Document of The World Bank Report No: 37359 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA Grant No: H055-AF; DFID Grant No: 52330) ON A GRANT OF SDR6.1 MILLION (US$8.4 MILLION EQUIVALENT) TO GOVERNMENT OF ISLAMIC REPUBLIC OF AFGHANISTAN SECOND EMERGENCY PUBLIC ADMINISTRATION PROJECT October 8, 2009 SASPR South Asia Region CURRENCY EQUIVALENT Effective as of September 2008 Currency Unit = Afghani US$1 = AFN ----- GOVERNMENT FISCAL YEAR March 21--March 20 (SY1382) Afghanistan uses a Solar Year (SY) calendar which traditionally begins on or about March 21. ABBREVIATIONS AND ACRONYMS AACA Afghanistan Assistance Coordination Authority ADB Asian Development Bank ARDS Afghanistan Reconstruction Development Services CAO Control and Audit Office IARCSC Independent Administrative Reform and Civil Service Commission ARTF Afghanistan Reconstruction Trust Fund CSC Civil Service Commission DfID Department for International Development (U.K.) EOI Expression of Interest EPAP Emergency Public Administration Project GIRA Government of Islamic Republic of Afghanistan IDA International Development Association IFC International Finance Corporation IFI International Financial Institution IMF International Monetary Fund MOF Ministry of Finance NGO Non-Governmental Organization PAR Public Administration Reform PAREM Public Administration Reform and Economic Management PRR Priority Reform and Restructuring SEPAP Second Emergency Public Administration Project TISA Transitional Islamic State of Afghanistan TSS Transitional Support Strategy UN United Nations UNDP United Nations Development Program Vice President: Isabel Guerrero Country Director: Nicholas Krafft Sector Manager: Joel Hellman Project Team Leader: Paul Sisk ICR Team Leader: Anne Tully ICR Primary Author: Anne Tully, Donna Thompson GOVERNMENT OF ISLAMIC REPUBLIC OF AFGHANISTAN SECOND EMERGENCY PUBLIC ADMINISTRATION PROJECT CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design 1 2. Key Factors Affecting Implementation and Outcomes 4 3. Assessment of Outcomes 7 4. Assessment of Risk to Development Outcome 11 5. Assessment of Bank and Borrower Performance 11 6. Lessons Learned 15 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 16 Annex 1. Project Costs and Financing 17 Annex 2. Outputs by Component 18 Annex 3. Economic and Financial Analysis 22 Annex 4. Bank Lending and Implementation Support/Supervision Processes 23 Annex 5. Beneficiary Survey Result 25 Annex 6. Stakeholder Workshop Report and Results 26 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 27 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 28 Annex 9. List of Supporting Documents 29 A. Basic Information Emergency Public Country: Afghanistan Project Name: Administration Project II Project ID: P082610 L/C/TF Number(s): IDA-H0550,TF-52330 ICR Date: 10/09/2009 ICR Type: Core ICR TRANSITIONAL Lending Instrument: TAL Borrower: ISLAMIC STATE OF AFGHANISTA Original Total XDR 6.1M Disbursed Amount: XDR 6.1M Commitment: Revised Amount: XDR 6.1M Environmental Category: C Implementing Agencies: Ministry of Finance IARCSC Afghanistan Reconstruction Development Services Cofinanciers and Other External Partners: UK-funded DFID B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 05/14/2003 Effectiveness: 07/15/2003 Appraisal: 05/23/2003 Restructuring(s): Approval: 06/24/2003 Mid-term Review: Closing: 03/31/2006 09/30/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: i Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No Satisfactory time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General public administration sector 100 100 Theme Code (as % of total Bank financing) Administrative and civil service reform 33 33 Macroeconomic management 33 33 Other public sector governance 34 34 E. Bank Staff Positions At ICR At Approval Vice President: Isabel M. Guerrero Mieko Nishimizu Country Director: Nicholas J. Krafft Alastair J. McKechnie Sector Manager: Joel Hellman Kapil Kapoor Project Team Leader: Anne Tully Linda Van Gelder ICR Team Leader: Anne Tully ICR Primary Author: Anne Tully F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Assist authorities enhance the accountability and transparency in the management of public resources and implement its National Development Budget. Specifically, continuation of the first EPAP--putting in place, on an emergency basis, capacity in key public administration areas to facilitate better use of public resources including donor ii funds for urgent reconstruction and development efforts. Also lay foundation for more broad-based civil service reform to efficiently deliver basic services to the population Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Action plan for procurement strengthening agreed and under implementation. Indicator 1 : Procurement capacity not a constraint to reconstruction Action plan in program. Program place, Procurement in place for Value law approved by No plan for building medium term quantitative or Cabinet. Complex procurement capacity enhancement of Qualitative) contracts routinely procurement being processed environment, professionally. including continued temporary arrangements. Date achieved 09/30/2002 04/18/2006 04/18/2006 Comments (incl. % see below achievement) Indicator 2 : Budgetary expenditures of the Recipient are accurately recorded and reported. Accurately Central government recorded using AFMIS expenditures and system to process A system for strong internal and report on the computerized check Value controls. Regularly majority of issuance on line in Kabul, quantitative or and timely expendiures. Pilots and budget exectution Qualitative) reporting. Program underway in two controlled against in place for ministries. System allotments. medium term to expand enhancement of functionality and financial geographic reach iii management are environment planned/underway including in PACBP temporoary arrangements. Date achieved 09/30/2002 04/18/2006 04/18/2006 Signficant progress has been made in both procurement and expenditure Comments reporting under the EPAPI and II projects. This work is continuing under the (incl. % PACBP and PFMR projects. Additional progress needs to be made in training achievement) and retaining counterpart staff; Indicator 3 : IARCSC established and work program in place and under implementation. IARCSC established and functioning under Civil SErvice Law. CS Regulations in IARCSC place in key areas, No focal point for undertakes its role Recruitment of administatrative reform, in appointmesnt Value senior patronage pervasive in and appeals, civil quantitative or appointments made appointments, little service Qualitative) on merit basis formality in civil service managemnt and under PRR for management. managemnt of the grades 1 and 2, PAR program. Guidance to ministries on HR management and administrative reforms. Date achieved 03/27/2003 06/20/2006 09/30/2008 Comments (incl. % achievement) Indicator 4 : Administrative reforms underway in key ministries PRR being implemented - over 40000 positions approved at PRR Ministries with Stage 2 in 32 out of Value overlapping mandates, Restructuring 44 ministries and quantitative or poorly qualified staff on completed in at agencies. Pilot Qualitative) low salaries, functions least 15 ministries. restructuring of outdated. three provincial governors offices and one district governor office. Date achieved 03/27/2003 06/20/2006 09/30/2008 Comments Considerable progress made in laying foundations for formal, merit based civil (incl. % service, in very difficult circumstances. Legal framework in place and achievement) mechanisms available for ministries to undertake some form of restructuring. iv (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Procurement Agent in place $945 million in contract value and Goods, service and Value 351 contracts No procurement to Bank works delivered in (quantitative completed or procedures accordance with or Qualitative) underway in line procurement plan. with Bank guidelines Date achieved 09/30/2002 04/18/2006 04/18/2006 Comments Program in place and fully functioning for medium term enhancement of overall (incl. % procurement environment. achievement) Indicator 2 : FM Agent in place Accurately recorded expenditures and Computerized improved internal Limited automated system for basic controls. Regular Value processing of initial expenditure financial reporting (quantitative government expenditures management and successful or Qualitative) and limited internal routinely audits. Compliance controls. processing with ARTF transactions. fidicuary standards in payroll and O&M at more than 85% Date achieved 09/30/2002 04/18/2006 08/18/2006 Comments Program in place and fully functioning for medium term enhancement of overall (incl. % financial management environment. achievement) Indicator 3 : IARCSC established, staffed, work program under implementation. IARCSC fulfilling IARCSC structure its remit efficiently and functions and effectively. confirmed under Key staff in post Civil Service Law. Value No central oversight of and senior staff Operating under (quantitative civil service structure or recruitment oversight of or Qualitative) performance. procedures Ministerial developed. Work Advisory program for Committee. Units IARCSC units staffed and work developed and program approved v agreed and as part of PAR and IARCSC staff Economic carrying out their management duties effectively. budget. Date achieved 03/27/2003 06/20/2006 09/30/2008 Comments IARCSC established and functioning though some inherent tensions in its (incl. % mandate that limit independence of particularly its appointment and appeals achievement) functions. G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/08/2004 Satisfactory Highly Satisfactory 0.82 2 10/13/2004 Satisfactory Highly Satisfactory 2.06 3 04/09/2005 Satisfactory Highly Satisfactory 4.49 4 10/31/2005 Satisfactory Highly Satisfactory 7.24 5 04/18/2006 Satisfactory Satisfactory 7.24 H. Restructuring (if any) Not Applicable I. Disbursement Profile vi 1. Project Context, Development Objectives and Design (this section is descriptive, taken from other documents, e.g., PAD/ISR, not evaluative): 1.1 Context at Appraisal (brief summary of country and sector background, rationale for Bank assistance): After