Document of The World Bank

Report No: T-7595

TECHNICAL ANNEX

FOR A

ON A PROPOSED CREDIT

IN THE AMOUNT OF SDR 20.3 MILLION

(US$28 MILLION EQUIVALENT)

AND A PROPOSED GRANT

IN THE AMOUNT OF SDR 9.5 MILLION

(US$13 MILLION EQUIVALENT)

TO THE

REPUBLIC OF CONGO

FOR AN

EMERGENCY RECOVERY AND COMMUNITY SUPPORT PROJECT

June 2,2003

Poverty Reduction and Economic Management 3 Country Department 9 Africa Regional Office

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CURRENCY EQUIVALENTS SDR 1 .OO = US$1.26543 US$l .OO = FCAF 308

April 30,2002

ACTED ADB AIDS BEAC EC ERP F A 0 FMR FMS GDP HIPC IBRD ICB IDA IMF IF1 MIS NGO PER PCIU PRGF PRSP SMP SNPC SOE SOPECO SOTELCO TSS UNDP

FISCAL YEAR January 1 to December 31

ABBREVIATIONS AND ACRONYMS

Agence d'Aide 51 la Cooperation Technique et au Developpement African Development Bank Acquired Immune Deficiency Syndrome Banque des Etats de 1'Afrique Centrale European Commission Economic Reform Project Food and Agriculture Organization Financial Monitoring Report Financial Monitoring System Gross Domestic Product Highly Indebted Poor Countries Initiative International Bank for Reconstruction and Development International Competitive Bidding International Development Association International Monetary Fund International Financial Institution Management Information System Non-governmental organization Public Expenditure Review Project Coordination and Implementation Unit Poverty Reduction and Growth Facility (IMF) Poverty Reduction Strategy Paper Staff Monitoring Program Societe Nationale du Petrole Statement o f Expenditures Societe des Postes du Congo Societe des Telecommunications du Congo Transitional Support Strategy United Nations Development Program

Vice President: Callisto Madavo Country Director: Emmanuel Mbi

Sector Manager: Cadman Mills Task Team Leader: Xavier Devictor

REPUBLIC OF CONGO: Emergency Recovery and Community Support Project

TECHNICAL ANNEX

Table o f Contents

I . CONFLICT. RECENT PROGRESS. AND THE CHALLENGE AHEAD A . B . C . D .

Impact ofthe Conflict ................................................................................................ 1 Progress Towards Peace and Reconciliation ........................................................... 2 Progress Towards Economic Reform ........................................................................ 3 The Challenge Ahead ................................................................................................ 3

I1 . GOVERNMENT'S RESPONSE ................................................................................................ 4 A . Economic Reform ................................................................................................................ 4 B . The Poverty Reduction Strategy Paper ..................................................................... 5 C . Decentralization ................................................................................................... 5

I11 . INTERNATIONAL AND IDA RESPONSE ............................................................................. 7 A . B . IDA Response ........................................................................................................... 7 C . Rationale for the Project ........................................................................................... 8

International Response ...................................................................................................... 7

N . OVERALL PROJECT DESCRIPTION ............................ ...................................................... 9 A . Objective .............................................................................................................................. 9 B . Emergency Nature ofthe Project .............................................................................. 9 C . Overall Design .................................................................................................................. 10 D . Project Costing and Financing ............................................................................... 11 E . Lessons learned reflected in Project design ............................................................ 12

V . DETAILED DESCRIPTION OF COMPONENTS ............................................................... 15 A . Component A: Financing ofpriority Local Investments ............................................. 15 B . Component B: Support to Community Organizations ............................................ 17 C . Component C: Capacity enhancement Support ............................................................ 20 D . Component D: Balance ofpayments support .......................................................... 23

V I . INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION ............. 26 A . Project Coverage andImplementation Period ............................................................. 26 B . Implementation Arrangements ................................................................................ 26 C . Procurement Arrangements ............................................................................................ 27 D . Disbursement Arrangements ........................................................................................... 30 E . Financial Management, Reporting, and Auditing ................................................... 31 F . G . H. I.

Readiness for Implementation and Conditions of Effectiveness ................................. 32 Implementation Support .......................................................................................... 32 Monitoring and Evaluation ............................................................................................. 33 Environmental Aspects and Compliance with Bank Safeguard Policies ................ 33

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VI1 . BENEFITS AND R I S K S ....................................................................................................... 34 A . Benefits ................................................................................................................................ 34

Risks and Mitigation Measures ....................................................................................... 34 B .

Appendices

Appendix A: Timetable o f Key Processing Events .......................................................... 36 Appendix B: Project Costs and Financing ....................................................................... 37 Appendix C: Positive l i s t for imports for Component D ..................................... 39 Appendix D: Procurement Arrangements and Assessment ............................................. 40 Appendix E: Financial Management Arrangements and Assessment .............................. 47 Appendix F: Performance Indicators ................................................................................ 54 Appendix G: Status o f Bank Group Operations in the Republic o f Congo ...................... 58 Appendix H: Country at a Glance ..................................................................................... 59

Map IBRD28856

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I. CONFLICT, RECENT PROGRESS, AND THE CHALLENGE AHEAD

1 , instability and conflict. In 1993-94, in 1997, and again in 1998-99, the country was torn by violent conflicts, between forces loyal to various political leaders. War and civil disturbance, compounded by the sequels o f a long period o f mismanagement and corruption, have taken a heavy toll on the country and i ts 3 million people. Physical damage i s extensive, institutions are in shambles, and per capita income has declined from US$1,300 in 1982 to US$630 in 2000 (a decline compounded by the devaluation o f the CFA). Still, progress over the last three years towards reconciliation and economic reforms have created hopes that the conflict trap -the cycle o f conflict and impoverishment - can be broken.

The Republic o f the Congo (Congo) i s gradually emerging from a decade o f political

A. Impact o f the Conflict

2. The conflicts have had a severe impact throughout Congo. The impact o f the f i rs t two conflicts (1 993-94, and 1997) was concentrated in the city o f Brazzaville (which i s home to about one quarter o f the total population). The 1998-99 war brought havoc to southern Congo (except the area around Pointe-Noire) and parts o f central Congo. Overall, damage and disruptions are extensive, and a large part o f the population has gone through horrendous ordeals. The country s t i l l has to deal with the legacy o f these conflicts, including:

0 Social and humanitarian crisis. The 1998-99 war caused large population movements, affecting about 8 10,000 people (almost a third o f the population). Displaced persons sought refuge in the forests, where they lived in appalling conditions for up to one year. UNICEF estimates that about 250,000 people were s t i l l displaced in 2002. In parallel, human rights abuses were widespread - causing great physical and psychological hardship. These events have severely damaged the social fabric o f the Congolese society, and created an environment where explosions o f social violence are not uncommon.

0 Extensive looting. The conflicts were accompanied by extensive looting o f public as well as private assets. As a result, many institutions have been le f t in shambles (with damaged facilities, looted equipment, and lost records). Key private sector operators have closed down or reduced activities (non-oil activity, already weakened by the f i r s t conflicts, contracted by a further 19 percent as a result o f the last war). A number o f schools and health care facilities are no longer functional, leaving poor people with no access to basic services. Many famil ies have lost their few assets (50 percent o f agricultural tools were destroyed and 75 percent o f livestock was lost).

0 Infrastructure damage. Infrastructure suffered from both fighting and sustained lack o f maintenance. The road transport network i s no longer functioning, many localities can only be accessed by air and most feeder roads are impassable. The railway l ine between Pointe Noire and Brazzaville, the economic umbilical cord o f the country, was destroyed in several points. This has brought economic exchange almost to a halt and i s inhibiting agricultural growth - and hence it represents a major obstacle to economic recovery. Util i t ies, including telecommunications, water, and electricity services, were severely disrupted. Despite abundant hydroelectric resources, Congo i s increasingly relying on

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electricity imports. Telecommunications services are not available outside the five main urban areas (Brazzaville, Pointe Noire, Dolisie, Ouesso, and Nkayi), and where available are too expensive for most o f the population.

Legacy of war-time mismanagement of economic resources. Public debt increased dramatically over the 1990s, which substantially reduces Government’s capacity to address some o f the problems it faces. At the end o f 2001 total medium- and long-term external debt, including arrears amounted to 196 percent o f GDP. Domestic debt was about 30 percent o f GDP in 2000. Arrears are equivalent to about 94 percent o f GDP. In parallel, many commercial banks became insolvent and illiquid - and hence no longer have the capacity to contribute to the revival o f economic activity.

0 Increased incidence ofpoverty and unemployment. Due to the combination o f looting, lack o f infrastructure, and a deteriorated policy environment, economic activity i s very limited. This has translated into massive unemployment (above 50 percent o f the labor force) that leaves many, especially the young, disenfranchised, socially excluded, and without prospects for a better future. The incidence o f poverty has increased - with about 70 percent o f the population, mostly women, youth, and rural people, below the poverty line.

0 Spread of HIV/AIDS. War-time displacements and sexual violence have accelerated the spread o f the HIV/AIDS epidemics. Whi le detailed figures are not available, this has become one o f the critical risks for Congo’s medium-term development prospects.

B. Progress Towards Peace and Reconciliation

3. Over the last three years, there has been continued progress towards peace and reconciliation. Since the cessation o f hostilities in the end o f 1999, and the signing o f ceasefire agreements between the Government and key rebel leaders in 2000, the security situation has improved dramatically in Brazzaville and throughout the country. Progress has been consolidated in the recent period with the demobilization and disarmament o f some key militias and the signing on March 17,2003 o f an agreement between the Government and the last rebel group, led by “Pastor Ntumi”, which had caused an upsurge o f violence in March and June, 2002 and again from October 2002 to January 2003 in the Pool Region. Still, the situation remains fragile, and most observers underline that significant efforts need to be made to address the current social crisis for the progress o f the last years to be sustainable.

4. the five-year political transition period agreed upon within the Forum National. Reconciliation efforts culminated on April 14,2001 with the adoption o f a new constitution (by 84 percent o f registered voters), and on March 10, 2002 with the peaceful holding o f presidential elections. Legislative, and senatorial elections were held over the summer o f 2002, leading to the installation o f all institutions stipulated by the constitution in August 2002 - and the Parliament and the Senate, both dominated by the coalition associated with President Sassou Nguesso, started their work. Local assemblies at the municipal and sub-regional levels were also elected

In parallel, progress has been made towards national reconciliation, within the context o f

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(prefects and deputy prefects, in charge o f regional administration, are appointed by the Government).

C. Progress Towards Economic Reform

5. The recovery process needs to be accompanied by a deep shift in economic policies. Since independence in 1960, the successive Governments have not been able to translate the country’s rich economic potential into an actual improvement o f living conditions for the largest part o f the population. Despite abundant o i l resources, poor economic management under a centrally-planned economy, compounded by severe transparency issues, have resulted in a worsening o f social and poverty indicators - which is seen as a substantial source o f instability in the current fragile post-conflict context.

6. For the last year and a half, the Government has embarked o n a program o f economic reforms, supported by the Bretton Woods Institutions, and in particular by the Bank under an Emergency Recovery Credit and by the IMF under the emergency post-conflict assistance policy, and later a Staff Monitored Program. In-depth structural reforms have been launched in the areas o f economic governance, public expenditure management, poverty reduction, transparency, financial sector, and public enterprises. Implementation is going well, and there are solid prospects for an access to the IMF Poverty Reduction and Growth Facility (PRGF) after completion o f the current Staff Monitored Program (which covers the period January to June 2003), possibly as early as Fal l 2003.

D. The Challenge Ahead

7. underpinned earlier rounds of conflict. For Congo, the key challenge over the coming years i s to transform the relative political and economic stability achieved over the last couple o f years into sustainable peace and economic recovery -that is, to break the cycle o f conflict and impoverishment. Earlier l u l l s have been followed by renewed fighting within a few years. To avoid a repetition o f such events, efforts have to focus on both addressing urgent needs and tackling some o f the deep-rooted causes o f conflict (and in particular the unequal distribution o f o i l revenues, the over-centralization o f a state-managed economy, and the disenfranchisement o f large sectors o f the population).

Despite progress over the last years, Congo has yet to tackle the factors which

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11. GOVERNMENT’S RESPONSE

A. Economic Reform

8. The Government i s committed to pursuing the implementation o f i t s economic reform program, which i s supported by the Bretton Woods Institutions, to maintain macro-economic stability, while tackling some o f the structural constraints to economic growth and poverty reduction:

0 Economic program. The Government’s 2003 program, underpinned by the austerity budget, approved by Parliament in January 2003, aims to: (i) improve the health o f public finance; (ii) strengthen transparency in petroleum sector transactions; (iii) free up the resources needed to reduce poverty; and (iv) normalize relations with creditors and reduce indebtedness to the banking system. The macroeconomic objectives are: (i) real economic growth o f 2 percent despite a marked decline in o i l production; (ii) a rate o f inflation at 2 percent; and (iii) a primary budget surplus o f 9.3 percent o f GDP.

e Revenue. In addition, because o f the downward trend in petroleum output, which wi l l only be turned around in 2005, the mobilization o f non-oil tax revenue assumes particular urgency. The Government i s committed to apply rigorously the new measures regarding forestry (increase o f the forestry royalty from 4 to 8.5 percent) and custom reforms.

e Expenditure. Regarding expenditure, the Government has taken steps to ensure strict adherence to budgetary procedures. To contain current expenditure, a system o f monthly expenditure ceilings by ministry was introduced in January 2003. The Government will also conduct targeted value-for-money audits to ensure the efficacy and legality o f public expenditure. The Government has also endeavored to re-orient budgetary expenditure to priority social sectors.

Oi l sector. In the o i l sector, to strengthen transparency, the Government has launched a series o f audits o f the national o i l company (SNPC). O i l revenues are being transferred in full to the Treasury, to finance budgetary priorities. The Government intends to continue in this direction, and to broaden the anti-corruption effort to other sectors.

0 Debt. The Government intends to pursue and intensify i t s policy o f normalizing relations with all creditors. Payments have been made both for current service and to reduce arrears - which has allowed, in particular, for the resumption o f the African Development Bank’s institutional support.

9. vested interests. Despite the resistance it faces in some quarters, the Government has kept the overall effort on track and made noticeable progress in some key areas.

Implementation to date has been encouraging, although there remain solidly-entrenched

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B. T h e Poverty Reduction Strategy Paper

10. Reduction Strategy Paper (PRSP). The PRSP i s currently under preparation (an Interim PRSP i s being finalized and i s expected to be published by late Summer 2003), but a consensus has already emerged around i ts overarching goal - to consolidate peace and economic reform. The paper i s expected to be articulated around five major strategic building blocks.

