Document of

The World Bank

Report No. 15531-BUL

STAFF APPRAISAL REPORT

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

July 30, 1996

Human Resources Sector Operations DivisionCentral and Southern Europe DepartmentsEurope and Central Asia Region

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CURRENCY EOUIVALENT

Currency Unit - Leva

AVERAGE EXCHANGE RATES(Leva per US$)

Dec. 1994 Dec. 1995 Feb. 1996 July 199638.7 68.0 72.0 157.9

WEIGHTS AND MEASURESMetric System

BULGARIA - FISCAL YEARJanuary I - December 31

ABBREVIATIONS AND ACRONYMS

CAS - Country Assistance StrategyCEE - Central and Eastern EuropeCY - Calendar YearDCON - Department of ConstructionESW - Economic and Sector WorkEU PHARE - European Union PHARE ProgramGDP - Gross Domestic ProductGDSI - General Directorate of Social InsuranceIBRD - International Bank for Reconstruction and

DevelopmentICB - International Competitive BiddingIDA - International Development AssociationIS - International ShoppingLIB - Limited International BiddingLS - Local ShoppingLSDP - Letter of Sectoral Development PolicyMOF - Ministry of FinanceMOLSA - Ministry of Labor and Social AffairsNSSI - National Social Security InstitutePAYG - Pay-As-You-GoPIP - Project Implementation PlanPIU - Project Implementation UnitPCU - Project Coordination UnitPOM - Project Operational ManualSBD - Standard Bidding DocumentsSSF - Social Security FundSIIS - Social Insurance Information SystemSOE - Statement of ExpenditureTA - Technical AssistanceTORs - Terms of ReferenceUSAID - United States Agency for International DevelopmentVAT - Value Added Tax

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

Loan and Project Summary ..................................... i

I. BACKGROUND AND RATIONALE .1

A. Introduction .1B. Social Protection in Bulgaria - An Overview. 2C. The Social Insurance Program - Background, Recent Trends and Key Issues 4

- Background ......................................... 4

- Recent Trends and Key Issues ............................. 6D. Government Policies and Reform Proposals ...................... 9

- First-Phase Reforms ................................... 9- Second-Phase Reforms .................................. 12- Expected Impact ...................................... 13

II. THE PROJECT ......................................... 15

A. Project Objectives ...................................... 15B. Project Description ..................................... 15C. Project Justification ..................................... 24

III. PROJECT COSTS, FINANCING, MANAGEMENT AND IMPLEMENTATION 33

A. Introduction .......................................... 33B. Project Cost .......................................... 33C. Project Financing ...................................... 34D. Administration of Project Funds ............................. 35E. Project Management and Implementation ........................ 35F. Project Procurement Arrangements ........................... 36G. Disbursements ........................................ 36H. Project Audit Reporting and Evaluation ......................... 37I. Status of Preparation .................................... 37

IV. BENEFITS AND RISKS .................................... 39

A. Project Benefits ........................................ 39B. Project Risks ......................................... 40

Table of Contents(Continued)

V. AGREEMENTS REACHED AND RECOMMENDATIONS ... .......... 43

ANNEX I - NSSI Organization and Functions ......................... 45ANNEX 2 - Evaluation of Impact of Governent Reforms ................. 53ANNFX 3 - Letter of Sectoral Development Policy ...................... 65ANNEX 4 - Cost Recovery and Fiscal Impact ......................... 73ANNEX 5 - Project Implementation Plan ............................ 85

MAP: IBRD-27968

This report is based on the findings of a mission which visited Bulgaria in February 1996. The mission wascomprised of Neeta Sirur (Mission Leader, Senior Economist, EC1/2HR); Emily Andrews (Human ResourcesEconomist, EC1/2HR); Carlos Ferreira (Chief, Information Technology, EMTDR); Virginia H. Jackson(Operatioiis Officer, EC1/2HR); Galina Sotirova (Operations Officer, Resident Mission, Bulgaria); JaimneVasquez-Caro (Tax Administration Specialist, Resident Mission, Hungary); Paola Zanichelli and Angelo Colucci(Consultants/Information System Specialists). Task Manager: Emily Andrews (EC1/2HR); Division Chief:Ralph W. Harbison (EC1/2HR); Director: Kenneth G. Lay (EC1DR); Peer Reviewers: David Lindeman (PSP);John Wilton (FRSCR). Hera Sutrisna (Senior Staff Assistant, EC1/2HR) was responsible for documentprocessing.

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

Loan and Project Summary

BORROWER: Republic of Bulgaria

BENEFICIARIES: Ministry of Labor and Social Affairs (MOLSA), National Social SecurityInstitute (NSSI).

LOAN AMOUNT: US$24.3 million equivalent

TERMS: Twenty years, including a five-year grace period, at the IBRD standardvariable interest rate.

PROJECTOBJECTIVES: The overall goal of the Social Insurance Administration Project is to support

and sustain the Government's social insurance reform program. Specifically,the project aims to support Government's current reform goals of eliminatingthe budgetary subsidy for social insurance payments due through theachievement of fiscal balance in the Social Insurance Fund and laying thegroundwork for future reforms aimed at more fundamental restructuring ofBulgaria's system for guaranteeing income security through social insurance.Therefore, the project will: (a) strengthen efforts to increase NSSI's overalloperational efficiency in today's emerging market economy, with a focus onreversing the trend towards reduced tax compliance which is undermining thefinancial stability of the public Pay-As-You-Go social insurance program; and(b) strengthen the institutional capacity of the newly created NSSI to performkey policy formulation and evaluation functions and better manage resources.

PROJECTESCRIPTIQN: The proposed project will provide financing for computer and

telecommunications hardware and software, fellowships, study tours, foreignand local training and expert advisory services, public education materials,office upgrading, and incremental recurrent costs. The estimated total cost ofthe project is US$32.3 million, of which US$24.3 million will be financed bythe Bank loan. The project will be implemented over a period of four years byNSSI, and will consist of two components:

Increasing Compliance and Operational Efficiency (estimated base costUS$25.8 million). This component is aimed at instituting effective operationalprocedures for inter alia: (a) control and monitoring of the flow of funds intoand out of the social insurance system; (b) improved revenue/expenditureprojection and the calculation of benefits on the basis of actual contribution;and (c) improved services to clients, including efficient payment of pensionsand short-term benefits. Improvements in each of these areas will be achievedthrough creation of an integrated Social Insurance Information System (SIS),based on the institution of a unique identifier for each individual andenterprise.

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Strengthening Institutional Capacity (estimated base cost US$ 2.8 million).This component is designed to support the functioning of the newly createdNSSI and especially to add institutional capacity to conduct functions that werepreviously less important, including: (a) policy analysis; (b) actuarialforecasting; (c) public information/education concerning the social insuranceprogram and (d) personnel management, including improvements in staffselection, incentives, and training and career development.

BENEFITS: The project's major benefit is its expected impact on social insurance fundbalances. The ratio of the net gain in revenue to the cost of the loan is 15.2 to1 in the year 2000 (the first year that benefits from the new system can beexpected), even under pessimistic assumptions concerning project impact onthe tax compliance rate, and 92.8 to 1 if more optimistic assumptions areadopted. The internal rate of return to the loan in the year 2004 is estimatedto be 38.5 percent, or 70 percent, depending on whether pessimistic oroptimistic assumptions are used, compared to a nominal interest rate of 24.25percent. The pessimistic scenario assumes that fund revenues would increaseby 1 percent relative to the base case as a result of project activities, while theoptimistic scenario assumes a 10 percent increase in revenues, a levelcommensurate with that achieved through similar projects in other countries.Two other project benefits cannot be quantified easily but are noteworthynonetheless. The first of these benefits is the reduction of the administrativeburden on employers (and improved services to program clients) as a result ofthe project-supported transfer of responsibilities for social insurance record-keeping from employers to NSSI. The second benefit is the improved policyframework for social insurance that is expected to result from project inputs tostrengthen NSSI's actuarial forecasting and policy formulation capacity.

RISKS: The project's main risk derives from NSSI's relatively weak overallinstitutional capacity and, especially, its limited experience with externally-funded projects. To strengthen the institutional capacity and minimize thisrisk, Project Coordination Unit staff will be trained in project managementprior to loan effectiveness. Further, the project will provide to NSSI staff,extensive training related to each project component. The exceptionalcommitment of Government to this project also reduces the implementationrisk. A second risk is that Government's incentives to proceed with reform ofthe broader policy framework will be reduced as project implementation willbegin prior to the enactment of Government's anticipated structural pensionreform. The project's support for the establishment of permanent actuarial andpolicy offices within NSSI, however, can be expected to reduce this risk bybroadening the policy dialogue beyond a few top officials and strengtheningthe technical underpinnings of specific reform proposals. A third risk whichcould affect the project's impact is the concern that Government failure toaddress some crucial short-term macroeconomic issues could destabilize theeconomy. This risk cannot be reduced through project actions, but given therelatively long lead-time before project impact is expected (34 years fromnow), it is hoped that Government will have been able to bring the economyback under control by that time.

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Estimated Costs and Financing Plan"

Locald Foreign Total------------- (US$ Million)-

1. Improving Operational Efficiency 8.1 17.7 25.8

2. Strengthening Institutional Capacity 0.7 2.1 2.8

TOTAL BASE COSTS 8.8 19.8 28.6

Physical Contingencies 0.6 1.8 2.4Price Contingencies 0.4 0.9 1.3

TOTAL PROJECT COSTS' 2 22.5 323

Financing Plan:

Government 8.0" 0.0 8.0IBRD 1.8 22.5 24.3

TOTAL FINANCING REQUIREMENTS 9.8 22.5

Estimated Disbursements (US$ Million)

IBRD FY FY97 FY98 FY99 FY2000 FY01

Annual 4.2 7.4 5.3 4.8 2.7Cumulative 4.2 11.6 16.9 21.7 24.3

Cumulative as % of Total 17% 48% 69% 89% 100%

1' Including taxes and duties equivalent to US$2.9 million. Goods and civil works financed by internationalagreements are subject to local taxes and duties. Detailed numbers may not add to totals due to rounding.

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

STAFF APPRAISAL REPORT

I. BACKGROUND AND RATIONALE

A. Introduction

1.1 In the first four years after it embarked on its transition to a market economy,Bulgaria experienced a more prolonged and deeper recession than most of its Central and EasternEuropean (CEE) neighbors, characterized by a 30 percent decline in output, sharp deterioration ofexternal trade flows and a high rate of unemployment, which reached about 15 percent at its peak inearly 1994. As might be expected in this context, many Bulgarian households suffered tremendouswelfare shocks during the period, due, inter alia, to soaring inflation, job (and, hence, income)losses, and the shrinking budget envelope which forced substantial real reductions in Government'sincome transfers to beneficiaries of social protection programs. Although caused in large part byexternal factors - the disintegration of the Council for Mutual Economic Assistance, the Gulf War,and international embargoes on neighbors and trading partners - Bulgaria's prolonged recession wasalso attributable to internal political instability and the failure of successive governments to steadilymaintain favorable macroeconomic policies after an initial burst of reform in 1991. Nonetheless,1995 indicators suggested that the economy was beginning slowly to recover. In 1995, output rosefor a second consecutive year, unemployment declined (although it still remains high, at around 11percent), inflationary pressures were receding and foreign exchange reserves were relativelycomfortable. While some improvements also occurred in the living standards of Bulgarian householdsduring 1995, these were insufficient to offset the severe declines of the preceding years.

1.2 At the present time, there is concern that the economic recovery remains very fragile.1995's stabilization gains are likely to prove transitory unless bold structural reforms are undertakento: (i) accelerate privatization; (ii) initiate banking sector reform; (iii) impose financial discipline onstate enterprises; and (iv) reorient and further reduce government expenditures. In the first three ofthese areas, Government is in the process of designing a package of policy reforms, the details ofwhich remain to be formulated/evaluated to assess their likely impact on placing the economy on asustainable growth path. Further information concerning reform efforts in the enterprise and financialsectors is available in a number of Bank documents, including the Country Assistance Strategy (CAS),presented to the Board in April 1996. Reform efforts in the fourth area are closely linked todevelopments in Bulgaria's extensive social protection system - whose expenditures constitutedroughly one-third of total Government spending (about 15% of GDP) in 1995. However, to theextent that expenditures on social protection programs have continued to adjust endogenously, due topartial and ad hoc indexing for inflation throughout the transition period, actual benefits per recipientare now relatively low (below half their 1990 levels in real terms), so that further across-the-boardreductions would be difficult to implement without jeopardizing the programs' fundamental objectiveof acting as a safety net for vulnerable groups. This, in turn, means that radical reform of long-established eligibility criteria and program administration will need to be implemented if

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Government's objectives of long-run financial viability, "fairness" to program participants, andprotection of the needy are all to be met.

1.3 The Government is well aware of the need for structural reform in the country'ssocial protection system and, mindful of political realities, is formulating a carefully phased programfor change. Within social protection, its primary focus thus far has been on social insurance -- anappropriate priority, given that expenditures on social insurance programs account for over 80 percentof total social protection spending (see para. 1.6 below) and have the most far-reaching impact on thewelfare of Bulgarian households. Issues in social protection -- especially social insurance -- togetherwith Government plans for reform, are discussed in some detail in Sections B and C below as theyform the background to the project proposed later in this report.

B. Social Protection in Bulgaria - An Overview

1.4 As in other Eastern and Central European countries, the pre-transition Bulgarian stateprovided the country's population with high income security -- principally through guaranteedemployment, cash transfers for children and the old, and special institutional and cash assistanceprograms for the small proportion of the population unable to work due to long-term illness, disabilityor the like. With the exception of guaranteed employment, this system of cradle-to-grave benefits andservices, predicated on compressed wages and higher-than-warranted labor force participation rates,remains essentially intact today (though its effectiveness has been eroded by inflation), despite themarkedly different political and economic environment prevailing in the country. Furthermore, sincethe start of the transition, the existing, essentially unreconstructed, system of social benefits has beenoverlaid with new, "western" categories of transfers, such as unemployment benefits and new types ofsocial assistance, to help households cope with the unprecedented shocks stemming from economicreform.

1.5 Not only have the number of social protection programs increased since the start ofthe transition, but the number of people receiving income support from these programs has alsoincreased dramatically. For example, from 1990 to 1992, the number of new pensioners averagedaround 186,000 per year, due both to the normal increase in retirement associated with economiccontraction/falling labor demand as well as a government policy of offering early retirement to thoselaid off by restructuring firms. Reversal of this policy in 1993 has slowed down the pressure placedby new retirees on the pension system (with numbers of new pensioners falling since 1993 in relationto the 1991/92 peak), but the current stock of pensioners still remains high at 2.5 million pensionersin 1995 as against an employed population of about 3 million1' in the formal (and, hence, tax-paying)sector. The numbers of persons registering for benefits at unemployment offices also showed

1' The potential workforce is 3.6 million according to the 1994 Labor Force Survey, implying that about600,000 persons in the working ages are seeking but have not secured employment. In addition, the surveyfound about 3.1 million people between 15-64 years (or 47 % of the age group) who were outside the labor force(i.e., not employed and not seeking work). While many of these are likely to be students, retirees, home-makers and discouraged workers, it is estimated that about a third of them, or about 1 million persons, areengaged in productive, remunerative activity in the informal, generally non-tax-paying sector.

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dramatic increases from 1990 through 1993, rising from about 58,000 in 1990 to 601,000 in 1993before beginning to fall gradually. However, the proportion of registrants actually deemed eligiblefor, and paid, cash benefits is relatively lower and has been falling in the past 2-3 years - from apeak of 57 percent of registrants in 1991 to 32 percent of registrants in 1994. In addition, since thepassage of the Social Assistance Law in 1992, a significant number of Bulgarianhouseholds/individuals are registering for benefits under this category of transfers. In 1992, about810,000 social assistance clients received some form (often a one-time only grant) of cash assistancewith the number falling to around 550,000 in 1994, principally due to budgetary constraints at thelocal level to which the financial responsibility for social assistance was transferred in 1993. Finally,it should be noted that family allowances for children up to 18 years (or longer in the case ofstudents) continue to be paid to social insurance contributors and clients of unemployment and socialassistance offices.

1.6 Taken together, the three main social protection programs discussed above - socialinsurance (including pensions and short-term insurance for illness/maternity), unemployment(including cash benefits and active labor redeployment programs) and social assistance (covering cashbenefits, in-kind services and family allowances) -- are enormous in coverage, providing about 80percent of Bulgarian households with some form of income transfer. Currently, total social protectionexpenditures account for about 15 percent of GDP or about 30 percent of total public expenditures,with pensions and short-term insurance benefits alone accounting for slightly over 12 percent of GDP.Other programs are relatively much smaller, with social assistance (including family allowances whichform the larger portion) accounting for about 2 percent of GDP and unemployment benefitsaccounting for the remainder. Financing for the social assistance programs is derived entirely fromgeneral state and municipal budgetary resources, for the unemployment programs solely fromearmarked 5 percent payroll contributions by employers, and for social insurance programs through acombination of payroll taxes on employers (averaging about 40% per worker) and budgetaryfinancing to cover what have been ever-increasing deficits over the past four years. In 1994,budgetary support for the shortfall in social insurance revenues from earmarked payroll taxes wasaround 1.5 percent of GDP.

1.7 This extensive social protection system, as currently structured, has seriousimplications for sustainable and equitable growth. In the first instance, projections made using aneconomic and demographic model indicate that, in the absence of any restructuring, support from thegeneral budget for social protection expenditures would have to grow from its 1994 level of 3.5-4.0percent of GDP (social assistance plus social insurance deficits) to an estimated 5-6 percent of GDP inthe medium-term, even if Governmnent withstands pressures to raise the real value of benefits. This, inturn, could contribute to unsustainable fiscal deficits and/or crowding out of needed investments ininfrastructure and human capital, with detrimental consequences for growth. Secondly, in Bulgaria,as elsewhere, cash transfer programs and the high payroll taxes imposed to finance them havecontributed to disincentives for both work and job creation in the formal sector, contributing to rapidinformalization of the economy (with consequences extending well beyond the social protectionsystem itself). Bulgaria's low mandatory retirement ages have exacerbated the problem, as workersforced to retire at still-productive ages offer their services in the informal economy. Finally, there issome indication that, extensive as they are, the social protection programs may no longer be fulfillingadequately the basic function of poverty reduction, due to poor targeting and constrained budgets.

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C. The Social Insurance Program - Background. Recent Trends and Key Issues

Background

1.8 General Features. First instituted over 45 years ago, Bulgaria's pay-as-you-go(PAYG) social insurance program is now well-entrenched as an integral feature of the population'sstrategies for coping with adversity. Primarily functioning as an insurance program, the SocialSecurity Fund (SSF), financed mainly through payroll taxes, provides pensions for the aged, disabledand survivors and short-term benefits for workers temporarily unable to work due to ill health ormaternity and child-care obligations.Y In addition, the social insurance program also performs somepoverty relief or so-called "social assistance" functions, including payment of child allowances tocontributors and payment of social pensions to elderly citizens whose work histories would nototherwise entitle them to earned pensions. While in theory, these latter payments are intended to befinanced entirely from general revenues via state budget contributions to the SSF, the current practiceof not clearly itemizing budgetary allocations according to their purpose (i.e., social assistance,payroll tax contributions for state employees, deficit financing, etc.) makes it difficult to determinethe degree to which they are so covered. In fact, due to the continued integration of the SSF withgeneral revenue accounts, it is virtually impossible to establish the level of SSF revenues or, indeed,the actual level of state budget subsidy to the SSF, with complete precision.

1.9 Organization and Management. Until early 1996, overall responsibility formanagement of the social insurance program rested with the Ministry of Labor and Social Affairs(MOLSA) - and within MOLSA, with the central General Directorate of Social Insurance (GDSI)and 28 regional social insurance offices. As such, the MOLSA was charged with: (i) settingoperational policies/guidelines for the program within the framework of the 1950 Pension Law (andother relevant legislation); (ii) formulating/initiating needed legislative changes; (iii) monitoring andcontrolling the collection of payroll tax contributions from employers and the payment to them ofshort-term benefits; (iv) auditing of employer records; (v) receiving and reviewing work and salaryhistories of workers on the threshold of retirement and determining their eligibility for, and level of,pension upon retirement; (vi) ensuring regular payment of pensions in cooperation with the postalservice and selected banks; (vii) handling complaints received from program contributors andbeneficiaries; and (viii) maintaining program statistics for reporting and policy development purposes.

1.10 Government has shifted the responsibility for management of the social insuranceprogram from the MOLSA to a newly-created autonomous institution -- the National Social SecurityInstitute (NSSI) - the legislative basis for the formation of which, and for separation of the SSF fromthe state budget, was put in place in November 1995. While intended eventually to manage all ofBulgaria's social insurance programs (including unemployment, workers' compensation and healthinsurance, if introduced), the NSSI, in the first instance, is assuming responsibility for the existing

1 Because unemployment did not exist in the pre-transition period, unemployment insurance was not part of thesocial insurance program. Although unemployment insurance does now exist, the program remains small and ismanaged separately from pensions and short-term benefits. Health insurance, a key element of social insurancesystems in many European countries, has not yet been introduced in Bulgaria, where health expenditures continueto be financed directly from general revenues.

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social insurance program and the SSF. To ensure a smooth transition, the core of NSSI has beenformed by the transfer of the GDSI and regional social insurance offices (including all staff and otherresources) from MOLSA to NSSI. This transfer of staff and resources took place during the firstquarter of 1996, once NSSI became formally operational -- i.e., following approval by Parliament ofNSSI's Governor and tripartite Supervisory Board (representing Government, employers and labor).A more detailed description of NSSI, including a draft organogram, is given in Annex 1. Therationale for, and expected benefits from, the establishment of NSSI are discussed in connection withthe Government's overall reform strategy in para. 1.23 below.

1.11 Administrative Processes. The administrative procedures employed in themanagement of the social insurance program have been inherited from the communist period and,thus far, little has been done to modify them to accord with market economic conditions. At present,NSSI maintains no records on employed workers, their salary/wage histories or contribution levels.Rather, employers are obliged to record on a regular basis work, salary and contributions informationin the workbooks of individual employees, only certifying the information (including the wage levelsto be used for pension calculations) and forwarding it to the relevant regional social insurance officewhen the worker is on the threshold of retirement. Thereupon, the regional office verifies theinformation given in the worker's paper records to the extent feasible and forwards it to the centralNSSI office (formerly GDS1) in Sofia where a pension calculation is made and relevant data from thenew pensioner's records are added to a central computerized data base containing similar records forexisting pensioners. On a monthly basis, payment lists are generated from the central data basecontaining information on pensioners and the amounts of their pensions. In turn, these lists areforwarded, through the regional offices, to the relevant post offices and banks where pensioners areable to collect their pensions in person-', in cash, upon presentation of appropriate identification. Onetransition-related innovation in these otherwise unmodified administrative procedures concerns a 1992decision to maintain records on a new category of contributors, self-employed entrepreneurs, withinthe NSSI/GDSI central data base. However, the procedures currently in place for monthly verificationof earnings and related contributions for self-employed entrepreneurs are extremely time-consumingand onerous, and constitute a serious disincentive for registering with the system.

1.12 As with maintenance/reporting of pension records, the existing system also placesheavy reliance on employers' honesty in the collection of payroll tax contributions and the payment ofshort-term benefits and child allowances. At present, employers simply calculate their own payrolltax obligations to the SSF, deduct the short-term benefits and child allowance amounts that they deemto be payable to their employees from the SSF, and deposit the remainder to the appropriateMOF/SSF accounts in designated banks. Employers are not required to furnish the bank or the socialinsurance offices with the details of their calculations, nor, in most cases, do banks provide therelevant regional social insurance office with prompt statements concerning the source and amount ofdeposits received. Although employers are subject to audit, and the social insurance system maintainsan audit service, audits are conducted almost exclusively on a scheduled basis, in theory at least, forall employers, with no effort to target. In fact, the frequency of even these scheduled audits isprobably falling, given the large (and growing) number of employers and a limited number ofauditors. While this collection/benefit payment system has the virtue of being relatively simple andunbureaucratic, its inability to monitor and control compliance with tax obligations and benefits

' Special arrangements for pension pick-up are available for invalids and the disabled.

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deductions effectively invites evasion by a growing private sector in pursuit of profit maximization(see para. 1.19 below).

Recent Trends and Key Issues

1.13 Declining Ratio of Contributors to Pensioners. As already alluded to in thepreceding sections, Bulgaria's social insurance program has been under considerable financial stress inthe transition period. In part, this is a direct consequence of the country's aging demographic profile- over 21 percent of the population is aged 60 years or older -- implying that a relatively smallnumber of workers must support a large population of retirees even under a full employmenteconomic scenario. In fact, continued high rates of unemployment, increasing informalization of theeconomy and the failure to adapt social insurance policies and administrative procedures toencourage/enforce compliance in a market economy have severely aggravated the problem since 1990.The number of contributors to the SSF has been declining steadily throughout the transition, with thenumber of contributors in 1995 amounting to only 69 percent of the 1989 figure. This decline,together with the increase in the number of pensioners in the 1991-92 period (see para. 1.15), hasmeant that the number of contributors to pensioners fell from an already low ratio of 1.89 in 1989 toabout 1.16 in 1995.

1.14 Rising Payroll Tax Rates. To compensate for the drop in contributors, successivetransition governments have sought to bolster the viability of the fund by increasing payrollcontributions for remaining participants. As against a flat payroll tax rate of 28 percent in 1990,payroll taxes on employers for social insurance are currently 37 percent for employees entitled tonormal retirement, 47 percent for those entitled to retire three years early and 52 percent on averagefor those entitled to retire from 5-8 years earlyY While these increases helped ameliorate some ofthe SSF's short-term cash flow problems, there is some risk that they could exacerbate the longer-term problem of a shrinking revenue base by raising disincentives for private employers and causingmore arrears problems on the part of many SOEs.

1.15 Low Retirement Ages. While reduced compliance has placed the SSF under financialstress through its impact on revenues, Bulgaria's low (and mandatory) normal retirement ages (55 and60 years for women and men respectively), policies allowing laid off workers to opt for earlyretirement in the early 1990's (para. 1.5), and a dramatic expansion of the numbers of occupationsincluded in existing early retirement categories have placed added pressure on expenditures during thetransition. At present, as a result of successive governments' unwillingness to withstand politicalpressures from occupational interest groups, nearly 30 percent of all Bulgarian workers are eligiblefor early retirement. While, in theory, early retirement options are reserved for especially arduous ordangerous occupations (e.g., miners, nuclear plant workers), in practice, a number of occupationalgroups such as teachers and some drivers have sought and received early retirement privileges.

1.16 Low Value of Benefits. As previously discussed, the principal means adopted bysuccessive Bulgarian governments to manage pressures on expenditure has been through allowing thereal value of pension benefits to erode sharply (by nearly 55% on average between 1990 and 1995)and at a faster rate than average wages over the past five years. Ad hoc indexing, usually with a

4' For an explanation of these early retirement categories, see para. 1.15.

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fixed sum allocated for across-the board inflation adjustments, has also meant that the distribution ofpensions has become severely compressed, so that long-service, high wage workers are not receivingpensions which are commensurate with their contributions. This, in turn, has important disincentiveeffects on voluntary payroll tax compliance, further exacerbating the SSF's fiscal difficulties.

1.17 Benefit Formula Inadequacies. Inadequate coordination of policy changes made inthe 1990-94 period and failure to adapt appropriately the rules governing benefit accrual to marketeconomic conditions are also causing major problems. This is especially true of efforts to increaseprivate sector compliance by allowing employers to base their contributions on the minimum wage forworkers employed on civil contracts (as opposed to regular labor contracts), even if actual earningsare higher. While this measure might indeed have brought more private employers into the SSFcollections net, the short-run impact on revenues has almost certainly been outweighed by the addedburden on future expenditures, under the (unchanged) benefit formula, which is subject tomanipulation. Under the official benefit formula, pensions are tied to the best three years of earningsout of the past 15. Consequently, the system provides an incentive for civil contract workers to makeminimum contributions until they are within three years of retirement -- at which time they cansimply make higher contributions to ensure that their pensions are higher. Similarly, given arelatively short full contribution period of 25 years for men and 20 years for women (including timetaken for maternity and child care) and no added benefits for contributions beyond an additional sixyears over and above the full contribution period, there are no incentives in a market economy toaccrue credited service for more than 31 years for men and 26 years for women. To the extent that,based on current (very favorable) retirement ages, men who start working at age 18 have 42 years onthe job and women have 37 years (assuming maternity/child care leave is accredited), rationalworkers will want to spend at least 11 years in the informal sector. Under this system, those whoplay by the rules are penalized and those who do not are rewarded.

1.18 Crisis of Public Confidence. The recent trends and problems encountered in thePAYG social insurance program (paras. 1. 13-1.17) have led to a crisis of public confidence in theprogram -- initiating a vicious circle whereby people's perception of the program's weaknesses makesthem less willing to contribute to the SSF, which, in turn, weakens the program further, necessitatingundesirable actions such as further increases to payroll tax rates and/or additional erosion of the realvalue of benefits in a non-transparent manner. Chief among the factors which appear to be causingreduced confidence in the program as a reliable source of old-age income support are: (i) theperception that pensions bear little relationship to contributions made over a lifetime of work (due tocompression); (ii) the widespread belief that the reductions in benefits are not justified by financialexigencies but may be related to diversion of SSF collections to other public uses, including socialassistance -- a belief fueled by the well-publicized rates hikes in contributions, the dramatic decline inthe real value of pension benefits in the transition period and the incomplete separation of SSF andgeneral budget accounts; (iii) the view that evasion or fraud on the part of contributors/beneficiaries israrely punished and can lead to greater personal benefits in the immediate- and, perhaps, longer-termthan can compliance with program rules; and (iv) inadequate consultation between Government andrepresentatives of labor, employers, pensioners' representatives, media and other public-opinionmakers on the day-to-day operations of the social insurance program and its financial status. In thiscontext, it is clear that any effort to reform Bulgaria's social insurance program must overcomecurrent perceptions of unfairness and lack of transparency in order to be tenable.

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1.19 Weaknesses in Administration. As suggested in paras. 1. 11-1.12, currentadministrative procedures are ill-suited to a market economy, relying unduly on the honesty ofemployers for much of the record-keeping on social insurance contributors, accurate payment ofcontributions and calculation/deduction of short-term benefits and child allowances. This system wasgenerally workable in the pre-transition period when the numbers of employers (all state-owned) wererelatively smaller, their incentive to defraud the system was minimal, and employees tended to spendtheir entire work-lives in the service of a single employer. However, it is breaking down rapidly intoday's changing econnriy characterized increasingly by profit incentives, the emergence of largernumbers of smaller, privately-owned firms and greater labor mobility and unemployment. Indeed,the absence, within the social insurance program, of systematic records -- in retrievable andanalyzable form -- on the contributions/claims of all participants in the system (employers,contributors and beneficiaries) exacerbates many of the problems cited in paras. 1.13-1.18 aboveand/or poses a major obstacle to their solution. Some illustrative examples follow:

* Collections and related audit efforts are significantly weakened by the lack of computerizedmonthly data on salaries, contributions and claims per employee which would enable theroutine conduct of statistical checks to identify instances of likely tax evasion/benefit abuse,development of profiles of likely evaders, and appropriate targeting of scarce audit resources.This, in turn, means that employers can (and do) manipulate the system to reap monetaryadvantages with little fear of being identified or penalized. The downward trend incontributions collections (even after accounting for high unemployment) accompanied bysubstantial increases in claims for short-term benefits are probably mostly attributable to thelack of control existing in the social insurance program and the changed incentives foremployers in a market economy.

- Efforts to widen the collections net through cross-checks with tax, municipal and judicialsystem records are hindered substantially by the non-availability of easily retrievable, up-to-date records within the social insurance administration. Conversion of employer andemployee records now available only in paper form in workbooks maintained by thousands ofemployers to a single computerized data base would substantially facilitate coordination withother systems, especially if common identification numbers are used. A cooperativeframework agreement now being negotiated between the Ministry of Finance and the MOLSAwould allow for the use of common, unique identifiers (Ministry of Regional DevelopmentEGN numbers for individuals and tax ID numbers for enterprises) and ease of coordinationbetween social insurance and tax authorities, provided both systems are computerized.

* Improved services to clients (both contributors and pensioners) of the social insurance system-- which could go a long way towards increasing public confidence in its programs - are notfeasible in the current administrative environment of scattered paper records but would begreatly facilitated by the establishment of a central automated data base. For example,collection of salary histories and other documentation, verification of records by regional andthen central social insurance offices, calculation of pensions and manual notification of postoffices/banks and pensioners concerning payment collection represent a considerable burdenon prospective pensioners and their employers and frequently contribute to delays in pensionreceipt, imposing financial hardship on the pensioner. Moreover, there can be little doubtthat the current obligations of employers with regard to the maintenance/compilation of work,salary and social insurance records are unduly burdensome (and getting more so as labor

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mobility increases), constituting a considerable hidden tax when complied with. In relation tocontributors, the lack of records within the social insurance system implies that contributorscannot be regularly informed of their contributions/benefit status, leaving them uncertain ofthe benefits they will receive upon retirement -- and consequently less willing to contribute (orensure that their employers contribute on their behalf) to the system.

Proposals to close existing loopholes in the benefit formula by linking pension benefits tocontributions made over a worker's full career are not tenable under existing record-keepingprocedures, although highly desirable from a policy reform standpoint. Establishment of acentral data base containing earnings and contributions histories for every covered workerwould make possible the implementation of this crucial change to the benefit formula withpositive consequences for efforts to reduce expenditures and increase system fairness.

* Finally, the absence of records on contributors within the social insurance system makesaccurate projection of SSF revenues and expenditures extremely difficult. This, in turn,inhibits ongoing program evaluation, actuarial modeling and policy formulation - all crucialfunctions as the market economy develops. Clearly, an up-to-date, central social insuranceinformation system would enable better forecasting, making realistic policy analysis a feasibleoption.

D. Government Policies and Reform Proposal

1.20 The present government, given its majority in Parliament -- and hence the prospect ofrelative longevity in office -- has embarked on a wide-ranging, phased reform of the social insurancesystem, aimed at addressing the issues described above. The overarching objectives of the reform aretwo-fold: (i) restoring the fiscal viability of the public PAYG system and adapting it to the needs ofthe emerging market economy; and (ii) developing a workable and secure partnership with the privatesector in providing for old-age income security in the medium- to longer-term. The intended finaloutcome of the reform is a financially sound, multi-pillar social insurance system, comprising: areformed, publicly-managed PAYG social insurance program providing basic coverage for about 40percent income replacement linked strictly to (and reflecting) actual contributions; a limited number ofmandatory, but privately managed, occupational or professional funds covering inter alia someexisting early retirement categories; and voluntary, supplementary insurance provided through privateinsurance companies and incentives for establishment of individual retirement accounts in banks.Achievement of reform objectives is to be accomplished through a mix of complementary policy andinstitutional reform measures incorporated in a two-phase reform process, which Government hasdesigned taking into account considerations of political acceptability and implementability. Thespecific objectives and the modalities for implementation of each reform phase are described in thefollowing paragraphs.

First-Phase Reforms

1.21 The primary goal of the first reform phase, on which the Govermment is currentlyembarked, is to achieve short- to medium-term fiscal balance in the SSF through concerted action onthe revenue side. An additional goal is to put in place the insitutional and administrative basis for

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more far-reaching changes in the second reform phase which will be aimed at scaling backexpenditures (and overall size) of the public PAYG system and establishing supplementary pillars asappropriate to market economic conditions. These goals, in turn, are to be achieved by three sets ofinterconnected policy and programmatic measures to: (i) introduce the notion of individual or personalresponsibility for social insurance, initially though introduction of a personal contribution to the SSF;(ii) encourage voluntary compliance with payroll tax requirements, principally through restoringpublic confidence in the system, raising incentives to comply by adjustments to the benefits formulaand leveling the playing field through closing of obvious loopholes; and (iii) improve financialmonitoring and tax enforcement through improved tracking of contributions/payments, modernizationof audit procedures and revamping of the penalty structures for delayed payments/evasion.

1.22 On a policy level, the first-phase reform measure likely to have the most direct impacton raising SSF revenues (at least in the short-run) is legislative action to introduce a personal payrolltax contribution to the SSF. This tax was approved by Parliament for collection as of March 1996 ata rate of 2 percent of gross wages. Although aware of the potential long-run drawbacks inherent in afurther tax increase (see para. 1. 14), Government has argued that these are offset by (i) the immediateboost to SSF revenues and the consequent impact on budgetary support requirements in a period ofsevere pressure to contain the fiscal deficit; (ii) the introduction of the notion of personalresponsibility (however nominal) for old-age income support in that this tax increase has been levieddirectly on individuals as opposed to their employers as in the past; and (iii) the opportunity that thispersonal tax affords for improved tracking/monitoring of employers' contributions via routine cross-checks of individuals' payments against the contributions made on their behalf by their employers.

1.23 With regard to encouraging voluntary compliance with SSF obligations, a keyelement of Government's effort is to bolster public confidence in program management through thecreation of the separate, autonomous NSSI (para. 1.10) -- with authority to manage independently thesocial insurance program and SSF under the overall supervision of Parliament and a tri-partiteSupervisory Board comprising representatives of Government (including the MOLSA and Ministry ofFinance - MOF), trade unions, employers' associations and beneficiary representatives. Theinvolvement of non-governmental partners in program supervision is intended to help restore publicconfidence in the social insurance system by substantially increasing overall transparency and creatinga mechanism for wider consultation on program issues. Establishment of NSSI and the subsequentseparation of the SSF from the budget can also reasonably be expected to lead to greater fiscaltransparency than has as yet been possible -- especially in light of the fact that interest earned oncontributions would now be directly credited to the SSF and transfers to the SSF from the statebudget would be clearly itemized so that allocations to cover state obligations such as social assistancepayments and state employee contributions would be identified separately from any transfers to coverSSF deficits. Within NSSI, the planned separation of the SSF into two separate funds covering long-term and shon-term insurance respectively will further enhance fiscal transparency and programmonitoring. Finally, the legislation creating NSSI includes provision for partial capitalization of theSSF through the transfer to NSSI of assets of former totalitarian organizations and 20 percent of theproceeds from privatization initiatives. This asset transfer can also be expected to help signal thepopulation that pension promises will be met. These assets are expected to be invested in governmentbonds, at least initially.

1.24 Apart from encouraging public confidence and, hence, voluntary compliance, throughimproved fiscal transparency, increased stakeholder involvement and partial capitalization of the SSF,

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the Government's first reform phase includes additional measures aimed at directly strengtheningincentives for voluntary compliance. On a legislative level, two critical measures are included whichare aimed at closing loopholes that to date have allowed employers/employees to abuse the systemwith impunity. First, payroll tax obligations with respect to civil contracts have been raised to thesame level as obligations with respect to labor contracts (see para. 1.17) both to enhance SSFrevenues and to provide a level playing field across individual workers and enterprises; and second,an amendment to the existing pension law was enacted in early 1996 to lengthen the base period usedto calculate pension benefits, gradually to extend to an individual's entire contribution period. Underthe latter legislation, pension benefits will no longer be calculated on the basis of wages/contributionsin the best 36 months of a worker's career, but rather, on the best 36 months prior to 1997 plus eachmonth of work/contribution from January 1997 onwards5'. These measures can be expected to reducethe currently common practice of declaring low wages and thus contributions (at least in officialdocuments) until a worker is within three years of retirement, with wages/contributions and hence,eventual pension benefits, raised for the last 36 months of the worker's career. In parallel with, andsupportive of the intent of these legislative changes, steps are being taken to decompress benefit levelsby recalculating pension entitlements to better reflect actual earnings and SSF contributions. Whilethis latter effort will result in slightly higher pension awards for about 60 percent of pensioners,pension levels for remaining participants are expected to stay the same or be marginally reduced. Onbalance, the pension realignment effort was projected to result in some real increase in expenditure(6% of tctal spending) in the short-rung', though on average, pensions would still remain around 45percent below their 1990 values after implementation of the adjustment.

