Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No: 54882-IQ

EMERGENCY PROJECT PAPER

FOR A

PROPOSED GRANT

IN THE AMOUNT OF US$ 5 MILLION

FROM THE WORLD BANK IRAQ TRUST FUND

TO THE

GOVERNMENT OF IRAQ

FOR THE

INTEGRATED NATIONAL ENERGY STRATEGY TECHNICAL ASSISTANCE PROJECT

December 22nd, 2009

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 11, 2009)

Currency Unit = US$US$1 = 1,153 IQD (Iraqi Dinar)

GOVERNMENT FISCAL YEARJanuary 1 – December 31

ABBREVIATIONS AND ACRONYMS

Bcf Billion cubic feetESSAF Environmental and Social Screening and Assessment FrameworkGoI Government of IraqFM Financial ManagementFMA Fiduciary Monitoring AgentFO Financial OfficerINESTA Integrated National Energy Strategy Technical AssistanceIRFFI International Reconstruction Fund Facility for IraqISN Interim Strategy NoteISRB Iraq Strategic Review BoardITF Iraq Trust FundMIM Master Implementation Manualmmbo/d Million barrels per dayMoE Ministry of ElectricityMoF Ministry of FinanceMoIM Ministry of Industry and MineralsMoO Ministry of OilMoPDC Ministry of Planning and Development CooperationMoWR Ministry of Water ResourcesMW MegawattOPR Operational Procurement ReviewPAB Public Accountant’s BoardPMAC Prime Minister’s Advisory CommissionPMO Prime Minister’s OfficePMT Project Management CommitteePO Procurement OfficerPP Procurement PlanPSC Project Steering CommitteeQCBS Quality and Cost Based Selection

Vice President: Shamshad AkhtarCountry Director: Hedi LarbiCountry Manager Jean-Michel HappiSector Manager: Jonathan Walters

Task Team Leader: Michael Levitsky

IRAQIntegrated National Energy Strategy Project

CONTENTS

Page

A. INTRODUCTION.....................................................................................................................4

B. EMERGENCY CHALLENGE....................................................................................................4

C. BANK RESPONSE: THE PROJECT..........................................................................................9

D. APPRAISAL OF PROJECT ACTIVITIES..................................................................................13

E. IMPLEMENTATION ARRANGEMENTS AND FINANCING PLAN..............................................14

F. TERMS AND CONDITIONS FOR PROJECT FINANCING......................................................19

Annex 1: Detailed Description of Project Components............................................................20

Annex 2a: Results Framework and Monitoring.......................................................................32

Annex 2b: Arrangements for Results Monitoring....................................................................34

Annex 3: Summary of Estimated Project Costs........................................................................39

Annex 4: Financial Management and Disbursement Arrangements......................................40

Annex 5: Procurement Arrangements.......................................................................................47

Annex 6: Implementation and Monitoring Arrangements......................................................51

Annex 7: Project Preparation and Appraisal Team Members...............................................54

Annex 8: Environmental and Social Safeguards Framework.................................................55

Annex 9: Documents in Project Files.........................................................................................56

Annex 10: Statement of Credits and Grants............................................................................57

Annex 11: Country at a Glance..................................................................................................58

Annex 12: Maps...........................................................................................................................61

A. INTRODUCTION

1. This Project Paper seeks the approval of the Vice President of the Middle East and North Africa Region to provide an Iraq Trust Fund Grant in the amount of US$5 million to the Government of Iraq (GoI) for the Integrated National Energy Strategy Technical Assistance (INESTA) Project (“the Project”).

2. The proposed Iraq Trust Fund (ITF) Grant would finance the costs associated with the development of an Integrated National Energy Strategy (INES) for Iraq, encompassing the oil, gas and power sub-sectors. Iraq’s oil and gas resources are among the largest in the world. Despite significant efforts to revitalize the Iraqi energy sector after the extensive damage caused by the conflict in 2003, major challenges remain. Efforts to strengthen operations and reconstitute physical infrastructure within the sector have met with mixed success, limiting the ability to deliver domestic energy supplies and generate reliable and adequate export revenues. Coordinated planning between the relevant government agencies is currently weak. Reliable access to high-quality energy supplies is a widely recognized enabling factor in economic development, and the long-running inability to provide such supplies is seriously detrimental to the welfare of the Iraqi population. In addition, as crude oil exports represent 98 percent of total exports and oil revenues make up 96 percent of total budget revenue (excluding grants), the ability to utilize Iraq’s natural resources in a sustainable and equitable manner is essential to the future of the nation’s economy.

3. The proposed support will help respond to the present difficult situation by providing funding through the ITF for the engagement of a high-quality strategic energy consultant (“the Consultant”) to work directly with the GoI to deliver this INES. Successful completion of the Project and eventual implementation of the INES will contribute to:

a. Improvement in the sustainable management of Iraq’s natural resource wealth, both in the near-term and for future generations,

b. Expanded access to reliable, high-quality energy for the Iraqi populationc. Increased coordination and cooperation between Iraq’s energy-related ministries: the Ministry

of Oil, Ministry of Electricity, Ministry of Finance, Ministry of Planning and Development Cooperation, Ministry of Industry and Minerals, and Ministry of Water Resources,

d. Stabilization of the commercial and political environment of the Iraqi energy sector, resulting in increased access to lower cost financing and technology.

B. EMERGENCY CHALLENGE

Iraq Energy Sector Context

4. Iraq’s development prospects depend largely on the appropriate development of its oil and gas resources. Iraq has the third largest proven oil reserves in the world and very large resources of natural gas. The economy is highly dependent on oil production, which accounts for two thirds of GDP. However, the country’s energy infrastructure has suffered during almost three decades of political turmoil and war. Oil production is now substantially below its potential, refineries are unable to meet requirements for light products, electricity supply is inadequate to meet demand, and large quantities of natural gas are being flared. Along with infrastructure, capacity for energy sector management and governance has also been weakened.

5. All elements of Iraq’s energy supply chain are damaged and some are deteriorating further. Since oil and natural gas provide almost all of Iraq’s final energy, development of the sector must to be closely integrated to function effectively – as is the case in countries with similar energy resources.

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For domestic energy needs, oil and gas produced as primary energy need be turned into final energy for consumers (e.g. electricity, gasoline, etc.). To achieve this, all elements of the chain that turn primary energy into final energy need to work efficiently: production, refining and processing, pipeline transport, power generation, transmission and distribution. This is shown in Figure 1. The availability of each type of final energy to consumers is a function of the weakest link in the chain. Exports of oil and gas are also determined both by production and by the quality of downstream links. In Iraq at present, all of the elements in the chain are failing, and the energy sector as a whole is in crisis. Oil production and transport infrastructure have deteriorated significantly, restricting oil exports. The downstream oil chain from refining to distribution is inefficient and cannot fully supply demand. The links from gas production onwards often barely exist, resulting in elimination of associated gas through flaring. Significant activities that should be taking place are almost entirely absent - such as exploration for new oil and gas fields, development of natural gas exports, and processing of natural gas for LPG.

Figure 1: Iraq’s Energy Sector Integration

Source: World Bank

6. The problems caused by the physical security situation and political turbulence have been aggravated in recent years by weak institutions and a lack of cohesive energy sector planning. The poor performance of the sector has had dire consequences for the Iraqi economy and the welfare of its people:

Hydrocarbon Exploration and DevelopmentOil Production Gas Production

Crude Oil

Exports

Gas Exports

Associated GasOil Refining

Gas Process

ingOil Products (diesel, gasoline,

HFO, etc)

Power Genera

tion

Oil Products

TradeOil

Products Storage

& Transpor

t

Gas Transmis

sion & Distribu

tion

LPG Distribution

Domestic Consumers: Industry, Commerce, Households

Electricity Transmission &

Distribution

Flaring

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a. There is limited access to affordable, reliable energy sources for the domestic population and for local industry. Despite the financial and programmatic attention afforded to the Iraqi energy sector by donors and Government over the past six years, lack of energy access remains a significant economic and social problem. Electricity supply has been improving, but nonetheless only 57 percent of electricity demand was satisfied from the grid during 2008. Power shortages are leading to widespread blackouts, damage to economic activity, and resort to high cost captive power generation. Domestic refineries are outdated and have been damaged. They have consequently been unable to meet requirements for diesel and gasoline, and about 25% of demand is met by imports with occasional shortages. Iraqi citizens cite lack of reliable electricity as one of their primary concerns after security.

b. Success in increasing oil production and exports has been limited, with production recovering slowly in the past few years, after the major setback in 2003 caused by the war. Iraq’s production capacity remains far below its potential. Production in October 2009 was 2.5 mmbo/d. This is lower than the pre-war level of 2.6 mmbo/d attained in 2000, and far below the record of over 3.5 mmbo/d achieved in 1979. With domestic consumption recovering to roughly 0.6 mmbo/d, net exports of oil were 1.96 mmbo/d on October 2009. In order to maintain production, field operators in Iraq are reportedly pushing production from its giant fields above technically optimal levels, at the expense of long term recovery.

Figure 2: Iraq’s Oil Production (mmbo/d)

19731975

19771979

19811983

19851987

19891991

19931995

19971999

20012003

20052007

2009 (Oct)

0500

1000150020002500300035004000

Iraqi Oil Production (1973-2009)

mm

bo/d

Source: EIA

c. Large volumes of associated gas are being flared, due to inadequate gas pipeline and processing capacity and limited effective demand from power generation units. It is estimated that approximately 60 per cent of gas production is being flared, making Iraq’s flaring the fourth largest in the world. At 7 bcm, gas flaring is equivalent to 2 per cent of Middle East gas production. Because associated gas is an unavoidable by-product of oil production, any solution to the flaring problem must involve integrating oil development with gas infrastructure and power sector investment.

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d. In the power sector, generation capacity lags far behind demand . Recent capital investment, rehabilitation and increased focus on operations and maintenance have resulted in average supply rising to roughly 5,800 MW in 2009. However, electricity demand continues to increase significantly and by some estimates has risen by more than 10 percent annually over the last three years. Required capacity is now over 10,000 MW, taking into account significant suppressed demand. The use of current capacity is highly inefficient, with fuel oil replacing gas in many turbines, causing technical problems. Even the availability of fuel oil can be in question due to constraints on refinery output. Transmission and distribution systems remain highly unreliable and total losses are estimated to be at least 30% (technical and non-technical). In plans developed by the Ministry of Electricity, the total investment needs of the electricity sector for the period 2006 to 2015 were estimated at US$27 bn. Iraq’s connections to regional power systems also require increased attention.

e. Iraq’s energy sector institutions may not be managing the sector as effectively as possible. This could be a consequence of the existing institutional structure. In oil and gas and in electricity, the respective ministries function as state monopolies that are responsible for all aspects of policy, regulation and operations. This may not be the best configuration for efficient, transparent and accountable management. Experience elsewhere has shown that, in general, separation of policy and regulation from operational functions helps to improve energy sector governance. Restructuring institutions is a complex task, requiring careful analysis and execution. Energy sector institutions in Iraq have also been weakened by conflict and by political events, and suffer from capacity constraints.

f. Environmental and social concerns in the energy sector remain secondary to the urgent operational and economic priorities. Many standard practices for containing the environmental impacts of oil production are often no longer implemented. Such neglect results in oil spills, inadequate handling of toxic materials, and improper disposal of production water. Flaring of rich (unprocessed) gas is also a significant local environmental problem, and contributes to global greenhouse gas emissions.

g. Water supplies remain a critical issue closely related to the energy sector, as increased demand from power generation facilities collides with already-strained water supplies for agriculture and communities. Particularly farthest downstream in and around Basra, low water levels in the Tigris and Euphrates have already resulted in reduced generation capacity and reports of significant environmental and agricultural damage. Water salinity has also reportedly increased dramatically as waters from the Gulf have encroached on local water supplies. As a revitalized energy sector creates further water demands, this issue must be addressed in parallel with plans for the oil, gas and power industries.

h. Improved energy efficiency is a top priority, and Iraq has been isolated from many recent developments in energy technology and in global policy. The level of waste in the production and use of electricity, gas and oil is believed to be large. Iraq may be able to follow neighboring countries in introducing renewable technologies where appropriate, and in developing a full understanding of the potential of new technologies. Global climate change policy considerations also need to be taken into account.

i. Corruption and limited transparency within the Iraqi energy sector remain high-profile political issues in Iraq. A lack of sector-wide planning, unclear lines of control, limited internal monitoring and metering of energy flows, and vulnerability of subsidized energy products to rent-seeking activities have all created substantial space for corruption.

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Inadequate metering of oil flows has created uncertainties about amounts of oil produced, processed and sold.

7. The international dimensions of Iraq’s energy sector policies are particularly important. Iraq is one of the world’s largest holders of low cost oil and gas resources, and it interacts closely with global energy markets, and the world economy. As concerns oil production and exports, Iraq’s potential is such that it cannot necessarily be considered a price-taker for crude oil. Its production and export decisions will substantially affect global supply and demand. Iraq therefore faces crucial decisions in the medium and long term about its rate of oil production. The potential exists for a very substantial increase in oil exports: At present rates of production, Iraq’s proven (i.e. known) reserves would last for 125 years, and very large reserves remain to be discovered. The size and rate of oil production growth is a key issue for the sector, in terms of institutions, investment and transparency.