the installation of the new Afghanistan Interim Administration in late 2001, Afghanistan received generous pledges of donor support for its massive reconstruction and development program. At the same time, donors expressed concern about the capacity of the authorities to effectively and transparently utilize this assistance. The new Afghan administration had no track record of transparent and efficient implementation of public and donor resources, and its civil service capacity had been severely depleted. This limited the scope for successful implementation of a large recovery program. Consequently the Bank and the Administration rapidly prepared a program of support to put in place emergency capacity to facilitate better use of public resources, including donor funds for urgent reconstruction and development needs. The foundation for this program was laid down in the First Emergency Public Administration Project (EPAP 1), approved in April 2002 for $10 million. Specifically, EPAP I financed international firms to work with government officials to carry out procurement, financial management, and audit functions to international standards. The project focused on a narrow set of priority issues, building on lessons from other post-conflict countries where procurement and fiduciary weaknesses delayed reconstruction programs and put in jeopardy the continued high-level of donor support that was needed. The three main contractors under the project were mobilized during the summer/autumn of 2002. In preparing EPAP I, it was recognized that financial support notionally allocated for the procurement and financial management agents may have been significantly under scoped. During negotiations it was agreed that, should this be the case, supplemental financing would be sought. If this financing shortfall materialized, the Second Emergency Public Administration Project (EPAP II) would provide supplemental financing necessary to complete the originally envisaged work programs in these areas. In addition, the Afghan authorities during 2002 and early 2003 had begun to focus on a broader public administration and civil service reform agenda. In SY1382 there were an estimated 250,000 public sector employees and the civil service was characterized by: pervasive patronage; inappropriate pay arrangements with widespread and counter-productive salary top-ups; a chronic lack of professional capacity; probable over-hiring; fragmented and duplicated government structures; poor policy analysis; and, weak implementation. In May 2002, a focal point on the government side for leadership in administrative reform was assigned to the Independent Administrative Reform and Civil Service Commission (IARCSC). Rationale for Bank Assistance. A key objective of the World Bank's Second Transitional Support Strategy (TSS) to Afghanistan (Report No: 25440 AF, February 2003) was to support the development of a well-functioning state that was accountable to its citizenry and able to ensure delivery of services in an equitable, efficient, and effective manner. Preparation of the Second Emergency Public Administration Project supported this key objective and was encompassed within one of the four TSS focus areas: governance and public administration. Within the governance and public administration reform focus of the TSS, the Bank's strategy was to identify pragmatic opportunities for action in the short term and initiate a set of immediate reforms which would be supportive of longer-term improvements. This approach entailed: (i) ensuring that emergency capacity was in place especially in key fiduciary areas while launching medium-term capacity building efforts; (ii) undertaking extensive diagnostic work to identify and address key constraints coupled with direct, hands-on TA and policy advice; (iii) identifying short-term goals that were fully-owned by government and agreed with major donors; and (iv) providing gap financing when needed. In addition to continuing support for the core procurement and financial management areas of EPAP I, the Administration and the Bank agreed that it was important to begin addressing other core aspects of public administration reform, and in particular the nature of the civil service, in order to begin rebuilding the basic capacity of the state in line with the objectives of the TSS. 1.2 Original Project Development Objectives (PDO) and Key Indicators [as approved]: The objective of the project was to assist the government to enhance accountability and transparency in the management of public resources and implement its National Development Budget. Specifically, this included continued emphasis on the development objective of EPAP I, putting in place emergency capacity in key public administration areas to facilitate better use of public resources, including donor funds, for urgent reconstruction and development efforts. A further emphasis of EPAP II was to lay the foundation for more broad-based civil service reform directed at increasing the efficiency with which basic services were delivered to the population. Key Indicators included: The delivery of goods, service and works in line with the agreed procurement plan in a transparent manner; Accurate accounting and timely reporting on budget execution, including detailed reports submitted to donors (to the extent that their resources flow through the budget); The Administrative Reform and Civil Service Commission (IARCSC) gaining capacity to carry out its core functions. 1.3 Revised PDO (as approved by original approving authority), and reasons/justification: The objective was not revised. 1.4 Main Beneficiaries, original and revised (briefly describe the "the primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project): The beneficiaries of the project included: The Afghan public would benefit from increased accountability and transparent utilization of public resources. The Government of Afghanistan would gain value-for-money through improved performance in financial management and procurement in the central government, ministries, and provinces. Donors would benefit from enhanced transparency and accountability in the utilization and reporting of donor resources in government. 1.5 Original Components (as approved): 2 Component 1: Supplemental Support for EPAP Contracts (US$ 4.3 million) This component provided the supplemental financing necessary to complete the originally envisioned work programs for the procurement and financial management agents in EPAP I as shown in the following table: EPAP Consultant Services Original Revised Expected Supplemental (US$ million) EPAPI EPAPI Actual EPAP-II Allocation Allocation financing Procurement Agent 3.0 3.0 5.6 2.6 Financial Management 3.0 3.0 4.7 1.7 Agent Audit Agent 1.5 2.3 2.3 0.0 Other activities 1.5 0.7 0.7 0.0 TOTAL 9.0 9.0 13.3 4.3 Component 2: Civil Service and Administrative Reform (US$ 5.1 million of which US$2.6 million from IDA) Through DFID, the United Kingdom co-financed this component which provided financing for key parts of the Government's Public Administration Reform (PAR) development budget. There were three sub- components: Capacity building in the IARCSC ($1.7 million). Technical assistance to assist the IARCSC build capacity in three critical areas: (i) appointments and appeals; (ii) civil service management; and (iii) management of the public administrative reform program. In addition, the IARCSC needed to provide support to line ministries for costing proposals for priority reform and restructuring (PRR) 1status. Support to Public Administration Reform ($3.2 million). Technical assistance to: (i) assist ministries that had approved restructuring plans under the PRR decree to implement those plans and (ii) provide gap financing for critical activities within the PAREM development budget that would not be funded by other donors. Support for Independent Evaluation ($0.2 million). Support to the IARCSC for a six-monthly review of activities under the first two sub-components which aimed at assessing progress and making recommendations to enhance the effectiveness of the work planning and programming. Component 3: Studies and Institutional Strengthening (US$1.5 million) 1 The Priority Reform and Restructuring (PRR) program enabled ministries to propose key positions for interim additional allowances in government in return for undertaking restructuring of relevant units encompassing merit based recruitment of new positions. 3 This sub-component provided the Government of Afghanistan with flexibility to commission studies for quick impact or resolution of key policy issues. This component was designed to provide funding of the last resort if other donor funds could not be mobilized for a priority activity. 1.6 Revised Components: The components were not revised. 1.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations): There were no major changes in the project's design, scope, scale, or funding allocation because the project's intent was primarily to supplement funding to the on-going EPAP I program, with new activity in the area of civil service reform. A change did take place with regard to the implementation of the procurement component. The Afghanistan Assistance Coordination Authority (AACA) was disbanded in 2003 and its functions were reallocated to different ministries. The procurement function was eventually transferred to the Afghanistan Reconstruction and Development Services (ARDS) under the supervision of the Ministers of Reconstruction and Planning and currently the Ministry of Economy. Project Schedule. The closing date of the project was extended three times. These extensions were required, primarily to accommodate unanticipated difficulties under Part B of the project in recruiting and contracting suitability qualified firms to work in the area of civil service reform in Afghanistan. In addition, the strength of the British Pound enabled the Government to maximize the use of the DFID trust funds for a extending the project activities beyond the range initially anticipated at appraisal. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design Stage, and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigation identified, and adequacy of participatory processes, as applicable): 2.2 Preparation of EPAP II benefited from the lessons learned in the early stages of the EPAP I project in Afghanistan. The project design also benefited from enhanced information on the overall costs of technical assistance packages in Afghanistan. Extensive analytical and technical work on civil service structure and practices was conducted in advance of preparation of the civil service component of EPAP II. The Bank supported the Government with a wide range of policy notes on payroll management, streamlining policy on pay and pensions, administrative structures and nominal rolls. Extensive analytical work on the administrative and fiscal relationships between the center, provinces and districts also informed the project design. In addition, the Bank assisted the Government with design of the Priority Reform and Restructuring (PRR) process that allowed for a pragmatic approach to selective pay increases in return for reform and restructuring in selected departments. The project enjoyed strong commitment from the Ministry of Finance and the IARCSC. The Ministerial Advisory Committee (comprising Ministers from a range of ministries) set up to oversee the civil service work also ensured widespread engagement by a variety of ministers in program design and implementation. There were extensive consultations with the UK government, EC, US government, IMF, and other donors during preparation. DFID was extensively engaged in the design of the civil service component and 4 funded some technical support to bridge to support provided under the project. Overall, donor coordination was satisfactory. The Bank was regarded as the lead donor in the area of Public Administration Reform (PAR), along with the EC, and provided extensive support to the IARCSC and Ministry of Finance in analytical and operational issues. 2.3 Implementation Stage (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable): The project was not restructured and there were no major changes to the design. The Bank conducted a Midterm Review (MTR) during April-June 2004 for the Financial Management and Procurement Components and in April 2006 for the Civil Service Component. The midterm review for the Financial Management and Procurement components concluded that the project had made significant progress in achieving objectives particularly in the context of Afghanistan's extremely limited capacity and engagement with the international community. Because of the emergency nature of the assistance, broader institutional development and capacity building activities had not proceeded as quickly as expected. In some areas the lack of a medium term framework for systems development, regulatory reform and capacity building inhibited further progress being made, particularly in expanding the activities to line ministries and provinces. The midterm review concluded that continued operational assistance would be needed to maintain fiduciary standards and donor confidence in the Government's fiduciary mechanisms. At the same time, a coherent medium term expenditure management reform and capacity building strategy, was needed to help transition from reliance upon "bought in" capacity to Government managed systems. This was incorporated in the design of the follow up project (the Public Administration Capacity Building Project). The mid-term review for the civil service component also concluded that the project had made significant progress in the area of public administration reform, despite limited funding and weak project implementation capacity within the new IARCSC. The building blocks had been put in place for the more comprehensive reforms intended under the Government's broader public administration reform strategy. Key factors contributing to successful outcomes included: (i) Prior bridging support provided by DFID helped lay the ground for incoming technical assistance packages; (ii) UK and WB support on the legislative and regulatory front provided a sound basis for civil service management. (iii) Establishment of a Ministerial Advisory Committee ensured broad government ownership of proposed civil service reforms. At the same time, this component faced a number of challenges in implementation. (i) As a result of limited experience with the Bank's procurement procedures, even with the procurement agent in place, there was a significant delay in the procurement of TA contracts for the Civil Service Component. (ii) Pressure by Ministries on the Appointments Board to speed up the appointments process undermined the quality of the selection process. In addition, the centralized budget for the IARCSC, agreed in the Civil Service Law, did not allow the Appointments and Appeals Boards to prioritize available resources effectively. 5 (iii) HR procedures had been developed in a number of Ministries in isolation from the Civil Service Management Department. As a result procedures and standards developed by the Civil Service Management Department were not implemented consistently across the civil service. 2.4 Monitoring and Evaluation (M&E) Design, Implementation and Utilization: (a) Design. Monitoring arrangements included plans for intensive supervision by IDA to ensure that any implementation difficulties were dealt with promptly. A full supervision mission was to be performed twice a year with specialists visiting Afghanistan more frequently during project implementation. DFID was to second a public sector management specialist to the World Bank Office in Kabul to play a key role in day-to-day supervision of the civil service reform component. The Monitoring and Evaluation baseline data was defined during the design stage. In Procurement, at the outset there was no plan in place for building procurement capacity and there were no local counterparts trained in Procurement. In Accounting and Reporting, there were major funding delays and errors in budgetary expenditure recording and reporting. The SY1381 chart of accounts, payment procedures, and expenditure eligibility were the initial foundations and baselines. In Civil Service, the baseline data included the initial staffing at IARCSC, the total number of qualified civil servants by ministry, and the lack of a legal framework for public administration reforms. The project design for the civil service component also included twice-yearly independent monitoring and evaluation to assist the authorities in evaluating the quality of technical assistance being delivered. Despite a number of qualified individuals being approached, it was not possible to identify a candidate who was prepared to be contracted to the government for this task. Instead, DFID staff participated in the midterm review and other supervision efforts. (b) Implementation and Utilization. Over the course of the project, progress against the designated indicators was monitored against the baseline data. In Procurement, after significant delays, an action plan for procurement strengthening was in place and under implementation in September 2005. Capacity was increasing gradually and several local counterparts trained in Procurement were in place, although not always used to the best advantage. Progress on actual procurements was monitored against the overall procurement plan and reported weekly. In Accounting and Reporting, major errors in budgetary expenditure recording and reporting identified at the outset were monitored through the timeliness and accuracy of financial reports. Budgetary allocations to line ministries were tracked to assess conformity of budget execution to plan. A monitoring and evaluation framework for PRR was developed (although not fully applied) and the capacity of the Monitoring and Evaluation department of the IARCSC increased to monitor results and make recommendations for corrective action. The Appointment's Board developed a qualitative and quantitative monitoring framework for appointments and issued regular business reports on the status of the appointments under its oversight. 2.5 Safeguard and Fiduciary Compliance (focusing on issues and their resolution, as applicable): There were no safeguard issues related to the implementation of the project. For fiduciary issues, see Section 2.2 6 2.6 Post-completion Operation/Next Phase (including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable): During the course of EPAP II regulatory reform, systems development and capacity building efforts were developed in conjunction with the financial management and procurement components in order to provide a basis for longer term sustainability. These issues, and particularly capacity building, were pursued more vigorously in preparation of the follow on operations. The third project in the EPAP series, the Public Administration Capacity Building Project (PACBP) went to the Board in January 2005, followed in May 2007 by the Public Financial Management Reform project (PFMR). These projects increased the emphasis on capacity building and institutional strengthening of financial management, procurement and audit functions, as the government gradually began its long-term transition away from the emergency nature of these essential administrative operations. The PACBP built upon the progress of EPAP II by undertaking a comprehensive financial management information systems architecture study to determine a framework for the phased implementation of an integrated financial management information system for the Government for the medium term. It also provided technical assistance to the Ministry of Finance and line ministries to strengthen core financial management functions, in line with the new public expenditure and financial management law. In addition to continuing the direct operational support of the procurement agent, the PACBP supported an extensive procurement capacity building program, based upon progressive accreditation and delegated authority to staff within an agreed institutional and legal framework. It also supported promulgation and implementation of the new procurement law and regulations and establishment of a procurement policy unit in government. The civil service component of the project also supported organizational and human resource management reforms that underpinned new functions and capacities in government. A new Civil Service Reform project was prepared and approved by the Bank's Board in May 2007 and is providing support for implementing a new pay and grade structure and other broader civil service reforms. The project is currently being restructured to focus upon core elements within the IARCSC's mandate. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy): The objective of the project remains critical to the country's social and economic development. The Bank's Transitional Support Strategy (TSS) for Afghanistan was predicated on the need for well- coordinated efforts by Afghanistan's development partners to achieve Afghanistan's reconstruction and development priorities and goals. Ensuring the sound management of donor and public resources is critical to this effort, and building capacity in government over the long term to manage its own affairs is essential to state legitimacy. This emphasis continues in the current Interim Strategy Note for Afghanistan (June 2009). The support provided under the project directly underpinned Afghanistan's broader reconstruction program by providing the fiduciary framework necessary for the effective utilization of donor funds. The project also supported the basic foundations needed for rebuilding a civil service that can ultimately manage the government's business. 3.2 Achievement of Project Development Objectives (including brief discussion of causal linkages between outputs and outcome, with details on outputs in annex 4) 7 Satisfactory. Overall, the project achieved its limited emergency objectives. Under Part A of the project, the emergency foundation for the fiduciary framework in Afghanistan in procurement and financial management was successfully laid down and has been built upon in subsequent operations. With the continued support of international firms, fiduciary standards improved - to the confidence of the public and the donors. This progress is considered to be satisfactory particularly in the context of the challenging environment in Afghanistan and the importance of international financial assistance to the overall recovery agenda. Longer term sustainability remained a challenge at the conclusion of the project, in the context of difficulties embedding new systems and procedures in a weak human capacity environment with poor overall incentives for staff retention and training. Under Part B of the project, progress was made in laying the foundations for a transparent, well-functioning public administration. Some formality was restored to the civil service through the application of merit based recruitment procedures and restructuring of some administrative units. Overall, the results of this component have been modest with regard to their impact on the institutional behavior and responsiveness of ministries and, as a result, progress is rated as moderately satisfactory. On balance, and given the emergency nature of the project and the limited objectives with regard to capacity building at this early period, the overall progress is regarded as satisfactory despite the moderate progress of the civil service component. The major achievements of the project are: (i) Procurement Strengthening The international procurement agent (subsequently referred to as Procurement Adviser) PA provided technical support and capacity strengthening to the AACA procurement unit- and subsequently the ARDS - to enable it to process contracts in increasing volume and complexity. Even though major efforts are still needed to strengthen procurement in Afghanistan, the emergency objectives have been achieved. The centralized procurement approach was deemed appropriate at project design given the embryonic nature of competitive procurement activities in Afghanistan. The Public Procurement Law came into effect in 2004. The Law establishes transparent and competitive procurement procedures with contestable mechanisms based upon objective and verifiable selection and award criteria. It also defines the responsibilities of government officials involved in procurement. The challenge going forward is to fully implement the provisions of the framework in a transparent and accountable manner across the government. (ii) Accounting and Treasury Department Strengthening With the initial support of the FM Agent and later the FM Advisor, the MOF was successful in processing government payments and enhancing the credibility of the Treasury. The implementation of the Afghanistan Financial Management Information System (AFMIS) enabled the government to make timely and accurate payments and prepare straightforward reports in a transparent manner. As of SY1385, the system remained largely centralized. EPAP I and II laid the fiduciary foundation for the MOF to support 19 investment and development policy projects in Afghanistan totaling almost $900 million, and also for the ARTF totaling more than $1 billion. The emergency institutional and fiduciary arrangements developed under EPAP I and II and continued under the follow-on project PACBP, gave donors confidence to contribute quickly and generously through ARTF to support the government's reconstruction agenda. A Public Finance and Expenditure Management Law was promulgated and calls for the MOF to prepare quarterly reports on public finances and a Fiscal Bulletin to report to the public on broader fiscal trends. 8 Parallel improvements have been made in the central bank's payment systems; the Treasury Single Account ensures strong fiduciary controls. A Fiscal Policy Unit and a Cash Management Unit have been established. An updated chart of accounts that provides a unified classification for the operating and development budgets in line with international standards has been developed in three successive years, and implemented to help ensure consistent and meaningful reporting. (iii) Civil Service Strengthening The Civil Service Law, approved by Cabinet in August 2005, outlines the structure and functions of the IARCSC and provides the basic law covering the organization of the Afghan civil service. It also lays the foundation for a merit-based and professionally managed civil service. Recruitment to all civil service posts above Grade II is undertaken on a merit based system by the Appointments Board, which also monitors the process of recruitment at more junior levels. The project supported the drafting of priority regulations including Appointments and Appeals, Performance Appraisal, Pensions and Pay & Grade Regulations. Subsequently the project also supported the development of the Civil Servants (Personnel) Law, which came into effect in 2008, which more specifically addresses the rights and responsibilities of civil servants, as well as lays out a new pay and grade structure. The project also supported the Priority Reform and Restructuring (PRR) program, which allowed some administrative capacity to be restored in Government through a combination of: (i) careful restructuring of units including revisions of organizational structure and job descriptions; (ii) selection of key staff through an open and competitive process, and (iii) pay increases through an interim allowance system so as to attract qualified staff into government. Over 40,000 positions were approved at PRR Stage 2 in 32/44 ministries/agencies, with project support. PRR was an unconventional initiative in a weak environment such as Afghanistan's but regarded as the only way possible at the time,2 given the absence of any assigned organization to undertake more comprehensive restructuring, nor any organization with the capacity to undertake the restructuring of its entire structure. The project supported the development and testing (along with training of relevant staff) of a new pay and grade structure across the government, and complementary pension reforms that would ultimately integrate various pay and allowance programs into one consolidated pay structure. While these achievements are significant in the context of Afghanistan's challenging environment in 2002, their overall rating is regarded as moderately satisfactory in that the IARCSC has not sustained sufficient leadership within government and across ministries to ensure some of these important reforms are adequately institutionalized. 3.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return): N/A 3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency): Rating: Satisfactory 2 Building an Effective State: Priorities for Public Administration Reform: World Bank, June 2008. 9 Based on the discussion given in Section 3.2, the overall outcome is rated as satisfactory. Part A of the project, which represents the main focus of the overall project objective is rated as satisfactory, while Part B, which focuses upon the early civil service reforms, is regarded as moderately satisfactory in its outcomes. 3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above): (a) Poverty Impacts, Gender Aspects, and Social Development Poverty Impacts - N/A Gender Aspects - Introduction of merit rather than patronage has helped revitalize the civil service. For example, putting in place clear rules and regulations on staffing has facilitated the return of women to the civil service. Social Development- N/A (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development): The project has supported the basic foundations for fiduciary management in government. With the support of the FM Agent and later the FM Advisor, the government has operated sound Treasury functions that linked spending allotments to budget ceilings, processed vendor payments, and paid civil service salaries throughout the country. Even though much more needs to be done, institutional capability has steadily improved (as reflected in improvements in the Public Expenditure and Financial Accountability ­ PEFA ­ assessments). It is important at this junction to solidify the gains made, adhere to prescribed fiduciary standards, and accelerate the programs to develop finance staff in order to support the MOF and the line ministries in this critical area. These activities are being extended and expanded under PACBP. The Civil Service Component complemented other components of the project. Through the introduction of the Civil Service Law and subsequent Civil Servants Law the legal basis has been set down for establishment of a formal, merit based civil service. This has been supported by draft regulations and procedures and related training, though this remains to be completed. Administrative reform has taken place in a number of ministries based upon clearer objectives and strategies, although there are still duplications and redundancies across government. The extent to which some of these reforms have been institutionalized has been compromised by a range of factors including: political willingness to carry out difficult institutional reforms; capacity constraints in areas such as human resource management; loss in momentum in transitioning from the early reform efforts to a more focused and widely accepted reform program; and unrealistic expectations with regard to the challenges of implementing complex reforms in a politically challenging environment. (c) Unintended Outcomes and Impacts (positive and negative) Positive. Other investment projects were able to utilize the essential fiduciary frameworks that were functioning well within these projects and these frameworks have helped to attract more donor funds to flow through the budget. 