1.25 Concomitantly with the preceding actions to encourage directly compliance, first phasereforms include a number of actions to better monitor and enforce compliance with SSF taxobligations (which in turn also create an incentive for complying voluntarily). Central to this effort isa complete overhaul of program administration (including redesign of staff functions at central andregional NSSI offices) aimed at addressing the issues described in para. 1.19 above. The redesignedadministrative system -- the establishment of which would be supported through the project proposedin this report -- would entail the use of information and telecommunications technology to shift theresponsibility for recording and tracking SSF contributors and contributions to NSSI and away fromemployers. This shift would not only reduce the current (inappropriate) administrative burden onemployers, but would also enable NSSI to better assess and monitor the flow of funds into and out ofthe SSF, cooperate with other agencies (including the MOF tax administration and municipalauthorities) in identifying and incorporating into the system the growing numbers of private employersand the self-employed, and implement modern audit strategies based on targeted rather than scheduledaudits. To enhance the likely impact of administrative improvements, a cooperative frameworkagreement is being developed between the social insurance program and the tax authorities to usecommon (unique) identification numbers for individuals/firms and share information in efforts to

5' Effective implementation of this latter provision, however, is closely linked to reform of administrative processes(para. 1. 19).

' In fact, it is unclear whether any real increase will occur as a result of this adjustment. Nominal Levaamounts appropriated to pay for the adjustment assumed an inflation rate of 20% in 1996. Inflation is nowexpected to higher, implying that an additional appropriation will be necessary if any real increases are to begranted. Thus far, Government has not sought parliamentary approval for further appropriations.

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detect/audit evaders. In addition, legislation will be developed to stiffen the consequences for SSFcontributions evasion. Regulations would also be implemented to bar banks from making short-termloans to enterprises to meet payroll unless the enterprise is up-to-date with its SSF contributions or isin the process of working out arrangements to clear up arrears.

1.26 A final element of first phase reform activities involves actions aimed at facilitatingchanges to the benefit formula and program architecture (towards a multi-pillar approach) intended tobe implemented in the second reform phase. One key step which Government has taken in thisregard involves raising the mandatory retirement age by three years for both men and women, therebyenabling workers to stay on the job voluntarily for a period of three years beyond the current normalretirement (and pensionable) age. During such a voluntary extension, workers would defer collectingaccrued pensions and employers would continue to make payroll tax contributions on their behalf,with obvious implications for SSF finances. A recent labor union poll found high support for thisvoluntary retirement age increase among older workers, many of whom are likely to take the deferredretirement/deferred pension option in the present environment where pensions are considerably belowwages. Public acceptance of this voluntary deferment of pensionable age is expected to make it easierto implement a mandatory increase in both the pensionable and retirement ages under the secondphase of reform. Similarly, legislative action has already been taken in the first reform phase toestablish a multi-employer funded occupational insurance scheme for one major category of workerscurrently eligible for early retirement. Legislation concerning the establishment of such a scheme forteachers was approved in early 1996 and implementation is expected to begin in January 1997.Experience with the teachers' scheme -- both political and technical -- is expected to facilitate theintroduction of similar schemes for other workers' groups entitled to early retirement under currentregulations.

Second-Phase Reforms

1.27 The second reform phase, to be implemented in the latter half of 1996 and during1997, would be aimed at: (i) operationalizing the three-pillar social insurance system by putting inplace the regulatory framework (including tax incentives) for the privately-managed mandatory andvoluntary supplemental insurance schemes (para. 1.20); and (ii) revision of benefit eligibility criteriaand the formula for calculation of benefit levels to directly reduce PAYG social insurance programexpenditures. Details of the second phase reforms are still being refined and are expected to bepresented for parliamentary discussion/approval in the latter part of 1996. However, the basicdirections have largely been set and are expected to incorporate the following: (i) making retirementconditions made stricter by raising the average retirement age; (ii) lengthening of work requirementsto gain eligibility for a full pension to better reflect individuals' actual work-lives; (iii) removing theminimum pension requirement but retaining a maximum benefit level; (iv) reduction of accrual rates;(v) removal of most early retirement categories from the publicly-managed PAYG system, to bereplaced by multi-employer funded occupational schemes, eventually to be operated on a definedcontribution basis; (vi) development of the regulatory framework and incentive schemes for theestablishment of supplementary voluntary funded pension schemes; and (vii) requirement of employersto cover costs of sick leave for four days per sickness episode, up to a maximum of 14 days annually,before receiving benefits from the social insurance fund.

1.28 Clearly, policy reforms included in the second phase would have a strong impact onthe PAYG program's expenditures. The reforms are likely to lead to sufficient SSF surpluses which,

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when combined with privatization revenues (see para. 1.23), would enable the partial capitalization ofthe fund (Government intends to build up a three-month reserve) and still bring about gradualreductions in payroll taxes and/or increases in benefit generosity. The most direct effect onexpenditures would derive from raising of normal retirement ages and the transfer of early retirementcategories from the PAYG system to privately-managed funded schemes, similar to that beingestablished for teachers in the first phase. The transfer of the early retirement categories would beaccompanied by reductions in the payroll tax obligations to the SSF of their employers, thus loweringaverage payroll tax levies and reducing the overall size of the PAYG program. The system's fiscalintegrity would be further strengthened by the proposed changes in the benefit formula given the strictlinks to be established between pensions and contributory years/lifetime earnings. Since workerscould no longer "game" the system to receive higher benefits, they would be more likely to ensurethat lifetime contributions would be made in their behalf. While the credibility of the fund willprimarily be established in the first phase of the reform, the process will be strengthened in thesecond phase. For example, the strong linkage between contributions and benefits would strengthenthe perception that funds could not be diverted towards other uses. In addition, the proposed reformsto the system of short-term benefits will help ensure greater vigilance on the part of employers toprevent abuse.

Expected Impact

1.29 Evaluation of the financial impact of the social insurance reform program by means ofa Bulgaria-specific actuarial model (constructed with support from the Japanese Grant provided forproject preparation) indicates that, if implemented as currently conceived, the reform would besuccessful in achieving its stated objectives as described in para. 1.20. Simulations from the actuarialmodel indicate that first-phase policy measures alone -- i.e., introduction of the 2 percent individualtax and lifting of the mandatory retirement age by three years (paras. 1.22 and 1.26 respectively) --would eliminate the need for budgetary financing of the SSF, if compliance remains at present levels.Improvements in compliance as a result of modernization of program administration and improvedpublic confidence in the PAYG system would compound this favorable impact, allowing NSSI tobuild up a three-month reserve to insure against short-term fiscal distress and still leave somesurpluses in the SSF -- beginning to create room for reductions in payroll tax in the future.Implementation of second-phase reforms would substantially reduce SSF expenditures, furtherincreasing fund surpluses. In fact, raising of the normal retirement age alone (by three years for bothmen and women, phased in over 6 years) would imply that the PAYG system payroll tax couldconservatively be reduced by 9 percent over the projection period (1996-2019), while continuing tomaintain a fund ratio equal to 25 percent of expenditures as a cushion against fiscal uncertainty. Thefinancial impact of the other second-phase policy reforms has not yet been simulated, but it can beexpected to further strengthen this favorable impact on fund balances, in turn allowing furtherreductions in employer payroll tax rates. These reductions in the payroll tax, if implemented byGovernment, would not only reduce labor costs with positive implications for employment but alsocreate a more favorable environment for the growth of privately-managed funded pension schemeswith their attendant implications for savings and, hence, long-term economic growth. Further detailsconcerning the actuarial simulations and their results are given in Annex 2.

1.30 In conclusion, however, it should be noted that although Government's current reformproposals can provide the foundation for a mixed system of social insurance which is consistent withlong-term economic growth and the development of a market economy, as discussed above, there

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remain important gaps in the definition of the second-phase reform actions and objectives which couldreduce the reform's positive impact. Most noteworthy in this regard is the absence to date of aformal commitment to a specific target for benefits in terms of a maximum wage replacement rate(e.g., 40% of wages), implying that continuous increases in benefit generosity could absorb projectedSSF surpluses, reducing or eliminating the opportunities for reductions in payroll tax rates. This, inturn, would negate some of the potential benefits of the reform for the economy as a whole, bymaintaining high labor costs and slowing down the development of funded schemes. At this stage,there is every indication that Government is considering these issues carefully (with appropriatetechnical support from external donors, including the Bank), increasing the likelihood of favorabledecisions with regard to benefits and tax levels. Moreover, there can be little doubt that the reformsalready included in the first phase will contribute significantly to maintenance of fiscal stability byeliminating pressures for budgetary subsidies for pension expenditures.

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II. THE PROJECT

A. Project Objectives

2.1 The overall goal of the proposed project is to support and sustain the Government'ssocial insurance reform program as described in the preceding Chapter and outlined in its Letter ofSectoral Development Policy (LSDP)(Annex 3). During negotiations, assurances were provided thatthe Government will iinplement the strategy contained in its ISDP. Specifically, the project aims tosupport Government's current reform goals of eliminating the budgetary subsidy for social insurancethrough the achievement of fiscal balance in the SSF and laying the groundwork for future reformsaimed at more fundamental restructuring of Bulgaria's system for guaranteeing old age incomesecurity. Therefore, the project will:

(a) strengthen efforts to increase NSSI's overall operational efficiency in today'semerging market economy, with a focus on reversing the trend towards reduced taxcompliance which is undermining the financial stability of the public PAYG socialinsurance program; and

(b) strengthen the institutional capacity of the newly-created NSSI to perform key policyformulation and evaluation functions and better manage available resources.

2.2 Linked to the above objectives, the project has two main components: IncreasingCompliance and Operational Efficiency and Strengthening Institutional Capacity, and will beimplemented over a period of four years. A detailed description of these components is given belowin Section B, followed in Section C by the economic justification for the project. The ProjectImplementation Plan (PIP) is given in Annex 5 and summarized in Chapter 3 of the main text of thisreport.

B. Project Description

Component 1: Increasing Compliance and Operational Efficiency (US$25.8 million base cost)

2.3 Overview. Aimed at supporting the achievement of fiscal balance in the SSF throughimproved compliance, this component of the project will restructure substantially NSSI's operationswith a view to: (i) the development and implementation of modern payroll tax collection and auditstrategies; (ii) improved services to program clients, both contributors and beneficiaries; and (iii)improved revenue/expenditure monitoring and projection capability. A fundamental tool in theachievement of progress in each of these areas will be the establishment/maintenance within NSSI of acentralized data base or register containing information (in readily retrievable form) on employers,self-employed, employees and pensioners concerning key biographical information, wagespaid/earned, contributions paid and benefits received. The central register will be developed within aflexible software environment with capability for addition of specialized software applications tosupport operational improvements. In addition to the design/implementation of the central register

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with its attendant hardware, software and technical expertise requirements, achievement of the threeidentified programmatic priorities will involve substantial foreign and local consultant services andtraining/retraining of about two/thirds of NSSI's 2,500 personnel to restructure and streamlinebusiness processes at NSSI's headquarters in Sofia and at its 28 regional offices (see Map, IBRDNo. 26532, for office locations). Details concerning project activities in relation to the threeprogrammatic objectives listed above are given below.

2.4 Social Insurance Information System (SIIS). As suggested in the precedingparagraph, the transfer of information from scattered paper records (now maintained by thousands ofemployers and in employee workbooks -- see paras. 1.12 and 1.19) into a single, computerized data-base within NSSI is a basic building block for launching the efficiency improvements in taxcollection, client services and financial monitoring discussed above. Therefore, the project willsupport development of an integrated SIIS, the first step in the creation of which would be theestablishment of a central re2ister containing pertinent information on all social insurance systemclients, using unique identifying numbers for each individual or firm. To avoid unnecessaryduplication and facilitate future cooperation with other agencies, the ID numbers used for socialinsurance purposes will be the EGN (internal ID number issued at birth by the Ministry of RegionalDevelopment) for individuals and the Ministry of Finance tax number for firms. Prior to loannegotiations, Government confirmed to the Bank its decision to use EGN numbers and Tax IDnumbers as the unique identifiers for individuals and firms respectively.

2.5 In line with recent legislation enacted by parliament to extend the base for pensions(para. 1.24), initial start-up of the central register will involve the collection from employers/self-employed of wage and contribution information for each worker for up to 36 months in the periodprior to January 1997 and for each month thereafter. Development of reporting procedures(electronic, for larger firms and handwritten for very small ones), design of software applications, andtraining and limited purchase of computer hardware for this substantial initial data collection/entryeffort are already underway with assistance from the Technical Assistance Loan (No. 3384-BU).Based on this advice, Government confirmed at negotiations that, prior to loan effectiveness,regulations will be issued to employers/self-employed to provide NSSI with relevant biographicalanid historical and monthly wage and contributions data per employed person (using the EGN andTax ID numbers as identifiers) in a form suitable for central register development. Inputs underthis project will, therefore, focus on the national implementation of the initial data collection effortand the design/implementation of ongoing reporting requirements to ensure that the register remainscurrent. Although the detailed design of the operation and management of the central register (andrelated functional responsibilities at regional and central level) will be developed followingrecruitment of specialized expertise under the project, it is expected that data entry and updates willoccur at the regional level for the relevant geographic area, with data forwarded to the center on aregular (e.g., daily) basis. The center, in turn, will maintain the complete register, define andmanage system administration, including setting standards for privacy and security safeguards, andhave primary responsibility for ensuring consistency and quality of information across regions. Eachregion will maintain only a subset of the central register data-base, relevant to clients in itsgeographical coverage area.

2.6 Beyond establishing the central register, SIIS development will involve the design andimplementation of a number of functional software applications (Table 2.1) which will allow for use

Table 2.1: SOCIAL INSURANCE INFORMATION SYSTEM: SOFTWARE APPLICATIONS

CONTRIBUTMON & INTEGRATEDREGISTER SHORT-TERM AUDIT PENSION CUSTOMER FINANCLAL SYSTEM

FUNCTION MANAGEMENT BENEFTiS MGT. SUPPORT MANAGEMENT SERVICE MANAGEMENT MANAGEMENT

OUTPUTS Issuance of Social Data bas: - Contribution - pension paymnents Information to - Ftnncial systers - Overall mnnagement of

Inance ID#: - Contributions evasion Pensioners data contributors: (budgeting and operational functions- Employces - Salary - Declarations base - Statement of accounting) - Perfornance evaluation- Pcnsioners - Short term benefits correctness - Statistics insurance status - Payroll - Security control- Enployers - Other statistics - Tracking audit - Statement of - Approved suppliers

- Self-employed - Seniority and other inspections contributions paidcbsrcteristics - Updated regulations - Laws and

Statistics regulations

NATIONAL LEVEL Iseue and control - Long term storage - Cross-check against - Calculate official - Issue statenents to - Generl ledger - Monitor regional [and

APPUCATION lI#s and maintenance of other data sources pension employers, - Budget and individual] perfornmance

SOFrWARE - Maintain vital data collected (e.g., Ministry of - Monitor pension employees and self- financial statemnents - Allocate resourcesinformation - Provide statistics Finance, EGN, tax data enmployed - Payroll - Manage data security

and actuarial authority) - Provide rtatistics - Suppliers and confidentialityprojections Legal and and actuarial - Banks and credit - Monitor coordination of

regulations data projections rmnagement funsctionsbase

REGIONAL LEVEL - Accept reques for - Collect - Cro-check - Process new - Simulate pension - Manage regional - Manage regional system

APPLICATION and iuue new contributions data contributions pension requests calculations using accounting systems and resoureesSOFTWARE ID Is (electronic format against payment data in system - Provide financial - Coordinate customer

- Acceu to National or paper fonmn) - Audit selection - Provide on-demand data to Central level systemInformation data - Collect, control, statements to levelbases to avoid validate and pay employers andduplication. short term benefits enployeca

disbursemcnts - Provide softwareand forms toemployers and self-employed and trainthem in their ue.

- Support phone, faxand letter hot-line

CUSTOMER LEVEL - Support employersAPPUCATION and self-employedSOFIWARE through data entry

system for filingcontribution data ondiskette in stndardformat

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of central register and other pertinent information to support operational improvements in the areasof: (i) contributions collections and short-term benefits management; (ii) audit; (iii) pensionmanagement; and (iv) customer service. Development of these applications would be closelycoordinated with, and complement, the design/implementation of strategic and operationalimprovements in NSSI business procedures (the main emphases of which are described in para. 2.9).Apart from these externally or client-oriented applications and applications for central registermaintenance, three additional software applications would be developed to improve the internalefficiency of NSSI operations -- including applications for internal NSSI financial management(budget control, payroll etc.), human resources or personnel management and SIIS administration. Itshould be noted that for cost reasons, suitable software packages for functional applications will bepurchased off-the-shelf whenever feasible, and adapted to local needs. Development of softwareapplications from scratch (generally a more costly alternative) will only be undertaken when nosuitable sceftware package is commercially available.

2.7 In terms of hardware architecture for the SIIS, the design option to be supportedthrough the project involves adoption of a uniform UNIX-based, open commodity-type system at bothcentral and regional levels, the basic specifications for which are included in the PIP (Annex 5). Theproposed UNIX system archtitecture will enable the maintenance of regional data-base subsetsnecessary for performance of routine regional functions such as data collection, compliance checksand customer service. It will also allow for the regular transfer of data from each region to thecenter, which will, as previously noted, maintain the entire central register and use specializedapplications for national program monitoring. finally, the proposed UNIX based architecture will beflexible and expandable. As such, it will be able to accommodate information for additional socialinsurance funds, such as the unemployment fund or a prospective health fund, when and if theseprograms are incorporated into NSSI as per current plans. The decision to use the UNIX-basedtechnology was predicated inter alia on: (i) the growing trend in information technology towardsopen systems based on UNIX rather than proprietary mainframes, implying in turn greater availabilityof standard software packages for UNIX and a larger number of hardware and software suppliers;(ii) the need to minimize recurrent telecommunications costs which are extremely high in Bulgariacompared to many othei Eastern European countries; and (iii) the larger number of Bulgarians withtraining ill UNIX-based versus mainframe-based systems. Apropos of telecommunications costs, itshould be noted that although the SIIS would be designed in a manner enabling a complete transfer toan on-line basis if and when telecommunications costs in Bulgaria are more comparable to costselsewhere, it is currently anticipated that on-line functions will be kept to a minimum in the short- tomedium-term so that only updates will be transferred to the center during the day with bulk transfersto be done at night when reduced rates are attainable.

2.8 For the establishment and development of the SIIS, the project will financeequipment, civil works, technical support, and staff training. Hardware and systems software forboth central and regional offices will be provided, as well as a modern voice and datacommunications system and a security and access control system. The project will provide financingfor a full-time management oversight team of technical experts (80 months). The team will becomposed of a social security management specialist and an information technology specialist (whowill also be responsible for quality assurance). In addition, technical expertise (54 months) inestablishment of the central register and design and implementation of functional software applicationswill be financed under the project. During negotiations NSSI confirmed that a full-time counterpartNSSI team of technical informatics staff of at least four professional staff with experience

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satisfactory to the Bank will be a condition of effectiveness. In addition, assurances were obtainedat loan negotiatons that the counterpart team will be maintained and fully allocated to the projectthroughout project implementation. Training of NSSI staff in the use of equipment and software willalso be provided; it is estimated that approximately 65 percent of the staff will receive training in useof the new hardware and software applications. Funds are provided for minor civil works to upgradethe NSSI Headquarters building in Sofia and the 28 regional offices to accommodate the newcomputer equipment coming in under the project. Finally, 10 vehicles - one for each of the regionaloffices and Headquarters - will be provided to support communications linkages between offices.

2.9 Reform of Key Business Processes. As indicated above, the redesign of businessprocesses related to contributions collections, financial management, audit and customer services is ofcentral importance to the achievement of improvements in compliance and will be supported under theproject through the provision of specialized expertise and subsequent staff training. Project-financedforeign and local experts will work under "twinning" arrangements with experienced NSSI staff toensure that proposed reforms are not only fully appropriate to the Bulgarian context but also arebacked up by practical procedures, guidelines, handbooks and other materials so that they can beimplemented in a predictable, monitorable and reasonably uniform manner. It should also be notedthat the redesign of business processes will be iterative with the establishment of the SIIS, given thestrong interdependence between the expected changes in business processes and the use of informationand telecommunications technologies to implement them. The key areas targeted for project supportare described below.

Payroll Tax Collection and Revenue/Expenditure Monitoring. As suggested in para. 1.19,NSSI currently has only very limited ability to identify or verify the payroll tax obligations ofemployers who, to date, self-assess obligations and pay taxes (with attendant forms) directlyto NSSI accounts in designated banks, without any accounting to NSSI. Moreover, periodicstatements provided by the banks to NSSI do not include information concerning depositedamounts by depositor, making it difficult to check accuracy of payments even when payrolltax obligations are known (e.g., in the case of some large firms). The first of these problemswill be largely ameliorated following the issuance of instructions to employers for monthlyreporting of wages/contributions in the context of central register development (para. 2.5).To rectify the second problem, prior to loan negotiations, the Government formalized anagreement with the bank handling the majority of NSSI accounts that individual depositswould be separately identified in statements provided to NSSI, with depositors identified bytheir name and tax ID number. At negotiations, assurances were provided that similaragreements would be formalized with all other banks handling NSSI accounts now or in thefuture. In the context of these regulatory changes, project support for monitoring/control ofpayroll tax collections will focus on: (i) assisting NSSI to develop and implement procedures(aided by SIIS software applications) for routine reconciliation of employer- and bank-provided information to identify problems; (ii) developing reporting mechanisms andprocedures for scrutinizing short-term benefits deducted from tax contributions to minimizemanipulation by employers; (iii) reviewing filing procedures and periodicity of filing,especially the now-burdensome requirements for self-employed entrepreneurs, with a view tosimplifying procedures and, hence, encouraging voluntary compliance; and (iv) providingpractical, hands-on training to regional and selected central office staff in the implementationof suggested improvements.

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Following substantial establishment of these procedures (including the development/implementation of supporting SIIS applications) and the improved monitoring/enforcementcapacity which they imply, Government intends to take further actions to curtail manipulationof payroll tax payments via misreporting or fraud in the area of short-term benefits. In thisregard, assurances were provided during negotiations that Government would, by December31, 1998: (i) reduce incentives for employers to claim unwarranted sick leave by makingthem responsible for benefits for the first 4 days per sickness episode, up to a maximwn of15 days per employee per year; (ii) require calculation of the average wage base for sickand maternity leave benefits over a 12-month period; and (iii) amend the labor code so thatthe payment of sick and maternity leave benefits is contingent upon payment of full payrolltax contributions on behalf of the employee. This latter provision, coupled with the recently-enacted extension of the pension base to cover every month of contributions from January1997 onwards, can be expected to increase incentives for employees to ensure that fullcontributions are made on their behalf.

Audit. Complementary to, and supportive of, efforts to improve routine tax collectionprocedures, the project will provide technical expertise, equipment (mainly lap-top computersfor auditors and related software) and intensive staff training to reorient the audit processfrom a system of scheduled audits to one of computer-assisted targeted audits, appropriate to amarket economy. Project inputs will aim at a complete overhaul of pre-audit, audit, and post-audit procedures as follows:

(i) Institution of Pre-audit Activities. Development of pre-audit strategies and procedureswill focus on the design and implementation of a system to obtain, and use fortargeting purposes, the profiles of employers (both large and small) most likely toevade social insurance contributions, fully or in part. These profiles of potential non-compliers (and potential sources of evasion) will be computer-generated viaspecialized SIIS applications, building on information available within NSSI's SIIS asa result of changes to employer and bank reporting procedures and through design andinstitution of a system of cross-checks with other agencies' information, especially thatof the Ministry of Finance's Tax Administration offices at central and lower levels.To help ensure an appropriate climate for the requisite inter-agency cooperation, priorto loan negotiations, Government finalized a cooperative framework agreementbetween the MOF and NSSI confirming both instiutions' intent to cooperate in thearea of tax enforcement.

(ii) Development of new Auditing Strategies/Procedures. Project-supported changes to theaudit phase will involve a move away from the sole use of full physical audits ofenterprises to the adoption of a broader menu of audit techniques ranging from simpletelephone or mail inquiries for clarification of minor filing errors to complex auditsinvolving collection of all relevant financial information through on-site visits tocompanies and incorporating computer-assisted personal interview procedures.Project inputs will not only help design and train auditors to implement this widerrange of audit procedures but also assist in the development of criteria for use of thedifferent audit techniques and help develop materials (including software applications)necessary to bolster audit performance. In addition, a review will be conducted of

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the laws and regulations governing disclosure of information by employers andrecommendations made for improvements as warranted.

(iii) Reorientation of Post-Audit Strategies. Project assistance in the area of post-auditactivities will be oriented mainly towards increasing their potential for encouragingvoluntary compliance and greater speed in the clearance of arrears, rather thanfocusing purely on punishment of evaders. Inter alia, a main focus of project supportwill be the review of (and implementation of necessary changes to) strategies forcollection of arrears, the workings of the appeals process and the impact of recentlegislative changes to stiffen penalties for evaders (para. 1.24). In this context,Government ensured that the conduct of a review of the penalty structure for non-compliance or arrears would be completed no later than December 31, 1999, andthat modification of the penalty structure in accordance with the findings of thereview would be legislated no later than March 30, 2000.

* ( ustomer Service. The final area of NSSI business process innovation involving intensiveproject inputs relates to improving services for social insurance clients. These serviceimprovements will be aimed at encouraging voluntary compliance through: (i) lowering coststo clients (both contributors and beneficiaries) of participating in the system; and(ii) bolstering policy and institutional measures to increase public confidence in the viability ofthe SSF through complementary service improvements. A key additional goal will be tocurtail the recent (costly) trend towards establishing multiple sub-offices linked to NSSIregional offices in an effort to better reach the growing NSSI client base.2' In this context,project support in the area of customer service will, in the first instance, focus on thedevelopment and implementation of strategies for new operating procedures to reduce the needfor face-to-face contacts between NSSI and its clients. In large measure, this will involvedevelopment of the capability of NSSI's customer service personnel to handle efficiently allroutine and a substantial proportion of complex customer enquiries by mail, fax and telephone(upgraded capabilities for telephone and facsimile machines would be provided through theproject), supported by access to computerized contributor and beneficiary records via specialapplications of the SIIS. Secondlv, the project will assist NSSI to design, and generateautomatically via the SIIS, periodic statements concerning the contribution and/or benefitstatus of each social insurance client which would be forwarded by mail on at least an annualbasis. Finally, technical advice will be provided through the project to ensure that the fullbenefits to clients of the establishment of the SIIS are realized. Inter alia, this will involvechanges to existing practices to: (i) eliminate the present burden on employers/retirees tocollect and submit wage and contributions histories at the point of retirement and develop therequisite application to generate the information directly from the SIIS; (ii) increase thetimeliness and accuracy of pension payments through the automatic generation by the SIIS ofpayment instructions to banks and post offices in place of manually-prepared lists; and (iii) asbanking conditions permit, replace the current cumbersome system of cash payments ofpensions with check or direct deposit payments issued automatically by the SIIS.

7' The growth in the client base results from the emergence of thousands of new private micro-, small-, andmedium-enterprises since the start of the transition as well as larger numbers of beneficiaries following generousearly retirement provisions in the 1991-92 period.

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2.10 To improve communications linkages with the NSSI office network, the project willfinance investments to improve electronic communications between Headquarters and the 28 regionaloffices. This will include rewiring of the NSSI buildings and installation of Private BranchExchanges (PBEs) and telephone sets. Technical assistance (16 months) will focus on developingsystem design and specifications, and oversight of the new system. In addition, a security and accesscontrol system will be introduced to improve the security of the information system. Under theproject, three months of technical assistance will be provided to develop a security policy andadministrative procedures, and necessary equipment and accessories will be provided forestablishment of a Central Security Unit and Regional Security Units.

2.11 For reform of key business processes, the project will finance eight months oftechnical expertise for collections, compliance and audit functions. The project will also providefinancing for both foreign and local technical assistance in the amount of 60 months for re-engineering of business processes and related software customization in the areas of contributions andshort-term benefits, pensions, audit, customer services, and financial management. The project willfinance requisite software packages, and related training and continuing education courses to enhancethe skills of NSSI personnel working in both headquarters and the regional offices. It is estimatedthat about 60 percent of the training of NSSI staff will be done by local consultants. Periodicseminars and/or workshops for information and exchange of experience will also be organized.

Component 2: Strengthening Institutional Capacity (US$2.8 million base cost)

2.12 Overview. The second, and smaller, component of the proposed project is designedto support the functioning of the newly-created NSSI and especially, to add institutional capacity toconduct functions that were previously less important, including policy analysis, actuarial forecasting,public information/education concerning the social insurance program and personnel management(including staff development). As the economy moves towards a more flexible labor market withincreasing private-sector employment, the social insurance system will need an expanded andmodernized capacity to analyze program performance, initiate and institute changes in policy, andpublicize program initiatives. It will also need to establish a human resource department for theInstitute to increase the effectiveness of the staff, through improvements in staff selection, incentives,and training and career development. The recent separation of NSSI from the MOLSA creates aunique opportunity to implement such changes. Consequently, this component will establish withinNSSI the capacity to carry out the following four functions more effectively: (i) actuarial analysis;(ii) program evaluation and policy development; (iii) public affairs; and (iv) human resourcedevelopment (personnel management). An organizational structure for NSSI incorporating thesefunctions was finalized prior to project negotiations. In addition, NSSI will, prior to loaneffectiveness, appoint at least three professional staff to each of the policy analysis, actuarialforecasting, human resources, and public affairs units to be supported through the project.Moreover, during negotiations, assurances were provided that the annual workplans of the firstthree units would be submitted to the Bank for review and technical comment prior to the start ofeach calendar year within the project implementation period. Project subcomponents in each ofthese areas (and their rationale) are described in paras. 2.13-2.16 below.

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2.13 Statistics and Actuarial Analysis. At the present time, the Analysis and PrognosisDepartment of the NSSI projects fund revenues and expenditures for social insurance programs oneyear into the future. With the development of a market economy, longer-run projections are neededto ensure that current and future policies support the financial viability of the social insurance system.Ongoing Bulgarian efforts to develop this capacity have included a number of preparatory activities,including model development and training, with support from the Japanese Grant for projectpreparation activities. However, the full establishment of an ongoing actuarial office has not yet beencompleted. Consequently, the project will assist the Government in establishing the capacity toconduct actuarial analysis within a flexible framework. As a result, NSSI will have access to(i) short-term and long-term projections of program revenues and expenditures under the currentsocial insurance system; (ii) short-term and long-term simulations of revenues and expenditures underdifferent economic and demographic assumptions; and (iii) short-term and long-term simulations ofrevenues and expenditures under proposals for reform. Under the project, eight months of technicalassistance, training and office equipment will be provided to establish a statistics and actuarial officeto satisfy data requirements and to provide a training program in actuarial practices and the use ofactuaries in government.

2.14 Policy Evaluation and Analysis. The NSSI will need a policy evaluation andanalysis capacity that is broader in scope than that provided through actuarial analysis to ensure thatthe social insurance system remains on a sound financial footing and provides equitable benefits torecipients consistent with program objectives. The separation of the NSSI from the MOLSAaccentuates the need for a separate policy office to evaluate current and proposed policy changes andrecommend program alternatives to policy-makers. The project will assist the NSSI to develop anongoing capacity to provide policy makers with (i) analyses of the welfare and demographic impactsof current programs and program changes; (ii) analyses of the impact of program changes within thebroader context of the economy; (iii) analyses of the legal implications of the proposed policychanges; and (iv) analyses of the capacity of the system to absorb these changes. Under the project,10 months of technical assistance, training and office equipment will be provided to establish a policyunit within NSSI and to develop a plan for the production of studies and reports. The project willalso provide two months of technical assistance to help establish data sources and develop a trainingprogram on the use of policy analysis in government-sponsored social insurance programs.

2.15 Public Affairs. Currently, public affairs activities are only performed sporadicallyand in a reactive rather than pro-active fashion. With the establishment of NSSI as an autonomousinstitute and the upcoming policy reform program, it is increasingly important that the policy reformsbe introduced in a positive environment, and that the public receive educational and informationalmaterials about the social insurance program. Thus the project will support the establishment of apublic affairs unit within the NSSI. The public affairs office will provide: (i) a source of ongoingcontact and outreach to the media; and (ii) direct information to fund contributors and beneficiaries.Under the project, four months of technical assistance will be provided for the development of theoffice's mission statement, procedures and activities. In addition, a training program will bedeveloped for the public affairs staff and NSSI managers who are the public representatives of thesocial insurance system. The project will also provide support in the form of office and a limitedamount of audio-visual equipment for the new unit as well as financing for the costs of designing andimplementing three public information campaigns related to policy innovations and changing operatingpractices of the social insurance program as they affect system clients.

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2.16 Human Resource Development. The NSSI presently has a staff of some 2,630people, including the regional offices. The newly established Human Resources office, consisting ofonly two staff, handles all personnel administration functions. Resource management capacity is non-existent - job classification and descriptions have not been developed, and there is no training andcareer development strategy. Now that the NSSI is autonomous, a modem and efficient humanresource management capacity needs to be developed. The project will support the development ofthis human resource function at NSSI. Specifically, 16 months of technical assistance andmanagement training for office personnel and office equipment will be provided for each of threeunits as follows: (i) recruitment and placement; (ii) compensations and benefits; and (iii) training andcareer development. The Recruitment and Placement Unit will be responsible for personnel planning,job classifications and descriptions, evaluation and promotion, as well as personnel administration.'T'he Compensations and Benefits Unit will be responsible for negotiations of contracts, salaries andbenefits packages, and monitoring of occupational safety compliance. The Training and CareerDevelopment Unit will be responsible for preparation and management of the staff training program,preparation of a career development strategy, and establishment of a career development informationservice. Two months of technical assistance will also be provided to carry out a study of best optionsfor management of the assets for which the NSSI is now responsible. Funds are also planned for aminibus to provide transport for staff involved in training activities. During negotiations, assuranceswere provided that training and staff development plans covering the upcoming 12-month periodwill be submitted to the Bank for review and comment no later than the end of each calendar yearthroughout the project implementation period.

2.17 Project Coordination. For the project to be implemented smoothly and efficiently,the project activities have to be coordinated and monitored effectively, communications and linkagesbetween implementing institutions maintained, and resources made available to implementing units ina timely and effective manner. For this purpose, a Project Coordination Unit (PCU) has beenestablished, reporting directly to the Office of the Governor of NSSI. The PCU consists of full-timequalified staff headed by a Project Coordinator, and supported by a project-financed core teamcomprised of: (i) a project manager; (ii) a procurement officer; (iii) an accountant; and (iv) anadministrative assistant. The responsibilities, staff functions and resource requirements of the PCUare further described in Chapter 3 and the PIP, Annex 5. The project will finance 5 months oftechnical assistance for management support, workstations and other office equipment for the unit,one vehicle to support PCU activities, and staff training in various aspects of project management.Funds have also been included for annual audit services. To ensure prompt start-up of projectactivities, NSSI, prior to loan negotiations, recruited and appointed staff to all PCU positions.During negotiations, NSSI confirmed that the PCU will be maintained throughout the projectimplementation period with staffing, functions and authorities acceptable to the Bank.

C. Project Justification

.18 Overview. The development of an affordable social insurance strategy is essential tomacroeconomic stability as social insurance expenditures frequently represent a drain on the budgetthrough the need for budgetary subsidies. Further, if these expenditures are financed throughexcessively high payroll tax rates, either employment will fall or non-compliance will increase,

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threatening the stability of a country's entire tax base. Until recently, the social insurance program inBulgaria threatened macroeconomic stability by requiring substantial budgetary inflows, even aspayroll-tax rate increases were enacted. During this period, roughly covering the years 1989-1994,discussions between the Bank and Government were generally unsuccessful, with little or noagreement reached among the parties. Since that time, as Government has started to take steps torationalize the system, more fruitful dialogue has taken place. The proposed Social InsuranceAdministration Project is a cost-effective strategy in its own right and is necessary for the successfulimplementation of structural pension reform. Further, it can be an effective instrument for acontinuing policy dialogue.

2.19 As such, the project is fully consistent with the Country Assistance Strategy (CAS),presented to the Board in April 1996, and in particular, with the triggers it establishes for socialsector involvement by the Bank. It addresses serious issues of compliance and fiscal sustainabilitywhich were identified through economic and sector work conducted prior to, and during, projectpreparation. In supporting the redesign and modernization of fundamental social insurance businessand administrative processes, the project reaps significantly positive fiscal dividends, although thepolicy framework remains incomplete. The project mix, combining fiscal savings with thestrengthening of institutional capacity, particularly in the area of policy analysis, results in savingsthat are far greater than the cost of the loan on a present value basis even under conservativeassumptions. These issues are elaborated further in the economic analysis presented in the remainderof this section, which covers the following topics: (a) linkages to the CAS; (b) linkages to economicand sector work; (c) public/private sector justification; (d) the adequacy of the policy environment;(e) an analysis of project alternatives; (f) cost recovery and fiscal impact; (g) institutional capacity andthe regulatory framework; (h) poverty impact; and (i) environmental impact.

2.20 Linkages to the CAS. The Bank's core lending program for Bulgaria, described inthe April 1996 CAS, includes the Social Insurance Administration Project, given the project'sexpected positive long-term effect on overall economic performance and its relative insulation fromshort- to medium-term macroeconomic instability should it arise (see para. 1.2). Indeed, theproposed project is fully supportive of the low-case country assistance strategy by assisting in theestablishment of institutional capacity which would help Government to bolster the financial solvencyof the SSF, improve service delivery to clients and conduct the necessary actuarial and policy analysisto underpin future (more fundamental) structural reform. As a result, the project will contribute tothe country's transition to a market economy by directly improving government finances, and in thelonger-run, potentially encouraging economic growth through lower taxes and the development offunded pension plans.

2.21 It should also be noted that Government's broader initiatives in the area of socialinsurance reform -- which form the context for the proposed project -- conform closely to the two-stage program anticipated in the CAS. Government has been moving forward on schedule with thefirst reform phase outlined in the CAS, having already taken actions to: (a) separate fund financesfrom the budget, and, in so doing, strengthen tripartite relationships, institute partial fundcapitalization, and legislate measures to improve tax compliance (including lengthening thewage/contributions base for pension calculation to extend gradually to cover an individual's entireworklng career); and (b) reduce expenditures by allowing workers to continue to work three yearsbeyond normal retirement age. In addition, legislation was enacted to include most workingrelationships under the rubric of labor contracts, thus closing a loophole that enabled many

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contributors to pay pension payroll taxes at a low rate, based on the minimum wage. Governmentexpects to implement the last major element of the first-phase reforms anticipated in the CAS withsupport from the project proposed in this report -- i.e., modernization and automation of the socialinsurance system with a view towards strengthening the monitoring and control of SSF finances,increasing compliance and improving services to program contributors and beneficiaries. Second-phase reform measures outlined in the CAS, and elaborated in Chapter 1 of this report, are intendedto (i) further reduce public social insurance expenditures through raising the normal retirement andpensionable ages and making other changes to the benefit formula; (ii) put in place the legislative andregulatory framework for the development of privately-managed funded pension schemes; and(iii) reduce payroll taxes, at least for workers in early retirement categories and preferably for allworkers. Provided these measures, once fully defined, meet technical criteria for a viable socialinsurance program supportive of economic growth, the Bank's high case assistance strategy foreseessupporting Government's efforts via an adjustment loan. Thus far, as discussed in Chapter 1(paras. 1.26 and 1.30), indications are that Government fully intends to follow through on secondphase reforms. Social Insurance Administration Project inputs to strengthen NSSI's analyticalcapabilities can be expected to improve the technical content of reform proposals. The Government'scontinued adherence to a program of scheduled changes in social insurance policy is in sharp contrastto the slow progress with respect to some other development objectives and priorities, e.g., inbanking and the enterprise sector.

2.22 Linkages to Economic and Sector Work (ESW). Bank ESW has consistentlyhighlighted the need for improved collection compliance and has heightened Government sensitivity tothe benefits of proposed legislative changes to contain program expenditures (and, conversely, to thecosts of inaction). A grey cover report, Bulgaria: Public Finance Reforms in the Transition, WorldBank, 1994 included an in-depth analysis/evaluation of all social benefit programs in the early yearsof the transition, indicating that failure to reshape the cash benefit system was creating (and wouldcontinue to create) serious fiscal and efficiency problems. In particular, the report demonstrated thatdespite substantial erosion of the real value of benefits due to incomplete indexing for inflation duringthe period, expenditures for social insurance and social assistance increased as a share of GDP, from11.4 percent in 1990 to 13.3 percent in 1992, in part due to the sharper fall in GDP (30%) than insocial insurance expenditures. The report further noted that elimination of general revenue subsidiesto the social insurance fund could not be achieved simply by the increases in earmarked socialinsurance payroll taxes which Government had already legislated but would have to complemented byefforts to (i) further rationalize and reduce program expenditures; and (ii) halt the rapid shrinkage ofthe tax base, especially via stepped up efforts to increase tax compliance in the growing privatesector'.