8. Iraq’s natural gas potential is also world-scale and has barely been tested. Its proven reserves are of the order of Algeria and Norway, yet unlike these two countries Iraq exports no gas and has no influence on international markets. Moreover, exploration focused on natural gas has hardly been carried out in Iraq, and its undiscovered potential may be extremely large. Iraq is in a region where demand for gas is growing rapidly. Gas trade is increasing in the Middle East, while Europe is also seeking new sources of supply. The international LNG business is also booming. Participating in international gas trade requires far more planning than oil. Moreover, gas exports must be consistent with the integrated development of resources for domestic use, including an effective supply of gas for power. Iraq’s limited capacity to manage its energy sector in an integrated manner currently prevents it from becoming a global gas exporter, and also constrains domestic energy supplies.

9. Rectifying Iraq’s energy sector problems will require considerable investment . However, it is not clear how much investment will be needed to achieve specific objectives for the sector. Mobilizing the required financial resources may not be easy under present circumstances. At current levels of oil exports and prices, Iraq risks running a budget deficit, and there is no surplus available for large investments in energy infrastructure. A more structured and integrated approach to sector policies will help the Government to assess the amount of financing required, and to use it effectively.

Recovery Strategy

10. This project supports a key part of Iraq’s recovery strategy for the energy sector . To deal with the current difficulties, Iraq needs both a short term response to improve domestic energy supplies and maintain oil export revenues, and a coordinated effort to rebuild the energy sector and its institutional foundations. This Project is primarily oriented to the latter endeavor, but is closely linked to the former.

11. The Government has taken several measures over the past few years to address the immediate problems in the energy sector. These have had limited impact, and may not be sustainable, in the absence of a stronger policy and institutional framework. In the electricity sector, one of the Government’s responses has been to relieve generation constraints by importing some 10,000 MW of gas turbines. However, limited capacity for project development in the Ministry of Electricity has so far prevented the installation of these turbines into operational power plants. Any approach to restoring power supplies will not be effective without a comprehensive approach to power sector planning, coordination with gas investment, and better management by electricity industry institutions. In the oil sector, the Government has begun to sign contracts with major foreign oil companies to expand production in existing oil fields, under specific incentive terms. Investments in oil production need to be coordinated with projects to build new refineries, and investments to handle and use associated gas in power stations or for export. Iraq may need to make immediate sub-optimal

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investments to address its energy crisis, but it cannot continue to make such investments in an unplanned and uncoordinated manner without causing gross inefficiency and renewed crises in the future.

12. The INES developed under this project will assess the current situation of the energy sector, review options for development towards a more efficient and sustainable future, and recommend specific policy actions and investment areas for implementation. Equally importantly, it will chart the direction for institutional reform and policy development over the long-term.

Rationale for the Proposed Bank Emergency Project

13. The INESTA project, and resulting INES, is a response to requests from the GoI, through the Prime Minister’s Advisory Commission (PMAC), a part of the Prime Minister’s Office (PMO). Development of coordinated policies in the energy sector is a key part of the country’s recovery strategy.

14. The World Bank will provide the funding and independent quality control needed by the GoI to procure the high-quality consultants needed to formulate an INES. Use of highly qualified international consultants to develop the INES is necessary to reinforce inadequate capacity in the country, to address the importance and magnitude of the Iraqi energy sector, and to provide the necessary independent and global perspective.

C. BANK RESPONSE: THE PROJECT

Brief Description of Bank’s Strategy of Emergency Support

15. This project would be part of the Bank’s overall program of support to Iraq which amounts to approximately US$1 billion of which about half is funded by the Iraq Trust Fund (ITF) (described below) and half from IDA. The portfolio includes projects for Iraq’s socio-economic recovery to provide and build schools and textbooks, health clinics and pharmaceuticals, improved social safety nets, water supply and sanitation, irrigation and drainage, roads, electricity, environmental management, private sector development, and banking and public finance management reform efforts. The ITF also finances technical assistance to help strengthen Iraqi institutions, develop baseline poverty data, and improve social safety net targeting mechanisms.

16. The Project is financed by the International Reconstruction Fund Facility for Iraq (IRFFI). IRFFI aims to help donors channel resources and coordinate support for capacity building, reconstruction, and development projects in Iraq in line with Iraq's priority program through two trust funds: the World Bank Iraq Trust Fund (ITF), and the UN Development Group Trust Fund. The ITF finances 21 grants (of which 18 are active) totaling US$506.9 million, thereby committing all of the donor deposits (US$494 million) to projects. The ITF is financed by contributions from the following donors: Australia, Canada, European Community, Finland, Iceland, India, Japan, Republic of Korea, Kuwait, Netherlands, Norway, Qatar, Spain, Sweden, Turkey, United Kingdom, and United States. (See Annexes 10a for details on specific activities financed by the ITF).

Project Development Objectives

17. The Project’s development objective is to improve the ability of the Government to develop an energy strategy that is designed to increase the contribution of the sector to sustainable development.

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Summary of Project Components

18. The Project will consist of the following components:

a. Component 1: Development of an Integrated National Energy Strategy

Provision of technical assistance for the development of an integrated national energy strategy for Iraq’s oil, gas and power sectors (the INES), including:

i. Review of the key energy sector characteristics,

ii. Review of energy strategy experience in other countries with similar economic circumstances,

iii. Analysis of Iraq’s strategic options for energy sector development, including institutional and regulatory structure and framework for priority investments,

iv. Review of key environmental and social policy issues relevant to the energy sector and development of key strategic recommendations on how to address these issues,

v. Assessment of Iraq’s energy equipment supply and services industries, their potential and needs for capacity building,

vi. Development of an implementation plan for the INES,

vii. Dissemination and publication of the INES, including the review of environmental and social issues.

b. Component 2: Project Management

Supporting the PMT in Project management, monitoring and evaluation through provision of Training, consultant services, including Project audit, and financing of Operating Costs.

19. The INES will be a comprehensive and detailed strategy for the whole of the energy sector. It will provide an overall decision-making framework for energy policies, institutional development and investments. It will also highlight investment priorities and identify key investments required within the strategy. However, the INES is not a complete technical and investment plan for energy development, rather, it will provide the detailed policy, institutional and strategic framework for review and discussion within the Government and among stakeholders. The work will provide a rigorous basis upon which policies and investments can be designed and implemented, in a fully coordinated manner.

20. The Consultant’s work funded under the Project will focus on the national energy sector. It will not deal directly with sub-national policies, and will not cover oil revenue management and related macro-economic policy. The scope of work of the Consultant and the Terms of Reference are set out in Annex 1.

21. The final INES reports will be disclosed publicly, and will be freely available online. In view of the importance of environmental issues, stakeholders, including CSOs, will have the opportunity to comment on a draft of the Report on Environmental and Social Issues. The INES produced under this Project will serve as the robust foundation for further discussion among all stakeholders. This

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will be assisted under the Project by the initial dissemination of the INES through workshops, with the participation of the Consultant. The process of review of the INES and stakeholder engagement will be addressed in the Implementation Plan produced with the assistance of the Consultant.

22. The work on the INES will be closely coordinated with other World Bank assistance in the energy sector taking place at the same time. The TA Project “Support for Power Sector Generation Planning and Development” (financed under the ITF) focuses on Iraq’s investment plan for the power generation sector in the medium and long term. The Global Gas Flaring Reduction Partnership (GGFR), managed by the World Bank, is working with the MoO on flaring reduction and gas utilization.

23. The INESTA project will be implemented under the leadership of the Prime Minister’s Advisory Commission (PMAC), which will host the Project Management Team (PMT). All key ministries and agencies relevant to the work will be engaged through a Project Steering Committee (PSC) tasked with the preparation of an Energy Strategy.

Eligibility for Processing under OP/BP 8.0

24. Since the 2003 war, Iraq’s energy sector has been operating in a post-conflict crisis mode, where meeting domestic energy demand and maintaining oil production, by any means necessary, are overriding goals. There is a widespread desire to restore and develop the energy sector in a planned and sustainable manner, rather than operating on an ad-hoc basis. Through the formulation of the INES, and dissemination of the final deliverable, the Project will provide a strategy designed to help move the energy sector out of crisis mode. The World Bank’s support in this case needs to be provided urgently, given the critical state of the sector and the rapidly changing political context. The GoI has shown its commitment to developing an energy strategy through the appointment of the SC. This provides a window for action that should be used promptly.

25. The Project Development Objectives for INESTA align with a number of the OP 8.00 objectives, in particular:

rebuilding and restoring physical assets – The INES will not fund any physical works in Iraq’s energy sector infrastructure, however, its adoption will improve the likelihood of much needed investment flowing into the sector.

restoring the means of production and economic activities – Helping open the Iraqi energy sector to investment in physical assets, while also providing recommendations designed to overcome the institutional and regulatory barriers at work, will positively impact Iraq’s most important source of export income and government revenues.

preserving or restoring essential services – The limited ability to reliably supply affordable and acceptable quality energy products to the Iraqi population, particularly through liquid fuels and electricity, was a notable failure of post-2003 reconstruction efforts. The Project will chart the way forward for improving domestic energy supplies.

assisting with the crucial initial stages of building capacity for longer-term reconstruction, disaster management, and risk reduction – As discussed above, the goal of the Project is to lay the groundwork for a revitalization of the Iraqi energy sector. The formulation and adoption of the INES will improve the country’s capacity to address the reconstruction and management of the national economy.

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Consistency with Interim Strategy Note (ISN)

26. The Project is fully consistent with the mid-FY09-FY11 Iraq Interim Strategy Note. The three key themes of the ISN are all addressed within this project;

a. Theme 1: Continuing to support ongoing reconstruction and socio-economic recovery – Investment in the reconstruction of Iraq’s energy sector has been undermined by the lack of coherent sector planning, as well as the continuing political and physical security risks. The key goal of the Project is to help address this first issue, through the provision of an integrated sector strategy.

b. Theme 2: Improving the management of public resources, including human, natural and financial – The ability to manage Iraq’s vast natural resource wealth in a sustainable manner will be greatly improved through coordination between the relevant energy sector authorities. The Project will also contribute to improved management of oil revenues by supporting institutional reforms in the oil industry.

c. Theme 3: Supporting Policies and Institutions that Promote Broad-Based, Private-Sector Led Growth – The ISN specifically states the World Bank Group’s willingness to provide “on-demand support to the oil and gas sector beyond revenue management issues”. The INES will address the Government’s demand for support in this area. The project will improve the prospects for investment in the energy sector, including private investment in certain sub-sectors.

Expected Outcomes

27. The primary outcome of the Project will be the production and dissemination of an INES, incorporating the analysis of the energy sector, assessment of strategic options, and recommendations for key policies and actions to review and implement the proposed strategy (see Annex 2a).

28. The expected longer term outcomes resulting from successful implementation of the INES, include the following:

a. Enhancement of the contribution of Iraq’s oil and gas resources to sustainable development,

b. Strengthened integration between investments in different parts of the energy sector,

c. Contribution to mobilizing the funding necessary for the recovery and expansion of Iraq’s energy sector to meet future development needs,

d. Improved access to financing on best terms for energy investments,

e. Provision for full integration of environmental and social considerations into the energy sector,

f. Strengthened institutions in the energy sector, including greater financial transparency of energy companies,

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g. Support for sustainable development through efficient energy supply to all consumers, at prices reflecting financial and economic costs.

29. The GoI’s adoption and execution of the Implementation Plan produced within the INES will be a key factor in assessing the success of the Project and achieving the desired outcomes. The Plan will provide the blueprint for specific policies and further actions required to improve the performance and prospects of the energy sector. The Plan will indicate priority areas for investment and the framework for identifying specific projects.

D. APPRAISAL OF PROJECT ACTIVITIES

30. Fiduciary aspects: The financial management and procurement aspects of the project are described below and in detail in annexes 4 and 5, respectively.

31. Environmental and Social aspects: Safeguard policy in Iraq is directed by the Environmental and Social Screening and Assessment Framework (ESSAF) (as revised in April 2006), which prescribes special procedures to account for the continuing instability in the country. The proposed Project finances international and local advisory services as well as limited information dissemination activities related to the final deliverable.

32. The Project has been rated as a Category B technical assistance project, since the energy sector in Iraq presents many high-profile and sensitive environmental and social issues. In the Bank’s view it is important to give full coverage to these issues, and also to provide some scope for public comment in these key areas. In order to give due weight to Environmental and Social issues, the Consultant would produce a stand-alone report on these. This report would be presented to the PSC for approval. The approved version would then be sent for comment to a full range of knowledgeable civil society organizations, government officials and academic institutions, at the time of the consultants’ Second Interim Report (12 months after the start of the Project). The PMT and PSC would collect comments with the support of the consultants, and these would be used to frame a final Report on Environmental and Social Issues. This report would contain a summary of comments received. The PMT and PSC would organize a workshop for Government and other stakeholders, to discuss the Environmental and Social report with the assistance of the Consultant. The Ministry of Environment (together with other relevant ministries not already represented on the PSC) would be involved in the Project’s work on environmental and social issues. Environmental and Social aspects are described further in Annex 8.

Lessons Learned and Reflected in Project design

33. The Bank’s experience of implementing projects in post-conflict countries has highlighted the importance of simple and flexible project design. Iraq presents additional challenges because it is still a country experiencing conflict and the security situation and institutional weaknesses demand that project design not be overly ambitious. Travel to Iraq is still constrained by security considerations for both staff and consultants while local capacity remains limited.

34. The proposed Project has therefore been designed around a single contract, with utilization of local consultants where possible and reliance on remote communications and coordination as far as is practical. In order to ensure that the consultants meet GoI expectations in-person consultations will be required on a regular basis, and security and travel costs have been included in the cost estimate for the Consultant’s services. The Project structure, based on a straight-forward execution and delivery model for the INES, helps minimize the risk of disruption from outside events.

