 7. District level: Small value procurement of works for the renovation of health facilities in a district and emergency small value procurement of goods (including drugs, contraceptives, surgical supplies and equipment) shall be undertaken by the concerned DHODPHO. These contracts shall be procured following procedures detailed in the Public Procurement Act and Regulations with certain exceptions as listed in paragraph 24 of this section and subject to the thresholds specified above for ICB. In addition, these DHOs, DDCs or DPHOs will hire: (a) consultants for various training activities; and (b) NGOs for supporting service delivery and the communities they serve. For procurement using earmarked grants for health sub-posts, 68 DHODPHO may use community participation for labor and procure the materials as per the Procurement Act. The procedures shall also be elaborated in the Procurement Manual which shall also contain format of the documents to be used and instruction on how these are to be finalized for a particular procurement. Procurement Capacity 8. During project preparation an in-depth procurement capacity assessment was done for the Logistics Management Division under the Department of Health Services. It was concluded that the LMD is conversant with the provisions of the Procurement Act and World Bank Procurement Guidelines. Nonetheless, procurement practices are marginally unsatisfactory and there are signs of frequent interference in procurement actions. In order to mitigate this risk MOHP and the pooled funding partners have agreed to expand and modify the procurement arrangement for essential drugs as used by KfW during previous years. This arrangement was agreed upon after a technical and fiduciary assessment of the existing arrangement with KfW. 9. The new arrangement provides for significant checks and balances during the procurement process and significant technical oversight through the technical assistance by a Procurement Assistance Consultant (PAC). The expansion of the previous arrangement with KfW refers to the inclusion of all procurement by MOHP (including centrally procured civil works). The modification of the arrangement includes the adoption of World Bank procedures as per the above mentioned guidelines for ICB and the inclusion into the consultants' consortium of a) a biomedical engineer, b) a market analyst, c) a civil engineer and d) a procurement specialist designated to build procurement capacity in the MOHP. 10. Roles and responsibilities of the PAC, as a main part of its TOR, were discussed in-depth and agreed as a necessary intervention to mitigate the current procurement risks. While establishing this new arrangement, a clear set of principles have been adopted which includes a) MOHP takes lead in the whole procurement process, b) capacity building of MOHP officials in procurement management is a priority component of the Technical Assistance, and c) arrangement of a PAC with key responsibilities to assist MOHP is made through the Technical Assistance. Key responsibilities/ functions of this PAC includes selling of bid documents and receiving bids, preparing minutes of pre-bid conference with draft answers to the questions of prospective bidders, preparing preliminary bid evaluation report and submitting these documents to MOHP for review, adoption and further action. The PAC will provide technical assistance to MOHP in managing procurement of goods, works, consulting services and non-consulting services, in capacity building of MOHP officials in procurement management, conducting review of procurement process etc assuring efficiency and effectiveness in procurement planning, in achieving transparent and competitive bidding with wider participation by national and international bidders and timely completion of procurement cycle. 69 Review Mechanisms 11. District procurement: All ICB contracts shall be subject to Bank's prior review. Works and goods procurement which, as per the thresholds defined can be procured through NCB and which exceed an estimated cost equivalent to US$lOO,OOO per contract shall be subject to review by the procurement assistance consultant. In addition, contracts with consultant firms exceeding an estimated cost of US$ 10,000 per contract, contracts with individual consultants exceeding an estimated value of US$2,500 per contract and all direct contract exceeding an estimated cost of US$2,000 per contract shall be subject to prior review by the procurement assistance consultant. In addition to these reviews, the procurement assistance consultant shall carry out sample post review of contracts awarded at the DDC level and shall provide a copy of the report to the Bank. 12. Besides review by the GoN's regular internal audit and annual audit teams, independent review consultants hired by the pooled funding partners shall also review, on a sample basis, procurement-related documents and verification of the assets for end use. 13. The DHODPHO staff deputed to Sub-Health Posts, Health Posts and Primary Health Care Centers shall also monitor and review contract progress and administration. 14. All the districts receiving block grants under the Program shall maintain records, and documentation pertaining to all procurement. When requested, these records shall be made available to community representatives concerned with DDCs oversight, the DHO/DPHO, and independent review consultants hired by the pooled funding partners. 15. Logistics Management Division, Department of Health Services: Except for ICB procurement, which shall be as per procedures provided in the Bank's Guidelines and shall be subject to the Bank's review at each stage of procurement, all other procurement shall be conducted in accordance to the Procurement Act with the exceptions to NCB as described in the attachment to this section, and shall be reviewed by GoN's regular internal and annual audit. 16. In addition, all Works contracts estimated to cost the equivalent of US$500,000 or more, and Goods contracts estimated to cost the equivalent of US$250,000 or more shall be subject to the Bank's prior review. All contracts with consultant firms with estimated value of US$ 200,000 or more, and contracts with individuals costing the equivalent of US$lO,OOO or more and all direct contracts shall be subject to the Bank's prior review. All other contracts shall be post reviewed on a sample basis by the Bank as well as by any independent review consultants. 17. Further, selective annual reviews of procurement at DHODPHO level will be conducted by independent review consultants employed by the pooled funding partners. 18. Procurement Planning: The DoHS has prepared a procurement plan. This plan provides details on procurement activities, the procedures to be followed (e.g. NCB or ICB for goods and works procurement, and the method of consultant selection), estimated values and review requirements. It will cover all items to be procured centrally, including those to be procured under ICB. This plan has been agreed with the Bank at the time of negotiations. 70 19. Project Costs by Procurement Arrangements is not applicable since the pooled finding partners' resources, which will be blended with government resources, cannot be attributed to any specific set of activities under the program. 20. Procurement of non-consulting services: These will include services for organizing workshops for information dissemination, and data collection under components 1 and 2. 21. Operational Costs: The project will support operational costs such as that for operation and maintenance of vehicles, vehicle and office rentals, rentals for IT services such as internet connection, utilities, and office consumables required for the day-to-day running of the ministry, the department of health services and government health facilities. 22. Others: Under Component 1, the program supports the transfer of cash incentives for women delivering with the attendance of a skilled health worker, pregnant women who attend at least four antenatal consultations during the pregnancy and the women who come for treatment of uterine prolapsed. Additional and similar results-oriented incentive schemes may be added during implementation. Overall Procurement Risk Assessment 23. Despite the promulgation of a national procurement law based on the UNCITRAL model law, the overall procurement environment still entails a lot of risk. The following table describes the procurement related risks and proposed mitigating measures. The overall procurement risk for the program is assessed at the central and decentralized levels. Based on the assessment and proposed mitigating measure, the residual procurement risk at districthegional levels is rated as substantial and that for the Department of Health Services as high. Table 8.1 Procurement Risks: Procurement 0 Priorities of the political transition High The IDF grant for strengthening Public environment have made it difficult for Parliament Procurement Monitoring Office (PPMO) and to focus on improving accountability. the ADB's TA to strengthening PPMO aims to Although a Public Procurement Act increase capacity to implement the has been enacted to reform the Procurement Act. regulatory framework for public sector procurement, its effective implementation continues to be a mai or challenge. 0 PUBLIC PROCUREMENT: Physical A report on procurement collusion and intimidation and coercion by criminal intimidation, prepared by a joint working elements on their own or by devious group, includes an Action Plan that has been group of contractors are distorting the endorsed by the GoN Steering Committee. Its functioning of the public implementation will help to address the risks procurement system and are around cartelization, intimidation, and undermining transparency and corruption. All new projects including this one competition. Similarly, there are have developed and will implement action strong indications of collusive plans (GAAPs) with strong transparency / practices in public procurement. accountability measures. Improved procurement packaging (such as consolidation of the requirements of similar items by different agencies and inviting bids 71 under package/slice arrangement that would attract international bidders yet still allow local firms to bid)), multi -year contracting etc. are other measures that would help reduce malpractices and improve procurement efficiency. 