The Government’s response i s framed within the context o f the preparation o f a Poverty

0 Strengthening the macro-economic framework to promote growth - including: (i) attracting private investment for rehabilitating socio-economic infrastructures; (ii) restructuring and privatizing key public enterprises; (iii) reforming the financial sector; (iv) improving the business environment in order to facilitate a diversification o f the economy; and (v) tackling the debt issue;

0 Ensuring growth is pro-poor - and in particular supporting the integration and participation o f poor and socially excluded people. This will require action in: (i) human development; (ii) rural development; and (iii) specific programs for minorities and disadvantaged citizens;

0 Promoting good governance, strengthening capacity, and civil peace - through: (i) institutional reforms; (ii) a strengthening o f democratic institutions and processes; (iii) fight against corruption; and (iv) judiciary reforms.

0 Improving access to basic socio-economic in3astructure and services and preserving the environment - including activities in the education, health, water, and electricity sectors.

0 Fighting the HIVAIDS epidemic - through both prevention and treatment.

C. Decentralization

1 1. past, the Government has also embarked on an in-depth decentralization program. According to recently-passed laws, there will be several levels o f Government:

To implement this ambitious agenda, while remedying to the over-centralization o f the

0 The Central Government, which includes in particular all sectoral administrations and to whom branch offices will continue to report.

0 Ten “dkpartements ” (formerly “regions”), covering the entire territory, with a population typically ranging from 80,000 to 200,000 people each. DCpartemental institutions include an elected council, an executive office o f the council, and an elected president o f the council who has the executive authority over technical services. The dkpartement i s sub-divided into districts, rural communities, and villages and also includes municipalities.

0 Six “municipalities ’I, corresponding to urban areas o f more than 20,000 people. These include Brazzaville (about 800,000 inhabitants), Pointe Noire (about 600,000

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inhabitants), and four “smaller municipalities” with population ranging from 20,000 to 70,000 people. Other urban centers in Congo are only small towns with population below 10,000 people. Municipal institutions include an elected council, an executive office o f the council, and an elected mayor, who has the executive authority over technical services. The municipalities are divided into “arrondissements”.

12. defining the responsibilities to be handled at local level are s t i l l to be issued in some sectors, local collectivities are expected to have expanded responsibilities in the fol lowing areas: planning, urbanism, education, health, social action, environment, agriculture, public works, transport, mining, energy, employment, and general administration. Although financial constraints and the continued control by the Governmental authorities over local branches o f sectoral administration may prevent local collectivities from playing an active role in the day-to- day delivery o f social services, elected assemblies at the dipartemental and municipal level are the most legitimate bodies for the definition o f investment priorities in the relevant geographical areas.

Departements and municipalities together are called “local collectivities”. While decrees

13. local communities and improve local governance - and hence contribute to the gradual stabilization o f the political and social situation by tackling one o f the key issues underlying the repeated bursts o f violence o f the 1990s. This is particularly important for about hal f o f Congo’s 3 mi l l ion people who l ive outside the two main cities (Brazzaville and Pointe Noire).

I t is expected that the decentralization effort, if properly implemented, will help empower

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111. INTERNATIONAL AND IDA RESPONSE

A. International Response

14. Over the last years, the international community has gradually re-engaged in Congo, and has shifted i t s focus from humanitarian aid to development-oriented programs. Key donors include: the European Union (EU), France, and the United States - who are involved in a variety o f infrastructure rehabilitation, community development, and capacity enhancement programs. In parallel, UN agencies, in particular the United Natiops Development Program (UNDP), launched specific programs to support local communities and strengthen institutions. Still, the country has not yet received a level o f support commensurate to i t s needs or comparable to other post-conflict countries - and assistance has remained focused on the most accessible areas - particularly the cities o f Brazzaville and Pointe Noire.

15. Congo i s meeting some o f the pre-requirements set by some donors - in areas such as democratization, decentralization, and economic reforms. In this context, a Donor Information meeting i s expected to be held in July 2003 to review the Government’s progress over the last period and to discuss ways by which the international community could support the stabilization and recovery process in a more robust manner. This could pave the way for a broader involvement o f donors.

With recent developments, however, this support i s expected to gradually increase, as

B. IDA Response

16. Strategy (TSS), which was discussed by the Board on January 16,2001. A new TSS i s under preparation and should be submitted to the Board in Fall 2003. Under the current TSS, the Bank launched a number o f activities, including:

The Bank re-engaged in Congo in 2001 within the context o f a Transitional Support

0 Lending operations. Since early 2001, the Bank has approved: (i) a US$38 million Post- Conflict Economic Rehabilitation Credit (in July 200 1) to help Congo in the aftermath o f i ts clearance o f i t s large arrears to the World Bank and support implementation o f key structural reforms, help to better manage fiscal resources, and assist in improving governance and transparency in the oi l sector; (ii) a US$5 mill ion Emergency Demobilization and Reintegration Project (in July 200 1) to facilitate the reintegration o f about 10,000 ex-combatants into civil life; (iii) a US$7 million Transparency and Governance Capacity Building Project (in February 2002) to accompany reforms supported under the Post Conflict Economic Recovery Credit; and (iv) a US$40 million Infrastructure Rehabilitation and Improvement o f Living Conditions Project (in April 2002) to rehabilitate key infrastructure (including portions o f the key railroad link, roads, and health facilities) and help mitigate unemployment issues through a variety o f labor- intensive micro-projects. An HIV/AIDS Project i s also under preparation to help contain the rapidly spreading epidemics.

0 Non-lending activities. In parallel, the Bank has initiated a Public Expenditure Review (PER), a study on natural resources management, and a labor-market analysis. These

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efforts are expected to help tackle some o f the key transparency and effectiveness issues the country i s facing with regard to economic management.

C. Rationale for the Project

17. materialize, however, the benefits o f reform and recovery need to be distributed to al l communities throughout the country. Much o f the assistance to date has been l imited to the most accessible areas, namely the cities o f Brazzaville and Pointe Noire. There is a widespread consensus that support to other parts o f the country is critical to prevent the return o f c iv i l unrest and violence, as well as the further deterioration o f living conditions throughout Congo.

For the full benefits o f the recovery effort supported by earlier IDA-funded projects to

18. The Project is hence a response to calls by the Government and Congolese stakeholders for the Bank to provide support to the recovery o f communities throughout the country. The Project is fully consistent with the objectives o f the TSS and i s expected to complement efforts already underway to help the Government tackle some o f the root causes o f the conflict - by supporting further economic reforms and focusing o n areas outside Brazzaville and Pointe Noire.

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IV. OVERALL PROJECT DESCRIPTION

A. Objectives

19. municipalities and rural areas (Le. with a focus on areas outside the two cities o f Brazzaville and Pointe Noire). This i s critical for sustaining the momentum o f reconciliation and economic reform, and for consolidating the achievements o f the last two years - so as to prevent new eruptions o f violence.

The objective o f the Project is to assist the recovery o f communities living in smaller

20. support interventions in four parallel directions: (i) provide financial support for the implementation o f priority, small-scale rehabilitation and economic revitalization activities in al l departements; (ii) support activities initiated by local NGOs and community-based organizations in all dkpartements; (iii) assist in strengthening administrative capacities, at both the central and local levels o f Government to facilitate implementation o f the economic reform and decentralization programs; and (iv) provide balance o f payments support to finance critical imports for the delivery o f basic social services by local governments.

To that effect, and in line with the objectives outlined in the TSS, the Project aims to

21. Detailed performance indicators for the project are provided in Appendix F.

B. Emergency Nature of the Project

22. conflict, and o f the urgency to provide support to consolidate peace and maintain the pace o f reforms, the Project will be processed under OP8.50 on emergency recovery assistance. The criteria for using OP 8.50 procedures are being met, as follows:

In view o f the fragility o f the social situation brought about and exacerbated by the

Impact on economic priorities and investment programs. The impact o f the conflict on the economy and living conditions has been devastating. The Project i s expected to: (i) support the strengthening o f local government, which is key for the effective provision o f basic social services in the local collectivities; (ii) help maintain the pace o f economic reforms; and (iii) contribute to improving living conditions in areas which have received l imited external support and where poverty i s acute.

Frequency. The emergency is the result o f a cycle o f wars - not o f recurring natural events.

Urgency. The conflicts have caused tremendous suffering, widespread economic disruption, and weakened institutional and human capacities. Most observers fear that unless “dividends o f peace” are rapidly provided in the interior o f the country, poverty and social crisis could generate renewed violence and insecurity, as exemplified by last year’s events in the Pool region.

Prospects for reducing future hazards. The Project is part o f a series o f operations which are aimed at tackling some o f the root causes o f the cycle o f war - to help prevent the recurrence o f conflict. For this effort to be successfbl, however, the Project is critical as it i s one o f the

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only channels to assist available communities in small towns and rural areas in their recovery efforts.

a Expected economic benejts. The Project i s expected to help rehabilitate vital local infrastructure, provide short-term employment, and improve economic governance - all activities which would yield important economic and social benefits, and would contribute to stabilizing a volatile social situation.

C. Overall Design

23. Components. The Project will include four complementary components:

Two components are directly aimed at implementing rehabilitation and economic revitalization activities in the ten dkpartements, through processes which are expected to help strengthen social capital and create short- and medium-term employment opportunities. Component A will provide resources for the development o f consultative processes to select investment priorities at the level o f each dkpartement, and for the actual implementation o f these priority activities. Component B will provide support to local NGOs and community- based organizations in implementing community-level activities, and in strengthening their capacities.

Two components are aimed at supporting the economic reform and decentralization processes, with a view to maintaining the pace o f reforms and improving economic management in the dkpartements and municipalities. Component C will provide resources for capacity enhanckment activities at both the central and local levels o f government. Component D will provide balance o f payments support, to help the Government finance critical imports to facilitate the effective provision o f services by local levels o f government.

The Emergency Recovery and Community Support Project ~~~~~ ~

Obiective: Support recovery o f communities living in r - smaller municipalities and rural areas

Support investments, strengthen social capital, and create jobs in al l

I I I

Component A: Priority rehabilitation in al l dipartements.

I I I

Component B: Support to local NGOs in al l dipartements.

Support economic reform and decentralization.

I I 1

Component C Capacity enhancement for central/local M governments.

I I

I 1 I Component D: Support to balance o f payments. Y

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~

A. Financing of priority investments in all departments 14.0 34 B. Support to community organizations 3.0 7 C. Capacity enhancement for central and local Govts 8.0 20 D. Balance of payments support 13.0 31 Unallocated 2.0 5

24. other activities under a broad strategy o f support to Congo in facing the challenges associated with post-conflict recovery.

Complementary activities. The Project i s not an isolated effort, but i s complementary to

Contingencies TOTAL PROJECT COSTS

0

0

25.

1.0 3 41.0 100

Other IDA Activities: The Project will consolidate the benefits from ongoing projects, and expand their scope to areas outside Brazzaville and Pointe Noire - places that have up to now, received l i t t l e support. I t wi l l complement activities under the Infrastructure Rehabilitation and Improvement o f Living Conditions Project (mainly focused on Brazzaville and Pointe Noire) and under the Transparency and Governance Capacity Building Project (by providing further capacity enhancement in support o f reforms).

Other Donors: The Project wi l l also build on and complement actions by key donors including the European Commission (EC), France, UN agencies, particularly the United Nations Development Program (UNDP), and the United States - who are involved in a variety o f infrastructure rehabilitation, community development, and capacity enhancement programs.

Sustainability. Sustainability o f individual rehabilitation and economic revitalization activities financed under components A and B will be ensured through a process o f priority selection which will exclude all proposals for which there i s insufficient commitment to, or provisions for, operation and maintenance. Sustainability o f the capacity enhancement activities financed under component C and o f the decision-making processes to be developed under component A will be ensured through: (i) continued involvement and support over a relatively long implementation period to provide sufficient time for key reforms to “take root”; (ii) involvement o f stakeholders for the monitoring o f reforms implementation (e.g., regular publication o f audits); and (iii) policy dialogue between the Bank, and where relevant the IMF, and the Government to guide the selection o f specific activities to be financed.

D. Project Costing and Financing

26. from IDA and a US$13 mill ion grant from IDA - with the following breakdown:

The Project i s proposed to be funded through a combination o f a US$28 million credit

Table: Emergency Recovery and Community Support Project Costs (US$ million) IDA I Percent sftotal I

1 - I

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27. are expected to focus o n clean water, education, health, as well as rural roads for access to remote rural communities.

Grant resources will be entirely used to finance activities under Component A - which

E. Lessons L e a r n e d Reflected in Project Design

28. countries, as wel l as through earlier interventions in Congo. These lessons have been reflected in the overall design o f the operation, as wel l as in the technical design o f each component.

A number of lessons have been learned through Bank interventions in other post-conflict

29. The most important lessons for the overall design o f the project include:

Importance ofpeace and reform dividends. Experience in post-conflict countries shows that the rapid and effective provision o f support in a fragile political and social context i s critical to restore hope in communities, and hence allow for consolidating peace and implementing economic reforms. Such support can consist in small investments or in supporting local economic activities, but it should be widely distributed throughout the country to have i t s maximal impact.

Importance of a successful decentralization process. In complex post-conflict environments, decentralization is often critical to stability. Still, the process needs to be managed to prevent the fragmentation o f the country, and the deterioration o f social services delivery. Critical elements o f success include: (i) the capacity o f local levels o f government; (ii) the existence o f participatory mechanisms involving al l relevant stakeholders, in particular to strengthen accountability o f public authorities; and (iii) the adequacy o f fiscal resources available to local levels o f government, whether local taxes or fiscal transfers.

Importance offlexibility and demand-driven mechanisms to effectively respond to rapidly-changing needs. In rapidly-changing situations where the difficulties to come cannot be fully foreseen, experience shows the importance o f designing implementation mechanisms which al low for a flexible and rapid response to emerging needs - so as to allow for the removal o f critical bottlenecks as they appear. Still, flexibility should go hand-in-hand with focus, to ensure a maximal impact o f the assistance - and hence the importance o f a specific definition o f priority areas. Projects with mechanisms for flexibility, and projects relying o n demand-driven mechanisms are best suited to provide the type o f responses needed in such environments.

Relevance of community-level interventions. A growing body o f evidence from Bank- financed projects demonstrates that community-level projects are particularly appropriate for post-conflict environments. In the Rwanda Community Reintegration and Development Project, for example, close attention to using jo in t community activities to promote reconciliation between ethnic groups has been so successful that the Rwandan Government has extended the post-conflict design into i t s national development plan. Another benefit o f this approach in post-conflict environments is its speed. The East Timor Community Empowerment Project was able to attain national coverage within one

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year o f appraisal (albeit in a very small country), and it has been retained by the post- transition government. These projects have demonstrated conflict management outcomes thereby reducing tensions between residents. Subprojects selected through a local planning process are also usually better maintained than projects built on the basis o f an external master plan, particularly in countries with tight budgetary constraints for local maintenance work.