2.23 Informal ESW carried out during the early preparation phase of the proposed projectupdated the preceding assessment of the financial framework of the social insurance system andevaltuated the impact of several policy alternatives under consideration by government. A technicalnote and subsequent addendum prepared by Bank staff in May, 1995 used a simple economic anddemographic model to simulate the impact on SSF balances of three compliance scenarios (constant,

81 As noted in Chapter 1, shrinkage of the tax base was also attributable to the decline in total employment andlabor income, but it was acknowledged that reversal of this trend was tightly linked to broader changes in theeconomy, generally unrelated to actions in the social protection area.

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reduced and improved compliance) and a number of other revenue-enhancing and cost-reductionpolicy measures then being considered by Government. Inter alia, the analysis contained in the notesuggested that without concerted efforts to restructure payroll tax administration and enforcementactivities of the type to be supported through the proposed project, the continued growth in the privatesector (which then accounted for about 40 percent of GDP), would likely translate into continuousreductions in the effective compliance rate. This, in turn, would imply the need for continuedbudgetary support to the SSF, even if cuts to program expenditures -- e.g., increased retirement agesfor women and men - were deemed politically feasible and enacted. (By the same token, cuts inprogram expenditures were found to be clearly desirable on a number of counts related to the longerterm need to scale back the PAYG program to a size more appropriate to a market economy, even ifcompliance could be improved).

2.24 Finally, as mentioned in Chapter 1, the most recent technical analysis of the socialinsurance program was carried out in early 1996 using a detailed actuarial model of the Bulgariansocial insurance system, which was developed during project preparation using Japanese Grant funds.As previously noted (para. 1.29 and Annex 2), preliminary simulations from this model indicate thatthe first-reform phase legislative actions to reallocate employer payroll taxes between the SSF andunemployment fund, introduce a 2 percent tax on employees and allow workers to remain on the jobvoluntarily for three years beyond the normal retirement age would eliminate the need for budgetarysubsidies to the SSF, provided compliance can be maintained at least at current levels (i.e., assumingimprovements to tax administration to keep pace with private sector growth via the proposed project).The realization of improvements in compliance anticipated as a result of project interventions wouldcompound this favorable impact, enabling the build-up of a three-month reserve to insure againsttemporary fiscal distress and create room for future reductions to the payroll tax.

2.25 Public/Private Justification. As discussed in a major recent World Bank study -Averting the Old Age Crisis, A World Bank Policy Research Report, 1994 -- government interventionin the area of pensions are usually justified on grounds that private capital and insurance markets areinadequate and redistribution to the poor is needed. It goes on to note, however, that the forms thatgovernment intervention might take are several -- ranging from simply dampening inflation in thehopes of encouraging voluntary savings, to regulating private pension funds and/or mandating andpublicly-managing PAYG pension schemes. The precise mix of Government interventions in thepensions area should necessarily vary according to specific country circumstances (e.g, stage ofdevelopment of financial institutions/markets) and the country's own historical traditions. However,based on extensive cross-country analysis, the study recommends a mixed system, including apublicly-managed PAYG pillar, complemented by privately-managed occupational and/or individualfunded-schemes. This pattern is evident in many industrialized countries, which have pension systemsthat rely on both PAYG public plans and additional, usually privately-managed, funded plans. Such amix of pension programs both enhances old-age income security (by spreading risks across severalincome sources) and can promote growth due to the increase in aggregate savings implied by theexistence of funded pension schemes.

2.26 Given the above context, Government's present emphasis on, and project support for,Bulgaria's public PAYG social insurance program is appropriate, particularly in light of the presentproblems in the country's banking and financial sectors which make rapid growth in complementary,private funded plans difficult (and perhaps undesirable) in the immediate term. At the same time,there can be little doubt that the current Bulgarian program, which was instituted prior to the

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communist era and expanded during communism, is too costly for a market economy, burdening thewage bill of employers, encouraging informal economy (untaxed) activities, and discouraging formalsector employment. Consequently, the issue is not whether a public program should be in place, buthow its design can be made efficient and affordable and how it might be complemented by fundedschemes in the medium- to longer-term. Government's two-phase social insurance reform program(Chapterl), to which the proposed project is integral, is aimed precisely at streamlining the PAYGprogram and concomitantly diversifying programs for old-age support. By supporting administrativechanges to the PAYG system which would make it more effective and less expensive, the projectwould help set the stage for future across-the-board reductions in payroll tax rates, which in turnwould imply greater room for the parallel development of a private pension system consisting of anoccupationally based component and individual funded pension plans.

2.27 Adequacy of Policy Environment. A detailed description of the policy environmentwithin which the proposed project has been developed and will be implemented was included inChapter 1, Section D (paras. 1.20-1.30), so will not be repeated here. It should be reiterated,however, that Government has now largely put in place the legislative and regulatory framework forits first-phase reform program which aims at eliminating the need for budgetary subsidies to the SSFand hopes to achieve first-phase programmatic reform goals of improving tax administration andcompliance via support from the proposed project. Implementation of second-phase reforms aimed atscaling back the PAYG program (both costs and payroll taxes) and promoting the establishment ofcomplementary, private, funded pension plans is essential before the overall social insurance policyframework can be judged to be fully satisfactory. As indicated in Chapter 1, these reforms arecurrently being formulated (in part with assistance being provided through the Japanese Grant for theproposed project) and there is cause for cautious optimism that they will be enacted on schedule giventhe Government's timely implementation of first-phase reforms and the political consensus it isbuilding in support of second-phase measures. Achievement of the goals of the proposed project isnot, however, dependent on successful implementation of second-phase reforms. In fact, restructuringof program administration to improve compliance, reduce abuse and internalize the benefitscalculation process within NSSI must be initiated forthwith, before increasing labor mobility and risesin enterprise bankruptciesfbusiness closures render NSSI incapable of effectively enforcing mandatorycontributions or of obtaining full work records upon which to base pension calculations. Should sucha breakdown in program management be allowed to occur, the impact of any legislated changes to taxrates and the benefit formula would be considerably blunted, implying in turn that the proposedproject is an essential element of the effort to complete the process of policy reform rather than thereverse. In addition to its expected impact on program administration, the project's inputs tostrengthen actuarial projection and policy formulation capacity can also be expected to facilitate thedesign/implementation of second-phase reforms.

2.28 Analysis of Alternatives. Four project alternatives were considered prior to selectingthe final configuration. The first alternative considered was that of not providing any projectsupport. The second alternative considered was only financing Component II, the Strengthening ofInstitutional Capacity. Two alternatives were considered for Component I. The first would haveprovided a system of information technology without reforming procedures. The second would haveused a different technology than that recommended for the project. The reasons behind the selectionof the preferred project alternative are described below.

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2.29 Project Not Financed. The most obvious alternative to the project would be not tofinance a project at all. The justification for this alternative would be the incomplete progress in thearea of policy reform. Other countries, such as Hungary, have obtained information technologysystems on the expectation of subsequent policy reforms that, so far, have not materialized. In thecase of Bulgaria, the benefits from the project outweigh the costs, even in the case of policy reformfailure. The project can be economically justified in terms of savings from improved compliancealone (see paras. 2.32-2.36 below). Further, the strengthening of the Actuarial Office and theinstitution of the Policy Analysis Offices will enable the NSSI to evaluate reform proposals,potentially leading to greater fiscal responsibility. Third, the continuation of the current system andthe institution of a new system both require the collection of earnings records within the NSSI insteadof at the enterprise. This collection would be impossible without a new information system.

2.30 Institutional Capacity Strengthened. If only Component II were financed, the costsof the project would total about US$3.1 million rather than US$32.3 million. In this case, the projectwould cover the strengthening of the Actuarial Office, the institution of the Policy Analysis Officeand the Public Affairs Office, and the strengthening of human resource (personnel) management. Iffunding were restricted to these items, the project would aid in the development of policies for thefuture and would strengthen the administration of the NSSI, but the concrete gains to the proposedloan which derive from the development of audit and compliance procedures backed by a modernsystem of information technology could not be achieved. Further, access to the data provided throughthe new information technology is an integral part of the development of the Actuarial Office and thePolicy Analysis Office.

2.31 Information Technology Supported (No Procedural Change). The original requestfrom NSSI officials envisaged an advanced computer system that could be used to develop anearLiings-record data base, few changes contemplated either in terms of audit and enforcement or interms of service delivery. Lessons have been learned from other transition economies, such asPoland and Hungary, which have, for one reason or another, purchased computer equipment orimplemented new information systems without addressing the need for changes in operationalprocedures -- resulting in little net improvement in program outcomes. Discussion of theseexperiences during project preparation and pre-appraisal convinced the NSSI authorities of the need tochange the agency's service delivery and collection procedures, including audit and enforcement, inconjunction with the implementation of technological improvements. In the area of service delivery,new procedures are needed to provide assistance to future beneficiaries, as the responsibility for thework-history documentation process is transferred from employers to the NSSI. Further, new auditmethods are needed to deal with the proliferation of private-sector employers. Under currentprocedures, the NSSI tries to audit every employer once every 2 to 3 years. The NSSI employs some650 auditors to cover some 260,000 registered employers and would soon have to greatly increasetheir number. Modern auditing methods, based on targeting and taxpayer profiles, do not requireaudits of each and every enterprise. As NSSI officials learned of modem auditing alternatives, theyquickly requested training and technical assistance as a precondition to the design of the informationtechnology system. Consequently, the project will implement the new information technology systembased on changes in procedures that ensure more efficient NSSI operations.

2.32 Selection of Information Technology. The technical environment for the informationsystem selected by the NSSI is a UNIX based client-server with Windows-based workstationssupported by a relational data base system, under UNIX, to manage data storage. Prior to deciding

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upon this environment, another technical solution had been favored by NSSI, based on an ES9000mainframe at the center and LANs at the regional offices. Here, too, technical discussions with NSSIstaff and exposure to the experience of neighboring countries convinced NSSI officials that thesolution now proposed would be by far the most efficient and affordable, given its relatively lowsystem maintenance costs. The capacity provided by the UNIX system for the maintenance of data-base subsets at regional offices also minimizes the on-line requirements of the SIIS, therebycontaining what might otherwise be near-prohibitive telecommunications costs in the current Bulgarianenvironment. The choice of a UNIX based client-server for support under the project represents animportant break-through in terms of computer technology within the Bulgarian government. (Bycontrast, the Bulgarian Tax Administration is upgrading its system using more expensive andantiquated main-frame technologies.)

2.33 Cost Recovery and Fiscal Impact. The project will increase revenues throughenhanced contribution collections and reduce expenditures through more efficient benefitsadministration. Further, it will reduce the time-costs of clients by the more efficient delivery ofservices. The improvement in contribution collections results in savings similar to those observed intax administration projects funded by the Bank. One evaluation of the impact of tax reform inArgentina (Morisset and Izquierdo, 1993) found that nearly three-fourths of the improvement in VATcollection could be attributed to improvements in tax administration procedures. The study controlledfor the impact of increases in GDP, reductions in inflation, and increases in the rate of taxation. Ingeneral, the institution of improved tax administration procedures can be expected to increaserevenues measurably, particularly when macro-economic policies provide a stable environment.

2.34 As the detailed cost-benefit analysis in Annex 4 shows, the project represents anextremely cost effective use of investment funds on a benefit-cost basis comparing the net gain inrevenue to the cost of the loan. Under pessimistic assumptions, revenues are assumed to increase by 1percent relative to the base case (while reductions in expenditures as a result of improved monitoringare deemed negligible). This translates into a small increase in the tax compliance rate, that is, thepercentage of potential revenues that are actually collected, from 63.4 percent to 64.0 percent. Interms of loan efficacy, the benefit-cost ratio, the present value of fiscal savings to the cost of the loan,is 15.2 to 1 in the year 2000, the first year that benefits from the new system can be expected.Other indicators of loan success are equally favorable, the internal rate of return to the loan is 38.5percent in 2004 compared to a nominal interest rate of 24.25 percent. The present value of savings tothe fund is BUL 14.5 billion by 2020. Under the pessimistic scenario of project performance,increased revenues could be used to reduce the current tax rate by 1.67 percentage points in 2004.This represents a reduction of 0.4 percentage points more than could be considered under currentoperational policies.

2.35 A more optimistic scenario of the cost effectiveness and fiscal impact of the projectwas developed based on a 10 percent increase in revenues. This rate of improvement is comparableto that achieved in other countries (primarily in Latin America and the Caribbean, given the absenceof evaluated experience in Eastern Europe) following the implementation of World Bank-supportedtax administration projects with activities similar to those included in the proposed project. Inaddition to revenue increases, the optimistic scenario assumes some reduction in expenditures,particularly for short-term benefits, due to the system's greater ability to detect fraud and abuse. Thequantification of savings from the reduction of inappropriate payments is purely judgmental, sincethere is little past experience with success in this area. For purposes of the analysis, overall

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reductions in benefit payments of 1 percent for pensions and 10 percent for short-term benefits appearto reasonably define the potential for improvements in expenditure control. Based on these moreoptimistic assumptions, the benefit-cost ratio, defined as the present value of fiscal savings to the costot the loan, is 92.8 in the year 2000, (the first year that benefits from the new system can beexpected) and rising thereafter. The internal rate of return to the loan would be 70.0 percent in 2004compared to a nominal interest rate of 24.25 percent; and, the present value of savings to the fund isBUL 141.5 billion by 2020. These savings imply an increase in the tax compliance rate from 63.4 to69.6 percent. Perhaps the most favorable outcome of the optimistic scenario is the finding that theproject would allow for a reduction in the tax rate of 3.5 percentage points by 2004 while continuingto allow the build-up of a contingency reserve, implying an effective average rate of 37.8 percent.By the end of the projection period in 2019, the effective tax rate could be reduced by 5.8 percentagepoints, even when a contingency reserve is created.

2.36 The initial 63.4 percent compliance rate used in the actuarial analysis may wellrepresent an optimistic forecast of the revenues under current collection procedures. The growth ofthe private sector will tend to reduce collections in response to current high payroll tax rates.Nonetheless, even if reduced revenues had been incorporated into the actuarial forecasts, the projectwill still significantly raise contribution collections above the base level due to stronger auditingprocedures and enhanced NSSI information. The ratio of benefits to costs might even be greaterunder more pessimistic compliance assumptions, since the new system is likely to have a greaterimpact on private sector collections than on collections from state owned enterprises.

2.37 The economic benefits from the project are underestimated by the fiscal analysispresented above as staff increases that would be necessary to maintain current operational proceduresare not taken into account, nor are decreases in services and compliance that would result from staticstaffing patterns. The expansion of administrative expenses in the short term is already apparent.Administrative expenses for 1996 are budgeted to be more than 250 percent higher than their 1994levels in nominal terms. By contrast, pension payments are budgeted to rise by just over 190 percentcompared to1994. Other economic benefits stem from long-run reductions in reporting andadministrative requirements for employers. Gains to workers and pensioners will accrue in terms ofease of the benefits application process, better and faster responses to inquiries, faster processing ofdecisions, and quicker and more accurate payment procedures. Quantification of these benefits is,however, not practicable. Finally, it should be borne in mind that implementation of Component IIprovides the means to promote public policies that will support economic growth and development.While it is not feasible to quantitatively estimate the impact of these institutional changes on theeconomy as a whole, the importance of tools to strengthen the policy framework should not beunderestimated.

2.38 Institutional Capacity and Regulatory Framework. The commitment of the NSSIto implement the project is unusually high. While the NSSI has recently become an independentagency, it remains fully staffed with employees who formerly worked at the Ministry of Labor.Because project preparation has taken place in close coordination with the NSSI, the project isdesigned to adjust to the limitations of the NSSI to implement and administer the new system.Further, the project has the necessary political support (from both the Council of Ministers and NSSI)to ensure successful implementation. Nonetheless, taking into account NSSI's relatively limitedexperience with the implementation of externally-supported projects and the magnitude of the changesto operational procedures that will be implemented, the project includes activities to strengthen

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institutional capacity as follows: (a) staff assignments will be made to the PCU and training in projectmanagement will take place prior to implementation; (b) project-supported technical experts will workin close twinning arrangements with appropriate NSSI staff to ensure relevance of activities and fulltransfer of knowhow; and (c) extensive training (combining on-the-job and hands-on methods with in-country classroom teaching and limited external fellowships) will be provided within each project sub-component.

2.39 The loan specifies a number of conditions that must be met prior to effectiveness toensure that the regulatory framework is in place. Perhaps most important is the designation of aunique identification number that must be used by employers, employees and banks to record andreport contributions/payments and benefits eligibility. Further, the project requires that all necessarystaff and offices for project implementation are in place prior to effectiveness. In addition,agreements on other regulatory changes are precondition for funding. Additional changes in theregulatory environment are contingent upon the development of the project. For example, fines andpenalties in the area of collection compliance should be redesigned, but this redesign will take place inconjunction with the technical assistance provided in the project.

2.40 Poverty Analysis. An early preliminary analysis of the structure of income andsocial protection during the transition indicated that pensions were relatively evenly distributed acrossall households, with low-income households receiving only a slightly higher share relative to theirnumbers in the population. More recent analysis undertaken in the context of preparing a povertyassessment for Bulgaria (scheduled for completion later this calender year) further documents thesituation of pensioners in relation to the incidence of poverty. This analysis indicates that if pensionshad not been available, nearly 1.7 times more households currently receiving pensions would havefallen into poverty. Further analysis indicates that pensioners over age 70 have significantly higherpoverty rates than younger pensioners or others in the Bulgarian population, corroborating thefindings of an earlier study that reform should focus on enhancing pension benefits for those aboveage 65. Of course, benefits were recently realigned to wages, reducing compression that had takenplace because of ad hoc flat-rate indexing. While data are not available to conduct an analysis of thedistributional impact of decompression, NSSI experts suggest that many very elderly pensioners willhave been helped by realignment as their pension-to-wage ratios tended to decline the most over time.Nonetheless, if pension fund revenues are allowed to erode, the incidence of poverty amongpensioners could increase because restrictive indexing measures would again become necessary.While this project does not directly influence benefit provision, its components may help promotepolicies to combat poverty among the aged and disabled. First, the outcome of the project, buoyingrevenues and preventing fraud and abuse, will enable governrnent to provide a better floor ofprotection where protection is needed. While some might argue that the closer monitoring of benefiteligibility could hurt the poor, a lack of administrative control is a generally inefficient means totarget poverty. Second, the institution of an Office of Policy Analysis, with a mandate to track theeconomic status of the aged and disabled, will provide policymakers information to ensure thatpolicies are developed to maintain a minimum floor of protection for families entitled to pensionbenefits.

2.41 Environmental Analysis. Environmental category C ("no appreciable environmentalimpact') has been given consistent with the provisions of Operational Directive 4.01, Annex E. Theproposed project is not expected to have any environmental impact.

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m. PROJECT COSS. FINANCING. MANAGEMENT AND IMPLEMATION

A. Introduction

3.1 This chapter provides a summary of the Project Implementation Plan (PIP) which wasprepared in conjunction with the Borrower and reviewed and deemed satisfactory by the Bank. ThePIP includes detailed information on the project description, costs, financing, management andimplementation arrangements, procurement, disbursements, audit reporting, and status of preparation.The PIP is attached as Annex 5.

B. roject Cost

3.2 The total cost of the Social Insurance Administration Project is estimated at aboutUS$32.3 million, or about 4.4 billion Bulgaria Leva (BGL) equivalent, including contingencies, taxesand duties. The total base cost is estimated at US$28.6 million. Physical contingencies are estimatedat US$2.4 million. Price contingencies between negotiations (May 1996) and the end of the four-yearproject implementation period will amount to about US$1.4 million, or five percent of base cost. Theforeign exchange component is estimated at about US$22.5 million, including contingencies, or about70 percent of total project cost. Taxes and duties are estimated at US$2.9 million equivalent. Thetax exempt status of technical assistance expenditure was confirmed at negotiations.

3.3 The total project cost includes fellowships, training, technical assistance, studies,computer hardware and software, training materials, refurbishment of facilities, and incrementalrecurrent costs geneiated by the project. The estimated cost distributed among project components isshown in Table 3 of the PIP. Project costs are summarized by expenditure category in Table 4 of thePIP. The project costs include about Leva 790 million or US$5.1 million to cover incrementaloperating costs directly attributable to the project during the four-year implementation period.Equipment operation and maintenance, and materials and supplies account for most of the project'sincremental recurrent costs. Incremental staff costs are negligible. Table 3.1 below shows summarycosts by expenditure accounts and project components:

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Table 3 1: EXPENDITURE ACCOUNTS BY COMPONENTSTotals Including Contigencies

(US$ Million)

knprovingOperationalEfficektcyIntegrated Strengthening Institutional Capacity

Social PolicyInsurance Planning

infomation Actuarial and Public Resource

System Developrnent Analysis Affairs Management Total

L Investment Costs

A. CMI Works 0.7 - - - 0.7

B. Office Equipment and Materials 17.4 0.0 0.1 0.3 0.3 18.0

C. Vehicies 0.3 - - - 0.1 0.4

0. Technical Assistance

1. Policy Development 0.5 0.1 0.0 0.0 0.1 0.8

2. Capacity Building 3.1 0.0 0.1 0.0 0.1 3.3

3. Profect Management 1.8 - - - 0.2 2.0

Subtotal Technical Assistnce 5.4 0.1 0.1 0.1 0.4 6.1

E. Training 0.8 0.0 0.0 0.0 0.2 1.0

F. Fellowships and Study Tours - 0.5 0.1 0.2 0.2 1.0

Totd Invasbmnt Costs 24.5 0.7 0.2 0.6 1.1 27.2

! Recurrent Costs

A. incrementl Staff Saaries - 0.1 0.0 0.0 0.0 0.1

B. Equtpmn O & M 3.5 - 0.0 0.0 0.1 3.7

C. VehicieO&M 0.1 0.0 - - 0.0 0.2

D. Oter Operating Costs 1.1 - - 0.0 1.1

Totatl Recurrent Costs 4.8 0.1 0.0 0.1 0.2 5.1

Total PROJECT COSTS 29.3 0.8 0.3 0.7 1.3 32.3

Tom 2.8 0.0 0.0 0.0 0.1 2.9

Foreign Ehangs 20.2 0.7 0.2 0.5 0.9 22.5

C. Project Financing

3.4 The proposed Bank loan of US$24.3 million will finance 75 percent of total projectcosts, comprising 100 percent of the foreign exchange cost (US$22.5 million) and 26 percent of thelocal cost, excluding taxes (US$1.8 million). Co-financing is being sought to cover technicalassistance and training costs for Component 2 (actuarial development, policy planning, public affairsand human resource management). Possible donors include EU PHARE, USAID, and UK Know-How Fund. The NSSI will finance the balance of project costs (US$8.0 million), including duties andtaxes. Incremental operating costs comprising equipment maintenance services and annualmaintenance costs of computers and software (US$5.1 million equivalent) will be financed entirely byNSSI. Averaged over the project life, the NSSI portion of recurrent expenditures represents less thanone percent of the projected 1996 operating budget for the NSSI. The NSSI has requested and theBank has agreed to retroactive financing of up to US$2.4 million equivalent to facilitate advancepurchase of goods, works and services needed for project start-up activities, available as ofJuly 1, 1996.

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D. Administration of Project Funds

3.5 The Bank loan of US$24.3 million will be made to the Government of Bulgaria. TheGovernment will enter into a subsidiary Loan Agreement with the NSSI; and, signing of thesubskUary Loan Agreement will be a condition of effectiveness. On-lending terms to NSSI will bethe same as the terms of the Bank's loan to the Government. NSSI will provide counterpart fundingof about US$8.0 million from its own revenues. NSSI will be responsible for servicing the Loan tothe Government.

E. Project Management and Implementation

3.6 The project will be implemented over a four year period. Overall responsibility forimplementation of the project rests with the newly established and independent NSSI. Responsibilityfor day-to-day coordination, management and monitoring rests with the Project Coordination Unit(PCU) which has been established within the NSSI. It is assumed that the PCU will also beresponsible for the coordination of other donor-funded activities in the social security sector. Tocarry out its functions, the PCU has been staffed by a Project Coordinator, supported by a core teamfinanced under the project. The core team comprises: (i) a project manager; (ii) a procurementofficer; (iii) an accountant; and (iv) an administrative assistant. All PCU staff will be financed by theGovernrment. Since the PCU staff are not familiar with Bank procedures, the necessary technicalassistance will be provided to ensure compliance with Bank guidelines, particularly in the area ofprocurement.

3.7 A Project Advisory Group, headed by the Governor of the NSSI, has beenestablished. This group will be responsible for providing policy advice and guidance concerning theproject during the implementation period. The Advisory Group consists of the NSSI Governor, theProject Coordinator, the Project Manager, and the team leaders of the technical working groupswhich prepared the project proposals. During negotiations, assurances were provided that theProject Advisory Group will be maintained during the project implementation period. The AdvisoryGroup will be assisted by special task forces which it will convene as necessary.

3.8 The project will require about 25 weeks of Bank supervision per year during the four-year implementation period, front-loaded to assist sound project launch with a new borrower. Thisrelatively intensive supervision is needed because of the nature of the project, whose focus on radicalchanges in NSSI operating procedures necessarily implies that the detailed design work which will beundertaken during implementation be supervised closely by appropriate Bank technical experts. Adetailed project supervision plan is shown in the PIP, para. 34.

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F. Project Procurement Arrangements

3.9 Items to be procured will be grouped into major packages to encourage competitivebidding and permit bulk procurement. Major procurement categories include: about US$13.3 million,predominantly for computer hardware, off-the-shelf software, and vehicles to be procured throughinternational competitive bidding (ICB) procedures; about US$8.1 million for technical assistance andtraining, to be procured in accordance with the Bank's guidelines for procurement of consultants;US$1.0 million through international shopping (IS); and US$0.6 million through national shopping(NS). National shopping will be in accordance with procedures acceptable to the Bank. It is alsoexpected that computer applications software estimated to cost US$3.5 million will be procuredthrough limited international bidding because of the limited number of suppliers available.Paragraphs 23-27 of the PIP provide details regarding procurement arrangements envisaged under theproject, and the standard procurement information is presented in Table 5 of the PIP (Annex 5).Appropriate Bank standard bidding documents will be used for the project, and procurement will becarried out in accordance with World Bank Guidelines.

G. Disbursements

3.10 The proposed project is expected to be disbursed over a period of four and a halfyears, which is considerably shorter than the relevant profile in the Region (about seven years). Thisproject will be the second operation in the human resource sector in Bulgaria, with the first (Health)scheduled to become effective by mid-1996. Therefore, the country disbursement profile for thesector is speculative. However, the shorter implementation period for the present project reflects thenature of the project as a narrowly-focused institutional development project in support of the firstphase of the Government's social security reform program, as well as the simplicity of the project'sdesign. Implementation and related disbursements will be facilitated by having defined equipmentlists and agreed terms of reference prior to project implementation (see Chapter m, PIP). Theclosing date will be June 30, 2001. A summary of the disbursement plan is shown as Table 8 of thePIP.

3.11 All disbursements against contracts for goods and works exceeding US$300,000equivalent, and services and training exceeding US$100,000 equivalent for consulting firms andUS$50,000 equivalent for individual consultants will be fully documented. For expenditures belowthat level, disbursements will be made on the basis of certified Statements of Expenditure (SOEs).This documentation will be made available for the required audit as well as to Bank supervisionmissions, and will be retained by the PCU for at least one year after receipt by the Bank of the auditreport for the year in which the last disbursement was made. The processing, disbursement andmonitoring of the allocations of the proceeds of the Bank Loan and Borrower counterpart financingwould be managed by the PCU in coordination and consultation with the Ministry of Finance.

3.12 To facilitate timely project implementation, the Government will establish, maintainand operate, under terms and conditions acceptable to the Bank, a Special Account denominated in USdollars. The authorized allocation will be US$2.0 million. However, during the initial stage of theproject, an amount limited to US$0.5 million will be deposited. When the aggregate amount of

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disbursement reaches US$5.0 million, the amount deposited in the Special Account will be increasedto the full authorized allocation of US$2.0 million.

H. Project Audit Reporting and Evaluation

3.13 The PCU will be responsible for coordinating annual project audits and for fulfillingreporting requirements. With respect to project accounts, including the Special Account, they will beaudited in accordance with the Bank's "Guidelines for Financial Reporting and Auditing of ProjectsFinanced by the World Bank" (March 1982), and will be provided by the Borrower within six monthsof the end of each fiscal year. Further information concerning auditing is provided in para. 31 of thePIP.

3.14 In addition, the PCU will be responsible for preparing semi-annual progress reports,which will include: a summary of progress under each component, proposals for rescheduling ofactivities where necessary, actual disbursements and projections for the subsequent six-monthreporting period, as well as a thorough analysis of progress in implementation of the social securityreform program, as outlined in the Letter of Development Policy (see Annex 2). The PIP includes aframework for systematic monitoring and evaluation of progress in project implementation. Itidentifies a set of performance indicators to be used in project supervision. Progress reporting underthe project is provided in more detail in paras. 36-39 of the PIP.

3.15 During negotiations, assurances were provided that: (i) NSSI wiU prepare semi-annual descriptive andfinancial reports on each project component, objective and activity(beginning from the date of Loan Effectiveness); and (ii) a mid-tern review of the project wiU becarried out in February 1999.

1. Status of Preparation

3.16 During the initial stages of preparation, the Borrower established five technicalworking groups to develop project proposals for each component. That structure has remained inplace and has been a principal contributor to the preparation process. The functioning of theseworking groups has promoted staff involvement in development of the project. These working groupswill be maintained during project implementation, and the heads at these groups will participate on aregular basis in the Project Advisory Group (see Annex 5, para. 9, page 7). The basic policy agendahas been discussed thoroughly, with NSSI, MOLSA and MOF management, with a view to achievingthe consensus necessary for its implementation. The Project Implementation Plan has been prepared,and will serve as the basis for the more detailed Project Operational Manual (POM) which is nowbeing developed for use by the project management in the implementation of the project. The PCUhas been established, and is now fully staffed to ensure a smooth start-up to project implementation.

3.17 Additionally, important start-up activities have been initiated with regard to each ofthe project's two components, using other sources of financing. A key activity which is alreadyunderway with assistance from the Bulgaria Technical Assistance Loan (#3384-BU) concerns the

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design of reporting procedures and related software applications and staff training for reporting ofwage and contributions information by employers. Completion of this activity is expected to occurprior to effectiveness of the present project, suggesting relatively smooth and timely start-up of theproject- supported central register. Secondly, Japanese grant funds have been used to develop aBulgaria-specific actuarial model and to begin training NSSI staff in its structure and applications forplanning purposes. These activities can be expected to facilitate implementation of project sub-components related to actuarial projection and policy evaluation and planning. Finally, selected NSSIstaff have already participated in study tours and informal training in the public affairs area throughUnited States Agency for International Development (USAID) financing and are expected to form thecore of staff of the Public Affairs Office to be established with support from the proposed project.

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IV. BENEFITS AND RISKS

A. Project Benefits

4.1 The project's major benefits will be to (i) improve fund balances; (ii) reduce clientburden and improve services; and (iii) improve the policy making capacity of the NSSI forsustainable, fiscally responsible, pension reform.

4.2 Improving Fund Balances. The Social Insurance Administration Project will help tobring about long-run fiscal balance by improving contributions collections and by establishing a moreequitable, efficient and affordable basis for pensions and other social insurance benefits. Under theproject, fund balances can be expected to improve, even under pessimistic assumptions concerning theeffectiveness of the project in increasing revenues (Chapter 2, paras. 2.33-2.37). Under pessimisticassumptions, fund revenues are assumed to increase 1 percent over base case projections phased inover a three year period starting in 2000. The benefit-cost ratio, as measured by the present value offiscal savings relative to the cost of the loan, is 15.2 to 1 in the year 2000 and rising thereafter. By2004, the internal rate of return is 38.5 percent compared to a real interest rate of 24.25 percent.These savings assume a small increase in the tax compliance rate from 63.4 percent to 64.0 percent.A more optimistic scenario of the cost effectiveness and fiscal impact of the project was developedbased on a 10 percent increase in revenues (a level consistent with that achieved in other countries,following the implementation of activities similar to those included in the proposed project). Thisscenario assumes that expenditures are reduced by 1 percent for pension payments and 10 percent forshort-term benefits. In this case, the benefit-cost ratio for the loan is 92.8 to I in the year 2000 andrising thereafter. Under these assumptions, the internal rate of return to the loan in the year 2004 is70.0 percent. These savings imply an increase in the compliance rate to 69.6 percent. By the end ofthe projection period in 2019, the effective tax rate could be reduced by 5.8 percentage, even when acontingency reserve is created.

4.3 Reduced Client Burden and Improved Service. Once the system is implemented,benefits to employers from reductions in administrative burdens will start to be evident. Long-termbenefits from administrative simplification will accrue as employers will no longer be required tofurnish work history documents to establish employee pension eligibility and will no longer need tomaintain employee records for purposes of benefit calculation. Gains to workers and pensionersinclude improvements in the benefits application process, faster responses to inquiries, fasterprocessing of decisions, and faster and more accurate payment procedures. These all will result in anexpanded economic payback for the project.

4.4 Improved Policy Capacity. Improved policy making tools and public relations cansupport economic growth and development as policymakers use these tools to strengthen the policyframework toward fiscally sustainable programs. While it is not feasible to estimate the impact ofthese institutional changes on the economy, it appears likely that project activities related tostrengthening NSSI's capacity for policy evaluation and planning and actuarial forecasting willsignificantly strengthen the technical underpinnings of Government's policy reforms in socialinsurance.

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B. Project Risks

4.5 The project faces four types of risk which are related to: (i) Government history ofwavering commitment to some Bank supported projects; (ii) implementation capacity; (iii) furtherpolicy reform; and (iv) macroeconomic stability.

4.6 Government Commitment. In the past, Government's record has been extremelypoor irn regard to the disbursement of funds provided through the Bank. For example, the TAL wasrecently extended as it had substantial undisbursed funds remaining in the account. OtherBank-financed projects have been left in limbo in advanced stages of preparation, as political changeseroded ministerial commitment to past agreements. Further, even with sectoral ministerialcommitment, support from the Ministry of Finance is also required. Such support has not necessarilybeen forthcoming in the case of some projects. With regard to the proposed Social InsuranceAdministration project, however, the Bank has entered into ongoing discussions with the Ministry ofFinance to ensure that the benefits to be derived from the project are widely known. Further, theMinistry of Finance and the NSSI have recently agreed to the coordination of collection complianceand are planning future cooperation, as well. This represents a new positive development for bothinstitutions.

4.7 Other Governmental risks should be mitigated, as well, as a result of timing of theproject and the new NSSI structure. Since March 1996, the NSSI has become a separate institute,with complete independence in terms of operational policy. Consequently, NSSI management is lesssubject to political influence than a normal line Ministry. Further, a stable parliamentary majority iscurrently in power, securing continuity in the Supervisory Board to whom NSSI management mustreport. Lastly, there is an unusually high degree of commitment to the project on the part of theNSSI and the MOLSA, which increases the probability that Bank funds will be disbursed in a timelymanner to meet project objectives. In other words, even though the relationship between the Bank andGovernment has been problematic in the past, the prospects for timely implementation of this projectare favorable because the interests of the NSSI and the Bank are essentially the same.

4.8 Implementation Capacity. A major risk faced by the project is the fact that NSSI,as a new organization, has relatively weak institutional capacity for project implementation. Further,NSSI is inexperienced in implementing externally financed projects. To strengthen the institutionalcapacity and minimize these risks, staff assignments have already been made to the PCU and trainingin project design and management and key staff counterpart appointments will take place prior toproject effectiveness. Further, the project will provide extensive training related to each component.The commitment of Government to this project also reduces the implementation risk. Projectpreparation has taken place in close cooperation with NSSI counterparts, and the project activitieshave been designed for smooth implementation. The PCU will coordinate implementation of theproposed project, as well as other donor-funded investments to ensure coherence with the socialsecurity reform strategy.

4.9 Policy Reform. A second issue, related principally to the timing of Bank support forthis project, concerns the risk that Government's incentive to proceed with second phase policyreforms will be reduced following the receipt of substantial external funding for needed investments inits social insurance program (via the proposed project). Several factors appear to combine to mitigate

- 41 -

this risk: First, Government has demonstrated substantial commitment to the second reform phasewith preparations already underway to formulate requisite legislation and build political support forenactment of the reforms; second, to the extent that external support is a factor in influencing thereform agenda, the expectation of Bank adjustment lending in support of second-phase reforms (asdescribed in the CAS) should outweigh the present (more restrictive) investment support in acting asan incentive to stay on track with the structural reform of the social insurance program; and third,project inputs to strengthen policy planning and actuarial forecasting should broaden the policydialogue beyond a few top officials and strengthen the technical underpinnings of specific reformproposals thereby enhancing the impact of the reform. Of course, it is possible that the reforms takenby government will not cap benefits or lower payroll taxes prudently. There can be no guarantees onthese issues. Nonetheless, the project will still have a beneficial impact by maintaining the system ona relatively efficient operating basis without precipitating a complete collapse and social unrest. Inthe worst case, further pension reforms would most likely be contemplated once the deleteriouseconomic effects of a bloated system are recognized in the future.

4.10 Macroeconomic Framework. At the current time, macroeconomic conditions inBulgaria leave much to be desired, with a crisis in the banking sector and the leva exchange ratetumbling with respect to the dollar. In conditions of severe macroeconomic instability, efforts toimprove tax compliance have frequently proven to be unsuccessful. This risk is mitigated by the factthat, given the timing for installing the information technology system, the new audit procedures willnot be able to be fully implemented until 1999 at the earliest. By that time, it is anticipated thatGovernment will have been able to bring the economy under control.

- 43 -

V. AGREEMENTS REACHED AND RECOMMENDATION

5.1 The following actions are required to assure successful implementation of the projectand attainment of the broader project objectives.

Assurances Provided at Negotiations

5.2 During negotiations, the Government provided assurances that:

(a) it will implement the sectoral development strategy contained in the LSDP (para. 2.1);

(b) the counterpart technical informatics team will be maintained and fully allocated to theproject throughout project implementation (para. 2.8);

(r) any additional banks holding NSSI accounts will agree in writing to identify individualdeposits, together with the name and tax ID of the depositor, in statements providedto NSSI (para. 2.9);

(d) prior to December 31, 1998, legislation will be submitted to parliament to: (i) reduceincentives for employers to claim unwarranted sick leave by making them responsiblefor benefits for the first 4 days per sickness episode, up to a maximum of 15 days peremployee per year; (ii) require calculation of the average wage base for sick andmaternity leave benefits over a 12-month period; and (iii) amend the Labor Code sothat the payment of sick and maternity leave from the SSF is contingent upon paymentof full payroll tax contributions on behalf of the employee (para. 2.9);

(e) a review of the penalty structure for non-compliance or arrears in terms of payroll taxobligations will be completed no later than December 31, 1999, and that modificationof the penalty structure in accordance with the findings of the review will beundertaken no later than March 30, 2000 (para. 2.9 (iii));

(f) annual workplans for the Actuarial Analysis, Policy Evaluation and Development andPublic Affairs units of NSSI will be submitted to the Bank for review and technicalcomment prior to the start of each calendar year within the project implementationperiod (para. 2.11);

(g) NSSI training and staff development plans for the upcoming 12-month period will besubmitted to the Bank for review and comment no later than the end of each calendaryear throughout the project implementation period (para. 2.15);

(h) the Project Coordination Unit will be maintained throughout the project with staffing,functions and authorities acceptable to the Bank (para. 2.16);

(i) the Project Advisory Group will be maintained during the project implementationperiod (para. 3.7);

- 44 -

(j) NSSI will prepare semi-annual descriptive and financial reports on each projectcomponent, objective and activity (beginning from the date of loan effectiveness)(para. 3.15); and,

(k) a mid-term review of the project will be carried out in February 1999 (para. 3.15).

Conditions of Effectiveness

5.3 Prior to loan effectiveness, the Government will:

(a) issue regulations requiring employers and the self-employed to provide NSSI withrelevant biographical information and historical and monthly wage and contributionsdata per employed person (using the EGN and Tax ID number as identifiers) in aform suitable for central register development (para. 2.5);

(b) establish a full-time counterpart NSSI team of at least four professional technicalinformatics staff with experience satisfactory to the Bank (para. 2.8);

(c) appoint at least three professional staff and one support staff to the Offices ofActuarial Analysis, Policy Planning, Human Resources Management, and PublicAffairs (para. 2.11); and,

(d) sign a subsidiary loan agreement between the Government and NSSI (para. 3.5).

Recommendation

5.4 Subject to the above, the proposed operation provides a suitable basis for a loan ofUS$24.3 million to the Government of the Republic of Bulgaria.

