51743 PROJECT PAPER DATA SHEET FOR CAMBODIA: FACILITATION COMPETITIVENESS PROJECT TRADE AND Date: November 12,2009 Task Team Leaders: Country: Kingdom o f Cambodia Stephane Guimbert & Huot Chea Project Name: Trade Facilitation and Sector Director: Vikram Nehru Competitiveness Project Country Director: Annette Dixon Project ID: PO89 196 Environmental category: C Fiscal Year 2006-2009 2010 201 1 2012 Annual 3.9 2.5 2.5 1.4 Cumulative 3.9 6.4 8.9 10.3 Board approved -E RVP approved - Does the restructured project require any exceptions to Bank policies? - Yes El30 Have these been approved by Bank management? IZlYes - N o I s approval for any policy exception sought from the Board? - Yes @ N o Revised project development objective/outcomes [If applicable] Project Development Objective remains unchanged. Modified Outcome Indicator: Focus on general "investors" to mean trading and trade-related companies and investors and perceptions to be centered on performance o f customs. Does the restructured project trigger any new safeguard policies? N O Source Local Foreign Total Recipient 0.00 0.33 0.33 IDA 0.00 10.00 10.00 Others 0.00 0.00 0.00 Total 0.00 10.33 10.33 Cambodia: Trade Facilitation and Competitiveness Project (TFCP) Project Paper Supporting the Restructuring o f the Grant H165-KH I. Introduction 1. This Project Paper seeks the approval o f the Executive Directors to introduce the following changes in the Cambodia Trade Facilitation and Competitiveness Project: IDA Grant No.HI 65-KH, PO89196 and accompanying amendments to the project's legal documents. 2. The proposed restructuring would mainly reallocate resources from the sub- component on the electronic Single Window (US$3.6 million) to (i) further extension of the a customs automated system; (ii) automation of Certificates of Origin (C/O)issuance; and (i) ii creation of a Trade Information Website (TIN`). Early during project implementation, the Government indicated i t s decision not to proceed with the institutional model initially envisaged for the creation o f a Single Window. However, it remained committed to offering much o f the functionality initially envisaged under such a Single Window, building o n the platform o f the customs automated system supported by the TFCP (the Automated System for Customs Data, or ASYCUDA). The proposed restructuring supports this new approach through redeploying resources that will support further deployment o f the customs automated system (US$2.5 million), the automation o f C/O (one o f the critical trade-related processes, especially for the garment industry, US$0.2 million), and the dissemination o f trade-related information o n a new T I W (US$0.7 million). Other resources are being redeployed t o continue support to trade-related labor standards in the garment industries ("Better Factories Cambodia") and additional training. 3. The proposed restructuring would not affect the Project Development Objective (PDO). The combination o f the extended Customs automated system, the automation o f C/O processes, and the TlW will create much o f the practical functionality o f the Single Window, hence assist in establishing the necessary foundations upon which the Single Window could ultimately be achieved, while at the same time delivering meaningful benefits for the trading community. Hence these activities contribute to achieve the original PDO, albeit at a different pace and with a different institutional setup than with the original concept o f a Single Window. However, the reformulation (and more focused scope) o f the main indicators used to measure the PDO, as well as several o f the project indicators, i s deemed necessary to better monitor project implementation and impact and to better align indicators with project outputs and activities. The reformulation will also require an extension o f the closing date f r o m December 1, 2009 to June 1, 2012 to allow for adequate time to successfully complete the activities covered by the restructuring. 1 1. Background and Reasons for Restructuring Project status and performance to date 4. The project was approved by the Board on June 2, 2005, and became effective on December 12, 2005. The total IDA Grant amounts to SDR 6.62 m i l l i o n (US$lO.O million), o f which SDR 2.61 m i l l i o n has been disbursed to date (excluding the Designated Account Balance). The original project objective i s to promote economic growth by reducing transaction costs associated with trade and investment, introducing transparency in investment processes, and facilitating access o enterprises to export markets. The project comprises four components: (i) f trade facilitation; ( i export market access h d ; ( i ) i) i iprivate participation in infrastructure and investment promotion; and (iv) legal transparency. 2 5. T h e most recent supervision (October 2009) concluded that progress was satisfactory along the four components. Key concerns have continued to be focused on achievement o f the ambitions envisaged under the initial single window concept. Early in project implementation, the Government decided not to proceed with the original design o f the Electronic Single Window. Initial project implementation was also slow given the project's complexity. However, the mid-term review (May 2008) o f the TFCP found overall encouraging progress o n customs automation (component 1) and risk management (with support from the Japan International Cooperation Agency and Australian Aid), in particular with the launch o f A S Y C U D A at the Port o f Sihanoukville o n M a y 1, 2008. The mid-term review concluded that the PDO and i t s outcomes remained relevant and a minor restructuring was agreed to lay the ground for this proposed restructuring. The minor restructuring, effective in August 2008, consisted o f a reallocation: (i) conduct a Trade Information Website (TIW) / M o C automation masterplan to i) plan study under Component 1; and ( ito further support Better Factory Cambodia (BFC) under Component 2. After this minor restructuring, in March 2009, and given concerns about the long t e r m sustainability o f the customs automated system as implemented, the General Department of Customs and Excise (GDCE) requested Bank support to undertake a detailed review o f A S Y C U D A implementation: concerns about implementation quality have since been largely addressed and a baseline evaluation has been conducted in October 2009, the conclusions and lessons o f which feed into the rationale for this restructuring. Rationalefor restructuring 6. T h e rationale f o r the restructuring i s to reflect lessons learned f r o m initial implementation and to better reflect m o r e realistic and achievable ambitions f o r t h e project. One o f the major goals o f the project