Importance offinancial support at critical times to keep reforms on track. Experience shows that, where there i s the capacity to manage funds with adequate transparency, the provision o f early balance o f payments support i s critical to keep economic reforms on track - particularly in the context o f heavily-indebted countries.

Importance of targeted institutional support. There i s ample evidence to suggest that the strengthening o f key institutions i s a critical ingredient for the success o f complex economic programs in the aftermath o f a conflict. In DRC, programs similar to those proposed under component C, have proven key to helping design and implement some o f the most important economic reforms o f the last years - thereby allowing for satisfactory performance under the program supported by the Bretton Woods Institutions.

30. The most important lessons for the design o f implementation arrangements include:

The feasibility of overcoming the dfficult capacity constraints in the Congolese context, as demonstrated through the early success in implementing the Emergency Reconstruction, Rehabilitation and Living Conditions Improvement Project. Proposed implementation arrangements will build on this experience.

Importance of simplicity in the design of implementation mechanisms. Implementation arrangements should be kept simple to accommodate limited capacity. Where institutional capacity i s lacking, non-governmental partners and international agencies can provide useful and effective assistance in implementing parts o f emergency projects.

e The need to pay particular attention to issues of transparency. This i s critical not only to ensure proper use o f emergency resources, but also to facilitate the mobilization o f further donor support. All projects currently funded by the Bank in Congo have successfully dealt with transparency issues.

The importance of close supervision and hands-on support by the Bank during implementation. Particular attention needs to be paid to the quality and sustainability o f selected activities, as well as to the level o f inclusion o f women and marginalized groups.

3 1. Lessons gained from consultations with NGOs active in Congo include:

A consensus that creating economic opportunities in rural areas would go a long way towards stabilizing the social situation and improving the security situation in both rural areas and urban centers (which would benefit from increased security and better supplies of agricultural products). Small-scale rehabilitation projects carried out through labor-

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intensive mechanisms as well as employment generation activities can play a critical role in providing poor and volatile populations with economic opportunities. This could also provide an important outlet for demobilized soldiers in need o f reintegration, without providing perverse incentives by singling them out.

e A consensus that Congolese stakeholders can effectively participate in planning activities as well as in monitoring effective implementation. There i s concern though, that local NGOs often have l imited capacity and need to be strengthened before or as they are being given responsibility for implementation o f significant activities.

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v. DETAILED DESCRIPTION OF COMPONENTS

Component A : Financing of Priority Local Investments (US$14 million)

Objective

32. This component aims to help relieve the economic and social hardship caused by the successive crises in areas that have received l i t t le external support over the last years, while strengthening participatory mechanisms for decision-making at local level. It will help address some o f the rehabilitation challenges in the dkpartements and tackle unemployment issues by promoting the use o f labor-intensive methods. Wherever possible and/or appropriate, special attention will be given to providing employment to disenfranchised groups including former combatants, unemployed youth, and female heads o f households. Activities under this component will also facilitate the establishment o f an adequate consultative mechanism for selecting local investment priorities at the dkpartement level. This is expected to help improve local governance over time and could eventually form the basis for preparation and monitoring o f poverty reduction programs at the local level within the context o f the PRSP process.

Allocations

33. activities on i t s territory. This init ial allocation will be based on a formula set by the Ministry o f Finance (75 percent o f the amount distributed through equal allocations and 25 percent in proportion to the population), for a total o f US$8 million. After eighteen months o f implementation, a second allocation will be provided, for a total corresponding to the amount remaining available under the component. The second allocation will be based o n an adjusted formula, which will reflect implementation performance for the first allocation.

Upon effectiveness, each dkpartement will be communicated a maximum allocation for

Selection and Financing of Activities

34. Allocations will be communicated to the dkpartements by the entity tasked by the Government to execute component A (executing entity A). O n the basis o f the allocations, the executing entity A will facilitate a consultative decision-making process to set priorities in each beneficiary entity. I t i s expected that a strong promotional campaign will be undertaken by the implementing agency during the init ial period after effectiveness. The campaign will particularly draw o n networks that are represented throughout the country and that have access to poor districts and households (e.g., churches). The executing entity A will encourage and facilitate the necessary consultation between key stakeholders and relevant technical entities, for a set o f local priorities to be agreed upon between these representatives. In order to help empower elected local assemblies, this process and its outcome will have to be validated by the dkpartemental assemblies. Once the priorities are approved, and provided the activities are eligible for financing under the Project, the executing entity A will be responsible for procuring the necessary works, goods, and services, and for supervising proper execution o f the activities. While looking for a broad participation o f a l l stakeholders, the implementing agency will be

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responsible for ensuring that the consultation process does not extend beyond two months after launch in average.

35. mobilizing communities in support o f monitoring and evaluation. Allocations and lists o f priority investments will be published in national media, including radio, as well as locally. Specifics on each activity (amount, implementation schedule, respective responsibilities) will be posted by the executing entity A in key locations for the beneficiary communities (e.g. schools, etc.).

The executing entity A will also be responsible for advertising the decisions made and

36. Eligibility criteria for activities financed under the component will be as follows:

Nature of the activities. Selected activities should yield benefits widely distributed within the relevant dtpartement and contribute to improving living conditions within the community. Activities that can be financed may include, but will not be l imited to: social infrastructure (e.g., primary schools, dispensaries, community centers), economic infrastructure (e.g., water, markets, slaughterhouses, transport, and energy), environmental and sanitation (e.g., rehabilitation o f sewage and drainage networks, public squares) and other labor-intensive rehabilitation projects with a positive impact on the community. Works, furniture, equipment, materials and the delivery o f services (such as training o f teachers or nurses, and campaigns to prevent the spread o f infectious diseases) can be financed - with no mandatory thresholds for community participation.

Commitment to operation and maintenance. Realistic and sustainable mechanisms for operation and maintenance (including financing) o f the rehabilitated infrastructure and facilities should be devised prior to the selection o f the activity. This should include clear financing plans, as wel l as the naming o f individuals in charge. Particular attention will be paid to long-term sustainability, so that actions taken during the emergency situation (e.g. j ob creation) do not have long-term adverse consequences o n institutions and programs (e.g. poor quality o f rehabilitated facilities).

Local contribution. An upfront contribution in the form o f a provision corresponding to resources necessary for one year o f operation and maintenance will be required from the beneficiary local collectivity. This contribution could include in-cash and in-kind elements.

Expected labor content. For activities to be approved, wage costs should represent a large part o f the total cost o f the project. Init ial negotiation with the communities will be grounded on targets to be set by the Government and the executing agency based o n experience to date in Congo. These targets will be revised based on the experience gained along during the implementation phase. The selection process will favor activities with the highest j ob created by US$ invested ratio. Particular attention will be given to the share o f employment opportunities accessible to women and former combatants.

Maximal size and duration. Individual activities should not exceed US$200,000, and i t should be possible to complete them within 12 months after inception, keeping in mind seasonal constraints.

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Financing o f activities Implementation Costs Total

Imp Lementation

8.40 3.90 0.30 12.60 0.00 0.30 1.10 1.40 8.40 4.20 1.40 14.00

37. The executing entity A will be employed by the Government through a service contract. It will have full responsibility for carrying out the activities financed under the component, on behalf o f the Government, and in particular for procurement and financial management - within the context o f an operational manual approved by IDA as a condition o f effectiveness. I t wi l l directly enter into contracts with local enterprises to carry out the relevant activities, and wi l l supervise the execution o f this contract, with a close involvement o f beneficiaries in the monitoring and evaluation.

38. Part o f the resources under the component will be used for financing the executing entity A’s operating costs directly related to the implementation o f the component, as per a budget and staffing plan agreeable to IDA.

Cost Breakdown

39. (US$ million):

Funds available under the Project will finance activities detailed in the table below

Activity I Works I Goods I Services I Total I

Component B: Support to Community Organizations (USS3 million)

Objective

40. capital in all dkpartements as a key element o f a successful decentralization and empowerment process. By strengthening community-based organizations, the Project aims to create the type o f social organization that i s necessary for stakeholders to participate effectively in the definition o f key priorities for poverty reduction, as well as for eventually increasing accountability o f local authorities vis-&vis the population. To that effect, the component will finance both activities initiated by local NGOs and associations (which are expected to focus on economic development) and programs to enhance technical and managerial capacity o f these organizations.

This component aims to support small-scale local initiatives and to strengthen social

41. The component i s critical in an environment where social capital has been severely eroded by a decade o f conflict and political instability during which large groups o f people were forced to flee their homes and communities, and were subjected to large-scale human rights violations. Restoring some organizational structure in the non-government sector i s essential for the eventual success o f the decentralization effort as well as for the stabilization o f rural areas and small towns. In this context, the component builds on lessons learned in implementing demand-driven community development projects in Africa and elsewhere - in particular as

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regards: (i) the importance o f empowering communities, in view o f the role that such empowered communities can play in improving design, implementation, and monitoring o f poverty reduction strategies; and (ii) the need to accompany the provision o f financing for activities with capacity enhancement support.

Financing of Activities

42. associations which meet a number o f pre-set criteria.

The component will finance demand-driven activities initiated by local NGOs and

Nature of the NGO andor association. Eligibility criteria for the beneficiary organization wi l l include: (i) being registered under Congolese law; (ii) being in existence for more than six months, and have acquired experience which i s relevant for the activities to be financed under the Project; (iii) being based or having had prior activity in the relevant dipartement; and (iv) having adequate processes and procedures in place for accounts to be certified and audited with regard to activities financed under the component, including owning a bank account in a financial institution acceptable to the Bank. Where capacity i s insufficient to meet eligibility criteria, local NGOs or associations may be asked to collaborate with other reputable national or international NGOs, depending on their records.

Nature of the activity to bejnanced. The activity should help address a priority need felt by the community/group and might include: small-scale infrastructure repairs; development o f community assets; small socio-economic infrastructure for community use such as markets and storage facilities; provision o f agricultural inputs and tools; establishment o f revolving funds; provision o f social service; purchase o f training or technical services; purchase o f food processing and other appropriate technologies; and community centers and cultural activities. Additional criteria will include: (i) size o f the required funding, should not exceed US$20,000 per activity; (ii) complexity o f the activity, should be commensurate with the initiating organization’s capacity and experience; (iii) commitment to operation and maintenance as appropriate, demonstrated through the existence o f a realistic and funded operation and maintenance plan; and (iv) compliance with legal and regulatory requirements for the activity considered.

43. dipartements and relevant technical areas. Specific mechanisms wi l l be defined in the Operational Manual to ensure such distribution.

In addition, efforts will be made to ensure a wide distribution o f activities across all ten

44. Local NGOs and associations will submit proposals - including evidence o f eligibility and a detailed description o f the proposed activity - to the entity tasked by the Government to execute component B (executing entity B). The activity will be financed under the component, if the initiating agency and the proposed activity both meet eligibility criteria. Recipient organization wi l l be required to make an upfront contribution (which could include in-kind contributions) in the form o f a provision for the f i rs t year o f operation and maintenance. Beneficiary NGOs and associations will be encouraged to obtain complementary support from other entities such as private providers, NGOs, UN Agencies, and government technical agencies.

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45. manual to be prepared by the executing entity B and approved by IDA as a condition o f effectiveness -, the beneficiary NGOs and associations will be responsible for the implementation o f the activities they have selected. Financial support will be disbursed in several tranches, fol lowing a schedule agreed upon between each beneficiary organization and the executing entity B. The f i rs t tranche, will be paid at inception, and subsequent tranches will be paid after the executing entity B has verified the effective use o f earlier tranches (e.g., the actual completion o f a pre-agreed part o f the works, the effective purchase o f pre-agreed inputs or equipment, etc.).

With the support o f the executing entity B - and within the context o f an operational

Capacity Enhancement Support

46. This component will assist beneficiary organizations in sub-project implementation and management by providing financial and supervisory support and by enhancing managerial and technical capacities. This will be a critical factor for the sustainability o f activities financed by the project, as wel l as for the medium-term strengthening o f social capital in the country.

47. In consultation with the potential beneficiaries, the implementing agency will select appropriate intermediaries to provide the requisite technical assistance to local groups in the coordination, design, implementation, monitoring, supervision and operation o f their selected activity, The executing entity B will procure the corresponding services. A symbolic fee will be required from those entities benefiting f rom these programs.

Promotional Activities

48. initial period after effectiveness. The campaign will particularly draw o n networks that are represented throughout the country and have access to poor districts and households (e.g., churches).

A strong promotional campaign will be undertaken by the executing entity B during the

Implementation

49. The component will be implemented through a service contract between the Government and the executing entity B. The executing entity B will enter into contractual arrangements with the beneficiary organizations (which will procure the necessary works, goods, and services). Part o f the resources under the component will be used for financing the executing entity B’s operating costs directly related to the implementation o f the component, as per a budget and staffing plan agreeable to IDA.

Cost Breakdown

50. The Project will finance a number o f activities, the exact nature and scope o f which i s expected to evolve during implementation. An initial cost breakdown i s detailed in the table below (US$ million):

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Activity NGO-supported projects NGOs capacity strengthening Promotional activities Implementation Costs Total

Works Goods Services Total 0.80 1.30 0.20 2.30 0.00 0.15 0.15 0.30 0.00 0.05 0.05 0.10 0.00 0.10 0.20 0.30 0.80 1.60 0.60 3.00

Component C: Capacitv Enhancement Support (US$8 million)

Objective

5 1. Government address some o f the key issues associated with the process o f decentralization and economic reform. The project will particularly aim to:

This component aims to complement existing programs with a view to assisting the

Improve economic management in the newly-created dkpartements and municipalities which have been entrusted with significant responsibilities in the social and infrastructure sectors. These entities currently have very limited economic management capacity - whether for the selection o f investment priorities or for the preparation and execution o f a proper budget. Their administrative capacity has severely suffered from the conflicts through the loss o f staff, infrastructure, equipment and records. In addition, they are chronically under-funded partly due to inefficiencies in the revenue collection systems.

8 Provide the central Government with both technical assistance and institutional support in order to strengthen capacity in key public institutions and to implement some o f the economic reforms which are critical to restoring sustained and sustainable economic growth throughout the country.

52. two years, within the context o f the economic dialogue supported with the Post-Conflict Economic Recovery Credit and the Transparency and Governance Capacity Enhancement Project as well as by the IMF under the Staff Monitored Program. These projects have focused on helping the Government manage donor assistance, support good governance and economic management, and carrying out detailed sectoral studies to prepare for in-depth reforms. Much has been learned in the process, as regards the selection o f priority areas and implementation mechanisms - but renewed efforts are needed to help the Government pursue the economic reform process and to tackle the specific challenges associated with the decentralization process.