- 45 - Annex IPage 1 of 7

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

NATIONAL SOCIAL SECURITY INSTITUTE (NSSI)

ORGANIZATION AND FUNCTIONS

A. Introduction

1. The Project will be implemented by the newly created and independent NationalSocial Security Institute (NSSI) which until recently was the Social Insurance Directorate of theMinistry of Labor (MOLSA). The Social Security Law of November 15, 1995 established anindependent Social Security Fund (SSF) which is now being administered by the NSSI, whoseresponsibilities encompass policy and administrative operations of the Fund and social insuranceprograms throughout Bulgaria. In the future, administration of other programs like unemployment orhealth insurance may come under NSSI responsibility. While the Institute is responsible for only onefund at the present time, it is planned that future legislative changes will add two or three additionalfunds to the management responsibilities of the NSSI. The Institute currently administers benefitprograms for the social insurance programs. The transfer of staff and resources from the MOLSA tothe NSSI is expected to take place once NSSI is formally operational, i.e., when the members of theSupervisory Board for the Institute have been nominated and approved by Parliament. This approvalis expected to be secured shortly. The Governor is in place, with his selection having been approvedby Parliament in late February 1996.

B. NSSI Structur

2. The NSSI is undergoing organizational restructuring to improve its operations andincrease public confidence. The restructuring has been developed on the basis of four principles: (i)minimal layers and units promote efficiency and teamwork; (ii) clear lines of authority andresponsibility enhance management and increase public confidence; (iii) flexible structure allows forassumption of new responsibilities, e.g., unemployment benefits, without the need for reorganization;and (iv) demonstration of a clear commitment to public service and protecting the integrity of theprogram and the fund(s). The Supervisory Board is now in place and the organizational structure ofthe new Institute has been implemented. Table 1.1-1.3 show the organogram for the NSSI.

Annex 1Page 2 of 7

Table 1.1FUNCTIONAL AND ORGANISATIONAL

STRUCTURE OF NSSI| SUPERVISORY BOARD I

_IINTERNATIONALRELAIONS BOARD OF MANAGEMENT INFORMAION TECHNOLOGY

| _ l | ~~~~~GOVERNOR L= DIRECTORATE B O FDNANCIAL CONTROL

DIRECTORATE

GEIJERAL GENERAL GENERAL GENERAL GENERAL GENERAL DIRECTORATE DIRECTORATE DIRECTORATE DIRECTORATE DIRECTORATE DIRECTORATEO

PENSIONS CONDTRIBUTIOS SOCIAL INSURANCE ADMINISTRATION BUDGETR NG AND PROPERTYAND SHORT TERM POLICY~ AND PERSONNEL FINANCIALANSP_ l BENEFnS l _ | z |MANAGEMENT ACTIVIES MAAGEMENT

REGIONAL ADVISORYCOUNCIL

r----F- - - -------------- L------------------------- gIREGItN{ IREGIONAL| .REGI .eeee.eee.eeseREGws@eeNAe.ggge.eegee..eeeeOFFICE t I OFFICEI 2 Ol

OFFICE 28

Page 3 of 7

Table 1.2FUNCTIONAL SUBSTRUCTURE OF NSSI

DEPUrY GOVERNOR

GENERAL aENERAL GENERAL GNERAL GENERAL GENERALDIFtECTORATE DIRECTORATE DIRECTORATE DIRECrORATE DIRECTORATE DIRECTORATE

PENSIONS CONTRIBUTIONS SOCIAL INSURANCE ADMINISTRATION BUDGEtTING AND PROPERTYAND SNOWTERM POLICY ANDPERSONNEL RNANCIAL AND SPABENEflTS MANAGEMENT ACTIVITIES MANAGEMENT

z 0 00 *J~~~~~~~~~~~~~~ 2L

Z ~~~~~~~~~~~~ 0~cz in 0a ~~~ 2 0 F ~~~~~~~~~~~~~4 Z oA 0 ul IL) 4 ) 2 0

0 u 0 Am t2 ILo8 m I 2w 0 22 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I

0.~~~~~~~~~

Annex 1Page 4 of 7

Table 1.3FUNCTIONAL UNITS, DIRECTLY REPORTING

TO THE GOVERNOR AND DEPUTY GOVERNOR

INT NIONLAGREEMENTS | OPERATIONANDINFORMATION_______________ ~ ~ ~ ~ ~ ~ ~ ~~~~~~z0>-TECHNOLOGY

INTERNATIONALRELATIONS 00 AUTOMATION

PROTOCOL r TELECOMMUNICATIONS

| EUYGOVERNOR

LEGAL SERVICES |ERNAL

FINANCIAL CONTROLDIRECTORATE

- 49 - Annex 1Page 5 of 7

3. The various aspects of the senior management level are described in the sectionsbelow:

(a) Governor's Office. Overall responsibility for the Institute's policies and programsrests with the Governor, appointed by Parliament. He is chairman of the SupervisoryBoard.

(b) Supervisory Board. The Board is tripartite in structure, with 14 members,representing government, employers, and labor. All members of the Board havebeen selected. Adoption of the new organizational structure for NSSI was one of thefirst items on the Board agenda.

4. Headquarters consists of six directorates and four offices reporting directly to theGovernor. The six directorates consist of (i) Pensions; (ii) Contributions and Short-term Benefits;(iii) Social Insurance Policy; (iv) Administration and Personnel Management; (v) Budgeting andFinancial Activities; and (vi) Property and Spa management. Operations policy is the responsibility ofthe Pensions Directorate and the Contributions and Short Term Benefits Directorate. As moreprograms are assumed by the Institute, Directorates responsible for unemployment and heath carecould be added. The Contributions Division in the Contributions and Short-term Benefits isresponsible for collection, compliance, audit and appeals, as well as the development of plans,policies and procedures to ensure compliance with the contributions requirements for all employersand self-employed entrepreneurs. The Social Insurance Policy Directorate represents a new function inthe Institute, consisting of Statistics and Actuarial Analysis; Policy Analysis and Planning and PublicRelations. The Statistics and Actuarial Division will include statisticians and actuaries and will beresponsible for developing projections and anticipating needed adjustments to the fund and theprogram, as well as producing statistical reports and analysis. The Policy Analysis and PlanningDivision will be responsible for preparing and developing Policy options for consideration by theGovernor and the Supervisory Board. The Public Relations Division will be responsible for thedevelopment and dissemination of information about programs administered by the Institute andproposed changes to these programs through the use of media. The Administration and PersonnelManagement Directorate would carry out a new function for the organization - personnelmanagement, compensation, labor agreements, and training and career development. The Budgetingand Financial Activities Directorate would carry out the budget development and execution functions,as well as accounting for the administrative budget of the institute. It also has the responsibility toensure that adequate space, equipment, and supplies are available for all Institute employees andcustomers. The Property and Spa Management Directorate has the responsibility to inventory andmanage, preferably through contractors, the properties to be transferred to the Social insurance Fund.Spa management is also included in its mandate. Consideration is being given, however, totransferring these functions out of the NSSI. Four offices report directly to the Governor and makeup the Secretariate. The Information Technology Directorate, includes the current informationtechnology staff. It is responsible for computer programming and analysis, as well as systemsrequirements and specifications. The Internal Financial Control Directorate has fiscal control overand accountability for the income and expenditures of the Social Insurance Fund. In addition, officesare in place to handle international relations and legal services.

- 50 - Annex 1Page 6 of 7

5. Regional Advisory Committee. The day-to-day operations of the NSSI will continuethrough the existing network of 28 regional offices. As at least an interim measure, a RegionalAdvisory Committee will be selected composed of nine current regional managers, one from each ofthe territories, reporting directly to the Governor. The Committee will be responsible for providingadvice on a regular basis to the Governor concerning regional policy for the Institute. Initially, theCommittee will be responsible for reviewing the current office structure and providing feasibleoptions for improving its effectiveness. One particular set of recommendations will concern theselection of a few (nine or less) well-placed and staffed "supervisory" regional offices which wouldfunction as "hubs" for the other regional offices. These offices could also offer inter alia specializedsupport staff in the functional areas of information systems, public information, training, resourcesand compliance. These supervisory offices would carry out the oversight function more effectivelythan would a separate operational unit at Headquarters. This structure would minimize bureaucraticlayers and would set up a direct relationship to the Governor's office. It would also enableHeadquarters functional departments to support the regional office structure more directly.

C. Budget

6. Revenues and expenditures for the Social Insurance Directorate for 1994 - 1996 areshown in Table 2 below.

- 51 - Annex 1Page 7 of 7

Table 2: SOCIAL INSURANCE FUND REVENUES AND EXPENDITURES(thousands of Bulgarian leva)

1994 1995 1996 Budge

RevenuesContributions on wages a/ 43,368 65,039 91,307

Self-erployed contributions 3,308 4,628 5,570Rcvenue from audits 2,486 3,208 4,009Additionalpaymentsforjobinjuries 78 124 231Payments for working pensionen bt 285 296 133Surplus transferred from earlier years 0 231 74TOTAL 49,523 73,526 101,379

ExpendituresAdministrative Expenses c/ 281 442 705Pensions dt 48,152 66,080 92,023Short-term benefits el 5,214 7,239 9,203

Family Benefits f7 5,232 6,766 3,528Additional Expenses g/ 1,326 51 90Dietary Supplements ht 9S 163 0

60,304 30,790 110,541

SWcBudgetContributioni/ 11,012 8,217 9,170

Shortfall (without Budgetary Funds) 10,781 7,265 9,170

Shortfall less family benefits and dietarysupplements 5,450 336 642

Notes:

51 Basic employer contributionequals 35 percent of payroll for 1994 and 1995 andand 37 percent of payroll for 1996.

bt Legislation reduced reduction of benefits for pensionen who work as of 1996.c/ Includes salaries, benefits, training, repairs and other expenses for cental and regional

SII offices.

dt Includes old-age, disability, and survivors' pensionsL

et Includes payments for sick-leave, maternity leave, leave to cars for family nembebs,

death benefits, orthopedic devices, and other allowances.

ft Includes birth gants and family allowances; thes benefits an obligaion of the budget

as of January 1997.gt Other non-wage administrative expeses such as printinght Includes dietary supplemnents and health facilities; these are phased out in 1996.i/ State contribution covers deficit and other budgetary obligation Contrbution

will be reduced by BUL 4,538.7 thousand for 1996 if 2% employee contribution isenacted

-53- Annex 2Page 1 of 11

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

EVALUATION OF IMPACT OF GOVERNMENT REFORMS

1. In recent years, Government has enacted a series of legislative changes intended tostabilize the pension system financially, improve its transparency and redefine benefits. Furtherreform of the pension system is anticipated now that the NSSI has been separated from the Ministryof Labor. These changes would separate out professional funds from the general system as a meansto continue self-funded early retirement benefits. In addition, the normal pensionable age is likely tobe increased.

2. Analysis conducted on the economic impact of measures taken since the separation ofthe NSSI indicates that they will have brought the pension fund in balance in 1996. These changesinclude the transfer of the payroll tax from the overfunded unemployment fund to the underfundedpension fund. Additionally, an employee payroll tax has been added and the structure of pensionsreconfigured to make up for past losses in real pensions relative to wages. On the expenditure side,the mandatory retirement age has been raised by three years, permitting employees to defer theirpensions and continue working, thereby reducing the overall expenditures on pensions. As a resultof these measures, the fund will no longer require subsidies from the budget. When the normalretirement age-the age at which employees are first eligible for a full pension if they so choose--isincreased as well, the budgetary surplus will be increased sufficiently to reduce the payroll tax byaround 9 percent, from 39 percent to 30 percent of payroll.

Analysis Prior to Fund Separation

3. Analysis conducted in Bulgaria prior to the preparation of this project, evaluating allsocial benefit programs, indicated that Bulgaria's failure to reshape the cash benefit system createdserious fiscal and efficiency problems (Fox, forthcoming). Expenditures for social insurance andsocial assistance increased as a share of GDP, from 11.4 percent in 1990 to 13.3 percent in 1992.Although social insurance expenditures as a share of GDP rose during the transition, this increase wascaused by the over 30 percent fall in GDP. To meet recurring financing crises, earmarked payrolltaxes used to finance benefits were raised several times, with continuing budgetary deficits. Evenwith sharp tax increases, tax receipts as a share of GDP only held constant. The rapid shrinkage ofthe tax base was attributed to two factors: (a) decline in total employment and labor income; and (b)poor tax administration, with taxes in the growing private sector simply not collected. The growinggap between revenues and expenditures necessitated an increase in general revenue financing from 3.4percent in 1990 to 15.8 percent in 1992.

4. In response to rising deficits, Government enacted certain changes through thePension Reform Act of 1992, restricting eligibility and amending the old-age benefit formula (Fox,1995). Beginning January 1993, early retirement ages were raised by two years and the minimumlength of service for a fMll pension was increased. Early retirement was no longer offered to laid offworkers. Total benefits were capped at three times the social pension.

-54 - Annex 2Page 2 of l1

5. Economic and sector work carried out during project preparation indicated that manyof the issues identified earlier remained, notwithstanding the measures taken by Government in 1993.In the April 1995 Aide Memoire, the mission presented preliminary findings based on an

economic/demographic simulation model developed for that purpose. The key findings indicated that:

(a) improvements in contribution collection rates stemming from improved compliancecould significantly strengthen the financial status of the social insurance fund;

(b) current financial balance could not be achieved solely through improved compliancebut had to be complemented by policies to reduce long-run expenditure; and,

(c) while improvements in benefit generosity would be fiscally feasible if tax compliancewere improved and normal retirement ages extended, such changes should beapproached with caution as small changes in the projected ratio of wages to benefitscould create a long-run shortfall.

Analysis Related to Measures Taken Since Fund Separation

6. A more rapid program of policy change was instituted after the NSSI separated fromthe Ministry of Labor -- a measure intended, in part, to improve fiscal accountability andtransparency. As part of that process, starting in 1997, family benefits will become a budgetaryobligation outside the pension fund since they do not represent an insurable condition related toemployment. Further, the mandatory retirement age has been increased as a first step towardsreducing expenditures and increasing revenue. Finally, the earnings base used to calculate pensionswill be increased from the best three out of the last 10 years to the entire worklife, phased-in in oneyear increments.

7. The payroll tax used to finance pensions and short-term benefits was raised by 2percent in 1996, offsetting a reduction in the payroll tax rate for unemployment insurance. As aresult, the social insurance contribution rate was increased from 35 percent to 37 percent of payrollfor most enterprises, while the unemployment insurance tax was lowered from 7 percent to 5 percent.At the same time, benefits were realigned to wages, reducing the compression that had taken placebecause of ad hoc flat-rate indexing. While data are not available to conduct a analysis of thedistributional impact of decompression, NSSI experts suggest that many very elderly pensioners willbe helped by the realignment, as their pension-to-wage ratios tended to decline the most over time.Naturally, decompression will also help pensioners of all ages, if their benefits are not constrained bythe current pension cap.

8. Simulations of the impact of these measures without project intervention wereconducted using a Government-supported actuarial model of the social insurance system using JapanGrant funds.1' These simulations indicate that the pension fund would have run a small deficit

1' Japan Grant funds were also used to analyze the institution of a pension plan for teachers within the NationalSocial Security Institute (NSSI) to pay early retirement pensions or supplementary benefits to teachers whopostponed retirement. While this model has not been used to extend the Economic Sector Work (ESW), itprovides new tools with which to conduct future ESW and with which to evaluate proposed policy options.

- 55 - Annex 2Page 3 of 11

throughout virtually all of the projection period given the initial measures described above (Tables 1and 2). The increased revenues more than offset benefit gains resulting from the recalibration ofpensions. As a consequence, the funding gap narrowed. If these had been the only measures taken,the NSSI deficit funded by budgetary subsidies would have declined to less than 1 percent of NSSIrevenues for most of the first decade of the 21st century. It would have risen to over 1 percent ofNSSI revenues for most of the second decade of the 21st century, as the numbers of pensionersincreased through further population aging. The NSSI deficit would have remained less than 0.30percent of GDP for most of the projection period.

9. Additional measures were taken by Government, however, including the institution ofa two percent payroll tax on employees and the lifting of the mandatory retirement age by three years.This latter step prevents employers from forcing employees into retirement if they prefer to continueworking. Simulations of these additional measures indicate that the employee payroll tax removes theneed for any budgetary financing, assuming that compliance stays the same. In fact, this increaseover-compensates for anticipated government subsidies, leaving room for tax reductions in the future(Tables 3 and 4). Increasing the mandatory retirement age by 3 years compounds this favorableimpact (Tables 5 and 6). In the short run, these changes allow the NSSI to start to build up a fundreserve that insures the NSSI against fiscal distress should unanticipated contingencies lead to anunanticipated shortfall in revenues.2 While both steps bring the fund into financial balance, theheavy tax burden may continue to discourage collection compliance and employment.

Analysis Related to Future Structural Reforms

10. Government has indicated its willingness to address the underlying structuralproblems of the social insurance system. Legislation is being developed to establish separate plans tofund pensions for employees now entitled to special early retirement privileges. This would reducethe direct payroll taxes for enterprises employing these workers. Government anticipates a proposalfor the substantive structural overhaul of the pension system to be introduced in late 1996. Whileplans for pension reform are not final, they are likely to include measures to increase significantly thenormal retirement age and to revise the benefit formula, potentially limiting benefits relative to theaverage wage.

11. The same actuarial model was used to simulate the impact of raising the normalretirement age by 3 years over a 6 year period, one of the major measures under consideration by theNSSI. If such a measure were effected, the payroll tax rate could be reduced substantially whilecontinuing to maintain a fund ratio equal to 25 percent of expenditures as a cushion against fiscaluncertainty. On average over the projection period, the payroll tax rate could be conservativelyreduced by 9 percent, bringing the basic payroll tax rate down from the current 39 percent to 30percent of payroll (Tables 7 and 8).

2' Another measure that will reduce expenditures includes the gradual lengthening of the period used to calculatethe base pension. Future simulations will be conducted to measure the impact of this measure. Expenditurereductions will depend on the steepness of the expected earnings profiles of Bulgarian workers and on the way inwhich the earnings base is indexed for inflation. Since this measure is anticipated, current simulations actuallypresent a financial picture that errs on the side of conservatism.

Arnax 2Page 4 of 11

Table 1: BULGNRIA: Projected Operaticns of the Social Insurano Fund (billicns of leva)Tax rates of 52%, 47%, and 37%.

INOOME BY SOURCE cUrx BY TYPE OF BENEFITQlply Cange FRd Frd

FUll RedLwed Basic other Govt Inter- ITUL Short Pop TOwaL in Fuind at RatioYear Taxbase Taxbase Tax Incme Sub est INOCME Pensicns Term Grcwth oUIMD Balanze BDY % BDY

1996 355.0 225.1 88.4 11.3 0.9 0.0 100.6 91.3 9.3 0.0 100.6 0.0 0.0 0.001997 449.6 285.1 112.0 14.3 1.8 0.0 128.1 116.3 11.8 0.0 128.1 0.0 0.0 0.001998 570.1 361.5 142.0 18.1 2.0 0.0 162.1 147.1 15.0 0.0 162.1 0.0 0.0 0.001999 725.4 459.9 180.6 23.1 1.1 0.0 204.8 185.6 19.2 0.0 204.8 0.0 0.0 0.00

2000 925.7 587.0 230.5 29.4 0.0 0.0 259.9 235.2 24.7 0.0 259.9 0.0 0.0 0.012001 1,136.9 720.9 283.0 36.2 0.1 0.0 319.3 288.7 30.7 0.0 319.3 -0.0 0.0 0.002002 1,400.1 887.7 348.5 44.5 0.3 0.0 393.4 355.3 38.1 0.0 393.4 0.0 0.0 0.002003 1,727.4 1,095.3 430.0 55.0 1.9 0.0 486.9 439.4 47.5 0.0 486.9 0.0 0.0 0.002004 2,140.8 1,357.4 532.9 68.2 4.8 0.0 605.8 546.4 59.4 0.0 605.8 0.0 0.0 0.00

2005 2,658.7 1,685.8 661.8 84.7 5.4 0.0 751.9 677.7 74.2 0.0 751.9 0.0 0.0 0.002006 3,254.1 2,063.3 810.0 103.6 9.5 0.0 923.1 831.7 91.4 0.0 923.1 0.0 0.0 0.002007 3,931.0 2,492.5 978.7 125.1 16.8 0.0 1,120.6 1,009.7 110.9 0.0 1,120.6 0.0 0.0 0.002008 4,688.0 2,972.5 1,167.3 149.2 28.2 0.0 1,344.7 1,212.1 132.6 0.0 1,344.7 0.0 0.0 0.002009 5,518.7 3,499.2 1,374.1 175.6 41.0 0.0 1,590.7 1,434.4 156.3 0.0 1,590.7 0.0 0.0 0.00

2010 6,413.4 4,066.5 1,597.0 203.9 54.8 0.0 1,855.7 1,674.2 181.5 0.0 1,855.7 0.0 0.0 0.002011 7,357.1 4,664.8 1,832.1 233.7 64.3 0.0 2,130.1 1,922.6 207.5 0.0 2,130.1 0.0 0.0 0.002012 8,322.7 5,277.1 2,072.8 264.1 71.8 0.0 2,408.7 2,174.8 233.9 0.0 2,408.7 0.0 0.0 0.002013 9,289.2 5,889.9 2,313.6 294.5 83.0 0.0 2,691.1 2,431.8 259.3 0.0 2,691.1 0.0 0.0 0.002014 10,224.2 6,482.7 2,546.5 323.7 87.2 0.0 2,957.4 2,674.4 283.0 0.0 2,957.4 0.0 0.0 0.00

2015 11,093.1 7,033.6 2,762.9 350.9 86.9 0.0 3,200.8 2,896.4 304.4 0.0 3,200.8 0.0 0.0 0.002016 11,868.6 7,525.4 2,956.2 375.0 84.6 0.0 3,415.8 3,093.0 322.8 0.0 3,415.8 0.0 0.0 0.002017 12,693.3 8,048.3 3,161.5 400.7 84.4 0.0 3,646.6 3,304.2 342.4 0.0 3,646.6 0.0 0.0 0.002018 13,572.3 8,605.6 3,380.2 428.2 78.1 0.0 3,886.5 3,522.9 363.6 0.0 3,886.5 0.0 0.0 0.002019 14,510.0 9,200.2 3,613.5 457.5 71.0 0.0 4,142.0 3,755.5 386.6 0.0 4,142.0 0.0 0.0 0.00

JCW & JPW, ilaD BANK03-22-1996

Ann K 2pop 5 of U1

TIbls 2: EILGNA: Projected Inooma Rate, COt Rats, and Actmrial BDal (% of tax kee)Tax rates of 52%, 47%, and 37%

INII RATE BY SCtRZ W1 R*TE BY TYPE OF BENlErr TAX RAM INCSYE

lasic Other Govt Inter- lUEAL Short Pop TOUTL Balanoe Banaoe FundYear Tax Incme Sub est INoCHE Pensions Term Growth CU(Jl Only & FUnd Ratio

1996 39.29 5.01 0.39 0.00 44.68 40.54 4.14 0.00 44.68 0.39 1.88 3.001997 39.29 5.01 0.65 0.00 44.94 40.80 4.14 0.00 44.94 0.65 2.16 6.001998 39.28 5.01 0.56 0.00 44.85 40.69 4.16 0.00 44.85 0.56 2.06 9.001999 39.27 5.01 0.24 0.00 44.53 40.36 4.17 0.00 44.53 0.24 1.74 12.00

2000 39.27 5.02 0.00 0.00 44.28 40.07 4.21 0.00 44.28 -0.00 1.20 15.002001 39.26 5.02 0.02 0.00 44.30 40.05 4.25 0.00 44.30 0.02 1.48 18.002002 39.26 5.02 0.04 0.00 44.32 40.02 4.30 0.00 44.32 0.04 1.54 21.002003 39.26 5.02 0.17 0.00 44.45 40.12 4.34 0.00 44.45 0.17 1.70 24.002004 39.26 5.02 0.35 0.00 44.63 40.26 4.37 0.00 44.63 0.35 0.83 25.00

2005 39.26 5.02 0.32 0.00 44.60 40.20 4.40 0.00 44.60 0.32 0.17 25.002006 39.26 5.02 0.46 0.00 44.74 40.31 4.43 0.00 44.74 0.46 0.32 25.002007 39.27 5.02 0.67 0.00 44.96 40.51 4.45 0.00 44.96 0.67 0.55 25.002008 39.27 5.02 0.95 0.00 45.24 40.78 4.46 0.00 45.24 0.95 0.80 25.002009 39.27 5.02 1.17 0.00 45.46 40.99 4.47 0.00 45.46 1.17 1.01 25.00

2010 39.27 5.01 1.35 0.00 45.63 41.17 4.46 0.00 45.63 1.35 1.14 25.002011 39.28 5.01 1.38 0.00 45.66 41.21 4.45 0.00 45.66 1.38 1.15 25.002012 39.28 5.00 1.36 0.00 45.64 41.21 4.43 0.00 45.64 1.36 1.14 25.002013 39.28 5.00 1.41 0.00 45.69 41.29 4.40 0.00 45.69 1.41 1.16 25.002014 39.28 4.99 1.34 0.00 45.62 41.25 4.37 0.00 45.62 1.34 1.07 25.00

2015 39.28 4.99 1.24 0.00 45.51 41.18 4.33 0.00 45.51 1.24 0.96 25.002016 39.28 4.98 1.12 0.00 45.39 41.10 4.29 0.00 45.39 1.12 1.02 25.002017 39.28 4.98 1.05 0.00 45.31 41.05 4.25 0.00 45.31 1.05 0.92 25.002018 39.28 4.98 0.91 0.00 45.16 40.94 4.22 0.00 45.16 0.91 0.78 25.002019 39.28 4.97 0.77 0.00 45.02 40.82 4.20 0.00 45.02 0.77 0.62 25.00

PRESERrVALUE

1996-2020 39.27 5.01 0.73 0.00 45.01 40.69 4.32 0.00 45.01 0.73 1.16

JCW & JPW, WRIOD BAIK03-22-1996

Annex 2Page 6 of 11

Table 3: BUI.GARIA: Projected Operations of the Social Insurance Furd (billicos of leva)Tax rater of 54%, 49%, and 39%

INoCHE BY SOURCE CtTGO BY TYPE OF BENEFTTomply Chiange Fund Furd

Full ReuRced Basic Other Govt Inter- TOMAL Short Pop TOAL in FUrd at RatioYear Taxbase Taxhase Tax Inome Sub est INCCME Pensions Term Grcwth OUIGO Balanoe BOY % BOY

1996 355.0 225.1 92.9 11.3 0.0 0.5 104.7 91.3 9.3 0.0 100.6 4.1 4.1 3.241997 449.6 285.1 117.7 14.3 0.0 1.6 133.6 116.3 11.8 0.0 128.1 5.4 9.6 5.911998 570.1 361.5 149.2 18.1 0.0 3.2 170.5 147.1 15.1 0.0 162.1 8.4 18.0 8.771999 725.4 459.9 189.8 23.1 0.0 5.9 218.8 185.6 19.2 0.0 204.8 13.9 31.9 12.27

2000 925.7 587.0 242.2 29.4 0.0 10.5 282.1 235.2 24.7 0.0 259.9 22.2 54.1 16.942001 1,136.9 720.9 297.4 36.2 0.0 14.3 347.9 288.7 30.7 0.0 319.4 28.5 82.6 21.002002 1,400.1 887.7 366.3 44.5 0.0 21.3 432.2 355.3 38.2 0.0 393.5 38.7 121.3 24.92 *n2003 1,727.4 1,095.3 451.9 55.0 0.0 31.4 538.3 439.4 47.6 0.0 486.9 51.3 172.7 28.502004 2,140.8 1,357.4 560.0 68.2 0.0 44.4 672.6 546.4 59.5 0.0 605.9 66.7 239.4 31.84

2005 2,658.7 1,685.8 695.5 84.7 0.0 61.3 841.5 677.7 74.3 0.0 752.0 89.5 328.9 35.622006 3,254.1 2,063.3 851.3 103.6 0.0 78.2 1,033.1 831.7 91.5 0.0 923.2 109.9 438.8 39.152007 3,931.0 2,492.5 1,028.5 125.1 0.0 96.6 1,250.2 1,009.7 111.0 0.0 1,120.8 129.4 568.3 42.252008 4,688.0 2,972.5 1,226.7 149.2 0.0 115.2 1,491.1 1,212.1 132.8 0.0 1,344.9 146.2 714.4 44.912009 5,518.7 3,499.2 1,444.1 175.6 0.0 132.9 1,752.6 1,434.4 156.5 0.0 1,590.9 161.7 876.1 47.20

2010 6,413.4 4,066.5 1,678.3 203.9 0.0 148.9 2,031.1 1,674.2 181.7 0.0 1,856.0 175.1 1,051.2 49.342011 7,357.1 4,664.8 1,925.4 233.7 0.0 162.4 2,321.5 1,922.6 207.8 0.0 2,130.4 191.1 1,242.3 51.572012 8,322.7 5,277.1 2,178.3 264.1 0.0 173.0 2,615.5 2,174.8 234.2 0.0 2,409.0 206.5 1,448.7 53.832013 9,289.2 5,889.9 2,431.4 294.5 0.0 179.5 2,905.3 2,431.8 259.7 0.0 2,691.5 213.9 1,662.6 56.212014 10,224.2 6,482.7 2,676.1 323.7 0.0 180.9 3,180.8 2,674.4 283.4 0.0 2,957.8 223.0 1,885.6 58.90

2015 11,093.1 7,033.6 2,903.6 350.9 0.0 176.8 3,431.3 2,896.4 304.8 0.0 3,201.2 230.1 2,115.8 61.932016 11,868.6 7,525.4 3,106.7 375.0 0.0 166.5 3,648.2 3,093.0 323.2 0.0 3,416.2 231.9 2,347.7 64.372017 12,693.3 8,048.3 3,322.4 400.7 0.0 184.8 3,908.0 3,304.2 342.9 0.0 3,647.1 260.9 2,608.6 67.112018 13,572.3 8,605.6 3,552.4 428.2 0.0 205.7 4,186.2 3,522.9 364.1 0.0 3,887.0 299.2 2,907.8 70.192019 14,510.0 9,200.2 3,797.5 457.5 0.0 229.6 4,484.7 3,755.5 387.1 0.0 4,142.6 342.1 3,249.9 73.74

JcW & JPW, WORM BANK04-03-1996

Anrex 2Page 7 of 11

Table 4: EILWARIA: Projected Income Rate, Cost Rate, and Actuarial Balance (% of tax base)Tax rates of 54%, 49%, and 39%

INa(ME RATE BY SOURCE CUTS RATE BY IYPE OF BENEFIT TAX RATE INCREASEPaqured

Basic Other Govt Inter- IUrAL Short Pop TIOML Balance Balanoe FuxdYear Tax Inrxmxe Sub est INCOME Pensiors Term Gncwth OUIGO only & Fund Ratio

1996 41.29 5.01 0.00 0.24 46.53 40.54 4.15 0.00 44.69 -1.61 -0.12 3.001997 41.29 5.01 0.00 0.55 46.85 40.80 4.15 0.00 44.94 -1.35 0.17 6.001998 41.28 5.01 0.00 0.88 47.17 40.69 4.16 0.00 44.85 -1.44 0.07 9.001999 41.27 5.01 0.00 1.28 47.56 40.36 4.18 0.00 44.53 -1.75 -0.25 12.00

2000 41.27 5.02 0.00 1.78 48.07 40.07 4.22 0.00 44.28 -2.00 -0.80 15.002001 41.26 5.02 0.00 1.98 48.26 40.05 4.26 0.00 44.31 -1.97 -0.52 18.002002 41.26 5.02 0.00 2.40 48.68 40.02 4.30 0.00 44.32 -1.96 -0.46 21.002003 41.26 5.02 0.00 2.87 49.15 40.12 4.34 0.00 44.46 -1.82 -0.30 24.00 LA2004 41.26 5.02 0.00 3.27 49.55 40.26 4.38 0.00 44.64 -1.64 -1.16 25.00 %0

2005 41.26 5.02 0.00 3.64 49.92 40.20 4.41 0.00 44.61 -1.67 -1.82 25.002006 41.26 5.02 0.00 3.79 50.07 40.31 4.44 0.00 44.75 -1.54 -1.67 25.002007 41.27 5.02 0.00 3.87 50.16 40.51 4.46 0.00 44.97 -1.32 -1.45 25.002008 41.27 5.02 0.00 3.87 50.16 40.78 4.47 0.00 45.24 -1.04 -1.19 25.002009 41.27 5.02 0.00 3.80 50.09 40.99 4.47 0.00 45.46 -0.82 -0.99 25.00

2010 41.27 5.01 0.00 3.66 49.95 41.17 4.47 0.00 45.64 -0.64 -0.85 25.002011 41.28 5.01 0.00 3.48 49.77 41.21 4.45 0.00 45.67 -0.61 -0.85 25.002012 41.28 5.00 0.00 3.28 49.56 41.21 4.44 0.00 45.65 -0.63 -0.85 25.002013 41.28 5.00 0.00 3.05 49.33 41.29 4.41 0.00 45.70 -0.58 -0.84 25.002014 41.28 4.99 0.00 2.79 49.07 41.25 4.37 0.00 45.63 -0.65 -0.92 25.00

2015 41.28 4.99 0.00 2.51 48.78 41.18 4.33 0.00 45.51 -0.76 -1.03 25.002016 41.28 4.98 0.00 2.21 48.48 41.10 4.30 0.00 45.40 -0.87 -0.98 25.002017 41.28 4.98 0.00 2.30 48.56 41.05 4.26 0.00 45.32 -0.95 -1.07 25.002018 41.28 4.98 0.00 2.39 48.65 40.94 4.23 0.00 45.17 -1.09 -1.21 25.002019 41.28 4.97 0.00 2.50 48.75 40.82 4.21 0.00 45.03 -1.22 -1.37 25.00

PRESUVAUEE

1996-2020 41.27 5.01 0.00 2.58 48.86 40.69 4.33 0.00 45.01 -1.27 -0.84

JCW & JPW, WORLD BANK04-03-1996

Amrw 2Page 8 of 11

Table 5: BLX&MMA: Projected operatiors of the Social Insranwe Furd (billiams of leva)Tax rates of 54%, 49%, and 39%F9ridatcry retirei3nt ages raised by 3 years.

IN0NEE BY SOURCE WUIT BY TYPE OF BENEFTTCaply dCange FUrd FRnd

FUll Redu Basic Other Govt Inter- IUSL ort Pcp TOTAL in FEUd at RatioYear Taxdase Taxkase Tax Incrxe Sub est INa4 Penions Term Growth OUXI Balanoe EDY % BOY

1996 355.3 225.1 92.9 11.3 0.0 0.5 104.8 91.1 9.3 0.0 100.5 4.3 4.3 3.351997 450.0 285.1 117.7 14.3 0.0 1.6 133.6 116.2 11.8 0.0 128.0 5.6 9.9 6.111998 570.6 361.5 149.2 18.1 0.0 3.3 170.6 146.9 15.1 0.0 162.0 8.7 18.6 9.071999 726.0 459.9 189.8 23.1 0.0 6.1 219.0 185.4 19.2 0.0 204.6 14.4 32.9 12.68

2000 926.5 586.9 242.2 29.4 0.0 10.8 282.5 234.9 24.7 0.0 259.6 22.8 55.8 17.492001 1,137.9 720.9 297.4 36.2 0.0 14.7 348.3 288.2 30.7 0.0 318.9 29.4 85.2 21.692002 1,401.3 887.8 366.3 44.5 0.0 22.0 432.9 354.6 38.2 0.0 392.8 40.1 125.2 25.772003 1,729.0 1,095.3 452.0 55.0 0.0 32.4 539.4 438.4 47.6 0.0 486.0 53.4 178.7 29.562004 2,142.9 1,357.5 560.1 68.2 0.0 46.1 674.3 544.9 59.5 0.0 604.4 70.0 248.6 33.15

2005 2,661.3 1,686.0 695.6 84.7 0.0 63.8 844.0 675.7 74.3 0.0 750.0 94.0 342.7 37.202006 3,257.2 2,063.5 851.4 103.6 0.0 81.6 1,036.6 829.6 91.5 0.0 921.1 115.5 458.1 40.972007 3,934.9 2,492.8 1,028.6 125.2 0.0 100.9 1,254.7 1,007.3 111.1 0.0 1,118.3 136.4 594.6 44.312008 4,692.7 2,972.9 1,226.9 149.2 0.0 120.7 1,496.7 1,208.9 132.8 0.0 1,341.7 155.0 749.6 47.222009 5,524.3 3,499.7 1,444.3 175.6 0.0 139.6 1,759.5 1,431.1 156.5 0.0 1,587.6 171.9 921.5 49.73

2010 6,419.7 4,066.9 1,678.5 203.9 0.0 156.7 2,039.1 1,671.1 181.7 0.0 1,852.9 186.2 1,107.7 52.082011 7,364.3 4,665.3 1,925.6 233.7 0.0 171.3 2,330.6 1,919.1 207.8 0.0 2,126.9 203.7 1,311.4 54.522012 8,330.9 5,277.7 2,178.5 264.1 0.0 182.8 2,625.5 2,170.9 234.2 0.0 2,405.2 220.3 1,531.7 57.002013 9,298.2 5,890.5 2,431.6 294.5 0.0 189.9 2,916.0 2,427.5 259.7 0.0 2,687.2 228.8 1,760.6 59.612014 10,234.0 6,483.3 2,676.3 323.8 0.0 191.7 3,191.8 2,670.1 283.4 0.0 2,953.5 238.3 1,998.8 62.52

2015 11,103.5 7,034.1 2,903.8 350.9 0.0 187.5 3,442.2 2,892.4 304.9 0.0 3,197.3 244.9 2,243.7 65.752016 11,879.6 7,525.8 3,106.8 375.0 0.0 176.5 3,658.4 3,089.3 323.3 0.0 3,412.5 245.9 2,489.6 68.332017 12,705.1 8,048.8 3,322.6 400.7 0.0 196.0 3,919.3 3,300.5 342.9 0.0 3,643.4 275.9 2,765.5 71.222018 13,585.0 8,606.2 3,552.5 428.2 0.0 218.0 4,198.7 3,519.1 364.1 0.0 3,883.2 315.5 3,081.0 74.442019 14,523.5 9,200.7 3,797.7 457.5 0.0 243.2 4,498.5 3,751.6 387.1 0.0 4,138.7 359.8 3,440.8 78.14

J-CW & JPW, WIET.D BANR04-05-1996

Ak3 2Pa 9 o 11

Table 6: BILGAR: Projetd Irzae Rate, Oost Rate, and Aiarial Balarwi (% of tax be)Ta rs of 54%, 49%, 39%lowI y rst.iremt raages eaid by 3 year8

DiM RATE BY SOUaM IZm MTE BY YPE OF BlET IX MI RI DN

Basic Other Govt Inter- IOTL Short Pop TOM Balaa Baln FwUYear Tax Incc Skb est INtCJ3E Piam T1a Growth OUlrO aoly & Fhd Fatio

1996 41.29 5.01 0.00 0.24 46.54 40.49 4.15 0.00 44.63 -1.66 -0.17 3.001997 41.28 5.01 0.00 0.57 46.86 40.75 4.15 0.00 44.89 -1.40 0.12 6.001998 41.28 5.01 0.00 0.91 47.20 40.64 4.16 0.00 44.81 -1.48 0.02 9.001999 41.27 5.01 0.00 1.32 47.60 40.31 4.18 0.00 44.48 -1.80 -0.30 12.00

2000 41.27 5.02 0.00 1.84 48.12 40.01 4.22 0.00 44.23 -2.05 -0.85 15.002001 41.26 5.02 0.00 2.04 48.32 39.98 4.26 0.00 44.24 -2.04 -0.59 18.002002 41.26 5.02 0.00 2.48 48.76 39.94 4.30 0.00 44.25 -2.03 -0.54 21.002003 41.26 5.02 0.00 2.96 49.24 40.02 4.34 0.00 44.37 -1.91 -0.40 24.002004 41.26 5.02 0.00 3.39 49.67 40.14 4.38 0.00 44.52 -1.76 -1.28 25.00

2005 41.26 5.02 0.00 3.78 50.06 40.08 4.41 0.00 44.49 -1.79 -1.94 25.002006 41.26 5.02 0.00 3.95 50.24 40.20 4.44 0.00 44.64 -1.64 -1.78 25.002007 41.26 5.02 0.00 4.05 50.33 40.41 4.46 0.00 44.86 -1.42 -1.55 25.002006 41.27 5.02 0.00 4.06 50.35 40.66 4.47 0.00 45.13 -1.16 -1.30 25.002009 41.27 5.02 0.00 3.99 50.28 40.89 4.47 0.00 45.37 -0.92 -1.08 25.00