0 There is the risk that local level In addition to social accountability measures to corruption and conflicts of interest ensure checks and balances, this project may distort the implementation of envisages the use of the procurement laws and policies consortium to review district level procurement and use of Independent Review Consultants for a separate review. Overall project supervision efforts, including procurement supervision, will be reinforced. 24. In order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section 1 of the Procurement Guidelines, the following exceptions to local procedures shall apply in the case of National Competitive Bidding: (i) bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee; (ii) foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders; (iii) bids shall be opened in public in one place, immediately after the deadline for submission of bids; (iv) qualification criteria (in case pre-qualifications were not carried out) shall be stated in the bidding documents, and if a registration process is required, a foreign firm declared as the lowest evaluated bidder shall be given a reasonable opportunity of registering, without let or hindrance; (v) evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed with the Association and contracts shall be awarded to the lowest evaluated bidders; (vi) re-bidding shall not be carried out without the prior concurrence of the Association; (vii) extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than four weeks and (B) for all subsequent requests for extension irrespective of the period; (viii) there shall not be any restrictions on the means of delivery of the bids. 72 Annex 9: Economic and Financial Analysis NEPAL: Second HNP and HIV/AIDS Project 1. Expenditure on Health 1. Level of Expenditure: Expenditure in health stood at 5.3 percent of GDP in 2006. The per capita health expenditure remains low at US$18.09 compared to US$65 in Bhutan, US$44 in Sri Lanka, US$29 in India and US$19 in Afghanistan. In terms of the composition of total health expenditure (THE), 44 percent is from public sources while the remaining 56 percent is from private sources. The share of government stands at 24 percent (US$4.28) of the THE and external partners contribute the remaining 21 percent (US$3.75). More than 55 percent (US$9.0) of THE is financed through out of pocket at the time of service. Of the private sources, 90 percent is out of pocket and the remaining 10 percent is accounted for by non-profit institutions (7.7 percent) and corporations (2.3 percent). Of the government sources, more than 93 percent is from general tax revenues and the remaining is contributed by local and central governments. Of the external partners, 62 percent comes from international non-profit agencies and the rest from official donor agencies. 2. Though the level of THE is low, the trend in the past few years has been encouraging. Total health expenditure has increased from US$16.69 in 2003/04 to US$19 in 2005/06 in nominal terms. It also has increased in real terms, albeit at a lower rate (figure 1). It also has slightly increased as a percentage of GDP. What is interesting is the trend in the components: while the share of private spending was falling, that of the government was increasing steadily (figure 2). Despite such increase in recent years however, total expenditure on health is still low. Figure 1. Trends in Total expenditure on Health 600 0 loo ~ 2000/01 2001102 2002103 2003104 2004105 2005106 +Real ++Nominal 3. Fiscal Sustainability and Government Commitment: There is limited fiscal space for further increasing public spending. Limited domestic revenues, self imposed restraints in domestic borrowing and limited external assistance limit space for additional resources. Projections indicate that maintaining the current level of government spending on Nepal's domestic resources base is unsustainable. Assuming a real GDP growth of 4 to 5 percent and 73 revenue of 16 percent of GDP, maintaining government spending at its current share of GDP would require increasing the fiscal deficit before grants to 5-6 percent throughout the years 20 10- 2015 . The potential to generate space through effective prioritization with the MTEF exercise and enhancing absorptive capacity is limited. The MOHP is able to spend more than 84 percent of its budget and more than 70 percent of the budget is allocated for the package of essential health care services containing cost-effective interventions. Hence maintaining public spending in health at its current level of 7 percent would continue to require mobilization of external resources. 4. Maintaining the current level of public spending in health requires a significant increase in external resource mobilization. At the projected level of GDP and revenue growth, maintaining current levels of spending would require an increase in grants to 3.6 percent from the 2008 level of 2.5 percent and increase in net external borrowing to 0.5 percent from the 2008 level of 0.1 percent. 5. A comprehensive health financing strategy is crucial to address the risk to the program in terms of sustainable financing. The project will thus support the GoN's plan to develop a health financing strategy to enhance its strategic thinking in terms of long-term sustainability of the sector financing and the efficiency of spending. Such a strategy will define various options for financing the sector. 6. Within these limits, the government has demonstrated its commitment to increase availability and access to health services to the poor and marginalized groups. Over the past three years, the budget allocation to MOHP has increased from 6 percent of the national budget in 2005/06 to 7.15 percent in 2007/08. Indications from the current MTEF are that such a trend will be maintained. Moreover, an increasingly larger share of the budget is allocated to essential health care services. The budget share of essential health care services (EHCS) will be at least 75 percent throughout the project. Such a shift away from secondary and tertiary care to EHCS would support expansion of cost-effective services to the poor and marginalized. 7. Programs and interventions in the EHCS are either public good in nature or have significant positive externalities that justify public intervention. These include immunization programs, infectious disease treatment and control, epidemiological surveillance, provision of health information, education and communication. Expansion of these services, which are by in large income inelastic, to remote areas and marginalized groups is expected to reduce inequality in services utilization. 74 Figure 2. Health Expenditure as a Percentage of GDP IC 0 x 0 c c , 2 1 Q) g o P m 2000/01 2001/02 2002103 2003104 2004105 2005106 P -4-gov't as a percent of GDP +Private as a percent of GDP Rest of the world as a percent of GDP 8. Equity: In the past ten years inequalities in health outcomes has decreased across various groups. The disparity between castes, ethnicities, and wealth quintiles decreased in immunization, diarrheal disease control, treatment for acute respiratory infection and contraceptive rates (MOHP and RTI, 2008). Similarly, disparities in outcomes including under- five and infant mortality rates and low birth weight, among castes, ethnic groups and wealth quintiles have decreased. However, inequality in maternal health, especially skilled birth attendance and antenatal care has increased. More effort is needed to maintain the pace of decline and further reduce the level of inequality in maternal health. 9. Public expenditure on health needs to address these inequalities. The practice has been allocating budget based on the distribution of facilities. Such resource allocation approaches tend to maintain the inequalities. For instance while household expenditure in health in hill regions is more than three folds that of the mountain region, the public expenditure barely compensates for such differences (Table 1). A gradual move away from such a practice and a move towards allocating budget on the basis of population, accessibility, and cost of delivering health services would improve equity in access to and use of health services. The AWPB process will be one of the instruments to continuously monitor the government's effort to reduce inequality. Expansion plans, the introduction of new programs and all intewentio'ns will be assessed based on their contribution to reduce inequality. 75 Repot number HSRSP Report No. 2.1-06-07. 10. The most recent work on benefit incidence of benefit shows that public expenditure in health in Nepal was far from pro-poor. The share of public expenditure in health that goes to the poorest 20 percent of individuals is less than 7 percent. This compares with 17 percent for Bangladesh, 13 percent in India and 21 percent in Sri Lanka (O'Donnell, van Doorslaer, Rannan- Eliya, et al, 2007). The situation certainly has changed since 1996. Among other things the government has introduced a targeted and then a universal free care policy. 