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35. Experience of Bank projects in Iraq has shown that account needs to be taken of the lack of capacity in line ministries. The implementation of the Project by the PMAC, a high-level group specializing in policy work, will help to overcome this problem.

E. IMPLEMENTATION ARRANGEMENTS AND FINANCING PLAN

Implementation Arrangements

36. The INESTA Project will be implemented under the leadership of the Prime Minister’s Advisory Commission (PMAC). All key ministries and agencies relevant to the work will be engaged.

37. The GoI has created a Steering Committee tasked with formulating the INES. This Steering Committee will also act as the Project Steering Committee (PSC) for this Project. The PSC will work with the support of the Consultant under this Project. The Committee is chaired by the Head of the PMAC, and is composed of high-level representatives from the PMAC, and from the Ministries of Oil, Electricity, Planning and Development Cooperation, Industry and Minerals, Finance and Water Resources. A Project Management Team (PMT) has been established within the PMAC, under the oversight of the Head of the PMAC, to support the implementation of the Project.

38. The PMAC, a high-level policy advisory body located within the Prime Minister’s Office (PMO), is the implementing agency of the ITF grant. The ITF is a multi-donor trust fund administered by the World Bank, which was established to coordinate international financing for investment projects, technical assistance and other development activities, within the framework of the GoI’s priority program. The Consultant will be contracted by the GoI. Arrangements for project implementation will follow standard World Bank – IDA procedures for projects in IRAQ.

39. The PMT will facilitate the work of the Consultant, by providing logistical support and liaison with Government bodies. It will be responsible for monitoring project implementation, and for fiduciary issues. However, the PMT will not be involved in analytical and similar work in support of the Consultant’s work as specified in the TOR. The PMT will initially comprise three full-time dedicated staff. A project manager will manage the PMT and will serve as the key interlocutor for the Bank’s Task Team and the Ministries of Oil, Electricity, Planning and Development Cooperation, Industry and Minerals, Finance and Water Resources. The project manager. He will initially be supported by a Financial Officer (FO) and a Procurement Officer (PO). During the initial procurement phase of the Project, the FO and PO will manage the daily financial management and procurement activities of the Project as outlined in the sections below and in further detail in Annexes 4 and 5, respectively. However it has been agreed that following contract signature with the strategic consulting firm, the FO and PO may be retained on a part-time basis. The work and functions of the FO and PO may be carried out by qualified local consultants, hired according to the World Bank’s Guidelines, and financed under the Project.

40. Further details on Project implementation arrangements are available in Annex 6.

Project Timeline/Draft Disbursement Plan

41. Below is the planned implementation and disbursement schedule. This is based upon the lump-sum payment schedule contained in the Request for Proposals sent to the short-listed consulting firms. The timing and disbursement schedules shown could be altered during the negotiation of the contract between the Government and the selected firm. The overall Timeline reflects the aim of completing the Consultant’s report in 18 months. This is fairly ambitious, and experience in Iraq shows that there is a significant risk that this timing may not be met. However, it is important that clear targets are set

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at the start of the contract, even if some modification is required in light of extraneous events or the volume of work.

Milestone Timeframe* Estimated Date** DisbursementContract signature February, 2010 10%Inception Report 2 months May, 2010 10%First Interim Report 8 months November, 2010 15%Environmental and Social Report

12 months March 2011 15%

Second Interim Report 12 months March, 2011 15%Draft final Report 16 months July, 2011 15%Final Report 18 months September, 2011

Workshops 18 months

Following completion of Final Report

September, 2011 20%

Progress reports Approximately every two months

* Months after Consultant starts work. ** Assumes Consultant selection finalized in January, 2010.

Bank Supervision, Monitoring, and Evaluation

42. The Project will be implemented by the PMT based in Baghdad. The PMT will prepare reports every two months on the work of the Consultant that will be included with minutes of the Consultant’s meetings with the PSC. The PMT will also prepare standard quarterly reports for the Bank on the overall progress of the Project and fiduciary matters. Supervision will be directed by the TTL. Support on all aspects of supervision (procurement, financial management, fiduciary) will be provided by Bank staff based in Amman, Beirut, Baghdad and elsewhere. The World Bank ITF engages a Fiduciary Monitoring Agent (FMA) to help the Bank supervise project implementation. The FMA monitors the physical implementation of projects and compliance with the fiduciary policies of the Bank. The FMA verifies the delivery of goods and services, visits Project sites and the PMT on a regular basis, and reports its findings to the Bank and the PMT. The FMA also provides technical assistance through on-the-job training to the PMT on Bank procurement and financial management procedures, and participates in supervision missions with the Bank and Project team.

43. Supervision missions will be mounted approximately quarterly, and will include meetings with the PMT. The Bank’s Senior Energy Specialist based in Beirut will visit the PMT in Baghdad on a regular basis. The Bank’s approach to the Project needs to balance oversight, fiduciary duties and policy engagement: the supervision of this Project will concentrate on implementation issues and quality control. This is to ensure that the eventual INES is fully supported and owned by the Government.

44. The Bank will review the Consultant’s reports for quality and timeliness, and for consistency with the Terms of Reference. Bank staff will generally not attend the regular meetings between the Consultant

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and the PSC held every two months. However, staff will aim to attend major presentations by the Consultant at key milestones.

Financial Management Arrangements

45. The PMT will be responsible for planning and coordinating all Project activities, FM (payment authorization, disbursement, accounting, reporting and audit), procurement of consulting services (and related contract management) from the private sector, and monitoring and evaluation. The FO will undertake the agreed-upon Project FM responsibilities, including maintaining Project accounting records, having the interim unaudited financial reports generated and submitted in a timely manner, and providing the needed support for the Project external auditor to submit an annual audit report and audited financial statements. The Project’s implementation, procurement and FM performance and compliance with the required guidelines, will be monitored by the Fiduciary Monitoring Agent (FMA). . If necessary, the work and functions of the FO may be carried out by qualified local consultants, hired according to the World Bank’s Guidelines, and financed under the Project.

46. The Project is budgeted for US $5 million, with components as listed below in Table 1.

Financial Components of INESTA Project (Net Cost In M US$)

Disbursement Category Amount of the Grant Allocated

Percentage of Expendituresto be Financed

(inclusive of Taxes)Consultant’s Services, including audit and training

4.5 100%

Operating costs 0.25 100%Unallocated 0.25 100%Total Amount 5.0 100%

Procurement Arrangements

47. Procurement subject to Bank tendering requirements will consist principally of consultancy and training services, which shall be carried out in accordance with the World Bank’s “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 and revised in October 2006. Any additional provisions stipulated in the Grant Agreement will equally guide procurement under the Project. Detailed arrangements, including thresholds for procurement methods and prior review by the Bank, are presented in Annex 5.

48. Consultancy services: The Project finances primarily the Strategic Consultant, with a small additional contract for an External Auditor.

49. Operating Costs: The operating costs to be financed under the Project would include incremental operating costs incurred by the PMT on account of Project implementation, management and monitoring, including office supplies and utilities, translation and interpretation, printing and advertising, including communication costs, costs associated with the production of bidding documents, commercial bank charges, transportation and travel, including per diem allowance for the PMT in travel status to attend supervision missions, and any other miscellaneous costs directly

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associated with the Project implementation all based on periodic budgets acceptable to the World Bank.

50. Procurement process: The PMT, under the oversight of its Manager, would be responsible for the procurement of services financed by the grant. A PO will be specifically recruited to the PMT to work on steps required for procurement of the Consultant, such as the preparation and updating of the procurement plan, managing expressions of interest and requests for proposals (RFP), evaluation of proposals, and contract award and management. The services of this PO may be retained on a part-time basis following the successful procurement of the Strategic Consultant. . If necessary, the work and functions of the PO may be carried out by qualified local consultants, hired according to the World Bank’s Guidelines, and financed under the Project. The PMT project manager will send to the Bank all requests for “no objection” on contracts, which are subject to prior review (as defined by the procurement thresholds in Annex 5), before contract signature. For procurement supervision in the field, the Fiduciary Monitoring Agent (FMA) proceeds with physical inspections, procurement post reviews, and organizes on the job procurement training for PMT staff. The FMA also participates in supervision missions with the Bank and Project team on procurement aspects, and provides regular procurement reporting and fact sheets.

51. The overall procurement risk for the Project is High, due to the overall situation in Iraq and the low capacity of the implementing agency to implement procurement.

Disbursement Arrangements

52. The proceeds of the Grant will be disbursed through standard disbursement procedures, as outlined in the Bank’s “Disbursement Guidelines for Projects,” by means of reimbursements and direct payments. The supporting documentation will be retained by the PMT, will be made available to the Bank during its supervision missions, and will be reviewed during the annual audit of the financial statements.

Anti-Corruption

53. The Project will be carried out in accordance with the provisions of the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 (“Anti-Corruption Guidelines”).

Project Risks and Mitigating Measures

54. Country-specific risks, as identified by the Iraq ISN, include: a deterioration of the national security situation, weakening of Iraq’s economy as a result of internal factors and/or international markets, fiduciary problems resulting from weaknesses in the institutional environment, and project implementation challenges flowing from all of the above.

55. The Project is designed to address these risks:

a. The physical security challenges in Iraq are recognized to be severe, and subject to fluctuations. Consulting work will mostly be done remotely, with local staff working in-country, and international consultants visiting Iraq on a limited basis to undertake specific research and consultations. Security for the international consultants will be the responsibility of the Consultant. The firms expected to be interested in this work will be large and experienced in consulting in difficult environments. Regular in-person meetings (every two months) are planned between senior staff from the Consultant, the PSC, and the

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PMT. These would be supplemented be teleconferences and videoconferences between all parties. The operation of the Project can be adjusted to take account of changes in the security situation. This would be done mainly by replacing meetings in-country with corresponding meetings in a suitable external location in the region.

b. There is a risk that the GoI’s interest in an INES will wane if oil prices rise considerably. The economic need for a strengthened energy sector has been made apparent by the fall in international oil prices from their peaks in early-2009, and resulting pressure on the Iraqi economy. A rapid and very large increase in oil prices could weaken Government commitment to the Project, as increased oil and gas revenues reduce pressures to reform, and to improve the governance of the energy sector. However, the motivation of the Government is primarily to resolve significant problems that are apparent at any level of oil prices. Even if there is some lessening of urgency at much higher oil prices, momentum for reform will remain. The Project is not expected to be directly impacted by changes in Iraq’s economic situation, other than those caused by large fluctuations in oil prices.

c. The fiduciary risk is reduced as this will be a relatively uncomplicated, single-contract Project, dealing solely with technical assistance. The Bank will use its FMA in Iraq to monitor applicable activities. Project monitoring will be facilitated by the involvement in supervision of Bank staff based in Amman, Beirut and Baghdad.

56. In addition to these general risks, the Project will face a number of specific risks, including:

a. Elections in Iraq, scheduled for early 2010, could lead to a change in the country’s

leadership whose support for this Project is crucial. While the future policies of a new Government are unknown, there is a risk of a lessening of Government support for the Project. This is a significant risk given the political uncertainties in the country. Some mitigation could come from economic necessity: no Iraqi Government can afford to ignore the imperative of improving the performance of the energy sector, and undertaking reforms. In addition, opposition to this high-profile Project in the country’s most important sector would send negative signals to key stakeholders, and a Government is likely to be cautious in its approach to the Project.

b. There is a risk that the World Bank’s role in this Project may be misunderstood or misrepresented, creating reputational risk. Iraq will maintain a high-profile within the global political and energy contexts for the foreseeable future. The oil and gas industries are particularly sensitive areas. However, the Bank’s position is protected by the fact of its involvement in a purely facilitating role, not in the actual formulation or adoption of energy sector policies. To mitigate the risk to the Bank, Project supervision will focus on fiduciary and implementation issues, and be undertaken in a manner that does not involve the Bank directly in the formulation of policies. As further protection against political controversy, the TOR for the Consultant have been designed to minimize coverage of contentious issues in the oil sector, such as foreign engagement and sub-national governance. An active communications plan has been prepared, and media monitoring will continue throughout the life of the Project.

c. As the future of the Iraqi energy sector is a contentious political issue, there is a risk of the Project encountering opposition within Iraq, including between different parts of the Government. To mitigate this latter risk it is essential to ensure that the process of formulation and dissemination of the INES remains inclusive of all Government agencies.

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World Bank supervision will encourage this. By utilizing the PMO/PMAC as the implementing agency, fewer ministry-specific problems will be introduced into the Project. In addition, the strong support from within the PMO is expected to speed both processing and Project implementation. The involvement of the key ministries in the PSC, and thus throughout the process, will help to reduce the risk of unanticipated disagreements within the Government.

d. There is a risk that the difficulties of working in Iraq will limit the number and quality of consulting firms interested in the Project. The ability to attract the highest-caliber international energy consultants will be essential to Project success. However, the importance of Iraq in the global oil and gas industry is such that this particular work may attract interest in spite of the operational difficulties. This risk is also mitigated by the design of the Project, and the flexibility of adjusting the location of Project activities.

e. There is a risk that the Project’s design will afford the Consultant with excessive influence over the execution of the Project, possibly to the detriment of quality. The Project will revolve around a single large contract thus affording the Consultant considerable leverage. However, this structure is necessary both for a cohesive analysis, and for ease of design and implementation. Effective monitoring and oversight of interim deliverables and the quality of the Consultant’s work will be essential. Moreover, the Consultant chosen to undertake the work will be of a high caliber, and will be concerned to maintain a good reputation.

