Page  1
Document of 
The World Bank 
 
FOR OFFICIAL USE ONLY 
 
Report No. 45926 
–
IQ 
 
PROJECT PAPER 
 
FOR A  
 
PROPOSED ADDITIONAL FINANCING GRANT  
 
IN THE AMOUNT OF US$10 MILLION 
 
TO 
 
THE MINISTRY OF PLANNING AND DEVELOPMENT COOPERATION  
 
OF THE 
 
REPUBLIC OF IRAQ 
 
FOR THE 
 
EMERGENCY PRIVATE SECTOR DEVELOPMENT I PROJECT 
 
WORLD BANK IRAQ TRUST FUND - TF053167 
TRUST FUND GRANT - TF054462 
 
October 20, 2008 
 
Finance and Private Sector Development 
Social and Economic Development Department 
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.
 
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C
URRENCY 
E
QUIVALENTS
 
(Exchange Rate Effective as of October 1
,
2008) 
 
Currency Unit 
Iraqi Dinar 
US$1.00 1,100 
 
T
HE 
R
EPUBLIC OF 
I
RAQ 
—
G
OVERNMENT 
F
ISCAL 
Y
EAR
 
January 1 
–
December 3
1
A
BBREVIATION 
A
ND 
A
CRONYMS
 
CBI 
Central Bank of Iraq 
EPSDP 
Emergency Private Sector Development I Project 
IE Industrial 
Estates 
IIBN 
Iraqi Inter-Banking Network 
ITF 
Iraq Trust Fund 
ITPC 
Iraq Telecom and Post Company 
MOPDC 
Ministry of Planning and Development Cooperation 
MWN Microwave 
Network 
OP Operational 
Policies 
PMT Project 
Management 
Team 
SOE 
State Owned Enterprises 
 
Vice President: 
Country Director: 
Sector Director: 
Sector Manager: 
Task Team Leader:
Daniela Gressani 
Hedi Larbi 
Ritva S. Reinikka 
Zoubida Allaoua 
Hamid Alavi 
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R
EPUBLIC OF 
I
RAQ
 
A
DDITIONAL 
F
INANCING FOR THE 
E
MERGENCY 
P
RIVATE 
S
ECTOR 
D
EVELOPMENT 
I
P
ROJECT
 
Table of Contents 
 
PROJECT PAPER DATA SHEET...........................................................................................................................1
 
1.
 
INTRODUCTION.............................................................................................................................................2
 
2.
 
BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING.................................................2
 
3.
 
PROPOSED CHANGES...................................................................................................................................7
 
4.
 
CONSISTENCY WITH CAS...........................................................................................................................8
 
5.
 
ECONOMIC ANALYSIS OF COST OVERRUN OR FINANCING GAP .................................................8
 
6.
 
APPRAISAL FOR COST OVERRUN OR FINANCING GAP....................................................................9
 
7.
 
EXPECTED OUTCOMES...............................................................................................................................9
 
8.
 
BENEFITS AND RISKS.................................................................................................................................10
 
9.
 
FINANCIAL TERMS AND CONDITIONS FOR ADDITIONAL FINANCING.....................................11
 
A
NNEX
 
Table 1: Original and Actual Project Costs.................................................................................................13 
Table 2: Allocation of Grant Proceeds........................................................................................................14 
Table 3: Project Performance......................................................................................................................15 
Table 4: Logical Framework and Key Performance Indicators ..................................................................16 
 
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.
 
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1
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Project Paper Data Sheet 
 
Date:  October 20, 2008 
Country:  Republic of Iraq 
Project Name: Emergency Private Sector 
Development I Project 
–
Additional Financing 
Project ID:  P112064 
Team Leader:  Hamid Alavi 
Sector Director:  Ritva S. Reinikka 
Sector Manager:  Zoubida Allaoua 
Country Director:  Hedi Larbi 
Environmental Category:  B 
Recipient: Ministry of Planning and Development Cooperation, Republic of Iraq 
Responsible Agencies: Ministry of Planning and Development Cooperation, and Iraq 
Telecommunications and Postal Company (ITPC) 
Revised estimated disbursements (Bank FY/US$m) 
FY  
2009 
Annual  
10 
Cumulative  
10 
Current closing date:  June 30, 2009 
Revised closing date:   
Does the cost overrun and financing gap 
require any exceptions from Bank policies? 
Have these been approved by Bank 
management? 
Is approval for any policy exception sought 
from the Board? 
 