11. Although the universal free care policy has probably contributed to increased utilization of health care services by the poor and marginalized, anecdotal reports suggest that resources to adequately supply health facilities have decreased, thus limiting the benefit of the policy. For instance, with the universal free care program, where health service at health posts and sub- health posts are free for all, drug stock-outs are much higher at 66.8 percent of the facilities. Under the targeted free care program, on the other hand, where free care is targeted to the poor and vulnerable, the utilization also has increased and drug stock-outs are less at 25 percent of the health facilities. This shows the potential gain from further refining the free care policy to better benefit the poor and vulnerable group of the society 12. Efficiency of Public Spending: The efficiency of public expenditure in health could improve, especially allocation among diseases categories. In 2005/06 for instance, diseases that contributing to 68 percent of the burden of diseases (category A diseases) get only 21 percent of the public funding, while diseases contributing to 23 percent of the disease burden (category B diseases) get 18 percent. Though there are improvements since 2002/03, more needs to be done. More and more resources have been allocated to category A disease: the ratio of public spending on category A to category B disease increasingly improved from 1:2.7 in 2002103 to 1:l in 2003/04 to 1:0.76 in 2004/05. The current tendency to increasingly allocate more budgets to EHCS would continue to improve the efficiency of the spending. 13. The government plans to spend US$1,527 million over the five years of implementing its program. This financing comes from governments own resources and from pooled funding partners including DffD, the World Bank, and AusAID. Table 9.2 shows the breakdown. The financing plan is based on current MTEF projections and the share of government, grant and loans remains to allow the government to align its resources with the targets. 76 Table 9.2: Proposed Financing Plan for Public Expenditure In (000,000) I I I 14. The government will also align finances from bilateral and multilateral organizations to the priorities of the national program under the framework of the SWAP and International Health Partnership plus (IHP+) agreements. This financing plan will be elaborated annually through the AWPB process. And the existing budget rationalizing process through the MTEF would help to prioritize its program. Indicator Status Total health exDenditure as a % of GDP' 5.3% I 77 2. Innovative Financing 15. Scaling-up of Successful and Introducing New Initiatives: existing successful initiatives that improve key health outcomes will be scaled up and new initiatives will be introduced. These initiatives will target the system both at facility as well as central level. The project will support results-oriented programs of the MOHP during the first year of implementation in three areas: a) the project will introduce a social transfer to promote the intake of fortified food by pregnant women once they present themselves for antenatal care and by children 6-24 months in a limited number of food insecure districts; b) additional resources available upon the training and deployment of an additional 2,000 skilled birth attendants in year 1 of the program and, upon deployment of these SBAs, finance the associated additional recurrent costs; and c) the project will support the expansion and quality improvement of the ongoing incentive program for health facilities who offer delivery services free of charge to the client. The additional resources required for these initiatives will be generated through accelerated disbursement of IDA resources. 3. Cost-benefit analysis 16. Measuring the benefit of health interventions is complex. Quantifying benefits requires making a number of assumptions that need validation. To the extent possible only those benefits involving minimum computation are considered here. Benefits are assumed to consist of direct and indirect components. Direct benefits include cost savings and consumptions enjoyed due to reduced disease burden. Costs are saved when treatment is averted due to reduction in burden of disease due to the program. The consumption component of improved health, though important, is not measured here. Indirect benefits include productivity gains that are related to deaths averted and time saved (less morbidity resulting in less time lost to illness and less time spent caring for the sick) due to the program. Productivity gains that arise from improved health as demonstrated by various studies (Strauss and Thomas, 1995; Belay, 2003) are not measured. 17. Direct benefits: this is computed as reduced expenditures due to treatment averted. Cost of treatment includes expenditures on drugs, medicine etc as well as expenditure on supplementary food. The savings in non-food expenditures due to treatment averted are a significant part of expenses related to health shocks. But due to lack of data these component are not taken into account. The savings in expenditures are calculated as the total number of cases treatment averted due to the program (as indicated in the sector program) multiplied by the cost of treatment. 18. Indirect benefit: this benefit is calculated as increase in productivity due to fewer days lost from illnedpremature deatwcaring for the sick. The gains are calculated as the reduction in the total days of morbidity/mortality multiplied by the average daily per capita GDP. 19. Benefits from implementing the sector program include reduced expenditure due to reduction in the burden of diseases, and increase in productivity due to fewer days lost from illnesdpremature deatwcaring for the sick. 20. The following paragraph presents the summary of the results obtained from a cost-benefit analysis based on the estimated costs and benefits from successful implementation of NHSP 2. In summary, the project would yield a net present value (NPV) of benefits of $6,680 million over 78 a ten year period. The results show that the project investment is highly justifiable. The robustness of these results is demonstrated in the sensitivity analysis that estimates a NPV of US$4,401 million, even with a 50 percent reduction in the benefits of the program, and a NPV of US$4,135 million with a reduction of the time horizon to 5 years. The table below summarizes the main results Alternative scenarios NPV (in 000,000 US$) Base: 10 years horizon; 6,680 10% discount rate Reduced benefits: 4,40 1 50% reduction in benefits I Reduced time horizon: 5 years I 4,135 21. Finally given the nature of the analysis, it is crucial that to conduct sensitivity analysis to assess the robustness of the results. We assumed a 50 percent reduction in the benefits of key interventions. This is equivalent to assuming the program failing to achieve its target by 25 percent. The results show that even when the program falls short of its target by 50 percent, the investment is still justifiable. 22. Key Assumptions: - The benefit of the program is distributed uniformly over the years. - Benefits and costs are for the entire program. - Daily contribution for per capita GDP = US$1.28 - Cost of treatment = US$20 (NHA 2006) - Malaria prevalence= 3.1%. - Number of lives saved due to TB treatment = 70222 in 5 years time. - Under 5 malnutrition will be reduced by= 16% - Average days of illness = 2 days (in the absence of national survey, we used figure from neighboring country) - Of sick individuals, % seeking treatment = 66.1% (NLSMS, 2003/04) - Of total visits to health facilities, % visiting public facilities = 44% (NLSMS, 2003/04) - Discount rate = 10% - Current projection of MTEF in health sector spending will hold for the program years. 79 Annex 10: Safeguard Policy Issues NEPAL: Second HNP and HIV/AIDS Project A. Environment 1. Environmental concerns of the proposed Nepal Health Sector Program 2 are related to: (i) infrastructure development, and (ii) health care/medical waste generated at health facilities. 2. Infrastructure. Over the project period, the GoN will improve, expand and develop physical infrastructure such as health posts, primary health centers, and district hospital as well as administrative blocks in order to strengthen health system and improve efficiency/effectiveness of service delivery and enhance people's access to health services. These infrastructures are likely to be relatively small scale, spread in different locations across the country, and most likely to be located in the government land, within the existing health premises. The minor and localized impacts may arise from construction/upgrading of small buildings, and related to location and orientation of building as well as construction activities and also wastes generated during construction and operation. In order to manage the above mentioned type of minor and localized impacts arising from infrastructure upgrading and construction, the GoN has prepared an Environmental Management Framework (EMF) for Physical Infrastructure Works. This builds on the CON Environmental Protection Act and Regulation as well as experiences from the NHSP 1 implementation. The EMF defines simplified steps, procedures and guidelines or criteria and/or standards to be used while planning and developing health related physical infrastructure under the project. These, for example, are related to screening, preparation of simple and specific environmental management plan (if required), appropriate orientations and sitting of buildings, and provision of spaces and facilities for handling and management of wastes generated at the health facilities. 