F. TERMS AND CONDITIONS FOR PROJECT FINANCING

57. The Project is a grant from the Iraq Trust Fund, and the disbursement percentage will be 100 percent. Retroactive financing will not be provided.

58. Conditions for Approval by RVP: A PMT and Project Steering Committee, both with compositions and terms of reference acceptable to the World Bank, have been established and made operational (subject to the approval of World Bank FM and Procurement staff).

59. Conditions for Project Effectiveness – None

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Annex 1: Detailed Description of Project ComponentsIRAQ: Integrated National Energy Strategy Technical Assistance Project

Introduction and Overview of the Work

1. The Project will support the work done by the Consultant with the Project Steering Committee in order to develop fully the Integrated National Energy Strategy (INES). The scope of work of the Consultant and the Terms of Reference are described in this Annex.

2. The INES will cover all aspects of the energy sector. The emphasis will be on ensuring that the development of the three main sub-sectors (oil, gas and power) is integrated, and can thus provide effective support for sustainable economic development. The INES will study Iraq’s energy sector development options over the short, medium and long term, with the main emphasis on the latter two. The energy sector will remain the principal driver of the Iraqi economy, and in the short term the priority of the GoI is to restore its momentum by providing a reliable basis of energy supply for domestic use, and increasing oil exports. The emphasis is on the repair and rehabilitation of existing equipment and resources where possible, or provision of urgent new equipment, so as to provide immediate service. As the time horizon lengthens, so the options for investments in new producing, consuming and transport infrastructure increase.

3. The INES will consider the suitability of existing institutional arrangements for the energy industry, in terms of mobilizing investments and managing the energy sector effectively. Reforms are likely to be required in legal, and regulatory structures. Some reforms may be needed in the near term, to establish the basis for the longer term evolution of the energy sector. A further area of study will be the financial structure and sustainability of entities operating in the energy sector.

4. The management of the environmental and social impact of energy sector operations has deteriorated in Iraq in the past two decades. Oil production operations, gas flaring and power generation all have significant damaging local effects. Greater regulation and control of these aspects of the energy sector is urgently required.

5. Given the global and regional significance of Iraq’s oil and gas resources, the INES must take full account of the country’s interaction with the international energy system. Iraq’s oil production policy will be related to broader considerations within the international oil market. Gas development needs to take account of rapidly evolving prospects for regional and international gas trade.

6. In this context, the Consultant will assist the GoI to develop an integrated energy strategy that links together: (a) time frames (short, medium and long term), (b) energy sub-sectors and elements, (c) financial requirements and resources, (d) environmental and social considerations, and (e) the anticipated national and international frameworks within which an energy strategy will evolve.

7. The Consultant’s assignment is expected to cover all of the areas shown in Table 1. Given the breadth of the INES and the challenging situation of Iraq, creative approaches to addressing, analyzing and presenting this strategy will be welcomed. While addressing each of the topics noted in Table 1, the Consultant is expected to identify areas felt to be of greatest significance, and to structure their work accordingly.

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Consultant Terms of Reference and Deliverables

A. 1 Data Review

8. In order to prepare the INES, it will be necessary for the Consultant to gain a comprehensive understanding of the Iraqi energy sector. This will be achieved through development of an initial “Data Review”, which will be a current view of the energy sector as a whole that will inform the analysis within the INES. The Data Review will cover the areas shown in Table 1.

9. The Consultant will review and make use of all the existing studies and information related to the operational, technical, regulatory, institutional, environmental and social aspects of the Iraqi energy sector. The PSC, PMT and related ministries will make their best efforts to obtain relevant data for this review. Wherever possible the Consultant should give advance notice of data requirements. The field collection and confirmation of data (outside Baghdad) is expected to be very limited.

10. The Data Review should include both quantitative data about the Energy Sector (e.g. production, consumption, trade, etc.), and information about the current sector infrastructure and its state of repair. Gaps in the Government’s knowledge about key aspects of the energy sector should be identified.

11. The Data Review will be a deliverable of the Project, and its quality and comprehensiveness will ensure the high-quality INES the GoI requires. The Data Review should be a reference source for use by the GoI and other stakeholders, and form a key part of the First Interim Report (see below). It should also be available as a separate part of the Final Report.

A.2 Comparative Country Experience. 12. An important component of the Consultant assignment will be a comparison of energy sector

strategies and institutional models of countries with a resource base similar to that of Iraq. This comparison will also look at the role of the private sector in the energy industry in these countries. Such a review will provide lessons based on these countries’ efforts to manage their energy resources, and highlight the basis of some INES recommendations. A separate section on this should be prepared for inclusion in the Final INES Report.

A. 3 Strategic Options and Alternative Plans (see also D. 4 Second Interim Report)

13. The largest part of the Consultant’s work will be the analysis of strategic options for the development of Iraq’s energy sector, and the elaboration of the proposed strategy. In this area the Consultant will work particularly closely with the PSC.

14. The methodology for the identification, analysis and ranking of strategic options will be proposed by the Consultant. The manner of its practical deployment will be reviewed and agreed with the PSC. The Final Report will detail the strategic options, how they were arrived at, and the method for the selection of the preferred options.

A. 4 Implementation Plan

15. Once the PSC (through interaction with the GoI) has decided on strategic directions and priorities for energy, on the basis of the alternatives outlined by the Consultant, the Consultant will develop the proposed “Implementation Plan”, including required policy actions, road maps for institutional reforms, needs for capacity development, actions for stakeholder engagement, and further evaluation

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needed to realize Iraq’s strategic goals. The Implementation Plan will form an integral part of the Consultant’s INES report.

A.5 Assessment of Associated Investments

16. The Consultant will provide the investment program and its cost estimates and timeline, necessary to fulfill the implementation plan. A general assessment will be made of the extent to which funding could be made available from within the energy sector, particularly from oil and gas revenues, and what outside financing may be required. The Consultant will address the general nature and availability of outside financing that could be available including foreign investment and loans. However, the Consultant’s assessment will not include a detailed analysis of the relative availability and cost of various external sources of financing, or the detailed relative merits of such sources.

A. 6 Environmental and Social Considerations in the Energy Sector

17. Full treatment of the environmental and social aspects of the energy sector is essential to development of an integrated strategy. The INES will include a stand-alone Environmental and Social Report detailing the main environmental and social issues relevant to an energy strategy for Iraq, and the associated mitigation interventions (policies, regulations, investments etc.). This report will be utilized both as a stand-alone reference and as a source in developing the INES.

18. The report will include a thorough review of the following areas:

a. Environmental impact of oil and gas operations,b. Environmental impact of power sector operations,c. Environmental impact of end-use of energy in the transportation, industrial and household

sectors,d. Social aspects of energy sector investments and operations,e. Institutional and regulatory models for the management of environmental and social impacts

of energy sector operations,f. Use of Environmental and Social Impact Assessments in the energy sector,g. Examples of relevant practice from other countries with similar energy sector conditions,h. Institutional and regulatory reform options for Iraq in these areas, andi. Considerations relating to the international policy framework to address climate change.

19. The stand-alone Report on Environmental and Social issues will be made available to Government and public sector agencies, and to other knowledgeable stakeholders at the Second Interim stage of the Project reporting schedule (see below). The Bank will receive a copy of the Report. The Consultant will assist the PSC and PMT to obtain comments from stakeholders, and will describe the comments received in the Final Environmental and Social Report issued with the Final Report. To assist with dissemination of the Report, the consultant will assist the PSC and PMT to organize a workshop with participation of representative stakeholders.

A. 7 Capacity Building and Strategy Dissemination

20. Except for workshops directly related to the course of development of the INES, the Consultants will not be required to provide basic capacity building services.

21. The PMT and PSC will organize workshops and seminars introducing and explaining the INES to the GoI and the public. The Consultant will participate in these events to explain their work. These

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events will be coordinated with the Consultant’s other tasks so as to minimize expense and effort. This program will remain at the discretion of the GoI as the Project proceeds (see also D6 below).

A. 8 Coordination with External Activities

22. It is important that the work on the INES is linked to the Iraq Technical Assistance Project funded by the World Bank (through the ITF): “Support for Power Sector Generation Planning and Development”. This Project’s focus is on Iraq’s investment plan for the power generation sector in the medium and long term. Work is expected to take place in parallel with the INES, and the analysis and results of the two projects should be coordinated to ensure consistency and to avoid duplication. However, in order to present an integrated energy strategy, the INES work will cover all the key aspects of Iraq’s power sector development. The work should also be coordinated with the cooperation between the GoI and the Global Gas Flaring Reduction Partnership (GGFR), managed by the World Bank. The GGFR is working with the MoO on flaring reduction and gas utilization.

A. 9 Guidelines and Limitations

23. In undertaking the INES and providing advice to the GoI, the Consultant will work within the following framework:

a. The Consultant will work within the existing basic Iraqi constitutional and legal framework as advised by the GoI.

b. The Consultant will not specifically address sub-national (i.e. regional) aspects of energy sector policy, including for example the division of institutional responsibilities between the regions, oil revenue distribution, and distribution of energy investments as a means of pursuing regional policy.

c. In developing strategic advice, the Consultant will take full account of existing economic and sector plans.

d. The macro-economic consequences and challenges of strategic energy decisions should be considered (e.g. Dutch disease, oil revenue management), however the Consultant will not be required to analyze macro-economic policies to deal with such challenges.

e. The Consultant’s recommendations will not address specific existing, proposed, and possible commercial contracts involving GoI or its agencies.

f. Physical security issues that may affect investment options will not be considered.

B. Reports and Schedule of Deliveries

B. 1 Inception Report

24. The Consultant will prepare and submit an Inception Report within two months of signing the contract, to be discussed with and approved by the PSC. The Inception Report should describe:

a. the institutional and logistical arrangements agreed with the PSC through the PMT,b. the schedule and nature of future Project reports (progress, interim, draft final, and final), c. the information that is needed to complete the Data Review and an initial evaluation of

contents of this report, d. the proposed schedule of meetings and contact with relevant ministries and agencies, e. a complete staffing plan, including sub-contracted staff to be hired by the Consultant on an

as-needed basis, f. implementation issues that have arisen to date, and proposed solutions to these, g. actions and comments on the Terms of Reference as agreed including initial views on

methodology, and

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h. any additional considerations to be taken into account in the course of the work.

25. The Inception Report shall include a detailed schedule and task-flow diagram, which depicts the interrelationship of various tasks in the assignment which lead to the completion of the work and the mechanism of coordination with the GoI and other entities. This would be kept and updated throughout the Project duration in the Progress Reports (see below).

B. 2 First Interim Report

26. The First Interim Report will provide: a. a detailed review of all the information obtained to date, b. the Data Review deliverable itself, c. the analysis of this information and methodology for the purposes of developing the INES, d. review of discussions to date with the GoI,e. a general initial overview of strategic options, andf. the status of strategic evaluation.

B. 3 Report on Environmental and Social Issues

27. This report will address the issues referred to in section C7. The Report will be published at the same time as the Second Interim Report.

B. 4 Second Interim Report

28. The Second Interim Report will provide: a. a review of the work to date,b. a detailed description of strategic options, c. a full discussion of the strategic options, taking into account the analysis and discussions held

to date,d. the decisions required of the GoI to complete the assignment, and e. recommendations to the GoI on finalizing the INES.

29. The Interim Reports will be provided to the PSC, PMT and also to the World Bank. They will be discussed with the PSC in full. The GoI will be expected to approve the Interim Reports, but will not take more than 25 days to do so (unless otherwise agreed).

B. 5 Draft Final Report

30. The Draft Final Report will include the description of the INES as conceived by the Consultant, taking account of all discussions with the GoI and other information received. The Report will cover all of the elements described above, and detail priority actions for further study and investment planning.

31. The Data Review developed for the INES will be provided in a separate volume. The Final Environmental and Social Report will also be provided in a separate volume.

32. The INES Draft Final Report will include, in a separate volume, a Summary outlining all the key recommendations and conclusions, and the essentials of the strategic analysis.

33. A detailed slide presentation will be provided explaining all the main features of the INES. The Draft Final Report and the slide presentation will form the basis of a presentation to be made to the PSC

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and other representatives of the GoI, which will include a full discussion. A copy of the Draft Final Report and the other separate volumes will be provided to the World Bank.

B. 6 Final Report

34. The Final Report will reflect and address the outcome of discussions of the Draft Final Report with the GoI. Revisions to the Draft Final Report will be based on comments received by the Consultant, including from members of the PSC and the Prime Minister’s Advisory Commission (PMAC). The Final Report will be similar in structure to the Draft Final Report (unless otherwise agreed with the GoI), and will include the written work itself and a final version of the accompanying INES presentation.

35. The Consultant will present the final INES to members of the GoI, and possibly to wider audiences in accordance with the Government’s dissemination plans. The number of such presentations shall not exceed three, and their time, date, location and audience will be determined through discussions with the PSC.

36. The Final Report will be made available to all stakeholders and will be posted online.

B. 7 Progress Reports

37. Progress Reports will be delivered once every two months, to keep the PSC and the PMT succinctly informed regarding the progress of the assignment and related administrative issues. Such Progress Reports will include updates to the Project schedule and task-flow diagram initially provided in the Inception Report. The Reports will also serve to set out the work program for the following months, while ensuring the PSC remains satisfied with the Project’s direction.