Yes 
 
Yes 
 
No 
Revised project development objectives/outcomes: 
The objective of the project remains the same. 
Does the scaled-up or restructured project trigger any new safeguard policies? No 
For Additional Financing 
[
]
Loan [ ] Credit [x] Grant 
For Loans/Credits/Grants: 
Total Bank financing (US$m.): US$10 million 
Proposed terms: N/A 
Financing Plan (US$m.) 
Source Local 
Foreign 
Total 
Borrower 
IBRD/IDA 
Others 
Total 
0.0 
0.0 
10.0 
10.0 
0.0 
0.0 
0.0 
0.0 
0.0 
0.0 
10.0 
10.0 
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1. Introduction  
 
1. 
The Project Paper seeks the approval of the Vice President of the Middle East and North 
Africa Region to provide an additional financing grant in the amount of US$10.0 million to the 
Iraq Emergency Private Sector Development I Project (
“EPSDP”) [P091344 / TF054462]. 
 
2. 
The proposed additional financing grant provided through the World Bank Iraq Trust 
Fund (“ITF”) will help meet the financing gap required to complete the implementation of the 
EPSDP’s two telecom components: “Upgrading of Selected Parts of Telecommunications 
Infrastructure for the Payments System,” referred to as Iraqi Inter-Banking Network (“IIBN”), 
and “Rehabilitation of Selected Parts of National Telecommunications Network,” referred to as 
Microwave Network (“MWN”).  
 
3. 
Specifically, it will cover the gap created by the depreciation of the Dollar to Euro 
exchange rate and contract variations in the MWN contract (awarded in Euro), and provide 
contingency funds for possible contract variations for the IIBN and for future fluctuations in the 
exchange rate of the MWN contract.  The financial plan for the EPSDP before and after the 
proposed additional financing is described in Tables 1 and 2 as annexed. 
 
4. 
The project became effective on December 6, 2004 and is scheduled to close on June 30, 
2009.  After experiencing initial long delays, the project has shown encouraging progress in 
2008. Disbursements have increased from 9% in February 2008 to 41.6 % by mid-October 2008. 
The project is expected to be fully disbursed by the project closing date.  The implementation 
progress rating of the project has recently been upgraded to “moderately satisfactory” from 
“moderately unsatisfactory”.  The Project Management Teams (“PMTs”) have strengthened their 
skills and staffing; have earned experience over the past years, and are now better equipped to 
effectively manage project implementation.  
 
2. Background and Rationale for Additional Financing 
 
5. 
Background: 
The EPSDP was approved on December 6, 2004 and provides US$55.0 
million of financing to lay the foundation for a comprehensive private sector development 
strategy in Iraq.  The project addresses key priorities in institutional capacity building and 
essential communications infrastructure to help foster the development of the private and 
financial sectors in Iraq.  A secondary objective of the project is to generate jobs. 
 
6. 
Components:
 EPSDP is designed to cover three development areas, namely Private 
Sector Development, Telecommunications, and Project Management.  These areas are articulated 
into six components that are described below. Table 3 in the Annex provides details of each 
component: 
 
·
Component 1 - 
Strengthening of the Project Institutions to Support Private Sector
(“Institutional Strengthening”):
This component helps establish and/or strengthen 
key institutions that support or encourage the private sector and financial sector in 
Iraq and enable these institutions to play their appropriate role.  It supports 
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institutional strengthening through the use of 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, and any other 
necessary technical assistance. The institutions selected for support include the 
Export Promotion Agency, the Economic Development Fund, and the development of 
Industrial Zones in Basra and Erbil.  
In Iraq’s present investment climate, where 
investors are skeptical of an investment-friendly business environment, industrial 
zones can be catalysts for reform and private sector development and offer a unique 
package of regulatory simplicity, investment security, infrastructure and hassle-free 
access to inputs. 
 
The contract for Component 1, excluding a sub-component on industrial estates, was 
awarded in November 2007. Implementation began in March 2008 and is expected to 
be completed by project closing date. The contracts for the sub-component on 
industrial estates have been negotiated and are expected to be awarded by end-
October 2008. The feasibility studies under the sub-component contract are expected 
to be completed by project closing date. 
 
