Document of The World Bank FOR OFFICIAL USE ONLY Report No: T7647-IQ TRUST FUND GRANT OF US$55 MILLION TO THE MINISTRY OF PLANNING AND DEVELOPMENT COOPERATION OF THE REPUBLIC OF IRAQ FOR AN EMERGENCY PRIVATE SECTOR DEVELOPMENT I PROJECT WORLD BANK IRAQ TRUST FUND - TF053167 TRUST FUND GRANT - TF054462 TECHNICAL ANNEX November 29, 2004 Finance, Private Sector and Infrastructure Group Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT (Exchange Rate Effective October 7, 2004) Currency Unit = US$ US$1 = Iraqi Dinar 1,465 FISCAL YEAR January to December ABBREVIATIONS AND ACRONYMS CBI Central Bank of Iraq CPA Coalition Provisional Authority DARM Diwan Al Rikaba el Malia (Iraqi Supreme Audit Institute) EU European Union FDI Foreign Direct Investment FMR Financial Management Reporting GDP Gross Domestic Product ICB International Competitive Bidding ISDS Integrated Safeguards Data Sheet ISRB Iraqi Strategic Review Board IMF International Monitory Fund ITF Iraq Trust Fund (administered by the World Bank) ITPC Iraqi Telecommunications and Post Company MIGA Multilateral Investment Guarantee Agency MIM Master Implementation Manual MOF Ministry of Finance MOPDC Ministry of Planning and Development Cooperation MOT Ministry of Telecommunications NCB National Competitive Bidding OED Operations Evaluation Department - World Bank OFF Oil For Food OP Operational Procedure P&S Payments and Settlements PAC Project Advisory Committee PID Project Information Document PMT Project Management Team PMU Project Management Unit POP Points of Presence PP Procurement Plan PSD Private Sector Development PSP Private Sector Participation PSPDN Public Switched Packet Data Network RFP Request for Proposal SBD Standard Bidding Document SCIS State Company for Internet Services SME Small-Medium Enterprise SOE Statement of Expenses TA Technical Assistance TOR Terms ofReference UK United Kingdom UN United Nations UNDB United Nations Development Business UNDG United Nations Development Group US United Sates USAID US Agency for International Development Vice President: Christiaan Poortman Country Director: Joseph P. Saba Sector Director: Emmanuel Forestier Sector Manager: Zoubida Allaoua Task Tearn Leader: Mohammad A. Mustafa REPUBLIC OF IRAQ EMERGENCY PRIVATE SECTOR DEVELOPMENT I PROJECT TABLE OF CONTENTS 1. BACKGROUND AND RECENT DEVELOPMENTS ................................................... 1 Country background ................................................... 1 International response................................................... 2 II. BANK RATIONALE AND STRATEGY .................................. 3 Bank Response ... 3............................3 Bank Strategic Approach ................................ 3 Sector - specific Issues................................ 4 III. PROJECT DESCRIPTION................................ 9 Project Objectives................................. .9 Project Description ................................ 9 IV. IMPLEMENTATION ARRANGEMENTS ............................... 13 Procurement ............................... 13 Disbursement ............................... 18 Financial Management ............................... 19 Environmental and Social Safeguards ............................... 21 Gender ............................... 21 Monitoring and Evaluation............................... 22 V. FINANCIAL AND ECONOMICAL JUSTIFICATION ......... ...................... 23 VI. POTENTIAL RISKS AND MITIGATION ............................... 24 VII. TIMETABLE OF KEY PROJECT PROCESSING EVENTS ............................................... 28 ANNEXES .... ;29 Annex 1: Logical Framework and Key Performance Indicators .30 Annex 2: Detailed Project Costs.33 Annex 3: Detailed Project Components Description .35 Annex 4: Responsibility Matrix .45 Annex 5: Procurement Plan.47 Annex 6: Project Implementation Schedule .52 Annex 7: Financial Management and Disbursement .53 Annex 8: Environmental and Social Safeguard Framework (ESSAF) .60 Annex 9: Telecommunications Sector Policy Development in Iraq.88 Annex 10: Performance Monitoring Indicators.90 Annex 11: Project Team.91 BOXES Box 1: International Response .. 2 Box 2: Private sector development activities to date .. 4 Box 3: IFC's Activities to support PSD .. 5 Box 4: USAID Assistance for the Private Sector . .6 REPUBLIC OF IRAQ EMERGENCY PRIVATE SECTOR DEVELOPMENT I PROJECT GRANT AND PROJECT SUMMARY Grant Recipient: Ministry of Planning and Development Cooperation (MOPDC) Beneficiary: -Ministry of Planning and Development Cooperation (MOPDC) - Iraqi Telecommunications and Post Company (ITPC) -Ministry of Trade (MOT) - Central Bank of Iraq Implementing Agency: Ministry of Planning and Development Cooperation (MOPDC) Iraqi Telecommunications and Post Company (ITPC) Loan/Credit/Grant: Grant - World Bank Iraq Trust Fund Amount & Terms: US$55 million on grant terms Objectives & Description: This project represents the first phase of a proposed series of interventions within the comprehensive private sector development strategy-to help implement a subset of the main pillars that can be done given the current security situation and the Bank's comparative advantage. Its objective is to lay the foundation by addressing certain key priorities in institutionalcapacity building and essential communications infrastructure to help foster the development of the private and financial sectors. A secondary objective of the project is to generate job creation through the development of the private sector. Project Appraisal Document: This Project has been prepared in accordance with Emergency Recovery Assistance procedures (Operational Policy 8.50). As such, there is no Project Appraisal Document for this Project. Disbursement: The Grant is expected to be fully disbursed by December 31, 2007. Project ID Number: P091344 i I i REPUBLIC OF IRAQ EMERGENCY PRIVATE SECTOR DEVELOPMENT I PROJECT TECHNICAL ANNEX I. BACKGROUND AND RECENT DEVELOPMENTS Country background 1. Large oil reserves and abundant natural and human resources enabled Iraq to attain the status of a middle-income country in the 1970s. Income per capita rose to over US$3,600 in the early 1980s. Just before the conflict in 2003, Iraq was a country in distress, having experienced a marked fall in almost all human development indicators (material poverty, health standards, life expectancy and literacy) over the past decade. The command economy of the past 25 years left its undeletable mark on almost all its economic sectors. A series of wars and international sanctions further deteriorated it's the economy. Despite the country's rich resource endowment, Iraq's human development indicators are now among the lowest in the region and the country has drifted drastically from the Millennium Development Goals (MDGs). In 2004, the population remains very vulnerable, with almost a meltdown of the economy and impoverishment of large sections of society. 2. Years of conflicts, misdirected resources, and the effects of Iraq's centralized command economy have stifled economic growth and development, curtailing Iraq's ability to invest in new infrastructure and maintain existing facilities, as well as its ability to attract private sector investment, all of which are part of a necessary integrated approach to post-conflict reconstruction. Indeed, Iraq faces today a number of monumental development challenges. The future of Iraq cannot rely on oil only. The private sector will need to play a key role not only for bringing, about a diversified, market economy but also to generate new employment. 3. With low-income levels and high unemployment rates,' an immediate concem is to create new jobs; fostering private enterprise is one key source of economic growth and employment generation. However, in the present conflict environment in Iraq, developing the private sector is not straight-forward; it faces many challenges including knowledge market failures, inadequate infrastructure, weak institutions that are unable to facilitate and foster investment and job creation, a volatile security situation, and low capacity in the public and the private sector. ' IMF, UN/World Bank Watching Briefs, and other Iraqi sources estimate Per Capita GDP at $.840 for the year 2003. The official rate for unemployment is 28%, while some estimates place this number at 50% or more. Emergency Private Sector Development I Project Technical Annex International response 4. Following the invasion of Iraq in 2003, at the request of the international community, the World Bank and the United Nations Development Group (UNDG) worked closely to produce a Joint United Nations/World Bank Iraq Needs Assessment (October 2003). The report estimated the total reconstruction needs, excluding oil and security expenditures, at around US$32 billion, most of which will be channeled bilaterally. Two Trust Funds were also set-up at the United Nations and the World Bank to ensure swift, flexible, and coordinated donor financing for priority investments identified in the Needs Assessment, for which about US$1 billion have been commnitted for 2004/2005 (see Box 1 for details). Box 1: Internaional Response The United NationsfWorld Bank Joint IraqNeeds Assesmen (October 2003) estimated total needsfor the period 2004-2007 to be US$55 billion, cornprising-US$35.8 billion for the fourteenLsectors coveredby .the Needs Assessment,2 and US$19.4 billion estimated.by.the then- Coalition Provisional ALtihority (CPA) for, other sectors including security and oil.he Joint Needs ne 'erved as a basis for aninternadonat donors' conference beld in Madrid 'in Obtober of2003,vwhere donbrs pledged about US$32 billion for the period 2004-2007.'Followup Dkonworommitteelmeetihgs aftreglblYybheld to review priofities submitted by each ministry, assessthe progress madertodate andlcoordinate. bilatal and .multilateWl recons=tutkio, efforts. Todate, only a smallportionoftthesepledge.hasbeeaactually.committe&and disbursed,.. - ,. ~'eoI. *rin'e i..#~a mi Dn'-esm To ensure swift, flexibi, and c6ord'iated donorT iesncin M'teN N* .h m4 Assessment, the .World'Banlk and tU1,Iigne-d a'ntnai icdonmtid Fimd FcrY*a: consisting of two trust funds-a World Bank Iraq Tust Fund (hIF) and a UNDG.raa nd4- ithr mechanisms for close coordination. About US$1 billion have been pledged for the UN and the World Bank, Trust FundsAforI M25. Pxoje ctsted'ffunding eihie,rusts mdsFund - stusAvapprova1 of,- the Iraqi, Strategic. Re%iew. B ar ),;B,,cha5i.re 'by,ted!_imstry-of Plannin,g.,and .I)e elopment Cooperation (MOPDC), to. ensure projectsare c ,titb,pronrties- and that no duplication. OCCIII. Most of the US$32 billio pledged forr a q'q'si&odist n 'ldbeechanneld biateriily. iTherUnited. States (US) is the single. Iargest.contributor"-to lhaq!s reconstructionand to infrastructure..rehabilitation.in particular. The. US$18.4 billion supplemental appropriation approved by US,Cwngress_.u,late. 2003; includes some resources to support priv,ate, sector development and telecommunications sector development. However. despite the above-mientioned funding,'liq faces a large gap in'financing for emergency reconstruction and capacity building. 2 The sectors are: education; health; employment creation; water and sanitation; transport and telecommunications; electricity; housing and land management; urban management; agriculture, water resources, and food security; finance; state-owned industries; investment climate; mine action; and government institutions. The cross-cutting themes are: gender, environment, and human rights. 2 Emergency Private Sector Development I Project Technical Annex II. BANK RATIONALE AND STRATEGY Bank Response 5. In January 2004, the World Bank's Board of Executive Directors discussed an Interim Strategy note of the World Bank Group for Iraq and authorized the Bank to act as administrator of the World Bank Iraq Trust Fund (the "ITF' or "The Trust Fund"), which was created jointly by the World Bank and other donors3. 6. The proposed Private Sector Development (PSD) I Project (the 'Project') is fully consistent with the World Bank's Interim Strategy Note for Iraq, which emphasizes the need for short-term employment generation, institutional capacity building, and rapid rehabilitation of critical infrastructure as prerequisites for long-term sustainable recovery. The proposed operation also supports the Govemment of Iraq's (GOI) objective to create a dynamic private sector by improving the investment climate where private participation can flourish, as outlined in the more recent National Development Strategy (October 2004). 7. It also fits with the Bank Group's PSD strategy, which is based on four fundamental pillars: (i) building a competitive environment (through policies, institutions, and regulations to build a sustainable investment climate, including trade facilitation); (ii) restructuring State-Owned Enterprises (SOEs), including support to SMEs (through IFC's support); (iii) building financial systems and infrastructure (including restructuring the banking sector and developing the payments system and the supervisory capacity of the Central Bank of Iraq); and (iv) building a framework for a public private partnership to provide basic services. Bank Strategic Approach 8. Indeed, this Project complements the Bank's interventions in other sectors, namely health, education, and infrastructure, all of which are necessary to promote sustainable economic recovery. It has its origins in the initial Joint UN/WB Needs Assessments prepared for the first Donors Conference in Madrid, which stressed the importance of job generation through the promotion of investment in productive sectors, ideally beyond the oil industry. The Needs Assessment also identified, amongst other elements, SOEs' (highly inefficient and overstaffed) current weight on the economy, and the lack of strong public institutions that support the private sector and the lack of functionality of a banking system as bottlenecks for PSD. 9. This conference was followed-up by a series of policy workshops in the period of February to July 2004 which generated a series of "Iraqi owned" and developed priorities that are reflected in this project (see Box 2 for further details). These workshops, which 3To date, the Donor Committee includes: Australia, Canada, EC, Finland, Iceland,India, Japan, Korea, Kuwait, Netherlands, Norway, Qatar, Spain, Sweden, Turkey, United Kingdom, and the United States. 3 Emergency Private Sector Development I Project Technical Annex were highly interactive in format, identified three areas of high priorities for Iraq where the Bank can have a significant role, namely (i) investment climate reform, and subsequently (ii) payments system reform and (iii) telecommunications sectors reform. 10. In that effect, the Bank's strategic choices of intervention at this stage in private sector development (i) reflect the sector needs and the priorities identified by the Iraqis, (ii) take into account other Bank Group activities as well as other donors' activities, while (iii) applying lessons learned from previous experiences in post-conflict situations, as outlined below for the areas of strategic interventions. Box 2: Private sector development activities to-date * Since the completionTof the Joint WBIEN Needs Assessments,.the Bank continued its,dialogue.with : the Iraqi ahorides -.through multiple workshops:and seminars for Iraqi officials,,as well asjprivate sector and academia representatives .Thefirsi workshop 4ealt wirthhe general issues of transition and. sequencing ofreforms; the second addressed issues pertaining to investment climate, trade facilitation and legal systems,'aid the third concentrat'ed onuSOE reform inIra. * The'Baik has completed two repom eon-th above topics as pat of a comprehensive Economic Sector Work-(ESWV).. . ' - '* ' ' * In addition, the Bank organized a 3-week training program for public sector officials, economic and business.professoXs and privatersector representati .- Thieq covered aspects.of.micro-and. macro econonmc refom, 'fiancial sectr reform, negotiation s-ilb, cmmunicationski feasibili$y anlalsis, aiim 1u0 p t'. ts ani Miet_ tetoe ' - *.,.. w r'; oih oj_ * 3 a n dXib nklbnkZSe.mo2 -- :..;eldrof 1~ i. hp -was;the4idenda$ -oflGt1 t regent'tfbr stotetoma teWimh rmica tone telctr ummications secito% the Bak organized two workshps (on-ji) telecommmicatior.s sector reform; and (ii) infrasrturegiioni' large number ofofficl attended. Draft sector policy note on telecommunications-was developed, Sector - specific Issues 11. Investment Climate Reform. Relative to the size of the Iraqi economy, the formal private sector is quite small. The oil-led state-owned enterprise (SOE) sector, a large agriculture sector, and the public sector, account for the majority of employment in the country. The private sector is characterized by very few large companies, a number of small-medium enterprises (SMEs) and a very large number of micro-enterprises. It is estimated that in excess of 90% of the over 100,000 enterprises fall within the last category. Most large enterprises are in the state sector. 12. Moreover, small businesses in particular suffer from informational and knowledge market failure. The sanctions regime added to this failure. Businesses do not know how to seek investment funds or develop export markets. Therefore, support to the key institutions that address these failures and to the private sector itself is a key first step. It is hoped this will build a pipeline of activity that has the potential for follow-on activities, 4 Emergency Private Sector Development I Project Technical Annex or can be combined with IFC activities in the near future (see box 3 for details). Moreover this "pilot" type approach minimizes project risk. 13. However, discussions with the Government of Iraq have identified two overriding constraints that impact the private sector, which this project will attempt to address; volatile security conditions and pessimistic public opinion. In that regard, industrial zones have the potential to address the security needs of private sector investors and also resolve infrastructural, regulatory and planning constraints. Furthermore, a public awareness campaign can address the fundamental question many Iraqis have on the importance of private sector investment and the role of the State. Many Iraqis still believe it is the Government's role to provide investment. Box 3: IFC's Activities to support PSD * IFCs involvement is two-fold. The Small-Business Financing Facility (SBFF) is a'US$100 millionl facility of which a significant portion is allocated for technical assistance and capacity building of qualified commercial financial insEitutions. The objective of this facility is,to extend lines of credit through viable commercial banks to-Iraqi Snill and Mediu Ente'rprises (SMEs).TTo'date, IFC has held a nimnber of capacity building-worksbops for private banks in'1faq-tointroduce them'to-best' pracdces-and to prepare potential partners for the implementatiomphase.- Atvleast-one-private-bankhas been qualified to receive TA to build its.capacity to.provide credit to Iaqi SME L.. * The IFC's secoodary. involvement is,va the recently established program.nIivate Partfroipfr the Griter Middle East and North Africa (EP-MENA): The facility would evnt;iafliy'co'v.ll coui- in'the regi"o and would have a tota] funding-6f US$100 rilhi6n- The& fityi'6uld.pr6vide technicil 'assistan-ce'&thfi6private seeflniareassiich -as pointeLhe;biiEs'Bo-veopi M b.snesses and developing.a-viableprivaisector .1he facility is.-aqu inCaire and ii.te I have offices in other countries in the region. . ... --.. I .-.. - . . . .... 14. In the large PSD agenda, other donors, notably the US and EU are providing substantial support (see Box 4 below for US Assistance). The proposed current and future activities coordinate with this broader agenda of support. Follow-up elements of the World Bank Group's support planned for the coming year include: * Capacity Building - Several topics have been identified within the parallel Capacity Building II project - micro-finance with an emphasis on gender concerns and property rights in the private sector area, and continuous policy dialogue on regulatory framework for the telecommunications sector. e Economic Sector Work - future work will look at the overall incentive framework for economic development. * Follow-up projects - the next projects under consideration are financial sector development project and trade facilitation project. 5 Emergency Private Sector Development I Project Technical Annex Box 4. USAID Assistance for the Private Sector The U.S. Agency for lnternational Development (USAID) announced recently contract awards to assist the Government of Iraq in stimulating the economy through private sector growth, employment generating activities and vocational and technical training programs. Under the US$120 million award to assist in developing the private sector, the U.S. based firm will provide assistance in restructuring and privatization-of state owned enterprises, developing capital markets, trade policy and business Management skills The firm winl also implement activities that will promote the development of mnicro, small and medim[ businesses: Training and- expertise will also be provided to credit-worthy private enterprises to achieve sustainable and profitable lending through Iraqi banks and to hep buil i-sustai abl micofinance industry: -..<-t-'r '. '.' ,'' Source: USAID Pess Release October 13,'2004 ;,, - * - -. s.. 15. Payments and settlement system telecommunications infrastructure. A basic function of the banking sector is to serve as the core provider of payments services for financial transactions for govermment, businesses and households -- an essential pillar of efficient and effective banking and financial sectors. In Iraq, a major constraint is the outdated or non-existent technical infrastructure for payments systems, which leads to an inordinate amount of time and effort required to settle payments through the banking system. This constitutes an impediment to the efficient settlement of basic financial transactions and thus the financial sector's ability to offer modern banking services and products. It is also an impediment to private sector responsiveness and competitiveness and to savings mobilization. 16. The Government and the Central Bank of Iraq (CBI) are therefore giving high priority to the development of a modern payments system that will enable the rapid, secure and effective processing of both large-value and low-value transactions, consistent with the principles advocated by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS). The payments system is expected eventually to comprise of: (i) an interbank payments system, based on a Real Time Gross Settlements System (RTGS), including related information systems; (ii) an automatic clearing house for low value transactions (including checks, cards and other instruments); and (iii) secure and reliable telecommunications infrastructure of adequate capacity to support a modern payments system. 17. In this regard, the US Government and other donors and institutions are planning to provide substantial support for the RTGS system and clearing house, while this project would provide early support for the development of high priority telecommunications infrastructure with adequate bandwidth capacity to network the headquarters of CBI, the CBI branches in Mosul and Basra, the two Government owned banks, Rafidain and Rasheed, and the headquarters of about 20 private banks in Baghdad. 18. Telecommunications Sector. The current telecommunication infrastructure is characterized by limited availability of transmission capacity and lack of reliability, 6 Emergency Private Sector Development I Project Technical Annex especially in the areas of high speed and secure commercial lines. Low telecommunications penetration, old technology and small backbone data transmission capacity mean Iraq's telecommunications does not meet the needs of a modem private sector led economy. Iraq currently has an average of 4 fixed telephones per 100 people, 3 mobile phones per 100 people, and 3 Intemet connections per 1000 people4. The rural penetration of telecommunication services in Iraq is low; around 1 percent. There is limited capacity to provide leased lines and transmission capacity needed by corporations and new service providers. The fiber optic network is limited and has no back-up support. 19. Fixed telephony and data communications are currently provided by the Iraqi Telecommunications and Post Company (ITPC) - the incumbent, state-owned operator. ITPC, a state owned enterprise is currently over-staffed, with a total workforce of approximately 18,100 of permanent staff and about 4,000 temporary staff. There are more than 14 employees for every 1,000 telephones in Iraq. This number is more than the regional average. Moreover, this work force has little exposure to modem technologies and commercial management. Though, it is true that ITPC has great potential to be profitable, its present financial performance is poor. It's profitability is impacted by several factors including: o Its operating expenditure is high due to overstaffing; o Its revenue is low due to poor collection and low tariffs for local services; o ITPC cannot adequately service corporate clients, who are potentially the most profitable. It has limited ability to provide leased lines and transmission capacity needed by corporations and new service providers; and, o It's not permitted to compete with new entrants in the highly lucrative mobile services. 20. There are a number of actions underway to address the challenges enumerated above by restructuring the ITPC: O ITPC is exploring areas to involve the private sector in its operation; o ITPC is focusing on emerging areas for revenue generation including termination of intemational calls and interconnecting with mobile operators; o ITPC has secured limited funding from the US and Japan to focus on switching and transmission networks; o USAID has committed resources and consultancy services to restructure the company; and o World Bank will provide technical assistance to support ITPC's restructuring under the capacity building project. 21. The telecommunications backbone infrastructure, developed jointly with Iraqi funds as well as Japanese bilateral assistance, is key to ensuring the viability of ITPC (a major SOE), developing modem and competitive telecommunications sector, and enabling the effective functioning of several institutions in the financial and commercial sector. The backbone should therefore be seen in this context, as a "public good". This 4Jordan, for example, has penetration levelsof 20, 20 and 10 per 100 people, respectively. 