2010 41.27 5.01 0.00 3.85 50.14 41.09 4.47 0.00 45.56 -0.73 -0.93 25.002011 41.27 5.01 0.00 3.67 49.96 41.13 4.45 0.00 45.59 -0.69 -0.92 25.002012 41.28 5.01 0.00 3.46 49.75 41.13 4.44 0.00 45.57 -0.71 -0.93 25.002013 41.28 5.00 0.00 3.22 49.50 41.21 4.41 0.00 45.62 -0.66 -0.91 25.002014 41.28 4.99 0.00 2.96 49.23 41.18 4.37 0.00 45.56 -0.72 -0.99 25.00

2015 41.28 4.99 0.00 2.67 48.94 41.12 4.33 0.00 45.45 -0.82 -1.09 25.002016 41.28 4.98 0.00 2.35 48.61 41.05 4.30 0.00 45.34 -0.92 -1.03 25.002017 41.28 4.98 0.00 2.43 48.69 41.01 4.26 0.00 45.27 -0.99 -1.12 25.002018 41.28 4.96 0.00 2.53 48.79 40.89 4.23 0.00 45.12 -1.13 -1.26 25.002019 41.28 4.97 0.00 2.64 48.89 40.77 4.21 0.00 44.98 -1.27 -1.41 25.00

PR;ENr

1996-2020 41.27 5.01 0.00 2.70 48.98 40.61 4.33 0.00 44.94 -1.34 -0.91

J & 3W, MD BAN04-05-1996

Auwu 2E 10 of 11

Table 7: BUEAR: Projected operaticns of the social Irmzanoe Fund (billiorm of leva)Thx rates of 54%, 49%, 39%

yhnitzy rtirmt ages raised by 3 yearsNcr1l retireet age raised by 3 years over pase-in period of 6 years

INCON BY SOURE aLno BY TYPE OF BENFITCMply Ch-- Fund Pund

Fall R sch3 Basic Other Govt Inter- TSL Short Pcp TOqL in FId at RatioYear Taxbase Taxbase Tax Incane Sub est INOOME Pensicns Term Growth 0UITG Balance EBY % BDY

1996 355.3 225.1 92.9 11.3 0.0 0.5 104.8 91.1 9.3 0.0 100.5 4.3 4.3 3.481997 459.8 291.3 120.3 14.6 0.0 2.6 137.6 111.2 12.0 0.0 123.2 14.4 18.7 11.991998 582.9 369.2 152.5 18.6 0.0 6.8 177.9 140.6 15.3 0.0 155.9 22.0 40.7 21.511999 757.1 479.6 198.2 24.2 0.0 15.2 237.6 169.4 19.8 0.0 189.2 48.4 89.1 37.08

2000 967.3 612.8 253.2 31.0 0.0 30.7 314.8 214.7 25.5 0.0 240.2 74.6 163.7 57.832001 1,212.5 768.1 317.5 38.9 0.0 46.6 403.0 250.8 32.2 0.0 283.0 120.0 283.7 81.482002 1,495.6 947.5 391.5 48.0 0.0 76.8 516.4 308.1 40.0 0.0 348.2 168.2 451.9 105.252003 1,848.6 1,171.1 483.9 59.4 0.0 121.4 664.7 379.4 49.9 0.0 429.4 235.3 687.3 129.052004 2,295.4 1,454.1 600.7 73.9 0.0 182.9 857.5 470.1 62.5 0.0 532.6 325.0 1,012.2 153.76

2005 2,851.8 1,806.6 746.3 91.8 0.0 266.1 1,104.2 580.2 78.1 0.0 658.3 445.9 1,458.1 180.482006 3,488.4 2,209.9 913.0 112.2 0.0 355.2 1,380.4 711.8 96.1 0.0 807.9 572.5 2,030.6 206.692007 4,217.5 2,671.8 1,103.8 135.7 0.0 457.5 1,696.9 865.8 116.6 0.0 982.4 714.5 2,745.1 233.152008 5,032.3 3,188.0 1,317.0 161.8 0.0 570.6 2,049.4 1,037.9 139.5 0.0 1,177.4 872.0 3,617.1 259.972009 5,925.7 3,753.9 1,550.8 190.5 0.0 690.7 2,432.1 1,226.9 164.4 0.0 1,391.3 1,040.7 4,657.8 287.10

2010 6,878.5 4,357.6 1,800.4 221.0 0.0 812.3 2,833.6 1,431.7 190.7 0.0 1,622.4 1,211.2 5,869.1 314.282011 7,886.0 4,995.8 2,064.2 253.1 0.0 928.1 3,245.4 1,649.4 218.1 0.0 1,867.5 1,377.9 7,247.0 342.542012 8,923.0 5,652.8 2,335.7 286.2 0.0 1,030.1 3,652.0 1,869.8 245.9 0.0 2,115.7 1,536.4 8,783.3 371.552013 9,954.7 6,306.4 2,605.8 318.9 0.0 1,109.3 4,034.1 2,091.4 272.6 0.0 2,364.0 1,670.1 10,453.4 401.772014 10,949.7 6,936.7 2,866.5 350.4 0.0 1,156.0 4,372.9 2,304.3 297.5 0.0 2,601.9 1,771.0 12,224.4 433.21

2015 11,866.2 7,517.3 3,106.6 379.4 0.0 1,160.8 4,646.7 2,501.9 319.9 0.0 2,821.8 1,825.0 14,049.4 465.162016 12,689.3 8,038.8 3,322.2 405.2 0.0 1,115.7 4,843.1 2,681.2 339.2 0.0 3,020.4 1,822.7 15,872.1 491.612017 13,575.2 8,600.0 3,554.1 433.2 0.0 1,258.9 5,246.2 2,868.6 360.1 0.0 3,228.6 2,017.6 17,889.6 519.982018 14,518.9 9,197.8 3,801.2 463.0 0.0 1,417.8 5,682.0 3,057.9 382.5 0.0 3,440.4 2,241.5 20,131.2 549.052019 15,521.1 9,832.7 4,063.7 494.7 0.0 1,594.1 6,152.5 3,259.8 406.8 0.0 3,666.6 2,485.9 22,617.1 579.49

Jow & JPW, WlFiD BANK04-05-1996

AM= 2Page 11 of 11

Table 8: BUI : Projected Ince Rate, Oost Rate, ard Actarial Balanm (% of tax bose)Tax rates of 54%, 49%, 39%Mmiktary rettrennt ages raised by 3 yearsNal retirnt aes raised by 3 years ovr rhase-in period of 6 years

INXE REA BY CE ouIm RATE BY TYPE OF BENEFTT TAX RATE INClFlKSERe*fred

Basic Other Govt Inter- T1AL Sort Pcp TOUML Balarn Balaoe FWzYear Tax Incue Sub est INtN Persirs Ts Grh CO Only & Fu-d Ratio

1996 41.29 5.01 0.00 0.24 46.54 40.49 4.15 0.00 44.63 -1.66 -0.23 3.001997 41.30 5.03 0.00 0.89 47.23 38.16 4.13 0.00 42.28 -4.05 -2.62 6.001998 41.30 5.03 0.00 1.85 48.18 38.08 4.14 0.00 42.22 -4.11 -2.86 9.001999 41.32 5.05 0.00 3.17 49.54 35.32 4.13 0.00 39.45 -6.91 -5.58 12.00

2000 41.31 5.05 0.00 5.01 51.38 35.03 4.17 0.00 39.20 -7.16 -6.36 15.002001 41.33 5.07 0.00 6.07 52.47 32.65 4.19 0.00 36.84 -9.55 -8.35 18.002002 41.32 5.07 0.00 8.11 54.50 32.52 4.23 0.00 36.75 -9.65 -8.43 21.002003 41.32 5.08 0.00 10.37 56.76 32.40 4.26 0.00 36.67 -9.73 -8.50 24.002004 41.31 5.08 0.00 12.58 58.97 32.33 4.30 0.00 36.62 -9.77 -9.41 25.00

2005 41.31 5.08 0.00 14.73 61.12 32.12 4.32 0.00 36.44 -9.95 -10.08 25.002006 41.31 5.08 0.00 16.07 62.46 32.21 4.35 0.00 36.56 -9.83 -9.93 25.002007 41.31 5.08 0.00 17.12 63.51 32.40 4.36 0.00 36.77 -9.62 -9.74 25.002008 41.31 5.08 0.00 17.90 64.29 32.56 4.38 0.00 36.93 -9.46 -9.59 25.002009 41.31 5.07 0.00 18.40 64.79 32.68 4.38 0.00 37.06 -9.32 -9.46 25.00

2010 41.32 5.07 0.00 18.64 65.03 32.85 4.38 0.00 37.23 -9.15 -9.30 25.002011 41.32 5.07 0.00 18.58 64.96 33.02 4.37 0.00 37.38 -9.00 -9.17 25.002012 41.32 5.06 0.00 18.22 64.61 33.08 4.35 0.00 37.43 -8.96 -9.13 25.002013 41.32 5.06 0.00 17.59 63.97 33.16 4.32 0.00 37.49 -8.89 -9.09 25.002014 41.32 5.05 0.00 16.66 63.04 33.22 4.29 0.00 37.51 -8.87 -9.07 25.00

2015 41.33 5.05 0.00 15.44 61.81 33.28 4.26 0.00 37.54 -8.84 -9.03 25.002016 41.33 5.04 0.00 13.88 60.25 33.35 4.22 0.00 37.57 -8.79 -8.87 25.002017 41.33 5.04 0.00 14.64 61.00 33.36 4.19 0.00 37.54 -8.82 -8.93 25.002018 41.33 5.03 0.00 15.41 61.78 33.25 4.16 0.00 37.40 -8.96 -9.06 25.002019 41.33 5.03 0.00 16.21 62.57 33.15 4.14 0.00 37.29 -9.07 -9.19 25.00

VALU

1996-2020 41.32 5.06 0.00 12.26 58.63 33.79 4.26 0.00 38.05 -8.32 -7.96

JCW & JPW, WCWD BANK04-05-1996

-65 -Annex 3Pag 1 of 7

LETrER OF SECTORAL DEVELOPMENT POLICY

To: Vice PresidentEurope and Central AsiaThe World Bank

Bulgaria is seeking a loan from the World Bank in support ofour Social Insurance Project. The goal of the proposed project is toupdate and modernize the administrative and organizationalcapabilities of the social insurance system to meet the challenge ofproviding affordable pensions and other benefits within a post -

transition economy characterized by increasing labour forcemobility. The loan will finance investments in record keeping,collections and payment operations through the development ofadministrative reforms and the implementation of a modemautomated insurance system. It will also finance the organizationthe organization of new upgraded capabilities to improve policymaking by providing management the capacity to make ongoinglong-run actuarial projections, to evaluate the social and economicimpacts of current policies and alternative proposals, and todevelop a program of public affairs to interface with media in orderto provide regular information and education of the population, aswell as to create a modern and efficient potential for humanresources management.

Background

The main objective of Government economic policycontinues to be to reduce macroeconomic imbalances and restoreeconomic growth. This is to be achieved by substantial fiscaladjustment and tight monetary policy, combined with theacceleration of structural reforms and pro-active Governmentmeasures to stimulate growth. While progress has not beenconsistent in all areas, recent successes are apparent in theslackening of inflation in 1995. our recent history of rapid inflationand sharply declining production since transition, however, has hada serious impact on the social sector with reduced public

For the conecrtness of tr:mlaxion

M.HM ) Q

- 66 - Annex 3Page 2 of 7

confidence in the current social security system due to sharpdeclines in the purchasing power of pensions and ever higher ratesof contributions.

Our problems financing pension payments are exacerbated byan extremely large proportion of elderly in the population and asignificant segment of the work force covered by special earlyretirement provisions. As a consequence, pension payments lastyear took up over 10,5% of GDP.

To address the joint issues of a lack of public confidence inthe system and an excessive fiscal burden, we are undertaking asystematic reform of the social insurance program in order totransform it into a modem system of affordable insurance thatrelies on a multi pillar approach of public pensions and privatelymanaged (though publicly regulated) mandatory and voluntaryprograms and individual initiatives. This reform is part of theConcept for social insurance and public assistance reform approvedwith a Resolution of the Council of Ministers of March 18, 1996.

Current Reforms

In 1995 we passed legislation creating the necessarypreconditions for further reform. In particular, we created anindependent body, the National Social Security Institute (NSSI), tocollect social insurance contributions and make pension payments.The Institute will also pay short term insurance benefits in the casesof absences related to sickness and maternity. By creating aseparate institution we re-established transparency in the programby separating the Social Insurance Fund from the State Budget.This should enable accurate accounting of Fund revenues,including payroll contributions from the State sector. On theexpenditure side, complete transparency is yet to be achieved sinceat present family allowances such as child benefit continue to bepaid through the Social Insurance Institute. It is our intention toseparate these benefits from the fund as soon as it isadministratively feasible since, by definition, they do not qualify associal insurance payments.

The Social Insurance Institute is under the general directionof a Supervisory Board, consisting of representatives of employers,employees and the government . This supervision is intended tohelp restore confidence in the system by providing a clear stake in

For the consctness of translation:

M.HiI

- 67 - Anex 3Page 3 of 7

management to those parties financing an d benefiting from thesystem.

Several other measures to improve income and expenditureswithin the system also have been passed as first steps towards abroader structural reform. Recently the mandatory retirement agehas been raised by three years so that women over age 55 and menover age 60 can choose to stay on their jobs. Second, employersmust now make the entire social insurance contributions on thewage payments. We have changed contribution requirements sothat employees directly pay a 2 percent payioll tax to finance socialinsurance. This change was adopted as a first step towardsintroducing a strict connection between pension benefits andpension contributions. Further, after years of ad hoc lump sumindexing, we have realigned benefits to relate them more closely totheir initial relationship with the overall distribution of wages(while continuing to cap benefits at a maximum payment). Byrestoring fairness to the benefit structure, these changes should alsohelp increase the credibility of the social insurance system overall.

Our Future Strategy

The guidelines for future policy changes incorporate a systemof social insurance combined with the provision of funded, privatelymanaged, supplementary pensions offered on an occupational,employment, or individual basis. The pension fund would be part ofa broader Social Insurance Institute that would eventuallyencompass: (I) a pension fund; (ii) a sickness and maternity fund;(iii) an unemployment fund and (iv) an occupational injury anddisability fund.

The system will be reformed based on classic insuranceprinciples in which contributions are collected based on theearnings paid over individual's entire working lives. Further,individuals' future pensions will depend upon their totalcontributions with some limited adjustments possible for equalityreasons. Benefits that are entirely a form of social assistance will beseparated from the fund. The system will be evaluated on the basisof actuarial forecasts which will provide information on revenuerequirements and benefit constraints. The financial stability of thesystem will be ensured by policv adjustments made on the basis ofthese requirements. However, the intention is that the system will

For the correctness of zransiation:

M.Hill 1 U

- 68 - Amex 3Page 4 of 7

build up a sufficient level of funding reserves to enable promises tobe met. The system will be financed through employer andemployee contributions, with transfers from the state budgeteventually limited to governmental pension obligations.

The issues related to restructuring the system will be settledwith the passage of a package of material laws.

For starting and developing the reform the following billsshould be drafted and passed by the Parliament by the autumn of1996:

In the new Pensions Act the retirement conditions should bemade stricter by raising the average retirement age and therequired years of service, and, at the same time, by providing thepossibility for early retirement with reduced pension. Through theformula the size of the pension should be directly related to thecontributions of the employee.

The Empoymnent Incentives and Unemployment ProtectionAcLwill provide for the institutionalisation of ProfessionalQualification and Unemployment Fund as part of the socialinsurance system. This will require setting up the fund, separating itfrom the structure of the Ministry of Labour and Social Welfareand establishing new administrative and financial relations with theNational Employment Office.

The Voluntary and Additional Social Insurance Act shouldsettle the issues resulting from the establishment of corporate,professional and private social insurance organisations working onthe basis of free negotiations between legal entities - social securityproviders and individuals and social insurance organisations astypical market objects. The Act should determine the level andforms of state regulation (monitoring, supervision and, if necessary- intervention) and protection of the interests of the individualsfrom unconscientious social insurance providers.

The Act on Occupational Iniury and Illness Fund wiregulate the rights,the procedure and the size of payments in thecases of occupational injury or illness which will be financed fullyby the employers.

For the cormctness of tmnsLation:

M.Hfill Xr

- 69 - AnnexPage 5 of 7

The new Act on Sickness and Maternity Fund will providefor the rights, the procedure and the size of the social insurancepayments in the cases of temporary incapacity for work ortemporary reduced capacity for work which compensate part of theearnings of the employees and part of the medical expences. Thisbill will solve the problem of medical insurance by extending thepowers of the current system of short-term benefits. The adoptionof this idea will mean rejection of the scenarios for setting up aseparate Medical Insurance Fund. At the same time, the issue ofstate budget financing of science, education and training of staffand allowances for the state organised health agencies whichshould be subordinated to the Ministry of Health and financed bythe state budget (The Hygiene and Epidemiology Institute, theemergency medical services etc.) needs to find its positive solution.This bill can realistically be drafted and passed in the beginning of1997.

At the end of next year such approach will provide thefollowing:- a modernized state mandatory social insurance system, managedbased on the principle of parity by all participants, financed by fourautonomous social insurance funds (Pension Fund, UnemploymentFund, Sickness and Maternity Fund and Occupational Injury andIllness Fund) with a joint scientific research, actuarial, informationand control systems;- a developed market (in addition to state social insurance) ofadditional voluntary insurance paid by corporate, professional(industry branch) and private insurance institutions licensedmonitored by the state and with tax incentives from the state.

In the future the effort will be directed towards guaranteeingthe level of benefits paid by the state system and their increase onthe account of the additional and voluntary insurance.

Each year a re-distribution of weight of the participation ofstate, employers and employees will be made with the objective tostabilize the state social insurance system. In addition to that withthe growth of the level of employment conditions will be created toreduce the size of contributions. The changed retirement conditions- increased retirement age and increased number of years ofservice - will facilitate the latter. At the same time a legal possibilitywill be provided for earlier retirement with respectively reducedpension .

For the cormctness of rranslation:

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- 70 - _

Page 6 of 7

The retirement obligations for the first and second categoriesof labour will be changed whereby for the differences in the lengthof social insurance a system of occupational insurance schemes orschemes the place of work will be set up.

With exeption of a few selected occupational schemes such asthose for the armed forces, police etc, the bulk of the occupationalschemes will be privately managed.

Of course, throughout the reform, transitional issues will haveto be addressed as the system is transformed from the oldframework to one that is contribution-related and partly funded.

Conclusion

We feel that the Social Reform Project will provide a majorsource of assistance. That will allow us to implement the policy ofreforms we have started and prepare for anticipated changes to thebenefits formula.

In the absence of a system that records individual earningsfor the working population, the social insurance reform cannot bechanged to one which will pay pensions and short-termn benefits onthe basis of contributions. Further, it is crucial that we have thecapacity to analyze the financial and economnic impact of reformbefore specifying the precise levels of benefits and contributionsrequired in the future.

Reform notwithstanding, the Social Reform Project is crucialto the continuation of current procedures prior to the phase-in ofthe new system. With increased labour force mobility and thepossibility of periodic or sustained periods of unemployment amongthe working age population, it is imperative to be able to trackpension entitlements across employers and states of labour forceactivity.

For the comctncss of Uftlatdon

M.Hill 4; Q

- 71 - Ame 3Pagp 7 of 7

We also feel that the progress made to date in implementingour planned program of social insurance reform provides a realassurance to the World Bank that the Social Reform Project willdo more than just support the current system but enable theimplementation of a broader program of structural refonn towhich our Government is strongly committed.

Sincerely,

Minister of Finance:

(D. Kostov)

Minister of Labourand Social Welfare:

(M. Koralski)

Governor of NSSI:

(N. Nikolov)

For the co,recmess of \vnsIation.

M.Hail I Q

-73- Annex 4Page 1 of 12

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

COST RECOVERY AND FISCAL IMPACT

1. The project will increase revenues through enhanced contribution collections andreduce expenditures through more efficient benefits administration. Further, it will reduce the time-costs of clients through more efficient delivery of services. The improvement in contributioncollections will result in savings similar to those observed in tax administration projects funded by theBa,nk. One evaluation of the impact of tax reform in Argentina (Morisset and Lzquierdo, 1993) foundthat nearly three-fourths of the improvement in VAT collection could be attributed to improvements intax administration procedures. The study controlled for the impact of increases in GDP, reductions ininflation, and increases in the rate of taxation. In general, the institution of improved taxadministration procedures can be expected to increase revenues measurably, particularly when macro-economic policies provide a stable environment.

2. The project represents an extremely cost-effective use of Bank funds on a benefit-costbasis, comparing the net gain in revenue to the cost of the loan to the Bank and other donors.1'Under pessimistic assumptions, revenues are assumed to increase by 1 percent relative to the basecase. This translates into a small increase in the tax compliance rate, that is, the percentage ofpotential revenues that are actually collected, from 63.4 percent to 64.0 percent.v In terms of loanefficacy, the benefit-cost ratio, the present value of fiscal savings to the cost of the loan, is 15.2 to 1in the year 2000, the first year that benefits from the new system can be expected (Table 5).-Y Otherindicators of loan success are equally favorable; the internal rate of return to the loan is 38.5 percentin 2004 compared to a nominal interest rate of 24.25 percent. The present value of savings to thefund is BUL 14.5 billion by 2020. Under the pessimistic scenario of project performance, increasedrevenues could be used to reduce the current tax rate by 1.67 percentage points in 2004. Thisrepresents a reduction of 0.4 percentage points more than could be considered under currentoperational policies.

1' Recurring costs to the NSSI have not been considered. These would raise administrative expenses by, at most,11 percent on an ongoing basis. These expenses would have to be balanced by countervailing personnelexpenditures if audit procedures were not changed to incorporate modem methods. Further, other operating costsrelated to communications can be expected to decline over time as a result of modernized telecommunications.

v These estimates are based on the Actuarial Model constructed by John Wilken and John Patrick Wiesn for theNSSI under Japan Grant funding. The model incorporates assumptions about real GDP growth and inflation basdon World Bank mid-term projections to 2005, judgementally extended to 2020. Labor force estimates come fromthe Wilken/Wiese model and are based on their demographic projections and labor force participation rate of 56.9percent for men age 15 and over and 47.3 percent for women age 15 and over. Trends in these vaiabla areprovided in Table 9.

3 Tables 1 and 2, respectively, present figures on the operations and the income rates for the fund undercurrent policies, with no loan provided. Tables 2 and 3, respectively, present figures on the operations and theincome rates for the fund under the pessimistic assumptions.

- 74 - Annex 4Page 2 of 12

3. A more optimistic scenario of the cost effectiveness and fiscal impact of the projectwas developed based on a 10 percent increase in revenues. This rate of improvement derives fromWorld Bank experience with tax administration projects in other settings. Another source of savingswould be the reduction of expenditures, particularly for short-term benefits, due to the system'sgreater ability to detect fraud and abuse. The quantification of savings from the reduction ofinappropriate payments is purely judgmental, since there is little past experience with success in thisarea. Overall reductions in benefit payments of 1 percent for pensions and 10 percent for short-termbenefits appear to define reasonably the potential for improvements in expenditure control.

4. According to the more optimistic assumptions, the benefit-cost ratio defined as thepresent value of fiscal savings to the cost of the loan is 56.9 in the year 2000, the first year thatbenefits from the new system can be expected (Table 8).' Under these assumptions, the internal rateof return to the loan would be 70.0 percent in 2004, compared to a nominal interest rate of 24.25percent. The present value of savings to the fund is BUL 141.5 billion by 2020. These savingsimply an increase in the tax compliance rate from 63.4 to 69.6 percent. Perhaps the most favorableoutcome of the optimistic scenario is the finding that the project would allow for a reduction in thetax rate of 3.5 percentage points by 2004, while continuing to allow the build-up of a contingencyreserve, implying an effective rate of 37.8 percent.5' By the end of the projection period in 2019, theeffective tax rate could be reduced by 5.8 percentage points to 35.5 percent if a contingency reservehad been created.@

5. The compliance rates used in the actuarial analysis may represent an optimisticforecast of revenues under current collection procedures. The growth of the private sector will tendto reduce collections in response to current high payroll tax rates. In addition, to the extent thatprivate-sector growth is concentrated among small employers, collection rates will naturally decline aseffective audit and enforcement is more difficult to implement among small firms, particularly undercurrent administrative conditions. Declining compliance would have a long-term secondary impact onexpenditures, as well, as noncomplying businesses would be unlikely to keep records for theiremployees for either short-term or long-term benefit eligibility. In an atmosphere of fraud and abuse,however, revenues would be likely to decline more than expenditures, particularly since ultimatedeclines in pension entitlements would only become evident in the out years. Nonetheless, even if adeclining compliance base and less favorable revenues were assumed in additional actuarial forecasts,the impact of implementing the project with stronger auditing procedures and better informationwould be to significantly raise collections above the base level. The ratio of benefits to costs might

4' Tables 6 and 7, respectively, present figures on the operations and the income rates for the fund under theoptimistic assumptions.

5 The effective tax rate reflects a basic tax rate of 39 percent for most workers and tax rates of 49 percent and54 percent for workers entitled to special early retirement benefits. The small fluctuations in the effective taxrate reflect fluctuations in the distribution of workers at alternative rates.

Y The payroll tax rate could be reduced even more if legislation were passed to raise the retirement age by 3 years.Under those circumstances, the effective tax rate could be lowered from 41.2 percent of payroll to 30.1 percent by2004 and 28.6 percent by 2019.

- 75 - Annex 4Page 3 of 12

actually be stronger if more pessimistic compliance assumptions were used, since the new system islikely to have a greater impact on private-sector collections than on those for state owned enterprises.

6. The economic benefits from the project are underestimated by the fiscal analysispresented above, as staff increases that would be necessary to maintain operational procedures are nottaken into account, nor are decreases in services and compliance that would result from static staffingpatterns. The expansion of administrative expenses in the short term is already apparent.Administrative expenses for 1996 are budgeted to be more than 250 percent higher than their 1994levels in nominal terms. By contrast, pension payments are budgeted to rise by just over 190 percentcompared to 1994.

7. Odter economic benefits stem from long-run reductions in reporting and administrativerequirements for employers. Gains to workers and pensioners will accrue in terms of ease of thebenefits application process, better and faster responses to inquiries, faster processing of decisions,and quicker and more accurate payment procedures.

8. The implementation and expansion of analytic and information capacities within theNSSI provide the means to promote public policies that will support economic growth anddevelopment. While it is not feasible to estimate the impact of these institutional changes on theeconomy as a whole, the importance of tools to strengthen the policy framework cannot beunderestimated.

AlrTex 4Page 4 of 12

Table 1: BUI R: Pojeted Cperaticsn of the Social Insurance FUnd (billicns of leva)Base Case Without ToanTax rates of 54%, 49%, and 39%Marndatory retirement ages raised by 3 years.

INOCME BY SOURCE CUMtOJ BY TYPE OF BE2NEIcply ------------ -- ----------- ---------------------------- 1--- - rage Fuxd FmdFull Reduced Basic Other Govt Inter- '1U]vL Short P IUL in Furd at RatioYear Talxbse Taxbase Tax Inoome Sub est INX1wE Pensicns Term Gr=th CUWID Balance EOY % EaY

1996 355.3 225.1 92.9 11.3 0.0 0.5 104.8 91.1 9.3 0.0 100.5 4.3 4.3 3.351997 450.0 285.1 117.7 14.3 0.0 1.6 133.6 116.2 11.8 0.0 128.0 5.6 9.9 6.111998 570.6 361.5 149.2 18.1 0.0 3.3 170.6 146.9 15.1 0.0 162.0 8.7 18.6 9.071999 726.0 459.9 189.8 23.1 0.0 6.1 219.0 185.4 19.2 0.0 204.6 14.4 32.9 12.68

2000 926.5 586.9 242.2 29.4 0.0 10.8 282.5 234.9 24.7 0.0 259.6 22.8 55.8 17.492001 1,137.9 720.9 297.4 36.2 0.0 14.7 348.3 288.2 30.7 0.0 318.9 29.4 85.2 21.692002 1,401.3 887.8 366.3 44.5 0.0 22.0 432.9 354.6 38.2 0.0 392.8 40.1 125.2 25.772003 1,729.0 1,095.3 452.0 55.0 0.0 32.4 539.4 438.4 47.6 0.0 486.0 53.4 178.7 29.562004 2,142.9 1,357.5 560.1 68.2 0.0 46.1 674.3 544.9 59.5 0.0 604.4 70.0 248.6 33.15

2005 2,661.3 1,686.0 695.6 84.7 0.0 63.8 844.0 675.7 74.3 0.0 750.0 94.0 342.7 37.202006 3,257.2 2,063.5 851.4 103.6 0.0 81.6 1,036.6 829.6 91.5 0.0 921.1 115.5 458.1 40.972007 3,934.9 2,492.8 1,028.6 125.2 0.0 100.9 1,254.7 1,007.3 111.1 0.0 1,118.3 136.4 594.6 44.312008 4,692.7 2,972.9 1,226.9 149.2 0.0 120.7 1,496.7 1,208.9 132.8 0.0 1,341.7 155.0 749.6 47.222009 5,524.3 3,499.7 1,444.3 175.6 0.0 139.6 1,759.5 1,431.1 156.5 0.0 1,587.6 171.9 921.5 49.73

2010 6,419.7 4,066.9 1,678.5 203.9 0.0 156.7 2,039.1 1,671.1 181.7 0.0 1,852.9 186.2 1,107.7 52.082011 7,364.3 4,665.3 1,925.6 233.7 0.0 171.3 2,330.6 1,919.1 207.8 0.0 2,126.9 203.7 1,311.4 54.522012 8,330.9 5,277.7 2,178.5 264.1 0.0 182.8 2,625.5 2,170.9 234.2 0.0 2,405.2 220.3 1,531.7 57.002013 9,298.2 5,890.5 2,431.6 294.5 0.0 189.9 2,916.0 2,427.5 259.7 0.0 2,687.2 228.8 1,760.6 59.612014 10,234.0 6,483.3 2,676.3 323.8 0.0 191.7 3,191.8 2,670.1 283.4 0.0 2,953.5 238.3 1,998.8 62.52

2015 11,103.5 7,034.1 2,903.8 350.9 0.0 187.5 3,442.2 2,892.4 304.9 0.0 3,197.3 244.9 2,243.7 65.752016 11,879.6 7,525.8 3,106.8 375.0 0.0 176.5 3,658.4 3,089.3 323.3 0.0 3,412.5 245.9 2,489.6 68.332017 12,705.1 8,048.8 3,322.6 400.7 0.0 196.0 3,919.3 3,300.5 342.9 0.0 3,643.4 275.9 2,765.5 71.222018 13,585.0 8,606.2 3,552.5 428.2 0.0 218.0 4,198.7 3,519.1 364.1 0.0 3,883.2 315.5 3,081.0 74.442019 14,523.5 9,200.7 3,797.7 457.5 0.0 243.2 4,498.5 3,751.6 387.1 0.0 4,138.7 359.8 3,440.8 78.14

304 & JEW, wl BAK04-05-1996

Aue 4Pla 5 of 12

Tile 2: BILaNI: Projected Irwne Rate, oost Rate, and Acturial Balance (% of tax be)Bar Ce Nit3xM TomThc rates of 54%, 49%, 39*R'_ratcry retirLeni ages raised by 3 yearus

DCII RaE BY SOURE m N RI BY TIP! CF BE2IT MX RA¶IN R---------------------------------------- -------------------------------- ------------------- a

Basic other Gt Inter- 11L Short P)IUL Ealwae Dance PYear Tax i9. Sub est XE Pauicnu Them Gu mi Cklly F uWnd Ratio

1996 41.29 5.01 0.00 0.24 46.54 40.49 4.15 0.00 44.63 -1.66 -0.17 3.001997 41.28 5.01 0.00 0.57 46.86 40.75 4.15 0.00 44.89 -1.40 0.12 6.001998 41.28 5.01 0.00 0.91 47.20 40.64 4.16 0.00 44.81 -1.48 0.02 9.001999 41.27 5.01 0.00 1.32 47.60 40.31 4.18 0.00 44.48 -1.80 -0.30 12.00

2000 41.27 5.02 0.00 1.84 48.12 40.01 4.22 0.00 44.23 -2.05 -0.85 15.002001 41.26 5.02 0.00 2.04 48.32 39.98 4.26 0.00 44.24 -2.04 -0.59 18.002002 41.26 5.02 0.00 2.48 48.76 39.94 4.30 0.00 44.25 -2.03 -0.54 21.002003 41.26 5.02 0.00 2.96 49.24 40.02 4.34 0.00 44.37 -1.91 -0.40 24.002004 41.26 5.02 0.00 3.39 49.67 40.14 4.38 0.00 44.52 -1.76 -1.28 25.002005 41.26 5.02 0.00 3.78 50.06 40.08 4.41 0.00 44.49 -1.79 -1.94 25.002006 41.26 5.02 0.00 3.95 50.24 40.20 4.44 0.00 44.64 -1.64 -1.78 25.002007 41.26 5.02 0.00 4.05 50.33 40.41 4.46 0.00 44.86 -1.42 -1.55 25.002008 41.27 5.02 0.00 4.06 50.35 40.66 4.47 0.00 45.13 -1.16 -1.30 25.002009 41.27 5.02 0.00 3.99 50.28 40.89 4.47 0.00 45.37 -0.92 -1.08 25.00

2010 41.27 5.01 0.00 3.85 50.14 41.09 4.47 0.00 45.56 -0.73 -0.93 25.002011 41.27 5.01 0.00 3.67 49.96 41.13 4.45 0.00 45.59 -0.69 -0.92 25.002012 41.28 5.01 0.00 3.46 49.75 41.13 4.44 0.00 45.57 -0.71 -0.93 25.002013 41.28 5.00 0.00 3.22 49.50 41.21 4.41 0.00 45.62 -0.66 -0.91 25.002014 41.28 4.99 0.00 2.96 49.23 41.18 4.37 0.00 45.56 -0.72 -0.99 25.00

2015 41.28 4.99 0.00 2.67 48.94 41.12 4.33 0.00 45.45 -0.82 -1.09 25.002016 41.28 4.98 0.00 2.35 48.61 41.05 4.30 0.00 45.34 -0.92 -1.03 25.002017 41.28 4.98 0.00 2.43 48.69 41.01 4.26 0.00 45.27 -0.99 -1.12 25.002018 41.28 4.98 0.00 2.53 48.79 40.89 4.23 0.00 45.12 -1.13 -1.26 25.002019 41.28 4.97 0.00 2.64 48.89 40.77 4.21 0.00 44.98 -1.27 -1.41 25.00

E3Nr1996-2020 41.27 5.01 0.00 2.70 48.98 40.61 4.33 0.00 44.94 -1.34 -0.91

EI &JIM, 1CD BAl

Annex 4Page 6 of 12

Table 3: BULGARIA: Projected Cperaticms of the Social Insurance PuSrx (billicns of leva)Pessimistic Loan Perfornance - revenue increased by 1% over pbase-in period of 3 years.Tax rates of 54%, 49%, 39%Marndatory retirefent age raised by 3 years.

INCfME BY SOIRCE CUTGO BY TYPE OF BENEITaply --------------- --------- --- - --- ------- ------- ----------- Char ge Funld F\und

Full Red&Ked Basic Other Gbvt Inter- 1OTAL Short PcIP 'T1L in Fund at RatioYear Taxbase ?axbase Tax Incoie Sub est INDM Pensicns Term Growth CUTI Balance EOY % ECY

1996 355.3 225.1 92.9 11.3 0.0 0.5 104.8 91.1 9.3 0.0 100.5 4.3 4.3 3.351997 450.0 285.1 117.7 14.3 0.0 1.6 133.6 116.2 11.8 0.0 128.0 5.6 9.9 6.111998 570.6 361.5 149.2 18.1 0.0 3.3 170.6 146.9 15.1 0.0 162.0 8.7 18.6 9.071999 726.0 459.9 189.8 23.1 0.0 6.1 219.0 185.4 19.2 0.0 204.6 14.4 32.9 12.68

2000 926.5 588.8 243.0 29.4 0.0 10.9 283.3 234.9 24.7 0.0 259.6 23.7 56.6 17.762001 1,137.9 725.4 299.3 36.2 0.0 15.2 350.6 288.2 30.7 0.0 318.9 31.7 88.3 22.492002 1,401.3 896.6 369.9 44.5 0.0 23.2 437.7 354.6 38.2 0.0 392.8 44.8 133.2 27.412003 1,729.0 1,106.2 456.4 55.0 0.0 34.9 546.3 438.4 47.6 0.0 486.0 60.3 193.5 32.022004 2,142.9 1,371.0 565.7 68.2 0.0 50.3 684.1 544.9 59.5 0.0 604.4 79.8 273.3 36.44

2005 2,661.3 1,702.7 702.5 84.7 0.0 70.5 857.7 675.7 74.3 0.0 750.0 107.7 381.0 41.362006 3,257.2 2,084.0 859.8 103.6 0.0 91.2 1,054.7 829.6 91.5 0.0 921.1 133.6 514.6 46.012007 3,934.9 2,517.6 1,038.9 125.2 0.0 114.0 1,278.0 1,007.3 111.1 0.0 1,118.3 159.7 674.2 50.252008 4,692.7 3,002.4 1,239.0 149.2 0.0 137.6 1,525.8 1,208.9 132.8 0.0 1,341.7 184.1 858.4 54.072009 5,524.3 3,534.4 1,458.6 175.6 0.0 160.7 1,795.0 1,431.1 156.5 0.0 1,587.6 207.3 1,065.7 57.52

2010 6,419.7 4,107.4 1,695.1 203.9 0.0 182.2 2,081.3 1,671.1 181.7 0.0 1,852.9 228.4 1,294.1 60.842011 7,364.3 4,711.7 1,944.7 233.7 0.0 201.1 2,379.5 1,919.1 207.8 0.0 2,126.9 252.6 1,546.7 64.312012 8,330.9 5,330.1 2,200.2 264.1 0.0 216.6 2,680.9 2,170.9 234.2 0.0 2,405.2 275.8 1,822.5 67.822013 9,298.2 5,949.0 2,455.8 294.5 0.0 227.0 2,977.3 2,427.5 259.7 0.0 2,687.2 290.0 2,112.6 71.532014 10,234.0 6,547.8 2,702.9 323.8 0.0 230.9 3,257.6 2,670.1 283.4 0.0 2,953.5 304.1 2,416.7 75.59

2015 11,103.5 7,104.0 2,932.6 350.9 0.0 227.4 3,511.0 2,892.4 304.9 0.0 3,197.3 313.7 2,730.4 80.012016 11,879.6 7,600.6 3,137.7 375.0 0.0 215.4 3,728.2 3,089.3 323.3 0.0 3,412.5 315.6 3,046.0 83.602017 12,705.1 8,128.8 3,355.6 400.7 0.0 240.4 3,996.7 3,300.5 342.9 0.0 3,643.4 353.3 3,399.3 87.542018 13,585.0 8,691.7 3,587.8 428.2 0.0 268.5 4,284.5 3,519.1 364.1 0.0 3,883.2 401.3 3,800.6 91.832019 14,523.5 9,292.1 3,835.4 457.5 0.0 300.4 4,593.4 3,751.6 387.1 0.0 4,138.7 454.7 4,255.3 96.63

JCW & JPA, kD BAN04-05-1996

Arnwx 4Page 7 of 12

Table 4: flBUXLPR: Projected Ixne Rate, Cbst Rate, ani Actuarial Balance (% of tax base)Pessimdstic Loan PerfounwKoe - revenue increased by 1% over pbase-i2n period of 3 yearsTax rates of 54%,49% and 39%.Mandatory retireLent ages raised by 3 years.