38. Unless agreed otherwise by the PSC and the Consultant, Progress Reports will be delivered and discussed in person by the Consultant at meetings with the PSC, either in Baghdad or at a mutually agreed-upon location. Minutes of the meetings will be produced by the Consultant. To ensure efficient use of these periodic in-person meetings, telephone/video conferences should be held prior to Progress Reports to identify key issues. The reports and meeting minutes will be sent to the World Bank.

B. 8 Assignment Time Schedule

39. The following is the estimated time frame of the Consulting assignment*:

Inception Report 2 monthsFirst Interim Report 8 monthsEnvironmental and Social Report 12 monthsSecond Interim Report 12 monthsDraft final Report 16 monthsFinal Report 18 months

Workshops Following completion of Final Report

Progress reports Approximately every two months* Months are cumulative elapsed time after the Consultant starts work.

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40. The duration of the contract is expected to be 18 months, however, the majority of the data gathering is likely to take place during the first 9 months.

C. Institutional and organization arrangements

41. The INES Project will be implemented under the leadership of the Prime Minister’s Advisory Commission (PMAC). All key ministries and agencies relevant to the work will be engaged.

42. The GoI has formed a Project Steering Committee (PSC) tasked with the preparation of an Energy Strategy, which will formulate the INES with the support of the Consultant under this Project. The PSC is composed of high-level representatives from the PMAC, and from the Ministries of Oil, Electricity, Planning, Industry, Finance and Water. The Committee is chaired by the Head of the PMAC, which will also provide logistical and analytical support to the work. A Project Management Team (PMT) has been established within the PMAC.

43. The PMAC, which is located within the Prime Minister’s Office (PMO), is the implementing agency of the ITF grant. The ITF is a multi-donor trust fund administered by the World Bank, which was established to coordinate international financing for investment projects, technical assistance and other development activities, within the framework of the GoI’s priority program. The Consultant will be contracted by the GoI. Arrangements for Project implementation will follow standard World Bank – IDA procedures.

44. The Consultant will meet with the PSC at least once every two months to report on the progress of the work, deliver Progress Reports, receive guidance on the development of the INES, and discuss its work with high-level officials. The Consultant will also interact as required with officials in the relevant ministries and all parts of the GoI in order to carry out its work.

45. Approval of reports submitted by the Consultant shall be the responsibility of the PSC.

46. The Consultant may be asked to support workshops for GoI officials to explain key strategic concerns, present work in progress and consult on specific issues. The PSC will mediate liaison with the top level of the GoI, and may call upon the Consultant to brief officials at all levels of Government.

47. Day-to-day liaison will be with the PMT, whose primary duties are described below.

48. Data collection and research may be undertaken by Baghdad-based staff, internationally-based staff, or local staff hired as needed. Early research and consultations are expected to require greater in-country activity, with later strategy work taking place at a location at the discretion of the Consultant and PSC. Where the Consultant is deemed to lack the expertise required to fulfill a particular element of this analysis, they will be expected to arrange for such expertise to join their project team, on an as-needed basis. These needs should be clarified by the Inception Report, and discussed with the GoI at this time.

D. Data, Local Services, Personnel, and Facilities to be Provided by the GoI

49. The Project will be supported by a PMT based in the PMAC, staffed by officials from the Commission. The PMT will not necessarily be involved in analytical and similar work in support of the Consultant.

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50. The PMT will provide to the Consultant:a. Assistance to obtain all available reports needed for the work. Where possible the reports

shall be made available as computer files, but physical copies can also be provided if there is no straightforward alternative.

b. All necessary assistance, within the PMT’s own abilities, to set up meetings with GoI and public-sector entities in Iraq. Such assistance will be provided based upon requests received by the PMT within a reasonable time (no less than 3 working days before a proposed meeting). Where the PMT cannot arrange a meeting, it will seek the assistance of the members of the PSC to arrange such meetings.

c. Meeting spaces within the offices of the PMAC, or an alternate location agreed between the Consultant and the PMT, in which the Consultant can hold meetings with Iraqi agencies. Such meeting spaces shall be subject to general availability and practicality.

d. Distribution of the Consultant’s reports to the PSC and to other GoI entities.e. Assistance with setting up seminars and workshops, including: informing participants and

recording their availability and potential attendance, arranging venues, and distributing presentation materials in advance and after workshops.

f. Working space for Baghdad-based or visiting Consultants, either provided by the PMT at its offices or at a mutually-agreed upon location.

51. No other direct support will be provided by the PMT to the Consultant for the work except as agreed with the GoI.

52. The Consultant shall be fully responsible for providing personnel with all necessary appropriate transport, security needs and insurance, computer and office equipment for the duration of the Project.

E. Staffing Requirements

53. The formulation of an effective INES will require a diverse team of sector experts. Consultants are free to propose a staffing plan and skills mix at their discretion, although the following provides an indicative list of skills/individuals required to carry out this assignment. Additional skills/individuals may be proposed. Key skills and roles to be provided have been noted, although it is likely that some team members will not be required to be engaged over the full length of the Project. The Consultant’s personnel shall include all the necessary experts required to complete the work as specified under the Terms of Reference for the Project. A list of key staff skills is shown below.

54. Experience with regional development and/or formulation of complex energy strategies will be preferred. Interpersonal skills will be essential, including the ability to work with local staff and GoI counterparts.

55. Strong international experience will be required, although the Consultant will be strongly encouraged to use the suitable expertise available within Iraq to the extent possible. Provision for reliable local coordination of the work and for liaison with the GoI will be important. If the required skills are not available within the Consultant’s firm, it will be encouraged to form joint ventures with other firms.

F. Use of Local Consultants

56. All consulting firms invited to present proposals for the INES assignment are encouraged to make use of specialized local consulting capacity in the energy sector to the extent that they consider necessary.

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Staff Skills Key StaffTeam leader/Energy Strategy Specialist YESUpstream oil specialist YESOil/gas reservoir engineerOil/gas transport (pipeline) specialistUpstream gas specialist YESRefinery/Product specialist YESRefinery engineerPetroleum product pricing/distribution specialistDownstream gas specialist YESGlobal/regional oil markets specialistGlobal/regional gas markets specialistEnvironmental specialist YESSocial specialistOil/gas contract/financial specialistPower specialist YESPower generation engineerPower pricing/distribution specialistEnergy-sector institutional specialist YESEnergy-sector legal specialistWater supply/drainage specialistRenewable energy specialistEnergy economist YESIndustrial/domestic supply industry specialist

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Table 1- Integrated National Energy Strategy Areas for Review and Recommendations

The INES will consider the entire Iraqi energy system (oil, gas and power). The Consultant is expected to address the questions and issues most central to an integrated national energy strategy, including, but not limited to, the key areas identified below. The Consultant may suggest additional topics. Consideration of these areas will be as specified in the Terms of Reference:

1. Global and regional energy context

Global oil market developments in the short, medium and long termInternational gas market developmentsInternational energy policy trends (e.g. climate change)Global energy technology trends (e.g. renewable energy, transport)

2. Overview of past and projected energy supply, demand and trade in Iraq (by scenario)

Energy demand in Iraq by fuel

Energy supply patternsTrade in energy (crude oil, oil products, gas, electricity)

3. Energy strategy experience of other resource-rich countries

Lessons learned based on operational, institutional and financial strategy experience in other resource-rich countries (including lessons in the rapid development of strategic energy infrastructure)

4. Oil – exploration and production

Oil production volumes, potential and key challenges

Crude oil quality issuesCrude oil gathering and processing infrastructureProven and probable oil reservesExploration efforts past and future

5. Crude oil – transportation and storage

Monitoring and metering

Crude oil transportation and storage infrastructure

6. Management and capacity Organization of production at the field level and nationallyManagement of exploration, production and downstream operations within the Ministry of Oil and other agencies

7. Oil – refining and marketing

Evaluation of the refining industry

Maintenance and investment requirements

8. Oil product transportation, storage and marketing

Product pipelines, trucking and rail operations

Bulk storage and supply chain to consumers

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9. Crude oil and product trade

Crude oil export facilities (pipelines, marine terminals)

Export blends and quality issuesOil product export and import infrastructure and volumes

10. Natural gas production and use

Associated gas production

Gas flaring and reinjectionFree gas productionReserves of natural gas: associated and freeGas transmission and distribution infrastructure Gas demand by sectorGas pricing and regulation

11. Energy pricing Energy pricing structures (oil products, electricity, gas)Economic and social aspects and impacts of energy pricingOptions for pricing reformTransition to new pricing structures

12. Petrochemicals and energy-intensive industries

Potential for an Iraqi petrochemical industry (domestic and export-oriented), based upon domestic resources

Potential for use of low cost energy (esp. natural gas) to develop energy intensive industries for export (e.g. aluminum smelting, iron and steel)

13. Actual and potential natural gas trade

Outlook for regional and global pipeline gas and LNG markets

Potential for development of Iraqi gas exports

14. Potential for developing domestic oil and gas equipment supply and services industries

Experience of other countries in developing competitive local sourcing

Evaluation of potential in Iraq and needs for capacity building

15. Electricity generation, transmission and distribution

Electricity generation (oil, gas, hydro)

Transmission and distributionInvestment plans in the electricity sectorPotential electricity trade and interconnections

Resource potential of renewable energy generation, and required associated regulatory frameworkEnergy Efficiency application including associated regulatory framework for introduction and scale up and incentive mechanisms

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16. Electricity industry structure

Existing sector structure, regulations, institutions and operationsOptions for sector organization and operationsRecommendations for sector structure including mode of regulations and operationsPrimary and secondary regulations for the recommended sector structureTransition to the new sector structure and for institution development including required capacity building and resourcesRole and mode of private sector participation in the sector and regulations for private investments in the sectorFramework for coordination between the electricity sector and the gas and oil sectors

17. Oil and gas industry structures and institutions

Existing legal framework, institutions and industry structure

Role of the Ministry of Oil and national oil companyRoles of the government and public sector in policy, regulation and operations in the oil industrySpecific institutional and regulatory needs of the gas industryMobilizing investment in oil and gas projectsDevelopment of reporting systems and transparency in the oil and gas industries

18. Environmental and social policies and regulations

Environmental and social issues in the oil, gas and power sectors.Environmental and social policies, and best practices for dealing with environmental and social issues.Existing industry environmental and social practices in relation to international good practicesRoles and responsibilities of ministries and agencies within the energy sector (environmental, social, health and safety)

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Annex 2a: Results Framework and MonitoringIRAQ: Integrated National Energy Strategy Technical Assistance Project

PDO OUTCOME INDICATORUSE OF OUTCOME INFORMATION

The Project’s development objective is to improve the ability of the Government to develop an energy strategy that is designed to increase the contribution of the sector to sustainable development.

Completion of the INES (yes/no)

Approval of INES Implementation Plan by the Steering Committee and submission of Plan for endorsement and execution by the Government. (yes/no)

Final Strategy documents readily and freely available to all stakeholders, including online. (yes/no)

Determine whether the INES has met its objective, by providing a clear set of policies and road map for utilizing Iraqi natural resource wealth for sustainable economic and social development.

INTERMEDIATE OUTCOME INTERMEDIATE OUTCOME INDICATOR USE OF RESULTS MONITORING

Development by the Government of the following policies and plans:

Enhancement of the contribution of Iraq’s oil and gas resources to sustainable development, taking better account of the difficulties of managing revenues from exhaustible resources in the long term.

A policy providing concrete indications of the Government’s program for development of oil production capacity, exports, and future exploration for new oil reserves. (yes/no)

A policy and strategy for the development of gas resources for domestic and export markets. (yes/no)

Power sector policies which properly integrate upstream planning of fuel sources and supply-side needs of the population. (yes/no)

Encourages the sustainable management of Iraq’s natural resource wealth, both in the near-term and for future generations.

Allows the energy sector to play a greater facilitating role in the economic development of Iraq.

Improved integration of Iraq into regional and global energy policy systems and institutions.

Strengthened integration between investments in different parts of the energy sector.

Contribution to mobilizing the funding necessary for the recovery and expansion of Iraq’s energy sector to meet future development needs.

Improved access to financing on

A suggested integrated investment program for the energy sector including priority investments, implementation plans and costs. (yes/no)

A suggested investment program for the integrated development of natural gas production and power generation capacity. (yes/no)

Clarifies investment needs for oil and gas.

Allows monitoring of contribution of oil and gas revenues to economy. Allows improved coordination of investment planning.

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best terms for energy investments.Provide full integration of environmental and social considerations into the energy sector,

A set of policies to integrate environmental and social considerations into energy sector development and investments. (yes/no)

Ability of stakeholders to assess and influence environmental and social aspects of energy projects.

Strengthened institutions in the energy sector, including greater financial transparency of energy companies.

Program of institutional reforms needed to improve governance in the oil, gas and power sub-sectors. (yes/no)

Enable implementation of effective policies and strategies, and strengthen overall governance.

Better transparency and accountability of energy sector institutions.

Support for sustainable development through efficient energy supply to all consumers, at prices reflecting financial and economic costs.

An appropriate set of recommendations for policy and institutional reforms to improve the performance of Iraq’s energy utilities. (yes/no)

A policy to ensure energy prices more closely reflect financial and economic costs. (yes/no)

Consumers and regulators hold utilities accountable for service.

Increases ability of businesses to plan operations.

Improves scope for macro-economic and sector management.

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Annex 2b: Arrangements for Results MonitoringIRAQ: Integrated National Energy Strategy Technical Assistance Project

Results Indicators Baseline YR1 YR2 / End Project

Data Collection Instruments

Frequency and Reports Responsibility for Data Collection

Project Outcome Indicators

Completion of the INES.