7 Emergency Private Sector Development I Project Technical Annex activity is also necessary because it is not easy to attract private financing for backbone transmission network development, especially with the current security conditions. Public funding of backbone network development will, however, facilitate private investment in other revenue-generating segments of the sector including Internet and data services, mobile services, and international calls. In addition, expanding the backbone to most of the Govemorates of Iraq, as planned under this project, will make it much more feasible to extend telecommunications services to rural and remote areas in the future. 22. Additionally, the World Bank's support of the national backbone telecommunication infrastructure in the PSD project should be seen in the broader context of its support to the development of the telecommunications sector. The World Bank has already started and plans to continue providing support to Iraq's efforts to reform the telecommunications sector in line with the principles developed by the Iraqi officials and summarized in Annex 9. 23. Capacity building and institutional support. The Bank has identified capacity building and institutional support as the main area where it can add value in the immediate and long term. Feedback from the Iraqi authorities values the Bank's contributions to capacity building. In particular the Bank's approach of working through Iraqi line ministries for project implementation is widely appreciated. In this project the Bank plans to support the Ministries of Planning and Development Cooperation, Trade and Communications capacity building efforts. 24. There are other important reasons for the World Bank to be involved at this stage in supporting the priority areas of the investment climate, the payments and settlements system, and telecommunications infrastructure development: * The Iraqi authorities have expressed a strong desire for the World Bank to take the lead on these areas; * The Bank is in a position to share intemational experiences and best practices based on the Bank's considerable intemational experience with private and financial sector development, SOEs reform, and telecommunications infrastructure in conflict-affected areas (including Bosnia-Herzegovina, Ethiopia, West Bank and Gaza, and Afghanistan); * Bank financing, unlike the financing of many other donors, will be implemented by Iraq through the country's own institutions (ministries and agencies), which ensures Iraqi ownership and helps build Iraq's institutional capacity, both crucial for the country's sustainable development; and, * The Bank will integrate financing of specific initiatives with policy advice, assisting the GOI with urgent policy decisions, while laying the ground for sector restructuring essential for long-term sustainability of the private sector. 8 Emergency Private Sector Development I Project Technical Annex III. PROJECT DESCRIPTION Project Objectives 25. This project represents the first phase of a proposed series of interventions within the comprehensive private sector development strategy to help implement a subset of the main pillars that can be done given the current security situation and the Bank's comparative advantage. Its objective is to lay the foundation by addressing certain key priorities in institutional capacity building and essential communications infrastructure to help foster the development of the private and financial sectors. A secondary objective of the project is to generate job creation through the development of the private sector. 26. These objectives will be achieved through: (i) Development of key enabling public institutions that support the private sector; (ii) Improving the competitiveness of Iraqi private firms by increasing their access to financial and foreign markets; (iii) Building reliable telecommunications infrastructure to interconnect key parts of the Central Bank's payments and settlements system; and (iv) Building a section of a high capacity national communications network capable of supporting corporate needs. (v) Financing expenditures directly related to project management Project Description 27. The Project combines the following six components: > Component (i): Development of enabling public institutions that support the private sector. (Estimated Cost of US$6.8 million) 28. This component would help establish and/or strengthen key institutions that support or encourage the private sector and financial sector in Iraq and enable them to play their appropriate role. The Project will support institutional strengthening with business planning, design of procedures, design of any necessary rules and regulations, provision of start-up facilities, training, support of twinning arrangements, support for the initial activities of the agency, and provision of any other necessary technical assistance for selected institutions. The institutions that would be targeted for this assistance are: (i) Investment Promotion Agency. International experience in post conflict countries shows that an early focus on building investment facilitation and promotion 9 Emergency Private Sector Development I Project Technical Annex capacity is a key to private sector development. In Iraq, the role of the state and private sector in investment remains a fundamental question. Assistance in this area will focus on: (a) developing a public awareness campaign on the need for and benefits of private investment; and (b) managing an inter-ministerial reform dialogue. Other donors will assist with the detailed work in creating this investment promotion agency5. There are a number of steps that would need to be taken to reach a final recommendation on what form of an IPA would be best for Iraq. The objective of this activity is to develop a detailed business plan that would be presented at the end of this project to the Higher Commission for Investment (to be established) and/or any other authority with the capability of endorsing the plan and the establishment of such a body. The intemational consultants would work closely with the MOPDC and other stakeholders from the public and private sectors to realize this objective. A main activity is the development and implementation of a Public Awareness Campaign (PAC) that would target at minimum the five large govemorates in Iraq using qualitative and quantitative research. (ii) Export Promotion Agency. For the private sector to grow, export markets are essential. Because Iraq has been cut off from the international community, this will require extensive support. An agency that can focus on the issues and constraints facing private sector exporters will be helpful in developing an export culture in Iraq. This work will include the institutional support activities mentioned above; (iii) Economic Development Fund. The financial sector in Iraq is at a very early stage of development and private banks are not yet ready to support the private sector's SMEs. The support will build capacity so the Fund can eventually provide such services; and (iv) Industrial Zones. These zones will provide a mechanism to deal with security issues, infrastructure deficiencies and local economic development. The zones are not intended to provide tax havens. Development plans for potential industrial zones will be prepared: one in Basra and the other in Arbil. These plans will examine market demand, specification of infrastructure requirements, examination of regulatory concerns and the design of an implementation process. The Environmental and Social Screening and Assessment Framework (ESSAF) (Annex 8) will form the basis for the feasibility studies of the two proposed industrial zones. > Component (ii): Improving the competitiveness of Iraqi private firms by improving their ability to access finance and foreign markets. (Estimated cost ofUS$5.0 million) 29. This component will be a pilot to address two elements of market failure that the export and private sectors are currently facing in Iraq. The first is related to the inadequate knowledge the Iraqi export sector has when it comes to accessing export markets. As a result of the sanctions, potential export industries in Iraq have deteriorated 5USAID indicated that that they will assist with the detailed work as part ofthe recently awarded PSD contract. 10 Emergency Private Sector Development I Project Technical Annex and exporters need to update their products and services to meet international standards and expectations. Entry to new export markets requires extensive researching and planning that cover target markets, consumer preferences, product design, etc. The private sector enterprises (especially SMEs) are unable to mobilize resources to develop an export plan at this time. In addition, many exporters and/or potential exporters lack the technical knowledge to develop a viable export plan that would ease access to new markets. 30. The second market failure refers to the inability of the Iraqi private enterprises, especially SMEs, in obtaining credit for new projects or businesses. Feasibility studies are required by financial institutions before extending credit for a proposed project. To a large extent, SMEs do not have the knowledge to prepare such studies in-house and the management consulting industry in Iraq is incapable of preparing acceptable studies. 31. This project will provide assistance to eligible Iraqi private firms to build the necessary capacity to qualify as a potential player in the new market economy. This assistance will be channeled through two agencies: (i) the Export Promotion Fund (EPF) at the Ministry of Trade (MOT), will channel technical assistance to eligible firms to develop export plans to access new export markets; and (ii) the Economic Development Fund (EDF) at the Ministry of Planning and Development Cooperation will channel technical assistance to Iraqi private enterprises to develop feasibility studies for new projects that require funding from financial institutions. > Component (iii): Building reliable telecommunications infrastructure to interconnect key parts of the Central Bank's payments and settlements system. (Estimated Cost of US$3.0 million) 32. This component will fund the critical physical communications infrastructure for providing enhanced capacity for interconnecting the Central Bank of Iraq (CBI) Headquarters with CBI's Mosul and Basra branches (currently connected via VSAT) and for networking CBI with the two Govemment owned banks, Rafidain and Rasheed and the headquarters of 20 private banks in Baghdad. Based on the successful implementation of this phase, CBI will establish a communications network to interconnect with banks throughout Iraq. In this regard, the expanded CBI network will make effective use of good and reliable bandwidth capacity that would become available with ITPC beginning April 2006 under this project and augment it with appropriate state of the art technologies to establish transmission links to banks in other provinces/districts of Iraq. > Component (iv): Building a high capacity national backbone communications network capable of supporting corporate needs and develop the human capacity to operate it efficiently. (Estimated Cost of US$39.5 million) 33. This component supports ITPC's rehabilitation program for 2004-2007 approved by the Iraqi Strategic Review Board (ISRB) to build a modern and integrated national digital backbone microwave network to improve delivery of communications services to 11 Emergency Private Sector Development I Project Technical Annex the government and to the people of Iraq. In particular, this component would focus on rehabilitating and upgrading three of the five national backbone microwave routes and associated spur routes that have been severely damaged. The three routes are: (i) Baghdad-Trabil; (ii) Baghdad-Mosul; and (iii) Baghdad-Ammara-Basra. The remaining two routes would be developed under the Japanese Government Bilateral Assistance program to Iraq. The backbone microwave systems will provide much needed transmission capacity between Baghdad apd the Districts in the North, South and Western parts of Iraq. These microwave links will provide immediate voice and data connectivity for the key cities in the districts of Baghdad, Baquba, Kirkuk, Arbil, Mousa, Sulaimaniya, Dohuk, Ramadi, Hadetha, Alquaim, Kut, Ammara, Basra and Um Qaser, and improve national and international connectivity. 34. In addition, sufficient capacity will be available to meet the needs of both the public sector agencies and the private telecom service providers, thus facilitating and enabling further competition and private participation in the provision of telecommunication services. ITPC will be expected to interconnect with all interested telecommunications and data service providers and provide transmission capacity at cost- based prices in line with the principles of transparent regulation and fair competition. 35. This component consists of two parts: (i) supply, installation and commissioning of the above three backbone microwave routes and the associated spur microwave routes on a single responsibility basis utilizing tried and tested technologies that can be rapidly rolled out in the current Iraq environment; and (ii) provision of training and operational support. > Components (v) and (vi): Financing expenditures directly related to project management. (Estimated Cost of US$ 0.2 million for MOPDC and US$0.5 million for ITPC) 36. The Project will finance expenditures directly related to the management of the project such as: procurement consultants; audit consultants; maintenance of office equipment; transportation and travel, including per diem allowances for Project staff in travel status; rental of office space; utilities and office administration, including translation, printing and advertising; fuel costs; communication costs; costs for production of bidding documents and drawings; and commercial bank charges. No salaries of the Recipient's civil servants will be financed under the project. Project Financing 37. A grant of US$55 million is proposed for the Ministry of Planning and Development Cooperation, to support the project. The cost of Iraqi staff seconded to the Project Management Teams will be covered by the implementing agencies, defined in the next section 12 Emergency Private Sector Development I Project Technical Annex IV. IMPLEMENTATION ARRANGEMENTS 38. This is a multi-sectoral operation with several beneficiaries. To facilitate implementation, the Project components will be grouped into two groups and will be executed by two Implementation agencies (IAs). Components (i) and (ii) will be implemented by the Ministry of Planning and Development Cooperation (MOPDC), which will also be the Grant Recipient. Components (iii) and (iv) will be implemented by the Iraqi Telecommunications and Post Company; a Subsidiary Grant Agreement between the MOPDC and the ITPC will transfer the implementation responsibilities, liabilities and accountability to the ITPC for these components. The ITPC will be required to carry out the Project in accordance with similar implementation arrangements agreed between the MOPDC and the World Bank. Furthermore, a Project Agreement between the ITPC and the World Bank will complement the Subsidiary Grant Agreement. Components (v) and (vi) will be providing financial support to both IAs, as outlined in Annex 2, Table 1. 39. A Project Management Team (PMT) in each Implementing Agency, namely the MOPDC and the ITPC, will be responsible for the procurement, financial management, the management of day-to-day activities, consolidated reporting, and coordination and monitoring of project components. To facilitate coordination and processing, the PMTs would work closely with representatives from Ministries/Agencies involved, such as the Export Promotion Fund and the Economic Development Fund, and the Central Bank of Iraq, to ensure that their needs and requirements are met. 40. Direct payment by the World Bank is the preferred option and will be made to the consultant/contractor/recipient upon presentation of required documentation by the PMT, and in accordance with the contract between the implementing agency and the supplier. The Bank will recruit international and local consultants to assist the PMT to finalize components' design, prepare tender documents, evaluate bids, and sign contracts. The security situation could prevent Bank staff and international consultants from traveling to Iraq during project preparation and implementation. Project supervision would primarily rely on local Iraqi and international consultants with presence in Iraq, supported by Bank staff working from outside Iraq. Regional consultants with a branch office in Baghdad have been recruited to assist with project preparation. Procurement General 41. Procurement for this project will be carried out in accordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Trust Fund Grant Agreement. The 13 Emergency Private Sector Development I Project Technical Annex general description of various items under different expenditure categories is given below. For each contract to be financed by the grant, the procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank project team in the Procurement Plan (PP) (Annex 5). The PP will be updated as required to reflect the actual project implementation needs and improvements in institutional capacity. A general procurement notice is planned to be published in the UNDB in November 2004 and will be revised after approval. 42. Procurement of Goods. Goods procured under this project will include supply and installation of a microwave backbone component for the ITPC and a telecommunication infrastructure component for the Central Bank of Iraq Payments System. The supply and installation of a Telecom Backbone component for the nTPC and a Telecommunication Infrastructure for the Central Bank of Iraq Payments System will be procured separately using International Competitive Bidding (ICB) procedures and the Standard Bidding Documents (SBD) for procurement of Supply and Installation of Plant and Equipment and procurement of goods, respectively. Other goods procured under this project would include small value office equipment and supplies, furniture and computers. These would be purchased by using either National Competitive Bidding (NCB) or Shopping methods depending upon the estimated value for each contract, which will be defined during project implementation and in the revised procurement plan. Direct purchase will only be used in exceptional cases. The procurement based on NCB procedure will be done using the Bank's SBD for procurement of goods. Once an NCB bidding document for goods is prepared (currently under preparation as part of the Master Implementation Manual, NIvM), reviewed and found satisfactory to the Bank, it will be used instead ofthe Bank's SBD for NCB procurement. 43. Selection of Consultants. Consultant services procured under this project will include: (i) institutional strengthening and private sector support; (ii) industrial zones development plans; (iii) services of an international procurement consulting firm to build ITPC and MOPDC capacity to carry out and manage procurement activities; and, (iv) services of individual consultants and/or firms to provide capacity building in financial management and consultancy services in telecom engineering, bidding document preparation and assisting the ITPC in bid evaluation and installation, testing and commissioning supervision. The selection of consulting firms for items (i) (estimated cost is US$8,300,000) and (ii) (estimated cost is US$3,000,000) mentioned above will be carried out by using Quality and Cost Based Selection (QCBS) and for item (iii) (estimated cost is US$300,000) will be based on Consultants' Qualifications (CQ) procedures. 44. Operating Costs: The grant will finance expenditures directly related to the management of the project such as: (i) maintenance of office equipment; (ii) transportation and travel, including per diem allowances for Project staff in travel status; (iii) rental of office space; (iv) utilities and office administration, including translation, printing and advertising; (v) fuel costs; (vi) communication costs; (vii) costs for production of bidding documents and drawings; and (viii) commercial bank charges. No salaries of the Recipient's civil servants will be financed under the project. The operating 14 Emergency Private Sector Development I Project Technical Annex costs that will be financed by the project will be procured using the ITPC and MOPDC administrative procedures for shopping satisfactory to the Bank. Assessment ofthe agency'scapacityto implement procurement 45. A generic assessment of Iraqi ministries capacity to implement project procurement was conducted in March 2004. Given that the security conditions prevented the Bank project team from traveling to Iraq at the time of project preparation, a regional consulting firm with local presence in Baghdad was hired by the Bank to conduct an assessment of the capacity of the ITPC and MOPDC to implement procurement actions. In October 2004, the team's Senior Procurement Specialist and a local procurement consultant supplemented missing information in the report of the consulting firm on the agencies' procurement capacity through discussions with ITPC staff in Jordan and MOPDC staff in Baghdad during the pre-appraisal/appraisal of the project. Subsequently, the generic assessment has been revised to reflect the ITPC and MOPDC capacity to implement procurement. 46. Procurement activities will be carried out by the ITPC, a state owned enterprise (SOE) and MOPDC separately for each relevant component. There is a centralized procurement section in the current organizational structure of the ITPC. Procurement is carried out by the commercial department with a staff of 16 employees with different backgrounds like engineering, marketing and administration to issue commercial conditions and tender invitations. There are separate committees for bid opening and bid analysis & evaluation. These committees would be established based on ad hoc basis from three members as minimum. 47. ITPC is one of the largest SOEs in Iraq. It has 22 sections with a workforce of around 14,750 including over 1,000 fully trained engineers. Large projects were implemented by the ITPC during the Oil for Food (OFF) program following UN guidelines in the nineties. Since the previous regime collapse in Iraq in April 2003, ITPC had implemented 15 local contracts for more than one billion and nine hundreds million Iraqi Dinar (approximately US$1.3 million). ITPC had also implemented 5 intemational contracts for more than US$21 million. Furthermore, another 5 international contracts estimated at US$22 million are in the process of implementation. 48. The MOPDC is responsible for broadcasting and promulgating public procurement regulations or regulatory guidelines, and procedures set forth by various other ministries and State-Owned Enterprises (SOEs). The Ministry of Finance is responsible for promulgation of financial-related regulations in relation to procurement for application and harmonization across the public procurement process. Each major department within MOPDC has it's own purchase unit that may procure and contract up to 75 million Iraqi Dinar. There is no specialized procurement department in the current organization. Centralized procurement section within the legal department has only one staff with a legal background. 49. To strengthen the procurement capacity of ITPC and MOPDC, two procurement officers would be appointed to be part of the PMTs. An intemational procurement 15 Emergency Private Sector Development I Project Technical Annex consulting firm with international and local staff would be recruited by the MOPDC to provide procurement support and procurement capacity building to the two PMTs and the institutions involved in the project implementation. A simple Project Implementation Manual (PIM) is under preparation (it is expected that the manual will be ready by January 31, 2005) and the ITPC-PMT and MOPDC-PMT will use this manual in the implementation of the project. The PIM will be aligned with the Master Implementation Manual (MIM) as soon as the latter becomes available. PrivateSectorAssessment 50. The private sector, local and foreign, participates in public procurement of goods and services. It is expected that no works contract would be under the project. Registration of national contractors by the MOPDC is a routine practice. Contractors are classified and ranked against criteria including experience, performance, and financial status. There is some 160 contractors class A. A procuring entity may limit the invitation to bid to certain classes of contractors. Based on a meeting with the head of the contractors union in Iraq during a mission in Amman in October 2004, local contracts seem to be capable to execute works contracts of large projects. Demonstration of financial capacity of contractors may be a difficult task as they used to work on cash basis, especially during the previous era. The contractors showed that they have no problems in getting bid securities from local banks and insurance, and welcomed very much, training on bid preparation. Training on bid preparation is planned to be part of the scope of work of the international procurement consulting firm. 51. For the consultancy assignment proposed under the project, international/regional consulting firms would be selected. These international consulting firms would be encouraged to include local consultants as part of their team. There are several local consulting firms that seem to be capable of taking some tasks for the design, preparation of bidding documents and construction supervision but not like those proposed under the project. However, local consulting firms have no previous experience with preparation of proposals and quality of their work would need to be tested. Training on proposal preparation is planned to be part of the. scope of work of the international procurement consulting firm. Insurance requirement in standard Request for Proposal (RFP) is of a concern under the current security conditions and it may be difficult for consulting firms to provide the required insurance. 