3. Health Care Waste. Management of health care/ medical wastes generated at the health facilities is an existing problem, rather than one to be introduced by the proposed project. The Environmental Impact Assessment (EIA) of Nepal Health Sector Program - Implementation Plan (NHSP-IP 2004-2009) carried out by the GoN in 2003 concluded that healthcare waste management (HCWM) is a significant environmental problem for the sector. This conclusion is still valid. During NHSP 1, the GoN prepared a framework strategy and action plan for improvement of healthcare waste management in Nepal. Actions identified by this plan included development of an institutional framework for HCWM; preparation of National HCWM Guidelines, its dissemination and orientation/ training on its use; conducting a feasibility study on appropriate technical options for HCWM in different types of health care facilities (HCF) and in different environmental settings of Nepal (e.g. hills, plains); training on appropriate HCWM practices; preparation and introduction of HCWM Regulation; and gradually bringing HCFs under proper HCWM. The responsibility for implementation of the HCWM Strategy and Action Plan was initially given to the M&E Division of the ministry and later to the Management Division of Department of Health Services. The Public Health Officer of the Division, who was responsible for monitoring and evaluation, was identified as focal point for HCWM activities also: there was no full-time person assigned to work at national/ sector level promoting and coordinating health care waste management, and this was one of the major constraints in effective implementation of the strategy and action plan prepared during project preparation. During the previous program period GoN has surveyed HCWM practices at different types of health facilities; prepared Healthcare Waste Management Guidelines in Nepali; conducted 80 sensitization and awareness programs at several districts; ensured the design of new health care facilitieshuildings provided space for managing wastes (including providing burning chamber); and GoN started to allocate budget for HCWM. Despite these efforts, implementation of the HCWM Action plan remained partial and actual impact on the ground limited. Progress on waste management during the previous program period should be seen against the country context of violent conflict and political instability. The proposed project period will emphasize the implementation of the appropriate healthcare waste management in the health facilities. The Concept Paper prepared by the Government of Nepal for the Nepal Health Sector Program 2 (2010-2015) and the road map for NHSP 2 preparation commits that priority will be given to proper management of medical care waste in order to prevent health hazards posed from it, and to revisitheassess implementation of NHSP 1 health care waste management action. A new plan for NHSP 2 has been developed, including an agreed set of monitoring indicators for health care waste management. 4. GoN, building on the lessons learned and also considering the emerging issues, has prepared an Environmental Health Impact Assessment Plan (EHIA-Plan), revisinghpdating the Healthcare Waste Management Strategy and Action Plan of previous program, NHSP 1. The EHIA-Plan concludes and recommends that: (i) there is a need to carry out a study covering all sources generating HCW in the country, including large and small hospitals, health clinics, health posts and sub-health posts, nursing homes, veterinary clinics etc; (ii) the strategic approaches and mitigation measures should be included in the NHSP 2 under the priority headings and costing should be done with appropriate distribution of the responsibility; (iii) the HCWM Strategy and Action Plan are considered a proxy to the environmental Management Plan. While implementing individual HCWM Projects involving treatment and disposal, such projects would need to comply with applicable regulatory provisions; and (iv) in order to formulate very precise and appropriate strategies of HCWM in Nepal, a careful desk review and case studies are required with adequate time frame. In December 2009, the NHSP 2 Program Development Team of MOHP (thematic group on cross cutting issues) broadly reviewed the current status of HCW and its management. The thematic review noted that Nepal is lagging behind in adequately managing health care waste, staff in general lack familiarity with the procedures required for an effective and efficient waste management, and the management of waste is delegated to poorly educated laborers who perform most activities without proper guidance and insufficient protection. The thematic review indicates the likely group of people/population at risks and potential options for managemedtreatment, as well as makes broad suggestions for way forward. These include: The MOHP should develop specific standards on HCWM and for the disposal of various categories of Health Care Waste such as needles, mercury, infectious waste, liquid waster emission standards, etc. Develop waste management strategic action plans for each health care institution. Segregateheparate health care waste in different forms as sharp needles, body fluids, etc in each health facilities including hospitals. Deploy dedicated personnel with proper guidelines and protocol to manage waste in each health care facility. DoHS should apply its supervisory capacity to enhance compliance with respect to good practice in HCWM. 81 DoHS needs to ensure the proper use of disposable syringes and safety boxes in routine as well as supplementary immunization activities so as to minimize the adverse events following immunization. Implementation Arrangements 5. The new Environmental Management Framework (EMF) for Physical Infrastructure Works defines the institutional arrangement for infrastructure development activities. The EHIA-Plan provides a broad strategy and approach for Health Care Waste management. 6. Capacity Building: The Program Development Team's Thematic Group on Cross Cutting Issues concluded that MOHP/DoHS needs to increase its capacity building efforts in terms of institutional set up and human resources at first to implement the HCWM program: it also proposes that the HCWM team in each health facility is chaired by the chief of the health facility. At present, capacity at centre (MOHP and DoHS) as well as at facility levels in dealing with health care waste is limited. The EMF and EHIA-Plan therefore propose appropriate capacity strengthening measures. These include: (i) provision of hll-time dedicated staff, (ii) enhancing health care management competency through Technical Assistance, (iii) training and orientations, and (iv) ensuring annual budget allocation for health care waste management and environmental management activities. 7. Monitoring: The government monitoring framework includes HCWM related parameters. The DoHS regular monitoring program already includes some aspects of health care waste management, although the reported information is not systematically processed and analyzed, and are not internalized in the existing HMIS. The EMF includes further refinement and provisions for environmental monitoring of infrastructure development and implementation of HCWM Plan. The monitoring requirements will build on these initiatives and past experiences. 8. Consultation and disclosure: The thematic groups' draft conclusions were shared in stakeholders meetings. In addition, one to one internal discussion was held in the process of preparing those frameworks and plan. The EA and HCWM Strategy and Action Plan of NHSP 1 were discussed with several stakeholders in a public workshop conducted in Kathmandu during March 2003 - and those documents were disclosed. The current EHIA-Plan is an update of the previous plan in the current context and incorporating the lessons and emerging issues. These updated documents have been made available in the Government website and placed at public libraries and local offices for public access. 9. The NHSP 2 is categorized as Environmental Category B. It triggers Environmental Assessment (OP/BP 4.01). The Project may support small-scale construction activities in different locations across the country, including upgrading of some of the existing health facilities and services. As the health services expand with support from the project, it is likely that additional health care waste is generated. Improper management of healthcare waste can pose risks to both people and the environment as they contain infectious materials and other hazardous substances. The environmental issues range from increasing the risk of spreading infections to increasing exposure to toxic and radio-active wastes. Therefore, under the EA OPBP 4.01, preparation and implementation of national HCWM Plan is necessary as part of the sector program. 82 B. Social Land Acquisition and Resettlement 10. The proposed project may include construction or rehabilitation of medical facilities. The framework is prepared to provide guidance to manage possible land acquisition and resettlement through eminent domain in case they cannot be avoided. This framework has been prepared in line of the Interim Constitution of Nepal (2007), the Land Acquisition Act (1977) and its subsequent amendment in 1993 and the World Bank's Operational Policy on Involuntary Resettlement. 11. Objectives and principles. The objective of the Land Acquisition and Resettlement Framework is to: (i) avoid land acquisition and involuntary resettlement wherever feasible; and (ii) minimize it where it is unavoidable, and ensure that project affected persons receive assistance, so that they would be at least as well off as they would have been in the absence of the project. All involuntary land acquisition will be compensated and project affected persons assisted in their livelihood restoration. Project affected persons will be compensated at replacement cost for any involuntary land acquisition. All compensation payments will be delivered before taking and land and assets. The absence to formal title to land will not be a bar to compensation for loss of assets and special attention will be paid to ensuring that households headed by women and other vulnerable groups. 12. Resettlement planning. The infrastructure facilities will be identified and programmed as part of the annual implementation plan as well as the procurement plan. The proposed annual infrastructure investment activities will be screened for land acquisition and resettlement impacts and specific mitigation measures will be formulated facility-wise. All medical facilities will be screened for land acquisition and resettlement impacts. Necessary compensation and resettlement measures will be carried out for each facility, including a social impact assessment. A resettlement action plan will be developed for each annual implementation plan documenting all the impacts, compensation and implementation arrangements, including documentation of any voluntary donation arrangements. No section or part thereof under the civil works contract shall be handed over to the contractor unless the resettlement plan has been approved by the World Bank and required land compensation has been completed. 