·
Component 2 - 
Improving Access to Finance and Foreign Markets
 (“Private Sector 
Support”):
This component provides 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”) that 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 (“MOPDC”) that will channel technical assistance to Iraqi private 
enterprises to develop feasibility studies for new projects which require funding from 
financial institutions.  The component also acts as a catalyst to transform the two key 
private sector promotion and competitiveness programs, EPF and EDF, through well-
tested public-private partnerships.  It also includes an enterprise survey which will 
assess of the cost of doing business in Iraq with the aim of identifying key bottlenecks 
to private sector development and areas for future Bank Group engagement in private 
sector development and finance in Iraq. 
 
The contract for Component 2 was included with the main contract for Component 1, 
which was awarded in November 2007. Implementation began in March 2008 and is 
expected to be completed by project closing date. 
 
·
Component 3 - 
Upgrading of Selected Parts of Telecommunications Infrastructure for 
the Payments System (“IIBN”):
This component funds critical physical 
communications infrastructure for providing enhanced capacity for interconnecting 
the Central Bank of Iraq (
“CBI”) headquarters with CBI’s branches in Mosul and 
Basra (currently connected via VSAT).  The IIBN will also provide for more effective 
communications between CBI and the two government-owned banks (Rafidain and 
Rasheed) as well as the headquarters of 20 private banks in Baghdad.  The successful 
implementation of this phase will allow CBI to establish a communications network 
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with banks throughout Iraq.  The expanded network will allow CBI to make effective 
use of good and reliable bandwidth capacity that will become available through ITPC 
under this project, and augment it with appropriate state-of-the-art technologies to 
establish transmission links to banks in other provinces and districts of Iraq. 
 
The contract for Component 3 was awarded in September 2007. Installation began in 
February 2008. Most equipment has now been shipped to sites and is being installed. 
All installation is expected to be completed by November 2008. The inter-banking 
network is expected to be operational during fiscal year 2009. 
 
·
Component 4 - 
Rehabilitation of Selected Parts of National Telecommunications 
Network (“MWN”):
This component builds a modern and integrated national digital 
backbone microwave network to improve delivery of communications services to the 
government and people of Iraq.  In particular, this component focuses 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 - Arabil; (ii) Baghdad - Mosul; and (iii) Baghdad 
–
Ammara - Basra.  The 
remaining two routes are being developed under the Japanese Government Bilateral 
Assistance program to Iraq.  The microwave links will provide immediate voice and 
data connectivity for the key cities in the districts of Baghdad, Baquba, Kirkuk, Erbil, 
Mousa, Sulaimaniya, Dohuk, Ramadi, Hadetha, Alquaim, Kut, Ammara, Basra and 
Um Qaser, and improve national and international connectivity. 
 
The contract for Component 4 was awarded in June 2006. Implementation began in 
June 2007 due to procedural hurdles caused by a letter of credit. Most equipment has 
now been shipped to sites and is being installed. All equipment is expected to be 
delivered to sites by October 2008 and installed by December 2008. The microwave 
network is expected to be operational during fiscal year 2009. 
 
·
Components 5 and 6 - 
Project Management:
These components finance expenditures 
directly related to the management of the project such as: procurement consultants; 
external auditor fees; 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. The grant recipient will finance the salaries of the PMT 
staff. 
 
7. 
Expected Completion:
 The project is currently expected to close on June 30, 2009. The 
original closing date was June 30, 2007.  
 
8. 
Performance Assessment:
 After experiencing significant delays since its launch in 
December 2004, the project has shown improved performance during the last 18 months as 
shown below: 
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·
Implementation Progress Rating:
The implementation progress rating has recently 
been upgraded 
to “moderately satisfactory” from “moderately unsatisfactory” owing 
to improved performance during recent months. The project management teams have 
enhanced management capacity with the help of international experts and local field 
staff, and are mobilized to get the project completed on time. The implementation 
conditions on the ground have improved. 
 
·
Implementation Status:
As mentioned above (para. 6 - Components), implementation 
has accelerated on all fronts.  Work is being done on the ground and implementation 
is currently on track.  All contracts have been awarded and consultants have started 
the ground work.  Overall commitment stands at 60%.  Disbursements are expected to 
exceed 60% by October 2008. Disbursements take longer specifically for the two 
components under the telecommunications category because equipment is first 
shipped to Iraq, then to individual sites spread throughout Iraq, and then invoiced. 
More details on the implementation status and disbursements of each component are 
given in Table 3. 
 