52. Some of the rTPC and MOPDC staff attended the procurement workshops in Amman under the Capacity Building I project. The head of the procurement section at the rIPC is one of those staff and she was part of the ITPC staff during pre- appraisal/appraisal mission. The Bank procurement specialist has provided an introductory session on procurement terminology and Bank procurement procedures to the Iraqi team and copies of the new procurement guidelines and bidding document were provided to the Iraqi team during the mission. The PMT procurement officers for the project would need to be assigned prior to the project negotiation. 53. The overall project risk for procurement is rated high. Most of the issues and risks concerning the procurement component for implementation of the project have been 16 Emergency Private Sector Development I Project Technical Annex identified in the generic assessment of the ITPC and MOPDC capacity to implement project procurement and include: (i) the lack of sound laws and regulations, of modem standard documentation, and the habits acquired by procurement staff in the previous era which will take time to change; (ii) weakness of MOPDC and ITPC procurement staff in the use of Bank procurement guidelines and international sound procurement practices; (iii) inability of Bank procurement staff to supervise the project in the field; (iv) delays in implementing the procurement plan due to lack of experience in procurement planning and the volatile security conditions in Iraq; (v) inability of international suppliers to install the telecom equipment inside Iraq due to security issues; (vi) possible looting or damaging of telecom equipment during land transportation and storage inside Iraq; (vii) delays could be expected in the implementation of some contracts as well as in bid submission due to deteriorated security conditions in some areas in Iraq; (viii) security concerns will discourage international consultants from working inside Iraq especially for the two big consulting contracts for the private sector strengthening and the development of industrial zones plans; and (ix) international consulting firms may not be able to provide the required insurance usually requested in RFP. 54. The risk mitigating measures which have been agreed upon are: (i) two procurement officers will be assigned as part of the ITPC-PMT and MOPDC-PMT; (ii) simplified bidding documents and methods, such as shopping and NCB, and the US Dollar as currency of bids for NCB and shopping will be used; (iii) in the contract, a statement will be included that suppliers and contractors will be responsible for providing and guarding storage sites during execution of contracts; (iv) the procured telecommunications equipment will be delivered directly to either the stations where the equipment will be installed or to nearby storage sites; and (v) international consulting firms would be encouraged (through putting some extra weight than normally used on local participation) in the request for proposals to team up with local firms or individual consultants. In addition, an international procurement consulting firm will be hired by the MOPDC to build ITPC and MOPDC capacities to carry out and manage procurement activities, set up within the ITPC and MOPDC a procurement monitoring and reporting system, and, assist the ITPC-PMT and MOPDC-PMT in preparing/reviewing bidding documents and bid evaluation reports. The procurement consulting firm will also: (a) consolidate progress report from MOPDC and ITPC into one comprehensive report on the project; and (b) conduct workshops to the local contractors and suppliers and local consultants on bid preparation and proposal preparation, respectively. The consulting firm will also be available to respond to ad-hoc requests for advice or training. Until security conditions in Iraq improve, training workshops may take place outside the country (preferably in a neighboring country). A Project Launch Workshop would be held in Arabic (or with Arabic translation) soon after Grant Signing. All staff involved in project implementation should attend the workshop and it will be most critical that this staff be assigned on time. ProcurementPlan 55. The ITPC and MOPDC, at appraisal, developed a Procurement Plan (Annex 5) for project implementation, which provides the basis for the procurement methods. This initial plan was agreed between the ITPC, and MOPDC and the Bank project team on 17 Emergency Private Sector Development I Project Technical Annex October 22, 2004, and are available at the ITPC and MOPDC in Baghdad. It will be available in the project's database and on the Bank's extemal website soon after grant agreement signature. The Procurement Plan will be updated in agreement with the Project Team as required to reflect the actual project implementation needs and improvements in institutional capacity. FrequencyofProcurementSupervision 56. In addition to the prior review, supervision to be carried out from Bank offices, and based on the capacity assessment of the Implementing Agencies, at least one supervision mission is planned every three months to visit the field to carry out post reviews of procurement. Until security conditions make travel to Iraq possible for Bank staff, the Bank will employ Monitoring Agents, independent firms, which will operate in Iraq and support the Bank in carrying out its supervision function, including spot physical inspection. In addition, the Bank will rely on reports from a local procurement consultant who is working for the Bank from within Iraq. During the interim period, Bank staff and the concemed Iraqi procurement staff will meet outside Iraq to do off-site supervision as well as use of videoconference facilities. Disbursement 57. The proposed grant of US$55 million is expected to be disbursed over a period of approximately three years. 58. The Bank's strategy in Iraq is to ensure Iraqi ownership and strengthen institutional capacity by financing operations that are implemented by Iraqi ministries and other recipient entities. Trained Project Management Teams (PMTs) will facilitate implementation and help ensure compliance with fiduciary and other safeguards. PMTs will be employed and paid by the implementing entity at regular salary levels, thereby avoiding the disadvantages of stand-alone Project Implementation Units that can erode civil service institutional capacity over the medium and long term. The project will finance specialized technical support in procurement, financial management, and other areas as needed. In addition, to ensure that project funds are used for the purposes intended and to help carry out project supervision, the Bank will employ two independent firms as fiduciary and safeguard Monitoring Agents. 59. As a further compensating control, disbursements will be made primarily by direct payment through the Bank to the contractors, consultants, and vendors as follows: The MOPDC will submit to the Bank a letter designating the official or officials authorized to withdraw funds from the proceeds of the grant along with their specimen signatures for authentication. As expenditures are incurred, the PMTs submit to the Bank withdrawal applications for direct payments duly signed by authorized representatives in favor of contractors, consultants or vendors, accompanied by supporting documents validating eligibility of expenditures. Upon receipt of applications, the Bank will effect payments directly into the account of the contractor, consultant, or vendor indicated on the application, which is normally a commercial bank capable of receiving funds transferred from the international banking system. 18 Emergency Private Sector Development I Project Technical Annex 60. The project management component and payments below the threshold of US$10,000 normally will be made through payments by the MOPDC-PMT and the ITPC-PMT own resources. These payments made from the recipient's own resources will be reimbursed on a periodic basis, by the Bank to the MOPDC-PMT and the ITPC-PMT, upon presentation of supporting documents, proof of payment and a signed withdrawal application. The PMTs and the main financial counterparts from the MOPDC and the ITPC will be subject to intensive training in the Bank's Disbursement Procedures. Financial Management 61. Bank policies require that grant proceeds be used only for the purposes for which they were granted, with due regard to economy, efficiency, and the sustainable achievement of the project's development objectives. The recipient is requested to cause the PMTs to maintain an adequate financial management system during the project implementation. 62. The project will be implemented by the MOPDC and the Iraqi ITPC. Each implementing agency will be responsible for the proper financial management of its own components. MOPDC will be responsible for preparing the aggregated annual project financial statements and having them audited by a qualified external auditor acceptable to the Bank following internationally accepted standards. MOPDC will also be responsible for submitting the audit report to the Bank within six months of year-end. 63. Financial Management Risk Assessment Summary. The financial management risk associated with this operation is considered high. Critical risk factors are: (i) ongoing insecurity, which prevents on-site Bank supervision and assessments, including financial assessments; (ii) the Bank's limited knowledge of Iraq's public financial management systems, controls, and procedures; (iii) the limited knowledge on the part of Iraqi authorities of Bank policies and guidelines; (iv) the possibility that implementing agencies may not make available on a timely basis financial resources to honor payments below the value of US$10,000; (v) difficult communication and flow of information between worksites and the PMT, which could delay payments; (vi) inefficiencies in Iraq's banking system that delay payments and transfer of funds to contractors, suppliers, or implementing agencies; and (vii) difficulty in verifying justification for variation orders and possibility of variation orders exceeding price contingencies. Although the project design mitigates to the extent possible these risks, the project will require close monitoring and supervision during implementation. 64. The control risks will be partially mitigated by putting in place additional controls and procedures including: (a) each PMT will verify and authorize all payments under the grant for its respective implementing agency, and verify justification for variation orders; (b) the PMTs will include competent financial staff from the implementing agencies and will be supported by financial management consultants; (c) the ITPC and MOPDC will assign internal auditors to track the project activities and verify project financial transactions; (d) disbursements by the Bank will be made by direct payments and on reimbursement basis supported by documentation; and (e) the fiduciary Monitoring Agent will review Project expenditures. 19 Emergency Private Sector Development I Project Technical Annex 65. The accounting and reporting risks will be managed by putting in place a simple parallel accounting system using spreadsheet applications, capable of recording all project expenditures, tracking project commitments in real time during the implementation period, and providing the data needed for the generation of project reports, including the project's Financial Monitoring Reports (FMRs). 66. The project financial management arrangements and procedures will be documented in a chapter of the project implementation plan and are in line with the Master Implementation Manual. Details of the financial management assessment, identified risks and project financial management arrangements is in Annex 7. 67. Reporting to Donors. The Bank will maintain separate records and ledger accounts in respect of the funds deposited by the donors with the Bank under the ITF. Within ninety (90) days of the end of each quarter (March 31, June 30, September 30, and December 31), the Bank will prepare, on a cash basis, an unaudited statement of receipts, disbursements, and fund balance with respect to the ITF and forward a copy to each donor. Each such statement will be expressed in United States Dollars, the currency in which the ITF funds will be maintained by the Bank. In addition, within one hundred and eighty (180) days of the completion of all disbursements relating to activities financed from the ITF, the Bank will prepare on a cash basis an unaudited financial statement of receipts, disbursements, and fund balance with respect to the ITF and forward a copy to each donor. 68. The Bank will furnish to the donors: (a) on a semi-annual basis, a consolidated report describing the operations of the ITF (including contributions, disbursements, and implementation progress) in the preceding six months; and (b) on an annual basis, a management assertion, together with an attestation from the Bank's external auditors, conceming the adequacy of internal control over cash-based financial reporting for trust funds as a whole. 69. The Bank will require a financial statement audit of the ITF to be performed by the Bank's external auditors on an annual basis. The costs of such an audit, including the internal costs of the Bank with respect to the audit, will be charged to the ITF. The Bank will provide each donor with a copy of the auditor's report. 70. The Bank will maintain close consultation and coordination with the donors. The Bank will provide each donor to the ITF with semi-annual reports on its quarterly ex-post evaluation of the activities undertaken by the Monitoring Agents. Within six months of completion of the activities, or of full disbursement of the contributions, whichever comes later, the Bank will provide a final progress report to each donor, together with a copy of the independent review of the performance of the Monitoring Agents. Upon request by any donor, the Bank will send to such donor the draft and final reports received by the Bank from the Monitoring Agents on the activities financed by the contributions. 20 Emergency Private Sector Development I Project Technical Annex Environmental and Social Safeguards 71. The project is an emergency project and will be processed under Operational Procedure (OP) 8.50 (Emergency Recovery Project). Based on section 13 of OP 4.01, exemption has been sought from the Bank's executive management (March 2004) in order that any Environmental Assessment requirements will not be conducted prior to project appraisal. Hence, the environmental assessment mitigating measures (if any) will be carried out during project implementation under provisions incorporated in the construction contracts. However, the project will have to comply with the Environmental and Social Screening and Assessment Framework (ESSAF). The ESSAF entails that: (a) sub-projects be screened by the Recipient through the checklist attached to the Framework; (b) a code of practice be included as part of the design, preparation and civil work contracts as well as of purchase and installation of equipment contracts, and (c) the Safeguard Procedures, as per Attachment 6 of the ESSAF, would be included in the Technical Specifications of the contracts of all Contractors. 72. Out of the 4 components, only component (iii) and (iv) will entail physical work. The proposed digital microwave backbone would connect Baghdad and key Iraqi cities and would replace the old analogue microwave system. The Iraq Telecommunications and Post Company (ITPC) has confirmed that the upgraded digital microwave backbone network will be implemented on existing sites and will use existing buildings. There will be some rehabilitation work, which, as necessary, will be done through an ITPC led project. 73. A preliminary screening of environmental and social issues for components (iii) and (iv) using the ESSAF has been undertaken by a consultant firm based on available information. Initial analyses indicate that the environmental and social impacts are likely to be negligible. The ESSAF will be updated with site level information prior to implementation of activities at the site level. 74. Under component (i) there is a sub-component which will conduct feasibility studies for two proposed industrial zones. This calls for the project to be classified as a Category B project, and the ESSAF will be the basis upon which the feasibility studies will be undertaken. 75. The PMTs will be responsible for applying the safeguard screening and mitigation measures. A Safeguards Focal Point (SFP) will be identified within the ITPC and the MOPDC with the responsibility of overseeing the implementation of the framework and the compliance with the environmental and safety codes of practices. The roles and responsibilities of key stakeholders in ensuring application of sound environmental and social standards during reconstruction and rehabilitation activities will be clarified prior to appraisal. Gender 76. The Project will benefit households in general by providing: (i)increased level of participation in both private and public sector enterprises through enhanced employment; 21 Emergency Private Sector Development I Project Technical Annex (ii) better telecommunication services and Internet services; (iii) well-functioning P&S system, better access to credit, and modem banking facilities; and (iv) improved access to education and health services through better communications systems. Investment Climate studies in the Bank, show women managed businesses make significantly greater use of the Internet and allied technologies. Strengthening the telecommunications and Internet system is likely to help this targeted group in particular. 77. The outcomes and types of public works planned under the project are expected to generate labor opportunities for women, with more telecommunications and IT centers opened, which will primarily be employing women. During the process of consultations with local communities, separate arrangements shall be made to ensure participation by and consultation with women, as they cannot be expected to be covered through the general community consultations. 78. Women's issues will be promoted through several aspects at the institutional strengthening component, by encouraging their inclusion in governance arrangements of the institutions, and requiring gender to be accounted in the business planning process. Under the opportunities program, opportunities to support women's businesses will be encouraged. Monitoring and Evaluation 79. Performance indicators have been established for each component of this project during project appraisal, and will be measured bi-annually (Annex 10). Development objectives will be measured according to the Project's procurement plan. A quarterly progress report for all components will be prepared and submitted to the Bank by the PMT of each IA. A full supervision mission is planned quarterly, with specialists monitoring performance through videoconferences. 22 Emergency Private Sector Development I Project Technical Annex V. FINANCIAL AND ECONOMICAL JUSTIFICATION 80. The benefits of the project are expected to be substantial compared to its costs, as the project will address urgent needs of private and financial sector development, trade promotion, employment generation and infrastructure rehabilitation in a devastated environment. The private sector is expected to play a leading rQle in economic development in Iraq in the future. The Iraqi National Development Strategy has emphasized this role. Increased level of private investment and trade are critical for economic growth and employment generation. 81. Technical assistance to the export promotion fund and the economic development fund will strengthen them institutionally and foster public private partnerships encouraging new employment and income generating initiatives. In addition, direct Technical Assistance to approximately 150 private firms channeled through the two funds would enable a significant number of beneficiaries to embark on new investments and projects leading to job creation and revenue generation. It is also expected that a strong local management consulting sector will be created through this activity. 82. Furthermore, a strong telecommunications infrastructure is key for the development of effective government, trade system, private corporations including small and medium enterprises, and the financial system. Telecommunications will also be an early mover in the area of SOE reform. It is a sector that is fundamentally profitable, and has significant scope, if liberalized, to generate employment. In a few years it would not be unreasonable to expect the wider information communications technology sector to generate 100,000 new jobs. It will also lead to the reform of the entire SOE infrastructure sector in Iraq and establishing an effective regulatory system. 23 Emergency Private Sector Development I Project Technical Annex VI. POTENTIAL RISKS AND MITIGATION 83. The proposed Project is subject to substantial risks, including: (i) security risks; (ii) political risks; (iii) Government commitment; and (iv) unfamiliarity with Bank safeguards and procedures (accountability, financial management, and procurement). To mitigate these risks, several mitigations measures have been identified. Training on project management and procurement will be provided and the Project provides for additional training and capacity building for PMT staff. Security issues will be managed through project and contract design, and the extensive use of national consultants and contractors. Critical Government commitments to project success have been identified and secured. Table 1 below outlines specific risks and their respective mitigation measures. Table 1: Identified Project Risks Transition to a New Iraqi government - Keeping project simple - involving all unknown outcomes that could affect project H stakeholders. Downplaying any political implementation. aspects of project. Administration changes in MOPDC- rTPC Building relationships at the technical jeopardizing current commitment to project H level with current officials to ensure design and inputs. continuity in the event of change. Sectoral priorities - difficult to establish in Ongoing communication with Bank current political setting - possible S counterparts working with MOF and disagreements between MOPDC, MOT, MOPDC. Involving all stakeholders ITPC and other controlling agencies (MOF). through PMTs. Deterioration of fiscal conditions - Avoiding capacity expansion that is sustainability problems for operations. S likely to create budgetary constraints. Using strict procedures for delivery of goods and tight time schedules to install Goods could be lost or stolen from central goods immediately. Resort to supply and storage facility or from project sites. M installation contracts. Resort to intermediate storage facilities in safe areas, outside Baghdad. Security conditions deteriorate making This risk is beyond the control of lAs or project completion difficult. H WB. Involving security and police personnel could alleviate problems. Difficulty in hiring expatriate TA Capacity building will focus on local Consultants wherever local expertise is M staff. Where possible support from lacking. international TA will be provided. In the 24 Emergency Private Sector Development I Project Technical Annex ;,4,^;; - ARisik:-. . .: i VIiUia Aw<:.Ra event that local capacity is initially not adequate for rapid implementation, lAs will resort to the use of external agents for relevant aspects ofimplementation and monitoring in the early stages. Consultants will be contracted to assist in supervision. In addition, special monitoring instruments would be The Bank's inability to carry out in- country S designed for ITF-financed projects, use supervision. of IA staff, supervision consultants and supervision by independent Monitoring Agent. Thelackofadequatesand regulations, Continuous training will be provided by Thel adate laws an interational procurement consulting persistenceandacumen and firm. Close monitoring and advice of the persistenc ofhbt .curdb Iraqi team through the local procurement procurement staff in the previous era may csantean the cltng take time to change. ~~~~~consultant and the consulting take time to change. procurement firm. The international procurement consulting firm will provide training and support to the ITPC and MOPDC on World Bank . . Lack of experience of procurement staff in ~~~~~~~~~~procurement guidelines, biddingin documentprepion, bide procurement using Bank procurement prcueen uig ak rouemn H document preparation, bid evaluation. Close supervision by Bank staff, guidelines and international sound inCluding Bank hire procuremet, procurement practice. prourmet pacic. including Bank hired procurement consultant based in Baghdad. A project launch workshop in Arabic/English is planned soon after grant agreement signature. Post reviews and other procurement matters will be covered in the first Inability ofBank procurement staff to H instance by the local procurement supervise the project in the field. consultant working for the Bank. International consultants will assist ITPC in the supervision of their component. The international procurement consulting Delays in implementing the procurement firm will provide training and support to plan due to lack of experience in H both-PMTs. Workshops would be procurement planning and the volatile planned outside Iraq until condition security conditions in Iraq. permit international consultants to work from within Iraq. Possibility of high prices due to security Provision has been made in the Project Possibility of high prices due to securityH bugtfrpieadhycl codtin in Ira H budget for price and physical contingencies. Use of local ITPC staff for supervision. Security conditions deteriorate, making A clause in the bidding document will be access by contractors/suppliers to sites and H introduced requesting bidders to provide supervision difficult. a methodology for accessing the site and conduct installation, testing and commissioning. Damage/looting of telecom equipment M Insurance will cover until equipment is 25 Emergency Private Sector Development I Project Technical Annex during transportation inside Iraq and during received by the ITPC. ITPC will provide installation and operation of telecom guarding oftower stations after receiving stations. of equipment and operation of equipment International consultants for the two International consulting firms would be consultancy contracts for the private sector encouraged to team up with local and strengthening and the industrial zones H regional consultants. Meeting of development plans could limit work from concerned Iraqi staff could be outside within Iraq. Iraq. International bidders may not be able to L Consideration to submitting bids in a submit bids inside Iraq place outside Iraq. Overall Procurement Risk The Bank gained some knowledge on Iraqi PFM systems by appointing a consulting firm to assess financial Limited knowledge of financial management systems at several Iraqi management systems of the Iraqi public H ministries. Bank staff also conducted sector and the implementing agencies their own interviews with Iraqi officials in Amman and reviewed PFM system documentation. Further knowledge was gained from an audit report by an international audit firm Each PMT will have qualified staff including financial manager and finance officer. The teams will be assisted by a consultant, and will manage disbursements from the proceeds of the Limited capacity to manage financial grants, maintain and supervise project management requirements of the management Project. ofrequirements H accounts, retain financial records, and the Project. prepare project reports. The Bank also hired a consulting firm to prepare a master implementation manual to be used by all Bank-financed projects in Iraq. The Iraqi contribution to the project will be in kind, i.e., the costs of staff assigned Counterpart Funds not made available L to th-.sadsaf rmtemnsr to the PMTs and staff from the ministry and ITPCworking on the project. ImplementinagencisnoteingalThe minister and ITPC chairman Implementing agencies not being able to M commitment for providing the funds was provide funds from their own resources obtaine dur negotiatiowa ing obtained during negotiations Each implementing agency will designate a project coordinator to facilitate implementation. Training will Implementing entities not coordinating H be provided to implementing agencies activities which will cause delays adPTsafo h and PMT staff on the use offBn s Bank financial management and disbursement policies and procedures with the Bank. The flow of funds will concentrate on using direct payment requests; however, Funds Flow not taking place on time H the banking and payment system in Iraq creates a risk factor for such payments. The Bank uses international commercial 26 Emergency Private Sector Development I Project Technical Annex i Risk - - .