These efforts will build on activities that have been supported by the Bank over the last

Strengthening of Local Capacities for Sound Economic Management

53. municipalities (in the form o f technical assistance, training, and equipment) as well as to the local branches o f the central revenue collection agencies. Activities financed under the Project will focus on: (i) gradually improving the preparation, execution, and monitoring o f local

The component will provide capacity enhancement support to all dkpartements and all

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budgets; and (ii) identifying untapped sources o f local revenues, and helping to de-bottleneck collection efforts. Resources under the component will also be used to finance regular audits o f budget execution (which will be communicated to local NGOs and published in the local press).

54. assessment o f capacity enhancement needs in al l local collectivities. Activities for further financing will be identified o n the basis o f these assessments and on the overall recommendations o f the Public Expenditure Review currently underway, so that they can be tailored to each collectivity’s specific situation.

During the f i rs t year o f implementation, the Component will finance individualized

55. During implementation, activities to be funded under the Project will be selected joint ly by the Ministry o f Finance, the Ministry in charge o f overseeing local collectivities and the relevant local collectivities in close consultation with the Bank and the IMF. The Government will formalize these needs through semiannual implementation and procurement plans (including terms o f reference and technical specifications), which will be submitted by the Ministry o f Finance to the Bank for no-objection. Once the no-objection i s provided, activities will be procured by the implementation unit, as per agreed procurement rules (which may include further no-objections). An init ial procurement plan for the first semester satisfactory to the Bank has already been prepared.

Capacity Enhancement for Economic Reforms

56. decentralization and economic reform unfolds. Experience in other countries shows that flexibility is key to providing the type o f support that i s needed in fragile and rapidly-changing post-conflict environments, such as Congo’s. Experience also shows that capacity enhancement activities similar to those to be financed under the component that have been funded in other countries have proven very instrumental in facilitating the design and implementation o f critical economic reforms. The design o f the component consists therefore o f two elements:

Needs for institutional strengthening are expected to evolve rapidly as the process o f

0 Mechanisms forflexibility - to ensure that responses can be provided with the adequate degree o f flexibility throughout project implementation; and

0 Narrow list ofpriority areas - to avoid that the necessary f lexibi l i ty results in a dispersion o f efforts.

57. external expertise, training, and equipment (such as computers) in support o f capacity enhancement activities in priori ty areas. Specific needs will be identified by the Government throughout the implementation period, in close consultation with the Bank and the IMF wherever relevant. The Government will formalize these needs through semiannual implementation and procurement plans (including terms o f reference and technical specifications), which will be submitted by the Ministry o f Finance to the Bank for no-objection. Once the no-objection is provided, activities will be procured by the implementation unit, as per agreed procurement rules (which may include further no-objections). An init ial procurement plan for the f i rs t semester satisfactory to the Bank has already been prepared.

Mechanisms forflexibility. Support under the component will include the provision o f

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58. List ofpriority areas. In view o f the limited resources available, selectivity i s critical. The Project will therefore support only a limited set o f activities, aimed at addressing critical issues for which rapid progress i s possible. Support wi l l aim to complement efforts under the Transparency and Governance Capacity Enhancement Project and IMF technical assistance program, to implement sound economic governance and macro-economic policies. Priorities areas wi l l be:

Continued implementation of the economic program supported by the Bretton Woods Institutions -through the financing o f selected studies and audits, the strengthening o f institutional capacity in critical areas, and external assistance for the design and ’ preparation o f key technical measures;

Preparation of the Poverty Reduction Strategy Paper; this will in particular aim to support the transfer o f experience from other countries, sectoral and thematic studies as may be needed, and the overall facilitation o f the PRSP process.

Implementation of the public service reform recently initiated with the support o f the Bank; the reform i s aimed at improving public capacity to deliver key services, for which there i s strong Government ownership;

Fine-tuning of the forest reform initiated by the Government. This reform i s aimed at reforming forest institutions (which should focus on policy and monitoring functions while relinquishing production and other activities that are better performed by the private sector), improving governance (particularly in terms o f law enforcement and local participation), and increasing revenue collection in the sector;

Decentralization. Support will aim to help establish at the central Government level transparent and effective mechanisms and institutional arrangements for fiscal transfers to “ddpartements” and municipalities. Activities funded under the Project may include technical expertise (e.g., to transfer experience from other countries), training, and equipment. Funds will also be available to finance regular audits and help adjust processes and procedures.

0 Implementation of the telecommunications and postal services reforms which are underway (and were developed with the support o f the World Bank). These reforms aim in particular to strengthen the legal and institutional framework (for telecommunications, postal services, and information technology), as well as to restructure the Societe TClCcommunications du Congo (SOTELCO) and the SociCtC des Postes du Congo (SOPECO) so as to improve service and prepare for increased private participation. Preparation for these reforms i s well advanced, and they could be launched with relatively limited additional support.

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Activity Works

Strengthening o f local capacities for 0.20 economic management Continued implementation o f key economic 0.00 reforms Implementation Costs (PCIU) 0.00 Tota l 0.20

Implementation

Goods Services Op. Tota l

1.30 1.50 0.00 3.00

0.90 3.40 0.00 4.30

0.10 0.10 0.50 0.70 2.30 5.00 0.50 8.00

costs

59. The component will be implemented under the responsibility o f a Project Coordination and Implementation Unit (PCIU) established in the Ministry o f Finance. The PCIU will in particular be responsible for procurement o f al l works, goods, and services, for the component. Part o f the resources under the component will be used for financing the PCIU’s operating costs, as per a budget and staffing plan agreeable to IDA.

Cost Breakdown

60. The Component will finance a number o f activities, the exact nature and scope o f which i s expected to evolve during implementation. An init ial cost breakdown is detailed in the table below (US$ million):

Component D: Balance o f payments support (USS13 million)

Objective

6 1, This component i s aimed at helping the Government put in place adequate mechanisms for the transfer o f fiscal resources from the central Government to the local collectivities - and for the monitoring o f their effective use. I t will complement efforts under Component C by focusing o n the audit and monitoring aspects and by providing balance o f payments support to help finance critical imports to facilitate the effective delivery o f basic social services by local collectivities.

Current Status of the Economic Reform Program

62. inflation (3.4 percent in 2002), and economic growth (4.1 percent in 2002). Over the last year, an ambitious program o f in-depth structural reforms was launched, in particular in the areas o f economic governance, privatization, management o f the o i l sector, public expenditure management and transparency, and forestry. A Public Expenditure Review i s wel l underway and i s expected to be finalized in the coming months. I t provides a framework for improved transparency and effectiveness in the use o f Government resources.

Since the end o f the war, macro-economic stability has been restored, with contained

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63. context o f an IMF SMP. Implementation to date i s encouraging. Provided performance i s maintained and adequate measures taken in key areas, Congo could access a PRGF in Fall 2003.

These reforms are supported by the Bretton Woods Institutions, in particular within the

64. The situation at the local level, however, i s worrisome, as most local collectivities do not have revenues commensurate with their new responsibilities, in particular for social services delivery. As the country moves towards decentralization, local expenditures are expected to rise rapidly. Restoration and/or establishment o f fair and effective revenue collection systems will take time and a significant gap i s expected to emerge at least during the transition period. In view o f the fiscal situation o n the Government side, external assistance will be needed to help finance this transitional gap and hence allow for the overall reform program to remain on track.

65. implementation o f the Post-Conflict Economic Recovery Credit. This credit played a key role in the normalization o f Congo’s relations with i t s external creditors and was instrumental in supporting the earlier stages o f the economic reform process. Resources provided through that project were put to good use and have contributed to restoring minimal capacity for both economic governance and social services delivery. The provision o f further support to the balance o f payments therefore appears a viable way to support the recovery process.

The Bank has gained experience in providing such support, with the successful

Continued Debt Burden

66. indebted country per capita. Efforts are underway to settle arrears with major creditors, building on the clearance o f Bank arrears in July 2001, But debt service has reached very high levels and increased from 60.4 percent o f Government revenues in 2001 to 68.1 percent in 2002.

With a stock o f debt estimated at over US$6 billion, Congo i s one o f the world’s most

67. this issue: (i) reduce the burden, through an access to the Enhanced Highly Indebted Poor Countries (HIPC) initiative as soon as economic performance allows; and (ii) help the Government increase its capacity to mobilize fiscal revenues (e.g., in the forestry sector) and control expenditure. Still, in the short-term, the Government does not have sufficient room to support key activities necessary for economic and social recovery. External assistance i s needed to help face these challenges, and keep the overall program on track.

In close coordination with the IMF, the Bank has proposed a two-fold strategy to address

Design

68. The Government i s committed to implementing the type o f reforms supported by the component. In view o f the existing track record, and to avoid cross-conditionality with other operations supporting the implementation o f the economic program, there will be no specific macro-economic trigger for the release o f funds. This i s consistent with OP 8.50 (Operational Policy on Emergency Recovery Assistance) under which the Project i s prepared.

69. The positive l i s t of imports which could be financed under the Project (listed in Appendix C) includes a l i s t o f items essential to support the recovery o f the economy, and o f the agriculture sector in particular. The fast disbursing component would contribute to stabilizing the macro

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economy by reducing the fiscal deficit, and making additional foreign exchange available. Additional budgetary resources would permit the continuation o f key recovery programs, otherwise l ikely to be affected by fiscal resource constraints caused by the need to respond to the emergency. In aggregate, the imports financed on Government's account and the counterpart generated from private sector imports will be used to support the transfer o f resources to local Governments, so as to facilitate an effective delivery o f social services in departements and smaller municipalities. Retroactive funding could cover imports contracted as o f April 1,2002, up to an aggregate value o f US$2.6 million.

70. Balance o f payments support provided under the Project will be disbursed in one tranche upon effectiveness. Funds will be deposited into a special deposit account opened in US dollars and held in the name o f the Ministry o f Finance at the regional central bank (Banque des Etats de I 'Afrique Centrale, BEAC). These resources will be used to constitute a counterpart fund that the Government can use to finance part o f the fiscal transfers necessary for the proper functioning o f local collectivities, including the resumption o f salary payments for key civil servants. Implementation o f the component wil l be overseen and monitored by the Ministry o f Finance, and will be discussed within the context o f the policy dialogue with the Bank.

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VI. INSTITUTIONAL ARRANGEMENTS AND PROJECT IMPLEMENTATION

A. Project Coverage and Implementation Period

7 1. 2007). This i s expected to allow for sufficient time to strengthen capacity in local governments and NGOs in a gradual and sustainable manner - as well as to overcome existing limitations on institutional capacity to implement a relatively large program o f community activities.

The Project wi l l be implemented over four and a half years (June 2003 to December

72. municipalities o f Brazzaville and Pointe Noire (which correspond to about half o f Congo's 3 million inhabitants). Activities under component C will be implemented throughout the country as may be necessary.

Activities under components A and B wi l l cover all parts o f the country except for the

B. Implementation Arrangements

Component A

73. To facilitate rapid and effective implementation o f the priority rehabilitation activities, this component will be implemented through a service agreement between the Government and an international organization with extensive experience in Congo in working with community- based organizations, facilitating consultative processes, and managing small-scale rehabilitation activities. Based on a review o f NGOs currently active in Congo and an assessment o f their capacity and qualifications, the Agence dYide b la Coope'ration Technique et au De'veloppement (ACTED), was selected by the Government in consultation with the Bank as the executing entity for component A (executing entity A).

74. ACTED has been active in Congo since 1997, and i s currently implementing about US$2 million a year o f projects financed by various bilateral and multilateral donors (ACTED'S worldwide turnover i s o f about US$20-25 million a year). ACTED has about 20 staff in Congo, including 3 expatriates, and currently has active programs in the Pool, Bouenza and Lecoumou dkpartements. Supervision, procurement and accounting activities are based on international standard practices, and have been reviewed by Bank Financial Management and Procurement Specialists who found them adequate to implement a Bank-financed project. ACTED has prepared an implementation plan and has identified additional capacity to strengthen i t s team for the implementation o f component A.

Component B

75. Government and an international organization already active in Congo, and with extensive experience working with community-based organizations, helping them develop their capacities and implementing small-scale activities. Based on a review o f agencies active in Congo and an assessment o f their capacities and qualifications, the Government in consultation with the Bank has selected the United Nations Development Program (UNDP), which i s already implementing

Similarly, component B will be implemented through a service contract between the

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similar activities (partly funded by the Bank), as the executing entity for component B (executing entity B).

76. developed solid project implementation capacity, with a particular focus on community-driven activities and support to the local civil society. UNDP i s implementing 10 projects, including 3 (for US$6 million) directly. One o f these projects i s funded by the Bank through a US$1 million grant from the Post Conflict Fund and implementation i s proceeding well. The organization operates in most dtpartements with a particular focus on the Pool and in the Southern regions. It has demonstrated capacity to adjust to the guidelines and procedures o f various bilateral donors, including IDA. A Financial Management Assessment and a Procurement Assessment have been carried out by specialized Bank staff, and processes and procedures have been found adequate for implementation o f Bank-funded activities.

The UNDP office was established in Brazzaville in the 1970s and since then it has

Component C

77. The component will be implemented by the PCIU established in the Ministry o f Finance. A Director has been appointed, a Procurement Specialist with experience in implementing Bank projects has been identified, and recruitment o f other staff i s expected to be completed by July 1 , 2003. Hands-on external support i s expected to be provided under the Project in the f i rs t months o f implementation, to help the PCIU become rapidly operational. The PCIU will also draw extensively on the experience acquired in implementing the Transparency and Governance Capacity Enhancement Project and the Emergency Reconstruction, Rehabilitation, and Living Conditions Improvement Project. In particular, this component o f the Project will be implemented with the same procurement, financial management, and reporting procedures as for the Transparency and Governance Capacity Enhancement Project, in accordance with World Bank guidelines and procedures.

Component D

78. Ministry o f Finance.

Implementation o f reforms supported under component D will be coordinated by the

Overall coordination

79. components - in addition to i t s own responsibilities for component C.

The PCIU will be responsible for the overall coordination o f implementation o f the four

C. Procurement Arrangements

80. i s executed rapidly, transparently, and efficiently. The Project will finance imports (under Component D), works, goods, services, community sub-projects (small grants), and operating costs. Procurement will be conducted in accordance with IDA guidelines as per "Procurement under IBRD Loans and IDA Credits", dated January 1995 (revised in January and August 1996, September 1997, and January 1999), "Selection and Employment of Consultants by World Bank

Particular attention will be given to procurement arrangements to ensure that the Project

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Borrowers", January 1997 (revised September 1997 and January 1999, revised May 2002), and "Guidelines for SimpliJied Procurement and Disbursement for Community-based Investments" (February 1998). Procurement methods to be used under the Project will build on experience to date with ongoing projects, in particular the Transparency and Governance Capacity Enhancement Project and the Emergency Reconstruction, Rehabilitation, and Living Conditions Improvement Project. Details are given in Appendix D.