10 Negative. In the latter part of 2004, under the civil service reform component, the Priority Reform and Restructuring process was extended to "whole ministries" rather than to select departments. This was in part a response to some concerns over the asymmetric approach to reforms, but also was logical in terms of taking a whole of ministry approach. This change however had the unanticipated consequence of diluting the administrative reforms in various areas particularly since IARCSC did not have the capacity or mechanisms in place to monitor implementation across the board. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes): NA 4. Assessment of Risk to Development Outcome Rating: Substantial To minimize the risk that the deteriorating security environment brings planned improvements to a halt, the mitigating measures included: accelerating the deployment and training of local staff, having provincial staff bring records to Kabul, and improving remote access to systems. In order to reduce the risk that core public administration functions will remain solely in Kabul and not be extended into the provinces, the mitigating measures included: enhanced communications connectivity to the provinces, local consultants placed in each province to assist the MOF representative, and the planned roll out of the AFMIS system. To mitigate against the risk of lack of government counterparts, measures included: expedited recruitment and training of qualified civil servants through PRR, and provision of a core team of international advisors and mentoring programs to build capacity in government to the extent possible. Political commitment to merit-based appointment is a challenge in the context of an environment such as Afghanistan. To mitigate the risks of undue pressures, the IARCSC and project focused upon capacity building with the Appointments Board and with ministries and enhancing reporting and transparency efforts. IARCSC's mandate both overloads it and creates conflicts of interest. A thorough restructuring may not be possible in the short term, and given IARCSC's challenge of leading the implementation of the new grade pay structure. Mitigating factors in the short term are to focus as much as possible on priorities and to work closely with the Ministerial Advisory Committee (subsequently PAR Steering Committee) for guidance. 5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5.1 Bank (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase): Rating: Satisfactory. 11 The Bank's performance in the identification, preparation, and appraisal of the project and ensuring quality at entry was satisfactory. The task team took into account lessons from previous emergency operations in other countries and also the experience and lessons from EPAP I. Extensive consultation took place with the UK government regarding the civil service component; coordination with other donors was satisfactory. The project design was preceded by considerable non-lending TA from the Bank on reforms in civil service. The project was prepared rapidly based upon the EPAP 1 foundation. Additional information was available to update the cost of providing services in Afghanistan and the fees of international consultants given the difficult security situation and logistical arrangements in this post- conflict environment. Throughout project preparation and appraisal, the relationship between the Bank and the Borrower was consistently positive. (b) Quality of Supervision (including of fiduciary and safeguards policies): Rating: Moderately Satisfactory A Quality of Supervision Assessment was carried out by a QAG panel of reviewers for the project in September 2004. The panel rated the overall quality of supervision of the project as satisfactory for all categories except for Adequacy of Supervision Inputs and Processes, and Candor and Quality of Project Performance Ratings which were found moderately satisfactory. FM aspects, particularly important in this operation, were rated Highly Satisfactory. QAG noted that: "The team has clearly put a lot of attention into the day-day and continuous supervision of this project from the country office. Close supervision on the ground has helped move the project forward and allowed for early identification of issues and building local ownership. In spite of the logistical, physical and security challenges of working in the country, financial management supervision has been constant and thorough. FM supervision has correctly focused on the broader public financial management program. Bank-specific fiduciary policies have been intertwined with the reform program supported under EPAP 2 (e.g., financial management and audit agents are responsible for managing the bank's fiduciary functions for project implementation and are also responsible for delivering technical assistance to the country). Therefore, supervision of the reform program implies supervision of the Bank's fiduciary policies. Additionally, the team has maintained a constant dialogue with both government authorities and partner agencies, and has taken the leadership role, coordinating with partners and government counterparts, to improve and adjust financial management (program components and implementation) as required. Much as the actual supervision activities seem to have been diligent, little has been documented. While to some extent, this is understandable given joint supervision of FM and procurement components covered in both EPAP I and II, and the importance of continuous supervision by field-based staff in the country office, with visits and back-stopping by specialists from HQ, the panel considers it important for institutional reasons and continuity to have better recording of supervision. The dimensions of Bank inputs and processes, and quality and candor of project performance reporting are rated Moderately Unsatisfactory, for this reason. The panel would, however, like to clarify that it considers the overall project ratings to be accurate (though devoid of explanation in PSRs or aides-memoires), and that the flaw in documentation apparently did not affect the quality of supervision. As a result, the rating of the overall quality of supervision has not been lowered to Moderately Satisfactory: nevertheless, the panel strongly encourages the 12 supervision team to focus on better documentation which would provide a reliable record with concise comments. The team has taken a very pro-active role in supervising this project, dealing with the day-to-day issues, with a multiplicity of donors, and building relations of partnership with Afghan counterparts. In the period under review, the focus has been on getting implementation underway and carried out effectively, with the development of basic systems and frameworks in financial management/procurement taking priority. In the panel's view, given the circumstances of Afghanistan, this was the right approach. In its response to the draft assessment report, the supervision team noted its view that the civil service reform component has an institutional development focus and is making progress. However, it will be important to step up capacity building, moving on from this project, to the extent possible in the political and security context." The ICR team concurs with the above findings of QAG. There were shortcomings however over the life of the project. Over the course of the project lifetime there four changes in TTL, and several changes in Bank units responsible for the project. While documentation of PSRs/ISRs improved after the QAG review these covered only the financial management and procurement components while the civil service reform components were covered in separate supervision missions and aide memoires that were not properly archived in official Bank record systems. In the latter part of the project period, the civil service component was supervised concurrently with preparation of the new civil service reform project and documented in aide memoires in this context. In addition, and despite best efforts to provide support to the IARCSC, procurement requirements, particularly under the extensions to the project, were not sufficiently flexible to meet the government's requirements in a timely manner. As a result, and taking the life of the project into account, Bank supervision performance is rated moderately satisfactory. (c) Justification of Rating for Overall Bank Performance: Rating: Moderately Satisfactory Based on the Bank performance during lending phase and supervision as discussed above, overall Bank performance is rated as Moderately Satisfactory. 5.2 Borrower NOTE: When the government and implementing agency are indistinguishable, provide rating and justification only for Overall Borrower Performance. Yes Click here if the Government and the Implementation Agency is the same or indistinguishable (a) Government Performance: Rating: Moderately Satisfactory. The Borrower's performance in project preparation was moderately satisfactory. The borrower had substantial involvement in defining the project's scope and identifying the agencies and ministries where consultants would be located to best advantage. There were also strong champions in senior levels of government. At project preparation, the Minister of Finance was strongly committed to the project from the beginning. 