was to reduce the time and transaction costs associated with complying with import and export regulations and controls. Among a number of activities identified toward this objective was to be the introduction o f a "single window" facility t o integrate and automate regulatory functions o f 6 ministries and agencies, as well as ports and financial institutions, through a shared electronic trade network. The expectation was that this would eliminate duplication, increase speed and accuracy o f the clearance process and reduce opportunities for rent seeking. W h i l e the original implementation plan envisaged some phasing in o f the single window, there was n o explicit plan for immediately building stakeholder commitment at the agency, sub-agency and individual level, leaving the risk o f poor adoption and undermining o f the technology unaddressed. Initial implementation activities identified a number o f institutional and environmental constraints that made the achievement o f such an ambitious strategy unrealistic and it was agreed that a more gradual approach, building o n upgrading existing and planned systems (computerizing them, simplifying them, making them more transparent), would have more chances o f success and would be more sustainable in the medium term, while at the same time malung a meaningful contribution to the ultimate achievement o f the full single window if and when the constraints could be overcome. 7. T h e restructuring builds o n some initial success in ASYCUDA implementation. Indeed, Customs automation, through the implementation o f the A S Y C U D A system, i s n o w operational at the Port o f Sihanoukville (accounting for more than 40% o f import declarations) and i s expected t o be implemented in the Phnom Penh International Airport and Phnom Penh dry ports by the end o f 2009 (accounting for a further 25% o f import declarations). The system has also facilitated the initial implementation o f the RGC's risk management strategy and has sharply reduced the number o f containers physically inspected from almost 100 percent at the time o f project inception to less than 20 percent now. Nevertheless A S Y C U D A implementation falls short o f the original design, since (i) system will only be implemented in three o f the five the locations originally envisaged; (ii) the system has not been setup as a centralized system operating through a wide-area network (instead through separate local-area networks); ( i )i ikey 3 functional modules such as manifest and transit are yet to be enabled and implemented (although the functional capability has been installed as part o f the ASYCUDA application suite); and (iv) initial configuration o f the system was based o n a hybrid system. 8. Hence the proposed restructuring builds on insights learned from ASYCUDA implementation - and its challenges - about the management o f such a complex Information and Communication Technology (ICT) project: (i) lead agency (GDCE) the needs strong support in project management (including setting up and managing a performance i) monitoring framework; developing quality control mechanisms); ( i the sustainability o f the system depends on the I C T capacity o f the recipient (GDCE in the case o f ASYCUDA, especially i t s latest version, which i s deployed in Cambodia and employs a more advanced technology); ( i )ii technical design needs to factor in Cambodia's capacity constraints (e.g. the lack o f a cost- effective solution for a wide-area network until recently); (iv) procurement packaging requires careful design to allow for the emerging, but weak capacity o f the local ICT industry and the r i s k o f integrated software / hardware contracts to not deliver value for money; and (v) contract design requires attention to performance management given the risks o f delays in such complex project. 9. The proposed restructuring also provides a vehicle for allowing exporters and importers to acquire information on and better comply with regulations on an incremental basis. First, the further roll-out o f the customs automated system combined with the automation o f C/O will contribute to the original goal, since the Royal Government Cambodia intends to build i t s "single window" around the customs automated system platform. Second, based o n the review o f A S Y C U D A implementation to date, the proposed restructuring supports the development o f a more sustainable I T function within the GDCE as w e l l as supporting a stronger project management and quality assurance capacity, to strengthen the long t e r m sustainability o f the ambitions articulated in the PDO. Third, the RGC proposes to introduce a "Trade Information Website" which would provide in a `user friendly' and easily accessible way a l l o f the key information necessary for importers and exporters to comply with regulatory requirements. The TJN would also assist Cambodia to comply with changes to GATT Article X currently being discussed as part o f the WTO Trade Facilitation negotiations, which will l i k e l y require all W T O members to make all relevant import, export and transit information (including laws, regulations, procedures, penalties, fees and charges etc) available and easily accessible to the public via dedicated trade information websites. In addition, the RGC requested that the proposed restructuring supports continued to BFC, which i s critical at a time o f a severe downturn in the garment industry. 10. The new approach would achieve a similar development objective, at a slower pace but on a more sustainable basis. The expected result o f this new approach remains a reduction in documents and time (and, as a corollary, private costs and rents) required to process trade transactions. Gains would be achieved at a more modest rate that originally proposed (as most o f the progress would be linked to G D C E and the customs automated system plus one additional process - C/O issuance -, rather than a Single Window connecting all trade-related processes). An additional benefit, however, would be that changes that occurred in practices, approaches, and elimination o f redundancies would have been internalized and would be more sustainable. Another benefit will be the significant experience gained by GDCE - and the government more generally - in implementing large-scale ITC projects, a precursor for the Single Window under the ASEAN framework. The National Single Window Steering Committee established in 2008 will develop the vision for Cambodia's National Single Window, building among other things on the achievements and experience learned through the activities financed under this component. 4 1. 