8 1. components A, B, and C for an estimated total amount o f US$8.60 mill ion equivalent. This wi l l include rehabilitation and improvement o f existing social infrastructure (e.g., primary schools, health, community centers) and economic infrastructure (e.g., water, markets, slaughterhouses, transport, and energy), and labor-intensive rehabilitation works. Under component A, no contract i s expected to exceed US$200,000. Under component By no contract i s expected to exceed US$20,000. Works will be procured through National Competitive Bidding for contracts estimated to cost less than US$200,000 and more than US$50,000. Works will be procured through the Quotations procedure for contracts estimated to cost less than US$50,000.

Procurement of Works. The Credit and the Grant will finance works contracts under

82. goods under components A, By and Cy for an estimated total amount o f US$6.80 million equivalent. This wi l l include: (i) office equipment, hardware and software, (ii) vehicles, (iii) hrniture and other specialized equipment for the rehabilitation o f social and economic infrastructure. Under components A and Cy no contract i s expected to exceed US$200,000. Under component By no contract i s expected to exceed US$20,000. Most o f the goods will be procured as packages through: (i) National Competitive Bidding when costing between US$50,000 and US$200,000; (ii) Shopping (based on the evaluation o f at least three quotations and in accordance with provisions o f paragraph 3.5 and 3.6 o f the Guidelines) for contracts estimated below US$50,000.

Procurement of Goods. The Credit and the Grant will finance contracts to purchase

83. Procurement of Imports (under Component D), The Project will finance the import o f goods for a total amount o f US$13 million equivalent, which will be procured under modified international competitive bidding procedures. Commonly traded commodities will be procured under simplified procedures, in accordance with the provisions o f paragraph 2.65 o f the Guidelines. Public sector imports estimated to cost less the US$750,000 per contract will be procured under contracts awarded in accordance with the Government's established procurement procedures satisfactory to the Association, in accordance with the provisions o f paragraph 2.63 and 2.64 o f the Guidelines. Imports by the private sector, estimated to cost less than US$2,000,000 per contract, will be procured under contracts awarded in accordance with published commercial practices to the Association, in accordance with the provisions o f paragraph 2.63 and 2.64 o f the Guidelines.

84. Consultancy Services. The Credit and the Grant will finance the contracting o f consultancy services under components A, By and Cy for an estimated total amount o f US$6.80 million equivalent. This will include studies, technical assistance, and training services.

0 Firms. Such services are expected to include: (i) professional services for communities and local governments; and (ii) studies and audits for implementation o f key economical

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reforms (including in the forestry and telecommunications sector). For contracts in excess o f US$50,000, firms will be recruited through Quality and Costs Based Selection (QCBS) procedures. For contracts estimated at less than US$50,000, f i r m s will be recruited through Consultant's Qualification (CQ) procedures.

0 Individuals. Individuals will be recruited where a firm is not needed, for contracts which are not expected to exceed US$50,000. Such individuals will be selected and recruited o n the basis o f qualification and experience (CQ) in accordance with Bank Guidelines.

85. Service agreements. The Credit and the Grant will finance operating costs o f the implementation agencies for components A and B through service agreements between the Government and each o f these agencies. In view o f the nature o f the activities to be undertaken which require specific qualification and local experience, and in view o f the lack o f alternative implementing partners with adequate experience in Congo, these service agreements will be entered into under single source selection procedures (as per Consultant Guidelines, paragraph 3.9). Operating costs will include: (a) expenditure for the contracting o f auxiliary personnel required for the implementation o f the project; (b) expenditure and supplies for the operation and maintenance o f facilities required for the implementation o f the project (such as expenditures for office supplies, rental fees, services, operation and maintenance o f equipment financed out o f the proceeds o f the Credit and the Grant); (c) expenditure for domestic and international travel and per diems related to project implementation activities; and (d) overheads. Operating costs for the implementation agency for component C will also be financed under the Credit and the Grant. All procurement within this category shall be done according to the procedures defined above for goods and services.

86. Small Grants Agreements (Community sub-projects). Under Component B, the Credit and the Grant will finance small grants to local organizations (community sub-projects), for an estimated total amount o f US$2.30 million. These organizations will include associations, NGOs, communities, cooperatives and private organizations working with communities in each o f the ten departements and four smaller municipalities. Beneficiaries will be selected through transparent procedures acceptable to IDA, to be detailed in the Operational Manual. They will enter into contractual arrangements with the implementation agency (UNDP), as per standard documents acceptable to IDA, to be detailed in the Operational Manual. Contracts will not exceed US$20,000 per organization per year. They may include procurement o f works, goods, and services, and will be executed by the beneficiaries, as per procurement procedures acceptable to IDA, to be detailed in the Operational Manual. The implementation agency will be responsible for monitoring the compliance with agreed procedures and the proper use o f Project resources

87. adherence to Bank procedures. Each implementation agency is expected to prepare an Operational Manual acceptable to the Bank, which will spell out processes and procedures for selection o f activities and procurement, as well as a procurement plan for works, goods, and services to be procured during the f i rst implementation semester, as a condition o f effectiveness. For each subsequent six-month period, the procurement plan will be updated and submitted to the Bank for review and approval.

Each implementation agency will be responsible for the quality o f the procurements and

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D. Disbursement Arrangements.

88. and duties. The disbursement schedule i s expected to be as follows: 38 percent in FY04, 14 percent in FY05, 18 percent in FY06, 19 percent in FY07, and 11 percent in FY08.

The IDA Credit and IDA Grant will finance 100 percent o f al l expenditures, net o f taxes

Components A and B

89. Payment conditions for the executing entities under Components A and B will be specified in the service agreements between the Government and these entities (respectively ACTED and UNDP). ACTED and UNDP will be expected to submit an invoice o n a quarterly basis to the Government Separate invoices will be submitted for the management fee for the Components and for the funds released to finance the implementation o f local projects. The fees will be calculated on the basis o f specifications in the service agreements, the financing o f activity wil l be based on an exhaustive l i s t and cost details o f activities, in accordance with payment modalities contained in the respective ACTED and UNDP service agreements. Upon receipt o f these invoices, the Government will forward them to the Bank within ten working days. The Bank will make payments directly to ACTED and UNDP respectively.

Component C

90. Special Account will be opened in US dollars in a commercial bank o n terms and conditions acceptable to IDA. The Special Account will be managed by the P C I U and will finance al l eligible expenditures under component C. The authorized allocation will be US$600,000 corresponding to about four months o f eligible expenditures. When conditions for disbursement for the relevant component are met, IDA will make an init ial deposit, in the amount o f US$300,000 into the Special Account, representing fifty percent o f the authorized allocations. The remaining balance will be made available when the aggregate amount o f withdrawals from the credit/grant account plus the total amount o f al l outstanding special commitments entered into by the Association shall be equal or exceed the equivalent o f US$4,100,000. In view o f the expected small size o f the contracts, i t is expected that a very large majority o f payments will be processed through the Special Accounts. Further deposits by IDA into the Special Accounts will be made against monthly withdrawal applications supported by appropriate documents. Withdrawal applications will be signed by the PCIU Director or the Minister o f Finance, as designated authorized representatives o f the Borrower.

To facilitate implementation and reduce the volume o f withdrawal applications, a

Component D

91, Account at the regional Central Bank (Bunque des Etuts de l 'Afrique Centrale, BEAC). IDA will deposit the proceeds o f the Credit under component D in this account. The Ministry o f Finance i s expected to set up accounting and tracking arrangements, similar to those under the Post-Conflict Economic Recovery Credit, to ensure that resource from the Credit are committed and expended in accordance with the provisions o f the Credit. Government expenditure

Upon approval o f the Project, the Ministry o f Finance will open a Special Deposit

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management and processes were found satisfactory for implementation o f a US$3 8 million Post- Conflict Economic Rehabilitation Credit, approved in July 200 1. Since then, they have been reinforced within the context o f the ongoing Public Expenditure Review and with hands-on technical assistance from the IMF. The Ministry o f Finance i s expected to set up accounting and tracking arrangements, similar to those under the ERC, to ensure that resources from the Credit are committed and expended in accordance with the revised budgetary procedures and expenditure tracking arrangements. The use o f the finds deposited by the Bank in the deposit account will be subject to annual audits by auditors and on terms o f reference acceptable to IDA.

Use of Statements of Expenditures

92. items o f expenditures for: (a) contracts for works, goods and equipment in an amount inferior to US$200,000; (b) contracts for consulting f i rms in an amount inferior to US$lOO,OOO; (c) contracts for individual consultants in an amount inferior to US$50,000; as well as all (d) operating costs. Payments under contracts below those thresholds will be authorized on the basis o f Statement o f Expenditures (SOEs). All supporting documentation for SOEs will be retained at a suitable location and will be made readily accessible for review by IDA supervision missions and external auditors.

Disbursements for all expenditures wi l l be made against full documentation, except for

E. Financial Management, Reporting, and Auditing

Financial Management

93. The executing entity for each component wi l l be responsible for financial management. A financial management assessment o f both ACTED and UNDP has been carried out, and both organizations have been found to have financial management systems (FMS) satisfactory to the IDA. However, in order to strengthen the project management and financial management system, an agreed action plan has been developed. This action plan - part o f the FMS assessment report - i s available in files. The financial management system o f the PCIU will be developed in the coming period, building on systems existing for other Government Project Implementation Units responsible for ongoing operations - and i t s effective establishment (including recruitment o f key staff) will be a condition o f effectiveness. Details are provided in Appendix E.

94. Payments to contractors under Components A and C will be processed as per standard practices. Payments by UNDP will be made on the basis o f financing agreements signed with the entities as described in the Operational manual. UNDP, after verifying the documents and checking the availability o f funds will process the payment.

Financial Monitoring Reports (FMRs)

95. UNDP i s familiar with the procedures for quarterly Financial Monitoring Reports on IDA-financed projects. The PCIU and ACTED are expected to receive training in the use o f these procedures by Board presentation. Bank guidelines regarding FMRs were discussed with

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all three organizations by Bank Financial Management Specialists during appraisal. The three organizations have agreed to submit quarterly FMRs within 45 days following the first day o f each calendar quarter after effectiveness. The formats and the contents o f the FMRs and the Annual Financial Statements will be discussed and agreed prior to effectiveness.

Annual Audits

96. o f the overall project. The annual financial statements, the movements in the Special Account (for component C) and the Statements o f Expenditures (SOEs) o f the implementation agencies will be audited separately by an external auditor selected with terms o f references acceptable to IDA. The cost o f the audit will be financed under component C o f the project. For the purposes of the audit ACTED and UNDP have agreed to keep in place the original o f accounting documents and invoices. The terms o f references for the external auditor will be developed immediately after effectiveness and submitted to the Bank for approval.

The PCIU at the Ministry o f Finance will be responsible for organizing the annual audits

F. Readiness for implementation and conditions of effectiveness

97. The Ministry o f Finance has established the PCIU, and appointed a PCIU Director as well as key staff, and has agreed to use the same systems and procedures used by the PCIU for the ongoing Transparency and Capacity Building Support Project. Both ACTED and UNDP have experience in implementing activities similar to those under components A and B (although not in the same geographical areas). They have prepared Project Implementation Plans which have been discussed with the Government and the Bank.

98. agrees with the Financing Agreement as negotiated. The Credit and the Grant will be effective after the Bank has received confirmation, through a Legal Opinion, that the Financing Agreement has been duly ratified; and after the following conditions have been met:

There will be no condition for Board presentation. The government has confirmed that i t

0 Opening o f the Special Accounts.

0 Preparation o f an overall Operational Manual acceptable to IDA, including specific manuals for the implementation o f Components A, B, and C.

0 Signing o f the conventions between the Government and ACTED and the Government and UNDP.

0 Appointments o f a qualified financial manager and a qualified procurement specialist within the PCIU.

G. Implementation Support

99. Project, and a total o f 67 staff weeks through mid-FY08. Management o f Project will be transferred early on to a senior staff in the Brazzaville Country Office to ensure close

Bank will devote 15 staff weeks per year to supervise progress in implementing the

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implementation support and responsiveness to rapidly-changing needs. Supervision will in particular focus on: (i) performance o f the executing entities in managing contracts, procurement, and financial matters; (ii) adequacy o f the capacity enhancement activities under component C with the Congo’s reforms needs; and (iii) tracking o f expenditure for funds released under component D.

H. Monitoring and Evaluation

100. o f overall objectives, role o f the different partners, and to eventually reorient the Project if needed to ensure achievement o f objectives. The PCIU will be responsible for: (i) preparing the necessary documentation for the reviews, and (ii) planning the review meeting. In particular, the PCIU will contract an independent consultant for each review (under financing from Component C) to review and assess the progress o f implementation and prepare the necessary documentation for the review. The reviews will involve vis i ts to selected sites for first-hand assessment o f executing entities’ performance.

Reviews will be carried out every year after effectiveness to assess progress, achievement

I. Environmental Aspects and Compliance With Bank Safeguard Policies

10 1, The Project is classified as environmental category B because no activity funded under the Project is expected to have a significant negative environmental or social impact. It should be noted that the emergency was in no way related to inappropriate environmental management practices. Operational manuals to be prepared for components A and B will include screening procedures, to ensure that no activity with a potential negative environmental or social impact is selected for financing, without appropriate mitigation measures. These procedures will be adjusted to reflect the findings and recommendations o f an Environmental and Social Management Framework and a Resettlement Policy Framework to be prepared within one year o f effectiveness (as allowed for emergency projects processed under OP 8.50).

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VII. BENEFITS AND R I S K S

A. Benefits

102. process. In particular, it will provide four types o f benefits: (i) contribute to improving living conditions in areas which to date have received limited external support and where poverty i s acute, by financing priority investments; (ii) help maintain the pace o f economic reforms, in particular in the key areas o f public service reform, decentralization, PRSP preparation, forestry, and telecommunications; (iii) help strengthen civil society in rural areas and small towns, which i s a key element for local governance and improved service delivery in these areas; and (iv) facilitate the decentralization process and the effective provision o f basic social services by supporting economic management in local collectivities which have recently been entrusted with important responsibilities in these areas.

The proposed Project i s expected to contribute to Congo’s stabilization and recovery

B. Risks and Mitigation Measures

103. implementation capacity, the r isks are significant. Implementation o f the Project and the materialization o f the expected benefits could be jeopardized if one o f several critical risks came to materialize, including:

In light o f the Republic o f Congo’s fragile political situation and i t s relatively weak

Regional instability and threats to the peace process. The peace process in Congo i s intrinsically linked to progress throughout the region. Wars and civi l conflicts have engulfed a large part o f Central Africa over the last decade, including three o f Congo’s five neighbors. Recovery cannot be isolated, and will require a stabilization o f the entire sub-region to be sustainable.