>.Mitigat;ing Me_--: bank for US$ payments in Iraq, which has transfer network connections in Iraq. Also, the Bank discussed with two international commercial banks their abilities to transfer funds into Iraqi Banks. Staffing: Lack of financial management The financial management team will be skills in PMTs. H assisted by a financial management consultant. Accounting Policies and Procedures: may Once the Master Implementation Manual not meet Bank management and reporting M and the project implementation plan have requirements. been finalized, well-defined financial requirements.policies and procedures will be inplace. The Minister of MOPDC and Chairman Internal Audit: Existing arrangements for of ITPC will each assign internal auditor internal audit are not adequate and officials M to verify the project transactions. The may not be familiar with project auditors will and trained on Bank requirements guidelines. External audit: Unknown capacity of External audit will be carried out by an auditing firms in Iraq. There was no capacity independent auditor acceptable to the assessment for the audit profession in Iraq to H Bank with international experience to determine capability to perform audits as per audit the aggregated project annual International Standards on Auditing financial statements. Each agency will prepare separate set of Reporting and Monitoring: Current systems H quarterly FMRs. MOPDC will prepare do not generate required reports. aggregated annual project financial statements for audit purposes. The ITPC and MOPDC have basic reporting systems. Each PMT will have a Information systems: Not functioning H basic computerized system using reliably in MOPDC and ITPC spreadsheet applications to follow on the project financial transactions and reporting PMT will be responsible for verifying variation orders. The fiduciary monitoring agent will assist, to the extent Difficulty in verifying justification for feasible. Price contingencies have been calculed onite basisnofnrecentaprices. variation orders and possibility of variation H Givenlte olati ofthenmarket, ordersorders exedn otnece. exceeding contingencies. Given the volatility of the market, however, should price contingencies be insufficient to cover the variation orders, scope of work will be scaled back. Overall Risk H Overall Control Risk H Legend: L - Low; M - Medium; S - Substantial; H - High 27 Emergency Private Sector Development I Project Technical Annex VII. TIMETABLE OF KEY PROJECT PROCESSING EVENTS Sequence Timing Time taken to prepare and process the project 3 months Identification and preparation mission September, 2004 Pre-appraisal October 17 - 21, 2004 Appraisal October 17 - 21, 2004 Negotiations November 28, 2004 Grant Signing December 4, 2004 Planned closing date June 30, 2007 28 Emergency Private Sector Development I Project Technical Annex ANNEXES Emergency Private Sector Development I Project Technical Annex Annex 1: Logical Framework and Key Performance Indicators liii:_ .-. , -.. hmq.~~~~ !N. T support the 1. Increase domestic and foreign private Progress Reports of To facilitate the achievement of the development of a sector investment and export. Project Management goals of the World Bank's Interim dynamic private secto 2. Establish and strengthen institutional Team (PMT). Strategy Note for Iraq, which and financial sector by capacity inthe private sector. emphasizes the need for short-term improving the 3. Increase employment in the private employment generation, institutional investment climate sector. capacity building and rapid where private rehabilitation of critical infrastructure. participabon can flourish. 1.To provide the 1A. Strengthening of the following Quarterly progress 1.Continued commitment ofthe foundation for sound institutions: report including FMR Govemment of Iraq (GOI). investment climate (a)Investment Promotion Agency of all components by 2.Cessation or significant decrease in from a financial and (b)Export Promotion Agency the PMTs. the level of violence. institutional (c) Economic Development Fund and A full supervision perspective. B. Development plans for two industrial Mission every quarter zones atArbil and Basra through videoconferences. 2. Develop a pipeline 2. The support of: Quarteriy progress 1.Continued commitment of the of opportunites for the i) Export Promotion Fund at the Ministry report of all Govemment of Iraq (GOI). private sector that of Trade which will channel TA to 100 components by the 2.Cessation or significant decrease in would lead to job eligiblefirms to develop export plans. PMTS. the level of violence. creation. ii) Economic Development Fund at the A full supervision MoPDC to channel TA for Iraqi private Mission every quarter enterprises to develop feasibility studies through or new funding from Financial videoconferences. Institutions (FIs). 3. To make essential 3. Connecting the Central Bank of Iraq infrastructure for the (CBI) with two Govemment owned survival of a modem Banks (Rafidain and Rasheed) and the private sector, namely headquarters of 20 private banks inIraq a reliable payment with high capacity and reliable system, supported by communications infrastructure. necessary telecommunications infrastructure. Rehabilitation and upgrading of three of five national background microwave routes: (i) Baghdad-Trabil, (ii)Baghdad- Mosul and (iii) Baghdad-Ammara-Basra 30 Emergency Private Sector Development I Project Technical Annex .utputs Z. t_put hidcators Proe .eports Ro : (°u x.tt.. r 1. Strong key public Development of Institutional Framework Project Supervision 1.Qualified PMT staff are selected. institutions and public Reports private partnerships 1- Industrial zones to facilitate and development plans support investment 2- Public awareness campaign and export. to promote investment 3- Endorsement by the govemment of business plans developed for public institutions to support PSD Private Sector Opportunities 1- Number of private sector export ready firms assisted to develop viable export plans. 2- Number of private sector firms assisted to develop feasibility plans to seek financing 2. Establishment of a 1.Ten Capacity connectivities in the Mid-Term Reviews 2. Experienced contractors and modem payment three routes Consultants are able to carry out daily system. activities. system. 2. Training of 25 staff members in technical, legal, management, procurement and financial management affairs. 3. Establishment of a 3. Availability of 1,200 lines of 3. PMT consultants are able to monitor modem telecom interconnection and two megabits per quality of work. capacity to support sec-leased lines Bank Staff/ Consultants are able to corporate needs. supervise project activities. 4. Roll-out of 2,050 Km digital 4. Cessation or significant reduction in microwave routes. level of civil violence. 5. Ten Corporate users and service providers. 1.Develop the 6.8 Goods and supplies are delivered to institutional project sites at reasonable costs. Framework to enable PSD. 2. Provide support for 5.0 Mid-Term Reviews There's critical demand from private specific private sector sector. opportunities that will lead to job creation. 31 Emergency Private Sector Development I Project Technical Annex 3. Support the 3.0 Project Supervision Bank staff! Consultants are able to visit establishment of a Reports project sitesfor supervision national payments system. 4. Building part of the 39.5 Project Supervision Counterpart funds for PMT salaries are Microwave national Reports available backbone to support the requirements of corporate data needs and the transmission capacity needed by all public and private operators. 5 & 6. Financing 0.7 WHthdrawal expenditures directly Applications related to project management Project Supervision Reports 32 Emergency Private Sector Development I Project Technical Annex Annex 2: Detailed Project Costs Table 1: Detailed Project Costs Net Percent of Component Total Component Cost Project Excluding Cost Contingencies Comronent I: Development of the Institutional Framework 6,476,19 11.7% 1.Investment Promotion Agency 1,714,286 3.1% 2. Export Promotion Agency 952,381 1.7% 3. Economic Development Fund 952,381 1.7% 4. Industrial Zones Development Plans (Arbil and Basra) 2,857,143 5.1% Component II: Private Sector Opportunities 4,761,90 8.6% 1. Export Plans - Export Promotion Fund 2,857,143 5.1% 2. Feasibility Studies - Economic Development Fund 1,904,762 3.4% Component III: Payments System Supporting Infrastructure 2,608,69 4.7% Component IV: Telecommunications National Backbone Network 34,347,826 62.0% 1. Supply and Installation of Telecom Microwave Backbone 33,913,043 61.1% 2. Capacity building - training for ITPC Staff abroad 285,714 0.5% 3. Capacity building - Study Tours 190,476 0.3% Component V: Financing expenditures directly related to project management 666,667 1.2% 1. Intemational Consultant for Procurement Training and Support 285,714 0.5% 2. International Consultant for Project Audit 47,619 0.1% 3. ITPC - Telecom Procurement Consultant 57,143 0.1% 4. Operational Costs Support 276,190 0.5% BASELINE COST 48,861,284 88.1% Contingencies- 6,097,309 11.0% TOTAL GRANT AMOUNT 55,000,000 99.1% PMT Salaries 500,000 0.9% TOTAL PROJECT COST 55,500,000 100% 33 Emergency Private Sector Development I Project Technical Annex Table 2: Allocation of GrantProceeds Allocation of Grant Proceeds Estimate (US$) Percent Financed by Goods 42,500,000 100% (a) MOPDC 500,000 100% (b) ITPC 42,000,000 100% Consultant's Services 12,200,00 100% (a)MOPDC 11,400,000 100% (b) ITPC 800,ooo 100% Operation Costs 300,000 100% (a) MOPDC 100,000 100% (b) ITPC 200,000 100% TOTAL GRANT COSTS 55,000,000 100% Table 3: Disbursement Schedule FY | 05 06 07 Absolute 6 29 20 Cumulative 6 35 55 34 Emergency Private Sector Development I Project Technical Annex Annex 3: Detailed Project Components Description Component (i): Development of enabling public institutions that support the private sector This component is proposed to strengthen and/or establish four institutions that would help build the foundations for private sector development. The level of proposed assistance under this project would vary as some of the institutions already exist whereas others need to be established and go through a longer process of assistance to be developed. The institutions targeted in this project are: (i) the Investment Promotion Agency; (ii) the Export Promotion Agency; (iii) the Economic Development Fund (already exists); and (iv) two industrial zones, in Arbiland Basra. 1. Investment Promotion Agency: There are a number of steps that would need to be taken to reach a final recommendation on what form of an IPA would be best for Iraq. The objective of this activity is to develop a detailed business plan that would be presented at the end of this project to the Higher Commission for Investment (to be established) and/or any other authority with the capability of endorsing the plan and the establishment of such a body. It is not envisioned that the IPA will be established under this project. The international consultants would work closely with the MOPDC and other stakeholders from the public and private sectors to realize this objective. A main activity is the development and implementation of a Public Awareness Campaign (PAC) to assess the role of the state in promoting investment. The PAC would target at minimum the five large governorates in Iraq using qualitative and quantitative research. An effective working group (WG) that includes senior officials (with decision making capabilities) from relevant ministries, private sector representatives, and academia will be formed to work closely with the local and international consultants on developing the PAC and the business plan. Detailed analysis of all aspects of Investment Climate including markets, sectors, legal, regulatory, fiscal, labor, banking sector will be carried out. Workshops, training, study tours and technical assistance services will be provided to the WG and the investment promotion units at the relevant ministries to enable them to make educated decisions throughout the process. 2. Export Promotion Agency The objective of this activity is to strengthen the Export Promotion Fund (EPF) that is currently housed in the Ministry of Trade (MoT) through technical assistance services, training, study tours, and provision of necessary equipment. In addition, technical assistance will be provided to a technical committee that would include representatives from the EPF, the private sector, and other relevant public and private agencies, to develop a detailed business plan that would address and develop recommendations on main issues such as: (a) governance structure; (b) mandate and by-laws; (c) stakeholders; (d) implementation plan; (e) role in accessing to the WTO. 35 Emergency Private Sector Development I Project Technical Annex 3. Economic Development Fund Established in 2000 to provide lines of credit to the industrial sector, the Fund has been inactive and suspended its services since the war. The Fund operates under the MOPDC. The Fund has updated its strategic plan, which proposed amendments to its mandate, govemance, and scope of services to empower the private sector. According to the strategic plan, the Fund has frozen funds in Iraqi state banks and regional banks. The main objective of this activity is to support and strengthen the fund by providing technical assistance through intemational and local consultants to enable it to operate as a public-private partnership that provides business services and technical assistance to small and medium enterprises in the private sector. The consultant will work with a technical committee that would include representatives from the Fund, the MOPDC, the private sector, and other relevant public and private agencies, to develop a detailed business plan that would address and develop recommendations on main issues such as: (a) govemance structure; (b) mandate and by-laws; (c) stakeholders; (d) implementation plan; (e) and potential growth as an independent financial institution to serve the SME sector in Iraq. 4. Industrial Zones Development plans will be prepared for two industrial zones, one in Basra and one in Arbil. These zones provide a mechanism to deal with security issues, infrastructure deficiencies and local economic development. The zones are not intended to provide tax havens. The first step is for intemational and local consultants to conduct a detailed site analysis to determine the most feasible site for these industrial zones. It is imperative that the consultants work closely with the MOPDC and the respective govemorates to secure a commitment from the local and federal govemments to allocate the identified land for the proposed industrial zone. The second step will involve preparing development plans that would include: (a) site analysis; (b) market analysis; (c) infrastructure and civil works designs; (d) environmental impact analysis; (e) legal and regulatory framework; and (f) social impact assessment. The Environmental and Social Screening and Assessment Framework (ESSAF) (Annex 8) will form the basis for the feasibility studies of the two proposed industrial zones. Component (ii): Improving the competitiveness of Iraqiprivate firms by improving their ability to access finance and foreign markets. This component will be a pilot to address two of the market failures currently facing the export sector and the private sector in Iraq. The first is related to the inadequate knowledge the Iraqi export sector has when it comes to accessing export markets. As a result of the sanctions, potential export industries in Iraq have deteriorated and exporters need to update their products and services to meet intemational standards and expectations. Entry to new export markets requires extensive research and planning that cover target markets, consumer preferences, product design, etc. Private enterprises (especially SMEs) are either unable to mobilize resources to develop an export plan or do 36 Emergency Private Sector Development I Project Technical Annex not value this exercise. In addition, many exporters or potential exporters lack the technical knowledge to develop a viable export plan that would ease access to new markets. The second market failure addresses the inability of the Iraqi private enterprises, especially SMEs, to compete in the reconstruction efforts and/or obtaining credit for new projects or businesses. Feasibility studies are required by almost all financial institutions before extending credit for a proposed project. To a large extent, SMEs do not have the knowledge to prepare such studies in-house and the management consulting industry in Iraq is not used to preparing such studies. This project will build the pipeline necessary to qualify the private sector as potential player in the new market economy by providing firm level assistance to eligible Iraqi private firms through two agencies. Through the Export Promotion Fund at the Ministry of Trade, technical assistance will be provided to approximately 100 eligible enterprises to develop export plans to enable them to explore opportunities in accessing new export markets. The Economic Development Fund at the Ministry of Planning and Development Cooperation will channel technical assistance for Iraqi private enterprises to develop feasibility studies for new projects that require funding from financial institutions. This component would begin, to build the necessary knowledge of the private sector and to increase the capacity of the local management consulting sector. If proven successful and based on demand, future projects, could assist the Iraqi private sector, especially SMEs, in co-financing implementation of export plans and projects through matching grants schemes. Export Promotion Fund (EPF) Description and Activities to be Financed. This is a pilot with the objective to assist approximately 100 Iraqi private firms (especially SMEs) to explore the potential to access international markets and if deemed feasible assist in co-financing their activities to enter export markets under future projects. The EPF will assist the Iraqi private enterprises that demonstrate the ability and the commitment to enter export markets. This Project will concentrate on developing the benchmarks necessary to enter new export markets. This will be done through two windows. 1. Firm Level Assistance - Developing Export Plans. Before entering new markets, firms will need to determine the feasibility of this activity. Firms, therefore, will have to prepare a detailed export plan that would include at minimum information on: (a) developing and/or enhancing new export products; and (b) new export markets. An export plan typically covers the following components: 37 Emergency Private Sector Development I Project Technical Annex * Currentsituation. Analysis of the current situation of the firm including physical and financial status, its products, its long-term objectives, and its commitment to grow. * Market analysis. Detailed market analysis that includes strengths and weaknesses of the firm, and available opportunities at export markets. The market analysis will also include investigation of target markets, including size and growth potential, product and/or service preferences such as product design, standards, etc. * Action plan. Based on the information and data collected, the export plan will include a detailed action plan from planning to reach target markets. Depending on the status of the firm, additional steps might be necessary before the firm can actually start selling. These steps might include adapting products and/or services by modifying design, rationalizing production to reduce costs and improve quality, and meeting international and/or target market's standards and requirements. * Financialanalysis. Financial analysis would include at minimum, the cost of producing the exportable products/services, operational costs, and a rate of return on investment over a number of years. An export plan will be a necessary condition to seek future funding to support implementation. Under this Project, the objective is to assist approximately 100 private firms in developing export plans. International and local experts will provide the assistance through the international firm that is awarded the contract. 2. International Competitiveness. This component will focus on assessing and building knowledge of the sectors that can be competitive in international markets including light manufacturing such as machine parts, light building material, cultural traditional handicrafts and rugs, natural resources based industries such as dates, food processing, oils, detergents, and services such as inbound tourism6. Typically, these industries are small and medium industries (SMIs) and are located throughout the country. The EPF through international and local consultants will complete, at minimum, the following activities for each sector and/or industry: * Analysis of the macroeconomic and policy impediments preventing the private sector from entering new export markets * Identification of microeconomic factors in each industry that impact exports such as technical know-how, incentives, labor regulations, product designs, standards, etc. * Strategies on how to develop, grow, and sustain Iraq's integration in the international markets including regional markets * Develop an action plan for each industry with the objective to transform it into a viable exportable sector. 6Inbound tourism includes all types of travel includingbusiness, religious and leisure. Services that are necessary to increase inbound tourism include accommodation such as hotels, food and beverage establishments, and transportation. 