11 Proposed Changes Proposed changes to main outcome indicator and component indicators 11. While the overall project development objective (PDO) remains unchanged, the main indicator has been slightly reformulated to focus on the perceptions o f trading and trade- related companies (rather than general "investors") and to focus o n the performance o f customs (rather than the overall trade process which includes variables outside Customs' control). During restructuring discussions with the RGC, it was also f e l t that some indicators needed improvements, either because they are not currently measured or n o objective measurement methodology exists (e.g. response time to investors) or because adjustments in project design require some changes to better align with project inputs. The proposed revised and sharpened indicators o f progress are summarized in the table attached in Annex 1. Proposed changes i n project scope 1 COMPONENT : TRADEFACILITATION 12. The restructuring would shift resources from the original design of the electronic Single Window to further roll-out of ASYCUDA and automation of C/Os. The project originally provided for the implementation o f A S Y C U D A in the GDCE, as well as the implementation o f a Single Window. With restructuring, the Single Window would be dropped. Component 1 would instead finance a wider and more sustainable rollout o f the Customs automated system, i t s implementation in a number o f additional sites, i t s networking via secure communications infrastructure, together with support for the implementation o f the full suite o f functional modules including, as a priority, the transit and manifest modules. In addition, and as identified during the mid-term review and strongly reinforced by the in-depth review o f A S Y C U D A implementation, additional resources will be directed to developing the I C T support function within the GDCE to ensure long term sustainability o f the project's ICT-related deliverables. M o r e attention will be paid to project management and quality assurance as well, including through a more output-based contract and through building GDCE's capacity to manage this ambitious project. The in-depth review also recommended to: (i) separate out the hardware and IT capacity development from the main contract of services for the implementation o f the customs automated system; and (ii) strengthen the management capacity o f the National Project Team under the direction o f the National Project Director. This restructured component will also include the automation o f certificates o f origin in the Ministry o f Commerce (MoC). 13. While the restructured project would devote significant resources to improving the sustainability o f the ASYCUDA system as well as extending i t s deployment to new locations and increasing i t s technical functionality, the technical assistance contracts to provide this support would be open to international competitive tendering as opposed t o the previous sole source arrangements. Such an approach will facilitate closer supervision o f project deliverables by the client and will mitigate implementation risks significantly. At the same time additional technical assistance will be provided to the GDCE and the M o C via the complementary multi-donor financed Trade Development Support Facility to assist the GDCE to develop long term options for further deployment o f ICT to achieve the Government's trade facilitation objectives. COMPONENT 2: EXPORT ACCESS MARKET FUND 14. The Better Factory Cambodia (BFC) project continues to monitor compliance with n labor standards in the garment industry. I September 2007, the RGC requested an extension o f the ILO support until 2010. BFC, with support from the IFC, i s n o w developing a transition 5 shift strategy to (i) from i t s original compliance approach to a service (in part fee-based) approach o f monitoring, training, and good practice sharing in the area o f work conditions and (ii) shift to an independent Cambodian management (without I L O direct support). BFC has reported satisfactory progress on the use o f i t s resource envelope (beyond the portion financed by TFCP). In this context, i t was agreed to finance an additional $0.5 m i l l i o n (beyond the $0.6m in the original procurement plan and the $0.2 m i l l i o n agreed during the minor restructuring and disbursed in early 2009). COMPONENT 3 : PRIVATE PARTICIPATION INFRASTRUCTURE AND INVESTMENT (PPI) 15. N o changes are proposed under the restructuring for Component 3 . COMPONENT 4: LEGAL TRANSPARENCY 16. This component will include a new activity, the "Trade Information Website" (TIW). T o respond to a consistent concern o f the Cambodian Private sector - the lack o f access to trade- related information covering, inter alia, regulations, procedures, fee schedules, penalties and necessary forms to be used - the T I W will be created, linlung a number o f existing or to be created websites (and ensuring their updating) to create an exhaustive collection o f regulations, processes, fees, etc for traders. Building o n lessons learned during ASYCUDA implementation, the T I W will be part o f the Ministry o f Commerce ICT masterplan to ensure sustainability. Cost Comparison with Original Project 17. Overall project costs would remain unchanged (in SDR terms) as a result o f the proposed modification. However, re-allocation o f financing within component interventions and categories are warranted. The summary i s shown hereafter (details are summarized in Annex 2). Proiect costs fUS$I J PROJECT Original Expenses Remaining Needsfor New Total Proposed 1 ~ A CTIW T I E S PAD asof Balance existing proposed needs new Sept 09 activities activities allocation .............. " ................................... a . b c=a-b d e f=d+e I=b+f ................................................ 1. Trade 6,150,000 2,324,592 3,825,408 , 27,996 2,907,440 2,935,436 5,260,028 facilitation 2. EMAF 2,100,000 1,095,494 1,004,506 ~ 1,250,266 500,000 1,750,266 2,845,760 3. Investment 800,000 126,975 673,025 280,293 66,000 346,292 473,267 4. Legal 400,000 134,684 265,317 148,784 500,000 648,784 783,468 I transparency ............................................................... ................................. .................................................................................................................................................................. ................................ 300,000 1 171,926 128,074 ; 27,705 609,549 637,254 809,180 ~ Project Coordination , PPF 580,000 158,297 421,703 158.297 6 FIDUCIARY 19. Financial Management. The overall financial management (FM) performance i s considered to be satisfactory. The submissions o f quarterly FMRs and annual audited reports have been timely. The auditor's opinion o n the financial statements o f the Project for FY 2008 i s unqualified (clean). The existing FM and disbursement arrangement for the Project will be continued to operate for the proposed restructure, including f l o w o f funds, Designated Account and FM procedures, structure and controls. 