The Project aims to help reduce the odds for renewed conflict in Congo. These actions are expected to be complemented by parallel programs both in Congo and in other affected countries in the region with a view to promoting an overall return to stability. The situation in Congo i tse l f will be closely monitored (in conjunction with key bilaterals), so as to allow for the mitigation o f political and social risks as they emerge.

Localized eruptions of violence. Over the last years, there have been sporadic explosions o f violence in some areas (mostly in the Pool Region). While tensions have subsided, and agreements have been signed with all rebel groups, violence or insecurity could re- emerge in localized areas and compromise Project implementation.

The Project will be implemented only in those areas where Bank and implementation agencies staff can effectively travel to supervise activities. In case o f localized insecurity, implementation may be temporarily suspended by the implementation agency - but should resume as soon as order has been restored.

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0 Dfjculties on the reform path. Strong anti-reform constituencies remain influential in Congo - within the administration as well as among private operators. Recent reforms could be overturned by a new team (although this will become more and more difficult as time passes and reforms are taking roots) or delayed by unwilling stakeholders.

The Project aims to help strengthen the pro-reform constituencies to mitigate this risk. Progress will be closely monitored by the Bretton Woods Institutions through an intensive pol icy dialogue, so as to react to slippages early on.

0 Compromised administrative capacity. After a decade o f conflict and instability, implementation capacity remains limited, whether for Government-initiated policy reforms or for Bank-funded projects. This could become a critical obstacle to the effective implementation o f the reform program and support projects.

The proposed implementation arrangements build o n early success in implementing other projects in Congo. This experience shows that difficulties can be overcome, but regular reviews will pay particular attention to the issue o f implementation performance, and may propose adjustments to strengthen it.

0 Fiduciary risk. Although the Government has launched an effort to attack corruption, the fiduciary environment in Congo remains risky. This is a critical risk, which is reflected in the risk rating for procurement and financial management.

The proposed implementation arrangements have been designed to minimize this risk, by relying o n three different executing entities (including two foreign entities) and by ensuring that proper safeguards in procurement and financial management procedures are in place. In view o f experience to date in implementing Bank-funded operations in Congo, such arrangements should be adequate to mitigate the fiduciary risks.

104. may be even higher in a context l ike Congo, where there have been three rounds o f violent conflict over the last decade. International support i s critical for the Government, and the Congolese society at large, to break the conflict trap.

I t should be underlined that while the r isks o f action are significant, the risks o f inaction

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APPENDIX A. Timetable of key processing events

Time taken to prepare the Project: Project prepared by:

Decision Meeting: Appraisal : Negotiations:

Board Presentation: Project Effectiveness Project Completion:

Planned Actual 8 months 6 months Xavier Devictor, Alassane Diawara, Jacques Bur6 April 24,2003 April 24,2003 May 2003 May 2003 May 2003 May 19-20,

June 26,2003 June 24,2003 August 20 0 3 June 30,2007

2003

This operation was prepared by a team led by Xavier Devictor (Senior Country Officer, AFC09) and including, Alassane Diawara (Country Manager for Republic o f Congo, AFC09), Jacques Bure (Consultant), T. Mpoy-Kamulayi (Lead Counsel), Albert Osei (Consultant), Mwelu Ndeti (Consultant), Marie Chantal Uwanyiligira (Operations Analyst, AFC09), Monique Piette (Program Assistant (AFC09), Renee Desclaux (Finance Officer, LOAG l), Abdul Adji (Consultant), Jean-Charles Kra (Financial Management Specialist, ACF09), Henri Aka (Procurement Specialist, AFTPC), and Luc Lapointe (Procurement Specialist, AFTPC).

The Advisory Committee i s composed o f Ousmane Sissoko (AFTRl), Eustache Ouayoro (AFTU2), Salomon Samen (AFTM3), Elizabeth Adu (LEGAF) and Willem Zijp (AFTQK). The Sector Manager was Cadman Atta M i l l s and the Country Director was Emmanuel Mbi.

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APPENDIX B. Project Costs and Financing

Table A Emergencv Recoverv and Communitv Suuuort Project

Components Program Costs Summarv r (US$ million)

Program Components Local Foreign Total % % Foreign Total Exch. Base

costs A. Financing o f priority local investments 12.60 1.40 14.00 10 37 B. Support to community organizations 2.55 0.45 3.00 15 8 C. Capacity enhancement for central and local 2.00 6.00 8.00 75 21

D. Balance o f payments support 0.00 13.00 13.00 100 34 Total Base line Costs 17.15 20.85 38.00 55 100 Unallocated 1.40 0.60 2.00 30 5 Physical Contingencies 0.35 0.15 0.50 30 1 Price Contingencies 0.35 0.15 0.50 30 1

Government

Total Project Costs 19.25 21.75 41.00 53 107 Note:Jigures may not add up to total due to rounding

Table B Emergency Recoverv and Communiq Suuport Project

Financial Summarv (US$ million equivalent)

ImDlementation Deriod (FY Julv 1 -June 30) 2004 2005 2006 2007 2008 Total

Total Financing required Project Costs

Investment Costs 15.50 5.50 7.50 7.50 4.50 40.50 Recurrent Costs 0.10 0.10 0.10 0.10 0.10 0.50

Total Project Costs 1.5.60 5.60 7.60 7.60 4.60 41.00 Total Project Financing - - - - -

~

Financing IDA 15.60 5.60 7.60 7.60 4.60 41.00 Government

Total Project Financing 1.5.60 5.60 7.60 7.60 4.60 41.00

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Table C Emergency Recoverv and Communi@ Support Project

IDA Disbursement per Year (US$ million equivalent

(Fiscal Year July 1 -June 30)

Bank FY 2004 2005 2006 2007 2008 Total Annual 15.60 5.60 7.60 7.60 4.60 41.00 Cumulative 15.60 21.20 28.80 36.40 41.00 41.00 Percentage 38 52 70 89 100 100

Table D Emergency Recoverv and Community Suaaort Project

Allocation of IDA Credit/Grant Proceeds (US$ million equivalent)

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APPENDIX C. Positive list o f imports for Component D

1 . Agricultural equipment and inputs, including fertilizer and excluding pesticides and insecticides. 2. Petroleum and fuel products. 3. Construction materials. 4. Transport vehicles and spare parts. 5. Livestock, animal products and veterinary supplies. 6. School supplies and equipment. 7. Medical supplies and equipment. 8. Construction equipment, industrial machinery and spare parts. 9. Electrical equipment, machinery, materials and parts.

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APPENDIX D. Procurement Arrangements and Assessment

General

105. will be conducted in accordance with IDA guidelines as per "Procurement under IBRD Loans and IDA Credits", dated January 1995 (revised in January and August 1996, September 1997, and January 1999), "Selection and Employment of Consultants by World Bank Borrowers", January 1997 (revised September 1997 and January 1999, revised May 2002), and "Guidelines for SimpliJied Procurement and Disbursement for Community-based Investments'' (February 1998). Procurement methods to be used under the Project will build on experience to date with ongoing projects, in particular the Transparency and Governance Capacity Enhancement Project and the Emergency Reconstruction, Rehabilitation, and Living Conditions Improvement Project. National Regulations cannot be used under the Project in the absence o f a Country Procurement Assessment Review (CPAR).

The Project will finance, services, goods, operating costs and civi l works. Procurement

Procurement Responsibilities

106. Procurement responsibilities are described in the matrix below:

Component / Subcomponent Executing Items to be procured Agency in entity charge o f

procurement A. Financing o f priority local ACTED Works/goods/services ACTED

investments (US$14 million)

organizations (US$3 million)

central Government (US$8 million)

(US$13 million) Finance

B. Support to Community UNDP Works/goods/services Local NGOs

C. Capacity enhancement for local and PCIU Goods/services PCIU

D. Balance o f payments support Min. N/A N/A

107. the procurements and adherence to Bank procedures. The tasks o f the executing entities wi l l comprise: (a) maintaining registers o f all interested bidders; (b) maintaining a detailed l i s t o f technical specifications o f goods and services to be financed by the project; (c) preparing and updating procurement plans and calendars; (d) preparing and/or finalizing bidding documents and requests for proposals; (e) preparing bid evaluation reports; ( f ) approving contracts; (g) processing international and local price quotations; (h) receiving o f goods and services and dispatching; and (i) monitoring o f contracts implementation.

Each agency, with the exclusion o f Component D, will be responsible for the quality o f

Procurement Capacity Assessment

108. during project appraisal, to confirm procurement capacity o f these agencies. The result i s

A procurement capacity assessment o f the executing entity A (ACTED) was carried out

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included in an action plan drawn up to enhance procurement capacity before and during project implementation, including technical assistance and training. For the executing agency for Component B (UNDP), which will have to handle activities o f a limited size (less than US$20,000) procurement capacity was deemed adequate for the execution o f the project, which wi l l be executed on the basis o f a Manual o f Procedures. As regards Component Cy since the PCIU i s recently created, it i s not possible to assess i ts procurement capacity. However, the core staff o f the PCIU will include a senior procurement agent familiar with World Bank’s procurement procedures as reflected in the Terms o f Reference approved by the Bank. The senior procurement agent will: (i) monitor all procurement activities o f the Project; (ii) supervise compliance by the executing entities with the agreed procurement guidelines for the execution o f Components A and By (iii) help enhance capacities o f executing entities which have insufficient procurement capacities as needed. Procurement procedures and responsibilities in the PCIU are identical to those under the Transparency and Governance Capacity Enhancement Project currently under implementation. The recruitment o f corresponding staff, in a manner satisfactory to the Bank, i s a condition o f effectiveness.

Procurement Plan

109. the f i rs t implementation semester o f the Project has been discussed during appraisal and has been agreed upon between the Government and the Bank during negotiations. For each subsequent period, an annual procurement plan wi l l be prepared and submitted to the Bank for review and approval. These annual plans will include procedures for procurement, contract packages for goods, works, and consultants services and training, estimated cost and the procurement/ selection method. I t i s mandatory that al l procurement be carried out in accordance with the formally agreed annual procurement plan (original and formally up-dated).

For component Cy a draft Procurement Plan for goods and services to be procured during

Procurement methods

110. and C for an estimated total amount o f US$8.60 million equivalent. This will include rehabilitation and improvement o f existing social infrastructure (e.g., primary schools, health, community centers) and economic infrastructure (e.g., water, markets, slaughterhouses, transport, and energy), and labor-intensive rehabilitation works. Under component A, no contract i s expected to exceed US$200,000. Under component By no contract i s expected to exceed US$20,000. Works will be procured through National Competitive Bidding for contracts estimated to cost less than US$200,000 and more than US$50,000. Small works estimated to cost less than US$50,000 per contract, up to an aggregate amount o f US$3.00 million equivalent may be procured under lump-sum, fixed-price contracts awarded on the basis o f quotations obtained from three qualified domestic contractors invited in writing to bid. The invitation shall include a detailed description o f the works, including basic specifications, the required completion date, a basic form o f agreement acceptable to IDA, and relevant drawings where applicable. The awards will be made to the contractors who offer the lowest price quotation for the required work, provided they demonstrate they have the experience and resources to complete the contract successfully.

Procurement o f Works. The project will finance works contracts under components A, By

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1 1 1. A, B, and C, for an estimated total amount o f US$6.80 million equivalent. This will include: (i) office equipment, hardware and software, (ii) vehicles, (iii) hrniture and other specialized equipment for the rehabilitation of social and economic infrastructure. Under component A and Cy no contract i s expected to exceed US$200,000. But contracts above this amount will be procured through International Competitive Bidding (ICB). Under component B, no contract i s expected to exceed US$20,000. Most o f the goods wi l l be procured as packages through: (i) National Competitive Bidding (NCB) when costing between US$50,000 and US$200,000; (ii) Shopping (based on the evaluation o f at least three quotations and in accordance with provisions o f paragraph 3.5 and 3.6 o f the Guidelines) for contracts below US$50,000.

Procurement o f Goods. The project wi l l finance the purchase o f goods under components

112. For NCB procedures, the Government has given assurances during negotiations that: (i) bids will be advertised in national newspapers with wide circulation; (ii) methods used in the evaluation o f bids and the award o f contracts are made known to all bidders and are not applied arbitrarily; (iii) any bidder i s given adequate response time (four weeks) for preparation and submission o f bids; (iv) bid evaluation and bidder qualification are clearly specified in bidding documents; (v) no preference margin i s granted to domestic manufacturers; (vi) eligible f irms, including foreign f i rms are not precluded from participation; (vii) award will be made to the lowest evaluated bidder in accordance with pre-determined and transparent methods; and (viii) bid evaluation reports will clearly state the reasons to reject any non-responsive bid. Standard Bidding Documents to be used for NCB will be reviewed by IDA before effectiveness.

1 13. National and International Shopping solicitations will (a) be issued in writing to at least three reputable suppliers (it may be better to approach five or six suppliers because not all three suppliers may respond, so that at least three competitive quotations are received), (b) include specifications, and if goods are not immediately available, the delivery time, (c) give the estimated cost, including cost o f inland transportation and insurance, (d) be opened at the same time for evaluation, and (e) in the case o f International shopping quotations, be solicited from at least three suppliers in two different countries.

114. from the United Nations Agencies (IAPSO), up to an aggregate o f US$0.5 mill ion equivalent, in accordance with the Bank Guidelines.

Equipment, such as computers and vehicles to cost less than US$200,000 can be procured

1 15. compatible with existing equipment or are o f a proprietary nature up to an aggregate amount no to exceed US$200,000 equivalent, may, with the Association's prior agreement, be procured in accordance with the provisions o f paragraph 3.7 o f the Guidelines.

Direct Contracting. Goods which must be purchased from the original supplier to be

116. Procurement o f imports (under Component D). The Project will finance the import o f goods for a total amount o f US$13 mill ion equivalent, which will be procured under modified international competitive bidding procedures. Commonly traded commodities will be procured under simplified procedures, in accordance with the provisions o f paragraph 2.65 o f the Guidelines. Public sector imports estimated to cost less the US$750,000 per contract will be procured under contracts awarded in accordance with the Government's established procurement procedures satisfactory to the Association, in accordance with the provisions o f paragraph 2.63 and 2.64 o f the Guidelines. Imports by the private sector, estimated to cost less than

43

US$2,000,000 per contract, will be procured under contracts awarded in accordance with published commercial practices to the Association, in accordance with the provisions o f paragraph 2.63 and 2.64 o f the Guidelines.

117. Consultancv Services. The Project will finance the contracting o f consultancy services under components A, B, and C, for an estimated total amount o f US$6.80 mi l l ion equivalent. This will include studies, technical assistance, and training services. The standard Request for Proposal, as developed by the Bank, will be used for appointment o f consultants as wel l as the Sample form o f Evaluation Report for the Selection o f Consultants. Simplified contracts will be used for short-term assignments, i.e. those not exceeding six months, carried out by firms or individual consultants. To ensure that priority is given to the identification o f suitable and qualified national consultants, short-lists for contracts estimated at or less than US$lOO,OOO equivalent may be comprised entirely of national consultants (in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines), provided that a sufficient number o f qualified individual or firms (at least three) are available. However, if foreign firms have expressed interest, they would not be excluded from consideration.