DCME RATE BY 90URCE CUW RAIE BY TYPE OF BENEFIT TAX RATE INCREASE_- - _ _- - - - _ _ _ _ _ _ _- - _ _ _ _ _- - _ _ _ _- -- - - - - - - - - -----------------------------------------------------R e q u ir e dBasic Other G(ivt Inter- IUAL Short Pc UIOL Balanoe Balance FundYear Tax Irxme Sub est rNaoE Pensicnsr Tenm Gr CUIOD Coly & Fund Ratio

1996 41.29 5.01 0.00 0.24 46.54 40.49 4.15 0.00 44.63 -1.66 -0.17 3.001997 41.28 5.01 0.00 0.57 46.86 40.75 4.15 0.00 44.89 -1.40 0.12 6.001998 41.28 5.01 0.00 0.91 47.20 40.64 4.16 0.00 44.81 -1.48 0.02 9.001999 41.27 5.01 0.00 1.32 47.60 40.31 4.18 0.00 44.48 -1.80 -0.30 12.00

2000 41.27 5.00 0.00 1.85 48.12 39.89 4.20 0.00 44.09 -2.18 -0.98 15.002001 41.26 4.98 0.00 2.09 48.33 39.73 4.23 0.00 43.96 -2.28 -0.84 18.002002 41.26 4.97 0.00 2.58 48.81 39.55 4.26 0.00 43.81 -2.42 -0.94 21.002003 41.26 4.97 0.00 3.15 49.38 39.63 4.30 0.00 43.93 -2.30 -0.80 24.002004 41.26 4.97 0.00 3.67 49.90 39.74 4.34 0.00 44.08 -2.15 -1.67 25.00

2005 41.26 4.97 0.00 4.14 50.37 39.68 4.37 0.00 44.05 -2.18 -2.32 25.002006 41.26 4.97 0.00 4.38 50.61 39.81 4.39 0.00 44.20 -2.03 -2.17 25.002007 41.26 4,97 0.00 4.53 50.76 40.01 4.41 0.00 44.42 -1.82 -1.94 25.002008 41.27 4.97 0.00 4.58 50.82 40.26 4.42 0.00 44.69 -1.55 -1.70 25.002009 41.27 4.97 0.00 4.55 50.78 40.49 4.43 0.00 44.92 -1.32 -1.48 25.00

2010 41.27 4.96 0.00 4.44 50.67 40.69 4.42 0.00 45.11 -1.12 -1.33 25.002011 41.27 4.96 0.00 4.27 50.50 40.73 4.41 0.00 45.14 -1.09 -1.32 25.002012 41.28 4.96 0.00 4.06 50.30 40.73 4.39 0.00 45.12 -1.11 -1.32 25.002013 41.28 4.95 0.00 3.82 50.05 40.80 4.37 0.00 45.17 -1.06 -1.31 25.002014 41.28 4.94 0.00 3.53 49.75 40.78 4.33 0.00 45.11 -1.12 -1.39 25.00

2015 41.28 4.94 0.00 3.20 49.42 40.72 4.29 0.00 45.01 -1.21 -1.49 25.002016 41.28 4.93 0.00 2.83 49.05 40.65 4.25 0.00 44.90 -1.32 -1.42 25.002017 41.28 4.93 0.00 2.96 49.17 40.60 4.22 0.00 44.82 -1.39 -1.52 25.002018 41.28 4.93 0.00 3.09 49.29 40.49 4.19 0.00 44.68 -1.53 -1.65 25.002019 41.28 4.92 0.00 3.23 49.43 40.37 4.17 0.00 44.54 -1.66 -1.81 25.00

PRESENrVALUE

1996-2020 41.27 4.97 0.00 3.05 49.29 40.30 4.29 0.00 44.59 -1.65 -1.22

JCW & JPW, WUD BANK

Anrex 4Page 8 of 12

Table 5: BIXRIA: 0xiparian of Base C:e with Pe-simAdtic Loan PerfornrnceReveuie increased by 1% wer Ebea-in period of 3 yearnTac Rates of 54%, 49%, and 39%tMndatoxy retirffent ages raised by 3 years(in billicn. of leva)

Phlut of loan: 3.9957 billicn leva

Measres of loan Perforxnce

Without Loan With Ioan Savings Internal Ratio PV PV of-------------- -------------- -------------------- Rate of Dbtal Save ToWYear Income Outgo Income Cutgo Inre Outgo 1btal Return (%) to Loan (%) Savings

1996 104.2 100.5 104.2 100.5 0.0 0.0 0.0 -100.0 0.0 0.001997 132.0 128.0 132.0 128.0 0.0 0.0 0.0 -100.0 0.0 0.001998 167.3 162.0 167.3 162.0 0.0 0.0 0.0 -100.0 0.0 0.001999 212.9 204.6 212.9 204.6 0.0 0.0 0.0 -100.0 0.0 0.002000 271.7 259.6 272.4 259.6 0.8 0.0 0.8 -15.9 15.2 0.252001 333.6 318.9 335.5 318.9 1.9 0.0 1.9 9.3 44.9 0.75 002002 410.8 392.8 414.5 392.8 3.6 0.0 3.6 25.2 91.5 1.522003 506.9 486.0 511.4 486.0 4.5 0.0 4.5 33.5 137.9 2.292004 628.3 604.4 633.8 604.4 5.6 0.0 5.6 38.5 184.3 3.072005 780.3 750.0 787.2 750.0 6.9 0.0 6.9 41.9 230.7 3.842006 955.0 921.1 963.5 921.1 8.5 0.0 8.5 44.2 276.6 4.602007 1153.8 1118.3 1164.0 1118.3 10.2 0.0 10.2 45.8 322.1 5.362008 1376.1 1341.7 1388.3 1341.7 12.2 0.0 12.2 47.0 367.2 6.112009 1619.9 1587.6 1634.2 1587.6 14.4 0.0 14.4 47.8 411.7 6.852010 1882.4 1852.9 1899.1 1852.9 16.7 0.0 16.7 48.4 455.8 7.582011 2159.3 2126.9 2178.4 2126.9 19.1 0.0 19.1 48.9 499.4 8.312012 2442.7 2405.2 2464.3 2405.2 21.6 0.0 21.6 49.2 542.4 9.032013 2726.1 2687.2 2750.2 2687.2 24.2 0.0 24.2 49.4 585.0 9.732014 3000.1 2953.5 3026.7 2953.5 26.6 0.0 26.6 49.6 627.0 10.432015 3254.7 3197.3 3283.6 3197.3 28.9 0.0 28.9 49.7 668.4 11.122016 3481.9 3412.5 3512.7 3412.5 30.9 0.0 30.9 49.8 709.2 11.802017 3723.3 3643.4 3756.3 3643.4 33.0 0.0 33.0 49.8 749.8 12.482018 3980.7 3883.2 4016.0 3883.2 35.3 0.0 35.3 49.9 790.0 13.152019 4255.3 4138.7 4293.0 4138.7 37.7 0.0 37.7 49.9 829.9 13.812020 4547.1 4403.5 4587.5 4403.5 40.3 0.0 40.3 49.9 869.5 14.47

JFW, Wbrld Bank04-05-1996

Anrex 4Page 9 of 12

Table 6: BMRIA: Projected Cperatios of the Social Insuraro Funcl (billicne of leva)timistic Loan Perfornc.ie - reverue increased 10% over ph*ae-in period of 10 years;

Pencicn beiefits decreased 1% over phase-in period of 3 yearuShrt-tern benefits decreased 10% aver phase-in period of 10 years.Tax rates of 54%, 49%, and 39%Mandatory retirement ages raised by 3 years.

MEME BY SOR WIU BY YPE H OF B ITCmply ------------------------------------------ Ciarge Funxd FundFull PRe&wW Basic other Govt Inter- 'Xr?L Short TO T1UAL in Fund at RatioYear Taxbase Taxbase Tax Inoome Sub est INafME Pensicns Term Growth CID3) Balance EDY % ECY

1996 355.3 225.1 92.9 11.3 0.0 0.5 104.8 91.1 9.3 0.0 100.5 4.3 4.3 3.351997 450.0 285.1 117.7 14.3 0.0 1.6 133.6 116.2 11.8 0.0 128.0 5.6 9.9 6.111998 570.6 361.5 149.2 18.1 0.0 3.3 170.6 146.9 15.1 0.0 162.0 8.7 18.6 9.071999 726.0 459.9 189.8 23.1 0.0 6.1 219.0 185.4 19.2 0.0 204.6 14.4 32.9 12.73 x

2000 926.5 591.6 244.1 29.4 0.0 11.2 284.7 234.2 24.5 0.0 258.7 26.1 59.0 18.642001 1,137.9 730.0 301.2 36.2 0.0 16.2 353.5 286.5 30.1 0.0 316.6 37.0 96.0 24.732002 1,401.3 904.6 373.2 44.5 0.0 25.9 443.6 351.1 37.1 0.0 388.1 55.5 151.5 31.582003 1,729.0 1,126.4 464.8 55.0 0.0 40.9 560.7 434.0 45.7 0.0 479.7 81.0 232.5 39.012004 2,142.9 1,413.2 583.1 68.2 0.0 62.7 714.0 539.4 56.5 0.0 595.9 118.0 350.5 47.44

2005 2,661.3 1,779.0 734.0 84.7 0.0 94.2 912.8 668.9 69.9 0.0 738.8 174.0 524.5 57.872006 3,257.2 2,203.4 909.1 103.6 0.0 130.8 1,143.5 821.3 85.1 0.0 906.4 237.1 761.6 69.282007 3,934.9 2,693.3 1,111.4 125.2 0.0 175.7 1,412.3 997.2 102.2 0.0 1,099.4 312.9 1,074.5 81.552008 4,692.7 3,244.9 1,339.1 149.2 0.0 228.3 1,716.6 1,196.8 120.9 0.0 1,317.7 399.0 1,473.5 94.602009 5,524.3 3,847.4 1,587.8 175.6 0.0 286.9 2,050.3 1,416.8 140.9 0.0 1,557.7 492.6 1,966.1 108.15

2010 6,419.7 4,471.1 1,845.2 203.9 0.0 347.9 2,397.1 1,654.4 163.6 0.0 1,818.0 579.1 2,545.3 121.962011 7,364.3 5,128.9 2,116.9 233.7 0.0 407.5 2,758.2 1,899.9 187.0 0.0 2,086.9 671.2 3,216.5 136.292012 8,330.9 5,802.1 2,395.0 264.1 0.0 462.2 3,121.3 2,149.2 210.8 0.0 2,360.0 761.3 3,977.8 150.852013 9,298.3 6,475.8 2,673.2 294.5 0.0 507.0 3,474.7 2,403.2 233.7 0.0 2,637.0 837.7 4,815.5 166.142014 10,234.0 7,127.6 2,942.3 323.8 0.0 536.9 3,802.9 2,643.4 255.1 0.0 2,898.5 904.5 5,720.0 182.29

2015 11,103.5 7,733.1 3,192.3 350.9 0.0 547.4 4,090.7 2,863.5 274.4 0.0 3,137.9 952.8 6,672.8 199.232016 11,879.6 8,273.7 3,415.6 375.0 0.0 533.9 4,324.5 3,058.4 290.9 0.0 3,349.3 975.2 7,648.0 213.862017 12,705.1 8,848.6 3,652.8 400.7 0.0 610.9 4,664.4 3,267.5 308.6 0.0 3,576.1 1,088.2 8,736.2 229.202018 13,585.0 9,461.4 3,905.5 428.2 0.0 696.9 5,030.6 3,483.9 327.7 0.0 3,811.6 1,219.0 9,955.2 245.052019 14,523.5 10,115.0 4,175.1 457.5 0.0 793.2 5,425.8 3,714.0 348.4 0.0 4,062.4 1,363.4 11,318.6 261.86

JCW & JPW, WCtUW BANK04-05- 1996

Annex 4Page 10 of 12

Table 7: BULUtIA: Projected Income Rate, Cbst Rate, and Actuarial Balance (% of tax base)Cptimistic Loan Perfornmance - reverue increased 10% over phase-in period of 10 years;Pension benefits decreased 1% over phase-in period of 3 years;Short-term benefits decreased 10 over phase-in period of 10 yearsTax rates of 54%, 49%, and 39%Mbindatory retirement ages raise by 3 years.

INCThE RATE BY SCURCE OUPX) RAaE BY TYPE OF BENEFIT TMX RATE INCREASE---- ---- ---- --- ---- ---- ---- ----- - - - - - - - - - - - - - - --- ------------------- Required

Basic Other Govt Inter- ¶IOT'L Short Pop 1rAL Balance Balance FUndYear Tax Income Sub est INCoME Pensions Trerm Growth CUTIG) Only & Fund Ratio

1996 41.29 5.01 0.00 0.24 46.54 40.49 4.15 0.00 44.63 -1.66 -0.17 3.001997 41.28 5.01 0.00 0.57 46.86 40.75 4.15 0.00 44.89 -1.40 0.12 6.001998 41.28 5.01 0.00 0.91 47.20 40.64 4.16 0.00 44.81 -1.48 0.02 9.001999 41.27 5.01 0.00 1.32 47.60 40.31 4.18 0.00 44.48 -1.80 -0.33 12.00

2000 41.27 4.98 0.00 1.89 48.13 39.58 4.14 0.00 43.72 -2.52 -1.36 15.002001 41.26 4.95 0.00 2.22 48.43 39.24 4.12 0.00 43.37 -2.85 -1.46 18.002002 41.26 4.92 0.00 2.86 49.04 38.81 4.10 0.00 42.91 -3.28 -1.84 21.002003 41.26 4.88 0.00 3.63 49.77 38.53 4.05 0.00 42.58 -3.56 -2.11 24.002004 41.26 4.82 0.00 4.44 50.52 38.17 4.00 0.00 42.17 -3.91 -3.47 25.00

2005 41.26 4.76 0.00 5.29 51.31 37.60 3.93 0.00 41.53 -4.49 -4.64 25.002006 41.26 4.70 0.00 5.94 51.90 37.27 3.86 0.00 41.14 -4.83 -4.96 25.002007 41.26 4.65 0.00 6.52 52.44 37.02 3.79 0.00 40.82 -5.09 -5.22 25.002008 41.27 4.60 0.00 7.04 52.90 36.88 3.73 0.00 40.61 -5.26 -5.40 25.002009 41.27 4.56 0.00 7.46 53.29 36.82 3.66 0.00 40.49 -5.35 -5.49 25.00

2010 41.27 4.56 0.00 7.78 53.61 37.00 3.66 0.00 40.66 -5.17 -5.35 25.002011 41.27 4.56 0.00 7.95 53.78 37.04 3.65 0.00 40.69 -5.14 -5.35 25.002012 41.28 4.55 0.00 7.97 53.80 37.04 3.63 0.00 40.68 -5.16 -5.35 25.002013 41.28 4.55 0.00 7.83 53.66 37.11 3.61 0.00 40.72 -5.11 -5.33 25.002014 41.28 4.54 0.00 7.53 53.36 37.09 3.58 0.00 40.67 -5.16 -5.40 25.00

2015 41.28 4.54 0.00 7.08 52.90 37.03 3.55 0.00 40.58 -5.24 -5.49 25.002016 41.28 4.53 0.00 6.45 52.27 36.97 3.52 0.00 40.48 -5.33 -5.43 25.002017 41.28 4.53 0.00 6.90 52.71 36.93 3.49 0.00 40.41 -5.39 -5.51 25.002018 41.28 4.53 0.00 7.37 53.17 36.82 3.46 0.00 40.29 -5.52 -5.63 25.002019 41.28 4.52 0.00 7.84 53.64 36.72 3.44 0.00 40.16 -5.64 -5.77 25.00

VAUE1996-2020 41.27 4.72 0.00 5.18 51.18 38.01 3.82 0.00 41.83 -4.17 -3.77

JCW & JIM, WCUR BAWN04-05-1996

Annex 4Page 11 of 12

Table 8: BULGRIA: Cbmparism of Base Case with Cptimistic Loan PerformanceRevmene iEzeiased 10% over phase-in period of 10 yearsPension benefits decreased 1i over phase-in period of 3 yearsShort-tenm benefits decreased 10% over phase-in period of 10 yearsTax rates of 541, 49%, and 391Mandatory retirement age raised by 3 years\(in billions of leva)

Anount of Loan: 3.9957 billion levs

Measures of Loan Performunce

Witbout Loan With Loan Savings Internal Ratio PV PV of-------------- -------------- -------------------- Rate of Tbtal Save Tbtal

Year Incone Outgo Incane Outgo Inoaoe Outgo Total Return (%) to Loan (M) Savings

1996 104.2 100.5 104.2 100.5 0.0 0.0 0.0 -100.0 0.0 0.001997 132.0 128.0 132.0 128.0 0.0 0.0 0.0 -100.0 0.0 0.001998 167.3 162.0 167.3 162.0 0.0 0.0 0.0 -100.0 0.0 0.001999 212.9 204.6 212.9 204.6 0.0 0.0 0.0 -100.0 0.0 0.002000 271.7 259.6 273.6 258.7 1.9 1.0 2.9 12.8 56.9 0.952001 333.6 318.9 337.4 316.6 3.8 2.3 6.1 38.7 153.3 2.552002 410.8 392.8 417.8 388.1 6.9 4.7 11.6 54.3 302.1 5.032003 506.9 486.0 519.8 479.7 12.8 6.3 19.1 63.7 499.9 8.322004 628.3 604.4 651.2 595.9 23.0 8.4 31.4 70.0 761.5 12.672005 780.3 750.0 818.7 738.8 38.4 11.2 49.6 74.3 1094.3 18.212006 955.0 921.1 1012.7 906.4 57.7 14.7 72.4 77.2 1487.8 24.752007 1153.8 1118.3 1236.5 1099.4 82.7 19.0 101.7 79.1 1940.5 32.292008 1376.1 1341.7 1488.3 1317.7 112.2 24.0 136.3 80.3 2444.0 40.672009 1619.9 1587.6 1763.4 1557.7 143.5 30.0 173.5 81.1 2982.6 49.632010 1882.4 1852.9 2049.2 1818.0 166.8 34.9 201.7 81.6 3515.5 58.492011 2159.3 2126.9 2350.6 2086.9 191.3 40.0 231.3 81.9 4042.4 67.262012 2442.7 2405.2 2659.2 2360.0 216.5 45.1 261.6 82.1 4562.9 75.922013 2726.1 2687.2 2967.7 2637.0 241.6 50.2 291.9 82.2 5076.8 84.472014 3000.1 2953.5 3266.0 2898.5 265.9 55.1 321.0 82.2 5583.7 92.912015 3254.7 3197.3 3543.2 3137.9 288.5 59.4 348.0 82.3 6083.2 101.222016 3481.9 3412.5 3790.6 3349.3 308.7 63.2 371.9 82.3 6575.3 109.412017 3723.3 3643.4 4053.5 3576.1 330.2 67.3 397.5 82.3 7063.4 117.532018 3980.7 3883.2 4333.7 3811.6 353.0 71.6 424.6 82.3 7547.3 125.582019 4255.3 4138.7 4632.6 4062.4 377.4 76.2 453.6 82.3 8027.1 133.562020 4547.1 4403.5 4950.4 4322.4 403.3 81.1 484.4 82.3 8502.6 141.48

JPW, World Bank04-05-1996

Annex 4Page 12 of 12

Table 9: BULGARIA: A_mytiom for A rzuial Model

1 2 3 4 5 6 7 8 9 10 1

Rel Wae Rea Nominal U1cmploY- Real GDPYear Grwth Wass Wages ldatim hita Rat mat Rate Ewptoyiat Labor Fae Grwth Growth Ngmina GDP

1995 -7.45% 7,442 7,442 50.00% 48.00% 13.U4% 3038.00 3526.16 0.00% 2.00% 838,462.951996 1.45% 7,550 9,115 30.00% 31.50% 13.U0% 3039.51 3526.10 0.05% 1.50% 1,106,351.861997 1.46% 7,660 12,448 25.00% 26.50% 13.63% 3040.67 3520.54 0.04% 1.50% 1,403,633.93199S 1.46% 7,772 15,737 25.00% 26.50% 13.46% 3041.39 3515.07 0.04% 1.50% 1,710,923.911999 1.55% 7,193 20,040 25.00% 27.00% 13.17% 3055.65 3518.97 0.45% 2.00% 2,270,678.082000 2.26% 8,071 25,616 25.00% 21.00% 13.00% 3047.76 3503.03 -0.26% 2.00% 2.395,114.552001 2.34% 5,260 31,458 20.00% 23.50% 12.70% 3052.59 3496.69 0.16% 2.50% 3,560,990.892002 2.50% 3,466 33,693 20.00% 23.50% 12.53% 3052.64 3489.92 0.00% 2.50% 4,350,018.302003 2.97% 8,717 47,509 20.00% 24.00% 12.23% 3053.67 3479.30 0.03% 3.00% 5,413,703.232004 3.30% 9,005 59,267 20.00% 24.25% 12.00% 3052.02 3463.15 4.05% 3.25% 6,707,575.312005 3.49% 9,320 73,603 20.00% 24.25% 11.t3% 3044.69 3453.07 40.24% 3.25% 3,310,689.522006 3.53% 9,649 90,299 15.50% 22.75% 11.65% 3036.17 3436.69 4.25% 3.25% 10,163,232.512007 3.61% 9,997 109,460 17.00% 21.25% 11.4S% 3025.36 3417.30 4.36% 3.25% 12,283,479.082008 3.72% 10,369 131,131 15.50% 19.75% 11.31% 3011.17 3395.17 4.47% 3.25% 14,641,509.432009 3.78% 10,760 155,134 14.00% 18.25% 11.14% 2995.43 3370.33 4.53% 3.25% 17,242,028.032010 3.75% 11,164 181,070 12.50% 16.75% 10.97% AYS0.53 3347.63 4.50% 3.25% 20,027,693.182011 3.7S% 11,585 201,575 11.00% 15.25% 10.79% 2964.96 3323.72 4.53% 3.25% 22,953,238.462012 3.74% 12,019 236,941 9.50% 13.75% 10.62% 2950.35 3301.01 40.49% 3.25% 25,950,644.49 4=2013 3.69% 12,463 265,349 3.00% 12.25% 10.45% 2937.35 3230.11 4.44% 3.25% 21,937,563.672014 3.64% 12,917 292,519 6.50% 10.75% 10.28% 2925.87 3261.03 4.39% 3.25% 31,320,106.732015 3.59% 13,311 313,577 5.00% 9.25% 10.11% 2915.92 3243.72 4.34% 3.25% 34,496,973.212016 3.64% 13,367 341,716 3.50% 7.75% 9.93% 2904.72 3225.08 4.39% 3.25% 36,364,759.212017 3.40% 14,339 365,713 3.50% 7.75% 9.76% 2900.27 3214.00 4.15% 3.25% 39,395,064.122018 3.45% 14,135 391,589 3.50% 7.75% 9.59% 2894.34 3201.33 4.20% 3.25% 42,099,042.132019 49.16% 22,127 604,526 3.50% 7.75% 9.42% 1983.69 2189.92 -45.91% 3.25% 44,91,615.892020 -21.00% 15,931 450,4U3 3.50% 7.75% 9.25% 2115.43 3179.37 31.25% 3.25% 41,076,522.01

I Real Wap Growth - (9) - (S)2 Roal Wa_ - Rel Waos(t1)*(1+ (I)k wap fo 1995 fi Miniy elLabor3 N_in l Wapm - NI_aI Was(v1)*(1+(1))*(1+(3)) wap for 1995 fin M_iiduy aLabor4 hfla ti; b a WarM BDak mmpti_m mil 2005, hidflat - (4) - 0.015 =1 2016, 3.50 t leafiw5 hiwat Raw - (3) + (10) mii 2000, arts rate - (3) + (10) + 0.01 twsa*u6 Uninuymw Rate - Ut hwloymut rate(t-1) + (114X(9Xt-1) - (9) + (IMOOXI+(9))7 Eaylaymat - (IX 1-(6)); ayoymo I fto 1995 fim Jun 1995I La Farme fivo actara model; labor force fo 1995 bad an NSI data9 Er*ymut pawh is ((7)- (7xt-l))Y7)

10 Ral GDP Grwth hiv World B k Awmution .il 2005, 3.5% hea*or11 Nminl GDP - Nom_al GDP(t-IXI+(4)XI+(10))

Not: hpia fian Wad Bank mod: iftias and Rel GDP powiliwt fm Acduridl mod: Labor fim

Otvorbomab dmwod

- 85 - Ann 5Page 1 of 31

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISIRATION PROJECT

PROJECT IMPLEMENTATION PLAN

INTRODUCTION

This Project Implementation Plan (PIP) reflects largely the outcomes of the December1995 and February 1996 missions, and the proposals and technical discussions with the workinggroups established under the supervision of the National Social Security Institute (NSSI), as well assubsequent discussions concerning refinements of the project scope and content." The PIP presentsthe general framework for project implementation by the Borrower, and outlines: (a) the projectobjectives; (b) project management and implementation responsibilities and activities; (c) projectcosts and financing plan; (d) procurement arrangements; and (e) implementation, monitoring andevaluation processes and procedures. While the implementation of the project is inherently dynamic,this PIP seeks to clearly outlines the general principles agreed with the NSSI, according to which theproject will be carried out.

" A copy of the Government's detailed Project Proposal is available in the Project files and may be obtained fromEC1/2HR.

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REPUBLIC OF BULGARlA

SOCIAL INSURANCE ADMINISTRATION PROJECT

PROJECT IMPLEMENTATION PLAN (PIP)

Table of Contents

PageNo.

INTRODUCTION . ..................................... 85

I. THE PROJECT

A. Project Objectives ............... 89B. Project Description ............... 89

II. PROJECT MANAGEMENT AND IMPLEMENTATION

A. Project Management ......... ........................ 89B. Agreements Between Borrower and Implementing Agencies .... .... 90C. Summary of Implementation Responsibilities .................. 90D. Implementation Arrangements by Component ..... ............ 92E. Detailed Project Activities by Component ...... .............. 94F. Project Operational Manual . ............................ 98

HII. PROJECT COSTS. FINANCING. REPORTING AND SUPERVISION

A. Project Costs ........... ................... 98B. Project Financing ............................... 101C. Administration of Project Funds .......................... 102D. Project Procurement Arrangements ............ ............ 102E. Disbursements ............................... 108F. Interagency Coordination .............................. 109G. Role of the World Bank in Supervision ......... ............ 109H. Administrative Arrangements ............................ 110I. Implementation Schedule .............................. 110

IV. MONITORING AND EVALUATION

A. Development Indicators .................. 111B. Indicator Tables .................. 111

- 88 - Annex-SPage 3 of 31

Table of Contents(Continued)

page No.

Table 1: Project Cost Summary by Component ................. 99Table 2: Project Cost Summary by Category of Expenditure .... ..... 99Table 3: Cost Summary by Component and Financier .... ......... 101Table 4: Summary by Expenditure Category and Financier .... ...... 102Table 5: Procurement Arrangements ........................ 103Table 6: Summary of the Procurement Packages for Equipment .... ... 105Table 7: Summary of the Procurement Packages for Technical

Assistance and Training .......................... 107Table 8: Disbursements by Year .......................... 108Table 9: Input Indicators ............................... 112Table 10: Output Indicators .............................. 114Table 11: Outcome Indicators ............................. 116

APPENDICES

Appendix 1: Cost Tables ..................... 117Appendix 2: List of Equipment to be Procured ................... 127Appendix 3: Implementation Schedule ........................ 131Appendix 4: Terms of Reference ............................ 139Appendix 5: System Technical Description ..................... 159Appendix 6: Procurement Matrix ............................ 163Appendix 7: Implementation ResponsibilitieslResource Requirements ..... 173

- 89 - Anex 5Page 4 of 31

I. THE, PROJECT

A. Project Objectives

1. The overall goal of the proposed Project is to support and sustain the Government'ssocial insurance reform program, as described in Chapter 1 of the SAR and outlined in theGovernment's Letter of Sectoral Development Policy. Specifically, the Project aims to support theGovernment's current reform goals of eliminating the budgetary subsidy for social insurance paymentsdue through the achievement of fiscal balance in the Social Security Fund (SSF) and layinggroundwork for future reforms aimed at more fundamental restructuring of Bulgaria's system forguaranteeing income security through social insurance. Therefore, the Project would:

(a) strengthen efforts to increase the NSSI's overall operational efficiency in today'semerging market economy, with a focus on reversing the trend towards reduced taxcompliance which is undermining the financial stability of the public PAYG socialinsurance program; and

(b) strengthen the institutional capacity of the newly created NSSI to perform key policyformulation and evaluation functions and better manage available resources.

B. Proiect Description

2. The proposed Project has two components: Increasing Compliance and OperationalEfficiency and Strengthening Institutional Capacity, and will be implemented over a period of fouryears. Total project costs including contingencies, taxes and duties are estimated at US$32.3 millionequivalent (US$28.6 million base cost). Detailed costs of each component are shown in Appendix 1.The Project will finance equipment, external and local training and specialist services, civil works forNSSI office upgrading, and incremental operational costs generated by the investments.

II. PROJECT MANAGEMENT AND IMPLEMENTATION

A. Project Management

3. Overall responsibility for implementation of the Social Insurance AdministrationProject rests with the newly establishcd and independent NSSI which until recently was the SocialInsurance Directorate of the Ministry of Labor. Responsibility for day-to-day coordination,management and monitoring rests with the Project Coordination Unit (PCU) which has beenestablished within the NSSI. It is assumed that the PCU will also be responsible for the coordinationof other donor-funded activities in the social security sector. In order to carry out its functions, the

- 90 - Annex 5Page 5 of 31

PCU has been staffed by a Project Coordinator, supported by a core team financed under the Project.The core team comprises: (i) a project manager; (ii) a procurement officer; (iii) an accountant; and(iv) an administrative assistant. The Project Coordinator reports directly to the Governor of theNSSI, and the rest of the PCU staff report directly to the Project Coordinator. The ProjectCoordinator is responsible for coordination of project and other donor-related activities within theNSSI, as well as ensuring coordination between NSSI and the MOLSA. To assist this team, limitedexternal technical support for the PCU will be provided for under the Project, mainly in thedevelopment and implementation of procurement procedures and organization of training programs,considering the limited experience of NSSI in these areas.

4. The heads of the five technical working groups that were established within NSSI todesign project sub-components and the Project Coordinator will form a Project Advisory Group whichwill be headed by the NSSI Governor. The members of the group have been appointed by the NSSIupon recommendation of the Project Coordinator. The number of members of the Group,units/agencies to be represented in the group, and the frequency of meetings may be revised asrequired, on recommendation of the Project Coordinator. The Advisory Group will be responsiblefor providing policy advice and guidance during the project implementation period. The AdvisoryGroup will be assisted by special task forces which it will convene as necessary.

B. Agreemen3s Between Borrower and Implementation Aienctes

5. The Borrower is the Government of the Republic of Bulgaria represented by its MOF.The NSSI will be the implementing agency for the Project. Assurances have been obtained from theNSSI administration that adequate funding, based on the project financing plan, will be made availablein a timely manner and necessary steps will be taken to expedite the procurement procedures relatedto major equipment.

C. Summary of Implementation Responsibilities

6. The Project will be implemented in close coordination and collaboration with thecentral and district offices of the NSSI, other donor-funded activities in the social security sector(e.g., EU/PHARE, USAID), and other ongoing projects in related sectors (e.g., Technical AssistanceProject (Loan 3384-BU).

7. From the operational point of view, the Project will be implemented by the existingdepartments of the NSSI with technical assistance provided, as needed. In each department of theNSSI. a contact person has been identified to work for the rolject full-time, and report to the ProjectDiret. Additional permanent staff will be needed for some of the sections as a result of the projectinvestments, specifically for the Operations Policy, Systems and Information Technology Departmentand the Resource Department.

- 91 - Annex 5Page 6 of 31

8. Specific responsibilities of implementing agencies and the additional resourcerequirements needed to undertake the project-related activities and future investments of theGovernment are given in Appendix 7.

9. The responsibilities regarding general project management are:

(a) NSSI:

(i) to establish and secure the functional operation of the PCU and the ProjectAdvisory Group;

(ii) to supervise project activities to ensure the successful and timelyimplementation of the project;

(iii) to set the policies, strategies and targets to ensure achievement of projectobjectives; to review them as required; and to take necessary steps to securethe government's political commitment required for implementation of socialsecurity reform activities; and

(iv) to ensure that financial resources be provided from the Loan and thatGovernment funds be made available in a timely manner.

(b) PCU:

(i) to undertake planning, coordination, management, monitoring and reportingfunctions for all activities financed under the Project;

(ii) to monitor project expenditures and costs (local and foreign), process loandisbursement applications in collaboration with the Central Bank of Republicof Bulgaria, and track disbursements of the Loan and Government funds; andmaintain project records and accounts;

(iii) to ensure compliance with Bank Procurement Guidelines in the acquisition ofequipment and software packages, administration of suppliers' and technicalassistance contracts; to ensure consolidation of requests and procurement ofgoods and services, in accordance with World Bank Guidelines;

(iv) to ensure preparation and distribution of consolidated periodic reports(Progress Report) to the relevant government and other participatinginstitutions, including the Bank, reflecting: (a) the status of implementationprogress, problems encountered and corrective actions needed; and (ii) currentcosts of each project component and estimated costs of completion;

(v) to ensure the timely preparation and submission to relevant governmentinstitutions and the Bank of annual audit reports of project expenditure,including Statement of Expenditures (SOEs) and accounts;

- 92 - Annex 5Page 7 of 31

(vi) to ensure the movement of official documents and contracts through the usualapproval processes and undertake measures to expedite their release;

(vii) to ensure the most efficient use of project resources; financial, staffing andtime; to develop administrative and operational procedures for this purpose;

(ix) to ensure coordinaton with other donor-funded activities to ensure that allexternally funded activities support the NSSI's medium-term strategy forsector reform; and

(x) to ensure the preparation of the Implementation Completion Report (ICR)within six months after Project completion.

(c) Project Advisory Group:

(i) to set the policies, strategies and targets in order to ensure the achievement ofthe project objectives, and review them as required;

(ii) to provide guidance and advice to the Project Coordinator on the timelyimplementation of project activities;

(iii) to ensure the coordination of public and private agencies involved in theimplementation of the Project; and,

(iv) to set the principles and procedures to be applied in coordinating withinternational institutions.

D. Implementation Arrangements by Component

10. The paragraphs below discuss implementation arrangements and activities for each ofthe two components of the Project. Detailed cost tables and implementation schedules related to thespecific components are found in the Appendices to this Annex.

Component 1: Increasing Compliance and Operational Efficiency

11. Integrated Social Insurance Administration. This component will be implementedat the national level by the Information Technology Department of NSSI, in cooperation andcoordination with the other NSSI departments and the PCU. This Department will report directly tothe Governor of NSSI. The Information Technology Department consists of three divisions:Operations and Information Technology, Automation, and Telecommunications. These divisions willcoordinate closely to ensure that the software programs selected meet the technical needs of benefitcomputation and payment processes. The Operations and Information Technology Division,supported by procurement specialists and qualified technical staff to be hired under the Project, willbe responsible for the development of technical specifications for computer hardware and software in

-93- Annex5Page 8 of 31

accordance with Bank Guidelines, and will support other units of NSSI which will be receivingcomputer equipment and software. The Operations and Information Technology Division will beresponsible for providing continuous support to the receiving institutions during the installation andtesting of hardware, loading of software and training of users in coordination with the suppliers. Itwill also be responsible for ensuring compatibility of hardware and software for the new systems, andcoordination between suppliers. As described in paras. 2.4-2.8 of the Staff Appraisal Report, theproject will support establishment of an individual central register, and a uniform UNIX-basedinformation system at regional and central level social insurance offices. The preliminary datacollection activity to ensure that the data base is established before January 1997 began in March1996, using alternative sources of funds. For both the central registry and the information system,the Information Technology Department will be responsible for ensuring close coordination acrossother NSSI Departments. Small-scale upgrading of regional offices and Headquarters to accommodatethe new technology will be the overall responsibility of the Budgetting and Financial ActivitiesDepartment. Close coordination with the Operations and Information Technology Division will alsobe essential to ensure that the upgrading of facilities to accommodate the new computers takes intoaccount hardware and software specifications. The Facilities and Supplies experts of this departmentwill supervise the work of the engineering consultants, prepare bid packages and bidding documentsfor the works, and in collaboration with the PCU, conduct and evaluate bids, award contracts, andsupervise the performance of contractor and supplier contracts. The Information TechnologyDepartment will also be responsible for the organization and carrying out of the training programs forthis component. Support to the training will be provided as needed by the Personnel ManagementDivision of the Administration and Personnel Management Department.

Component 2: Strengthening Institutional Capacity

12. Policy Planning and Analysis. The new Social Insurance Policy Department willhave overall responsibility for this subcomponent. The department will comprise three divisions:Statistics and Actuarial Analysis, Policy Analysis and Planning, and Public Relations. Coordinationamong all three of these divisions and the PCU will be an essential aspect of project management.

(a) Actuarial Division. The Social Insurance Policy Department will be responsible forimplementation of project activities relating to actuarial and data base development.The Statistics and Actuarial Analysis Division will be responsible for coordinatingactivities involved in staff selection (four additional staff will be added as a result ofthe Project) and the specialized training program to be carried out under the Project.Support to this training program would be supplied as needed by the PersonnelManagement Division of the Administration and Personnel Management Department.Responsibilities will also include coordination of the technical assistance expertssupporting the development of the actuarial model and data base. In cooperation withthe Information Technology Department, the Division will be responsible for drawingup technical specifications for additional computer equipment, and selectingappropriate software programs.

(b) Policy Evaluation and Analysis Division. The Social Insurance Policy Departmentwill have overall responsibility for implementation of project activities relating toestablishment and operation of this division. The Policy Analysis and Planning

- 94 - Annex SPage 9 of 31

Division will be responsible for coordinating staff selection and specialized stafftraining. Because this is a new unit, seven staff in total would be needed, eitherthrough hiring or transfer. The Personnel Management Division of theAdministration and Personnel Management Department will provide support as neededfor these courses. Responsibilities will also include coordination of the technicalassistance experts supporting the development of a plan for the production of studiesand reports, and establishment of data sources and a training program on the use ofpolicy analysis in government-sponsored social insurance programs. In cooperationwith the Information Technology Department, the division will be responsible fordrawing up technical specifications for additional computer equipment and selectingappropriate software programs.

(c) Public Relations Division. The Social Insurance Policy Department will have overallresponsibility for implementation of project activities related to the establishment andoperation of this division. The Public Relations Division will be responsible for stafftraining, and coordination of the work of technical assistance experts supportingdevelopment of a public affairs program. Because this is new unit, six staff in totalwill be needed, either through hiring or transfer. The division will also beresponsible, with support from the Information Technology Department for drawingup technical specifications for additional computer and media equipment and selectingappropriate software.

13. Resource Management. The Administration and Personnel Management Departmentwill have overall responsibility for implementation of this subcomponent. With coordination of thePCU, the Department will oversee the work of technical assistance experts hired under the Project forthis component, as well as departmental staff training activities. Specific responsibility for trainingcourses for the NSSI will lie with the Personnel Management Division which will hold managementand staff training courses, as well as providing support to specialized training being carried out inother divisions within NSSI.

E. Detailed Project Activities by Component

14. Detailed activities under each component are summarized below. Detailedinformation is available in the project proposals prepared by the working groups under the guidanceof NSSI. A detailed project implementation schedule is given in Appendix 3.

(a) Increasing Compliance and Operational Efriciency

(i) Automation Management. Overall advisory support to the establishment ofthe information system will be provided by two technical assistance experts: aSocial Security Management Specialist, and an Information TechnologyManagement Specialist with quality assurance expertise. The Bank willfinance a technical assistance contract to cover these specializations.

- 95 - Annex 5Page 10 of 31

Tendering the technical assistance package needs to take place before LoanEffectiveness date.

(ii) Organization/Apiplication Software Implementation. Technical assistance forimproving basic functions of the NSSI, e.g., collections, benefits payments,audit and compliance, and for financial management of the NSSI, will befinanced by the Bank through one major technical assistance procurementencompassing planning, implementation and training. The timing of theservices will be phased over the first three years of the project, with technicalassistance on key changes in NSSI procedures on collections, payments, auditand compliance, financial management, and general system design and masterplan, coming first. The financial management software package will be put inplace in year 1, and the customer service package in year 4. Softwaredevelopment for Central Register, Collections, Payments, Short Term Benefitsand Pensions will be concentrated in year 2. Staff training will be initiatedthrough training of the trainers in the first half of year one, followed by localtrainers doing broader training of both Headquarters and regional office staff.

(iii) Computer System Equipment. Establishment of the integrated informationsystem will involve one large equipment procurement, mostly under ICBprocedures. Bidding documents for this procurement need to be draftedbefore the Loan Effectiveness date, with delivery of the first lot of equipment- central system equipment - scheduled for the second quarter of year 1. Thesecond lot is scheduled to be delivered at the end of year 2, and will consist ofregional systems equipment. The third lot - year 3 - will be for the 400auditors' laptop computers. Training of staff in use of the new equipment willbe carried out by a technical expert under the overall equipment contract. Thesmaller computer equipment packages, under IS procedures, will be preparedfor bidding, for the most part, around Loan Effectiveness. This wouldinclude computer workstations for senior level managers and the initial 60auditors' laptops. For reference, a technical description of the informationsystem can be found in Appendix 5.