13. Voluntary land donation. The program will continue Nepal's traditional practice of voluntary donation in building community level health facilities given the small scale and rehabilitation nature. However, all voluntary land donations should meet the following criteria: Full consultation with Affected Persons on site selection; Voluntary donations do not severely affect the project affected people (i.e. do not fall below poverty line, and lose >20% landholding); The land in question will be free of squatters, encroachers or other claims. 0 Verification of the voluntary nature of land donations in each case through formal public hearing. Voluntary donation will be confirmed through a written record, including a 'ho coercion" clause verified by an independent third party; 83 Voluntary contribution of land cannot be accepted if the holdings of the affected households will be reduced to marginal land holding, and that the donation is more than 20 percent of their total holding. 0 Land transfer should be completed through registration 0 A grievance redress mechanism is in place. 14. Information dissemination and consultation. Information dissemination and public consultation will be part of the planning process. The project affected people would be consulted during screening, social impact assessment and preparation of resettlement plan and provided with relevant information about the project, facilities, project agencies, summary resettlement framework, entitlement for involuntary land acquisition, criteria for voluntary land donation, and grievance redress mechanism. Copies of the resettlement action plan will be placed within accessibility to the public. 15. Grievance redressal mechanism. A Grievance Redressal Committee (GRC) will be established for each subproject for hearing the complaints of affected people and for their appropriate resolution. The GRC will comprise: (i) a Project Manager, (ii) representative of the local bodies; (iii) representatives of the project affected people; and (iv) representatives of civil society organizations. The key functions of the GRCs are to: (i) provide support for A P s to lodge any complains; (i) record the complaints, categories and prioritize them; (iii) settle the grievances in consultation with project affected people and the Program stafc (iv) report to the aggrieved parties about the decisionholution; and (v) forward the unresolved cases to higher authorities. 16. Monitoring and evaluation. The project will carry out both internal and external monitoring for any land acquisition and resettlement activities. The EA will organize periodic progress review meetings involving project affected peoples' representatives. Before awarding contracts and commencing civil works, the relevant resettlement action plan will be verified. The implementation activities will be monitored and evaluated externally once in a year through an independently appointed agency. The MOHP will hire the external monitoring agency as part of the EA team with World Bank concurrence within six months after the program is approved. 17. Implementation arrangements. The MOHP has the overall responsibility for implementation of the resettlement action plan. The DOHP has planning and implementation responsibilities at the district level. Social specialists will be engaged as part of the EA team for land acquisition and resettlement planning. Indigenous Peoples 18. The project will strengthen the government's response to people's expectations of inclusive and accountable public services in the health sector. It is a continuation of early health programs with emphasis on increasing service access to the poor and excluded segments of the society, including the indigenous communities. 19. Indigenous peoples of Nepal. The 2001 census has identified 100 different social groups in the country with over 92 languages and a mix of Hindu, Buddhist, Kirat, Animism and Muslim religions. The Government of Nepal has recognized 59 different indigenous 84 nationalities, also known as janajaties of Nepal who comprises about 37.2 percent of the country's population. Language, combined with geographical distance and economical disadvantage create greater risks for janajaties in receiving proper health care and public services. Language is considered as one of the most severe barriers experienced by indigenous people in accessing basic health care services in Nepal. 20. Relevant national policies. The Interim Constitution of Nepal recognizes access to health care as a fundamental right with a stress on equity and the interim government included health as one of the three priorities of the three-year Interim Plan. Furthermore, the National Health Policy, the Second Long Term Health Plan and the government's Tenth Plan documents emphasize a participatory and inclusive approach for the access and delivery of health services through special targeting of the economically and socially included groups of rural and remote areas, including the indigenous people. 2 1. NHSP Principles. The MOHP will continue early sector policy principles for inclusive development of indigenous people and other disadvantaged groups: (i) creating an environment for social inclusion; (ii) participation of disadvantaged groups in policy and decision making; (iii) developing special programs for disadvantaged groups; (iv) positive discrimination or reservation in education, employment, etc.; (v) protection of their culture, language and knowledge; (vi) proportional representation in development; and (vii) making the country's entire economic framework socially inclusive. Based on lessons learned and experiences in early health operations, the MOHP has developed and adopted a Gender Equality and Social Inclusion Strategy. The above principles are well integrated in the strategy. 22. Implementation measures. The project will continue the principles and approaches as adopted in earlier and current health programs. Some of these are summarized as follows: i. introducing local language in Behavior Change Communication programs in areas with large population of indigenous people' or with linguistic minorities; .. 11. use and retention of health providers who are local and with knowledge of local languages, where there are large populations of indigenous people or linguistic minorities who do not speak Nepali as their mother tongue; ... 111. incentives for recruitment of local bilingual women service providers in HP/SHPs where necessary (already in practice in some sub-sectors and districts); iv. enabling partnerships between Local Health Management Committees and community groups representing indigenous groups and other existing local community groups who are working in other sectors such as farmers group, forest user groups, water user group, women support services and other Janajati upliflment groups; V. providing incentives for public and private sector providers to engage in pro-poor practices; vi. promoting activities, services and facilities by the disadvantaged group, household and communities so that in turn they may hold the system accountable and advocacy through the use of media to gain support from other branches of government and the public including social, political and religious leaders and organizations and vii disaggregating Health Management Information System data by gender, caste, ethnicity and special needs to permit tracking of progress on inclusive health program objectives. 85 23. Public consultations. Extensive consultations have been held in the past few years with a wide range of sectors, academicians, NGOs donor agencies and civil society, including representatives from the National Commissions for Dalits and Women and the Nepal Federation of Indigenous Nationalities in the field of health, language, development, gender and social exclusion issues. These contributed to the formulation of the sector health investment program to be financed under the proposed program. This is particularly so in the development and adoption of the Gender Equality and Social Inclusion Strategy for the public health sector. Mechanisms will be designed in the program to continue public consultation in the annual planning, implementation and monitoring of the public health investment programs. 24. Implementation arrangements. This framework will be implemented through implementation of the GESI Strategy. The GESI Strategy commits and details an institutional establishment at various levels for its implementation. Separate units will be established to make sure there is consistent GESI input, including that of the indigenous people considerations, into the annual programming. The GESI Unit will be established with qualified staff members, with an operating budget. Its staff will work with various program teams to make sure the GESI strategy and principles in this framework are integrated into various health programs. Gender Equality and Social Inclusion (GESI) Strategy 25. The GESI Strategy has been approved and adopted by MOHP for the health sector. The following summarizes key sections on its objectives, program framework, implementation and monitoring arrangements. 26. The GESI Strategy has the following objectives: Develop policies, strategies, plans, programs that create a favourable environment for integrating (mainstreaming) GESI in Nepal's health sector. Enhance the capacity of service providers and ensure equitable access to and use of health services by the poor, vulnerable and marginalized castes and ethnic groups within a rights- based approach. Improve health seeking behaviour of the poor, vulnerable and marginalized castes and ethnic groups within a rights-based approach. 27. Its strategic framework is summarized as follows: Strategy Working policy a) Review the existing - Analyze and revise existing health policy, regulations and guidelines to policy, law and make GESI inclusive and responsive, and ensure the policy are non- guidelines to make discriminatory from the gender prospective 86 --. ."