0 Firms. Such services are expected to include: (i) professional services for communities and local governments; and (ii) studies and audits for implementation o f key economical reforms (including in the forestry and telecommunications sector). All firms will be recruited through Quality and Costs Based Selection (QCBS) procedures. For contracts estimated to cost less than US$50,000, f i r m s may be recruited through Consultant's Qualification (CQ) procedures.

0 Individuals. Individuals will be recruited where a firm i s not needed, for contracts, which are not expected to exceed US$50,000. Such individuals will be selected and recruited on the basis o f C V and references in accordance with Part V o f the Consultants' Guidelines.

1 18. agencies for components A and B through service agreements between the Government and each of these agencies. In view o f the nature o f the activities to be undertaken, which require specific qualification and local experience, and in view o f the lack o f alternative implementing partners with adequate experience in Congo, these service agreements will be entered into under single- source selection procedures (as per Consultants Guidelines, paragraph 3.9). Operating costs will include: (a) expenditure for the contracting o f auxiliary personnel required for the implementation o f the project; (b) expenditure and supplies for the operation and maintenance o f facilities required for the implementation o f the project (such as expenditures for office supplies, rental fees, services, operation and maintenance of equipment financed out o f the proceeds o f the Credit and the Grant); (c) expenditure for domestic and international travel and per diems related to project implementation activities; and (d) overheads. Operating costs for the implementation agency for component C will also be financed under the Project. All procurement within this category shall be done according to the procedures defined above for goods and services.

Service agreements. The Project will finance operating costs o f the implementation

1 19. Small Grants Agreements. Under Component B, the Project will finance small grants to local organizations, for an estimated total amount o f US$2.30 mil l ion. These organizations will include associations, NGOs, communities, cooperatives and private organizations working with

44

communities in each o f the ten dkpartements and four smaller municipalities. Beneficiaries will be selected through transparent procedures acceptable to IDA, to be detailed in the Operational Manual. They will enter into contractual arrangements with the implementation agency (UNDP), as per standard documents acceptable to IDA, to be detailed in the Operational Manual. Contracts w i l l not exceed US$20,000 per organization per year. They may include procurement of works, goods, and services and wi l l be executed by the beneficiaries, as per simplified procurement procedures acceptable to IDA, to be detailed in the Operational Manual.

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

Procurement methods Expenditure Category ICB NCB Other (2) Total

cost 1. Imports (under 0.00 0.00 13.00 13.00 Component D) 2. Works

3. Goods

4. Services

5. Community sub- projects 6. Operating Costs

7. Unallocated and

(0.00)

(0.00) 0.00

0.30 (0.30) 0.00

0.00

0.00

n-a

(0.00)

(0.00)

(0.00)

(0.00) 6.00

(6.00) 3.70

(3.70) 0.00

(0.00) 0.00

(0.00) 0.00

(0.00) n-a

(1 3 .OO) 2.60

(2.60) 2.80

(2.80) 6.80

(6.80) 2.30

(2.30) 0.50

(0.50) n-a

(13.00) 8.60

(8.60) 6.80

(6.80) 6.80

(6.80) 2.30

(2.30) 0.50

(0.50) 3.00

contingencies (3.00) Total 0.30 9.70 28.00 41.00

(0.30) (9.70) (2 8.00) (41 .OO) I / Figures in parenthesis are the amounts to be financed by the IDA Credit and Grant. Al l costs include contingencies. 2/ Includes civil works and goods to be procured through modiJied international competitive bidding, national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to managing the project.

Advertising

120. assistance and consulting assignments, early attention will be given to advance planning o f recruitment and timely search for expressions o f interest through international advertising to obtain the best possible pool o f candidates from which strong short l i s t s can be compiled. A general procurement notice (GPN) will be prepared and issued upon Board Approval in the United Nations Development Business listing all contracts above US$200,000 for consultants. I t wi l l be updated annually for any outstanding major procurement. Specific Procurement Notices (SPN) for works to be procured by QCBS will be advertised in the national press o f wide distribution and internationally. The related bidding documents, as applicable, wi l l not be

Since a large portion o f the Credit and the Grant funds will be used for technical

45

released - or the short list for consultant services will not be prepared -before eight weeks after the GPN has been published. Expressions o f interest for contracts to be procured under N C B will be advertised in at least three national newspapers o f wide circulation and sufficient time will be allowed to obtain bid documents and to prepare bids.

IDA Review

12 1. Draft standard bidding documents for N C B wil l be reviewed and agreed upon with IDA within the context of the finalization o f the Operational Manuals, to be submitted as a condition o f effectiveness.

122. Prior Review. All I C B and al l direct contracts for works and goods will be subject to IDA's prior review, in accordance with paragraph 2, Appendix 1 o f the guidelines. Also, for each procurement method (for works: quotations; for goods: national competitive bidding, shopping; for services: QC , recruitment o f individual consultants), the first three contracts will be subject to IDA's prior review.

123. All consulting contracts for costing US$lOO,OOO equivalent or more for firms and equivalent US$50,000 or more for individuals, the first three contracts under this threshold would be subject to IDA prior review. I t will concern the qualifications, experience, al l terms o f reference and terms o f employment o f the consultants. Any amendments to existing contracts raising their values to levels equivalent or above the prior review thresholds are subject to IDA review. I t would be also applied to al l single-source selection o f consultants, including: Annual training plans for local and overseas training and workshops, including terms o f reference and estimated budgets, he program, containing names o f candidates, content o f courses, periods o f training, and selection o f training institutions. Prior review i s expected to amount to about 30 percent o f the total value o f the works, goods, and services contracts through prior review.

124. Post review. IDA will also review 15 percent o f the total number o f contracts through post-review. In the event samples o f post reviews indicate major problems, additional reviews, financed by the Borrower, should cover the remaining portion o f contracts. The use o f IDA's standard bidding documents will considerably expedite the prior review process as IDA review will primarily focus o n invitations to bid, bid data sheets, contract data, technical specifications, bill o f quantitieskhedule o f requirement and other contract specific items. The implementation agencies will be required to maintain all relevant procurement documentation for subsequent review by IDA. The implementation agencies will submit to IDA periodic procurement schedules detailing each procurement package in progress and completed as part o f the normal project reporting exercise.

Overall Procurement Risk Assessment:

125. High.

46

Frequency of procurement supervision missions proposed:

126. procurement supervision for post-review/audits). Staff would be trained under the Project in procurement planning.

There will be one procurement supervision mission every six months (includes special

Table B: Thresholds for Procurement Methods and Prior Review (1) Contract Value Contracts Subject to

Expenditure Category Threshold Procurement Prior Review (US$ thousand) Method (US$ million)

1. Works <200,000 NCB All contracts

2. Goods >200,000 ICB All contracts <50,000 Quotations First three contracts

<200,000 NCB First three contracts <50,000 NSIIS First three contracts

3. Services Firm: > 100,000 QCBS All contracts

Single-source All contracts <100,000 QCBS, QC First three contracts

(TORS, RFPs, final Evaluation Reports and contract when deemed appropriate by IDA).

Individual: >50,000 See section V o f All contracts

<50,000 See section V o f First three contracts Guidelines

Guidelines Estimated total value o f contracts subject to prior review: US$13.10 mill ion

47

APPENDIX E. Financial Management Arrangements and Assessment

I) Summary Project Description

Project Development Objective

127. The objective o f the Project i s to support the recovery o f communities living in smaller municipalities and rural areas. Such support i s critical to help mitigate the ongoing social crisis in the target areas, to create opportunities for communities which are among the most destitute, and to facilitate the continued implementation o f the economic reform and decentralization programs.

Project structure and costing

128. The project comprises four components detailed below:

0

0

0

0

Component A: Financing o f priority local investment (US$14 million) Component B: Support to community organizations (US$3 million) Component C: Capacity building for central and local Governments (US$8 million) Component D: Support to Balance o f Payments (US$13 million)

Implementing agency

129. Three implementing agencies wi l l be directly involved in the management o f the project funds namely the Project Coordination and Implementation Unit within the Ministry o f Finance (PCIU), ACTED, and UNDP.

0 The PCIU (Agence de Gestion de Projet) has been created within the Ministry o f Finance. I t will coordinate project implementation and directly manage the funds allocated under component C.

0 ACTED i s an NGO based in Paris, France and operating worldwide. I t s consolidated turnover in 2002 was US$25 million (US$21 million planned for 2003). The Financial, Accounting and Internal audit functions are located at the HQ in Paris. ACTED Congo Brazzaville was created in 1997 and i s currently implementing about US$2 million o f projects per year for various donors. There i s about 20 staff, o f f which 3 international deployed (with 2 in Brazzaville headquarters and one in N’kayes). ACTED will manage the funds allocated under component A.

0 UNDP established an office in Brazzaville in the 1970s. It i s mostly involved in capacity building and community-driven development. I t i s currently responsible for about 10 projects - three o f which implemented directly (for a total o f US$6 million), and seven others implemented by technical ministries or NGOs. For all these activities, UNDP i s

48

responsible for all disbursement and financial activities at large. UNDP will manage the funds allocated under component B.

11) Strengths and weaknesses

130. financed-projects. ACTED and the PCIU are expected to receive training in the use o f these procedures.

13 1. corresponding remedial actions.

UNDP i s familiar with the procedures for quarterly FMRs and annual audits o f IDA

The following chart outlined the issues identified during the FMS assessment and the

Issue Accountants are not familiar with the Bank’s FMS requirements (reporting and monitoring). Insufficient staffing o f the Finance and Accounting Department to adequately manage incremental activities funded through the Project. Insufficient IT equipment in the Finance and Accounting Department to adequately manage incremental activities funded through the Proiect. The same accountant drafts and signs payment orderss, records transaction in the cash book, and initiates reconciliation.

U s e o f different accounting software to manage and monitor projects.

Agency ACTED

ACTED

ACTED

ACTED

UNDP

Remedial action Train staff on Bank’s FMS requirements.

Recruit and train at least 2 new accounting staff along with a Financial Manager

Acquisition o f adequate additional IT equipments.

Segregation o f duties, with dual signature (by Coordinator and Financial Manager) for any payment.

Move towards an integrated software improving MIS (planned bv December 2003).

111) Staffing

132. Bank financial management and procurement procedures. The Finance section o f the PCIU will comprise at least a Financial Manager and an Accountant with adequate qualifications and experience to undertake their respective tasks. Recruitment o f a qualified Financial Manager satisfactory to IDA i s a condition o f effectiveness

PCIU The PCIU at the Ministry o f Finance should recruit and train staff in the World

133. ACTED. With regard to the component they wi l l have to implement under the project, ACTED plans to deploy 1 to 2 additional local financial staff to support managing accounting systems and internal control procedures. An international financial management specialist i s expected to join the country team by July 2003. The recruitment o f the international Financial Management Specialist i s a condition o f effectiveness.

49

134. various donors, including IDA, and current accounting and financial management practices are satisfactory. For the purposes o f this project, UNDP i s expected to be able to deploy sufficient additional resource on time for implementation when necessary.

UNDP. UNDP has demonstrated capability to adjust to the guidelines and procedures o f

IV) Accounting policies and procedures

135. The Ministry o f Finance will set up accounting and tracking arrangements agreeable to IDA at the PCIU to ensure that resources are committed and expended in accordance with the budgetary procedures. In addition the PCIU should adopt within 3 months after effectiveness a manual o f financial and accounting procedures.

136. procedures for review and financing o f the projects they are currently implementing worldwide, but this manual i s s t i l l in English language and not fully implemented at the Brazzaville office. This manual will have to be translated into French, adjusted, and implemented by ACTED Brazzaville.

ACTED adopted a manual o f financial procedures and established adequate internal

137. UNDP records regarding implementation o f the ten projects they are currently responsible for in Congo are satisfactory, and their practices are based on UNDP operational manual.

V) Internal Control and procedures

13 8. The last internal audit o f ACTED Brazzaville took place in 1999.

Internal audit system o f ACTED i s in place and i s based on French auditing standards.

139. basis. The last internal audit on the activities o f the Brazzaville office took place in 2000.

Internal audits are conducted by UNDP headquarters based in New York on a random

140. control system under the responsibility o f the Financial Manager.

The PCIU at the Ministry o f Finance will design and implement an adequate internal

VI) External Audit

141. for the project. The annual financial statements, the movements in the Special Account (for component C) and the Statements o f Expenditures (SOEs) o f each implementation agency will be audited by an external auditor selected on terms o f references acceptable to IDA. The terms of references for the external auditor wi l l be developed immediately after effectiveness and submitted to the Bank for approval. The Auditor wi l l express separate opinion on each implementation agency involved in the project and the report will be submitted to IDA within six months after the end o f each fiscal year.

The PCIU at the Ministry o f Finance will be responsible for organizing the annual audits

142. activities was unqualified. The annual statements will be audited by the auditor selected by the

ACTED activities are audited by an independent external auditor. The audit for 2001

50

PCIU at the Ministry o f Finance and on terms o f references agreed upon by IDA. For the purposes o f audit, it was agreed that ACTED wi l l retain the original o f invoices in Brazzaville.

143. are implemented under UNDP leadership, based on the donor requirements. Based on the agreement between IDA and UNDP, the Bank wi l l exercise the option o f asking for annual audits o f UNDP Brazzaville expenditures under the Project. Financial statements are prepared in Brazzaville, and the original vouchers and supporting documents are kept in Brazzaville, which makes it possible to the auditor to audit Brazzaville expenses in the field.

UNDP external audits are conducted by independent auditors for the various projects that

VII) Reporting and monitoring

144. (FMRs) will have to be agreed upon with the PCIU at the Ministry o f Finance prior to effectiveness. The PCIU will submit FMRs. IDA will provide further guidance to improve and bring these to a level acceptable to IDA.

IDA’S requirements as regards submission o f quarterly Financial Management Reports

145. To date, monthly financial reports regarding activities implemented by ACTED Brazzaville are sent to ACTED Paris headquarter for review and approval, together with original invoices. It was agreed that ACTED will retain original invoices in Brazzaville and will submit quarterly FMRs as required by IDA.

146. format and time acceptable to IDA.

UNDP Brazzaville office will have the responsibility to prepare a Quarterly FMR in a

147. first FMRs for the project following 45 days after the first complete (calendar) quarter after effectiveness. In addition to monthly bank accounts reconciliation and quarterly FMRs, each implementation agency will have to draft annual financial statements comprising:

I t was agreed that each implementation agency will commence preparing and submit the

0

0

0

0

0 Annex

Statement o f Sources and Uses o f Funds Statement reconciling the balances on all Banks Accounts to Bank balances on the Statement o f Sources and Uses o f Funds SOE Withdrawal Schedule, listing individual withdrawal applications relating to disbursement by the SOE Method, by reference number, date and amount; A Cash Forecast for the next two quarters

VIII) Information System

148. The Financial Manager at the PCIU will acquire an accounting software capable o f generating accurate and timely data and reporting as required by IDA. The software wi l l have to be operational within three months after effectiveness.