No integrated strategy for the energy sector.

Early strategic direction and formulation will develop during YR1.

INES completed by Month 18,.

Strategy documents in progress

Consultant reports

WB monitoring team reports

Due as Final version in Month 18

PSC, PMT, WB monitoring team

Approval of INES Implementation Plan by the Steering Committee and submission of Plan for endorsement and execution by the Government. (yes/no)

Limited strategic planning among the energy-related actors within Iraq

Early strategic direction and formulation will develop during YR1.

INES approved by PSC and PMAC, submitted for endorsement and execution by the Government.

Strategy documents in progress

Consultant reports

WB monitoring team reports

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

PSC, PMT, WB monitoring team

Final Strategy documents, readily and freely available to all stakeholders, including online. (yes/no)

No integrated strategy available

INES deliverables in progress, Environment and Social stand-alone report completed in

Project deliverables disseminated through workshops, and completed INES publicly available

Review documents in progress

Consultant reports

WB monitoring

Addressed during Progress reports, every two months

Environmental and Social report due in Month 12

Completed INES due in

PSC, PMT, WB monitoring team

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Results Indicators Baseline YR1 YR2 / End Project

Data Collection Instruments

Frequency and Reports Responsibility for Data Collection

Month 12 and available publicly thereafter

team reports Month 18, dissemination to begin thereafter

A policy providing concrete indications of the Government’s program for development of oil production capacity, exports, and future exploration for new oil reserves.

Maximization of immediate oil production is the priority, with planning for sustainable long-term production remaining secondary

No Yes Review documents in progress

Consultant reports

WB monitoring team reports

Due as Final Draft- Month 18

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

PSC, PMT, WB monitoring team

A policy and strategy for the development of gas resources for domestic and export markets.

No integrated gas policy available

No Yes Review documents in progress

Consultant reports

WB monitoring team reports

Due as Final Draft- Month 18

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

PSC, PMT, WB monitoring team

Power sector policies which properly integrate upstream

No integrated strategy available

No Yes Review documents in progress

Due as Final Draft- Month 18

PSC, PMT, WB monitoring team

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Results Indicators Baseline YR1 YR2 / End Project

Data Collection Instruments

Frequency and Reports Responsibility for Data Collection

planning of fuel sources and supply-side needs of the population

Consultant reports

WB monitoring team reports

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

A suggested integrated investment program for the energy sector including priority investments, Project implementation plans and sources of funding.

Energy sector investment planning between the relevant ministries has limited coordination

No Yes Review documents in progress

Consultant reports

WB monitoring team reports

Due as Final Draft- Month 18

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

PSC, PMT, WB monitoring team

A suggested investment program for the integrated development of natural gas production and power generation capacity.

Energy sector investment planning between the relevant ministries has limited coordination

No Yes Review documents in progress

Consultant reports

WB monitoring team reports

Due as Final Draft- Month 18

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

PSC, PMT, WB monitoring team

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Results Indicators Baseline YR1 YR2 / End Project

Data Collection Instruments

Frequency and Reports Responsibility for Data Collection

Addressed during Progress reports, every two months

A set of policies to integrate environmental and social considerations into energy sector development.

Limited consideration of environmental and social issues in the energy sector.

Yes Yes Review documents in progress

Consultant reports

WB monitoring team reports

Environmental and Social report due in Month 12

Addressed in:Inception report, Month 21st Interim report, Month 8

Addressed during Progress reports, every two months

PSC, PMT, WB monitoring team

Program of institutional reforms needed to improve governance in the oil, gas and power sub-sectors. (yes/no)

Coordination between energy-related actors within the Government is haphazard

No Yes Review documents in progress

Consultant reports

WB monitoring team reports

Due as Final Draft- Month 18

Addressed in:Inception report, Month 21st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

PSC, PMT, WB monitoring team

An appropriate set of recommendations for policy and institutional reforms to improve the

Utilities are poorly run and not financially viable, energy prices are subsidized at well

No Yes Review documents in progress

Consultant

Due as Final Draft- Month 18

Addressed in:Inception report, Month 2

PSC, PMT, WB monitoring team

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Results Indicators Baseline YR1 YR2 / End Project

Data Collection Instruments

Frequency and Reports Responsibility for Data Collection

performance of Iraq’s energy utilities.

A policy to ensure energy prices more closely reflect financial and economic costs.

below economic cost.

reports

WB monitoring team reports

1st Interim report, Month 82nd Interim report, Month 12

Addressed during Progress reports, every two months

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Annex 3: Summary of Estimated Project CostsIRAQ: Integrated National Energy Strategy Technical Assistance Project

Cost (US $millions)Strategic Consultant contract- Integrated National Energy Strategya) Contract Signature $US 425,000b) Inception Report $US 425,000c) First Interim Report $US 637,500d) Second Interim Report $US 637,500e) Environmental and Social Report $US 637,500f) Draft Final Report $US 637,500g) Final Report & Dissemination workshops $US 850,000

Project Contingencya) Contingency funds for unforeseen costs $US 250,000

PMT Supporta) PMT operating costs $US 250,000b) PMT Technical, Procurement and Financial Support $US 150,000

External Auditora) Will be retained to provide independent financial oversight of the Project

$US 100,000

TOTAL $US 5,000,000

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Annex 4: Financial Management and Disbursement ArrangementsIRAQ: Integrated National Energy Strategy Technical Assistance Project

Financial Management Arrangements

Portfolio Financial Management Context

1. The Bank is currently administering 18 projects funded by the Iraqi Trust Fund (ITF).The projects are implemented within the framework of the Iraqi public sector regulations complemented by the various Bank policies and regulations as agreed upon in the related legal agreements. A Master Implementation Manual has been prepared to provide guidance to the implementing units regarding procurement and financial management of the Iraqi projects. Moreover, a Fiduciary Monitoring Agent has been assigned to monitor the proper financial management and procurement process of ITF and IDA financed projects in the absence of Bank’s staff’s supervisory role on the projects given the unstable and insecure political situation in Iraq. The Grant will be implemented following the same arrangements and procedures that are currently in place for other projects. These procedures have been defined to reduce the risk of the weak control environment characterizing Iraq. These arrangements are based on assigning competent financial officers as part of the project management team to follow on the Project’s FM requirements, providing continuous support and capacity building to these officers, providing clear and documented procedures defining the financial arrangements and controls to be applied during project implementation, simplifying the accounting and reporting systems through the use of spreadsheet applications, having the project flow of funds arrangements fully relying on direct payments and reimbursement methods, assigning an independent external auditor to provide an independent opinion on the Project’s financial statements, and having the Financial Monitoring Agent, already in the field, to monitor the fiduciary performance of the Project and periodically report to the project teams.

Portfolio Financial Management Performance

2. Despite the above, the implementation of the Project is still faces FM challenges and these relate to the hiring of the external auditor to provide an opinion on the Project’s financial statements. Based on the new regulation ( circular) issued by the Iraqi Public Accountant’s Board (PAB) on the appointment of foreign auditing firms, use of auditors that are not licensed to practice audit in Iraq is not recommended . The regulation has been applicable starting FY2008 audits. A waiver from the Ministry of Finance is being sought to resolve this issue and facilitate the engagement of the auditor.

Implementation Arrangements

3. The INESTA Project will be financed through an ITF grant of US$ 5 million. The Project will mainly finance the cost of one consultant who will assist the Government to develop the Integrated National Energy Strategy (INES), in addition to another consultant who will be hired to perform the audit service. Subject to the unavailability of a FO from within the government, the work and functions of the FO may be carried out by a qualified local consultant, hired according to the World Bank’s Guidelines, and financed under the Project. Therefore the trust fund will mainly finance the cost of outsourced consultants and other minor operating costs.

4. The Government of Iraq is the recipient of the proposed ITF Project. The implementing agency in Iraq is expected to be the Prime Minister’s Advisory Commission (PMAC) which is located in the Prime Minister’s Office (PMO). A “Steering Committee” of high-level officials will guide the work of the selected Consultant and utilize his assistance in the formulation of the INES. This Steering Committee will be lead by the Head of the PMAC, and will include representatives from the key

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ministries engaged with the Energy Sector (Oil, Electricity, Planning and Development Cooperation, Finance, Industry and Minerals, and Water Resources).

Risks and Mitigation Measures .

5. The Bank assessed the financial management arrangements at the PMAC and found them acceptable. Based on the result of the assessment, the FM risk, as a component of the fiduciary risk, and which is a combination of country, entity and Project specific factors is high. The following are the identified FM risks and the relevant mitigating measures. With these mitigating measures in place, the Project would have acceptable Project FM arrangements and a Substantial Risk.

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Project FM Risk Rating Mitigating Measure Rating After Applying Mitigation Measures

Based on FM arrangementLimited knowledge by the PMAC of the Bank’s guidelines and procedures due to its non-engagement in prior Bank Financed activities. Limited capacity in general to meet the Project’s FM requirements.

H Utilizing a dedicated PMT that would be recruited to manage the Project, including a part-time financial officer (FO). The FO will receive training on World Bank financial management and disbursement arrangements. If necessary, the work and functions of the FO may be carried out by qualified a part time local consultant, hired according to the World Bank’s Guidelines, and financed under the Project.

S

Overall weaknesses and shortcomings in the Control environment.

H Agree with PMAC on the procedures, controls and safeguards to be applied during the Grant implementation. These procedures and controls will be documented in a simple FM procedures paper summarizing the internal control processes, flow of invoices, authorization process, issuance of payment request, and reporting requirements to be adopted by the PMT. This paper will be prepared by the FO two months after project effectiveness and will be built based on the implementation manual followed in Iraq. Moreover, training on FM arrangements will be covered in separate sessions after the recruitment of the FO.

S

Limited accounting and reporting systems in providing timely and comprehensive information.

H Based on the number of contracts, a ring-fenced accounting system based on spreadsheet applications will be used to generate the Interim Unaudited Financial Reports and Annual Project Financial Statements.

S

Limited physical existence of Bank staff in Baghdad and limited independent verification function.

H The Iraq financial monitoring agent (FMA) hired by the Bank to monitor the Project’s procurement, implementation and the FM performance based on existing TORs will perform on site monitoring of Project financials.. The Bank will perform remote supervision missions and meet with the project team outside Iraq.

S

Limited access to competent external auditors in Iraq and delay in the selection process due to the issuance of the new circular issued by the PAB that prevents the practice of audit by non-licensed auditors.

H Start the selection process to hire an external auditor acceptable to the Bank and in compliance with the new regulation issued by PAB to provide an annual audit of the Project activities by six months after the submission of the first withdrawal application.

S

Overall FM Risk H S

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H = High Risk; S = Substantial Risk; M = Modest Risk; N = Low or Negligible Risk

Organization & Staffing

6. A Project Management team (PMT) that will manage the Project will be located within the PMAC. The PMT will consist of a manager (already assigned) and a part time financial officer (FO). The PMAC will have the primary responsibility for overseeing Project implementation and reporting to the World Bank in accordance with the Bank’s guidelines and procedures. To facilitate the process of this day to day Project implementation, the PMAC will hire a part time FO to handle the various financial tasks. The FO will follow up on the Project’s financial management aspects. In this regard, terms of reference have been communicated to the Head of the PMT that define the FM tasks. The FO will receive training on World Bank financial management and disbursement arrangements during the Projects missions and upon his appointment. Subject to the unavailability of a FO from within the Government, the work and functions of the FO may be carried out by a qualified local consultant, hired according to the World Bank’s Guidelines, and financed under the Project.

Internal controls

7. A financial management summary will document the Projects’ implementation of internal control functions and processes. The financial management summary will disclose each PMT member responsibility summarized in terms of authorization and execution processes. The expenditure cycle will specify the following steps: (i) technical approval of the technical committee on outputs delivered by consultants, (ii) administrative approval by the PMT Manager, (iii) issuance of payments will be made upon receipt of supportive documentation and written requests signed by authorized officials, and (iv) verification by the financial officer of the accuracy and compliance of the payment requests with the Trust Fund agreement. The bulk of the of the Project’s expenditures will be based on consultant’s services which will be financed through direct payments; however there is a portion of the Project’s expenditures that is not based on output delivery such as travel expenses. For reimbursable expenditures, predefined internal control procedures relating to who will validate and approve such expenditures should be set in place and communicated to PMT staff.

8. On a monthly basis, the FO should reconcile the Project account bank statement with the account book balance. Reconciliations should be prepared by the FO and checked by an independent person. All reconciling items (if any) should be listed, explained and followed up on. Copies of the reconciliation together with the account bank statement should be kept in the Project files and should be attached to the IFRs.

Budgeting

9. The PMT will maintain a detailed disbursement plan per quarter. This plan will be developed based on the initial procurement plan, or based on the schedule of outputs as defined in the implementation schedule and estimated payments cycles, and revised upon need. It will be used as a monitoring tool to analyze budget variances and manage cash and will feed into the quarterly IFRs.

Accounting

10. Spreadsheet applications will be used to record the Project’s financial transactions and generate reports in a ring fenced accounting system. Procedures for protecting the data and preventing losses caused due to fire, water flood, or explosion shall be maintained. A template of financial statement formats, schedules and tables in spreadsheet format will be provided to the FO to allow the

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satisfactory reporting of transactions by component, activity, contract and category. Spreadsheet applications will be used due to the limited number of transactions to be recorded by the FO and will mainly cover (a) the consultant direct payments as specified in the contract agreement, (b) the monthly payment of salaries or consultant charges to the FO or PO employed by the PMT to assist in its duties in case they were recruited from outside the Government, and, (c) any operating charges that the PMT may incur to perform its daily operations including mission costs and per diem expenses.