20. Disbursement Status and Forward Projection. As o f September 30, 2009, the cumulative disbursements excluding the outstanding Designated Account advance amount to SDR2.61 m i l l i o n or 39.5 percent o f total grant o f SDR 6.62 m i l l i o n after almost 4 years o f implementation. The slow disbursement rate in part reflects that 36 percent o f the total grant (or SDR 2.3 8 m i l l i o n equivalent) was allocated to the non-implementing activities o n the Single Window. The proposed restructuring will result in a redistribution o f funds between disbursement categories and components toward full utilization o f the undisbursed balance within the next two years (see Annex 2 for details). 21. Procurement. The International Procurement Agent (PA) will continue to carry out all procurement under the restructured TFCP, with the exception o f small value and simple procurement falling below the thresholds agreed between the Bank and Ministry o f Economy and N Finance, and also excluding any Direct Contracting, Procurement from U Agencies, SingleBole Source Selection and selection o f NGOs. T o strengthen MoC's capacity to effectively carry out those procurement not requiring the P A under the restructured TFCP, it has been agreed that the services o f the international procurement consultant who i s currently being engaged by M o C under the multi-donor financed Trade Development Support Project, will also be used o n a part- time/shared basis for the TFCP. Furthermore, the applicable procurement methods have been revised to meet the needs o f the remaining procurement under the restructured project. This includes (i) application o f the Bank's latest Procurement and Consultant Guidelines (May the i) 2004, revised October 2006), ( i the addition o f National Competitive Bidding (NCB) as a permissible method for procurement o f goods accompanied with an NCB-Annex including reference to the Government's Procurement Sub-decreemanual for Externally financed projects i iharmonizing the thresholds and stipulating the further N C B improvements required thereto, ( i ) for use o f the various procurement methods consistent with the Government's Procurement Sub- decreemanual, and (iv) updating IDA'Sreview requirements. 22. The Good Governance Framework (GGF, Annex 4) had been reviewed as part o f supervision missions and showed good progress o n all dimensions, including strong leadership by the MoC. An updated version has been agreed in M a y 2009 to reflect lessons learned with the TFCP and other projects and i s effective since June 26,2009. Proposed amendments to the Development Grant Agreement 23. I t i s proposed to extend the closing date by thirty months from December 1, 2009 to June 1, 2012. This would be the f i r s t extension. The extended closing date reflects a realistic timeframe to implement the T I W and the r o l l out o f the customs automated system, with other activities proposed under the restructuring expected to be completed in a shorter time frame. 24. Other amendments include: (i) revision o f the results indicators (Annex 1); ( i a a i) i ia revision o f Schedule 1 to reflect the changes in category allocation (Annex 2); and ( i )revision to the procurement arrangements (Annex 3). 7 IV. Analysis Economic and Financial 25. The proposed approach to trade facilitation will lead t o benefits largely similar to the originally designed "single window" approach. The roll-out o f the customs automated system will bring more benefits than originally planned in terms o f customs automation. The automation o f C/O will bring more limited benefits in terms o f non-customs process automation than the original design. Finally, the TIW will bring the transparency in information as originally planned. In addition, the n e w approach, which builds o n the Royal Government o f Cambodia's own initial experience with customs automation, will be more sustainable, with stronger ownership and much better attention to I C T and project management capacity. Hence, overall the restructuring will not significantly alter the basic economic benefits accruing to the project. I t i s expected that that the measures to facilitate trade would s t i l l ultimately yield reduced smuggling, increased voluntary compliance with regulations and the tax regime (and reduce the opportunities for rent-talung), and improve Cambodian trade competiveness, anticipated from the original project design. Hence the ERR and FRR, originally calculated at 216% and 144% respectively, would be somewhat lower, but s t i l l very much significant. Technical, Social and Environmental 26. Modifications proposed do not alter the social or environmental impact o f the project. 27. The proposed changes will not change the environmental category and will not trigger new safeguards policies. 28. The modifications proposed do not require changes in W o r l d Bank policies. V. Expected Outcomes 29. The PDO o f the TFCP remains "to promote economic growth by reducing transaction costs associated with trade and investment, introducing transparency in investment processes, and facilitate access o f enterprises to export markets". T h e components' outcome indicators have been somewhat adjusted to reflect changes in design or lessons learned during initial implementation about monitoring and evaluation (Annex 1). VI. Benefits and R i s k s 30. Benefits o f the restructured project would broadly remain as those anticipated in the original project design, at a slower pace but o n a more sustainable basis. These include a significant enhancement in the efficacy and efficiency o f Cambodia's trade regime. This i s a major contributory factor in the RGC's growth and poverty reduction strategies. The relevance o f these benefits has become a l l the more apparent as Cambodia i s facing the global economic crisis. A major transmission channel i s through exports. In a dollarized economy, with l i t t l e flexibility for adjustment, trade facilitation i s a major instrument for the competitiveness o f existing industries and for the gradual diversification o f the economic base. 31. The project PDO would continue to face substantial r i s k s following restructuring. The experience so far has confirmed the original risk assessment o f substantial risks. The proposed restructuring would somewhat reduce the risks o f weak political commitment and resistance to change, since it builds o n a technical and institutional solution developed and owned by the RGC during the f i r s t phase. The risk o f limited technical and project management capacity has 8 materialized and will be mitigated in the proposed restructuring by additional support to GDCE to manage the customs automation project. An additional risk relates to the sustainability o f the technical solution used for customs automation (in particular to ensure it can be employed as a component o f the National Single Window) and the technical capacity to operate this system. Ongoing support through a Multi-Donor Trust Fund on Trade Related Assistance - financed by DANIDA, the EC, and UNIDO and administered by the Bank - will also help mitigate some o f the risks through (i)support to institutional capacity development o f the Ministry o f Commerce; i) ( i support to the Ministry o f Commerce overall I C T infrastructure and capacity; and ( i ) i ito assist the GDCE to explore long t e r m options for I C T deployment in support o f trade facilitation. 