13 The government implementation performance was moderately satisfactory. The government consistently demonstrated and maintained full commitment to the project and its objectives throughout the implementation. Examples of active implementation interventions are: (i) monitoring the operations of the agents and advisors; (ii) coordinating knowledge transfer to local counterparts whenever possible; (iii) making project course corrections where warranted; (iv) centralizing activities until decentralized units were prepared to fully assume required duties; (v) revamping core regulations to buttress essential reforms; and (vi) reorganizing units and activities to better align with core capabilities and management spans of control. Funds flow to all implementing agencies was controlled centrally by the MOF Special Disbursement Unit (SDU). An assessment of the process reveals that this had been managed appropriately since the project began. Financial reporting was poor throughout the project: monthly and quarterly financial reports ­ including the mandatory financial monitoring reports to be submitted quarterly to the Bank ­ were not prepared regularly. Annual audited financial statements were submitted regularly, though later than the mandated submission deadline. The audit opinion of the Control and Audit Office of Afghanistan was unqualified for SY1385. Budgets were derived from approved work plans and are in accordance with the MOF guidelines on development budget. No single agency was responsible for overall management/coordination during the implementation of the project. As there were several implementing partners, effective coordination was difficult without this responsibility being assigned. (b) Implementing Agency or Agencies Performance: Rating: Moderately Satisfactory The project was implemented by three agencies and there was limited coordination between them. This approach constrained the ability of the government to issue financial monitoring reports as it was not clear who was responsible for collating joint reports. The performance of ARDS, which was responsible for the Procurement Component, was moderately satisfactory. ARDS managed the Central Procurement Facility and the Technical Assistance for Feasibility Studies Unit (TAFSU).The level of staffing was adequate after some initial difficulties recruiting staff of an appropriate skills mix. In the early period of EPAP I and II the project experienced some difficulties with reimbursements for operating costs as a result of lack of experience with using Bank procedures in this regard. The Ministry of Finance was responsible for implementation of the Treasury and Accounting Component. This was performed in a moderately satisfactory manner. Monitoring and evaluation of project progress and results were moderately satisfactory. Periodic project progress reports, including Financial Management Reports (FMRs) were late before AFMIS was fully operational, but timeliness and quality improved significantly over the course of the project and especially after standardized reporting formats were introduced. The performance of IARCSC, which was responsible for the Civil Service Component, was moderately satisfactory. IARCSC demonstrated consistent commitment to the project. Close coordination of IARCSC senior management with the DfID seconded Senior Public Sector Specialist enabled regular and timely discussions on implementation issues. On the other hand, implementation of the civil service component suffered as a result of weak management capacity in the IARCSC, including project management and monitoring and evaluation. There were serious delays in procurement as a result of limited experience with international procurement standards. 14 Justification of Rating for Overall Borrower Performance: Rating: Moderately Satisfactory In light of the government and implementing agencies' performance as discussed above, the overall performance of the Borrower was moderately satisfactory. 6 Lessons Learned (both project-specific and of wide general application) Because this project was primarily designed to provide supplemental financing to ongoing operations in EPAP 1 and the project implementation periods overlapped quite a bit, the lessons learned from EPAP 2 are similar to those learned from EPAP I. For an emergency operation to be effective in a post-conflict environment project design needs to be simple and the goals need to be realistic. It is prudent to plan small, quick operations in a series to apply the lessons learned from previous operations. In these environments, intense Bank supervision is required. Further, using professional agents for essential government functions was essential for success. While the FM Agent, Audit Agent, and Procurement Agents did perform core government functions in this post-conflict environment, an additional agent for Disbursements might have helped overcome some of the delays encountered due to lack of capacity, communications difficulties, and unfamiliarity with international procedures. Critical operations functions need to be separated from capacity building activities to ensure that both are performed simultaneously. As in EPAP 1, initial capacity building suffered greatly due to the pressures to keep operations up and running in an environment of constant flux. The Agents justifiably focused on near-term deadlines while subordinating critical knowledge transfer objectives. The government needs to continue to engage the services of the advisors for as long as it takes to build sufficient, demonstrable capacity in core public administration areas even as the roles of the advisors become increasingly transitional. A fixed timeframe is not the best measure; the capabilities of the counterpart staff will be determined when the agents are no longer needed. Even as government staff master skills needed, the shifting legal framework for Financial Management and Procurement in Afghanistan is becoming more demanding and poses significant ongoing challenges to the government. At the same time, international consultants are expensive to retain over a long period and often the incentives for them to effectively train their counterparts are inadequate. These contracts need to be continuously monitored by both the Bank and the government to ensure that the consultants are performing fully against their terms of reference and vigorously reviewed for outputs, results, and necessary course corrections. As soon as possible, regional firms should be used with the long-term expectation that national firms or the government itself will perform core administrative functions. In this context, the commitment of the consultant is important. Public administration reforms are very difficult and take a long time. The Bank and government need flexibility in dealing with reforms in a fluid environment such as in Afghanistan. Significant mid course adjustments of programs should also be made easier. Similarly, such reforms require strong relationships with government and these relationships need to be broad, and not narrowly focused on MOF and one or two key ministers and counterparts. 15 It is difficult to implement a broad-based, long-term agenda in a comprehensive systematic way - especially in a country like Afghanistan where capacity is weak and the government has limited reach outside Kabul. Rather the framework for reform must be comprehensive and coherent, and short-term actions must be consistent with that framework. At any point in time, there must be a clear idea of priority areas requiring attention, and those which can be sorted out later. Because PAR is a broad-based effort, it must be led from the top with effective coordination across institutions. This leads to the following recommendations: Strong leadership is needed from the President - to provide a clear message about the direction of reform and to manage conflicting political interests. Important issues need to be discussed and decided at Cabinet level to build a consensus view even when different interests are being advocated by different agencies. Implementing agencies should also report back to Cabinet on a regular basis on progress made and issues to be addressed. Instead of attempting to implement reforms in all ministries by itself, IARCSC needs to increasingly focus on guiding and overseeing ministries' implementation, while allowing ministries take to responsibility of their respective reforms. Ambitions can get ahead of resources. Although EPAPII started with modest ambitions, with early successes under PRR, these quickly expanded beyond the resources available to support implementation of reforms. Given early successes it would have been better to try and ensure timely mobilization of TA during the next phase. Momentum was lost when this did not materialize quickly. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners The borrower and implementing agencies comments are attached in Annex 7, and the co financier's comments are attached in Annex 8 and have been taken into account in preparing this ICR. 16 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ million equivalent) (Total rows and percentage column will be calculated by the system) Appraisal Estimate Actual /Latest Estimate Percentage of Appraisal Components (US$ million) (US$ million) EPAP Supplemental 4.30 4.80 111 Civil Service Reform 5.10 7.10 139 Studies 1.50 Total Baseline Cost 10.90 11.90 109 Physical Contingencies Price Contingencies Total Project Costs 10.90 11.90 Project Preparation Facility (PPF) Front-end fee (IBRD only) Total Financing Required 10.90 11.90 (b) Co-financing (The appraisal estimate will be pre-populated from the Financing data in SAP/AUS; Percentage of Appraisal column will be calculated by the system) Appraisal Actual/Latest Percentage of Source of Funds Type of Financing Estimate Estimate Appraisal (US$ million) (US$ million) Borrower IDA Grant for Post 8.40 9.05 107 Conflict DfID [WB-administered 2.50 2.92 116 TF] [Donor B] [Parallel financing] (c) Disbursement Profile (system generated graph) 17 Annex 2. Outputs by Component Component 1: Supplemental Support for EPAP Contracts (a) Procurement Strengthening Activities in the Procurement component produced several important outputs: policy and process reforms have been instituted, capacity has been increased, the procurement unit has been reorganized, and large numbers of contracts are being processed professionally. As of March 2006, $945 million in contract value and 351 contracts were either completed or underway using Bank guidelines or internationally accepted standards. The Procurement Unit aggressively recruited local counterparts to help build the foundations of a viable procurement operation both centrally, and to a limited extent in a few selected line ministries. Through EPAP II, and subsequent follow-on projects, increasing responsibilities have been progressively transferred to designated line ministries after they have demonstrated the capacity to successfully process contracts above agreed upon thresholds. Over time, this transition toward increased decentralization has gradually improved both procurement capacity and overall service levels; this is a major focus of PACBP. Training. The Procurement Adviser (PA) trained approximately 150 procurement staff from various line ministries based upon existing Afghanistan rules and general procurement principles. Stage 1 training represented basic procurement fundamentals. Stage 2 focused on specific procurement rules. Participants received a certificate of completion from these two stages. In spite of this training many of the ministry staff trained in procurement were not involved by their senior management in the actual procurements carried out by their ministries. In addition to the more general procurement training program for line ministry staff, 10 Procurement Liaison Officers (PLOs) were selected for intensive procurement training which included on-the-job training and mentoring with PA staff in a train-the-trainers approach. They also attended a course at the Administrative Staff College of India in Hyderabad. These 10 individuals formed the beginning of core procurement capacity which was intended to assist the line ministries in broadening and deepening their capacity. Private sector training. Local vendors were provided with seminars on how to bid and compete for contracts under the project. After a very slow start bids began to slowly improve. To date, there has been significant progress in the "Works" category but much more needs to be done with local vendors under the "Goods" and "Services" categories. Capacity building activities in this area will continue under the follow-up PACB and PFMR projects. To meet the Bank's procurement guidelines to advertise requests for bids to reach a wider audience, radio announcements were used so that local firms or those individuals with limited literacy skills would not be penalized. (b) Accounting and Treasury Department Strengthening Under EPAP I and II, and other concurrent programs, solid progress has been made in developing the preliminary foundations for an effective financial management system within the MOF's Treasury operations. AFMIS. With the assistance of the FM Agent, a basic computerized Treasury payment and accounting system was quickly implemented in 2003 to issue checks and enable real-time reporting on expenditures processed in Kabul. This system was later augmented to enable tighter control of budget execution against budget allotments for expenditures processed in Kabul as well as recording of revenues. An applications 18 systems architecture study was conducted to determine the medium-term functional specifications, processing platforms, information, and connectivity requirements for national, provincial, and district levels of government. The FreeeBalance core system was validated. Going forward, all new system additions will interface with these core applications. Standard payroll module. The government made significant progress in implementing a verified payroll plan, initiating individual salary payments to 24,000 staff across 17 ministries and agencies in Kabul, and piloting a payroll database in two ministries. A payroll package was initially selected from a Canadian vendor but there were new requirements added to have a Farsi language user interface. No suitable applications were identified so an Access database was implemented as an interim solution. Grant Management Unit. This unit has been established in the MOF to assist the government in tracking and reporting on donor financing. Donor reports often require more detailed information related to project components and expenditure categories that are not readily available in AFMIS. Careful tracking of aid pledges, commitments, and inflows is critical to properly managing and allocating cash and this unit has taken responsibility in this regard. Training and capacity building. These on-going efforts have enhanced the core knowledge and basic skills in selected Finance and Treasury operations staff for their primary job functions. Designated MOF staff currently process data entry activities and check runs. A few MOF staff and local consultants were also trained to handle trouble-shooting and higher-end functions. The PACB and PFMR projects have continued training efforts in an attempt to increase the long-term sustainability of the project's achievements. In general, there is a lack of qualified counterpart staff in government service. Many government staff do not have the necessary formal training or technical underpinnings to advance beyond their current job functions; strong academic and departmental training programs are needed over the long term. Budget Department Strengthening. The government has maintained its commitment to budget transparency. An increasing number of reports are publicly available. Even though budget planning and execution procedures are often cumbersome and outdated, they are generally widely understood and largely adhered to throughout the government. Capacity constraints in many ministries still severely inhibit the ability of the government to fully manage the budget to sound fiduciary standards. These areas are being addressed in the subsequent public administration reforms under PACBP projects. Achievement of this component is Satisfactory. Component 2: Civil Service and Administrative Reform With support provided under EPAP II, the Government has made progress in putting in place the building blocks for improvements in the civil service in Afghanistan (Table 1 below). This has included: (i) the establishment of the IARCSC through the IARCSC Decree and the operationalization of its departments; (ii) approval of a new Civil Service Law; (iii) some progress in functional audits leading to proposals for new structures of key ministries and agencies at the central level ­ through the Priority Reform and Restructuring (PRR); (iv) initial policy work on a new pay and grade structure; and, (v) progress in merit based recruitment for both senior and junior level civil servants. Administrative Reform. Critical to the government's early reform strategy was the Priority Reform and Restructuring (PRR) program, begun in 2003. PRR enabled the staff of ministries/agencies, or those in selected departments undertaking particular key functions, to be placed on an interim additional 19 allowance for a fixed term in return for undertaking a reform and restructuring process. The initial objective of the PRR was to restore administrative capacity in key departments based on the combination of (i) careful restructuring of such units including revisions of organizational structure and job descriptions (ii) selection of key staff through an open and competitive process, and (iii) pay increases through an interim allowance system so as to attract qualified staff into government. PRR was considered an interim measure to prepare the way for the introduction of a new grade and pay structure for the civil service. Table 1: Civil Service Reform Achievements with EPAP II Support Structure of Small size of civil service (excluding. Teachers, police and armed forces) Government maintained at around 130,000 in line with MTFF Number of ministries reduced from 31 in 2002 to 26 in 2006. Further rationalization being discussed by Parliament. Cabinet Secretariat established and functioning. Parliamentary Secretariat established and functioning. Legal and Civil Service Law (CSL) approved by Cabinet in August 2005. Regulatory Key regulations drafted including Code of Conduct, Appointments, Appeals Framework Performance Appraisal and Pay and Grading. Ministry and Priority Reform and Restructuring (PRR) program being implemented ­ over agency 36,700 positions approved at PRR Stage 2 in 32/44 ministries/agencies. restructuring Pilot restructuring of 3 provincial Governor's offices and one district Governor's Office. Human Resource 1429 Grade Two and above merit-based appointments processed by the Management Appointments Board; 7260 Grade Three and below merit-based appointments processed by ministries and agencies and monitored by Appointments Board; Appeals Board has evaluated 279 appeals in areas of appointments and transfers. New eight-grade structure designed. Capacity 93 and 100 persons appointed through the Afghan Expatriates Program and Development Lateral Entry Program to plug critical gaps in the civil service. . Training and development strategy developed and 140 senior civil servants trained in senior leadership and 1530 civil servants trained in managerial and common competency training. New Civil Service Training Institute established. Stewardship and IARCSC established in May 2002 to lead PAR reforms across the public sector. Oversight of PAR Cabinet Sub Committee and PAR Steering Committee established. Regulatory Framework. The Civil Service Law was approved by Cabinet in August 2005 and outlines the structure and functions of the IARCSC and provides the basic law covering the organization of the Afghan civil service. It also lays the foundation for a merit based and professionally managed civil service. EPAPII, along with assistance funded by the ADB, supported the drafting of priority regulations, including Appointments and Appeals, Performance appraisal and Pay and Grading regulations. Subsequently in 2008, EPAP II assistance supported the drafting of the Civil Servants (Personnel affairs) Law which set out the rights and obligations of civil servants and the details of the new grade pay structure. Appointments and Appeals: An Appointments Board and an Appeals Board were established in mid- 2003. The Appointments Board identifies and recommends the recruitment, appointment, promotion, transfer, retirements, pension payment and other personal matters of high-ranking civil servants for the approval of the President and monitors the appointments in line ministries of junior positions. The Appeals Board is responsible for hearing appeals from civil servants who consider they have been disciplined unfairly. 