38 Emergency Private Sector Development I Project Technical Annex Develop joint ventures with intemational firms to transfer technology and information and access markets. The two components of the EPF will build the necessary foundations to discern industries and firms that are capable in the immediate and medium term of entering new export markets. In addition, the proposed approach will have an added value of building the capacity of the Iraqi stakeholders including consulting services, independent research centers, universities, and the capacity of the EPF. The implementation phase, will build on the results of this phase and would be financed under a separate project. Future projects could co-finance the activities necessary to enter new export markets using matching grant schemes. Funding mechanisms. Funds from the Project will cover the cost of technical and marketing services by local and intemational experts required to develop the export plans. It aims at providing assistance directly to approximately 100 enterprises. The project will also finance the intemational competitiveness studies. The priority sectors and/or industries will be determined by the EPF technical committee that would include international experts in addition to representatives from the private sector. It is expected that at least two SMIs will be covered under this phase. Firmeligibilitv. Technical assistance would be provided to individual Iraqi private firms in manufacturing and tradable services that have export potential, with no less than 5 employees and no more than 300 employees. Exporters who use trading companies would be considered direct exporters, and therefore eligible for the scheme. Size of resources available. The resources that will be channeled through the EPF are estimated to start with US$3 million from the Grant. After one year, and depending on demand, additional resources might be mobilized to assist additional new firms. Management. A management technical committee headed by the Director of the Export Promotion Fund at the Ministry of Trade would manage and supervise the EPF. The committee would include intemational experts in export development. The committee would also cooperate closely with the MOPDC through the PMT set up for the overall project. Economic Development Fund Description and Activities to be Financed. This is a pilot with the objective to assist approximately 50 Iraqi private firms (especially SMEs) to conduct feasibility studies for projects that they would want to develop and where such studies are necessary to obtain credit from financial institutions. Prior to embarking on a new business venture in any sector, firms should conduct detailed analysis of the proposed project to determine its feasibility given the market, the environment, and potential growth. In addition, almost all commercial financial 39 Emergency Private Sector Development I Project Technical Annex institutions require some level of feasibility analysis before extending credit to the applicant. The capacity of the management consulting industry in Iraq is limited and only few, if any, can conduct a credible detailed feasibility analysis. It is expected that Iraqi consulting firms will develop capacity by linking with international firms and/or consultants in the early stages of this project. This would enable the Iraqi consulting industry to develop and to provide part, if not all, of the services to Iraqi firms in the later stages of this project. A feasibility study typically covers the following components: * ProjectDescription. This describes the project as envisioned by the developer including all its components. * Market analysis. Detailed market analysis that includes (depending on the type of project) site analysis, demographic analysis of potential markets, determination of target markets, competition, demand forecast, etc. * Development Plan. Describes the development phases of the project from inception to operation. * Financialanalysis. Financial analysis would include at minimum, a projected pro forma that includes operating revenues and expenses, debt service analysis, and the return on investment. * Impact Analysis. In some cases, where public sector's involvement is evident, feasibility studies could include detailed economic and financial impact analysis to measure the impact of the proposed project on the national, regional and/or local economy. Variables measured include jobs created, additional output and tax revenues. Funding mechanisms. The Grant will cover the cost of feasibility studies conducted by local and international consultants. It aims at providing assistance directly to approximately 50 enterprises that present innovative projects. Firm eliaibilitv. Financing support would be provided to individual Iraqi private firms in manufacturing and tradable services with no less than 5 employees and no more than 300 employees that show commitment and capacity to develop the proposed project. Proposed projects that are labor intensive and/or develop an industry with export potential might have priority over other projects. Size of resources available. The resources that are expected to be channeled through the EDF are estimated to start with US$2 million from the Bank. After one year, and depending on demand, additional resources might be mobilized to assist additional new firms. Management. A management technical committee headed by the Director of the Economic Development Fund at the MOPDC will manage and supervise the EDF. The 40 Emergency Private Sector Development I Project Technical Annex committee would coordinate directly with the Project Director of the overall project at the ministry. Component (iii): Building reliable telecommunications infrastructure to interconnect key parts of the Central Bank's payments and settlements system. This component will fund the critical physical communications infrastructure for providing enhanced capacity for interconnecting CBI Headquarters in Baghdad with CBI's branches in Mosul and Basra (currently connected via VSAT) and for networking CBI with the two Government owned banks Rafidain and Rasheed and the headquarters of 20 private banks in Baghdad. Based on successful implementation of this phase, CBI will establish communications network to interconnect with banks throughout Iraq. In this regard, the expanded CBI network will make effective use of good and reliable bandwidth capacity that would become available with ITPC beginning April 2006 under this project and augment it with appropriate state of the art technologies to establish transmission links to banks in other provinces/districts of Iraq. The network layout is shown in Figure 2 below. Specifically it provides for the supply and installation, on a single responsibility, of all the infrastructure needed to support Iraq's Central Bank needs to link its offices in Baghdad with the two Government owned banks and the headquarters of 20 private banks in Baghdad by end 2005, and then to establish transmission links to banks in other provinces/districts of Iraq in a phased manner by end 2006. State-of-the-art WI-FI network based on digital radio technology as well as VSAT links combined with wireless networks will be deployed in conjunction with ITPC backbone systems to achieve least cost and reliable networks to connect banks both in Baghdad and the banks in other cities and rural areas of Iraq. 41 Emergency Private Sector Development I Project Technical Annex Figure 1: Broadband Network Schematic SAT CBI's Secured Broadband Network AN-SOorAN-100 PMPjSs \stsm Ox~Piate D ct Bak, Ba0i, Ir.^ Bnk 8 se~~~~~~~Bghdd Su stati~~~~~~~~~~~~~~~~~~~~~~~~~oftl 1XSAN-100 Pri"Itc~~~~~~~~~~~~~~~~~~~~~~~~~~Politr tonainOl w~~~~~~~~~~Itrlb ,e0,, Sltin Dlpodnn o C 8ncAN-100 WkhFsP ABRa*ecd Bank Al-Rafi4ain 4ank Banks I~~~~~~~~~~~~~~~~~~~~~~~nterGbobe Networks Solutions Propeetary bntofrtndon Only Gain Communications, LLC 42 Emergency Private Sector Development I Project Technical Annex Component (iv): Building a high capacity national backbone communications network capable of supporting corporate needs and develop the human capacity to operate it efficiently. This component partly supports ITPC's rehabilitation program for 2004 - 2007 approved by the Iraqi Strategic Review Board (ISRB) to build a modem and integrated long distance digital backbone microwave routes to improve delivery of communications services to the government and to the people of Iraq. In particular, this component would focus on rehabilitating and upgrading three of the five national backbone microwave routes and associated spur routes that have been severely damaged. The three routes are: (i) Baghdad-Tarbil; (ii) Baghdad-Mosul; and (iii) Baghdad-Amara-Basra. The remaining two routes would be developed under the Japanese Government Bilateral Assistance program to Iraq. The backbone microwave systems will provide much needed transmission capacity between Baghdad and the Districts in the North, South and Western parts of Iraq. These microwave links will provide immediate voice and data connectivity for the key cities: Baghdad, Baquba, Kirkuk, Arbil, Mousa, Sulaimaniya, Duhuok, Ramadi, Hadetha, Alquaim, Kut, Amara, Basra and Um Quser in the above Districts and improve national and international connectivity. Sufficient capacity will be available to meet the needs of both the public sector agencies and the private telecommunications service providers thus facilitating and enabling further competition and private participation in the provision of telecommunication services. ITPC will be expected to interconnect with all interested telecommunications and data service providers and sell them transmission capacity they may need at cost- based prices in line with the principles of transparent regulation and fair competition. ITPC have confirmed that the up-graded digital microwave backbone network will be implemented on existing sites and will use existing buildings. There will be some rehabilitation work, which, as necessary, will be done through an ITPC led project. This component consists of two parts: (i) supply, installation and commissioning of the above three backbone microwave routes and the associated spur microwave routes on a single responsibility basis utilizing tried and tested technologies thatcan be rapidly rolled out in the current Iraq environment; and (ii) provision of training and operational support. The scope of goods and services that would be funded are: Part One - Microwave Routes: consists of supply, installation and commissioning of a fully functional digital telecommunications long-distance backbone routes (radio microwave and multiplexing), and associated facilities such as towers including tower foundations, antennas, spares parts, diesel generators with back up batteries including rectifiers, a Centralized Network Centralized Management system in Baghdad, test equipments and 5 maintenance vehicles for the three microwave routes and associated spur routes. Details of system configuration are in the attached diagrams. Equipment requirement schedules are available in the project file Part Two - Training and Operational Support: ITPC staff has lacked sufficient opportunities to develop the skills necessary to operate and maintain the various 43 Emergency Private Sector Development I Project Technical Annex equipments/ technologies to be deployed in the microwave backbone routes. The bidder selected to expand the network, will be required to provide Operation and Maintenance (O&M) services, and to provide these training services. In addition the project provides for training ITPC staff in the fields of technical, managerial, financial, commercial and legal issues related to telecommunications operations. The project would fund the cost of training 24 ITPC staff in the above fields. > Components (v) and (vi): Financing expenditures directly related to project management. (Estimated Cost of US$ 0.2 million for MOPDC and US$0.5 million for ITPC) The Project will finance expenditures directly related to the management of the project such as: procurement consultants; audit consultants; maintenance of office equipment; transportation and travel, including per diem allowances for Project staff in travel status; rental of office space; utilities and office administration, including translation, printing and advertising; fuel costs; communication costs; costs for production of bidding documents and drawings; and commercial bank charges. No salaries of the Recipient's civil servants will be financed under the project. 44 Emergency Private Sector Development I Project Technical Annex Annex 4: Responsibility Matrix No. - - Task - -..... 1.00 1.01 Launch Workshop E EE E N 1.02 Document Accounting, Reporting & Auditing E E S R Procedures 1.03 1Approve expenditures N EE N 1.04 Appoint Project Auditor E NNI R 1.05 Appoint Financial Management N E E R N 1.06 Remit Specimen of Signatures E N N N N 1.07 Request replenishment of Withdrawals from WB N E E N N 1.08 Prepare request for Direct Payments R E E 1.9 Review claims and authorize payments N N N E 1.10 Make payments within 10 days of payment N N N E authorization 1.11 Monitor Payment for timeliness E E 1.12 Keep project accounts E E N 1.13 Prepare monthly Financial reports N E E S N 1.14 Supervision of FM aspects N NN__ E N 2.00 2-01 Establish project preparation, implementation, N E E S R technical monitoring (supervision & reporting procedures at center and at project sites) 2-02 Prepare goods - delivery plans A E E S 2-03 Review procurement procedures E E I 2-04 Conduct annual audits E SS JR R 2-05 Review Implementation Progress E E E S 2-06 Review Technical Documentation and contracts S S E 2-07 Compare project estimates with actual prices N E E E 2-08 Review timeliness of implementation N E E S 2-9 Conduct site visits to assess progress and quality of N E E S work 2-10 Prepare quarterly progress reports for the MOPDC N E E S R N and the WB 3.00 3.01 Prepare and revise Procurement Plan A E E S A Procurement firm to consolidate the two plans Emergency Private Sector Development I Project Technical Annex . .. - woog - . t f ' No. Tasl 3.02 Appoint Consultants R E E R N 3.03 Establish a procurement monitoring system at ITPC & R R R E R MOPDC 3.04 Prepare simplified bidding documents for shopping R R R E R _ procedures for smaller contracts 3.05 Prepare and revise a project operational manual R E E S S R _ 3.06 Prepare Standard Bidding Documents for Goods R R R E R 3.07 Prepare specific contract documents N E E S R _ 3.08 Invite bids/quotes/RFP N E E N N 3.09 Evaluate bids E E S R 3.10 Obtain WB No objection if required N E E 3.11 Award and sign contracts N E E N S N 3.12 Monitor progress of contracts S E E S S 3.13 Conduct physical inspection of completed contracts E E S 3.14 Coordinate procurement training to MOPDC and 1TPC N E E S N N 3.15 Conduct training on procurement to Iraqi staff N N N E 3.16 Keep records on procurement for all projects E E S 3.17 Follow up on complains N E E N _ 3.18 Conduct post review E Key: R= Review/clear E= Execute S= Support A= Approve N= Notified Legend: MOF Ministry of Finance MOPDC: Ministry of Planning and Development Cooperation PMT I: Project Management Team - MOPDC PMT II: Project Management Team - ITPC CONS: International Project Consultants WB: World Bank AUD: International Financial Auditor 46 Emergency Private Sector Development I Project Technical Annex Annex 5: Procurement Plan I. GENERAL 1. Project information: Country: Republic of Iraq Recipient: The Ministry of Planning and Development Cooperation Project Name: Emergency Private Sector Development Project Project No.: P091344 Grant Amount: US$55,000,000 from the World Bank Iraq Trust Fund Project Implementing Agency (PIA): The Ministry of Planning and Development Cooperation Iraqi Telecom and Post Company (ITPC) 2. Bank's approval Date of the Procurement Plan: November 15, 2004 3. Date of General Procurement Notice: November 9, 2004 4. Period covered by this procurement plan: 24 months II. GOODS 1. PriorReview Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement: ProcurementMethod PriorReview Threshold Comments 1. ICB (Goods) All 2. Shopping (Goods) First three purchase orders Contracts subject to prior review will be determined during project implementation 3. NCB (goods) First three contracts regardless of Contracts subject to prior review value will be determined during project _ _____________________ .___________________________ implementation 4. Direct Purchase All 2. Reference to Project Implementation Manual The Project Management Teams (MOPDC-PMT and YTPC-PMT) will prepare a simple Project Implementation Manual (PIM) by end-January 2005. The PIM will be adapted to conform to the Master Implementation Manual (MIM) when it is finalized. The MIM is being prepared by an international consulting firm financed under the capacity building trust fund for Iraq, and is planned to be finalized by November 2004. 47 Emergency Private Sector Development I Project Technical Annex 3. Any Other Special Procurement Arrangements Not applicable. 4. Procurement Packages with Methods and Time Schedule There are no works contracts under the project. The project mainly will finance large goods contracts and large consultancy contracts. The procurement of goods will be by using ICB procedures. The large two consultancy contracts will be procured using QCBS. There is no domestic preference under the project. A detailed procurement plan is attached. III. SELECTION OF CONSULTANTS 1. PriorReview Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants: Selection Method Prior Review Threshold Comments 1. Services from firms or individuals First three contracts regardless ofvalue. 2. Competitive Methods (Firms) >=US$100,000 3. Single Source (Firms) All 4. Individual Consultants >=US$50,000 5. Single Source (individual) All 2. Short list comprising entirely of national consultants A short list of consultants for services, estimated to cost less than US$100,000 equivalent per contract, may be comprised entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 3. Any Other Special Selection Arrangements The selection of an international procurement consulting firm will be based on CQ even though the cost is estimated at above US$200,000. The volatile security conditions in Iraq may not attract international consultants to work in Iraq. Short lists for the two large consultancy contracts using QCBS method may have to include less than 6 firms due to international consultants shying away from working in Iraq because of the volatile security conditions in Iraq. 4. Consultancy Assignments with Selection Methods and Time Schedule These are indicated in the attached procurement plan. 48 Emergency Private Sector Development I Project Technical Annex IV. IMPLEMENTING AGENCY CAPACITY BUILDING ACTIVITIES WITH TIME SCHEDULE The agreed Capacity Building Activities are listed with time schedule Expected outcome / Estimated Estimated Start I. Comments Activity Description Cost US$ Duration Date Training and support to ITPC 300,000 24 months March International consulting firm and MOPDC on: procurement, 2005 with local Iraqi staff in Iraq. setting up a procurement Most workshops would be monitoring system, filing conducted outside Iraq until system, bidding document security conditions are preparation, bid evaluation, improved. preparation of RFP, proposal evaluation, reporting and spot physical inspection. 3 workshops outside Iraq will be designed as follows: 1. Document preparation, RFP preparation, Bid/RFP invitation, Bid/proposals opening procedures (1 week) 2. Bid evaluation, proposals evaluation, awarding contracts (1 week) 3. Contract Administration/Supervision (1 week) One workshop for contractors and one for consultants in Iraq will be planned on bid preparation and proposals preparation, respectively. Two telecom engineering 60,000 4 month Dec. One consultant for the consultants are to be hired by the 40,000 2004 telecom backbone contract ITPC to prepare bidding and one consultant for the documents and technical telecom infrastructure for the specifications and schedule of CBI payment system requirement for the two telecom contracts 49 Emergency Private Sector Development I Project Technical Annex IRAQ Emergency PSD Project - List of Contracts (Constituting the Procurement Plan) E Review I j ~~~~~~WB No Cnrc Procurement Estimated 'E-'E RevBy bmiewW NoExpected su'm"- 0= No ~~invita- Bi- Evalu- Cbocnt taractpl Procurement ~~~~Locationi Esiae Bank sion Ojectionon n obd pnn naturbjec-Commntrt System Cost i e smments tion to bid opI~~~~atln &atBankiRe tion to igDate Of Ref.5 Descrlption (U$ IC : (PRIOR Raiesto tender Dae i gRecomm. IDate Date 2 Ps)Dt Date ~~Date Date Date award -| ! - ~~_ _- -- ------ - ~- __-|-------- t - -- T-- _ -- ---- ----- -- r 1;Goods_ --- -t- -- ------- 1.1 Implemented byITPC - - i i i EPSDP IFPC ICB-1/2005 ~telecom S _nd ._ $ 39,000,000 ICB PRIOR 15-Feb-0 1-Mar-05 2-Mar-05 1-Ma -05 31-May-05 14-Jun-05 14-Jul-05 13-Aug-05 12-Feb-07 microwave backbone '_______ ______ Supply and installaton of _ _ _ EPSDP.CB.ICB-112005 tlecom infrastructure forCentral $ 3,000,000 ICB PRIOR 15-Feb-05 1-Mar-05 2-Mar-05 1-Apr-05 15-Apr-05 29-Apr-05 29-May-05 6-Jun-05 3-Dec-05 Bank li_ Subtotal 1.1 . 1-1 ____ _ 42,000,000 __ __ _ _ __ _I _i *1.21implemented by MOPDC ____ -~~ . i r- __ T 7 - ,-- EPSDP PSD.NCBISH-1- Supply of rr equipment &software, furnitures, office $ 500.000 NCB/SH PRIOR --- 1-Oct-05 15-Oct-05 16-Oct-05 15-Nov-05 29-Nov-05 _ 13-Dec-05 20-Dec-05 28-Dec-05 28-Dec-06 1012005eulmn_____II28Dc0 Subtotal I.2 $ 500,000 1 T _ Total for 1. GOODS $ 42,600,000 ___~_____ _ ___ ~_____ ____ - __ __ __- __ ____- _ _ _ -- ---- -------------- Notes: . 1 Allcostfiguresaretotals)ncludin gconfngencies ... I - -- - - - . . - - - 21 For item 12,the goods thatwill be procuredwill be on a demand basis andthus the procurement methodwill determined atthatime asperthe grantagreement 3 CB=Intematonal Competeive Bidding r - - INCB=Natonai Competetive Bidding i | 1 | .H- Snopring procedure I ! Emergency Private Sector Development I Project Technical Annex Review Adet oExpected No Procurement by Short Invitdaon Proposal Technical No Final No Contract Objection i System Efdmated Selection Bank sement Listing1 ObJection for RFP Submission Evaluation Objectlon Evaluatlon Objection Award Date to Start Completion SytemIDescrption ofAssignment Cost Method P frori D RFP reaDdat R FPFP DeaaettDat Date Ref. I (USS) ~~~~~ Post ~~~~~ Dae ~~~~~~~ rayIcontract I _ ___________- _______ __ _ _ ,_ _ _ __ _ _ ____ ... . -__ _ _! _ !______ ! ._ - 2. CONSULTANTS' SERVICES __ .. _ _ __ -- 1 -- - 2.1 Consuitantsfor Project Management _ _ __ _ _ __ II EPSDPITPC-MOPDCCQS- Procurement Training& Support S 300,000 COS PRIOR 15-Dec-04 14-Jan-05 21-Jan-05 23-Jan-05 22-Feb-05 3-Mar-05 3-Mar-05 25-Mar-05{ 1-Apr.0 15-Apr.05 29-Apr.05 29-Apr-06 112005 ~__-- ___-- 'iteematonal Fi!Ln -{- - __- -__ ___ __ - __ - -_ EPSDP ITPCIC 1/2005 procurementgconsutant $ 60,000 IC PRIOR 15-Dec-04 15-Jun-05 22 Jan-05 5-Feb-05 24-AuU-05 EPSDP2TPc-MoPDc.CQ2 ProjectAudit(Local Firm) $ 50,000 COS PRIOR 1-Feb-05 16-Feb-05 23-Feb-05 24-Feb-05 1-Mar-05 17-Mr-OS 17-Mar-05 17-Mar-05 3i-Mr-M 7-Apr-05 21-Apr-05 28-Apr-05 28-Apr-07 Subtotal for 2.1 _ 410,000 __ _ ____ _ _ __ _ - _ 2.2 Capacity building forITPC - 3 - - _ _ _ -1_ i CS t _ _______ Tra'i inf C staf aroaSd _ 30 _ 0 PRIOR _IM-y05 31-May-0 31-M 30 1_5-Jun_0524-Jun-05 24-Jul-O5 1b-Ju05 1 1I30 30- Study tours abroad S 200.000 inc post i I I _ I _ 1-Jun6-S 2-Mav-07 Subtotal 22 _ _ __ _ ___ I_ 1 - $ Ht,0 | __ _ _ __ _____ __ - 1 23 Technical assitance to PSD _ L _ 1 _ _L L I_ __ - - - Industrial Zones development EPSDP.MOPDCCQBS1/2005 plea $ 3.000.000 OCOS PRIOR 20-Dec-04 28-Feb-05 14-Mar-O5 16-Mar-O5 30-Apr-05 ___- 30-May-0S 13-Jun-05 -Jun0-05 -Jul-05 13-Jul --- -0534Aug-05 -- -A - 24-Aug 06 EPSDP.MOPDCCQBS212005 lnstitu onal strengthenmng and S 8,300.000 QCBS PRPOR 20-Dec-04 28-Feb05O14-Mar-05 16-Mar-05 30-Apr-05 30-May-05 13-Jun-O5 27-Jun-05| 11-Jul-05 13-Jul-05 3-Aug-05 | 24-Aug-05 29-Jarn07 1 ________________________private sector support __________ ______ Subtotal2.3 S 11,300,0 - - - _ - - i _ i .1------- ----------- I.____-----____ I .- 1 _______ I____________- -- t-----__ ____ ____ _____ 1----- __----I _________ ----------- -__ GRAND TOTAL 2. Consultants LI _ i i S 12,210 000| I _ I Notes:] Allcostfiguresaretotalsincludingcon1ngencies I ]-|_! QCBS =Quality and Cost Based Selecbon , , | i | COS =Consulant Quahficabons based Selecton . _- 1 , - C lndividual Consuient | - - _ inc Incremental operabng ependimre j - 51 Emergency Private Sector Development I Project Technical Annex Annex 6: Project Implementation Schedule J J ___Time__ ___ ___ __ ___ _____CY___0_ __CY 05 CY Of CY 07 [[ MNov I ec Jan ae ... J ar Jun ~ui J u I Sp I Ot 2cI 8 ___ Shoran Us arpefebidding documents 4I If Biddingperiod4 TechnicalOba NevaluationoO~tafrFofBids T I ;Final evaluation ofBids2 WEBNo-objection to Final EvaluationI lAward contract/internalproceesring 41 1 Tehi alAsistance I I101 ieitto P ro !ObtainWB N o-Ob*ectionfor RFP Il' I ~ ,Technical evaluation ofBids III I I VWB No-objection to Evaluation II iFinal evaluation of Bids I I I WB-borction to Final Evaluation 2 Techniical Aesistanc 12 I11111lii;i1 iie ii101tationiPeriodi TechniclZ Asitnce for PSD I I ~ ''-~j I Obtain WBNo-Objection for RFP III tI i Techniical evaluation ofBids 4 j I i 1WBNo-objectionto Evaluation 2 i Final evaluation orBEide I WB No-objection to Final Evaluation 2 Award contract/internal proesesing - S4I I TechnicalAssistnce v I ITechnicaiAssistance fo S2 lI I I IiipIieii) iitatiol Pitiiodil~ iShot List and Pre are bidding documents- 9 iObtain WE No-Objection for RFP 2 'Biddingperiod a A IzI Technical evaluation ofEids 4 4-1I I VV/B objection to Evaluator, No 'Final evaluation of Bide 2 III . "i/BtIo objecu3n to Final Evaluation I IAwardcontract/internalprocessing a 11 Technical Assistance ii IInpiI?iielneftitioli Periodt Sumsin auRsaine I I ilIt14I Evaluation& recommendation 4 II, WE No-obeaction to award date Award contract/internal processinga I 4L I ~ I ~ . Sumision./ ReadinesoI III Ij Emi WEno obectiontodate teder II lnvitationtobid& of bids4 snin I I UeJualuaon & rcommaendaLion WEVlio.objecLion to awaxd date Ae'wd contiact/iLnLemal processing1I JEuini2entd*liver&construction eriod Y ii 4 I 1isistiroIctiin Peir~iodi Emergency Private Sector Development I Project Annex 7: Financial Management and Disbursement 1. The project will be implemented by the Ministry of Planning and Development Cooperation (MOPDC) and the Iraqi Telecommunications and Post Company (ITPC). Each implementing agency will establish a Project Management Team (PMT) to facilitate project implementation. The project financial resources will be managed within the framework of the implementing agencies' financial management systems in addition to World Bank procurement and financial management procedures. The Grant funds will be made available to the implementing agencies which will enter into contractual agreements with contractors, consultants and vendor's for the procurement and execution of the activities financed under the project. 2. In view of the current security situation, it has not been possible for Bank staff to travel to Iraq. In lieu of this, the financial management systems of MOPDC and ITPC were assessed by a consulting firm. This assessment described the organization structures of the implementing agencies and covered the current financial management practices at the MOPDC and ITPC in order to identify the risks associated with the control environment, the accounting, reporting and auditing procedures in place and propose actions to reduce and manage such risks. These assessments found that the systems in place at the implementing agencies are based on principles and procedures defined by the legal framework and operational decrees applicable to the public sector in Iraq. These procedures prepare reports based on budget line expenditures and include several layers of authorization controls. In order to mitigate a number of weaknesses identified in internal control and reporting systems, the Bank will introduce additional compensating control measures for the project, including use of PMT, appointment of Monitoring Agent, appointment of external auditor with international experience, and use of direct payments. The financial management assessment project files include a copy of the assessment documentation. II. Financial Management Risk Assessment 3. The financial management risk associated with this operation is considered high. Critical risk factors are: (i) ongoing insecurity, which prevents on-site Bank supervision and assessments, including financial assessments; (ii) the Bank's limited knowledge of Iraq's public financial management systems, controls, and procedures; (iii) the limited knowledge on the part of Iraqi authorities of Bank policies and guidelines; (iv) implementing agencies making available on a timely basis financial resources to honor payments below the value of US$10,000; (v) difficult communication and flow of information between worksites and the PMTs, which could delay payments; (vi) inefficiencies in Iraq's banking system that delay payments and transfer of funds to contractors, suppliers, or implementing agencies; and (vii) variation orders that exceed contingencies. Although the project design mitigates to the extent possible these risks, the Emergency Private Sector Development I Project Technical Annex project will require close monitoring and supervision during implementation. A detailed risk assessment may be found in Section VII below. III. Risk Mitigation Measures 4. The overall high risk will be partially mitigated by putting in place additional controls and appropriate procedures. 