32. As originally planned, the restructured project will continue supporting GDCE's efforts to develop and implement i t s integrity strategy, in support to other projects including the Multi- Donor Trust Fund on Trade Related Assistance. The cost o f unofficial fees indeed continues to threaten the achievements o f the project objectives. In the context o f i t s response to the economic crisis, the RGC has committed to further streamline these fees and processes to help private sector cope with the difficult external environment and, with resources from the Multi-Donor Trust Fund and building on synergies with the F C , the Bank team i s supporting the dialog between the R G C and private sector business associations to diagnose these fees and processes and streamline them. 9 Y F: a, 3 .3 0 4 M 3 os %% m # $8 3 z"f ai ri w L o c d .c U e Q) L 3 L m L 3 3 u .& B \9 s c3 d m d N w a 8 E d 2 z w gg a, P gs a, gg w P 0 m 0 m e" P O c" cw g 0 0 0 m m m 0 3 0 0 .. Y d 8 'g Y B 0 m V n V U m F z 0) E 3 3 $ Ew 0 z z U G L L 6 z $ .i c, Y E .3 0 0 0 Y I t-- P) 0 k a 0 (A -t m i t------ t--- Annex 2: Proposed reallocation Status of uses o f Funds by Disbursement Category as at September 30,2009 (in S D R ) and Proposed reallocation I I Disbursed as of New proposed Sept 30,09 allocation under 9 0 of 4 Allocated No Category including restructured expenditures to ( S W advances to UN project be financed (SDK) (SDR) 1 Goods 2,834,000 100% 3,580,000 1.487.5 17 Consultants' 2 Services under Part A,B,C.2 and D o f 1,030,000 455,934 1,788,000 100% the Project under Part C. 1 o f 400,000 125,000 100% the Project 25,080 Training, I I I workshops and 3 90,000 100% incremental 37,714 operating costs 319,335 100% o f sub- 4 Sub - grants 1,150,000 1,47 1,000 grants amounts 523,879 disbursed Amount due Refundingo f pursuant to Project 5 370,000 82,665 Section 2.02 (C) Preparation o f the Grant Advance 82.665 Agreement Total 6,620,000 2,612,789 6,620,000 14 Annex 3: Procurement Arrangements CAMBODIA: TRADE FACILITATIONAND COMPETITIVENESS PROJECT A. General 1. Procurement for the Restructured Trade Facilitation and Competiveness Project (TFCP) will be carried out in accordance with the W o r l d Bank`s "Guidelines: Procurement Under IBRD Loans and I D A Credits" dated May 2004, revised October 2006 and "Guidelines: Selection and Employment o Consultants by World Bank Borrowers" dated May 2004, revised October 2006. f The general description o f various items under different expenditure categories i s given below. F o r each contract to be financed by the Project, the procurement methods or consultant selection methods, the need for prequalification or post-qualification, estimated cost, prior review requirements and time frame have been agreed between the Recipient and the International Development Association (IDA) in the Procurement Plan for restructuring. The Procurement Plan will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. Procurement o f Goods: Goods procured under this restructured project would primarily include IT equipment, printed materials, office furniture, and office equipment, as well as further requirements emerging from an information system that i s currently under development. Goods estimated to cost the equivalent o f US$lOO,OOO or more per contract shall be procured through the International Competitive Bidding (ICB) method; and the procedures set forth in the IDA'S Procurement Guidelines and using the IDA'S applicable Standard Bidding Documents (SBDs), and Domestic Preference will also be allowed to eligible national bidders. Goods estimated to cost less than US$lOO,OOO equivalent per contract may be procured through the National Competitive Bidding (NCB) method and the procedures set forth in the Sub-Decree 14 on Promulgating o f the Standard Procedure for Implementing the W o r l d Bank and the Asian Development Bank Assisted Projects dated February 26, 2007 and relevant provisions o f the Royal Government o f Cambodia Externally Assisted Project Procurement Manual for Goods, Works and Services, subject to the improvements listed in the Annex to the Grant Agreement. Goods estimated to cost less than US$20,000 equivalent per contract may be procured through the Shopping method and the procedures set forth in the aforesaid Sub-Decree and Procurement Manual. The methods o f Direct Contracting and Procurement fi-om UN Agencies may be used subject to the circumstances described respectively in paragraphs 3.6 and 3.9 o f the Procurement Guidelines. 3. Procurement o f Works: N o c i v i l work contract i s foreseen under this Restructured Project. 4. Selection o f Consultants: Consultant services financed through this restructured project are expected in the following areas: Capacity building, Development o f the CED IT Support Capacity and IT Strategic Plan, Pilot Private Participation in Infrastructure Projects etc. Services requiring hiring o f f i r m s would generally be procured through Quality-and Cost-based Selection (QCBS) method. However, when consultant firms and non-for-profit organizations are expected to be included in the same short-list, and if the value o f the contract i s estimated to cost US$50,000 or more, Quality-Based Selection (QBS) method shall be used. F o r assignments estimated to cost less than US$50,000 equivalent per contract the method Selection Based on Consultants' Qualifications (CQS) may be used, and for external audit assignments the Least Cost Selection Method may be used. Services for tasks under circumstances which meet the requirements o f paragraph 3.10 o f the Consultant Guidelines may, with the IDA'S prior 15 agreement, be procured through the Single Source Selection method. Services requiring hiring of individual consultants may be procured in accordance with the provisions o f Section V o f the Consultant Guidelines, whereas Sole Source Selection o f individual consultants may be done only with the IDA'Sprior agreement and under the circumstances described in paragraph 5.4 o f the Consultant Guidelines. Shortlists o f consultants for consulting services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely o f national consultants. 