·
Action Plan:
In order to keep implementation on track, the following actions have 
been agreed upon with the Government of Iraq: (a) detailed implementation schedules 
have been drawn up for each component and are being closely monitored; (b) the 
procurement and disbursement plans have been updated and are being closely 
monitored to ensure adherence to required procurement procedures and 
implementation schedules; (c) the financial management action plan, addressing the 
issues encountered is timely executed; and (d) an action plan has been established and 
is being followed upon for implementation to be completed on time.  
 
9. 
Rationale for Additional Financing:
 Additional financing of US$10.0 million is 
required for the two components under the telecommunications category for the following 
reasons: 
 
·
Financing Gap Caused by Foreign Exchange Variations in the MWN contract:
An 
allocation of US$8.15 million is needed to pay for financing gap caused by foreign 
exchange (USD vs. Euro) fluctuations in relation to microwave network component. 
The contract for the component was awarded in Euro while the EPSDP under ITF is 
denominated in US dollar. The USD/Euro exchange rate has depreciated by almost 
25% since the award of contract, increasing from USD/Euro of 1.2705 in June 2006 
to USD/Euro of 1.5875 in July 2008. 
 
·
Contract Variations for Microwave Network:
An allocation of approximately US$ 
983,617 is needed for contract variations for this component. The ongoing 
implementation of the microwave network requires changes to the contract to pay for 
additional power generators resulting from frequent power failures in Baghdad and 
other areas, re-build towers for equipment installation, and build shelters for site areas 
where security conditions are unfavorable.   
 
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·
Contingency for Contract Variations for IIBN:
An allocation of US$ 200,000 is 
required as contingency for possible contract variations for the IIBN component.  
Such contract variations could entail unanticipated changes in the type or amount of 
equipment required or the supply costs due to unpredictable security conditions in 
Iraq. 
 
·
Contingency for Future Foreign Exchange Variations:
With continuing foreign 
exchange fluctuations, an additional contingency of approximately US$ 667,648 is 
planned to offset future fluctuations and ensure that the microwave network can be 
implemented. 
 
Summary of Additional Financing 
 
Microwave and IIBN Components 
(in US$) 
Financing Gap Caused by Foreign Exchange Variations for Microwave Network 
8,148,735.60
Contract Variations for Microwave Network 
983,616.59
Contingency for Contract Variations for Inter-Banking Network 
200,000.00
Contingency for Future Foreign Exchange Variations for Microwave Network  
667,647.81
REQUEST FOR ADDITIONAL FINANCING 
10,000,000.00 
10. 
Alternative Funding Sources:
 Alternative options were considered to address the need 
for additional financing but were not found to be practical. Reallocating funds from other project 
components (aimed at supporting private sector development) was considered. However, these 
components are also showing encouraging implementation progress, have contracts in place, and 
have most of the funds committed. 
In addition, these components are at the heart of the project’s 
development objectives, consisting of building private sector institutions and reviving private 
sector to boost economic revival in Iraq.  As a result, it was agreed that these components cannot 
be reduced or cancelled. An allocation from the general budget of the Government of Iraq was 
also considered. However, government budget allocation procedures are lengthy, cumbersome 
and uncertain during the budget execution.  Such an option would likely cause significant further 
delays, at a time when the telecommunication infrastructure is urgently needed. 
 
11. 
Rationale for Processing under OP 8.00: 
The EPSDP was originally processed under 
OP 8.50, which has since been superseded by OP 8.00.  The security conditions within Iraq have 
remained problematic and have complicated project implementation.  As such, the project 
continues to demonstrate a need for rapid response to the emergency caused by the ongoing 
conflict. The need for rapid processing is required to complete the original scope of work that 
was envisaged for the project. The additional financing will help realize foreseen development 
outcomes and impact on the ground.  Moreover, the Second Interim Strategy Note for Iraq 
discussed by the Board in September 2005 allows for emergency project processing. As a result, 
this additional financing is being processed under OP 8.00 Guidelines. 
 
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3. Proposed Changes 
 
12. 
The proposed additional financing would imply no changes to project design, scope or 
objectives. Additional considerations include: 
 
·
Procurement:
The procurement plan for the telecom components has been updated to 
take into account the additional financing. 
 