._ Strategy Working polic) _- them GESI inclusive - Advocate for health services remains to be continued as a human right (fundamental right) in the upcoming constitution - Include the standards for integration of GESI in second NHSP-IP 2 (201 1-2015) - Develop regular policy feedback mechanism for GESI policy improvements - Strengthen health monitoring of GESI by revising the health sector information system (HMIS) and reporting on a timely basis - Review existing health care provisions and expand appropriate health facilities to locations where target groups and underserved are concentrated in large numbers b) Make necessary policy - Develop policy for identification of poor, vulnerable and marginalized provision to include castes and ethnic groups GESI related issues in - Develop implementation guidelines while developing the policies and plans, programs, and ensure effective implementation of those. budgeting - Develop and apply policy measures to adopt a favorable environment promoting GESI, such as a quota or priority system for health staff recruitment, training and promotion and selection of the FCHVs from the marginalized castes and ethnicities - Make policy provisions for poor, vulnerable and marginalized castes and ethnic groups to receive free secondary and tertiary health care services - Make policy provision for compulsory social auditing to make health services inclusive, transparent and accountable - Include GESI in each programs and activities in e-AWPB of MOHP as necessary - Advocate to the MoF and National Planning Commission for regular budget provisioning of GESI in AWPB process - Make policy provision for the concept of health cooperatives to expand access to and empowerment for health services by the poor, venerable, and marginalized castes and ethnic groups - Make policy provision for health insurance to ensure the access to health services by target group (poor, vulnerable and marginalized castes and ethnic groups) and implement it. - Make policy for partnership with the media to inform the public about government health care messages and free services, targeting the poor, vulnerable and marginalized populations 87 Strategy Working policy a) Create an - Address GESI issues in each plans, programs and budgets of health environment whereby sector to attain MDGs and NHSP targets program managers, directors will include - Further develop indicators for GESI as necessary, disaggregate the HMIS, monitor and report performance of target groups, and improve issues related to GESI services accordingly in plans, program, budget, monitoring - Define level wise roles and responsibilities to monitor and evaluate and evaluation implemented activities for the target groups (poor, vulnerable and marginalized castes and ethnic groups) - Develop and implement mechanism for discussing disaggregated information and its effect during quarterly, biannual and annual review meeting. b) Include GESI related - Operationalize guidelines to increase access to and utilization of health issues in program services by the poor, vulnerable and marginalized castes and ethnic implementation by groups. health service providers - Develop mechanism to ensure by themselves that activities conducted by each health institution are GESI focused. c) Coordination and - Coordinate and implement with DDCs, VDCs, and municipalities, to participation among allocate their social development budgets in the health sector to serve concerned the poor and disadvantaged groups and advocate for policy formulation organizations to - Advocate VDC, DDC and municipalities to use their annual social promote GESI sector budget for improving the health of the target group. - Continue implementing existing program of handover of health facilities at local level, make the health facility management committee inclusive, such that the marginalized castes and ethnic groups are represented proportionate to their populations, develop its management capacity, and make it more GESI responsive - Motivate to increase access to health services by the target groups by coordinating and partnering with district- and village-level NGOs working in health sector. - Coordinate with ministries, INGOs and local bodies to integrate GESI in their programs - Create trust and good environment between health care providers and communities through regular meetings and other interactions - Develop policy provisions to make local bodies responsible to plan, implement, monitor and evaluate health program based on the needs and demands of the target groups by involving the target group directly in the local level health facility management committee. - Transferring knowledge, skills, resources and materials to local bodies to continue to meet the needs of the target groups 88 a) Establish social - Establish and operationalize Social Service Units in central, service units (SSU) in regional, sub-regional, zonal, and district hospitals to facilitate hospitals access to EHCS and secondary and tertiary health care services by the poor, vulnerable and marginalized castes and ethnic groups b) Establish GESI - Establish GESI unit or contact point (desk) within MOHP, each UnitDesk at different levels of health sector Strategy 4: Enhance the ~~~a~~~~ the service ~~~~~d~~~ deliver essential health care service to poor, of to vulnerable, ~ ~ ~ ~ ~ ~ ~and ethnic2groups in an ~ q ~ manner m~ rtlake~ service p castes a t i ~ d ~ ~ d b e ~~~e r e s ~ o n s and a ~ c o u n t ~ ~ ~ e . a) Improve service - Sensitize health sector health workers, SSU and GESI focal point delivery mechanism staff at all levels, FCHVs, and local-level health facility by service providers management committees through orientation, training and for the poor, counseling services on gender equality and social inclusion vulnerable and marginalized caste - Implement behavior change training programs for the health workers, FCHVs and local health management committees to bring and ethnic groups changes on their behavior and improve services - Orient, train and strengthen capacity of FCHV and NGOs to provide proper information on health services provision to poor, vulnerable and marginalized caste and ethnic groups a) Increase access of the - Develop criteria, identify poor, vulnerable and marginalized castes target groups to and ethnic groups and provide them with Free Health Check-up universal and targeted Curd for secondary- and tertiary-level health care services and free health care referrals programs. - Ensure equitable and meaningful participation of target groups and women in health management committees - Ensure meaningful participation of the poor, vulnerable, marginalized castes and ethnic groups in social audits of health 89 .~ ._..-... -- Strategy Working policy services to make health programs responsible and accountable to the people. b) To increase the use of i) Develop special programs for poor, vulnerable and marginalized caste and Mother and Child ethnic groups (women and child) to avail them MCH services and free Health and Free deliveries delivery services by the target group - Give special attention and emphasis to safer motherhood and maternal and child health programs to increase use of neonatal and postnatal care services, and institutional deliveries, nutrition and childhood immunization to decrease maternal mortality, neonatal, infant and under-5 mortality - Mobilize and traidstrengthen Female Community Health Volunteers (FCHVs) and NGOs to increase access to services by these target groups - Provide other kinds of assistance, such as outreach services to pregnant women to encourage and assist in institutional deliveries and ensure the use of trained health workers during home delivery. ii) Protect target group (poor, vulnerable and marginalized castes' and ethnic groups) from discrimination, which limits them access to and use of health care services, especially institutional deliveries - Collaborate with women's CBOs /NGOs and other health development groups in the health sector to decrease gender and social discrimination in the family and in society - Conduct community and family counseling on gender-based violence that affects women's health (physical abuse during menstruation, delivery, schooling, work place, etc.) and social violence that affects the mental and physical health of men and women - Make attendance of female health workers compulsory to increase utilization of maternal health services at facilities, especially by women from poor, vulnerable and marginalized castes and ethnic groups c) Conduct context i) Give emphasis to service expansion in geographically inaccessibleiremote specific analysis of regions current issues in the - Conduct mapping of the areas and increase outreach and mobile health sector and health camps and community health clinic programs for the poor, design and implement vulnerable and marginalized castes and ethnic groups specific interventions for specific poor, - While establishing new health and sub-health posts, build a vulnerable and consensus in the community to select a site most appropriate for the marginalized caste poor, vulnerable and marginalized castes' and ethnic groups' access and ethnic groups and and use areas (Regional and/or District). ii) Expand services in low HDI districts 90 - Focus on community and outreach programs to increase access to and use of EHCS in the 35 low HDI districts - Ensure the services considering the right of the person for health though low population iii) Make provision for sectoral programs to address stubborn health issues and unmet needs among marginalized groups, such as Dalits, slum dwellers, and homeless, IDPs, Muslims and third gender. - Make provision for special programs, such as publicity campaigns, outreach services, counseling services and orientations on hee care to increase access of the target groups (poor, vulnerable and marginalized caste and ethnic groups) to health care services - Conduct especial programs for Dalits to increase access and utilization of essential health care services (e.g., providing financial incentive for utilizing services, encouraging them to utilize EHCS health services and related information by mobilizing FCHV). a) Give emphasis to - Ensure the presence of a female medical doctor at all district level special activities to hospitals. provide adequate and - Make provision for local language speaking staff in the local quality services language prevalent delivery sites. - Allow the district-level health organization to adopt district-specific GESI policy, if needed, based on future political and geographical structure and context. - Conduct social audits to make health programs and health workers accountable to communities and to make the program transparent. I seeking behavior of the pourt vulnerable and miirginalized castes and ,-based approach I - plment Information, Education and C`onimunictttiori ( I t,C) programs to or ofthe poor, \ ulnerable and marginalized groups. a) Develop and - Prepare and distribute enough information and publicity materials ( disseminate focused more on EHCS, and policies and program related to the appropriate IEC poor, vulnerable and marginalized caste and ethnic groups) in audio materials to bring visual, pictorial, etc. in all regions in appropriate local language changes in behavior besides Nepali language of target groups - Give emphasis to program of target group in the IEC materials published and disseminated by the ministry of health and increase their access to IEC materials. 