5. The control risks will be partially mitigated by putting in place the following measures: (a) the PMTs will verify and authorize payments under the project and verify justifications for variation orders; (b) the PMTs will assign competent financial staff from within the implementing agencies supported by financial management consultants; (c) the implementing agencies will identify internal auditors from their internal audit departments to track and verify the project activities; (d) disbursements by the Bank will be made by direct payments to suppliers, contractors and consultants for amounts equal or above US$10,000 and reimbursement of expenditures supported by full documentation for smaller amounts; (e) the Monitoring Agent will review project expenditures and review withdrawal applications f) training will be provided to the PMT staff and staff assigned to the project during project launch. 6. The accounting and reporting risks will be managed by putting in place a simple parallel accounting system, which consists of basically a spread sheet applications, able to record all project expenditures and follow on the project commitments at any moment during the implementation period and able to provide the needed data for the generation of project management reports including the two sets of Financial Monitoring Reports (FMR) and the aggregated annual project financial statements.. With respect to the auditing arrangements, an external independent auditor with international experience will be engaged to perform the project audits and issue an independent opinion on the project financial statements. 7. All the above activities and procedures will be documented within a chapter of the project implementation plan, which are in line with the Master Implementation Manual. 8. Financial Management Arrangements. Each implementing agency will be responsible for the proper financial management of its own components as follows: i) maintain adequate FM arrangements throughout the project implementation, ii) maintain separate accounting records and follow-up spreadsheets for the project, iii) approve all payments related for the project, iv) submit copies of all supporting documents along with Withdrawal Applications to the Bank both for direct payments and reimbursement v) prepare its own set of quarterly FMR and submit them to the Bank within 45 days of each quarter-end. MOPDC and ITPC will each be responsible of preparing its own project financial statements However, for auditing purposes, ITPC will also have to submit its financial statements to MOPDC for the aggregation of the annual project financial statements. MOPDC will be responsible of preparing the aggregated annual project financial statements and having them audited by a qualified external auditor acceptable to 54 Emergency Private Sector Development I Project Technical Annex the Bank with scope and standards accepted internationally. MOPDC will also be responsible of submitting the audit report to the Bank within six months of year-end. 9. All payments will be subject to the applicable controls, rules and regulations of the implementing agencies in addition to the PMTs verifications and approvals. These controls are applied by the MOPDC as per the circular issued by the MOF for budget implementation and by ITPC as per its by-laws. These controls will be applied to the grant transactions and payments, even though the grant funds are disbursed from outside the budget. 10. Project Implementation Plan. The project procedures and the parallel accounting system that are managed by the PMTs are not reflected in MOPDC or ITPC legal framework. In order to ensure the accuracy and completeness of the parallel system data and to define the relation between all departments involved with the project implementation and thus facilitate the flow of project information, the PMTs will prepare the project implementation plan in line with the Master Implementation Manual under preparation by the Bank. IV. Project Reports 11. Project reports should be remitted to the Bank following the agreed format and frequency. The proposed format of the reports is in the project files and was agreed upon with the MOPDC and ITPC, representatives during negotiations. These are the following: Quarterly Reports. Both MOPDC and ITPC will generate Financial Monitoring Reports (FMRs) and submit them to the Bank within 45 days from the end of the period. These reports submitted as part of the project progress report, or separately. The proposed format of the reports is in the project files and was beagreed upon with the implementing agencies representatives during negotiations The FMRs will include: * Financial Reports: to include a cash flow statement, beginning and ending project cash balances and an expenditure report by activity or contract comparing actual and planned expenditures. Also, a narrative report explaining major variances when compared to plan and the proposed corrective actions should be included as an annex to the financial reports. * Contracts Reports: this section will include information on the contracts, showing category, amounts committed, financial status against plan, including information on all authorized contract variations. Annual Reports. Aggregated audited project financial statements (PFS) submitted to the Bank. PFS will include: V Statement of sources and utilization of funds, indicating funds received and expenditures. V Appropriate schedules classifying project expenditures by activity showing cumulative balances. 55 Emergency Private Sector Development I Project Technical Annex V Statement of payments made using statement of expenditures procedures, if allowed later by the Bank, as defined in the legal agreement. 12. Reporting to Donors. The Bank will maintain separate records and ledger accounts in respect of the funds deposited by the donors with the Bank under the ITF. Within ninety (90) days of the end of each quarter (March 31, June 30, September 30, and December 31), the Bank will prepare, on a cash basis, an unaudited statement of receipts, disbursements, and fund balance with respect to the ITF and forward a copy to each donor. Each such statement will be expressed in United States Dollars, the currency in which the ITF funds will be maintained by the Bank. In addition, within one hundred and eighty (180) days of the completion of all disbursements relating to activities financed from the ITF, the Bank will prepare on a cash basis an unaudited financial statement of receipts, disbursements, and fund balance with respect to the ITF and forward a copy to each donor. 13. The Bank will furnish to the donors: (a) on a semi-annual basis, a consolidated report describing the operations of the ITF (including contributions, disbursements, and implementation progress) in the preceding six months; and (b) on an annual basis, a management assertion, together with an attestation from the Bank's external auditors, concerning the adequacy of internal control over cash-based financial reporting for trust funds as a whole. 14. The Bank will require a financial statement audit of the ITF to be performed by the Bank's external auditors on an annual basis. The costs of such an audit, including the internal costs of the Bank with respect to the audit, will be charged to the ITF. The Bank will provide each donor with a copy of the auditor's report. 15. The Bank will maintain close consultation and coordination with the donors. The Bank will provide each donor to the ITF with semi-annual reports on its quarterly ex-post evaluation of the activities undertaken by the Monitoring Agents. Within six months of completion of the activities, or of full disbursement of the contributions, whichever comes later, the Bank will provide a final progress report to each donor, together with a copy of the independent review of the performance of the Monitoring Agents. Upon request by any donor, the Bank will send to such donor the draft and final reports received by the Bank from the Monitoring Agents on the activities financed by the contributions. V. Auditing Arrangements 16. An external independent auditor with intemational experience will be engaged to perform the project audit and issue an independent opinion on the project financial statements. The external audit report will encompass all of the project's activities and will be presented in accordance with terms of reference acceptable to the Bank, including compliance with international standards on auditing. MOP will remit a project audit report to the Bank not later than six months after year-end. The auditor selection process will be 56 Emergency Private Sector Development I Project Technical Annex launched directly after the grant agreement is signed. . In addition to the audit reports, the auditor will prepare a "management letter" identifying any observations, comments, and deficiencies in the system and controls that the auditor considers pertinent, and will provide recommendations for their improvements. The audit will cover the expenditures made through direct payments as well as expenditures reimbursed to the MOPDC and ITPC, in terms of their substantiation and their eligibility and compliance with the grant agreement. An escrow account will be used to pay the auditor after the project closing date. VI. Disbursement Arrangements 17. The proposed grant of US$55 million will be disbursed over a period of approximately three years. The Bank's strategy in Iraq is to ensure Iraqi ownership and strengthen institutional capacity by financing operations that are implemented by Iraqi ministries and other recipient entities. Trained PMTs will facilitate implementation and help ensure compliance with fiduciary and other safeguards. PMTs will be employed and paid by the implementing entity at regular salary levels, thereby avoiding the disadvantages of stand-alone Project Implementation Units that can erode civil service institutional capacity over the medium and long term. The project will finance specialized technical support in procurement, financial management, and other areas as needed. 18. In addition, to ensure that project funds are used for the purposes intended and to help carry out project supervision, the Bank will employ two independent firms as Monitoring Agents. As a further compensating control, especially given that the project will be approved before the Monitoring Agents are in place, disbursements will be made primarily by direct payment by the Bank to the contractors, consultants, and vendors. Once authorized by the PMTs, direct payments will be made by the World Bank directly into the account of the contractor, consultant, or vendor in a commercial bank capable of receiving funds transferred from the international banking system. 19. The project management component and payments below the threshold of US$10,000 normally will be made through payments by the Recipient from its own resources. These payments made from the Recipient's own resources will be reimbursed, on a periodic basis, by the Bank to the MOPDC-PMT and the ITPC-PMT upon presentation of relevant supporting documents, proof of payment and a signed withdrawal application. The PMTs staff and the main' financial counterparts from the MOPDC and the ITPC will be subject to intensive training in the Bank's disbursement procedures. 20. Use of Statements of Expenditures. Initially, supporting documentation will be provided to the Bank for all requests to disburse funds under the Grant. The Bank has the option to allow expenditures under US$10,000 to be made by means of Statements of Expenditures (SOEs). If SOEs are allowed the supporting documentation will be maintained at the respective PMT of each implementing agency and made available for review by Bank representatives upon request; any documentation relating to SOEs will be retained for up to one year from the date the Bank receives the last grant audit report. 57 Emergency Private Sector Development I Project Technical Annex VII. Financial Management Risk Assessment 21. The following table summarizes the identified risks, risk rating, and mitigation measures. Identified nsks - lRis; . Mitigationmeasures r .- - ':- The Bank gained some knou ledge on Iraqi PFMI systems by appointing a consulting firm to assess Limited knowledge of financial financial management systems at several Iraqi management systems of the Iraqi H ministries. Bank staff also conducted their own public sector and the interviews with Iraqi officials in Amman and implementing agencies reviewed PFM system documentation. Further knowledge was gained from an audit report by an international audit firm Each PMT will have qualified staff including financial manager and finance officer. The teams will be assisted by a consultant, and will manage Limited capacity to manage disbursements from the proceeds of the grants, Limanitap manage . .. maintain and supervise project accounts, retain of the Projecti financial records, and prepare project reports. The Bank also hired a consulting firm to prepare a master implementation manual to be used by all Bank-financed projects in Iraq. The Iraqi contribution to the project will be in kind, Counterpart Funds not made L i.e., the costs of staff assigned to the PMTs and staff from the ministry and ITPC working on the project. Implementing agencies not being The minister and ITPC chairman commitment for able to provide funds from their own M providing the funds was obtained during resources negotiations Each implementing agency will designate a project Implementing not entities coordinator to facilitate implementation. Training Implementing entities not will be provided to implementing agencies and PMT coordinating activities which will H staff on the use of Bank financial management and cause delays disbursement policies and procedures with the Bank. The flow of funds will concentrate on using direct payment requests; however, the banking and payment system in Iraq creates a risk factor for such Funds Flow not taking place on H payments. The Bank uses international commercial time bank for US$ payments in Iraq, which has transfer network connections in Iraq. Also, the Bank discussed with two international commercial banks their abilities to transfer funds into Iraqi Banks. Staffing: Lack offinancial H The financial management team will be assisted by management skills in PMTs. a financial management consultant. Accountingand Procedures: Policies Once the Master Implementation Manual and the maccnounting Poies andaProedures: B M project implementation plan have been finalized, maynot meetBnk management well-defined financial policies and procedures will and reporting requirements. be in place. Internal Audit: Existing The Minister of MOPDC and Chairman of ITPC arrangements for internal audit are M will each assign internal auditor to verify the project not adequate and officials may not transactions. The auditors will and trained on Bank 58 Emergency Private Sector Development I Project Technical Annex be familiar with project guidelines. requirements External audit: Unknown capacity of External audit will be carried out by an independent auditing firms in Iraq. There was no auditor acceptable to the Bank with international capacity assessment for the audit H experience to audit the aggregated project annual profession in Iraq to determine financial statements. capability to perform audits as per International Standards on Auditing. Reporting and Monitoring: Current Each agency will prepare separate set of quarterly systems do not generate required H FMRs. MOPDC will prepare aggregated annual reports. project financial statements for audit purposes. Information systems: Not The rTPC and MOPDC have basic reporting functioning reliably in MOPDC and H systems. Each PMT will have a basic computerized 1TPC system using spreadsheet applications to follow on the project financial transactions and reporting PMT will be responsible for verifying variation orders. The fiduciary monitoring agent will assist, to Difficulty in verifying justification the extent feasible. Price contingencies have been for variation orders and possibility H calculated on the basis of recent prices. Given the of variation orders exceeding volatility of the market, however, should price contingencies. contingencies be insufficient to cover the variation orders, scope of work will be scaled back. Overall Risk H IX. Bank Financial Management Supervision The first supervision mission after effectiveness will take the form of a launch workshop where a seminar on Bank policies and procedures will be presented. A high level of supervision will be required initially in order to ensure that the finance champions within each PMT and its implementing agency are well-trained in the use of Bank guidelines and procedures. Where security conditions make travel to Iraq impossible for Bank staff, the Bank will employ an independent firm as Monitoring Agent that will operate in Iraq and support the Bank in carrying out its supervision function. Action Due Date Identify the Financial Officer from the I edately implementing agencies Immediately Launch the Auditor selection Process After grant Agreement Signature Send Authorize Signatory letter to Bank After grant Agreement Signature Finalize Project Implementation Plan February 28, 2005 Parallel accounting system in place March 31, 2005 59 Emergency Private Sector Development I Project . Technical Annex Annex 8: Environmental and Social Safeguard Framework (ESSAF) I. Objectives 1. The Environmental and Social Screening and Assessment Framework (ESSAF) provides general policies, guidelines, codes of practice and procedures to be integrated into the implementation of the initial phase of World Bank-supported emergency reconstruction operations in Iraq. This Framework has been developed to ensure compliance with the World Bank's safeguard policies under the current conditions in Iraq. The objective of the ESSAF is to ensure that activities under the proposed reconstruction operations will address the following issues: *4. Protect human health; *: Prevent or compensate any loss of livelihood; *Minimize environmental degradation as a result of either individual subprojects or their cumulative effects; *. Minimize impacts on cultural property; and 4- Enhance positive environmental and social outcomes. II. General Principles 2. Recognizing the emergency nature of the proposed relief and reconstruction operations and the related need for providing immediate assistance, while at the same time ensuring due diligence in managing potential environmental and social risks, the ESSAF is based on the following principles: 4 The proposed operations will support multiple subprojects, the detailed designs of which may not be known at appraisal. To ensure effective application of the World Bank's safeguard policies, the ESSAF provides guidance on the approach to be taken during implementation for the selection and design of subprojects and the planning of mitigation measures; 4* Environmental category 'A' subprojects are not expected in the first year's subprojects. If any do occur, EAs for specific subprojects will be prepared during implementation, instead of before appraisal. Corrective measures in the form of an Environmental Management Plan will be built into either the emergency project or a future lending operation. The above is in accordance with paragraph 13 of OP 4.01 and paragraph 5 of BP 4.01; 4 No resettlement issues are expected in any of the FY04 operations for the first year's subprojects. If any do occur, Resettlement Action Plans (RAPs), and/or 60 Emergency Private Sector Deyelopment I Project Technical Annex Resettlement Policy Frameworks for specific subprojects will be prepared. However, these RAPs can be prepared during implementation, provided a waiver on the submission of RAPs prior to appraisal is given by the MD. The waiver would also specify a timetable for the preparation of the RAPs, in accordance with the requirements of OP 4.12, during implementation; * The proposed emergency reconstruction operations will finance feasibility and detailed design studies for these subsequent investments, which will include environmental assessments and social studies as required by World Bank safeguard policies; 4* Project design and subproject selection will aim at maintaining regional balance and equity among ethnic religious groups, considering variations in population density. Employment opportunities within the projects will be available on an equal basis to all, on the basis of professional competence, irrespective of gender or ethnic or religious group. In all projects which require consultations with local communities or beneficiaries, consultations will be conducted to elicit the views of the male and female population; and * Consultation and disclosure requirements will be simplified to meet the special needs of these operations. This ESSAF will be disclosed in the sector ministries and other public places in Iraq and in the World Bank InfoShop. III. Environmental and Social Screening and Assessment Framework (ESSAF) 3. This ESSAF has been developed specifically for these proposed operations to ensure due diligence, to avoid causing harm or exacerbating social tensions, and to ensure consistent treatment of social and environmental issues by all donors and the Governing Council of Iraq. The purpose of this Framework is also to assist the Project Implementing Agencies in screening all the subprojects for their likely social and environmental impacts, identifying documentation and preparation requirements and prioritizing the investments. 4. OP 4.01 Environmental Assessments Most of the proposed subprojects are likely to focus on the repair, rehabilitation, reconstruction and upgrading (where necessary) of damaged buildings, roads, railways, bridges and infrastructure of critical importance. This would include power generation and distribution, agricultural infrastructure, irrigation and drainage networks, and rehabilitation of primary and secondary schools. Support will also be provided for mitigation measures related to the rehabilitation/restoration of the Mesopotamian Marshes and Shatt El Arab. The work in these areas will be done under OP 4.01 and it is not anticipated that OP 4.04 on natural habitats will be triggered. 5. Considering the nature and magnitude of potential environmental impacts from relatively limited scale and magnitude of reconstruction works, the proposed operations are likely to be classified as category 'B'. The requirement to carry out an Environmental Analysis as part of project preparation can be waived but, for subprojects with potential 61 Emergency Private Sector Development I Project Technical Annex adverse impacts, a limited Environmental Analysis will be done during project implementation. At the same time, prior to appraisal the implementing agency will agree to apply the following minimum standards during implementation: inclusion of standard environmental codes of practice (ECOP) in the repair and reconstruction bid documents of all subprojects; review and oversight of any major reconstruction works by specialists; implementation of environmentally and socially sound options for disposal of debris; and provisions for adequate budget and satisfactory institutional arrangements for monitoring effective implementation. 6. OP 4.12 Involuntary Resettlement. The need for involuntary resettlement or land acquisition in specific subproject areas will only be known during project implementation, when site-specific plans are available. Therefore subprojects will be screened for applicability of the resettlement policy and any subprojects involving involuntary resettlement or land acquisition will only be approved after preparation of a resettlement plan acceptable to the Bank. Several issues will increase the complexity of land acquisition - the lack of reliable land record systems, and the inability of people loosing land to either document ownership or be physically present to make their claims for eligibility. The safeguards framework will therefore include procedures for identifying eligible project- affected people, calculating and delivering compensation, and mechanisms for land dispute grievance redress. 7. Although land disputes between private parties and refugees from war, or natural disasters are not covered by OP 4.12, the policy does cover those displaced by the project's activities. Even for those not covered by the policy, and to ensure effective poverty reduction, it is good practice for the borrower to undertake a social assessment and implement measures to minimize and mitigate adverse social impacts, particularly on poor and vulnerable groups. Well documented consultation mechanisms will be required to establish eligibility for compensation. Absent refugees who later claim compensation will require clear legal remedies to resolve or adjudicate disputes. 8. OD 4.20 Indigenous Peoples. Ethnicity is only one of many factors determining vulnerability in the present Iraqi context. Local circumstances vary too greatly to make generalizations. However, initial discussions with anthropologists and sociologists familiar with the country found that the presence of the five defining characteristics normally used (OD 4.20 paragraph 5) are inconclusive in Iraqi's context, where the ethnic group concept is analytically problematic. According to social scientists familiar with ground realities in Iraq, selecting a sub-section of the society for special attention in accordance with the requirements of OD 4.20 (e.g., separate plans for different groups) would be counterproductive and could even end up escalating the conflict within and between communities. 