Financial Reporting

11. The PMT will be responsible for preparing the following:

12. Quarterly Interim un-audited Financial Reports (IFRs) as part of the quarterly Project progress reports, and submitting them to the Bank within one month from the quarter then ended. The format of the reports will be agreed upon during the negotiations. These reports consist of a statement of sources and uses of funds by component; statement of uses of funds by category of expenditure, both comparing actual and planned expenditures; a list of cumulative contracts’ commitments.

13. Annual Project Financial Statements (PFS) which will be audited by an independent auditor. The audit report should be submitted to the Bank not later than six months after the end of each fiscal year. The PFS include: (i) statement of sources and uses of funds by component , ( ii) statement of uses of funds by category of expenditures, both comparing actual and planned expenditures, (iii) list of cumulative contracts’ commitments.

14. Funds Flow: The Project disbursement methods are disclosed under the Disbursement arrangements and in the Disbursement Letter. In addition to a small operating cost, the Project will finance mainly consultants’ services whether international or local consultants. Based on the experience so far with flow of funds performance of current Iraq projects, it is best to have the Bank directly pay beneficiaries with bank accounts outside Iraq, while it is more efficient to have the PMT pay beneficiaries with bank accounts inside Iraq. One way to do that is by having a sufficient project-life advance to be deposited in a project account, from which the PMT makes payments and periodically claims reimbursement from the Bank.

15. Supervision and Independent Verification: The Project will require close supervision during the start-up phase to ensure that the fiduciary requirements of the PMT is completed in a timely manner, minimizing project fiduciary risk. Throughout Project implementation, supervision will be conducted every quarter to ensure compliance with Bank requirements and to develop internally generated Project risks. Moreover, the Bank will use the services of the already hired FMA to perform the following:

a. Verifying and validating to the Bank the projects’ FM and procurement arrangements and internal controls agreed upon with the implementing agencies.

b. Monitoring the physical progress of Project activities.c. Providing advisory services and technical support to the GoI and the ITF-financed projects

relating to the Project’s FM and procurement arrangements and the generation of periodic and reliable financial reports.

To perform their responsibilities, the FMA will be granted access to the Project documents at the PMT.

Auditing

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16. The Project’s financial statements will be audited annually by an independent auditor acceptable to the Bank, in accordance with internationally accepted auditing standards and terms of reference cleared by the Bank and in accordance with the new regulations issued by the Iraqi PAB on the appointment of licensed foreign auditing firms. The PMT will be responsible for preparing the TORs for the auditor and submitting them to the Bank for clearance. The PMT should engage an external auditor by six months after submission of the first withdrawal application. The audit report will be sent to the Bank no later than 6 months following the end of the Project’s fiscal year. The report shall include an opinion on the Project financial statement. Finally, a management letter shall accompany the audit report, identifying any deficiencies in the control system the auditor finds pertinent, including recommendations for their improvement.

17. In summary the following next action steps are requested:

Action By whenRecruit part time FO By one month after Project effectivenessProvide an FM procedures paper summarizing the internal control processes adopted by the PMT

By two months after Project effectiveness.

Engage external Auditor By six months after the submission of the first withdrawal application.

Disbursement Arrangements

18. The Grant of US$5 million is expected to be fully disbursed by June 30, 2012. The Bank's strategy in Iraq has been become more flexible in selecting the entities to implement the Bank financed or administered projects. For the past four years, the Bank has chosen to have the projects implemented through the Iraqi Ministries (rather than stand alone units outside government structures), ensuring that appropriate and effective financial controls are in place over the use of funds provided by the Bank, while at the same time working together to strengthen the Ministries’ own financial control processes and procedures. While this strategy has worked for some ministries, it had caused considerable project delays for others, due to the limited capacity and the existing inefficient systems. To implement and manage this Project effectively and in a timely manner, a dedicated PMT will be established. Taking into consideration the high risk environment assessed for the Project, including the assessed high FM risk, the disbursement arrangements will compensate by continuing to use appropriate disbursement methods. The disbursement methods used will be:

19. Direct Payments for eligible expenditures, for disbursements over US$25,000. These payments will be made to accounts at commercial banks capable of receiving funds transferred from the international banking system.

20. Reimbursement to the PMAC for eligible expenditures paid from the PMAC resources. The PMAC will submit reimbursement applications once per quarter, or whenever expenditures reach US$25,000 or more.

21. Country Financing Parameters (CFP) were approved for Iraq in September 2005. The CFP allow for the financing of 100 percent of eligible project expenditures.

22. The allocation of the proceeds of the Grant by expenditure category is as follows:

Table A: Allocation of Grant Proceeds

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Disbursement Category Amount of the Grant Allocated (expressed in USD)

Percentage of Expenditures to be Financed (inclusive of Taxes)

Consultant’s services including audit and training

4,500,000 100%

Operating costs 250,000 100%Unallocated 250,000 100%Total Grant 5,000,000 100%

Estimated disbursements (Bank FY/US$M)Note: Bank FY is July 1 through June 30.FY 2010 2011 2012 TotalConsultant’s services including audit and training

$ 0.93 M $ 2.63 M $0.94 M $4.5 M

Operating costs $0.083 M $0.083 M $0.083 M $0.25 MUnallocated $0.083 M $0.083 M $0.083 M $0.25 MTotal Grant $1.1 M $2.16 M $1.74 M $5.0 M

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Annex 5: Procurement ArrangementsIRAQ: Integrated National Energy Strategy Technical Assistance Project

General

1. Procurement for this Project will be carried out in accordance with the World Bank’s “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 and revised on October 2006, and the provisions stipulated in the Trust Fund Grant Agreement. The general description of various items under different expenditure categories is given below. For each contract to be financed by the Grant, consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Recipient and the Bank Project team in the Procurement Plan (PP). The PP will be updated at least annually or as required to reflect the actual Project implementation needs and improvements in institutional capacity. A General Procurement Notice had been be published in dgMarket and in UNDB and will be revised at least annually. In addition procurement procedures and process can be found in the (Master Implementation Manual) MIM.

2. Procurement of Works : no procurement of works is envisaged under this Project.

3. Procurement of Goods : no procurement of goods is envisaged under this Project.

4. S election of Consultants: Consultants' services procured under this Project will include selection of consultants to provide services related to (i) Integrated National Energy Strategy Technical Assistance (ii) Assistance to the PMT in Project implementation including the selection of external auditor.

5. For consulting firms, the selection methods will mainly be Quality and Cost-Based Selection (QCBS) and Quality Based Selection (QBS) for values above US$200,000. For values less than US$200,000 other methods can be envisaged such as selection based on Consultants Qualifications (CQ), selection based on Fixed Budget, and Least Cost selection. For individual consultants, the selection will follow the procedures explained in Section V of Bank’s “Guidelines: Selection and Employment of Consultants by World Bank Borrowers”.

6. For QCBS and QBS, and any other selection process of international consulting firm, Bank’s standard request for proposals and standard evaluation forms will be used. Shortlist of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provision of paragraph 2.7 of the Consultant Guidelines. The selection of individual consultants will be done in conformity with Section V of the “Guidelines: Selection and Employment of Consultants by World Bank Borrowers”.

Assessment of the agency’s capacity to implement procurement

7. In 2005, the World Bank conducted an Operational Procurement Review (OPR) of the public procurement system in Iraq to help enhance the Bank’s knowledge of the overall procurement system in Iraq. The OPR revealed that procurement environment which prevailed in Iraq during the last two decades was different from the norms of acceptable international practice. The major issue now facing public procurement in Iraq is the current uncertainty of public procurement laws and regulations that causes high risk within a weak control environment. The risk essentially results from in the lack of good laws and regulations, modern standard documentation, lack of trained concerned staff in procurement using Bank guidelines and international sound procurement practice, and the lack of law enforcement which would increase the risk management. Since the completion of the OPR, MoPDC had issued sets of procurement regulations in April 2007 and May 2008.

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8. In addition an assessment of PMAC’s capacity to implement Project procurement was conducted in October 2009 by the Bank’s procurement specialist through discussion with PMAC staff during the appraisal mission. The assessment was carried out based on the form of questionnaire prepared by MNAPR for rapid response to emergency projects under OP BP 8.00, was replied to by the Counterpart delegates who attended the appraisal mission, and was complemented by the additional information sent from PMAC by email related to organizational structure, staffing, and record keeping. The Procurement Capacity Assessment found that the PMAC office has no specialized staff for procurement and did not implement or participate in any procurement activities since its establishment in November 2006. Linked to this is the absence of adequate record keeping and monitoring of activities for these purposes. Moreover, regulations under applicable laws in Iraq regarding the selection and employment of consultants are undefined.

9. Based on the existing information on the overall environment for procurement in Iraq and on the lack of capacity and experience in the PMAC, the overall procurement risk assessment is judged to be high. The risk of corruption in procurement is also therefore judged to be high - this reflects the country environment, as well as the lack of specialized and experienced procurement staff in this project. Dealing with these risks requires the assignment of a dedicated and qualified procurement officer (PO) to the Project, as well as the provision of intensive formal and on-the-job training to the PMT on procurement and project management. Advance training was carried out by the procurement specialist to the PMT manager during the appraisal mission including: i) selection of consultants, ii) preparation of RFP, and iii) evaluation of proposals. In addition, the MIM are expected to provide significant guidance to the PMT PO. If necessary, the work and functions of the PO may be carried out by qualified local consultants, hired according to the World Bank’s Guidelines, and financed under the Project.

Identified Risks

10. The assessment revealed a number of weaknesses in the system which included in the table below as well as measures that had been taken into account in the Project design:

Summary of Procurement Risk Assessment Description of risk Rating

of riskMitigation measures Rating of

residual risk

PMAC lacks experience in Bank procurement procedures for selection of consultants

H Appointment of PO with the appropriate experience to assist the PMT implementing the activities financed by the Project. TOR for this position. Alternatively, appointment of qualified consultants to the PMT to carry out the work and functions of the PO.

H

Lack of applicable laws and regulations with regard to selection of consultants

H Follow the ITF MIM which would provide aligned and explicit methodology and procedures consistent Bank’s procurement and selection procedures.

M

Inability of World Bank procurement staff to supervise the Project in the field because of

H Prior review of all activities. Review outcomes by technical experts within Bank task team. The use of the FMA

H

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security situation. to help the Bank monitor the implementation progress of the Project as well as the recipient's compliance with Bank procurement, financial management and also provides on-the-job training, TA, and support to the Project management staff.

Delays in implementing the procurement plan due to lack of experience in procurement planning and the security conditions in Iraq.

H Close supervision of the Bank staff and the FMA from the field as well as outside Iraq. Frequent training and on the job training will be provided

H

Corruption in procurement. H Lowering threshold for prior review. Frequent review of files by the FMA as well as inspection by the FMA. Close monitoring of corruption indicators in procurement and implementation.

H

Average H HH: High; M: Moderate and L: Low.

The overall project risk for procurement is High.

Procurement Plan

11. During appraisal, the procurement plan was prepared (Annex 5A) for Project implementation which provides the basis for procurement packages and methods to be used in this Project. It is expected that there will be a limited number of contracts, including : i) one major consultancy services contract for the INESTA, ii) individual consultancy contracts to support the PMT in the implementation of the Project, and, iii) contract for external auditor. This plan will be agreed on between the PMAC delegates and the Bank at negotiations, and will be available in the Project’s database and on the Bank’s external website. The PP will be updated in agreement with the Project Team as required to reflect the actual Project implementation needs and improvements in institutional capacity.

Recommendations and Action Plan to Build the Agencies’ Capacity

A procurement officer to be appointed or recruited, alternatively, appointment of qualified consultants to the PMT to carry out the work and functions of the PO.

Training sessions have been carried out and will continue throughout Project implementation by the Bank’s procurement specialist and the FMA in Baghdad.

The prior review requirement by the Bank is set at a low level, to allow Bank staff to provide hands-on training to staff of the PMT.

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Annex 5.ARepublic of Iraq

Integrated National Energy Strategy Technical AssistanceProcurement Plan – Selection of Consultants

Procure-ment

SystemRef. #

Location/Description of Assignment

EstimatedCost

(US$)*

Sele

ctio

n M

etho

d Reviewby BankPrior /Post

Adverti-sement

EOI/Readiness

Date

Short Listing

Invitationfor RFPs

Date

ExpectedProposal

Submission Date

ContractAwardDate

StartDate

Comple-tionDate

CONSULTANTS' SERVICES

Component 1. Integrated National Energy Startegy Technical Assitance

INESTA.QCBS.01/09Integrated National Energy Startegy Technical Assitance ** 4,250,000$ QCBS PRIOR 2-Sep-09 23-Sep-09 9-Oct-09 8-Dec-09 21-Jan-10 1-Feb-10 31-Jul-11

Subtotal for 1 4,250,000$

Consultants for Project Management (PMT Team) & Auditing

INESTA.C.IND.01-03 Technical and Procurement Support 150,000$ IC PRIOR 15-Oct-09 30-Oct-09 30-Oct-09 30-Oct-09 1-Dec-09 1-Dec-09 30-Nov-10

INESTA.LCS.AUD Auditing Firm 100,000$ TBD PRIOR 1-Feb-10 3-Mar-10 19-Mar-10 12-Apr-10 21-Jun-10 12-Jul-10 30-Sep-11

Subtotal for 2 250,000$

GRAND TOTAL 4,500,000$

Legend: Notes:

QCBS = Quality and Cost-based Selection (in accordance with sections 2.1 - 2.28 of the Guidelines)* All cost estimates include contingencies

IC = Selection of Individual Consultants (in accordance with sections 5.1 - 5.4 of the Guidelines) ** The cost estimate for this contract will be revised as the terms and scope of works develops

Color Key:

P = Initial "Plan" input

R/A = An Actual input (a past date)

R/A = A Revised input (a future date)

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Prime Minister’s Office (PMO)(Prime Minister’s Advisory Commission PMAC)

Project Steering Committee(PSC)

Strategic Consultant(SC)

Project Management Unit(PMT)

Specialist sub-contractors

Ministry of Oil(MoO)

Ministry of Electricity(MoE)

Ministry of Finance(MoF)

Ministry of Planning and Developmental Cooperation

(MoPDC)

Ministry of Industry &Minerals(MoIM)

Ministry of Water Resources(MoWR)

Annex 6: Implementation and Monitoring ArrangementsIRAQ: Integrated National Energy Strategy Technical Assistance

1. The Government of Iraq (GOI) is the recipient of the proposed Iraq Trust Fund Project. The implementing agency in Iraq is expected to be the Prime Minister’s Advisory Commission (PMAC). A Project Steering Committee (PSC) of high-level officials will guide the work of the selected consultant and utilize his assistance in the formulation of the INES. The Consultant will be a firm with considerable capacity and extensive experience of working on energy strategy in an international context.