91 .- -. . .-_._^- _. - I Strategy Working policy - Enhance skills to produce communication materials as per local need at the local level (specially in geographically difficult areas) b) Increase the use of Ensure all media allocate appropriate time and place for appropriate media broadcasting health service news Emphasize effective use of local media and language (FM radio, newsprint, door-to-door campaigns, hording boards, street drama, workshops, training, rallies, etc.) Increase sharing information among health and communication agencies on GESI Include appropriate and local media programming for low HDI districts and districts with diverse language Conduct regular monitoring on quality of communication services by concerned health department /institutions. 1. Strategy 8: Empower the target group to make them capable of demanding their right and fulfilling their responsibilities. a) Make the target 1. Empowerment group aware of their health rights and free - Build capacity of target group (Poor, vulnerable and health care services, marginalized castes and ethnic groups) by orienting them on and enhance their their right and responsibilities for leadership role. capacity to make the .. 11. Information, Education and Communication service providers accountable - Conduct publicity campaigns to increase awareness and orientation on how to access and properly utilize health services, focusing at the poor, vulnerable and marginalized caste and ethnic groups and take into consideration appropriate place, tools and time for such activity Create door-to-door consumer committees and orient them to conduct effective awareness and information dissemination to poor, vulnerable and marginalized caste and ethnic groups on national health policy and programs, health rights, EHCS, free medicines, etc. Orientation and awareness campaigns emphasizing for change in health seeking behaviors - Promote women's participation and conduct awareness programs to orient them on equal treatment of both male and female children from newborns to 5-years old in regards to nutrition, health care and other health related important aspects. - Provide orientation on women's reproductive health right. 92 28. Strategy implementation structure. Implementing units will be established at central, regional, district and community level. 29. Central (level) a Establish GESI unit under policy planning international cooperation and foreign aid division in the health ministry for coordination and consultation at central level. a Establish GESI unitldesk in the departments and divisions and assign responsibility on monitoring, data, information collection and analysis related to program implementation. a Establish hnctional social service unit at central level hospitals and provide support for the provision for essential and higher level (secondary and tertiary level) services to the target groups. 0 Include issuedagenda of the GESI into the job description of health service providers and manager at all levels. 30. Regional level a Establish GESI networks of woman, dalit, indigenous people, ethnic group etc, representative agencies, agencies/NGO working in health sector, chaired by regional directorate and coordinate and monitor GESI issues at regional level. a Establish social service unit at sub-regional, regional and zonal hospitals and provide support to target groups to receive essential and high level services. 31. District Level a Establish social service unit at district hospital as per need and facilitate target groups to receive essential and high level services. a Activate district health coordination committee (DHCC) to implement the strategy and prepare for coordination and joint work. 0 Establish GESI network of woman, dalit, indigenous people, and ethnic group etc, representative agencies, agencies/NGO working in health sector chaired by district (public) health office at district level and ensure strategy implementation, cooperation, coordination, collaboration and monitoring. 32. Community (Health Facility) Level: a Provide GESI strategy concept training to health facility management committee (HFMC) and provide information to high authority about strategy implementation, monitoring as per need. a Train Female Community Health Worker (FCHV) on GESI and motivate them to use this into mother groups. 33. Monitoring and evaluation. The strategy details its monitoring arrangements, including participatory monitoring, progress monitoring through reporting, beneficiaries contact monitoring and quarterly and annual review meetings. 93 e e e e . e * B E U 0 . . . . . 0 . . . . . . . -t e e e . e e e r e e e e e e e h 3 e E `E 8 u O -E Qz &Ei 0 w ; 6) > .I E E U .3 0 *? v) h . . e e . e . . e e e . e e . x U a 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Annex 12: Project Preparation and Supervision NEPAL: Second HNP and HIV/AIDS Project Project Preparation Timeline Planned Actual PCN review July 2,2009 August 26,2009 Initial PID to PIC September 16,2009 September 16,2009 Initial ISDS to PIC October 5,2009 October 2,2009 Appraisal January 11,2010 January 11,2010 Negotiations February 25,2010 February 25,2010 BoardRVP approval April 20,2010 Planned date of effectiveness July 16,2010 Planned date of mid-term review January 30,2013 Planned closing date July 15,2015 Key institutions responsible for preparation of the project: Ministry of Health and Population Singha Durbar Kathmandu, Nepal Bank staff and consultants who worked on the project included: Name Title Unit Albertus Voetberg Task Team Leader SASHD Nastu Prasad Sharma Public Health Specialist SASHD Bigyan B. Pradhan Senior Financial Management Specialist SARFM Kiran R. Baral Senior Procurement Specialist s m s Shambhu Prasad Uprety Procurement Specialist SARPS Roshan Darshan Bajracharya Senior Economist SASEP Chaohua Zhang Senior Social Sector Specialist SASDI Drona Raj Ghimire Environment Specialist SASDI Hiramani Ghimire Extended Term Consultant SASGP Sushila Rai Program Assistant SASHD Jaya Karki Team Assistant SASHD Tekabe Ayalew Belay Senior Economist (Health) SASHN Sandra Rosenhouse Senior Population & Health Specialist SASHN Luc Laviolette Senior Nutrition Specialist SASHN David Wilson Lead Health Specialist HDNGA Phoebe M. Folger Operations Officer SASHN Lori. A. Geurts Operations Analyst SASHD Alejandro Welch Program Assistant SASHD David Freese Senior Financial Officer CTRFC Chau-Ching Shen Senior Financial Officer CTRFC Hiroko Imamura Senior Counsel LEGES Mei Wann Senior Counsel LEGES Bank funds expended to date on project preparation: 1. Bank resources: US$340,551 2. Trust hnds: 3. Total: US$ 340,551 104 Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$40,000 2. Estimated annual supervision cost: US$ 50,000 105 Annex 13: Documents in the Project File NEPAL: Second HNP and HIV/AIDS Project Proiect Background Documents 0 The World Bank. 2007. Managing Public Finances for a New Nepal: A public finance Management Review. PREM, South Asia. 0 Wagstaff, Adam and Lindelow, Magnus. 2009. Public programs and the incidence and consequences of health shocks: Evidence from a vulnerability survey in Laos. Presentation of preliminary results at Making Health Systems Workfor the Poor series. 0 MOHP and RTI. 2008. Equity Analysis of Health Care Utilization and Outcomes: Trend analysis of inequality by wealth quintile and caste/ethnic group from 1996 to 2006. HSRSP Report No. 2.8-08-08. Owen O?Donnell, Eddy van Doorslaer, Ravi P. Rannan-Eliya, et al. 2007. The Incidence of Public Spending on Healthcare: Comparative Evidence from Asia. The World bank Economic Review, Vo12 1, No. 1. Project Preparation Documents 0 Aide-Memoire. August 17-28, 2009. Identificatiodpreparation mission for Nepal Second Health and HIV/AIDS program support. 