·
Financial Management (FM):
The project will continue to use the financial 
management arrangements that are already in place. These include qualified staff, use 
of parallel electronic spreadsheets to record the accounting transactions and generate 
the project financial monitoring reports and 
project’s financial statements; proper 
documentation, budgeting and planning, compliance with the agreed upon project 
implementation manual; and annual independent external audit of the project 
financial statements. The financial management system is closely supervised by the 
Iraq based Monitoring agent. 
 
A
financial management risk assessment originally conducted in 2004 has been 
updated on the basis of the overall financial management performance over the recent 
years of project implementation.  The updated assessment report is contained in the 
project files.  The FM risk remains high mainly for the following reasons: (i) the 
difficult security conditions and inability of teams to undertake field visits; (ii) the 
weak public FM system; (iii) the inefficiencies of the banking system; and (iv) the 
high corruption rating. A full fledged Country Financial Accountability Assessment 
(CFAA) has not yet been undertaken however a Financial Management 
Accountability Assessment was issued and is used as a basis for the FM assessment at 
the project level. Its conclusions are in line with the various other reports issued by 
the Bank, IMF, and other donors confirming the high fiduciary risk.  To manage the 
identified risk, mitigation measures are proposed and are closely monitored by the 
FM team with support from the Iraq based Monitoring Agent. 
 
The FM risk at the project level also remains high due to records of weak FM 
performance including high turnover of the PMTs' financial officers; instances of 
incomplete and inaccurate project accounting records and financial monitoring 
reports; and the outdated project disbursement plan. However, over the past few 
months, there was some improvement of the quality of reporting and commitment to 
strengthen staffing. The 2007 audit report was received with an “unqualified” 
opinion. The management letter was also submitted and did not report on major 
accountability issues. To mitigate the risk, close monitoring will continue to be 
undertaken by the Bank and the Fiduciary Monitoring Agent to help the PMTs in 
improving the project FM performance and reduce the risk of non compliance  
 
·
Disbursement:
The disbursement plan has been updated to include the additional 
financing and it will follow the same disbursement methods that are used for the on-
going and other ITF-financed projects. 
 
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·
Loan Covenants:
The project has substantially complied with all loan covenants. 
 
·
Environmental Assessment (OP/BP 4.01):
The additional financing will be processed 
as an emergency operation under OP 8.00.  It is not considered to change the category 
“B” of the project.  An ISDS has been prepared. 
4. Consistency with CAS 
 
13. 
The proposed additional financing is consistent with the World Bank Group’s strategy for 
Iraq, as presented in the Second Interim Strategy Note, discussed by the Board in September 
2005. The additional financing supports the central pillars of the World Bank Group’s strategy to 
assist government efforts to enable private sector development, improve public sector 
governance, strengthen social safety nets, and restore basic service delivery.  The financing is 
also in line with the government’s strategic goals which emphasize good governance, private 
sector-led growth, and strong social safety nets. 
5. Economic Analysis of Cost Overrun or Financing Gap 
 
14. 
The economic and development impact of the EPSDP remains the same with the 
availability of the proposed additional financing.  As stated in the project’s Technical Annex, 
approved on December 6, 2004, 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 role 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.  
 
15. 
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 State Owned Enterprise (“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 and communications technology sector to generate 
50,000 to 100,000 new jobs. It will also lead to the reform of the entire SOE infrastructure sector 
in Iraq and help in establishing an effective regulatory system. 
 
16. 
Because of the emergency nature of the project, a detailed economic analysis was not 
conducted. However, the economic gains expected from the emergency response and a timely 
completion of the project include: 
 
·
Increased private investment:
The components under the private sector development 
category will help institutions within Iraq be in a better position to attract private 
investment and restore investor confidence that has been severely undermined by the 
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ongoing conflict in the country. Moreover, in an environment characterized by weak 
institutional capacity of government and business associations, high levels of 
informality, lack of transparency, and lack of basic financial services, industrial zones 
are expected to be catalysts for reform and private sector development and offer a 
unique package of regulatory simplicity, investment security, infrastructure and 
hassle-free access to inputs. 
 
·
Lower communications costs:
The development of MWN component will help lower 
the costs of communications services within Iraq by making available a nationwide, 
robust communications network in Iraq. 
 