5. E M A F Matching Grant Sub-Grant: Matching Grant i s expected to finance 50 percent o f cost o f provision o f technical assistance to exporters. Some procurement o f goods and consulting services have been included in the proposals o f some sub-grantees o f EMAF. The IDA and the implementing agency agreed that all procurement using the funds from the EMAF's sub- grants are required t o follow the IDA'SProcurement and Consultant Guidelines as stipulated in the Project's Grant Agreement and also in the EMAF Manual. Since the maximum sub-grant amount i s only USD25,000, there are n o large value procurement packages foreseen under the sub-grants, and it i s expected that the procurement o f goods would comprise o f packages less than USD5,OOO per contract which may be procured through Shopping method in accordance with paragraph 3.5 o f the Procurement Guidelines, and consultant services are expected to comprise o f mainly individual consultants, which may be procured through the individual consultant selection procedures under Section V o f the Consultant Guidelines. All the procurement packages under the sub-grants shall be subject to IDA'S post review. The IDA informed the implementing agency, Ministry o f Commerce (MoC), to keep all relevant procurement documents for the Bank's post review. The procurement arrangement for the sub grant will also be specified in each sub grant agreement. B. Assessment o f the agency's capacity to implement procurement 6. The procurement capacity o f the implementing agency MOC was assessed by IDA during the original project preparation and procurement risk was determined t o be high and it was agreed that a national procurement consultant would be engaged to strengthen the capacity o f M o C for carrying out the procurement under the original Project, and the national procurement consultant was subsequently engaged. For the purpose o f restructuring, the procurement capacity o f M o C was reviewed again to verify i t s adequacy for carrying out the remaining procurements under the restructured project that fall below the threshold requiring international procurement agent. Currently, there i s one government procurement staff assigned to this Project and one national individual procurement consultant was also engaged as the procurement coordinator and they are responsible for assisting M o C in carrying out the procurement and serving as the focal point for coordination and follow-up o f procurement activities between MoC's line agencies which have activities financed by the TFCP, and the International Procurement Agent (PA), MEF, and the IDA. Procurement expertise i s s t i l l very much under-developed in Cambodia and there i s a shortage o f qualified procurement professionals in the country, including in the private sector where national procurement consultants with adequate s l u l l s and experience in procurement in general and in W 3 procurement procedures in particular, are not readily available. IDA i s E engaged at a broader level with the Government to encourage the development and implementation o f a procurement capacity building program in the country for both the public and private sector, but this i s a medium t e r m objective. In the meantime, procurement capacity o f project implementing agencies in many cases continues to r e l y o n external support o f procurement consultants along with some periodic training o f project staff. Some project procurement staff as w e l l as national procurement consultants have moved from one project and organization to another for better prospects and this has adversely affected the implementation and procurement knowledge-transfer o f some projects. TFCP also experienced the loss o f a national procurement consultant for a period o f time before the current national procurement consultant was engaged. The present procurement skills, knowledge and experience o f the current 16 government staff and also the national procurement consultant under the Project in the application o f the IDA'S procurement procedures were assessed to be limited and not sufficient for effectively carrying out the remaining procurement under the restructured Project and the procurement capacity o f the Project s t i l l remains weak. The quality and timeliness o f procurement processing can be improved through hrther capacity strengthening to build the procurement knowledge and skills o f M O C staff for effectively carrying out the remaining procurement under the restructured procurement in accordance with IDA'Sprocurement procedures, as well as to strengthen procurement management systems as a whole within MOC. 7. The assessment has also taken into consideration o f a substantial fiduciary risk associated with the overall weak governance environment in Cambodia which impacts procurement. Specific issues are the general risk o f collusion during the bidding process, biased bid evaluations, and supplier/contractor offering informal payments as incentives for favorable treatment. Three IDA-financed projects were suspended and misprocurement declared in 2006 after allegations o f corruption led to investigations in Cambodia by the IDA Department of Institutional Integrity. However, TFCP was not included in or affected by the fiduciary review and investigation o f 2006. 8. Following the aforesaid misprocurement, the Borrower proposed and agreed by the IDA to use the International Procurement Agent (PA) for a l l the IDA-financed projects including this restructuring project and the P A was engaged by the Borrower in December 2007. In December 2008, the Government and the IDA also agreed t o exclude specified small value and simple competitive procurement packages from the P A requirement and to allow these to be procured by the project implementing agencies themselves as i t was not practically and economically feasible for these to be procured through the PA. 9. Based on the result o f the assessment, the procurement risk under the project was determined to remain High. However, this risk will be mitigated through the wide range o f strengthening measures that are being incorporated in the restructure o f the Project and Grant Agreements. With the incorporation o f the capacity strengthening measures and the extensive requirements for improving governance, including transparency and accountability in the procurement process, as listed in Section F and detailed in the Good Governance Framework (GGF) provided