2. The INESTA Project will be implemented under the leadership of the Prime Minister’s Advisory Commission (PMAC). All key ministries and agencies relevant to the work will be engaged.

3. The GoI has created a Steering Committee, tasked with formulating the INES. The PSC will work with the support of the Consultant under this Project. The PSC is composed of high-level representatives from the PMAC, and from the Ministries of Oil, Electricity, Planning and Development Cooperation, Industry and Minerals, Finance and Water Resources. The Committee is chaired by the head of the PMAC, which will also provide logistical and analytical support to the work. A Project Management Team (PMT) has been established within the PMAC.

4. The PMAC, a high-level policy advisory body located within the Prime Minister’s Office (PMO), is the implementing agency of the ITF grant. The ITF is a multi-donor trust fund administered by the World Bank, which was established to coordinate international financing for investment projects, technical assistance and other development activities, within the framework of the GoI’s priority program. The Consultant will be contracted by the GoI. Arrangements for Project implementation will follow standard World Bank – IDA procedures.

Figure 3: Organization of Implementation of the Project

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5. The PMT will initially be comprised of three full-time dedicated staff persons. A project manager will serve as the key interlocutor for the Bank’s Task Team Leader and the Ministries of Oil, Electricity, Planning and Development Cooperation, Industry and Minerals, Finance and Water Resources. The project manager will initially be supported by a Financial Officer (FO) and a Procurement Officer (PO). During the initial procurement phase of the Project, the FO and PO will manage the daily financial management and procurement activities of the Project as outlined in the sections below and in further detail in Annexes 4 and 5, respectively. However it has been agreed that following contract signature with the strategic consulting firm, the FO and PO may be retained on part-time basis, to be determined. If necessary, the work and functions of the FO and PO may be carried out by qualified local consultants, hired according to the World Bank’s Guidelines, and financed under the Project.

6. The Consultant will meet with the PSC at least once every two months to report on the progress of the work, deliver Progress Reports, receive guidance on the development of the INES, and discuss its work with high-level officials. The Consultant will also interact as required with officials in the relevant ministries and all parts of the GoI in order to carry out its work.

7. Approval of reports submitted by the Consultant shall be the responsibility of the PSC.

8. The Consultant may be asked to support workshops for GoI officials to explain key strategic concerns, present work in progress and consult on specific issues. The PSC will mediate liaison with the top level of the GoI, and may call upon the Consultant to brief officials at all levels of Government.

9. The Project will be supported by a PMT based in the PMAC, staffed by officials from the PMAC, who may be assisted by suitably qualified consultants specializing in procurement and financial management. The PMT will facilitate the work of the Consultant, by providing logistical support and liaison with Government bodies. It will be responsible for monitoring Project implementation, and for fiduciary issues. However, the PMT will not be involved in analytical and similar work in support of the Consultant’s work as specified in the TOR. The PMT will initially comprise three full-time dedicated staff. If necessary, the work and functions of the FO and PO may be carried out by qualified local consultants, hired according to the World Bank’s Guidelines, and financed under the Project.

10. The PMT will provide to the Consultant:a. Past reports of relevance to the Consultant’s work, subject to their availability to the PMT,b. All necessary assistance, within the PMT’s own abilities, to set up meetings with GoI,c. Meeting spaces within the offices of the PMAC, or an alternate location, in which the

Consultant can hold meetings with Iraqi agencies,d. Distribution of the Consultant’s reports to the PSC and to other GoI entities,e. Assistance with setting up seminars and workshops.

11. Data collection and research may be undertaken by Baghdad-based staff, internationally-based staff, or local staff hired as needed. Early research and consultations are expected to require greater in-country activity, with later strategy work taking place at a location at the discretion of the Consultant and PSC. Where the Consultant is deemed to lack the expertise required to fulfill a particular element of the analysis, they will be expected to arrange for such expertise to join their project team, on an as-needed basis. These needs should be clarified by the Inception Report, and discussed with the GoI at this time.

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Expected Project Timeline / Disbursement Plan

Milestone Timeframe* Estimated Date** DisbursementContract signature February, 2010 10%Inception Report 2 months May, 2010 10%First Interim Report 8 months November, 2010 15%Environmental and Social Report

12 months March, 2011 10%

Second Interim Report 12 months March, 2011 10%Draft final Report 16 months July, 2011 10%Final Report 18 months September, 2011 20%

Workshops Following completion of Final Report

October, 2011 15%

Progress reports Approximately every two months

* Months after Consultant starts work. ** Assumes Consultant selection finalized in January, 2010.

Simplified Procurement Plan (SPP)

12. Strategic Consultant contract: The INESTA Project will revolve around a single contract, signed with a strategic energy consulting firm. This firm will provide the Government of Iraq with support for the development of a comprehensive energy strategy for Iraq, including oil, gas and power sectors. This contract will include the collection of baseline data from which to draw higher-level conclusions, the Integrated National Energy Strategy (INES) itself, and dissemination programs/workshops to be held following report completion.

a. Estimated cost: US$ 4.25 million.

b. Procurement method: Quality and cost-based selection (QCBS) for a lump-sum contract.

c. Estimated date of bid submission: Proposals from consulting firms are expected to be received by end-December, 2009.

d. Bank review: Prior review.

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Annex 7: Project Preparation and Appraisal Team MembersIRAQ: Integrated National Energy Strategy Technical Assistance Project

Michael Levitsky Lead Energy Economist (TTL) COCPO

Robert Murphy Extended Term Consultant COCPO

Simon Stolp Sr. Energy/Mining Specialist MNSEG

Husam Mohamed Beides Sr. Energy Specialist MNSEG

Yahia Said Sr. Public Sector Specialist MNSED

Nazaneen Ali Sr. Procurement Specialist MNAPR

Maya Boulos Boulos FM Specialist MNAFM

Nikolai Soubbotin Sr. Counsel LEGEM

Hocine Chalal Regional Safeguards Advisor MNACS

Jane Distelhorst Sansbury Senior Operations Officer MNCA2

Jad Mazahreh FM Specialist MNAFM

Colin Scott Lead Specialist MNSSO

Najat Yamouri Sr. Communications Officer MNAEX

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Annex 8: Environmental and Social Safeguards FrameworkIRAQ: Integrated National Energy Strategy Technical Assistance Project

1. Safeguard policy in Iraq is directed by the Environmental and Social Screening and Assessment Framework (ESSAF) (as revised in April 2006), which prescribes special procedures to account for the continuing instability in the country. The proposed Project finances international and local advisory services as well as limited information dissemination activities related to the final deliverable.

2. The Project has been rated as a Category B technical assistance project, since the energy sector in Iraq presents many high-profile and sensitive environmental and social issues. In the Bank’s view it is important to give full coverage to these issues, and also to provide some scope for public comment in these key areas. In order to give due weight to Environmental and Social issues, the selected consulting firm (“the Consultant”) will produce a stand-alone Report on these. This Report would be presented to the Project Steering Committee for approval. The approved version would then be sent for comment to a full range of knowledgeable civil society organizations, Government officials and academic institutions, at the time of the consultants’ Second Interim Report (12 months after the start of the Consultant’s work). The PMT and PSC would collect comments with the support of the Consultant, and these would be used to frame a final Report on Environmental and Social Issues. This report would contain a summary of comments received. The PMT and PSC will organize a workshop for Government and civil society organizations, to discuss the Environmental and Social Report with the assistance of the Consultant. The Ministry of Environment (together with other relevant ministries not already represented on the PSC) would be involved in the Project’s work on environmental and social issues.

3. The Report on Environmental and Social Issues in the Energy Sector will include a review of the following areas:

a. Environmental impact of oil and gas operations,b. Environmental impact of power sector operations,c. Environmental impact of end-use of energy in the transportation, industrial and household

sectors,d. Social aspects of energy sector investments and operations,e. Institutional and regulatory models for the management of environmental and social impacts

of energy sector operations,f. Use of Environmental and Social Impact Assessments in the energy sector,g. Examples of relevant practice from other countries with similar energy sector conditions,h. Institutional and regulatory reform options Iraq for in these areas.

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Annex 9: Documents in Project FilesIRAQ: Integrated National Energy Strategy Technical Assistance

1. The Fiscal System for a National Oil Company in Iraq , World Bank, Mar. 2007

2. Federal Aspects of Petroleum Regulation and Management in Iraq , World Bank, Mar. 2007

3. Private Sector Participation in Iraq Electricity Generation , World Bank, May 2007

4. Stabilization/Iraq Contract Options/Development of Iraqi Oil and Gas Fields , Middle East Economic Survey, January – May 2009

5. Options for Developing a Long Term Sustainable Iraq Oil Industry , USAID/BearingPoint, December 19, 2003

6. Options for Developing a Long Term Sustainable Iraq Oil Industry: Gas and Downstream , USAID/BearingPoint, January 23, 2004

7. Iraq in Perspective: Economic Growth and Electricity , USAID/International Resources Group, February 2006

8. Electricity Sector Master Plan for Iraq: Final Report , USAID/Ministry of Electricity/ BearingPoint/Nexant, July 2004

9. The Euro-Arab Mashreq Gas Market Project: Gas Resources of Iraq , EU, December 17, 2006

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Annex 10: Statement of Credits and Grants(as of October 31, 2009)

IRAQ: Integrated National Energy Strategy Technical Assistance

Difference betweenExpected Actual Disbursements

(in US$ million)

Proj ID FY Project IDA TF Undisb. Cancel. Orig. Frm. Rev'd

P087734 2007 Emergency Electricity 124.0 0.0 127.3 0.0 97.0 0.0P087734 2007 Emergency Electricity 0.0 6.0 5.5 0.0 0.0 0.0P087735 2006 Emergency Road Rehabilitation 135.0 0.0 111.0 0.0 111.2 0.0P087907 2005 Emergency School Construction and Rehab. 0.0 60.0 22.3 0.0 60.0 0.0P087910 2005 Emergency Water, Sanitation and Urban 0.0 110.0 62.1 0.0 90.0 110.0P087912 2005 Emergency Baghdad Water Supply 0.0 65.0 33.2 0.0 65.0 0.0P091305 2005 Iraq Emergency Health Project 0.0 25.0 6.6 0.0 25.0 22.0P091344 2005 Emergency Private Sector Development 0.0 65.0 12.7 0.0 55.0 63.5P094650 2008 Emergency Water Supply 109.5 0.0 105.5 0.0 22.9 0.0P096234 2006 Third Emergency Education Project 100.0 0.0 110.1 0.0 100.0 0.1P096774 2006 Iraq Emergency Disabilities Project 0.0 16.8 8.0 0.0 19.5 11.7P098979 2007 Household Survey and Policies for Poverty 0.0 5.5 0.1 0.0 5.1 0.0P099059 2007 Dokan and Derbankdikhan Emer. Hydro. 40.0 0.0 40.1 0.0 28.3 0.0P099295 2007 Emergency Social Protection Project 0.0 8.0 4.7 0.0 8.0 0.0P099809 2007 Emergency Environmental Management 0.0 5.0 4.3 0.0 3.7 3.2P100726 2007 ESCRP - Additional Financing (Marshlands) 0.0 6.0 0.8 0.0 6.0 5.2P107438 2007 PCF Primary Healthcare in Marshlands 0.0 0.6 0.3 0.0 0.0 0.0P107698 2008 KRG Emergency Health Response 0.0 8.7 5.8 0.0 4.4 0.0P109296 2008 Emer. Comm. Infras. Rehab. (Add’l Fincg.) 0.0 27.0 20.4 0.0 8.8 0.0P110862 2009 Public Financial Management Reform 0.0 16.0 16.0 0.0 0.0 0.0P113337 2009 Banking Sector Reform 0.0 10.0 10.0 0.0 0.0 0.0P119740 2010 Consultative Service Delivery Prog. (Ph. II) 0.0 4.8 4.8 0.0 0.0 0.0

    Total: 508.5 439.3 711.6 0.0 709.9 215.7

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Annex 11: Country at a GlanceIRAQ: Integrated National Energy Strategy Technical Assistance

59

60

61

Annex 12: MapsIRAQ: Integrated National Energy Strategy Technical Assistance

62

63