(iv) Voice and Data Communication. Design and installation of the new voice anddata communication system in Headquarters and all regional offices willinvolve one large equipment procurement, under ICB procedures. Biddingdocuments for this procurement need to be drafted before the LoanEffectiveness date, with delivery of equipment scheduled beginning in thethird quarter of year one. Technical assistance for design of this activity willbe procured independently through short-listing, around Loan Effectivenessdate. Training of staff in use of the new equipment will be carried out by atechnical expert under the overall equipment contract.

(v) Security and Access Control. Technical assistance for development of asecurity policy and administrative handbook will begin in year 1, withcomputer equipment and related accessories and materials for the Central

- 96 - Annex 5Page 11 of 31

Security Unit and Regional Security Units being procured during year 2.

(vi) NSSI Offices Upgrading. Bid process for basic rehabilitation work to upgraderegional offices and Headquarters for introduction of the automation andcommunications systems will commence around the time of LoanEffectiveness. The rehabilitation will be the responsibility of the Facilitiesand Supplies Division of the NSSI Resources Department, will be carried outthrough local competitive bidding procedures, and will most likely involve aseries of small contracts, not expected to exceed US$15,000/regional officeand US$80,000 for Headquarters. Provision of computer workstations andaccessories for the Governor's Office, and the offices of Department Heads,NSSI Headquarters, will be initiated prior to Loan Effectiveness.

(b) Strengthening Institutional Capacity

(i) Actuarial Analysis and Data Base Development. The Statistics and ActuarialDivision will be expanded in scope and resources, and the staff will increaseby four to a total of seven. Technical assistance will be provided initially tosupport development of a unified plan with mission statement, positiondescriptions, the enumeration of procedures, a comprehensive staff trainingplan, and reports and activities that would be undertaken on a regular basis.Before Loan Effectiveness, office equipment needs will be fully evaluated, anda two part plan prepared for equipment purchases. The first part of the planwill support immediate equipment needs, and the second will ensure efficientinterface with the new system developed under Component 1. Staff trainingwill be initiated around Loan Effectiveness, and will be provided periodicallythroughout the project life to ensure that the division can effectively use thenew equipment and software programs.

(ii) Policy Evaluation and Analysis. Prior to Project Effectiveness, the PolicyAnalysis and Planning Division will be fully staffed with seven professionals.Technical assistance will be provided in the initial stages to supportdevelopment of a complete mission statement and position descriptions,development of program activities, including reports and special studies to beundertaken on a regular basis, and a comprehensive staff training program.Before Loan Effectiveness, office equipment needs will be fully evaluated, anda plan will be prepared for their purchase. Staff training, including studytours and training for NSSI policy analysts in Bulgaria and abroad, will beinitiated around Loan Effectiveness, and will be provided periodicallythroughout the project life. Linkages will be established with local andforeign universities and research institutes. Data from other Governmentaland nongovernmental sources will be needed as the basis for development ofongoing and specialized studies. These data sources need to be identified, andcomputerized data bases established for the use of the new Policy Office. On-line services and a library need to be developed to provide sufficientinformation resources for the division's staff.

- 97 - Annex SPage 12 of 31

(iii) Public Affairs. Appointment of six staff to the newly established PublicRelations Division is the first task to be accomplished. It is expected thatrequisite staff will be in place prior to Loan Effectiveness, at the latest. Thenext priority will be to define the program and activities of the division, andto get these operational. Provided requisite staff have been appointed, stafftraining will be initiated in the third quarter of 1996, consisting of a studytour for senior staff, a seminar and training in use of media. Followingimmediately on the above, training in running of public affairs operations willtake place. All this training should be carried out before Loan Effectiveness.Shortly after the project start-up, the three public relations campaigns,focussing on the new agency and legislation, as well as the new automatedworkers card - AWACS - will be launched. A long-term study tour (train thetrainers) for the staff will commence in the second year of the project, andwould ideally involve staff who have worked on the design and developmentof one of the public relations campaigns. The program of continuingeducation will span the last three years of the project, with staff selected onthe basis of defined skills needs.

(iv) Resource Management. The newly established Administration and PersonnelManagement Department, consisting of three divisions - PersonnelManagement, Project Management, and Administration - will be staffed andprovided with sufficient office facilities. The first task to be carried out is acomplete inventory of NSSI staff, equipment, and facilities, in order toprovide the basis for effective planning for the Institute. The main focus ofproject resources in this subcomponent will be the Personnel ManagementDivision. Selection process for technical assistance to support development ofthe personnel and training functions will be initiated around project start-up.This technical assistance will support development of capacity in personnelplanning, job definition and grading, personnel selection, evaluation andpromotion, career development, and personnel administration. In addition,the Personnel Management Division will be responsible for preparation andcarrying out of training programs for the NSSI, and will play a significantrole in management and staff training early in the project, as well assupporting the Information Technology Department in its task of training staffin new procedures and information system. The first training coursessupported by this department will involve management training - seniormanagers from Headquarters, as well as Regional Directors of NSSI offices.These courses will be initiated early in the first year of the project, withannual follow-up courses. In addition, there will be one-day regional staffmeetings in years one and three of the project, to familiarize staff on thechanges in the NSSI policies and programs.

- 98 - Annex 5Page 13 of 31

F. Project Operational Manual

15. Each implementing technical department/unit will ensure that its respective projectactivities are carried out in accordance with agreed project objectives and performance targets. AProject Operational Manual (POM) is being compiled by the PCU from documents developed duringproject preparation and appraisal, using the PIP as the basis. The POM will be subject to priorreview and approval by the Bank. The POM will constitute the implementation guidelines for eachcomponent, and will include detailed TORs for consulting services, base implementation schedulesand procedures, performance targets and monitoring indicators, detailed cost estimates, and technicalbackground as appropriate. Specific tasks assigned in the POM for which the implementingdepartments/units will typically be responsible include:

(a) in collaboration with the PCU: (i) finalizing TORs for the specialist services,feasibility studies, and training required in their respective parts of the Project; (ii)assigning bid evaluation committees; (iii) evaluating proposals received for consultingservices; and (iv) authorizing the award of contracts;

(b) monitoring the implementation of local training and seminars; and identifying andtapping local expertise to assist in activities such as preparation of detailed proceduresand updating implementation schedules;

(c) preparing periodic reports on the implementation progress of their respectivecomponents and submitting these to the PCU for inclusion in the semi-annual reportof project performance; and

(d) preparing physical and financial forecasts of future activities required to implement thecomponents of the Project, and forwarding these estimates to the PCU for inclusion inbudgetary proposals for the succeeding implementation year.

MII. PROJECT COSTS. FINANCING. REPORTING AND SUPERVISION

A. Project Costs

16. Summary of Project Costs. The total cost of the Social Insurance AdministrationProject is estimated at about US$32.3 million, or about 4.4 billion Bulgaria Leva (BGL) equivalent,including contingencies, taxes and duties. The total base cost is estimated at US$28.6 million.Physical contingencies are estimated at US$2.4 million. Price contingencies between negotiations(June 1996) and the end of the four-year project implementation period will amount to about US$1.4million, or five percent of base cost. The foreign exchange component is estimated at about US$22.5million, including contingencies, or about 70 percent of total cost. Taxes and duties are estimated atUS$2.9 million equivalent. The tax project exempt status of technical assistance expenditure wasconfirmed at negotiations.

- 99 - Annex5Page 14 of 31

17. The total project cost includes fellowships, training, technical assistance, studies,computer hardware and software, training materials, refurbishment of facilities, and incrementalrecurrent costs generated by the project'. The project costs include about 790 million BGL orUS$5.1 million to cover incremental operating costs directly attributable to the Project during thefour-year implementation period. Equipment operation and maintenance, and materials and suppliesaccount for most of the project's incremental recurrent costs. The estimated project costs bycomponent and expenditure category are summarized in Tables 1 and 2 below. Detailed costs areshown in detail in Appendix 1.

Table 1: PROJECT COST SUMMARY BY COMPONENT(ava Millioni (USS Millloni

% % Total % % TotalForeign Be Forign Be

Local Foreign Total Exchange Costa Local Foreign Total ECa ts

A. Improving Operational Eflclency1. Integrated Social lnsurance tnfornatin System 581.7 1,27 1,857.6 69 90 8.1 17.7 25.8 69 90

Subtotal Improving Operational Efficency 581.7 1,275.9 1,857.6 69 90 8.1 17.7 25.8 69 90B. Strengthening Institutional Capacity

1. Acuarial Devetopment 7.5 44.2 51.7 85 3 0.1 0.6 0.7 85 32. PolicyPlanning and Analysi 45 13.7 18.2 75 1 0.1 0.2 0.3 75 13. Public AffaIms 11.0 34.6 45.8 76 2 0.2 0.5 0.6 76 24. Resource Marnagemnent 26.0 59.8 85.8 70 4 0.4 0.8 1.2 70 4

Subtotal Strengthening Inetttutional Capacity 49.0 152.3 201.3 76 10 0.7 2.1 2.8 78 10Total BASELINE COSTS 630.7 1,428.2 2,058.9 69 100 8.8 19.8 28.8 so 100

Physical ContIngencles 42.7 126.9 169.6 75 8 0.6 1.8 2.4 75 8Price Contingencies 7204 1,490.5 2,210.8 67 107 0.4 0.9 1.4 6a 5

Total PROJECT COSTS 1,393.8 3,045.6 4,439.4 s9 216 9.8 22.5 32.3 70 113

Table 2: PROJECT COST SUMMARY BY CATEGORY OF EXPENDITURE(leva Million) (US$ Million)

% % Total S % TotalForeign Bass Foreign BaS

Local Foreign Total Exchange Costs Lucal Foreign Total Exchange Costs

1. Investment Costs

A. CMI Works 37.1 5.4 42.5 13 2 0.5 0.1 0.6 13 2B. Office Equipment and Materials 2006 926.6 1,127.2 82 55 2.8 12.9 15.7 82 55C Vehicles 4.4 20.3 24.6 82 1 0.1 0.3 0.3 82 10. Technical Assistance

1. Policy Development 0.3 50.0 50.3 99 2 0.0 0.7 0.7 99 22. Capacity Building - 216.4 216.4 100 11 - 3.0 3.0 100 113 Project Management - 127.6 127.8 100 6 1.8 1.8 100 a

Subtotal Technical Assistance 0.3 394.0 394.3 100 19 0.0 5.5 5.5 100 19E. Training 67.7 - 67.7 - 3 0.9 - 0.9 - 3F. Fellowships and Study Tours 69.0 69.0 100 3 - 1.0 1.0 100 3

Total Investment Costs 310.1 1,4`15.2 1,725.3 82 84 4.3 19.7 24.0 82 84II. Recurrent Costs

A. Incremental Staff Salaries 95 - 9.5 - 0.1 - 0.1 - -

B. Equipment 08 M 228.0 12.0 240.0 5 12 3.2 0.2 3.3 5 12C. Vehicle 0M 9.4 1.0 10.4 10 1 0.1 0.0 0.1 10 1D. Other Operating Costs 737 . 73.7 4 1.0 - 1.0 - 4

Total Recurrent Costs 320.6 13.0 333.6 4 16 4.5 0.2 4.6 4 16Total BASELINE COSTS 630.7 1,428.2 2,058.9 69 100 8.8 19.8 28.6 69 100

Physical Contingencies 42.7 126.9 169.6 75 8 0.6 1.8 2.4 75 8Price Contingencies 720.4 1,490.5 2,210.8 67 107 0.4 0.9 1.4 68 S

TotalPROJECTCOSTS 1,393.8 3,045.6 4,439.4 69 216 9.8 22.5 32.3 70 113

2' Incremental recurrent costs are due primarily to operational and maintenance costs of comiputer equipment andvehicles for the social insurance offices. Incremental staff costs will be minimal. Averaged over four yanm, theyearly requirement represents less than one percent of the projected 1996 total Government budget for the scialinsurance sector and is deemed sustainable.

- 100 - Annex Page 15 of 31

18. Bases of Cost Estimates. Project costs were estimated as follows:

(a) Base Costs. Base and unit cost estimates are derived from: (a) costs of consultantservices, fellowships and training based on the rates currently charged by local,European and North American consultants and training programs; (b) recentquotations obtained from suppliers of computer equipment; (c) applications softwarecosts from comparisons with ongoing software development activities and estimatedrequirements for technical books and journals; (d) building and refurbishment costsfrom consultants' surveys of the current costs for these items; (e) funds allocated forthe preparation of studies, estimated on the basis of the aggregated costs of local andforeign specialized services, unit costs for internal travel and subsistence, and missionestimates of material and logistic needs; (f) staff-unit costs from current public servicesalary scales with some adjustments for the remuneration of local technical staff to alevel deemed competitive with the market for specialized services; and (g) non-salaryrecurrent costs (materials and supplies) based on current Government rates. Allproject costs have been estimated in US dollars on the basis of February 1996 pricesat the official exchange rate of 72 BGL per US dollar.

(b) Contingency Allowances. Project costs include a contingency for unforeseen physicalvariations (US$2.4 million) equivalent to 5 percent of the base cost of technicalassistance, training and fellowships and 10 percent for all other project items. Thefollowing rates were used to cover expected price escalation: local costs 40, 40, 40,30 percent for CY1997-2000; foreign costs 2.4 percent for CY1997-2000. Inestimating the price contingencies, it is assumed that any differentials betweendomestic and international inflation rates will be offset by appropriate adjustments inexchange rates.

(c) Foreign Exchange Component. The foreign exchange component is estimated atabout US$22.5 million, including contingencies, or 70 percent of total project cost.Calculations of the foreign exchange component were derived from an item-by-itemanalysis resulting in the following: 98 percent for office equipment, computerhardware and software, books and journals; 30 percent for civil works; 95 percent forforeign technical assistance; and 100 percent for external training. The foreignexchange component in incremental recurrent expenditure was estimated at 35 percentfor the operation and maintenance of computer hardware and software; 35 percent forother equipment maintenance; and 25 percent for supplies and operations.

(d) Customs. Duties and Taxes. With the exception of technical assistance and trainingcontracts, works and goods required under the Project will not be exempt frompayment of customs duties and local taxes. The NSSI will ensure that local resourcesfor the payment of import duties and taxes on goods and works to be purchased underthe Project are available when needed. Project costs include an estimated US$2.9million equivalent in direct and indirect taxes and duties to be financed by theGovermnent.

- 101 - Annex 5

Page 16 of 31

19. Incremental Recurrent Costs. Included in the Project are about US$5.1 million tocover incremental operating costs directly attributable to the Project during the four-year period.These consist of incremental operation and maintenance expenditure for equipment, and supplies andoperations. During implementation, NSSI will pay extra attention to monitoring the adequacy ofrecurrent funds for maintenance and operation of facilities and newly instituted programs, and take thenecessary actions to rectify any deficiencies.

B. Project Financing

20. The proposed Bank loan of US$24.3 million will finance 75 percent of total projectcosts, comprising 100 percent of the foreign exchange cost (US$22.5 million) and 26 percent of thelocal cost, excluding taxes (US$1.8 million). Co-financing is being sought to cover technicalassistance and training costs for Component 2 (actuarial development, policy planning, public affairs,and project management). Possible donors include EU PHARE, USAID, and UK Know-How Fund.The Government will finance the balance of project costs (US$8.0 million), including duties andtaxes. Incremental operating costs comprising equipment maintenance services and annualmaintenance costs of computers and software (US$5.1 million equivalent), will be financed entirely bythe Government. Averaged over the project life, the Government portion of recurrent expendituresrepresents less than one percent of the projected 1996 operating budget for the NSSI. In addition, aPHRD Grant financed by the Government of Japan, and a portion of the on-going TechnicalAssistance Loan (No. 3384-BU) - approximately US$400,000 - are being used to support projectpreparation. The NSSI has requested and the Bank has agreed to retroactive financing of up toUS$2.4 million equivalent to facilitate advance purchase of goods, works and services needed forproject start-up activities, available as of July 1, 1996.

21. Table 3 below shows the summary of costs by component and financier. Table 4shows the summary of costs by expenditure category and financier.

Table 3: COST SUMMARY BY COMPONENT AND FINANCIER(US$ Million)

IBRD The OoVenWe TOWal Po. fezr. Ddun &Anount % Amount % Arunt % Exch Ta Tax"

A nlg Operatioal Efficiency1. IrUigated 1Soct Insurwnce Infomaln Syuten 21.7 74.1 7.6 25.9 29.3 90.5 202 6.2 2.8

B. StngthenIng InsitutIonal Capacity1. Actuarlal Development 0.7 91.6 0.1 8.4 0.8 2.4 0.7 0.1 0.02. Po"y PWirk and AnaInIs 0.2 80.0 0.1 20.0 0.3 0.8 02 0.1 0.03. Pubic Affairs 0.6 83.8 0.1 18.2 0.7 22 0.5 0.1 0.04. Reoeurce Management 1.1 82.5 0.2 17.5 1.3 4.0 0. 0.3 0.1

Subtotal Sbtrgtning lnstIttonal pacty 2.6 84.9 0.5 15.1 3.1 9.5 2.3 0.6 0.1Toal Dicbursemwr 24.3 75.2 8.0 24.8 32.3 100.0 22.5 8.9 2.9

- 102 - Annex 5Page 17 of 31

Table 4: SUMMARY BY EXPENDITURE CATEGORY AND FINANCIER(US$ Million)

LacdIBRD The Govenunit Tadla For. (da DWl A

Amount % Amnount Amount % ExdL Tax2 4 Taxes

L kheslntrnl CostsA. CMl Work 0.6 84.7 0.1 15.3 0.7 2.1 0.1 0.5 0.1B.OMcsEqulrwsntmndMabbeIs 15.3 84.7 2.8 15.3 18.0 55.8 14.8 0.5 ZAC. Vehdm 0.3 84.7 0.1 15.3 0.4 1.2 0.3 0.0 0.10. Technkal Asistance

1. Poky Dew t 0.8 100.0 - - 0.8 2.3 o.a 0.02. Cpcity BulidIg 3.3 100.0 - 3.3 10.3 3.3 -3. Projt Managemt 2.0 10.0 - 2.0 6.1 2.0 -

SubtotalTchnalAssistance 6.1 100.0 - - 6.1 18.8 6.1 0.0 -E. Trslg 1.0 100.0 1.0 3.1 - 1.0F. Feowships and Study Tours 1.0 100.0 - - 1.0 3.2 1.0 -

Total Invsrunt Code 24.3 89.3 2.9 10.7 27.2 84.2 22.3 2.0 Z2IL Recun"t Costs

A. Incremw Staff Sarle 0.1 100.0 0.1 0.4 - 0.1B. Eqjrt O & M - 3.7 100.0 3.7 11.5 02 3.5C.VehicleO&M 0.2 100.0 0.2 0.5 0.0 0.1 0.0D. OthwOpCllngCods - - 1.1 100.0 1.1 3.5 - 1.1 _

Total RecurrmntCots - - 5.1 100.0 5.1 15.8 0.2 4.9 0.024.3 75.2 8.0 24.8 32.3 100.0 22.5 6. Z0

C. Administration of Project Funds

22. The Bank Loan of US$24.3 million will be made to the Govermnent of Bulgaria. TheGovernment will enter into a subsidiary Loan Agreement with the NSSI (signing of the subsidiaryLoan Agreement will be a condition of effectiveness.) On-lending terms to NSSI will be the sarm asthe terms of the Bank's loan to the Government. NSSI will provide counterpart finding of aboutUS$8.0 million from its own revenues. NSSI will be responsible for servicing the Loan to theGovernment.

D. Project Procurement Arrangements

23. Project procurement arrangements are summarized in Table 5 below. It is envisagedthat the Bank's Standard Bidding Documents of January 1995 conforming to the latest issue of theProcurement Guidelines will be used for the procurement of Bank-financed works, goods and relatedservices. The General Procurement Notice (GPN) for the project was issued after negotiations in July1996. A project launch workshop is planned for January 1997. Incremental recurrent expenditures,which are financed entirely with Government counterpart funds, as well as technical assistance andtraining financed by other donors are shown under the N.B.F. (Non-Bank Financed) column.Procurement procedures under the Project are as follows:

- 103 - Annex 5Page 18 of 31

Table 5: PROCUREMENT ARRANGEMENTS"(US$ Million)

Non-BankCategory of Expenditure ICB OTHER Financed TOTAL

Civil Works - 0.7Y - 0.7(0.6) - (0.6)

Technical Assistance - 0.8" - 0.8(Policy Development) (0.8) - (0.8)

Technical Assistance - 3.32' - 3.3(Capacity Building) (3.3) - (3.3)

Technical Assistance - 2.09' - 2.0(Project Implementation) (2.0) - (2.0)

Training, Fellowships and -- 2.0 - 2.0Study Tours (2.0) - (2.0)

Equipment and Materials 12.9 5. 1 - 18.0(11.0) (4.3) - (15.3)

Vehicles 0.4 - 0.0 0.4(0.3) - (0.0) (0.3)

Operations & Maintenance -- - 5.1 5.1(0.0) (0.0)

Total Financing Requirements 13.3 13.9 5.1 32.3(11.3) (13.0) (0.0) (24.3)

NOTES: Numbers may not add up due to rounding.

a/ Figures in parentheses are the respective amounts financed by the Bank Loan.

b/ Contract awarded on the basis of written quotations obtained from three qualified domestic contractors in response to a wrininvitation.

c/ Procurement according to Bank Guidelines for Use of Consultants.

d/ Prudent national shopping/off-the-shelf purchases (aggregete-US$600,000) of less than US$50,000 per contrct; L1B for about USS3.5million for comnputer software applications; and international shopping (aggregate USS1 0 milhion) of les than USS 300,000 p&contract.

24. Procurement through ICB. Communications, computer, and other equipmentcontracts which are estimated to cost more than US$300,000 equivalent per contract will be procuredfollowing international competitive bidding (ICB) procedures in accordance with the Bank's'Guidelines for Procurement Under IBRD Loans and IDA Credits" (January 1995 amended inJanuary 1996). Computers, other equipment and vehicles procured through ICB will account forabout 72 percent (US$13.3 million) of the total equipment value. In the comparison of bids forequipment to be procured through ICB, local manufacturers competing under ICB would receive apreference in bid evaluation of 15 percent of the CIF price or the prevailing custom duty applicable tonon-exempt importers, whichever is less, provided they can establish to the satisfaction of thepurchaser and the World Bank that: (i) labor, raw material and components from within Bulgaria willaccount for more than 30 percent of the EXW price of the product offered, and (ii) the productionfacility in which those goods will be manufactured or assembled has been engaged in the

- 104 - Annex 5Page 19 of 31

manufacturing/assembling of such goods at least since the time of bid submission. A detailed list ofequipment is found in Appendix 2. The Bank's Standard Bidding Documents for Goods and forComputers, customized for the Project, will be used for procurement of goods and equipment,including computer-related items.

25. Other Forrs of Procurement. The remaining 28 percent of the project requirementsvalue will be in packages Oisted below) suitable for procurement other than ICB (see Table 6 forlisting of all equipment packages).

(a) International Shopping (IS). Procedures for IS will be used for small amounts ofequipment (i.e., a first batch of computer equipment, laptops, audio visuals, andoffice equipment) where the cost of ICB would clearly outweigh possible priceadvantages. Contracts for equipment estimated to cost less than US$300,000 percontract, not to exceed an aggregate amount of US$1.0 million equivalent, will beawarded under international shopping procedures, based on comparing pricequotations obtained from at least three suppliers from two eligible countries inaccordance with Bank Guidelines.

(b) National Shooing (NS). Minor sundry items not exceeding US$50,000 per contract,up to an aggregate amount of US$600,000 equivalent, could be purchased on the basisof prudent local shopping by comparing price quotations obtained from at least threelocal suppliers, in accordance with Bank Guidelines.

(c) Limited International Bidding (LIB). Computer application software which the Bankagrees are available only from a limited number of suppliers may be procured throughLIB. The estimated cost of such items to be procured through LIB is about US$3.5million in the aggregate.

(d) Civil Works. Civil works contracts include the rehabilitation and upgrading of the 28regional offices and Headquarters building to accommodate the computer equipmentcoming in under the Project. Contracts for this rehabilitation are dispersed and ofsmall value, with contracts for regional offices estimated to range between US$10,000and US$20,000. Rehabilitation of Headquarters is estimated at US$80,000.Aggregate for civil works is estimated at about US$0.7 million. It is not feasible tocreate large enough packages for these contracts to attract foreign bidders, so thesecontracts would be procured using lump sum, fixed price contracts, awarded on thebasis of written quotations obtained from three or more qualified domestic contractors,and using Bank's sample contract documentation for small works.

- 105 - Annex.SPage 20 of 31

Table : SUMMARY OF THE PROCUREMENT PACKAGES FOR EQUIPJMT

Est. Cost Proc. Prepare Award ContctPackages (USS Mil.) Method Tendering Invitation Contract Conplobion

HeadquartersOfficeEstablishment

a. Computer 0.2 IS Oct. 1996 Jan. 1997 Apr. 1997Equipment

b. Office 0.1 IS Oct. 1996 Jan. 1997 Apr. 1997Equipment

c. Customer 0.2 IS Jan. 1997 Apr. 1997 Dec. 1998Service OfficeEquipment

d. Audio-Visual 0.1 IS Apr. 1997 July 1997 Oct. 1997e. PR Campaign 0.1 NS Jan. 1997 Apr. 1997 June 1998

Auditors Laptops 0.2 IS July 1996 Oct. 1996 Nov. 1996

Social Ins. System 10.0 ICB Jun. 1996 Oct. 1996 Feb. 1997 Jan. 2000Automation

Communication 2.5 ICB Aug. 1996 Dec. 1996 Apr. 1997 Apr. 1998System

SoftwarePackages:

a. Financial 0.7 LIB Jan. 1997 - Feb. 1997 Jun. 1997ManagementSystem

b. Customer 2.7 LIEB June 2000 - July 2000 Dec 2000Service/Auditing

c. HR Dev. 0.1 LIB Mar. 1997 - Apr. 1997 Aug. 1997

Security and 0.2 IS Nov. 1996 - Feb. 1997 Mar. 1997Access Control

Vehicles 0.4 ICB Nov. 1996 Mar. 1997 July 1997 Aug. 1997

Other equipment 0.5 NS Jan. 1997 - - Dec. 1998

- 106 - Annex 5Page 21 of 31

26. Technical Assistance. Qualified firms will be invited to submit proposals forcomprehensive packages of consultant services and management of fellowships and training inaccordance with the "Guidelines for the Use of Consultants by World Bank Borrowers and by theWorld Bank as Executing Agency" (August 1981). To keep the evaluation process manageable, nomore than six (but at least three) proposals will be invited following a short listing acceptable to theBank. It is estimated that technical assistance will be procured in eleven packages at a total cost ofUS$7.9 million.3' Several of these packages will include management of related training. As needed,the services of individual specialists (mainly for management advice, specialized consulting andquality assurance) will also be contracted on the basis of short lists of eligible candidates. It isanticipated that about US$0.3 million of the aggregate for technical assistance would be for individualspecialists, and approximately US$7.6 million would be for firms. Table 7 shows procurementpackages for technical assistance and training.

27. In compliance with Bank procedures, standard model bidding documents will be usedfor all ICB procurement. The Bank will continue to review master lists of equipment, packaging ofbids and updated cost estimates. With respect to each contract for goods estimated to cost theequivalent of US$300,000 or more and all LIB contracts, the procedures set forth in paragraphs 2 and3 of Appendix 1 of the Guidelines shall apply. It is estimated that this prior review will cover about80 percent of the value of all contracts combined for equipment and technical assistance. Theremaining 20 percent of contracts will be subject to selective post award reviews by the Bank. TheBank will review: (i) terms of reference for all consulting assignments; and (ii) consulting contractsabove US$100,000 with firms and above US$50,000 with individual consultants. Progress ofprocurement activities will be monitored by the implementing agency, and periodic reports onprocurement progress, including variations in schedule, will be reported to the Bank on a regularbasis. A matrix with basic information on responsibilities for key steps in procurement and reportingduring implementation can be found in Appendix 6.

3/ Terms of Reference for major technical assistance packages can be found in Appendix 4.

- 107 - AnLex 5Page 22 of 31

Table 7: SUMMARY OF THE PROCUREMENT PACKAGES FORTECHNICAL ASSISTANCE AND TRAINING

Est. Cost Proc. Prepare Award ContractPackages (US$ Mil.) Method Tendering Invitation Contract Completion

AutomationManagement 1.8 SL Sept. 1996 Oct. 1996 Jan. 1997 Dec. 2000

Organization/ApplicationSoftwareImplementation: 2.2 SL Jan. 1997 Feb. 1997 Mar. 1997 Dec. 2000

Voice/Data 0.3 SL Aug. 1996 Sept. 1996 Nov. 1996 Mar. 1997Communications

Training 1.7 SL Jan. 1997 Feb. 1997 Mar. 1997 Dec. 1997

Actuarial 0.7 SL Feb. 1997 Mar. 1997 Apr. 1997 Dec. 1999Analysis

Policy Analysis 0.2 SL Feb. 1997 Mar. 1997 Apr. 1997 Dec. 1999

Public Affairs 0.3 SL Feb. 1997 Mar. 1997 Apr. 1997 Dec. 1999

Human ResourceManagement 0.4 SL Jan. 1997 Feb. 1997 Apr. 1997 Dec. 2000

AssetsManagement 0.1 IC", Jan. 1997 Feb. 1997 Apr. 1997 Dec. 1997

Project 0.1 IC July 1996 Sept. 1996 Oct. 1996 Dec. 1998ManagementAdvisorySupport

Audit Services 0.1 IC July 1997 Sept. 1997 Oct. 1997 Dec. 2000

Other Training 0.2 N/A - - - -

h Individual consultant.

- 108 - Annex SPage 23 of 31

E. Disbursements

28. The proposed Project is expected to be disbursed over a period of four and a halfyears. Given the fact that this project is one of the first Bank-financed projects in the human resourcesector, the country disbursement profile is speculative. The Project has been designed within thecapacity of the NSSI to execute over a four and a half year period, and loan funds are expected to befully disbursed by the end of that period. The project closing date is June 30, 2001. A summary ofthe disbursement plan is shown in Table 9.

Table 8: DISBURSEMENTS BY YEAR(LJS$ Million)

Calendar Year 19927 1998 1 92 2000 NQU.

Annual 4.2 7.4 5.3 4.8 2.7Cumulative 4.2 11.6 16.9 21.7 24.3Cumulative % Total 17% 48% 69% 89% 100%

29. The Government will finance expenditures for incremental recurrent costs.Disbursements against expenditure on all other items will be made at the following rates:

(a) for civil works, 85 percent of expenditures;

(b) for equipment and vehicles, 100 percent of foreign expenditures; 100 percent of localexpenditures (ex-factory cost); and 80 percent of local expenditures for other itemsprocured locally; and

(c) for technical assistance, fellowships and study tours, and local training, 100 percent ofexpenditures.

30. All disbursements against contracts for goods and works exceeding US$300,000equivalent, and services and training exceeding US$100,000 equivalent for consulting firms andUS$50,000 equivalent for individual consultants will be fully documented. For expenditures belowthose levels, disbursements will be made on the basis of certified Statements of Expenditure (SOEs).This documentation will be made available for the required audit as well as to Bank supervisionmissions, and will be retained by the PIO for at least one year after receipt by the Bank of the auditreport for the year in which the last disbursement was made.

31. Special Account. To facilitate timely project implementation, the Government willestablish, maintain and operate, under terms and conditions acceptable to the Bank, a Special Accountdenominated in US dollars. The authorized allocation will be US$2.0 million. However, during theinitial stage of the Project, an amount limited to US$0.5 million will be deposited. When the

- 109 - Annex SPage 24 of 31

aggregate amount of disbursement reaches US$5.0 million, the amount deposited in the SpecialAccount will be increased to the full authorized allocation of US$2.0 million.

32. Project Account and Audits. Separate project accounts would be maintained by thePCU. The project accounts, including the PCU accounts and the Special Account, would be auditedin accordance with the Bank's "Guidelines for Financial Reporting and Auditing of Projects Financedby the World Bank' (March 1982). The Borrower will provide the Bank (within six months of theend of each fiscal year), an audit report of such scope and detail as the Bank may reasonablyrequest, including a separate opinion by an Independent auditor acceptable to the Bank, ondisbursements against certified statements of expenses (SOEs). The separate opinion shouldmention whether the SOEs submitted during the fiscal year, together with the procedures and internalcontrols involved in their preparation, can be relied upon to support the related withdrawalapplications.

F. Interagency Coordination

33. The successful implementation of the Project will depend on good coordination amongseveral different agencies in the public and the private sector. Component I will require closecooperation between the selected supplying firm(s) and central and local offices of NSSI.

G. Role of the World Bank In Supervision

34. The Project will, on average, require about 25 staff-weeks of Bank supervision peryear on average during implementation, as reflected in the proposed supervision plan below:

- 110 - Annex 5Page 25 of 31

Timing Staff Weeks Staffing

CY1997 25 weeks Bank resources (25 weeks) of which:- Task manager (7 weeks)- Social Security Specialist (6 weeks)- Information Specialist (6 weeks)- Operations Officer (6 weeks)

CY1998 25 weeks Bank resources (25 weeks) of which:- Task manager (7 weeks)- Social Security Specialist (6 weeks)- Information Specialist (6 weeks)- Operations Officer (6 weeks)

CY1999 25 weeks Bank resources (25 weeks) of which:- Task manager (7 weeks)- Social Security (6 weeks)- Information Specialist (6 weeks)- Operations Officer (6 weeks)

CY2000 20 weeks Bank resources (20 weeks) of which:- Task manager (7 weeks)- Operations Officer (7 weeks)- Information Specialist (6 weeks)

H. Administrative Arrangements

35. The Project Coordinator, with support from the Project Manager, will be responsiblefor carrying out all necessary administrative arrangements recommended and approved by the ProjectAdvisory Group. Full-time attention of the relevant senior officers will be required in developmentand implementation of the new administrative systems.

I. Implementation Schedule

36. The Project is expected to be completed within a four year implementation periodbeginning January 1997. The Project Completion Date is December 31, 2000. Negotiations weresuccessfully completed in June 1996. Project preparation activities have been in progress since thebeginning of 1996. The TORs for major technical assistance assignments have been drafted, vehicleand equipment lists for project institutions have been drawn up, and bidding documents for majorprocurement packages are being put together. Appendix 3 includes the detailed schedule ofimplementation by activity for each sub-component. The schedule takes into account the work to becarried out during project preparation and reflects the detailed implementation activities. Based on the

- 111 - Annex 5Page 26 of 31

quality of the work already completed, it is planned that the implementation of project activities willstart prior to Project Effectiveness.

IV. MONITORING AND EVALUATION

A. Development Indicators

37. Tracking key monitoring indicators is necessary to measure the impact of the projectinputs on the major development objectives of the project. Given the essential role programmonitoring and evaluation play in determining the impact of a given intervention on developmentobjectives, three sets of indicators will be used to monitor and evaluate progress duringimplementation of the Social Insurance Administration Project - input, output and outcome indicators.Monitoring is a continual process of assessing whether project resources (inputs) are being usedaccording to plan to carry out project activities (outputs). Monitoring the use of project resourceswill be done by tracking input indicators according to component, activity and expenditure category,as outlined in Table 9 below. Monitoring output indicators under the project involves trackingimplementation of project activities, as outlined in Table 10 below. Updated input and outputindicator information, using the formats provided in the tables below, will be included in the project'ssemi-annual Progress Reports, to be prepared by the PCU.

38. Outcome indicators will track whether or not the development objectives of theProject have been met. Two criteria were used to select the basic outcome indicators: (a) that theindicator is known to be sensitive to the intervention introduced under the Project; and (b) that datawill be readily available through routine administrative collection. NSSI will continue tracking ofindicators beyond the life of the Project as one aspect of overall monitoring of the social securitysector. Outcome indicators by subcomponent are outlined in Table 11 below.

B. Indicator Tables

39. Tables 9, 10 and 11 below provide basic formats for tracking input, output andoutcome indicators, as described in paras. 37 and 38 above.

- 112 -

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Annex 5Page 28 of 31

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Annex Page 31 of 31

Table 11: OUTCOME INDICATORS

Prijet Objective Outcome Indicator 1997 1998 1999 2000

Improve operational efficiency in social Number of contributors registeredinsurance administration

Number of contributors' returns (declarations) procesed.

Income/cost of collection (per USSI collected)

Number of workers with unique identifier numbers

Number of returns per NSSI employce

Number of contributors per NSSI employee

Number of client visits to office

II. Strengthen institutional capacity of NSSI to Actuarial model used by NSSI staff to evaluate fiscal andperform key policy formulation and evaluation socio-econornic impact of second phase reforms. Osfunction and better manage resources

establishment of a system of regular reporting of programrevenue-expenditure status to NSSI Supervisory andManagement Boards

lWidespread public understanding of reform proposals, aslmeasured by public opinion surveys

Policy analysis used regularly as a management tool

for NSSI staff, establishment of a system of regularrotations, promotions and training opportunities

Appendix 1Bulprb Page 1 of 10

Social lnsuroe AdmistionTable 1.1. Inbgrabd Social Inruranoo Inforation Systen

Debited Coas(US$ 00)

Quantiies Unit Totals Including ContingenckesUnK 1997 1909 1999 2000 Total Cost 1997 im 1999 2000 Total

1. Invesonrd CostsA. Automation Management

1. Technical AdvisorsSoclu Seculty Mgt. Speallst monxt 10 10 10 10 40 20 216.6 221.8 227.1 M325 898.0IT/QA Margemnt Specisist ha months 10 10 10 10 40 20 216.6 221.8 227.1 232.5 898.0

Subtobl Techical Adviors 433.1 443.5 454.2 465.1 1,795.9B. OrganizadtonApp. Software hupent.