9. In light of the above situation, a potential vulnerability assessment of all affected groups is planned to ensure effective consultations and culturally appropriate benefits for each group, instead of focusing only on groups defined as "indigenous peoples". As part of this analysis, subproject preparation will assess the vulnerability of different ethnic groups in particular project contexts (in terms of potential exclusion from project benefits, negative 62 Emergency Private Sector Development I Project Technical Annex project impacts, and the need for specific culturally compatible mechanisms for participation), and will incorporate adequate measures to address such vulnerability in project design. While some specific cases may justify stand-alone Indigenous Peoples Development Plans (IPDP) such as in the case of the people in the Mesopotamian Marshlands, these cases can only be determined after social analysis of potential vulnerability and careful judgment as required by the OD 4.20. 10. OPN 11.03 Cultural Property. The FY04 operations may pose limited risks of damaging cultural property, assuming that they will not include large-scale excavations, movement of earth or demolition. Nevertheless, projects and subprojects will be reviewed for their potential impact on cultural property and clear procedures will be required for identification, protection of cultural property from theft, and treatment of discovered artifacts, and will be included in standard bidding documents. While not damaging cultural property, subproject preparation may later identify and include assistance for preservation of historic or archeological sites. If these opportunities occur, cultural property management plans would be prepared for those subprojects. 11. OP 4.37 Safety of Dams. There are about 50 dams over 15 meters high, which will trigger the policy if included in the operations. "However, because of local site conditions, even restoring smaller, earthen dams and linked irrigation infrastructure (partly abandoned, damaged or destroyed by civil unrest and war) will require application of standard engineering safety codes, inspection and evaluation of their safety status, and preparation and implementation of operation and maintenance procedures. Decisions on dam safety requirements will be made with the concurrence of the Bank. 12. OP 7.50 Projects on International Waterways. The two major rivers in Iraq, the Tigris and Euphrates, are shared with neighboring countries. However, no water sharing agreements exist between Syria, Turkey, Iran and Iraq. Components affecting waters in riparian neighbors will trigger the policy and project components will be screened to identify riparian issues and to ensure adequate notification, as required under the policy. Decisions on actions and requirements will be made with the concurrence of the Bank. IV. Safeguard Screening and Mitigation 13. The selection, design, contracting, monitoring and evaluation of subprojects will be consistent with the following guidelines, codes of practice and requirements. The Coalition Provisional Authority (CPA) will confirm that areas to be accessed during reconstruction and rehabilitation activitieshave been de-mined. The safeguard screening and mitigation process will include: * A list of negative characteristics rendering a proposed subproject ineligible for support, Attachment 1; + A proposed checklist of likely environment and social impacts to be filled out for each subproject or group of subprojects, Attachment 2; 63 Emergency Private Sector Development IProject Technical Annex * Guidelines for land and asset acquisition, entitlements and compensation, Attachment 3; * Procedures for the protection of cultural property, including the chance discovery of archaeological artifacts, unrecorded graveyards and burial sites, Attachment 4; * Relevant elements of the codes of practice for the prevention and mitigation of potential environmental impacts, Attachment 5; and * A sample Environmental Safeguards procedures for Inclusion in the Technical Specifications of Contracts, Attachment 6. V. Responsibilities for Safeguard Screening and Mitigation 14. A number of Ministries will act as the implementing agencies for the proposed operations, including the Ministries of Environment, Transport, Housing and Construction, Electricity, Water Resources, Municipalities and Public Works, and the mayoralty of Baghdad. Each Ministry will be responsible for applying the safeguard screening and mitigation requirements to its own subprojects. Within each Ministry, a Safeguards Focal Point (SFP) will be identified with responsibility for overseeing the implementation of the Framework. VI. Capacity-Building and Monitoring of Safeguard Framework Implementation 15. As part of the capacity-building to be provided for implementation of the proposed operations, the Safeguards Focal Points and relevant staff of the concerned Ministries will also receive training in ESSAF's application. 16. To assist in this capacity-building, and to provide subsequent guidance and review of the ESSAF's application, the World Bank and subsequently the Governing Council of Iraq (GCI) will contract specialist services for environmental and social safeguards. During supervision of these operations, the World Bank will assess the implementation of the ESSAF, and recommend additional strengthening, if required. VII. Consultation and Disclosure 17. This ESSAF will be shared with the CPA, with the concerned nongovernmental organizations and development partners of Iraq's reconstruction. It will be disclosed in Arabic and English by the Ministry of Planning and Development Cooperation on behalf of the GCI in Baghdad, Basrah, and Mosul, and it will also be made available at the World Bank's InfoShop. Relevant subproject specific safeguard documents/mitigation plans prepared subsequently will also be disclosed. 18. The proposed operations will support a number of feasibility and detailed design studies for future infrastructure investments for which World Bank safeguard policies 64 Emergency Private Sector Development I Project Technical Annex relating to consultation and disclosure will apply. In particular, for environmental Category A and B investments7 proposed for future operations, the implementing agency will consult project-affected groups and local nongovernmental organizations on the project's environmental and social aspects, and will take their views into account. The implementing agency will initiate these consultations as early as possible, and for meaningful consultations, will provide relevant material in a timely manner prior to consultation, in a form and language(s) that are understandable and accessible to the groups being consulted. 19. For Category A projects, the implementing agency will consult these groups at least twice: (a) shortly after the environmental screening and prior to finalizationof the terms of reference for the Environmental Inpact Assessment (EIA); and (b) once a draft EIA report is prepared. For the initial consultation, the implementing agency will provide a summary of the proposed project's objectives, description, and potential impacts. For both Category A and B projects, the implementing agency will provide these groups with a summary of the EIA report's conclusions. In addition, the implementing agency will make the draft reports publicly available to project-affected groups and local nongovernmental organizations. 7As defined in World Bank OperationalPolicy 4.01, Environmental Assessment. 65 Emergency Private Sector Development I Project Technical Annex Attachment 1 List of Negative Subproject Attributes Subprojects with any ofthe attributes listed below will be ineligible for support under the proposed emergency reconstruction operations. Attributes of Ineligible Subprojects GENERAL CHARACTERISTICS Concerning significant conversion or degradation of critical natural habitats. Including, but not limited to, any activity within: * Mesopotamian Marshlands; * Shatt El Arab Wetlands; * Wildlife Reserves; and * Parks and Sanctuaries. Damages cultural property, including but not limited to, any activities that affect the following sites: * Archaeological and historical sites; and * Religious monuments, structures and cemeteries. Requiring pesticides that fall in WHO classes IA, EB, or II. Affecting waters ofriparian neighbors. Drinking Water Supply New or expansed ofpiped water schemes to serve 10,000 or more households. Sanitation New wastewater treatment plants to serve 10,000 or more households. Solid Waste New disposal site or significant expansion of an existing disposal site. Roads New primary roads and highways. Irrigation New irrigation and drainage schemes. Dams Construction of dams more than 5 meters high. Rehabilitation of dams more than 15 meters high. Power New power generating capacity of more than 10 MW. 66 Emergency Private Sector Development I Project Technical Annex Attributesof Ineligible Subprojects Oil and Gas New exploration, production or distribution. Rehabilitation of production or distribution systems. Income Generating Activities Activities involving the use of fuel wood, including trees and bush. Activities involving the use of hazardous substances. 67 Emergency Private Sector Development I Project Technical Annex Attachment 2 Checklist of Likely Environmental and Social Impacts of Subprojects This Form is to be used by the Safeguard Focal Point (SFP) or Project Implementation Unit (PIU) in Screening Subproject Applications. Note: One copy of this form and accompanying documentation to be kept in the PIU office and one copy to be sent to the task team leader of the World Bank. Name of Subproject: Number of Subproject: Proposing Agency: Subproject Location: Subproject Objective: Infrastructure to be Rehabilitated: Estimated Cost: Proposed Date ofCommencement of Work: Technical Drawing/Specifications Reviewed (circle answer): Yes _ No _ I. Subproject Related Issues S No ISSUES No Small Medium Large A. Zoning and Land Use Planning _ 1. Will the subproject affect land use zoning and planning or conflict with prevalent land use patterns? 2. Will the subproject involve significant land disturbance or site clearance? 3. Will the subproject land be subject to potential encroachment by urban or industrial use or located in an area intended for urban or industrial development? 68 Emergency Private Sector Development I Project Technical Annex B. Utilities and Facilities = =_=_= 4. Will the subproject require the setting up of ancillary production facilities? 5. Will the subproject make significant demands on utilities and services? _ 6. Will the subproject require significant levels of accommodation or service amenities to support the workforce during construction (e.g., contractor will need more than 20 workers)? C Water and Soil Contamination 7. Will the subproject require large amounts of raw materials or construction materials? 8. Will the subproject generate. large amounts ofresidual wastes, construction material waste or cause soil erosion? 9. Will the subproject result in potential soil or water contamination (e.g., from oil, grease and fuel from equipment yards)? 10. Will the subproject lead to contamination of ground and surface waters by herbicides for vegetation control and chemicals (e.g., calcium chloride) for dust control? 11. Will the subproject lead to an increase in suspended sediments in streams affected by road cut erosion, decline in water quality and increased sedimentation downstream? 12. Will the subproject involve the use ofchemicals or solvents? 13. Will the subproject lead to the destruction of vegetation and soil in the right-of-way, borrow pits, waste dumps, and equipment yards? 14. Will the subproject lead to the creation ofstagnant water bodies in borrow pits, quarries, etc., encouraging for mosquito breeding and other disease vectors? D. Noise and Air Pollution Hazardous Substances 15. Will the subproject increase the levels of harmful air emissions? 16. Will the subproject increase ambient noise levels? 17. Will the subproject involve the storage, handling or transport of hazardous substances? E. Fauna and Flora 18. Will the subproject involve the disturbance or modification ofexisting drainage channels (rivers, canals) or surface water bodies (wetlands, marshes)? 19. Will the subproject lead to the destruction or damage of terrestrial or aquatic ecosystems or endangered species directly or by induced development? 20. Will the subproject lead to the disruption/destruction of wildlife through interruption of migratory routes, _ 69 Emergency Private Sector Development I Project Technical Annex disturbance of wildlife habitats, and noise-related problems? F. Destruction/Disruption of Land and Vegetation 21. Will the subproject lead to unplanned use of the infrastructure being developed? 22. Will the subproject lead to long-term or semi-permanent destruction of soils in cleared areas not suited for agriculture? 23. Will the subproject lead to the interruption of subsoil and overland drainage patterns (in areas of cuts and fills)? 24. Will the subproject lead to landslides, slumps, slips and other mass movements in road cuts? 25. Will the subproject lead to erosion of lands below the roadbed receiving concentrated outflow carried by covered or open drains? 26. Will the subproject lead to long-term or semi-permanent destruction of soils in cleared areas not suited for agriculture? 27. Will the subproject lead to health hazards and interference of plant growth adjacent to roads by dust raised and blown by vehicles?__ ______ G. CulturalProperty 28. Will the subproject have an impact on archaeological or historical sites, including historic urban areas? 29. Will the subproject have an impact on religious monuments, structures and/or cemeteries? 30. Have Chance Finds procedures been prepared for use in the subproject? H. Expropriation and Social Disturbance ___ _ 31. Will the subproject involve land expropriation or demolition of existing structures? 32. Will the subproject lead to induced settlements by workers and others causing social and economic disruption? 33. Will the subproject lead to environmental and social ____._ disturbance by construction camps? _ II. Site Related Issues DO S.No ISSUES YES NO NOT ~~~~~~~~~KNOW ____ 1. Is the subproject located in an area with designated natural reserves? 2. Is the subproject located in an area with unique natural features? 70 Emergency Private Sector Development I Project Technical Annex 3. Is the subproject located in an area with endangered or conservation-worthy ecosystems, fauna or flora? 4. Is the subproject located in an area falling within 500 meters of national forests, protected areas, wilderness areas, wetlands, biodiversity, critical habitats,or sites of historical or cultural importance? 5. Is the subproject located in an area which would create a barrier for the movement of conservation-worthy wildlife or livestock? 6. Is the subproject located close to groundwater sources, surface water bodies, water courses or wetlands? 7. Is the subproject located in an area with designated cultural properties such as archaeological, historical and/or religious sites? 8. Is the subproject in an area with religious monuments, structures and/or cemeteries? 9. Is the subproject in a polluted or contaminated area? 10. Is the subproject located in an area of high visual and landscape quality? 11. Is the subproject located in an area susceptible to landslides or erosion? 12. Is the subproject located in an area of seismic faults? 13. Is the subproject located in a densely populated area? 14. Is the subproject located on prime agricultural land? 15. Is the subproject located in an area of tourist importance? 16. Is the subproject located near a waste dump? 17. Does the subproject have access to potable water? 18. Is the subproject located far (1-2 kms) from accessible roads? 19. Is the subproject located in an area with a wastewater network? 20. Is the subproject located in the urban plan of the city? 21. Is the subproject located outside the land use plan? Signed by Environment Specialist: Name: Title: Date: Signed by Project Manager: Name: Title: Date: 71 Emergency Private Sector Development I Project Technical Annex Attachment 3 Guidelines for Land and Asset Acquisition, Entitlements and Compensation I. Objectives 1. Resettlement and land acquisition will be kept to a minimum, and will be carried out in accordance with these guidelines. Subproject proposals that would require demolishing houses or acquiring productive land should be carefully reviewed to minimize or avoid their impacts through alternative alignments. Proposals that require more than minor expansion along rights of way should be carefully reviewed. No land or asset acquisition may take place outside of these guidelines. A format for a Land Acquisition Assessment Data Sheet is attached as Attachment 3(i). 2. These guidelines provide principles and instructions to compensate negatively affected persons to ensure that they will be assisted to improve, or at leastto restore, their living standards, income earning or production capacity to pre-project levels regardless of their land tenure status. II. Categorization 3. Based on the number of persons that may be affected by the project, Project Affected People (PAPs) and the magnitude of impacts, projects will be categorized as follows: (a) Projects that will affect more than 200 PAPs due to land acquisition and/or physical relocation and where a full Resettlement Action Plan (RAP) must be produced. If the RAP cannot be prepared prior to project appraisal, a waiver can be provided by the World Bank Managing Director (MD) in consultation with the Resettlement Committee. In such cases, the TT should agree with the Borrower on a timetable for preparation of the RAP. (b) Projects that will affect less than 200 persons require the following documentation: (i) a land acquisition assessment, (ii) the minutes or record of consultations which assess the compensation claimed and agreement reached, and (iii) a record of the receipt of the compensation, or voluntary donation, by those affected (see below). (c) Projects that are not expected to have any land acquisition or any other significant adverse social impacts; on the contrary, significant positive social impact and improved livelihoods are expected from such interventions. III. Eligibility 4. PAPs are identified as persons whose livelihood is directly affected by the project due to acquisition ofthe land owned or used by them. PAPs deemed eligible forcompensation are: (a) those who have formal legal rights to land, water resources or structures/buildings, including recognized customary and traditional rights; 72 Emergency Private Sector Development I Project Technical Annex (b) those who do not have such formal legal rights but have a claim to usufruct rights rooted in customary law; and (c) those whose claim to land and water resources or building/structures do not fall within (a) and (b) above, are eligible to resettlement assistance to restore their livelihood. IV. Acquisition of Productive Assets and Compensation 5. PAPs are eligible for replacement costs for lost assets as described below: (a) Voluntary contributions. Individuals may elect to voluntarily contribute land or assets provided the persons making such contributions do so willingly and are informed that they have the right to refuse such contributions; and (b) Contributionsagainst compensation. A contributor/asset loser considered "affected" will be eligible for compensation and other necessary assistance. 6. Voluntary contribution should be clearly documented to confirm the voluntary nature of the transition. The documentation should specify that the land is free of any squatters, encroachers or other claims. A format is shown in Attachment 3(i), which includes a Schedule for assessing any compensation claimed and the agreement reached. V. Compensation Principles 7. The project implementation agencies will ensure timely provision of the following means of compensation to affected peoples: (a) Project affected peoples losing access to a portion of their land or other productive assets with the remaining assets being economically viable are entitled to compensation at a replacement cost for that portion of land or assets lost to them. Compensation for the lost assets will be made according to the following principles: (i) replacement land with an equally productive plot, cash or other equivalent productive assets; (ii) materials and assistance to fully replace solid structures that will be demolished; (iii) replacement of damaged or lost crops and trees, at market value; (iv) other acceptable in-kind compensation; (v) in case of cash compensation, the delivery of compensation should be made in public, i.e., at the Community Meeting; and (vi) in case of physical relocation, provision of civic infrastructure at the resettlement sites. (b) Project affected peoples losing access to a portion of their land or other economic assets rendering the remainder economically non-viable will have the options of compensation for the entire asset by provision of alternative land, cash or equivalent productive asset, according to the principles in (a) i-iv above. 73 Emergency Private Sector Development I Project Technical Annex VI. Consultation Process 8. The implementing agencies will ensure that all occupants of land and owners of assets located in a proposed subproject area are consulted. Community meetings will be held in each affected district and village to inform the local population of their rights to compensation and options available in accordance with these Guidelines. The Minutes of the community meetings shall reflect the discussions held, agreements reached, and include details of the agreement, based on the format provided in Attachment 3(ii). 9. The implementing agency shall provide a copy of the Minutes to affected people and confirm in discussions with each of them, their requests and preferences for compensation, agreements reached, and any eventual complaint. Copies will be recorded in the posted project documentation and be available for inspection during supervision. Subproject Approval 10. In the event that a subproject involves acquisition against compensation, the implementing agency shall: (a) not approve the subproject unless satisfactory compensation has been agreed between the affected person and the local community; and (b) not allow works to start until the compensation has been delivered in a satisfactory manner to the affected persons. Complaints and Grievances 11. Initially, all complaints should be negotiated to reach an agreement at the local community/village/district level. If this fails, complaints and grievances on these Guidelines, implementation of the agreements recorded in the Community Meeting Minutes or any alleged irregularity in carrying out the project can also be addressed by the affected peoples or their representative at the municipal or district level. If this also fails, the complaint may be submitted to the relevant implementing agency for consideration. Verification 12. The Community Meeting Minutes, including agreements of compensation and evidence of compensation made shall be provided to the Municipality/district, to the supervising engineers, who will maintain a record hereof, and to auditors and socio-economic monitors when they undertake reviews and post-project assessment. This process shall be specified in all relevant project documents, including details of the relevant authority for complaints at the municipal/district or implementing agency level. 74 Emergency Private Sector Development I Project Technical Annex Attachment 3(i) Land Acquisition Assessment Data Sheet (To be used to record information on all land to be acquired) 1. Quantities of land/structures/other assets required: 2. Date to be acquired: 3. Locations: 4. Owners: 5. Current uses: 6. Users: * Number of Customary Claimants: * Number of Squatters: * Number ofEncroachers: * Number of Owners: * Number ofTenants: * Others (specify): Number: 7. How land/structures/other assets will be acquired (identify one): * Donation * Purchase 8. Transfer of Title: * Ensure these lands/structures/other assets are free of claims or encumbrances. * Written proof must be obtained (notarized or witnessed statements) for the voluntary donation, or acceptance of the prices paid from those affected, together with proof of title being vested in the community, or guarantee ofpublic access, by the title-holder. 9. Describe grievance mechanisms available: 75 Emergency Private Sector Development I Project Technical Annex Attachment 3(ii) Format to Document Contributionof Assets The following agreement has been made on.day of. between......... resident of ..... (the Owner) and .(the Recipient). 1. That the Owner holds the transferable right of ......donum of land/structure/asset in. 2. That the Owner testifies that the land/structure is free of squatters or encroachers and not subject to other claims. 3. That the Owner hereby grants to the Recipient this asset for the construction and development of ......... for the benefit of the villagers and the public at large. (Either, in case ofdonation:) 4. That the Owner will not claim any compensation against the grant ofthis asset. (Or, in case ofcompensation:) 4. That the Owner will receive compensation against the grant ofthis asset as per the attached Schedule. 5. That the Recipient agrees to accept this grant of asset for the purposes mentioned. 6. That the Recipient shall construct and develop the........................ and take all possible precautions to avoid damage to adjacent land/structure/other assets. 7. That both the parties agree that the........................... so constructed/developed shall be public premises. 8. That the provisions of this agreement will come into force from the date of signing ofthis deed. Signature of the Recipient Signature ofthe Owner Witnesses: 1. 2. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (Signature, name and address) 76 Emergency Private Sector Development I Project Technical Annex Schedule of Compensation of Asset Requisition Summary of Units to be Compensated Agreed Compensation Affected Unit/Item a. Urban/agricultural land (m2): b. Houses/structures to be demolished (units/m ): 2 c. Type of structure to be demolished (e.g. mud, brick, cement block, etc.,) Not Applicable. d. Trees or crops affected: e. Water sources affected: Signatures of local community representatives, Sheikh/Head of Tribe: Include record of any complaintsraised by affected persons: Map attached (showing affected areas and replacement areas): 77 Emergency Private Sector Development I Project Technical Annex Attachment 4 Protection of Cultural Property 1. Cultural property include monuments, structures, works of art, or sites of significance points of view, and are defined as sites and structures having archaeological, historical, architectural, or religious significance, and natural sites with cultural values. This includes cemeteries, graveyards and graves. 2. The initial phase of the proposed emergency reconstruction operations pose limited risks of damaging cultural property since subprojects will largely consist of small investments in community infrastructure and income generating activities, reconstruction of existing structures, and minor public works. Further, the list of negative subproject attributes, which would make a subproject ineligible for support (Attachment 1), includes any activity that would adversely impact cultural property. Nevertheless, the following procedures for identification, protection from theft, and treatment of discovered artifacts should be followed and included in standard bidding documents as provided in Attachment 6. Chance Find Procedures 3. Chance find procedures will be used as follows: (a) Stop the construction activities in the area of the chance find; (b) Delineate the discovered site or area; (c) Secure the site to prevent any damage or loss of removable objects. In cases of removable antiquities or sensitive remains, a night guard shall be present until the responsible local authorities and the Ministry of Culture take over; (d) Notify the supervisory Engineer who in turn will notify the responsible local authorities and the Ministry ofCulture immediately (within 24 hours or less); (e) Responsible local authorities and the Ministry of Culture would be in charge of protecting and preserving the site before deciding on subsequent appropriate procedures. This would require a preliminary evaluation of the findings to be performed by the archeologists of the Ministry of Culture (within 72 hours). The significance and importance of the findings should be assessed according to the various criteria relevant to cultural heritage; those include the aesthetic, historic, scientific or research, social and economic values; (f) Decisions on how to handle the finding shall be taken by the responsible authorities and the Ministry of Culture. This could include changes in the layout (such as when finding an irremovable remain of cultural or archeological importance) conservation, preservation, restoration and salvage; (g) Implementation for the authority decision concerning the management of the finding shall be communicated in writing by the Ministry of Culture; and (h) Construction work could resume only after permission is given from the responsible local authorities and the Ministry of Culture concerning safeguard of the heritage. 4. These procedures must be referred to as standard provisions in construction contracts, when applicable, and as proposed in section 1.5 of Attachment 6. During project supervision, the Site Engineer shall monitor the above regulations relating to the treatment of any chance find encountered are observed. 78 Emergency Private Sector Development I Project Technical Annex 5. Relevant findings will be recorded in World Bank Project Supervision Reports (PSRs), and Implementation Completion Reports (ICRs) will assess the overall effectivenessof the project's cultural property mitigation, management, and activities, as appropriate. 79 Emergency Private Sector Development I Project Technical Annex Attachment 5 Codes of Practice for Prevention and Miftigation of Environmental Impacts Disease caused by poor water quality: contamination by seepage from . * Redesign to prevent contamination if adjacent comparable latrines. sources are found to be contarninated. creation of stagnant pools of . * Subsequent monitoring of installed or rehabilitated sources. water. * Appropriate location, apron and drainage around tubewells and dug wells to prevent formation of stagnant pools. * Provision of cover and hand-pump to prevent contarmination of dug wells. * Where pit latrines are used they should be located more than 10m from any water source. The base should be sealed and separated by at least 2m of sand or loamy soil from the groundwater table. * Where nightsoil latrines or septic tanks are built they should be sealed. Outflows should drain either to a soak away located at least 10m from any water source or be connected to a working drain. Social Risks: * Lack of clear division of rights/ * Ensure sufficient community participation and organization for responsibilities may result in effective planning and management of infrastructure. maintenanceproblems problems of .. . wiaintenanelsp of* Identify proper mechanism of rights and responsibilities over wells/pumps. well/pump/reservoir usage through participatory village focus * Access to water may be captured groups. by interest groups. * Ensure that local accessible materials are used when * Use of foreign equipment/ developing/rehabilitating wells in order to provide materials may hinder maintenance. maintenance of pumps/wells. 80 Emergency Private Sector Development I Project Technical Annex Contamination of water supplies: contamination of groundwater . * Where pit latrines are used they should be located bcntanusetlon more than sepgroundwa of 1Om from any water source. The base should be sealed and because of seepage. separated vertically by not less than 2m of sand or loamy soil * contamination of surface waters from the groundwater table. due to flooding or over-flowing. * Where nightsoil latrines or septic tanks are built they should be sealed. Outflows should drain either to a soak away located at least 10m from any water source or be connected to a working drain. * Maintenance training to be delivered along with new latrines. Disease caused by poor handling * Training and health education to be provided to nightsoil practices of nightsoil. handlers where affected by interventions. * Protective clothing and appropriate containers for nightsoil transportation to be provided. Disease caused by inadequate * Nightsoil should be handled using protective clothing to excreta disposal or inappropriate prevent any contamination of workers skin or clothes. use of latrines.useof latrines. * Where nightsoil is collected for agricultural use it should be stored for a sufficient period todestroy pathogens through composting. At the minimum it should be stored in direct sunlight and turned regularly for a period of at least 6 weeks. * Septic tanks should not be constructed nor septic waste collected unless primary and secondary treatment and safe disposal is available. * Health and hygiene education to be provided for all users of latrines. * Awareness campaign to maintain sanitary conditions. 81 Emergency Private Sector Development I Project Technical Annex Disease caused by inadequate collection and disposal, including health risks from: * insects, rats. * Sufficient frequency of collection from transfer stations. * burning of waste. * Containment of waste during collection and transfer. * Promote separation at source to reduce spreading by rag-pickers during recycling. * Minimize burning. * Provide daily soil coverin. Environmental Impacts: Disease caused by inadequate * Ensure designs include adequate sanitary latrines and access to provision of water and sanitation. safe water. * Improper disposal of wastes. * Ensure inclusion of adequate sanitation facilities and * Sanitation problems. maintenance. * Some construction related * Ensure planning, design and maintenance of infrastructure is problems but usually minor in appropriate to local needs, traditions, culture and desires. nature. * Proper disposal of all solid wastes, containers, infectious * Spread of disease from incoming wastes. laborers. * Public health awareness. * Damage to historical buildings. .. .... . . * Pnority given to rehabilitation oftoilets in rehabilitation of * Injury and death from schools. earthquakes * Ensure actions involving historical buildings are reviewed/designed by qualified specialists. * Apply low cost seismic structural design 82 Emergency Private Sector Development I Project Technical Annex Social Impacts: * The vulnerable groups (women, * Health checks (especially in regards to HIV/AIDS) for poor children, migrants, incoming laborers. pastoralists and the poor) may not benefit from infrastructure construction and rehabilitation. * Schools/health posts may * Before the start of eachinfrastructure project, develop become abandoned due to the comprehensive organizational and maintenance plan, lack of commitment. commitment from local government and public to maintain school supplies, medical * Building infrastructure supplies, etc. system alone without needs assessment may not benefit the community. * Infrastructure investments may be misappropriated by governments. 83 Emergency Private Sector Development I Project Technical Annex Attachment 6 Safeguards Procedures for Inclusion in the Technical Specifications of Contracts I. General 1. The Contractor and his employees shall adhere to the mitigation measures set down and take all other measures required by the Engineer to prevent harm, and to minimize the impact of his operations on the environment. 2. The Contractor shall not be permitted to unnecessarily strip clear the right of way. The Contractor shall only clear the minimum width for construction and diversion roads should not be constructed alongside the existing road. 3. Remedial actions which cannot be effectively carried out during construction should be carried out on completion of each Section of the road (earthworks, pavement and drainage) and before issuance of the Taking Over Certificate: (a) these sections should be landscaped and any necessary remedial works should be undertaken without delay, including grassing and reforestation; (b) water courses should be cleared of debris and drains and culverts checked for clear flow paths; and (c) borrow pits should be dressed as fish ponds, or drained and made safe, as agreed with the land owner. 4. The Contractor shall limit construction works to between 6 am and 7 pm ifit is to be carried out in or near residential areas. 5. The Contractor shall avoid the use of heavy or noisy equipment in specified areas at night, or in sensitive areas such as near a hospital. 6. To prevent dust pollution during dry periods, the Contractor shall carry out regular watering of earth and gravel haul roads and shall cover material haulage trucks with tarpaulins to prevent spillage. II. Transport 7. The Contractor shall use selected routes to the project site, as agreed with the Engineer, and appropriately sized vehicles suitable to the class of road, and shall restrict loads to prevent damage to roads and bridges used for transportation purposes. The Contractor shall be held responsible for any damage caused to the roads and bridges due to the transportation of excessive loads, and shall be required to repair such damage to the approval of the Engineer. 84 Emergency Private Sector Development I Project Technical Annex 8. The Contractor shall not use any vehicles, either on or off road with grossly excessive, exhaust or noise emissions. In any built up areas, noise mufflers shall be installed and maintained in good condition on all motorized equipment under the control of the Contractor. 9. Adequate traffic control measures shall be maintained by the Contractor throughout the duration of the Contract and such measures shall be subject to prior approval ofthe Engineer. III. Workforce 10. The Contractor should whenever possible locally recruit the majority of the workforce and shall provide appropriatetraining as necessary. 11. The Contractor shall installand maintain a temporary septic tank system for any residential labor camp and without causing pollution of nearby watercourses. 12. The Contractor shall establish a method and system for storing and disposing of all solid wastes generated by the labor camp and/or base camp. 13. The Contractor shall not allow the use of fuel wood for cooking or heating in any labor camp or base camp and provide altemate facilities using other fuels. 14. The Contractor shall ensure that site offices, depots, asphalt plants and workshops are located in appropriate areas as approved by the Engineer and not within 500 meters of existing residential settlementsand not within 1,000 meters for asphalt plants. 15. The Contractor shall ensure that site offices, depots and particularly storage areas for diesel fuel and bitumen and asphalt plants are not located within 500 meters of watercourses, and are operated so that no pollutants enter watercourses, either overland or through groundwater seepage, especially during periods of rain. This will require lubricants to be recycled and a ditch to be constructed around the area with an approved settling pond/oil trap at the outlet. 16. The contractor shall not use fuel wood as a means of heating during the processing or preparation of any materials forming part of the Works. IV. Quarries and Borrow Pits 17. Operation of a new borrows area, on land, in a river, or in an existing area, shall be subject to prior approval of the Engineer, and the operation shall cease if so instructed by the Engineer. Borrow pits shall be prohibited where they might interfere with the natural or designed drainage patterns. River locations shall be prohibited if they might undermine or damage the river banks, or carry too much fine material downstream. 18. The Contractor shall ensure that all borrow pits used are left in a trim and tidy condition with stable side slopes, and are drained ensuring that no stagnant water bodies are created which could breed mosquitoes. 19. Rock or gravel taken from a river shall be far enough removed to limit the depth of material removed to one-tenth of the width of the river at any one location, and not to disrupt the river flow, or damage or undermine the river banks. 85 Emergency Private Sector Development I Project Technical Annex 20. The location of crushing plants shall be subject to the approval of the Engineer, and not be close to environmentally sensitive areas or to existing residential settlements, and shall be operated with approved fitted dust control devices. V. Earthworks 21. Earthworks shall be properly controlled, especially during the rainy season. 22. The Contractor shall maintain stable cut and fill slopes at all times and cause the least possible disturbance to areas outside the prescribed limits of thework. 23. The Contractor shall complete cut and fill operations to final cross-sections at any one location as soon as possible and preferably in one continuous operation to avoid partially completed earthworks, especially during the rainy season. 24. In order to protect any cut or fill slopes from erosion, inaccordance with the drawings, cut off drains and toe-drains shall be provided at the top and bottom of slopes and be planted with grass or other plant cover. Cut off drains should be provided above high cuts to minimize water runoff and slope erosion. 25. Any excavated cut or unsuitable material shall be disposed of in designated tipping areas as agreed to by the Engineer. 26. Tips should not be located where they can cause future slides, interfere with agricultural land or any other properties, or cause soil from the dump to be washed into any watercourse. Drains may need to be dug within and around the tips, as directed by the Engineer. VI. Historical and Archeological Sites 27. If the Contractor discovers archeological sites, historical sites, remains and objects, including graveyards and/or individual graves during excavation or construction, the Contractor shall: (a) Stop the construction activities in the area ofthe chance find. (b) Delineate the discovered site or area. (c) Secure the site to prevent any damage or loss of removable objects. In cases of removable antiquities or sensitive remains, a night guard shall be present until the responsible local authorities and the Ministry of Culture take over. (d) Notify the supervisory Engineer who in turn will notify the responsible local authorities and the Ministry of Culture immediately (less than 24 hours). (e) Contact the responsible local authorities and the Ministry of Culture who would be in charge of protecting and preserving the site before deciding on the proper procedures to be carried out. This would require a preliminary evaluation of the findings to be performed by the archeologists of the Ministry of Culture (within 72 hours). The significance and importance of the findings should be assessed according to the various criteria relevant to cultural heritage, including the aesthetic, historic, scientific or research, social and economic values. 86 Emergency Private Sector Development I Project Technical Annex (f) Ensure that decisions on how to handle the finding be taken by the responsible authorities and the Ministry of Culture. This could include changes in the layout (such as when the finding is an irremovable remain of cultural or archeological importance) conservation, preservation, restoration and salvage. (g) Implementation for the authority decision concerning the management of the finding shall be communicated in writing by the Ministry of Culture; and (h) Construction work will resume only after authorization is given by the responsible local authorities and the Ministry of Culture concerning the safeguard of the heritage. VII. Disposal of Construction and Vehicle Waste 28. Debris generated due to the dismantling of the existing structures shall be suitably reused, to the extent feasible, in the proposed construction (e.g. as fill materials for embankments). The disposal of remaining debris shall be carried out only at sites identified and approved by the project engineer. The contractor should ensure that these sites (a) are not located within designated forest areas; (b) do not impact natural drainage courses; and (c) do not impact endangered/rare flora. Under no circumstances shall the contractor dispose of any material in environmentally sensitive areas. 29. In the event any debris or silt from the sites is deposited on adjacent land, the Contractor shall immediately remove such, debris or silt and restore the affected area to its original state to the satisfaction of the Supervisor/Engineer. 30. Bentonite slurry or similar debris generated from pile driving or other construction activities shall be disposed of to avoid overflow into the surface water bodies or form mud puddles in the area. 31. All arrangements for transportation during construction including provision, maintenance, dismantling and clearing debris, where necessary, will be considered incidental to the work and should be planned and implemented by the contractor as approved and directed by the Engineer. 32. Vehicle/machinery and equipment operations, maintenance and refueling shall be carried out to avoid spillage of fuels and lubricants and ground contamnination. An "oil interceptor" will be provided for wash down and refueling areas. Fuel storage shall be located in proper bonded areas. 33. All spills and collected petroleum products shall be disposed of in accordance with standard environmental procedures/guidelines. Fuel storage and refilling areas shall be located at least 300m from all cross drainage structures and important water bodies or as directed by the Engineer. 87 Emergency Private Sector Development I Project Technical Annex Annex 9: Telecommunications Sector Policy Development in Iraq I. Basic Principles of the Telecommunications Sector Policy in Iraq 1 General policy objectives The main goal of in the sector is to extend affordable, reliable access to telecommunications and Intemet services for Iraqi people from all sectors of society. 2 Market structure The telecommunications and Intemet services will develop towards competitive provision of services by multiple operators. Laws, licenses and regulation will be designed to further competitive provision on a level playing field. The sector will operate under the policy guidance of the Ministry of Communications and the oversight of an independent regulator. 3 Role of the sector Ministry The Ministry of Communications will develop the general sector policy in consultation with the regulator, businesses, the public, and telecommunications operators. After government acceptance of the initial policy, the Ministry will draft requisite telecommunications, Intemet and postal laws. The policy will largely be implemented by the regulator, under the law, in some cases in conjunction with the Ministry (including areas such as licensing and access programs). The exact role of the Ministry in licensing is an issue for discussion. 4 Role of sector regulator A regulator will be created that will act as the primary instrument for implementing telecommunications law, according to the Ministry's policy. In this regard, the regulator's function will be to foster competitive provision, and to prevent market failure. 5 Transition for ITPC and InternetServices Company The Iraqi Telecommunications and Post Company (ITPC) and Internet Services Company will be transformed into independent and separate corporate entities in the telecommunications and postal fields, to allow a level playing field among all sector participants, management decision-making autonomy and flexibility. It's the government intent to end its role in the provision of services and to leave it to the private sector. 6 Universal access The goal of universal access in Iraq will be to ensure equitable access to telecommunications and postal infrastructure, regardless of income, gender, ethnic group or 88 Emergency Private Sector Development I Project Technical Annex disability. The appropriate mechanisms will be developed and implemented for meeting universal access goals. 7 Human resources The Ministry will play an important role, in coordination with other parts of government, in developing programs for training and education in the area of human resources for development and use of telecommunications and Internet services. II. Actions taken so far 1 Role of the Sector Ministry and the regulator The regulatory environment in the telecommunications sector in Iraq is still evolving.The Govemment plans to build competent and transparent regulatory capacity in the sector in consultation with key stakeholders. 2 Market structureand private sector participation o Five fully private mobile operators (three of them with own international access) have been licensed and interconnected with ITPC, o ITPC was not granted a mobile license and its exclusivity over the international services and data services was ended, o VSAT services market (with international access) has been liberalized, o Tender for fixed wireless licensing is under preparation, o Internet services market is liberalized, and o ITPC has started its restructuring efforts with emphasis on staff development. 3 ITPC restructuringand human resources ITPC has launched several efforts to improve its operational and financial performance. Areas covered include: o Structural re-organization, o Process rationalization, o Analysis of options to focus business on areas of potential comparative advantage (e.g. whole sale transmission capacity, corporate data communications), o Investment program with focus on priority areas, o Staff development, and o A new compensation scheme. 89 Emergency Private Sector Development I Project Technical Annex Annex 10: Performance Monitoring Indicators Mid-term Final Jan. 2007 Jan-08 Performance Indicator (Cumulative) Target Actual Target Actual Development of Instiutional Framework 1. Industrial Zones development master 2 plans 2. Public Awareness campaign to promote 1 investment 3. Endorsement bythe government of 3 business plans developed for public institutions to support PSD. Private Sector Opportunities 4. Number of private sector export ready 35 100 firms assisted to develop viable export plans. 5. Number of private sector firms assisted 20 50 to develop feasibility plans to seek financing. ITPC 1. High Capacity connectivity in Northeastern microwave route 5 6 2. High Capacity connectivity in Tigris microwave route 4 4 3. High Capacity connectivity in Western microwave route - 2 4. Training of x staff for technical, legal, management, procurement and financial management affairs 25 25 5. Availability of interconnection and 2 megabits per sec-leased lines (Els) 800 1200 6. Roll-out of digital microwave route (km) 850 2050 7. Number of corporate users and service providers . 10 - 90 Emergency Private Sector Development I Project Technical Annex Annex 11: Project Team Names of Bank Staffand Consultants Who Worked On This Project Names Function Mohammad Mustafa Task Team Leader John Speakman Lead Private Sector Development Specialist Majed El-Bayya Senior Procurement Specialist David Webber Lead Finance Officer, Fiduciary Assurance Hiroko Imamura Senior Counsel Kanta Kumari Senior Environmental Specialist Dana Atallah Private Sector Development Specialist Ayman Abou Haija Senior Financial Management Specialist Ali Awais Legal Counsel Nazaneen Ali Procurement Consultant Mona El-Chami Financial Management Specialist Karim Jacques Sehnaoui Junior Professional Associate Steve Wan Senior Program Assistant A.Shanmugarajah Telecom Consultant Dar Al-Handassah Consulting Firm Peer Reviewers Names Function Rajesh Pradhan Lead Operations Officer (CITPO) Syed Mahmood Senior PSD Specialist (SASFP) Ad-Hoc Advisory Committee Names Function Joseph Saba Country Director Kathryn Funk Sr. Country Officer Tufan Kolan Iraq Trust Fund Manager Faris Hadad-Zervos Sr. Operations Officer David Webber Lead Finance Officer, Fiduciary Assurance Alfred Nickesen Manager, OPCS Representative Nadjib Sefta Regional Procurement Advisor Sherif Arif Regional Environmental and Safeguards Advisor Samia Msadek Regional Financial Management Manager Aloysius Ordu Regional Quality Advisor Hadi Abushakra Chief Counsel 91 I I I. l- .1-- - ---------'. -