·
Potential for greater employment:
In addition to employment opportunities created by 
increased private investment, the development of IIBN and MWN components will 
help introduce new products and services within Iraq to be delivered by the Central 
Bank of Iraq and ITPC. The operations and management of the new network 
deployed under MWN component and the introduction of products and services under 
IIBN component will create the prospect of greater employment within the 
telecommunications sector of Iraq. 
6. Appraisal for Cost Overrun or Financing Gap 
 
17. 
Since the additional financing will be used to pay for exchange rate variations and minor 
contract variations of project activities under implementation, a formal appraisal of new facilities 
is not needed. 
7. Expected Outcomes 
 
18. 
The proposed additional financing is required for successful completion of the telecom 
components and will help realize the outcomes of the project as was originally envisaged in the 
Technical Annex and shown in Table 4.  The additional financing builds on the momentum 
achieved during recent months in project implementation and helps the project attain its intended 
development impact. Some of the expected outcomes include: 
 
·
Investment-friendly business climate:
The two components under the private sector 
development category help strengthen the existing institutions within Iraq and 
develop a business environment that is conducive to private investment.  This will 
translate in increased private investments, employment generation and improved 
welfare of the Iraqis. 
 
·
Electronic payment system and check-clearing facility:
The IIBN component helps 
bring about electronic transactions for the Central Bank of Iraq and a better 
performing financial system within Iraq. Electronic transactions include a facility for 
checks to be cleared electronically and demonstrate an approach by which to gain 
significant improvements in time and efficiency.  This will have major positive 
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impact on the financial sector as well as the private sector development, and hence 
job creation. 
·
Improved nationwide connectivity:
The MWN component helps develop a 
nationwide communications network throughout Iraq that will allow major cities in 
Iraq to be connected.  Immediate outcomes will consist of lower communication cost, 
increase competition and investment of private sector in the telecommunication 
sector, and consequently, more employment and business development. 
8. Benefits and Risks 
 
19. 
Benefits:
 EPSDP is expected to have high development impact as discussed below: 
 
·
Component 1 
–
Institutional Strengthening, and Component 2 – Private Sector 
Support:
These components will initiate private sector capacity building and will also 
act as a catalyst to transform two key private sector promotion and competitiveness 
programs (Export Promotion Fund and Economic Development Fund) through well-
tested public-private partnership.  It will allow an assessment of the cost of doing 
business in Iraq with the aim of identifying key bottlenecks to PSD and setting the 
stage for future Bank Group engagement in PSD and finance in Iraq.  
 
·
Sub-component under Component 1 – Industrial Estates:
Private sector development 
in Iraq, as in other conflict-affected countries, represents a very difficult development 
challenge. The challenge is caused by weak institutional capacity of government and 
business associations, high level of informality, lack of transparency, lack of basic 
financial services, and powerful vested interests that often resist reform. In this 
environment, where investors are skeptical of an investor-friendly business 
environment, industrial zones can be catalysts for reform and private sector 
development, and can offer a unique package of regulatory simplicity, investment 
security, infrastructure, and hassle-free access to inputs. The feasibility studies 
financed under this component for Basra and Erbil industrial zones are key steps in 
identifying options and pilots for the development of this instrument.  
 
·
Component 3 – Iraqi Inter-Banking Network (“IIBN”): 
The Central Bank of Iraq will 
use IIBN to set up an electronic payment and settlement system, and interconnect 
with private and state-owned banks in Baghdad, Basra, Mosul, Erbil, Kirkuk, Najaf, 
Hilla and Suliemaniya.  The IIBN will allow availability of important applications 
such as government security registration system, real-time gross settlement system, 
automatic clearing house, and check-enabled system. It will allow provisioning of 
anti-money laundering applications. Both International Monetary Fund and Paris 
Club members have emphasized the implementation of IIBN and related electronic 
banking applications to Central Bank of Iraq and put IIBN as a condition for debt 
rescheduling and public expenditure support. 
 
·
Component 4 – Microwave Network (“MWN”):
A
well-functioning private sector in 
Iraq depends upon robust communications infrastructure that will be facilitated by the 
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timely rehabilitation of microwave long-distance network. The rehabilitation of the 
microwave network, which was destroyed during the war, will connect Baghdad with 
Mosul in the North, Arbil in the West, and Basra in the South. It will allow for 
interconnection between the fixed-telephone network and the privately-owned 
cellular-telephone networks and provide immediate voice and data connectivity to 
government, businesses and people in Baghdad, Baquba, Kirkuk, Arbil, Mosul, 
Sulaimaniya, Dohuk, Ramadi, Hadetha, Alquaim, Kut, Ammara, Basra and Um 
Qaser.  
 