149. and subprojects separately. This software requires some adjustments to help produce timely and accurate information for managing and monitoring project activities.

ACTED Accounting system i s base on SAGA software that i s able to manage projects

51

Issue External Audit

150. using four separate software packages WINFOAS (Accounting), FIM ( Finance), Procurement (PMIS) and Human Resources (HRMS). UNDP i s used to monthly quarterly and annual reporting mechanisms (including for the Bank). UNDP plans to implement a new integrated system ERP by December 2003 aiming to improve MIS thereby producing timely and accurate financial information that satisfy the Bank requirements.

Currently, each project implemented through UNDP i s managed by a financial staff,

Action /Tasks Responsible body Due date PCIU, with Bank non- Preparation o f TORS and 3 months after effectiveness

IX) Disbursement arrangements

PCIU staffing

15 1. items o f expenditures for: (a) contracts for works in an amount inferior to US$200,000; (b) contracts for equipment and goods in an amount inferior to US$lOO,OOO; (c) contracts for consulting f i rms in an amount inferior to US$ 100,000 and contracts for individual consultants in an amount inferior to US$50,000 equivalent, as well as all operating costs, which would be claimed on the basis o f Statement o f Expenditures (SOEs). All supporting documentation for SOEs would be retained at a suitable location at each implementation agency and readily accessible for review by periodic IDA supervision missions and external auditors.

Disbursements for all expenditures would be made against full documentation, except for

auditor selection objection Recruit staff and PCIU By effectiveness

X) Action Plan

Manager Recruitment o f additional accounting staff

152. following action plan has been developed.

In order to mitigate the r isks and weaknesses identified during the assessment, the

PCIU, ACTED, and UNDP

3 months after effectiveness

52

Reporting and Monitoring

Accounting system I nolicies

Agreement on FMRs’ I PCIU and World Bank By effectiveness Annual Accounts’ format and content Setting up accounting PCIU By effectiveness and FMS arrangements

XI) Supervision plan

153. Financial Management Review wil l be carried out by the FMS each semester and at least once a year. In addition, the FMS wil l review the quarterly FMRs and the annual audit report and Management Letter from the External Auditor and follow-up on implementation o f material recommendations.

53

Project Financial Management Report (FMR) Quarterly Report

Financial Statements

A Sources and Uses o f Funds (cash basis) Provides details on the sources o f funds by financing source and the use o f funds by disbursement categories.

B Uses o f Funds by Project Activities (cash basis) Provides details on the use o f funds by project activities.

C Cash Withdrawal Provides the calculation for the eligible Bank disbursement

D Cash Forecast Provides forecast for cash requirement for the project, by disbursement categories.

E Special Account Statement Summarizes transactions concerning the special account.

54

APPENDIX F

Narrative Summary

Sector-related TSS Goal:

1. Consolidating peace process.

2. Laying and solidifying the foundation for the democratization o f political life.

3. Physical reconstruction o f the country.

4. Improving economic management through increased transparency and good governance in public resource management.

Project Development Objective:

1. Recovery o f communities living in smaller municipalities and rural areas.

Performan Key Performance

Indicators

- Continued political stability and security throughout the country.

- Successful decentralization reform;

- Development o f local organizations and strengthened social capital.

- Increase in coverage and quality o f services delivery.

- Continued good performance under the economic program supported by the Bretton Woods Institutions;

- Implementation o f key structural reforms.

(outcome / impact indicators)

- Increase by 20 percent o f quality and coverage o f essential services in Skpartements and smaller municipalities;

- Increased participation o f :ommunities and stakeholders in key rlecision-making process;

Satisfactory budgetary xocesses at the central and local levels.

! Indicators Monitoring and

Evaluation

- Bank supervision mission reports,

- Implementation agencies quarterly reports;

- Midterm review by December 2005;

- ICR by June 2008;

- Project database;

- Beneficiaries surveys.

(projects reports)

- Community-level surveys to assess the impact on quality o f service delivery;

- Implementation agencies quarterly reports, supervision missions and ICR,

- Reviews o f the economic program by Bank and IMF.

Critical Assumptions

- Government’s commitment to economic reforms;

- Gradual stabilization o f the sub-region;

- Substantial external support, in particular for debt relief.

(from Objective to Goal)

- Continued political stability and security throughout the country.

- Continued Government commitment to economic reform.

55

implementation o f the economic reform and decentralization programs.

economic growth;

- Improved environment for economic activities aimed at diversification.

Expected Outputs for each component:

Component A: Financing of Priority Local Investments

1. Help relieve the economic and social hardship caused by the successive crises in areas that have received l i t t le external support over the last years.

2. Strengthening participatory mechanisms for decision-making at local level.

Component B: Support To Community Organizations

Help strengthen social capital in “dkpartements” as a key element o f a successful decentralization and empowerment process.

Output indicators:

- Effective implementation o f priority investments (objectives achieved for 80 percent o f the sub-projects);

- Generation o f at least 10,000 person-month o f labor;

- Quality o f participatory processes; breadth o f the consultations; involvement o f key stakeholders in all dkpartements.

- Number and diversity o f beneficiary organizations - over 50, representing at least 8 o f the 10 dkpartements; - Effective use o f resources (80 percent o f objectives set by the beneficiary organizations in their proposals achieved). - Strengthening o f local organizations capacity to implement rehabilitation

Monitoring and Evaluation

- Bank supervision mission reports,

- ACTED quarterly reports;

- Midterm review by December 2005;

- ICR by June 2008;

- Surveys with beneficiary communities.

- Surveys with communities and key stakeholders at the level o f each dkpartement and smaller municipality.

- Bank supervision mission reports,

- UNDP quarterly reports;

- Midterm review by December 2005;

- ICR by June 2008;

- Project database;

Critical Assumptions (from Outputs to

0 bj ective)

- Sufficient political stability and security throughout the country for mobilization o f stakeholders and implementation o f activities;

- Central Government support in launching the process with local levels o f Government;

- Timely access to HIPC.

- Sufficient political stability and security throughout the country for mobilization o f beneficiary organizations and implementation o f activities.

56

Expected Outputs for each component:

Comuonent C: Capacity enhancement F o r Central And Local Governments

Assisting the Government address some o f the key issues associated with the process o f decentralization and economic reform.

Comuonent D: Balance of payments support

Help the Government put in place adequate mechanisms for the transfer o f fiscal resources to local collectivities - and for

Output indicators:

and employment generation activities (over 50 organizations having received substantial training).

- Continued performance under the Bretton Woods Institutions-supported economic program;

- Preparation o f an I-PRSP and PRSP;

- Fine-tuning and launch o f the public service reform;

- Launch o f forestry and telecommunications reforms;

- Fine-tuned definition o f relations between central and local Governments;

- Establishment o f sound procedures in dkpartements and smaller municipalities for budget preparation and execution;

- Increase by 20 percent in average o f collection o f local fiscal revenues by deDartments.

- Establishment o f sound procedures in dkpartements for budget preparation and execution;

Monitoring and Evaluation

- Community-level surveys.

- Bank and IMF reviews o f the economic program;

- Bank supervision mission reports,

- PCIU quarterly reports;

- Midterm review by December 2005;

- ICR by June 2008.

- Bank supervision mission reports;

- PCIU quarterly reports;

Critical Assumptions (from Outputs to

0 bj ective)

- Continued Government commitment to reform;

- Continued stability and security in rural areas.

- Continued Government commitment to reform;

- Continued stability and security in rural areas;

Expected Outputs for each

monitoring their effective use.

Monitoring and Evaluation

- Midterm review by December 2005;

Output indicators:

- Establishments of regular audit mechanisms of budget execution in departments.

- ICR by June 2008.

57

Critical Assumptions (from Outputs to

Objective)

- Timely access to HIPC.

58

APPENDIX G. Status and Bank Group Operations in the Republic o f Congo

5.33 0.03 41284 258.3 418,193,7%@ 258,320,837.94

51,s 0.03 51,848,85458

59

Low- Income

APPENDM H. Country at a Glance

Development diamond"

Congo, Rep. at a glance 9/23/02

59 2 31 0

i: 21 9

,g50

POVERTY and SDCIAL

2001 Population. m id-year (millionsj GNI percapita (Atlas method, US$) GN I (Atlas M h o d , US$ billions)

Avorngo annual growlh, 199+01

Population (%) Labor force (%J Mod rocolrt odlmato (atod year avallnblo, 199501) Poverly (% ofpopulatan h i o w nafJona/pover(y hne) Urban population (% of totalpopulation) Life expectancy at bidh (yaarsJ infant modality (per 1,OW Irva births/ Child malnutntion (% ofchildrenunder5J Accessto an improved water source (% OfpopulatunJ Illiteracy(% ofpopulation age f5+J Gross pnmaryenrollment (% ofschool-agapopulafJonJ

Male Female

KEY ECONOMIC RATIOS nnd LONG-TERM TRENDS I981

GDP (US$ billions) 2 0 Gross domestic investmenUGD? 48 2 Exports of goods and serviceslGDP 58 0 Gross domestic savingslGDP 30 1 Gross national savingslGDP 24 5

Current account balance/GDP -26 7 Domestic -! Investment savings

1

interest paymentslGDP Total debt/GDP Total debt sewice/exDoris

4 8 75 1 20 5

Present value of debVGDP Present value 01 debtlexports

198141 1991-01 (average anwd growth) GDP 1 8 -01 GDP per capda -1 1 -3 0 Exporls 01 goods and s " e S 3 4 6 2

congo, Rep.

3 1 700 2 2

2 9 2 9

70 73 49 81 1 6 46 40 79

76 82

1991

2 7 20 5 45 1 1 8 6

2 2

-18 7 1 8

1 7 7 3 25 7

2000

8 2 5 5 9 1

Sub Saharan

Africa

674 470 317

2 5 2 6

32 47 91

55 37 70 85 72

2000 3 2

21 0 78 6 60 7 29 0

7 9 6 5

1 7 3 3 23 6

142 3 181 9

zoo1

2 9 0 2

-1 3

2,511 430

1,069

1 9 2 3

31 59 76

76 37 96

103 88

I Lile expectancy

,/ enrollment

Access to improved watersource

Congo, Rep - Low-mcome gmup

2001 Emnomic ratios.

2.8 2 7 2 I 79 7 Trade

Indebtedness

COnpO, Rap LowJneome gmup

2001-05

4 0 1 9 2 3

STRUCTURE dthoECONOMY

(% of GDPJ Agriculture Industry

Services Private consumption General govemment consumption Imports 01 goods and sewices

Manufaduring

(average annual groMhJ Agriculture Industry

Services Private consumption General govemment consumption Gross domestic investment Imports of goods and sewices

Manufaduring

1981

7 9 50 9 6 3

41 2 56 5 1 3 4 76 1

1981-91

2 9 4 0 5 1 0 1 2 3 1 6

-16 5 -6 5

1991 2000 2001

11 3 5 3 6.0 3 6 0 70 9 6 4 5 8 9 3 4 4 5

5 2 6 2 3 8 2 9 5

6 0 4 2 8 2 2 9 5 21 0 11 1 11 3 4 7 0 3 8 9 4 7 7

1991-01 zoo0 2001

1 9 8 4 4 1 2 7 4 4 0 6

- 1 6 2 0 9 9 1 - 5 0 1 4 9 5 1

0 8 3 7 6 8 3 - 8 2 2 8 2 8 1 7 8 - 1 2 4 - 1 0 1 1 7 1 7 3 2 1

I Growth of investment and GDP &)

GDi -GDP I Growth ofawporlsand imports p/.) I

~~

Note 2001 data are preliminary estimates * The diamonds show four key indicators in the country (in bold) compared with its income-group average if data are missing, the diamond wlll

be incomplete

60

PRICES and QOVERNMENT FINANCE

Dmesf lc prices (% change) Consumer pricas Implicit GDP deflator Governmed finance (% of GDP, includes c u m M granrs) Current revenue Current budget balance Overall surpluddefiut

TRADE

(US$ millions) Total exports (fob)

CNde 011 Wood Manufadures

Total imports (ut) Food Fuel and energy Capital goods

Exporl pnca index(1995=1W) Import price index (fQ05=100) Terms of trade (1095=fOO)

BALANCE dPAYMENTS

(US$ millions) Exports of goods and services Imports of goods and serwcas Resource balance Net inwme Net current transfers Current account balance

Finanang #ems (net) Changes in net reserves Msmo Reserves including gold (US$ millions) Converaon rate (DEC. localUS$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt sewice IBRD IDA

Offiual grants Offiaal creditors Private creditors Foreign dired investment Portfolio equity

Woild Bank program Commitments Disbursements Pnncipal repayments Net flows Interest payments Net transfers

Compostion of net resource flows

1981

1 7 0 27 8

1981

1981

1,157 1,517 -360

-112 -60

-532

595 -63

128 271 7

I981

1,498 42 37

241 4 0

91 147

0 19 1

1 7 3

14

1991

9 2 -1 5

25 5 -10 9 -13 1

1991

1,137 878 141

26 549

31 196 180

120 93

130

I991

1,228 1.280

-52

-446 -1 0

-508

463 45

8 282 1

1991

4,832 165

75

300 7 0

28 -195

0 1 2 1 5

-6

2000

0 4 46 1

26 7 8 2 1 2

2000

2.456 2,300

144 12

1,139 23

229 525

164 111 148

2000

2,518 1,334 1,184

-947 19

256

-73 -183

222 7100

2000

5,596 26

234

460 16

3

8 4

-153 340

0 0 3

-3 2

-5

2001

-0 5 -14.6

33 0 11 2 1 0

2001

2,181 2,030

139 12

1,153 24

237 496

153 109 141

2001

2,303 1,367

936

-834 3

105

-249 144

85 732 5

2001

5,461 1 9

232

691 9 3

4 29

-162 160

43 38 54

-16 26

-42

50

25

D

26 96 P I €3 09

I GDPdeflsbr - 9 - W I

Export and import IweIs (US$ mill.)

2oW

IMO

0

Cumnlacmunl basncelo GDP(Yo)

m

O

m

4 D

40

80

A 1 9 0:n2 I F 555

E: 4,265

A-IBRD E . 0ilateral 0 . IDA D . Other mlblateral F - ptlvate C- IMF G . Shorl.leim

- The World Bank Group This table wasprepared by country unit staff, figuresmay differ from other World Bank pubinshed data 9123102

61

APPENDIX I. Map

To be completed.