0 Aide-Memoire. October 2 1-Nov. 2, 2009. Identificatiodpreparation mission for Nepal Second Health and HIV/AIDS program support. Aide-Memoire. December 8-18, 2009. Pre Appraisal mission for Nepal Second Health and HIV/AIDS program support. Technical and Governance Assessment Mission of the KFW-GDC model of procurement for NHSP 2 - November 16 - 20,2009 0 The World Bank. 2007. Managing Public Finances for a New Nepal: A Public Finance Management Review. Sector Documents Integrated Biological and Behavioral Surveillance Survey (IBBS) among Female Sex Workers in22 terai highway districts of Nepal in collaboration with STD/AIDS Counseling and Training Services Pyukha, Kathmandu, Nepal and National Reference Laboratory, Rara Complex, New Baneshwor 0 Integrated Biological and Behavioral Surveillance Survey (IBBS) among Male Injecting Drug Users (IDUs) in the eastern terai of Nepal, Round IV-2009 in collaboration with STD/AIDS Counseling and Training Services, Pyukha, Kathmandu, Nepal 0 Integrated Biological and Behavioral Surveillance Survey (IBBS) among Injecting Drug Users in Kathmandu Valley, Round IV-2009 in collaboration with STD/AIDS Counseling and Training Services, Pyukha, Kathmandu, Nepal Integrated Biological and Behavioral Surveillance Survey (IBBS) among Injecting Drug Users in Pokhara Valley, Round IV-2009 in collaboration with STD/AIDS Counseling and Training Services, Pyukha, Kathmandu, Nepal 106 Integrated Biological and Behavioral Surveillance Survey (IBBS) among Male Injecting Drug Users (IDUs) in western and far western terai of Nepal, Round 111-2009 in collaboration with STD/AIDS Counseling and Training Services, Pyukha, Kathmandu, Nepal Integrated Biological and Behavioral Surveillance Survey (IBBS) among Men who have sex with Men (MSM) in Kathmandu Valley Round 111-2009 in collaboration with STD/AIDS Counseling and Training Services, Pyukha, Kathmandu, Nepal Integrated Biological and Behavioral Surveillance Survey (IBBS) among Truckers in 22 terai highway districts of Nepal in collaboration with STD/AIDS Counseling and Training Services, Pyukha, Kathmandu, Nepal HIV/AIDS and STI Control Board (HSCB), Government of Nepal (2009) National HIV and AIDS Action Plan (2008-201 I), March 2009. National Center for HIV/AIDS and STI Control (NCASC), Government of Nepal (2007), National HIV and AIDS Strategy (2006-201 1). National Center for HIV/AIDS and STI Control (NCASC), Government of Nepal (2006). Monitoring and Evaluation Guidelines for HIV and AIDS in Nepal (with core indicator definitions) The World Bank. 2004. Project Appraisal Document: Nepal Health Sector Program. Government Documents 0 The Government of Nepal. 2009. Concept note for the development of Nepal Health Sector Program 2. 0 The Government of Nepal and External Development Partners. 2009. International Health Compact. 0 The Government of Nepal. 2009. National Health Account. The World Bank. 2009. Interim Strategy for Nepal: for the period FY 20 10-2011. 0 The Government of Nepal. 2009. Medium Term Expenditure Framework: for FY 2010/11- 20 1242. The Government of Nepal. 2009. Estimates of Expenditure: for FY 2009/10. 107 Annex 14: Statement of Loans and Credits NEPAL: Second HNP and HIV/AIDS Project Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd P113002 2009 NP Social Safety Net - Food Crisis Respo 0.00 16.70 0.00 0.00 0.00 5.75 -10.63 0.00 PO87140 2009 Agriculture Commercialization and Trade 0.00 20.00 0.00 0.00 0.00 20.94 0.00 0.00 P110762 2008 Peace Support Project 0.00 50.00 0.00 0.00 0.00 39.01 29.84 0.00 P105860 2008 PAF I1 0.00 100.00 0.00 0.00 0.00 67.09 8.83 0.00 PO99296 2008 Irrig & Water Res Mgmt Proj 0.00 64.30 0.00 0.00 0.00 58.61 7.51 12.84 PO95977 2008 Road Sector Development Project 0.00 42.60 0.00 0.00 0.00 21.27 -15.94 0.00 PO90967 2007 Second Higher Education Project 0.00 60.00 0.00 0.00 0.00 54.53 -0.36 0.00 P100342 2007 Avian Flu 0.00 18.20 0.00 0.00 0.00 12.36 3.51 0.00 PO40613 2005 Nepal Health Sector Program Project 0.00 100.00 0.00 0.00 0.00 35.90 -18.30 -2.35 PO74633 2005 Education for All Project 0.00 110.00 0.00 0.00 0.00 9.23 -52.60 -15.65 PO83923 2005 Rural Access Improve. & Decentralization 0.00 32.00 0.00 0.00 0.00 13.84 2.21 0.00 PO93294 2005 NP Economic Reform TA 0.00 3.00 0.00 0.00 0.00 1.15 1.13 0.78 PO71285 2004 Rural Water Supply & Sanitation Project 0.00 52.30 0.00 0.00 0.00 27.60 1.77 0.00 PO71291 2003 NP Financial Sector Technical Assistance 0.00 16.00 0.00 0.00 6.52 1.81 5.44 0.00 PO433 11 2003 POWER DEVELOPMENT PROJECT 0.00 164.80 0.00 0.00 0.76 144.68 42.52 44.08 Total: 0.00 849.90 0.00 0.00 7.28 513.77 4.93 39.70 NEPAL STATEMENT OF IFC's Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1996 Bhote Koshi 13.21 2.95 0.00 17.41 13.21 2.95 0.00 17.41 1998 Bhote Koshi 1.64 0.00 0.00 0.00 1.64 0.00 0.00 0.00 1994 Himal Power 18.17 0.00 2.54 0.00 18.17 0.00 2.25 0.00 2001 - ILFC Nepal 0.00 0.10 0.00 0.00 0.00 0.10 0.00 0.00 1998 Jomsom Resort 4.00 0.00 0.00 0.00 4.00 0.00 0.00 0.00 Total portfolio: 37.02 3.05 2.54 17.41 37.02 3.05 2.25 17.41 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total pending commitment: 0.00 0.00 0.00 0.00 108 Annex 15: Country at a Glance NEPAL: Second HNP and HIV/AIDS Project P O V E R T Y and S O C I A L South Low. Development diamond' Nepal Asia income 2007 Population mid-year (millions) 28 1 1,520 1296 Life expectancy GNI percapita (Atlas method US$j 340 880 578 GN I (Atlas method US$ billions) Average annual growth, 2001-07 97 1,339 749 I T Population (9Q 20 1.6 2.2 Gross Laborforce (ss) 28 2.1 2.7 primary M o s t recent estimate (latest year available, 2001-07) capita enrollment Poverty (%of population belo wnatio nal PO vertyline) 31 Urban population (%of totalpopulation) 7 29 32 Life expectancyat birth (years) 63 64 57 Infant mortality (perlOOOlive births) 46 62 85 Child malnutntion (%ofchildren under5) Access to an improvedwatersource (%ofpopulationj 39 89 41 87 29 68 1 Accessto improvedwatersource Literacy (%o fpopulation age rSy 49 58 61 Gross primary enrollment (%of school-agepopulationj Q6 06 94 ---Nepal Male P9 1 11 DO Lo wincome gro up Female 123 04 89 KEY E C O N O M I C R A T I O S and L O N G - T E R M T R E N D S 1987 1997 2006 2007 i c o n o m i c ratios. GDP (US$ billions) 30 49 8.9 D.2 Gross capital formation/GDP 212 253 26.0 25.3 Trade Exports of goods and SeNiCeSIGDP 118 263 13.6 Q.5 Gross domestic savings/GDP Q1 .do 7.9 9.4 Gross national savings1GDP 6 3 225 282 27.9 T Current account balance1GDP -47 -08 22 0.6 Domestic Capital Interest payments1GDP 05 05 0.3 savings formation Total debt1GDP 333 491 38.1 Total debt servicelexports D1 52 5.1 i Present value of debtlGDP 24.8 Present value of debtlexports 814 Indebtedness 1987.97 1997.07 2006 2007 2007-11 (average annualgroMhj GDP 52 36 28 2.5 4.5 -Nepal GDP percapita 26 14 08 0.8 3.1 ~ Lowincomegroup Exports of goods and services S T R U C T U R E o f the E C O N O M Y 1987 1997 2006 2007 Growth of capital and G D P (%) (%ofGDP) Rr Agnculture 507 414 35 1 33 8 Industry ne 229 7 4 772 M anufactunng 62 95 79 77 Services 334 357 47 5 48 9 Household final consumption expenditure 788 771 83 3 619 General gov't final consumption expenditure 91 89 88 87 Imports of goods and services 209 377 317 28 5 1987-97 1997.07 2006 2007 (average annual gro Mh) Agnculture 29 34 18 10 Industry 81 35 45 39 M anufactunng D6 19 20 22 Services 63 37 38 28 Household final consumption expenditure General gov't final consumption expenditure Gross capital formation imports of goods and services Note 2007 data are preliminaryestimates This tablewas producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators in thecountry(in bold) comparedwth its income-groupaverage K data aremissing,thediamondmll be incomplete 109 P R I C E S and G O V E R N M E N T F I N A N C E 1987 1997 2006 2007 Domestic prices I Inflation (Oh) I (%change) T Consumer prices 134 81 80 64 Implicit GDP deflator t27 73 67 86 G o v e r n m e n t finance I (%of GDP, includes current grants) Current revenue 94 1)8 731 143 02 03 04 0.5 OS d7 Current budget balance -0 7 20 18 34 ' 02 03 04 0.5 OS 0 4 Overall SurDIuS/defiCIt -8 7 -3 9 -16 -14 I ---.GDPdefiator =4--CPI TRADE I 1987 1997 2006 2007 Export and i m p o r t levels (US$ mill.) (US$millions) Total exports (fob) 3 18 1,160 833 939 13,000 T Food and live animals 51 99 Animai and vegetable oils 35 59 Manufactures 318 606 645 Total imports (cif) 503 1,750 2,372 2 653 Food 62 t23 184 206 Fuel and energy 43 27 504 691 I Capital goods t28 242 293 328 01 02 03 04 05 06 07 Export price index (2000=00J Import pnce index(2000-00) sExpofls mlmports Terms of trade (2000=WOJ BALANCE of PAYM ENTS 1987 1997 2006 2007 Current account balance t o G D P (Oh) (US$millions) Eqorts of goods and services 348 1506 1,216 1347 ~5 - Imports of goods and services 604 1962 2,832 3 225 Resource balance -256 -456 -1616 -1878 Net income -6 8 68 1)6 Net current transfers t24 4x) 1,744 1830 Current account balance -738 -38 197 58 Financing items (net) I56 01 159 118 Changes in net reserves -18 -94 -355 -T6 1 01 02 03 04 05 06 07 Memo: Reserves including gold (US$miilions) ?5 a 657 1797 2 008 Conversion rate (DEC, local/US$) 216 57 0 72 3 70 5 E X T E R N A L D E B T and R E S O U R C E FLOWS 1987 1997 2006 2007 l C o m p o s i t i o n o f 2006 debt (US$ mill.) (US$millions) Total debt outstanding and disbursed 986 2,414 3,409 IBRD 0 0 0 0 I F 5 G81 IDA 392 1047 1,468 1524 Total debt service 35 92 140 IBRD 0 0 0 0 IDA 5 7 42 46 Composition of net resource flows Official grants Ql 140 32! Official creditors 130 197 58 Private creditors 37 -11 0 Foreign direct investment (net inflows) 1 23 -7 Portfolio equity (net inflows) 0 0 0 World Bank program Commitments 94 146 0 0 A - IBRD E - Bilateral Disbursements 81 55 43 35 8 - IDA D - Other rrultilatem F. Private Principal repayments 1 9 31 34 C-IMF G - Short-!err Net flows 79 45 t2 0 Interest payments 4 8 11 11 Net transfers 75 38 1 -11 Note This table was produced from the Development Economics LDB database 9/24/08 110 MAP SECTION 80°E 82°E 86°E 88°E 84°E To Barga Simikot 30°N 30°N NEPAL To Ranikhet L¯I KAi ¯ l ¯ HA a ak ah M Chainpur H CHINA K A R N A L¯ ¯ I Baitadi MA S E T¯ I Silgadhi i Dandeldhura ¯ Jumla Ka rn ali m Mustan IR¯ I Dunai a G B H E R¯ I Jomsom LA Dhangarhi Birendranagar l A ¯ G A N D A K¯ To AW I Xegar a i Sallyan K al H Baglung D Pokhara Tulsipur y Mt. Everest 28°N Nepalganj ¯ R A P T¯ I a (8848 m) 28°N Kodan ¯ B A G M A T¯ To To Lucknow I s R M AT ¯ A Shahajahanpur Nuwakot L U M B I N¯ I KATHMANDU KATHMANDU ¯ H Butawal ani Lalitpur N ary This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information To Faizabad Bhairawa Bhimphedi Ar un M E C H¯ I Taplejun K O S¯ shown on this map do not imply, on the part of The World Bank Okhaldhunga Group, any judgment on the legal status of any territory, or any Hetauda I To SAGA ¯ ¯ NARAY ¯ Ramechhap Saidpur endorsement or acceptance of such boundaries. NARAYANI NARAYANI Sindhulimadi To Faizabad Birganj JANAKPUR Dhankuta shi Sun Ko Ilam NEPAL Lucknow To Gaur Dharan Faizabad INDIA Janakpur Rajbiraj Kanpur SELECTED CITIES AND TOWNS Biratnagar To ZONE CAPITALS Baruni To NATIONAL CAPITAL Faizabad To Baruni RIVERS 26°N 26°N MAIN ROADS 0 25 50 75 100 Kilometers RAILROADS SEPTEMBER 2004 0 25 50 75 Miles IBRD 33455 To ZONE BOUNDARIES Baruni To Jangipur INTERNATIONAL BOUNDARIES 82°E 84°E 86°E 88°E