in Annex 4, the residual procurement risk under the Restructured Project i s determined to be substantial. C. ProcurementPlan 10. The procurement plan, which forms the basis for the procurement methods, has been agreed between the Borrower and IDA and will be available in.thedatabase o f the IA. It will also be available in the W o r l d Bank's external website. The Procurement Plan will be updated in agreement with the project team at least annually or as required to reflect the actual project implementation needs. The procurement plan for the restructured project i s included in this Project Paper-Annex. D. Frequency o f Procurement Supervision 11. In addition t o the prior review supervision t o be carried out by IDA, the procurement capacity assessment o f the I A recommends that procurement supervision missions, including ex- post review, be conducted bi-annually. Furthermore, procurement and financial management staff are expected to conduct joint ex-post procurement reviews and Statement o f Expenditure (SOE) reviews in order t o broaden the perspective, including checking for compliance with agreed 17 procedures, capacity issues, adequacy o f documentation and record keeping arrangements, indicators o f collusion, and verification o f deliverables and end-usage. E. I D A Review Requirement 12. The following contracts will be subject to prior review by IDA: (i) each contract for i) goods estimated to cost the equivalent o f US$lOO,OOO or more; ( i each contract for goods procured under Direct Contracting and under Procurement from U Agencies; ( i ) N i ieach contract for consultants' services for employment o f a firm estimated t o cost the equivalent o f US$lOO,OOO or more; (iv) each contract for the employment o f individual consultants estimated to cost the equivalent o f US$50,000 or more; (v) each contract involving Single-Source Selection o f f i r m s or Sole-Source Selection o f individual consultants, irrespective o f value; and (vi) the contract for external financial audit provided by a firm procured through Least Cost Selection, irrespective o f value. All other contracts shall be subject to ex-post review by IDA. The percentage to apply for contracts subject to ex-post review i s 20 percent. F. Agreed Actions to strengthen procurement capacity and mitigate procurement risks Capacity-relatedStrengthening Measures: 13. The I P A will continue to carry out all procurements under the restructured project, except N for procurement through the methods o f direct contracting, procurement f r o m U agencies, single source for consulting firm, selection o f individual consultants (regardless o f value), hiring o f NGOs, and procurement o f goods estimated to cost less than $50,000 per contract. 14. A qualified international procurement consultant experienced in IDA procurement procedures and terms o f reference satisfactory to IDA, has been agreed t o be engaged by M O C under the Trade Development Support Project (TDSP) and the selection process i s at an advance stage and the consultant i s expected to be appointed by November 2009. This international procurement consultant, who i s expected to be hired and contracted with MOC, will also provide part-time procurement support for the restructured TFCP. The services o f the international procurement consultant will be used o n a part-timehhared basis for the restructured TFCP. The consultant will be responsible for supporting and enabling M O C procurement staff t o effectively carry out in accordance with IDA procedures all procurement packages for goods and consulting services falling below the IPA requirement under the restructured Project, f r o m preparation o f bidding documents up to signing o f contract, . The consultant will also assess and propose measures for strengthening the procurement management system o f MOC, including roles, responsibilities and accountabilities o f staff involved in procurement, formation o f bid evaluation committees, review and approval requirements and associated accountabilities, complaints and disclosure mechanisms, procurement audits and record keeping arrangements, with a view to streamline and strengthen the integrity o f the procurement management system. T o build capacity o f M O C staff, the international procurement consultant will develop and conduct a program for structured and hands-on training, which would also build linkages to the broader procurement capacity building program being initiated under the public financial management program at the country level. 15. I t has been agreed that M O C would support capacity building efforts t o strengthen the procurement capacity o f i t s staff. These capacity building efforts will be coordinated with the Government-wide Public Finance Management Reform Program (PFMRP). 16. Furthermore, IDA will provide procurement training at least once a year. 18 Governance-related Strengthening Measures: 17. In addition to IPA requirement for carrying out the procurement above the specified thresholds and also an international procurement consultant to assist, o n a shared basis with TDSP, in carrying out the procurement under TFCP below the I P A thresholds and to build procurement systems and capacity o f MOC, a Good Governance Framework (GGF) has been adopted by M O C (Annex 4). The GGF includes various elements for improving transparency and accountability through strengthened procurement arrangements, strengthened financial management, enhanced public disclosure, involvement o f c i v i l society, a complaints mechanism, a code o f ethnic conduct, sanctions, and by addressing project-specific implementation risks. 18. The Government's Standard Procurement Manual for Externally Financed Projects, including standard bidding documents, which has been agreed by IDA for use in N C B and Shopping procurement under IDA-financed projects in Cambodia will also be applicable under the restructured TFCP. This Manual includes numerous measures for further enhancing competition, transparency and accountability in the procurement process, including defined roles o f government staff, integrity pledges, and additional provisions for wider publicity o f bidding opportunities and procurement information including contract awards, involvement o f beneficiaries, complaints handling and de-briefingrequirements, etc. 19. It has been agreed to rationalized thresholds for use o f ICB, NCB and Shopping methods. Under the original TFCP, there was n o provision for NCB, and as a result I C B was required for procurement o f goods exceeding the specified Shopping threshold o f US$5,000 per contract, which was unrealistic for attracting international bidders. This has n o w been corrected with the revision o f the thresholds to also allow use o f the N C B method for procurement o f goods ranging between US$20,000-$100,000 per contract, and making a l l the thresholds consistent with the Government's Procurement Manual for Externally Financed Projects and in-line with other Bank- financed projects in Cambodia. 