20. 
Risks:
 Following are the notable project risks and the associated risk mitigation 
strategies: 
 
Risks Rating 
Mitigation 
Strategy 
Changes in security climate can affect 
supply and installation of equipment 
under IIBN and MWN components 
H
·
Greater emphasis is being placed on close 
project supervision to quickly respond to 
changing security conditions  
·
Greater coordination is being done with 
donors, development partners and local 
groups in Iraq to proceed with 
implementation in high-risk areas 
·
Greater emphasis is being given to lessons 
learned from similar projects being 
implemented by World Bank or other donor 
agencies in Iraq 
Coordination is needed between 
Kurdistan regional government and 
central government for work being 
done on sites within Kurdistan area 
under IIBN and MWN components 
S
·
Coordination is being achieved through 
dialogue with all parties involved 
·
Arabic-speaking local and international 
consultants monitor and manage coordination 
·
Local consultants are mobilized to Kurdistan 
region to work directly with Kurdistan 
regional government 
Further fluctuations in USD/Euro 
exchange rate can exacerbate the 
financing gap for the project 
M
·
Disbursements are being expedited so 
exchange rate risk can be minimized 
·
Cash contingency has been allocated against 
future exchange rate fluctuations 
Financial management 
H 
·
The Ministry of Planning has agreed to 
recruit a Financial Officer to strengthen the 
PMT 
·
PMT is utilizing existing resources from 
Etiman Consulting, the local fiduciary 
monitoring agent 
·
Financial statements are audited by an 
external auditor 
·
Monitor compliance with the agreed upon 
project implementation manual 
9. Financial Terms and Conditions for Additional Financing 
 
Page  15
-
12
-
21. 
The additional financing will be provided on a grant basis from the World Bank Iraq 
Trust Fund. 
 
22. 
Exception from Bank Policy:
 According to OP 13.20 2(a), 
“the Bank provides 
additional financing only when it is satisfied that (a) implementation of the project, including 
substantial compliance with loan covenants, is satisfactory.” This is generally interpreted to 
mean that project’s ratings over the most recent 12 months have been consistently “Satisfactory” 
or better. The implementation progress rating of EPSDP has recently been upgraded to 
“Moderately Satisfactory” from “Moderately Unsatisfactory”, though the rating for the last 12 
months has been “Moderately Unsatisfactory.”  The project implementation has substantially 
accelerated since February 2008 and an action plan has been developed to ensure that 
implementation stays on track. The project is expected to have a high development impact. 
Continued implementation of the project is dependent upon the timely availability of additional 
financing.  
 
23. 
The Managing Director agreed with MENA Region’s assessment of the implementation 
progress and therefore, granted a waiver on October 6, 2008 for the use of additional financing 
procedures for this project.  
 
Page  16
-
1
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Page  17
-
14
-
Table 2: Allocation of Grant Proceeds 
 
Allocation of Grant Proceeds 
 
Original 
Allocation  
(in US$) 
 
Revised 
Allocation 
June 8, 
2006 
(in US$) 
 
New 
Proposed 
Allocation  
(in US$) 
 
Goods 42,500,000 
42,300,000
52,300,000 
MOPDC 500,000 
300,000
300,000 
ITPC 42,000,000 
42,000,000
52,000,000 
Consultant's Services 
 12,200,000 
12,200,000
12,200,000 
MOPDC 11,400,000 
11,400,000
11,400,000 
ITPC 800,000 
800,000
800,000 
Operation Costs 
 300,000 
500,000
500,000 
MOPDC 100,000 
300,000
300,000 
ITPC 200,000 
200,000
200,000 
TOTAL GRANT COSTS 
55,000,000 
55,000,000
65,000,000 
Page  18
-
1
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Page  19
-
16
-
Table 4: Logical Framework and Key Performance Indicators 
 