20 A strategic plan for the Appointments Board and Appeals board was adopted in October 2004. A computerised Recruitment Management System, capable of tracking all on-going recruitment schemes has been developed and implemented. With the support of EPAP II over 1400 senior appointments have been made in line with merit based procedures and over 7200 junior appointments have been monitored by the AB. Civil Service Management A work program was implemented for building the capacity of the IARCSC to undertake Civil Service management. HR managers in line ministries were trained on new appointment procedures and standards.HR and appointments networks have been established to disseminate procedures and standards to ministries and agencies. Assistance under EPAP II set out a theoretical organizational structure for HR units within line ministries and a training schedule in all aspects of HR policies and procedures. Pay and Grade Review A new 8-grade civil service structure, and associated pay scale, was designed, in order to replace the ad hoc utilization of interim additional allowances under PRR and to enable to the Government to attract and retain qualified staff. New pay scales attached to these grades (with a minimum salary of $100 and maximum of $650) were subsequently agreed to by Cabinet. A strategy and regulations for a complementary pension reform were also supported by the project. In preparation for the implementation of the new grade pay structure an in-house team of job analysts was trained in the job evaluation. An extensive training program was conducted for an initial group of 10 civil servants during November and December, 2004. Up to 2000 jobs were evaluated and re-graded in accordance with the new Job Evaluation system in three pilot ministries (Women's Affairs, Public Works and Higher Education) by the job evaluation team. Achievement of this component is moderately satisfactory. Component 3: Studies and Institutional Strengthening Funds under this component were used to support key aspects of the other two components as necessary including the work on the new grade pay structure and temporary assistance to the IARCSC while contracting for the major packages of technical assistance were completed. In addition, funds under this component were utilized to support additional activities in line with the other components such as the study on a new grade and pay structure in government. Achievement of this component is moderately unsatisfactory. 21 Annex 3. Economic and Financial Analysis (including assumptions in the analysis) Not Applicable 22 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending (from Task Team in PAD Data Sheet) To fill up Linda Van Gelder Senior Economist SASPR Task Team Leader Nick Manning Lead Public Sector Specialist SASPR Public Sector Julitta Rasiah Senior Financial Management SARFM Financial Management Specialist Santhanan Krishnan Senior Procurement Specialist SARPS Procurement Hadi Abushakra Lead Counsel LEGAL Legal Shahnaz Ahmad Program Assistant SASPR Program Assistance Supervision (from Task Team Members in all archived ISRs) Linda Van Gelder Senior Economist SASPR Team Leader Nick Manning Lead Public Sector Specialist SASPR Public sector Donna Thompson Senior Financial Management SARFM Financial management Specialist S. Quamrul Hasan Senior Procurement Specialist SARPS Procurement Paul Sisk Senior Financial Management SARFM Task Team Leader Specialist Anne Tully Senior Public Sector Specialist SASPR Task Team Leader Satyendra Prasad DFID funded Senior Public Sector SASPR Public Sector Specialist Ranjana Mukherjee Senior Public Sector Specialist SASPR Task Team Leader Jalpa Patel Consultant SASPR Public Sector Ratings of Project Performance in ISRs (all fields are pre-populated by the system) No. Date ISR Archived DO IP Actual Disbursements (US$mil.) 1 06/08/2004 S HS 0.82 2 10/13/2004 S HS 2.06 3 04/09/2005 S HS 4.49 4 10/03/2005 S HS 7.24 5 04/18/2006 S S 7.24 23 (c) Staff Time and Cost (from SAP) (all fields are pre-populated by the system) Stage of Project Cycle Staff Time and Cost (Bank Budget Only) No. of Staff Weeks US$ Thousands (including travel and consultant costs) Lending FY03 10.21 91,483.07 TOTAL 10.21 91,483.07 Supervision/ICR FY04 10.37 108,131.68 FY05 13.45 59,422.81 FY06 11.46 35,750.56 FY07 22.04 81,322.84 FY08 15.3 62,569.97 FY09 8.72 52,361.38 FY10 1.68 8,022.13 TOTAL 83.02 407,581.37 24 Annex 5. Beneficiary Survey Results (if any) N/A 25 Annex 6. Stakeholder Workshop Report and Results (if any) N/A. 26 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR The Treasury of the Ministry of Finance commented that Treasury staff is gradually being trained in performing functions in a computerized environment. During this period, besides improvements in payment and accounting procedures, disbursement mechanisms were streamlined by working in close coordination with the DAB. The Independent Administrative Reform and Civil Service Commission (IARCSC) provided the following comments. The draft ICR assesses the results of EPAP II as of July 2009. Subsequent achievements, partly attributable to EPAP II, have not been fully captured. For example, the project laid the foundation for implementation of initial reform in ministries and agencies. To date 270,000 positions have been approved under PRR and 32,000 merit based recruitments have been made to these positions, 2800 have been at higher grades. Other positive results of the project have included: preparation of regulations and procedures related to the Civil Servants Law, merit based appointments along with capacity building of civil servants. The IARCSC believes that the marginally satisfactory rating for implementing agency performance is not appropriate. More specifically: IARCSC...sufficient leadership IARCSC questions the comments with regard to IARCSC leadership across government in order to institutionalize reforms, although acknowledge that PRR may not have had the results expected of it. The problems may be as much in presentation of the reforms externally. Presently the ministries have taken ownership of their reform agendas and regular meetings are being held with the IARCSC and deputy ministers as evidence of this. IARCSC Mandate IARCSC is responsible for supervision of the operation of the Civil Service laws, and reform of the civil service. For a relatively small organization, reform is a difficult task across 300,000 staff. In addition, supervision of the implementation of the law can create problems when IARCSC is also responsible for implementation, e.g. Independent Appointments Board. Because of weak project and financial management capacity in the IARCSC, and weak project documentation due to frequent change of consultants and poor counterpart capacity, the track record on project finance has been poor. Building IARCSC capacity in project management, monitoring and recruitment and performance management is crucial. It has been anticipated in the original design of CSRP, but was removed based on the assumption that donor funding and interest has reduced. The IARCSC suggests the following lessons learned from EPAP II. - Simple project with clear objective should be designed. - One implementation partner responsible for one project. - Counterpart capacity building during implementation should be ensured with clear indicators of transfer of skills 27 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Comments on the ICR have been provided by DFID as follows: Good progress has been made on Compliance with Fiduciary Standards in payroll and O&M and also the progress in both procurement and expenditure reporting. The training aspect and retaining of staff has been more challenging and if not tackled, will continue to be a major constraint to effective transitioning to full government leadership and participation. The quality of PRR implementation has been mixed, both at central level but especially at sub-national level. In our view, Pay and Grade Reform needs to be accelerated and much more needs to be done to strengthen the IARCSC's ability to support Ministry reforms and capacity development at the sub-national level. IARCSC will need to work more closely with IDLG on some aspects, particularly reform of Governors' offices. Given this necessity, it is positive that US and UNDP sub-national programming are planning to address this aspect. More work needs to be done to strengthen HR information management systems (directly linked to successful implementation of P&G) and to further strengthen the IARCSC's procurement and human and financial management. We hope that US support for IARCSC will address this. In terms of Bank management, there is need for greater flexibility (e.g. on procurement procedures as is noted in the report) and more decentralised program management if the Bank is to optimise its capacity to work in conflict environments. We face a similar problem on the Justice Sector Reform Project and it would be good to see the Bank address this. 28 Annex 9. List of Supporting Documents (In the Portal, each document can be linked to a file in IRIS or attach a new document) 1. Aide Memoires, Back-to-Office Reports, and Project Status Reports 2. Project Progress Reports 3. Consultant Study Reports financed under the project 4. Memorandum and Recommendation of the President for Afghanistan: Second Emergency Public Administration Project dated May 27, 2003 (Report No. P7593 AF) 5. Mid-term review report 6. EPAP project documentation 7. PACBP project documentation 29