20. I t has also been agreed to expand the scope o f ex-post procurement reviews by the Bank to include checks for indicators o f collusion and end-use deliveries in addition to verifying procedural compliance, as w e l l as integrated procurement and FM/SOE reviews. 2 1. IDA will carry out at least two supervision missions per year, including ex-post reviews. IDA will also conduct workshop for project agencies staff as w e l l as for private sector suppliers and contractors to disseminate the IDA'Sprocurement procedures with specific attention to the provisions against fraud and corruption. G. Details of the Procurement Arrangements for the Implementationof the Restructured Project 22. Goods and Non Consulting Services (a) L i s t o f contract packages to be procured following ICB and direct contracting: 19 1 - 2 4 5 - h 7 8 9 Review Domestic Expected Procure by Ref. Contract Estimated Preferen Contract ment P-Q Bank Comments No. (Description) Cost (USD) ce Signing Method (Prior I (yesfno) Date - Post) to be confirmed Customs after Automation completion Expansion of 1 1,600,000 ICB No Yes Prior June 10 (hardware & preparation software may be of split) technical specificatio ns Computers Equipments for CO Automation 2 345,000 ICB No Yes Prior June 10 Processing & T I W (hardware + Maintenance) - Invitation for Bid has been I T System i ssued. Development 3 115,000 ICB No Yes Prior Nov. 09 The bid (Investor submission Tracking system) deadline i s Oct. 13, 2009 Telecommunicati o n firm to provide WAN connection 4 400,000 ICB No Yes Prior June 10 for 18 mths & all connections fiber cable 23. Consulting Services (a) L i s t o f consulting assignments with short-list o f international f i r m s and SSS 1 1 2 3 4 5 6 7 --t--- Review Expected Ref. Description o f Estimate Selection by Bank No. Assignment d Contract Comments Method (Prior f Signing cost Post) Design and implement Automation o f 150,000 QCBS Prior June 10 Certificate o f Origin Processing I 3 Trade Information 200,000 QCBS Prior N o v 10 I 1 - 2 3 4 5 6 7 Review Expected Ref. Description of Estimate No. Assignment d Selection by Bank Contract Comments Method (Prior I Signing cost Post) Date Website & Couching/Training Annual Financial audit Part of Bundled Audit 4 for the whole project 33,990 LCS Prior April 10 procuredby MEF period (TDSP) 21 National Competitive Bidding Procedures The procedure to be followed for National Competitive Bidding shall be those set forth in the Sub-decree 14 on Promulgating o the Standard Procedurefor Implementing the World Bank and f the Asian Development Bank Assisted Programs dated February 26, 2007 and relevant provisions o f the Royal Government o Cambodia Externally Assisted Program Procurement Manual for f Goods, Works and Services with modifications set forth below in order to ensure economy, efficiency and transparency and broad consistency with the provisions o f Section Io f the Guidelines for Procurement under IBRD Loans and IDA Credits published by the BanWAssociation in M a y 2004 and revised in October 2006 (the Guidelines) as required by paragraph 3.3 and 3.4 o f the Guidelines. 1. Eligibility The eligibility o f bidders shall be as defined under Section I o f the Guidelines; accordingly, n o bidder or potential bidder shall be declared ineligible for contracts financed by the Association for reasons other than those provided in Section Io f the Guidelines. Foreign bidders shall not be asked or required t o form j o i n t ventures with national bidders in order to submit a bid. Bidders located in the same province or city as the procuring entity shall not be given preference over bidders located outside that city or province. 2. Qualification Criteria The assessment o f the qualification o f a bidder shall be conducted separately from the technical and commercial evaluation o f the bid and in strict adherence t o the qualification criteria that shall be clearly specified in the bidding documents. Such assessment shall only take into account a bidder's capacity and resources to perform the contract, specifically i t s experience and past performance o n similar contracts, capabilities with respect to personnel, equipment and construction and manufacturing facilities, and financial capacity. 3. Bid Submission; Bid Opening and Bid Evaluation The evaluation o f a bid shall be made in strict adherence t o the criteria that shall, be clearly specified in the bidding documents and quantified in monetary terms for evaluation criteria other than price; merit points shall not be used in bid evaluation. N o bidder shall be rejected on the basis o f a comparison with the Recipient's estimate and budget ceiling without the Association's prior concurrence. A copy o f the minutes o f the public bid opening shall b e promptly provided to all bidders and to the Association with respect to contracts subject t o prior review. Neither shall all bids be rejected nor shall new bids invited without the Association's prior written concurrence. 4. Complaints by Bidders and Handling of Complaints The Recipient shall implement the complaint handling mechanism in accordance with Section 7 o f the above mentioned Procurement Manual. 22 5. Fraud and Corruption The Association shall declare a firm or individual ineligible, either indefinitely or for a stated period, to be awarded a contract financed by the Association, if it at any time determines that the firm or individual has, directly or through an agent, engaged in corrupt, fraudulent, collusive, coercive or obstructive practices in competing for, or in executing, a contract financed by the Association. 6. Right to Inspect/Audit Each bidding document and contract financed from the proceeds o f the Financing shall include a provision requiring bidders, suppliers, contractors and subcontractors to permit the Association, at i t s request, to inspect their accounts and records relating to the bid submission and performance o f the contract and to have said accounts and records audited by auditors appointed by the Association. The deliberate and material violation by a bidder, supplier, contractor or subcontractor o f such provision may amount to obstructive practice. 23 8 .3 !i Q\ 0 0 N 9 s V u 0 z I m C 0 N 4 i 4 t3 0 Y + 0 g e, m @ 0 Y 2.lcjg 0 0 0 g s cd L! U N N 1 8 0 ,tE i 'G 0 s 0 a, 3 Y 0 a, 4 0 Y M $ Ld U 0 -ri P 9 'S 0 Y cd 13 4 a VI VI e, I? .a .3 Y e, E s a FI cd e, 0 c 5 9 0 .3 c, cd c, .3 U 0 r= 0 & 41 0 .. e, .s a .3 z E a 3 e?: E E-r 3 m cd 3 0 P Y rcl 0 d u W VI e, 5 3 e, a J .3