Sector related Iraq 
Interim Strategy 
Goal 
Sector Indicators 
Sector Country 
Indicators 
Goal to Bank Mission 
To support the 
development of a 
dynamic private 
sector and financial 
sector by improving 
the investment 
climate where 
private participation 
can flourish. 
1. Increase domestic and foreign 
private sector investment and 
export. 
2. Establish and strengthen 
institutional capacity in the private 
sector. 
3. Increase employment in the 
private sector. 
Progress Reports 
of PMT. 
To facilitate the 
achievement of the goals 
of 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. 
Project 
Development 
Objectives 
Outcome / Impact Indicators 
Project Reports 
Output to Objectives 
1. To provide the 
foundation for sound 
investment climate 
from a financial and 
institutional 
perspective. 
1A. Strengthening of the following 
institutions: 
(a) Investment Promotion 
Agency 
(b)  Export Promotion Agency 
(c)  Economic Development Fund 
and 
1B. Development plans for two 
industrial zones at Arbil and 
Basra. 
Quarterly 
progress report 
including FMR of 
all components 
by the PMTs. 
A
full supervision 
Mission every 
quarter through 
videoconferences
.
1. Continued 
commitment of the 
Government of Iraq 
(“GOI”). 
2. Cessation or 
significant decrease in 
the level of violence. 
2. Develop a pipeline 
of opportunities for 
the private sector 
that would lead to 
job creation. 
2. The support of: 
i) Export Promotion Fund at the 
Ministry of Trade which will 
channel TA to 100 eligible firms to 
develop export plans. 
ii) Economic Development Fund 
at the MoPDC to channel TA for 
Iraqi private enterprises to 
develop feasibility studies for new 
funding from Financial Institutions 
(“FIs”). 
Quarterly 
progress report of 
all components 
by the PMTs.  
A
full supervision 
Mission every 
quarter through 
videoconferences
.
1. Continued 
commitment of the GOI. 
2. Cessation or 
significant decrease in 
the level of violence. 
3. To make essential 
infrastructure for the 
survival of a modern 
private sector, 
namely a reliable 
payment system, 
supported by the 
necessary 
telecommunications 
infrastructure. 
3. Connecting the CBI with two 
Government owned Banks 
(Rafidain and Rasheed) and the 
headquarters of 20 private banks 
in Iraq with high capacity and 
reliable communications 
infrastructure. 
 
Rehabilitation and upgrading of 
three of five national background 
microwave routes: (i) Baghdad-
Trabil, (ii) Baghdad-Mosul and (iii) 
Baghdad-Ammara-Basra. 
 
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Outputs 
Output Indicators 
Project Reports 
(Output to Objectives) 
1. Strong key public 
institutions and 
public private 
partnerships to 
facilitate and support 
investment and 
export. 
Development of Institutional 
Framework: 
1. Industrial 
zones 
development 
plans. 
2. 
Public awareness campaign 
to promote investment. 
3. Endorsement 
by 
the 
government 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. 
Project 
Supervision 
Reports. 
1. Qualified PMT staff is 
selected. 
2. Establishment of a 
modern payment 
system. 
1. Ten Capacity connectivities in 
the three routes. 
2. Training of 25 staff members in 
technical, legal, management, 
procurement and financial 
management affairs. 
Mid-Term 
Reviews. 
2. Experienced 
contractors and 
Consultants are able to 
carry out daily activities. 
3. Establishment of a 
modern telecom 
capacity to support 
corporate needs. 
3. Availability of 1,200 lines of 
interconnection and two megabits 
per sec-leased line. 
 
3. PMT consultants are 
able to monitor quality of 
work. 
Bank Staff / Consultants 
are able to supervise 
project activities. 
4. Roll-out of 2,050 km digital 
microwave routes 
 4. 
Cessation 
or 
signification reduction in 
level of civil violence. 
5. Ten Corporate users and 
service providers 
 
Project 
Components / Sub-
components 
Inputs (USD millions) 
Project Reports 
Critical Assumptions 
1. Develop the 
institutional 
framework to enable 
PSD. 
6.8 
 
Goods and supplies are 
delivered to project sites 
at reasonable costs. 
2. Provide support 
for specific private 
sector opportunities 
that will lead to job 
creation 
5.0 Mid-Term 
Reviews. 
There’s critical demand 
from private sector. 
3. Support the 
establishment of a 
national payment 
system. 
3.0 Project 
Supervision 
Reports. 
Bank staff / consultants 
are able to visit project 
sites for supervision. 
4. Building part of 
the microwave 
39.5 Project 
Supervision 
Counterpart funds for 
PMT salaries are 
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national backbone to 
support the 
requirements of 
corporate data 
n
eeds and the 
transmission 
capacity needed by 
all public and private 
operators 
Reports. available. 
5
&
6. Financing 
expenditures directly 
related to project 
management 
0.7 Withdrawal 
applications. 
Project 
Supervision 
Reports.