1. Changes In ProceduresCdkcUons and Compliance mont 4 - - - 4 20 86.6 - - - 88.6Cotbutio Paymet months 4 - - - 4 20 86.6 - - - 86.6

Subtotad Changes In Procedures 173.3 - - - 173.32. Organition and Woddoad Design months 12 - - - 12 20 259.9 - - - 259.93. Gen. Systern DesigvMaster Plan monfhs 24 - - - 24 20 519.8 - - - 519.84. Registr System

Softwre Devebpoert /b months - 1 2 - - 1 2 9 - 119.8 - - 119.8Instllon and Data lgration k months - 3 3 - 6 9 - 29.9 30.7 - 60.6

Subtotal Register Systen - 149.7 30.7 - 180.36. Contributon and Short-ten Beneftts

Sotware Dmeloperl id mont 30 - - 30 9 299.4 - - 299.4Instlinand Data mlgraonle monts - - 8 - 8 9 81.8 - 81.8

Subtotal Contributon and Short-tenn Benefits - 299.4 81.8 - 381.16. Penson System

SofwareDeveopTentr monh - 5 15 - 20 9 - 49.9 153.3 - 203.2InslatIon and Data Migration /g n - - - 2 2 9 - - - 20.9 20.9

Subtota Penion Systm - 49.9 153.3 20.9 224.17. Customw Service and AudKtng System

Softwar Pcwkge unt - - - 2 2 1,000 - - - Z820.9 2,820.9Softwar Custao - - - 457.0 457.0Installaion lumpsum - - - 41.9 41.9

Subtotl Customer Servkc and Audtting System - - - 3,319.7 3,319.73. Finaual Manage_it System

Aoomumg Syaetn pkg. 1 - - 1 100 131.4 - 131.4General Ledger pkg. I - - - 1 100 131.4 - - - 131.4Payrol pkg. I - - - 1 50 65.7 - - - 85.7Cusomn hJmpsum 233.9 239.5 - - 473.4

Sublotl Fnancil Managerent System 562.3 239.5 - - 801.8

Appendix 1Page 2 of 10

Quantities Unit Totals Including ContingenciesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 Total

9. TrainingDevelop User Guide and Trainng Material /h months 18 36 36 18 108 8 155.9 319.3 327.0 167.4 969.7Printing ani Disribuon Costs unit - 400 400 200 1,000 0.1 - 43.5 44.6 22.8 110.9Trainingthe Trainers A month 1 3 3 1 8 5 5.3 16.3 16.7 5.7 44.1

Subtotal Training 161.2 379.2 388.3 196.0 1,124.7Subtotal OrganizationVA4p. Software knplement 1,676.4 1,117.7 654.0 3,536.6 6,984.7C. Social Insurance System Automation

1. Central System EquipmentCentral Processor Unit and Storage unit 2 - - 2 150 394.1 - - - 394.1DASD and backup subsysterms unK 1 - - - 1 250 328.4 - - 328.4Wosaions 4 unit 40 - - - 40 3 157.6 - - - 157.6Communiction Une Rack unK I - - - 1 20 26.3 - - - 26.3Priting Substemn unit 2 - - 2 225 591.1 - - - 591.1Systern Software and Database unit 2 - - - 2 250 656.8 - - - 656.8Power Supply and Condtioning unit I - - - 1 20 26.3 - - - 26.3

Subtotl Central System EquIpment 2,180.5 - - - 2,180.52. Central LAN for Software Developrment

Server unit I - - - 1 70 91.9 - - - 91.9Workstations Ik unit 10 - - 10 4 52.5 - - - 52.5Sydem Software for Development unit 1 - - - 1 120 157.6 - - - 157.6

Subtotal Central LAN for Software Development 302.1 - - - 302.13. Regional Systems Equipmnent oo

Server i unit - 14 14 - 28 70 1,318.2 1,349.8 - 2,668.0Workstatons unit - 415 415 - 830 2.3 - 1,283.9 1,314.7 - 2,598.6Printer unit - 208 207 - 415 1.5 - 419.7 427.7 - 847.4Laptops for Auditors unit 60 - - 440 500 3 236.4 - - 1,861.8 2,098.2

Subtotal Regional Systems Equipment 236.4 3,021.8 3,092.2 1,861.8 8,212.24. Customer Service Office Equipment

Fax machines unit 30 28 - - 58 1 39.4 37.7 - - 77.1Copiers unit 30 28 - - 58 2.5 98.5 94.2 - - 192.7

Subtotal Customer Service Offce Equpnment 137.9 131.8 - - 269.75. Technical Training /m day 2,000 1,000 500 - 3,500 0.15 318.7 163.2 83.6 - 565.5

Subtotal Social Insurance System Autofation 3,175.7 3,316.9 3,175.8 1,861.8 11,530.1D. Corrmnunicaton -Voce and Data

1. Design months 9 7 - - 16 18 175.4 139.7 - - 315.12. Equipment

Network Mgt. Equip. and Software lumpsum 157.6 - - - 157.6Voice Equipment phoneset 600 400 - - 1,000 0.5 394.1 269.0 - - 663.1Data Equipment rack 15 14 - - 29 10 197.0 188.3 - - 385.4

Subtotal Equipment 748.7 457.3 - - 1,208.13. Cabing In unK 1,000 1,000 - - 2,000 0.5 656.8 672.6 - - 1,329.34. TmrVg month 1 1 - - 2 15 15.9 16.3 - - 32.3

Subtotal Conununatlon - Voice and Data 1,596.9 1,285.9 - - 2,882.8

ADDendix IPage 3 of 10

Duanttles UnK Totals Including ContingencIesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 Total

E. Security and Access Control1. Securty Polcy Development /o months 3 - - - 3 18 58.5 - - - 58.52. Security Control UnKs

Central Security Unt /p unt - - - 1 20 - 26.9 - - 26.9ReglonalSecurilyUnkls/q unH - 28 - - 28 3.5 - 131.8 - - 131.8

Subtotal Security Control UnIs - 158.7 - - 158.73. Access Ponts fr unK - 60 - - 60 0.5 - 40.4 - - 40.4

Subtotal Security and Access Control 58.5 199.1 - - 257.5F. NSSI Offices Upgradiig

1. CHi Works /s lumpsum 328.3 336.3 - - 664.62. Office EqulinpentlMaterlaIs, HQ

Computer Equjxnert /t unit 9 - - - 9 3 35.5 - - - 35.5Prsitera unit 7 - - - 7 1 9.2 - - 9.2Oter Office Equipment Ai lumpsum 14.4 - - - 14.4Technical Lbrary lumpsum 3.2 3.2 3.3 3.4 13.1

Subtotal Office Equipment/Materals, HQ 62.3 3.2 3.3 3.4 72.23. 4WDs unk 10 - - - 10 24 315.3 - - - 315.3

Subtotal NSSI Offies Upgrading 705.8 339.6 3.3 3.4 1,052.1Total Invesenent Cods 7.646.4 6,702.6 4,2872 5,866.8 24.503.1IL Recurrent Costs

A. Equipment O&M1. System Computer Equpmrent sum 262.9 540.8 8121 982.3 2,598.22 CommuninatIons - Voice and Dat sum 134.8 244.8 250.6 256.7 886.93. Security Control O&M lumpsum - 12.8 13.1 13.5 39.54. Headqmterm Ollice Equinent sum 5.3 5.7 6.2 6.7 23.9

Subtotal Equipmnt O&M 403.0 804.2 1,082.1 1,259.0 3,548.3B. Commnicaio LUne Fee 265.6 272.1 278.5 285.2 1,101.4C. Vehicle O&M lumpsum 28.7 29.4 30.0 30.8 118.8

rotal RecuremntCosts 697.2 1,1057 1,390.7 1,575.0 4,768.6rotai 8,343.6 7,808.3 5,677.9 7,441.9 29,271.7

a Informon Technology and QuaDty Assance. \l Average price Inluding software."3 local consultants and 1 foreign consultnt. \m Assume 60% of training to be deliered by local consultants.; 3 local consultnts and I foreign consuftant \n Power outlet and data/phone Jclk for each phone set or workSaldon.J 3 lcal consuHants and I foreign consultant b Develpment of securiY policy and administrative handbook.4 3 boal consultants and 1 foreign consultnt. \o Worktation and software.f 3 boal onsults and 1 foreign cornulnt. q for each of reglonal offces4.g 3 local consultants and I foreign consultant I Two for each reginal ofMice, and four for Headquartrs.h 2 boal cons. and 1 foreign s US$15,0000egional office, plus US$80,000 for Headquarter.Conbact bcal -of . It For Governor, Chief of Staff (+ 2 secs.), and 5 DeparOmwt Heads. Includes softwre.ncludes softwe. u 3 copers and 3 fax maches.

cIncludks prI (3).

ADppndLx1S surec Page 4 of 10

Soda lr unmneAdWsaoTabb 2.1. Actuarial An aysiswd Dabese Delopmt

uD ed Cods(US$ 000)

Quantite Unit Totals Incklding ContingercIesUnit 1997 19 1999 2000 Total Cost 1997 193 1999 2000 Total

e. .sbA CodsA. Achuail Ollbc Edablislort

TA - Office E dbhine d Procedures /a month 0.5 - - 0.5 15 8.1 -- - 8.1

TA-Automelon Pin/b months 0.25 - 0.25 - 0.5 15 4.1 - 4.3 - 8.3

Compu Equiwet kc unIt 7 - - 7 3 27.6 - - - 27.6

PrItr unI 2 - - - 2 1 2.6 - - - 2.6

Oher Offie Equxrit /d lumpsum 4.6 - - - 4.6

Tecl* Ibriny kmpsaum 6.6 - - - 6.6

StaffTraf/a week 1 - I - 2 5 5.3 - 5.6 - 10.9

Subtotal Actaria OlMe Establishment 58.9 - 9.8 - 68.7

B. Acuaa Model DeveopmentTA -Mod DevelopmenUTranlng /f months 3 0.5 0.5 0.5 4.5 15 48.7 8.3 8.5 8.7 74.3

Staff TraIning week 8 - - 8 0.2 1.7 - - - 1.7

Subtota Actuwi ode Development 50.4 8.3 8.5 8.7 76.0

C. Database DevelopmentTA- DtabeaeCoodndnatonlh months 0.5 - 0.5 - 1 15 8.1 - 8.5 - 16.6

D. Germwal Actuarhd TrainingTA-Tanln gAmnpmensnA months 0.75 0.25 0.25 0.25 1.5 18 14.6 5.0 5.1 5.2 29.9 °

Study Tour - Foreign Actuar Offces l s 25.5 - - 25.5

Prognrnming Coxn k s 0.4 - 0.4

Atuarl CoLre A I 17.0 - - - 17.0

DwnmogSphc Course n Is 0.4 - 0.4

ActarWI Econonic Course In is 17.0 - - 17.0

Coriming Educacn Progran lo b 106.3 108.8 111.4 114.1 440i6

Continuing Actuari Trankn /p Is - - 17.8 18.3 36.1

Sbtoal Genera Acwtuiar Training 181.2 113.8 134.4 137.6 567.0

Total IrnesbTfen Costa 298.6 122.1 161.2 146.3 728.3

L Recurrent CostsA. Incrmntal Staff Salaies

1.Re*seehwidAcIwhlOmkce/q month 48 48 48 48 192 0.25 12.1 12.4 12.7 13.0 50.4

B. Equdmnt O&M Is 22 2.3 2.3 2.4 9.3Total Racurrent Cods 14.4 14.7 15.1 15.4 59.6

Total 313.0 136.8 176.3 161.7 787.9

Ib To support develpmet of mssion, office functions, reporting, etc. ' 10 day study tour for 3 people - foreign actuarial offices.tb Develop ofie automatIon plan and ensure training and coordination with Comp. 1. W Two week progamming coure for two people.tc Computera/solware; purner, fax machine; copy machine \I Two week actuarial course for two people In Europe or U.S.W 1 copler and I fax machine. V\ Two week demographic course for two people.be Two weeks training -7 people. Foremgrlocal cons. invoved. \h Two week actuarial economic course for two people In Europe or U.S.

VI 2 weeks In Sophia, 2 weeks home country (1996/67; 2 weeks In Sophia In last 3 project yrs. \o one semester courses for 3 people annually - locally or abroad.b One week for 7 people to trand n new procedures. \p Training funds for new hires In actuarial, demographic and atuarial eonormics areas.

th Ensure that required databases are in place and available from Comp. 1. \, 2 additional staff with math. or actuarial training. 2 staff detailed for modelling on1 Arrange training and study tous for staff. periodic basis transferred to offices. Total = 7.

Buh Appendix ISocia Inuac Administratio PageS5 of 10

Table 2.2 Policy Evaluation and ArnlysisDetailed Cods

(US WO0)

Quantites Unit Totals Including ContingenciesUnIt 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 TOal

1. Investment CosA. Polky Evaluation and Analyis

1. Polcy Analysis Office EstablislunentTA - Offke Esdablishment and Procedures /a moffts 1.25 - - - 1.25 15 20.3 - - 20.3AutomatIn Plan/b months 0.25 - 0.25 - 0.5 15 4.1 - 4.3 - 8.3Computer Equipment /c unit 7 - - - 7 3 27.6 - - - 27.6Printers unit 2 - - - 2 2.5 6.6 - - - 6.6Oter Office Equipment /d lumpsum 4.6 - - - 4.6StaffTraining/e week 1 - 1 - 2 5 5.3 - 5.6 - 10.9

Subtotal Policy Analysis Office Establishment 68.4 - 9.8 - 78.32. Da #ta Devekdped

TA- Dalabe CompatbilityM months 0.25 - 0.25 - 0.5 15 4.1 - 4.3 - 8.33. Polcy Analysis Training

TA - PolcyAnalyss Tralning /g months 0.5 0.25 0.25 0.25 1.25 15 8.1 4.2 4.3 4.4 20.9Pokcy Trknng Study Tour /h no. 1 - - - 1 56 59.5 - - - 59.5Programming Course A no. 1 - - - 1 0.2 0.2 - - - 0.2Poliy Ofice/Research Study Tour I I 25.5 - - - 25.5

Subtotal Polcy Analysis Training 93.3 4.2 4.3 4.4 106.14. Polcy Lbray lumpsum 6.6 - - - 6.66. Annual Survey

SurveyExpqet-ExtenalTA monfts 1 - - - 1 15 16.2 - - - 16.2Survey Eet - Local TA months 2 2 2 2 8 0.7 1.5 1.6 1.6 1.6 6.3Materals lumpsum 1.3 1.3 1.4 1.4 5.4

Subtotal Annual Survey 19.1 2.9 3.0 3.0 28.0Total Invesnernt Costs 191.5 7.1 21.3 7.4 227.2L. Recurent Costs

A. Incrmn Staff Salries1.PokyAnalysisOffloe /k month 36 36 36 36 144 0.25 9.1 9.3 9.5 9.8 37.8

B. Equpment O&M is 2.2 2.3 2.3 2.4 9.3Total Recurent Costs 11.3 11.6 11.9_ 12.2 47.0Total 202.8 18.7 33.2 19.6 274.2

b Develop mission, offce functions, staffing, and reporting procedures.b Office automnion plan and raing pln.b Compter q.W Coper and fax machne.b Two weeh for 7 people. foreign and local consultants.V Ensv" database avallabity and competlky.bg Arrange for traIning and study tous - abroad and ocafly.I1 I0 day Studytour for 7 people to vst foren poicy offices.1 2 weke programming course for I person.N One month kll tkoums - 3 persons to govL policy offkce,olicy research institutes.Wc 3m snaff for Policy Analysis office.

Appendix 1Page 6 of 10

BulgariaSocial Insurance Administration

Table 2.3. Public AffairsDetail Costs

(US$ -000)

Quantities Unit Totals Including ContingenciesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 Total

I. Investnent CostsA. Office Establishment

1. Computer Equipment /a unit 7 - - - 7 3 27.6 - - - 27.62. Printers unit 2 - - - 2 2.5 6.6 - - - 6.63. Otler Office Equipment /b lumpsum 6.6 - - - 6.64. Audio-vIsual equipment, archive lumpsum 65.7 - 65.75. Technical Library unit 6.6 - - - 6.6

Subtotal Office Establishrent 113.0 - - - 113.0B. Office Establishment and Procedures

Office Procedures - TA months I - - 1 15 16.2 - - - 16.2OfflceAutomatkon-TA/c months 0.5 0.5 1 15 8.1 - 8.5 16.6Automation Training /d week I - 1 - 2 5 5.3 - 5.6 - 10.9

Subtotal Office Establishrment and Procedures 29.7 - 14.1 43.8C. Staff Training

Training Arrangements - TA months 1 0.25 0.25 0.25 1.75 15 16.2 4.2 4.3 4.4 29.0Study Tour /e Is 21.3 - - - 21.3Public Affairs Seminar n Is 372 - 37.2MediTraining /g Is 10.6 - - - 10.6Nll Offioe Operations /h Is 10.8 - - 10.8Long-term Study Tour A Is - 97.9 - 97.9Cortinuing Education , Is - 27.2 27.9 28.5 83.6

Subtotl Staff Training 96.1 129.3 32.1 32.9 290.4D. PR Campaigns

1. New Agency/legislationTV Time nc lumpsum 35.5 - - - 35.5VIdeo A lumpsum 19.7 - - - 19.7Graphics lumpsum 0.7 - - - 0.7Informatlon M'ls /m lumpsum 26.3 - 26.3Leaftts lumpsum 4.6 - - - 4.6Internet Page lumpsum 0.5 0.5Radio Time /n lumpsum 13.4 - - - 13.4

Subtotal New Agency/Legislation 100.6 - 100.6

Appendix 1Page 7 of 10

Quanttes Unit Totals Including ContingenciesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 Total

2. Contibutons ComplianceTV Time klmpwum 35.5 - 35.5Radio Tine lumpsum 13.1 - - - 13.1Poerms, leafles, etc. Iumpsum 5.3 - 5.3

Subtotal Contribi Compnlance 53.9 - - - 53.93. AWACS Introducon

TV and Radio Time lumpsum 26.3 - - - 26.3Subtotal PR Cuipalgns 180.7 - - - 180.7

Totil irvtm_ent Costs 419.5 129.3 46.2 32.9 627.8II. Recurrend Costs

A. Incrementl Sabris mo. 24 24 24 24 96 0.25 6.1 6.2 6.4 6.5 25.2B. Equipment O8M swm 10.3 10.5 10.8 11.0 42.6

Total _ t Costs 16.4 16.8 17.2 17.6 67.8Tobl 435.8 146.0 63.4 50.4 695.6

la Includes software.\b Copier, Fax machine, ups.*c Develop office automaton plan and ensure that training and coordnation with Comp. I Is In place.Id Automation training for staff. loal and foreign consultants.le Provide understanding of public affairs fteory office functions and operations; and methodshechniques.\f One-week seminar, Including reps from 28 regional offices. Practical methods/techniques; and public relations plan analysis.b Training for 5 public affairsstaff and NSSI Govemor and Dep. Governor. Utilization of electronic media and media intervews.\h To support development of office organizatlon and operations.AJ Train the trainers. Study tour for 7 staff.4 Advanced training for public affairs staff.k 6 psa; 15-20 seconds each.

\i O minute duration.\m for cilerts.~n sbc

Apendix IPage 8 of 10

BugariaSocial Insurance Administion

Table 2.4. Resource ManagementDetailed Costs

(USS '°°)

Quantities Unit Totals Inciuding ContingendesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 Total

1. Investment CostsA. Human Resource Management

1. Office EquipmntHeadquarters Worksbtions unit 13 - - - 13 2.3 39.3 - - - 39.3Printers unK 3 - - - 3 2.5 9.9 - - - 9.9Oter Office Equipment /a unit 7.9 - - - 7.9Audio Visual Equipment lumpsum 65.7 - - - 65.7Technical Ubrary unK 6.6 - - - 6.6HRM Software Package unit 1 - - - 1 50 65.7 - - - 65.7Softmare Customiztion lumpsum 7.9 - - - 7.9

Subtotal Office Equiprnent 202.8 - - - 202.82. Technical Assistance

Design of Career Development Program months - 2 2 15 - 33.3 - - 33.3Job Descuipons - Ext. TA months 2 - 2 15 32.5 - - - 32.5Job Descaptions -Local TA months 4 - - - 4 0.7 3.0 - - - 3.0Sidlls Needs and Stafting Study months 2 - 2 15 32.5 - - - 32.5Saiay Scale DefinKion - Ext. TA months 2 - - - 2 15 32.5 - - - 32.5Sahry Scaie Definition - LocalTA months 2 - - - 2 0.7 1.5 - - - 1.5Record Keeping months 2 - - - 2 15 32.5 - - - 32.5

Subtotal Technical Assistance 134.5 33.3 - - 167.83. Training

Senior Managers, Headquarters /b Is 6.2 6.3 6.5 6.6 25.6Regionl Directors/c week 2 2 2 2 8 5.18 11.0 11.3 11.5 11.8 45.6Supervisors.Headquarters/d 3days I - 1 - 2 4.98 5.3 - 5.5 - 10.8Supevlsor Training, Regions /e 3 days 6 - - 6 4.98 31.7 - - - 31.7RegionalStaffMeetinglf Iday 1 - 1 - 2 8.4 8.9 - 9.4 - 18.3NISI Management Study Tours /g Is 59.5 - - - 59.5HRM Workshops h workshop 2 2 2 2 8 2.6 5.5 5.7 5.8 5.9 22.9HRMStaffStudyTourA week 4 - 4 - 8 4 17.0 - 17.8 - 34.8Staff Training Aj Is 1.1 1.1 1.1 1.1 4.4

Subtotal Training 146.2 24.3 57.6 25.5 253.74. Support to NSSI Training Programs

Minibus unit 1 - - - 1 30 39.4 - - - 39.4Subtotal Hunan Resource Management 522.9 57.6 57.6 25.5 663.7

Appendix IPage 9 of 10

Quantities Unit Totals Including ContingenciesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 200 Total

B. Asses Mamwnt1. TA - New Bldins Inverory/Staegy months 2 - - - 2 15 32.5 - - 32.5

Total h _vesmnt Costs 555.4 57.6 57.6 25.5 696.2IL RecuInTw Cods

A. Vehicle O&M kmnpsum 3.6 3.7 3.8 3.8 14.9B. Equnut O&M -um 17.7 18.1 18.5 19.0 73.3C. MIbreH and Spplies kxq2um 3.2 3.3 3.3 3.4 13.2

Totd Recurrad Coats 24.5 25.1 25.6 26.3 101.4Tota 579.9 82.7 83.3 51.8 797.6

* 2 copIes, 1 fx mach.\b 20 peopW5 drs. acom. $2.000. TramF $3750. Marer $50.\c 14 psopisdhieW 2 wedlyr. macam. $1382.t bter $3750. $50 materlbs.d maocn. $1184. tWnr $2250. m.lm $50.b smccm. $1184. bainor $S0. MiMatarls $50.V $300 x 28.Ig Stdy tow for 7 people -10 dry. UC=$8,000.%h EqApin nw systern for HRM. 20 saffM.eva Cost o I week-long workshop - BGL 150,000. Materials - US$500.1 4 people for 1 week study toit. 1997 and repeat In 1999. UC = $4,OWwelpensor. Head of HRM Dept and key staff In training coord., career dev. and recruibnent /placement.¶1 To irse the quity of pxMc sence to cents.

ADDSdix 1Page 10 of 10

BulgariaSocil Insuance AdministrationTable 2.5. Prefect Management

Detailed Cods(US$ 000)

Quantiies Unit Totals Including ContingendesUnit 1997 1998 1999 2000 Total Cost 1997 1998 1999 2000 Total

1. Investment CostsA. Ofce Establlshnent

1. Compulter equipment /a Is 36.8 - - - 36.82. Photocopier and Fax Machine unK I - - - 1 7 9.2 - - - 9.23. Office FumKure /b Is 5.3 4.0 4.1 4.2 17.74. Vehicle unI I - - - 1 20 26.3 - - - 26.3

Subotal Offe EstablIshment 77.5 4.0 4.1 4.2 89.9B. Mangmnt Advlsce Support Is 54.1 55.4 - - 109.8C. Audt Servies /c months 1 1 1 1 4 18 I9.5 20.0 20.4 20.9 80.8D. PCU Staff TrainIng /d, Is 53.1 54.4 22.3 22.8 152.6

Totdal Investm Costs 204.3 133.8 46.9 48.0 432.9II. Recurrent Costs

A. Incr Ient Salaries rno. 12 12 12 12 48 0.5 6.1 6.2 6.4 6.5 252B. Equipment O&M Is 7.0 7.2 7.4 7.5 29.1C. Vehicle O&M Is 2.1 2.2 2.2 2.3 8.8D. Tmrnsaiton, Materials and Supples Is 3.2 3.3 3.3 3.4 13.2

Total Recurrent Costs 18.4 18.9 19.3 19.8 76.3Total 222.7 152.7 662 67.7 509.3

b 6 desktops, I lap top computer, 2 aser prInters, 2 backup power supplies.t 6 desks and chairs, conference table, safe, filing cabinets, office materials,etc.c Annual project audK, as required by the Bank.id Study bous for PCU staff.

- 127 - ADendixc 2Page 1 of 4

LLST OF EQUlPME TO BE PROCURED

Central System

Central Processing Unit and Storage 2 central computer systems; 256 MB RAM; 2 Cards X.25 forWAN connection 64 Kbps; 4 Units cartridge Dat 8 GB; powerSPEC-INT92 k 135; TPC-C k 400

Disk Sub-System RAID 100 GB (formatted) shared by two machines

2 Spare feeders for Disk Array; 1 Additional Module for eachDisk Array, including a second storage processor and 32 MBcache

Management software for Disk Array capacity

Printing Sub-System High capacity laser printing subsystem: 200 ppm; on-line andoff-line printing

Operating System UNIX XPG4 compatible

Transmission Protocol TCP/IP

Development Environment C language; Rapid development environment

RDBMS Oracle/Informix

APeg. 2 o

R Directore Soda ktrnue - Propodt 1 baloca_l s__t__

Currentnumber of Number of

Number of Numbr of Number of strff Pension employeeCurnnt Number of PCs thet Number of Proposed PCs neded PCs thet production proposed for each Costs In CosIn CostshI LAN

Regional number of PCs can be re- servers number of for Initial will be services & Regional Current % Proposed % USST for USST for USST for Cabling

N. DIrectoqute PCs required used )I note 5g PCs collection purchased payment Dlrectorae PCS I staff PC I stsff Servers (q) PCs Printers

1Blgoeygrad 15 26 2 24 2 26 48 48 0.3125 0.5 70 59.5 19.5 14

28urgas _ 26 39 2 41 4 45 65 82 90 103.5 33.75 22.5

3 Vama 29 41 2 30 3 33 68 60 70 75.9 24.75 17

4 VeliKo Tumovo 19 27 2 38 3 41 56 76 90 94.3 30.75 21

S Vdin 23 17 2 15 1 16 35 29 60 36.8 12 9.5

6 Vratza 14 28 2 27 2 29 56 53 70 66.7 21.75 15.5

7 Gabrnvo 12 17 2 17 1 18 35 33 60 41.4 13.5 10.5

8Dobuicfh 17 _ _21 2 17 _ __1 18 _ __38 __ _ _34 ___ 60 41.4 13.5 10.5,

9 KurdzaUl 16 16 2 15 1 16 40 30 60 36.8 12 9.5

10 Kustendil 8 15 2 15 1 16 35 30 60 36. 12 9.5

11 Lovetch 13 23 2 19 1 20 40 38 70 46 15 11.5

12 Montana 9 18 _ 17 1 18 48 34 60 41.4 13.5 10.5

13 Pazardzik 18 25 2 26 2 26 49 52 70 644 .421 15

14 Pemnik 13 16 2 15 1 16 37 29 60 36.8 12 9.5

15 Pleven 19 32 2 31 3 34 69 62 70 78.2 25.5 17.5

16 Lovdiv 8 72 2 69 6 75 131 138 90 1725 56.25 36.5 1

17 Razgrad _ _23 15 2 14 _ __1 _ _15 __ _33 __ _ _28 _ _60 34.5 11.25 __ _9

1E Ruse 36 26 2 30 3 33 57 60 _ _70 759 24.75 17

19Si1istra 20 14 2 14 1 15 31 28 60 34.5 11.25 9

20t iven 17 18 2 19 1 20 35 37 70 46 15 11.5

21 Smdyan 7 11 2 11 1 121 25 22 60 27.6 S9 7.5

22 Sofia-twn 59 131 2 122 12 134 214 244 130 308.2 100.5 63

23 Soia-Rigion 0 24 2 29 2 31 54 57 70 71.3 23.25 16.5

24 Star Zagova 24 37 2 40 4 44 78 80 90 101.2 33 22

25 Turgovizte 12 13 2 13 1 14 32 25 60 32.2 10.5 8.5

26 Hasko 34 25 2 24 2 26 52 48 _ 70 59.8 19.5 14

27 Shumen 16 15 2 16 1 17 41 32 60 39.1 12.75 10

28 Yambod 14 16 _ 2 15 1 16 34 30 60 36.8 12 9.5

TOTALS 521 778 56 763 63 826 1536 1519 1970 1899.8 619.5 437.5

_________ =_____ = ______ ________ TOTAL Costs for RDSt LAN * = 4926T.8

NOTE:- Nwnber of PCs propose is dunensoned for normal operdtion of System at regime.

We hw onoposed I PC evey 2 slaf and I printer every 2 PC

t- the fwit time woud be thWt t needs an added number of to face the initial data collection.§§ number of server deding on LAN ocaton and size. They are fomeseen UNIX Server.

1 onTmation not available i I II _ _I

- Ioforation not available K present cabling can to be used. Cabling Is Included in Communication voice and data equipment _

Apoendix 2Page 3 of 4

General Directorate Social Insurance ____

Central SystemUnKt price In Total cost In

Description Quantity T/$ T/SCentral Processing Unit and Storage 2 65 130Disk Subsystem: 100 GB with 64 MB cache 1 200 200Printing subsystem 2 375 750System software and Data Base 2 200 400Workstations (include System sorWare and Printers) 40 3 120Communication line rack 1 20 20Power supply and Conditioning 1 0Pilot LAN: 0Server 1 70 70Workstation (include System sorfware and Printers) 10 4 40System software for development) 1 20 20Subtotal Costs for Central System In TS_ 1750

Regional Systems _

Server 56 35 1960Workstation (include System sorfvare and Printers) 826 2.3 1899.8Printers 415 1.5 622.5Laptops for Auditors (include System sorfware) 500 3 1500Subtotal Costs for Regional System In T/S 5982.3

Customer Service OfficeFax Machines 58 1 58Copiers 58 2.5 145Subtotal Costs for CSO In T/S 203

Communication data and voiceVoice equipment: phoneset 1000 0.5 500Data equipment: rack 28 10 280Cabling 2000 0.5 1000Subtotal Costs for CSO In T/$ 1780

TOTAL Costs for Equipment In TI_ 9715.3

AoDeOK 2Pagp 4 o4

Relona Directorate Social nsuramne - Proposed Strcture for Operational Staff _ _

Currentnumber of of which of whichstaff Penion Proposed "back backproductlon number of staff of which office" office" for Delta Number of Number of Number of

Regional services a for Operational "front normal data number pensiorer I employers / mployees IN. Directorate payment Structure office" activity collation of staff 1000 1000 1000

1Bagoevgrad 48 48 21 5 22 0 84 9 882urgas 65 82 29 8 45 -17 116 16 1793 Vama 68 60 30 4 26 8 119 8 1024 VeliKo Tumovo 56 76 24 9 43 -20 97 17 1715 Vidin 35 29 14 4 11 6 55 7 456 Vratza 56 53 22 6 25 3 87 11 997 Gabrovo 35 33 13 4 16 2 51 7 638Dobrich 38 34 15 5 14 4 59 9 57gKurdzali 40 30 12 3 15 10 46 6 60

1 aKustendil 35 30 15 2 13 5 59 4 5111 Lovetch 40 38 16 5 17 2 62 10 6912 Montana 48 34 18 3 13 14 72 5 5013 Pazardzik 49 52 22 4 26 -3 86 8 10214 Pemik 37 29 14 3 12 8 54 6 4815 Pleven 69 62 28 5 29 7 110 10 11616 Lovdiv 131 138 53 15 70 -7 211 30 278 017 Razgrad 33 28 12 3 13 5 46 5 5118 Ruse 57 60 21 5 34 -3 82 10 13719 Silistra 31 28 11 3 14 3 42 6 5720 Sliven 35 37 16 3 18 -2 62 6 7221 Smolyan 25 22 10 2 10 3 38 4 3822 Sofia-town 214 244 79 33 132 -30 316 66 52623 Sofia-Rigion 54 57 22 4 31 -3 88 7 12424 Stara Zagova 78 80 30 7 43 -2 120 13 17325 Turgovizte 32 25 11 3 11 7 42 5 4226 Haskovo 52 48 21 4 23 4 84 8 9027lShumen 41 32 15 3 14 9 59 6 5428 Yambol 34 30 14 4 12 4 55 7 46

TOTALSC() 1536 1519 608 159 752 17 2402 306 2989NOTE: I _

- Number staff proposed is for normal operation of System at regime. _ _- At the first time it needs a 'task force" staff to face the initial data collectionand the ow product of emplye in training. IThis task force will be about 5% more than proposed staff

I o l i d __Totals could not corres,oondinig due to rounded values +

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT AppendixPage 1 of 8

.1996 1 1997 1 1998 1 1999 2000 2001TaskName r2 Qtr3 Qtr4 Qtr 1 Qtr2 Qtr3 Qtr4 Otr 1 Qtr2Otr 3 Qtrt4 Qtr Qtr2 Qtr3 Qtrt4 1tr Qtr2 Qtr3 Qtr4 Qtr 1tr2 |Qtr3 Qtr4i. SOCIAL INSURANCE INFO. SYSTEM

PRELIMINARY DATA COLLECTION

TA

EQUIPMENT PROCUREMENT

PREPARE TECH. SPECS

OBTAIN NO OBJECTION 3

OBTAIN QUOTATIONS

EVALUATE AND SELECTi

TRAINING i

AUTOblATION MANAGEMENT._'V

TA Selection i

TA -Autornation Management |_-j{yX,;>,n;i-JsI8 !LAj t,t i

ORGANIZJAPP.SOFTWARE I

TA Seledion/Contrad Award

TA - Changes in Procedures

TA - Organz/Workload Design I

TA - System DesignrMaster Plan

TA - Register System

TA - Contribution/STB

TA - Pension System _ _

TA - Customer Serv./Audit System

TA - Financial Mgt. System _

Training |___

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT Appendix 3Page 2 of 8

1996 1997 1998 [ 1999 2000 2001Task Name Qtr2 Qtr3 Qtr4 Otr1 Qtr2 Qtr3|Qtr4 Otr1 Qtr2 Qtr3 Qtr4 Qtrl IQtr2 Qtr3 Qtr4 Qtr1 Qtr2 Otr3 Qtr4 Qtri IQtr2 Qtr3 Qtr4

SOC. INS. SYSTEM AUTOMATION _

Prepare Tech. Specs

Obtain No Objection

Artvertise t Obtain bids : :

Estabish Evaluation Committee

Technical Evaluation

Obtain No Objection for Contract

Award Contract IDelivery .I

First Lot

Second Lot t.)

Third Lot

VOICE/DATA COMMUNICATION SYSTEM I

Prepare Tech. Specs

Obtain No Objedion

Advertise i

Obtain Bids

Seled Evaluation Committee.

Technical Evaluation

No Objection for Contract

Award Contract

Delivery

First Lot i

Second Lot i

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT Appendix 3Page 3 of 8

1996 1997 1998 1999 2000 2001Tk Name Qtr2 tr3 tr4 t Qtr2 Qtr3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 tr 1 Qtr 2 Qtr 3 Otr 4 | Qtr 1Qtr 2 | Qtr3 Qtr 4 | Otr 1Qtr 2 | Qtr 3 |Qtr 4

SECURITY AND ACCESS CONTROL

TA Sekeion/Contract Award |

Prepare Tech. Specs

Obtain No Objecion

Advertise|

Obtain Bids 1

Selec Evaluation Cornmittee

Technical Evaluation 1

No Objection for Contract

Award Contract

Delivery

First Lot jNISI UPGRADING

Regional Office Upgrading I -VEHICLE PROCUREMENT

Prepare Tech. Specs

Obtain No Objection

Advertise

Obtain Bids

Select Evaluation Coffimmttee

Technical Evaluation

No Objecdon for Conbact

Award Contract i

Delvay

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT AgOpndix 3Page 4 of 8

1996 1997 1998 1999 2000 2001TaskName 32 tr3 Qtr4 Qtr lQtrZ Qtr3 Qtr4 Otri1Qtr2 Qtr3 Qtr4 Qtrl Qtr2 Qtr3 Qtr4 Qtrl Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr32 Qtr4

II. ACTUARIAL DEVELOPMENT

OFFICE ESTABLISHMENT

Staff Selection .

TA -Procaedures and Autornation Plan.

TA - Procesdures, Cont.

Staff Training

ACTUARIAL MODEL DEVELOPMENT * _

TA - Model Developrnent/Training IStaff Training * ;

DATABASE DEVELOPMENT I

TA - Database Development .

TA - Database Dev. Follow-up IACTUARIAL TRAINING |

Initial Courses I _ iContinuing Education I

Ill. POLICY PLANNING/ANALYSIS I I I

OFFICE ESTABLISHMENT _ ;

Staff Slecion

TA - Procedures

TA - Automation Plan

TA - Automatbon Plan, ront.

Staff Training

Staff Training, cont.

Policy Library - _ _ _ _

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT Appgndix 3Page 5 of 8

1996 1997 18 19t1 2000 2001TaIskNantC Qtr2 Qtr3 Qtr4 COtri1 Qtr2 CQtr3 Qtr4 Qtrl |Qtr2 Qtr3 Qtr4 Otri IQtr2 Qtr3 Qtr4 Qtrl1 Qtr2 Qtr3 Qtr4 Otri IQtr2 Qtr3 Qtr4

DATABASE DEVELOPMENT

TA - Database Compatibility

TA - Dtabase Compatibility,oont.

TRAINtNG PROGRAM

TA - Policy Analysis Training __ _ _____I

Policy Study Tour/Programming course

Research Study Tour

ANNUAL SURVEY

External TA

Local TA, yr. 1

Local TA, yr. 2 _

Local TA, yr. 3 LA

Local TA, yr. 4

IV. PUBLIC AFFAIRS

OFFICE ESTABUSHMENT

Staff Selection

TA - ProcedursAutomabon Plan

InIal TraIning Course

Yr. 1 IYr. 3 |

PUBUC AFFAIRS TRAINING

Study tourseminarmedia traini

Public Affairs Office Operations

Long-term Study Tour

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT ARndlix 3Page 6 of 8

1996 1 197 1 1996 1 1999 1 2a00

Task NW OQtr2C3 ±|Qtr IQtr2 Qtr3 tr4 |Qtr IQtr2 Qtr3 3Qtr4 Qtr Itr2 Otr3 4 Ci IQtr2tr3 2 tr3 tr

Continuing Education ,

PR CAMPAIGNS

Develop Concepts

Produce TV and Radio Spots

Broadcasting

Produce Public Education Mterials

Demisstion -

V. RESOURCE MANAGEMENT _ _ :

OFFICE ESTABUSHMENT

Staff Selection

Audio-Visual Equip. Procurement m0

Prepare Tech. Specs

Obtain No Objection

Obtain Quotations

Evaluate and Select

Delivery

Sofware Purchase/Customization

TECHNICAL ASSISTANCE _ _;

TA Selection and Contract

TA - Job Descriptions

TA - Skill Needs and Staff Study jTA - Salary Scale Definition

TA - Record keeping

TRAINING i__

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT A endixPage 7 of 8

1996 1997 1998 1999 2000 2001TaskName Qtr2 Qtr3 |tr4 Qtr 1 Qtr2 Qtr3 Qtr4 Qtr 1 Qtr2 Qtr3 Qtr4 Qtr 1 Qtr2 Qtr3 Qtr4 Qtr 1 Qtr2 Qtr3 Qtr4 Otr 1 Qtr2 Qtr3 Otr4

Sr. Manager Training

Yr. 1

Yr.2 i 2

Yr. 3I

Yr. 4

Rog. Directors Training

Yr. 1

Yr. 2

Yr. 3

Yr. 4

Supevisors, Hdqrs.

Yr.1 l

Yr. 3

Supervisor Training, Regions

Regional Staff Mel ng

Yr. 1

Yr. 2

NSSI Mgt. Study Tours _

HRM Workshops

Yr. I

Yr.2 2

Yr. 3

Yr. 4

HRM Shtdy Tour ___

Yr. 1

BULGARIA: SOCIAL INSURANCE ADMINISTRATION PROJECT Appendix 3Page 8 of 8

1996 1997 1998 1999 1 2000 2001TaskNawn Qtr2 Qtr 3Qtr4 Qtr IQtr2OQtr3 Qtr4 |tr |Qtr2 Qtr3|Qtr4 Otr1 |Qtr2|Qtr3|Qtr4 Otr1 Qtr2|Qtr3|Otr4|Qtr1 Qtr2|Qtr3|Qtr4

Yr.3 3

ASSETS MANAGEMENT ___

TA - Study

VI. PROJECT MANAGEMENT

STAFF SELECTION

STUDY TOURS J -

Enily Andrews, Task Manager Task Summary Rolled Up ProgressECU2HR Progress Rolled Up Task

Milestone Rolled Up Milestone

- 139 -

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

TERMS OF REFERENCE

1. Information Technology Expert for Development and Implementation of aPension Registration System

2. Project Coordinator

3. Project Manager

4. Procurement Officer

5. Sample Terms of Reference for the Audit of a Bank-Financed Project

6. Telephone Technology Expert(s) for the Development of Specifications forWiring, PBX and Related Equipment

- 141 - ARRedix 4Page 1 of 17

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

TERMS OF REFERENCE

INFORMATION TECHNOLOGY EXPERT FOR DEVELOPMENT ANDIMPLEMENTATION OF A PENSION REGISTRATION SYSTEM

Background

1. The Republic of Bulgaria has applied for a loan of approximately US$25 million fromthe World Bank to help finance the costs of the Social Insurance Administration Project consisting ofthe following two components: (a) Improving Operation and Administrative Efficiency; and(b) Strengthening Institutional Capacity.

2. A key objective of the project is to establish a comprehensive Social InsuranceInformation System (SIIS) to support the operational activities of the Social Insurance Administration(the Institute). A key step in the development of such a system would be the creation of a centralregistry of information on employers, employees, self-employed individuals and pensioners. This keystep will be taken with the utmost urgency so that the SIIS can be fully utilized soon after the systemdevelopment is completed and automation equipment is made available to the Institute. In support ofthis activity, the Institute plans to start collecting and storing on data bases registry data on employeesfrom all public and private sector enterprises in early 1997. It is anticipated that this will include keybiographical data, wages, and contributions for all employees. The Institute already has basic data onenterprises and self-employed individuals.

Summary of Overall Requirements

3. This terms-of-reference covers the services of an application systems developmentexpert to assist the Institute and provide technical leadership to and supervision of a small dedicatedinternal application development team (estimated to consist of two analysts and two programmers) todevelop the initial registration system, specify and put in place the systems development andproduction computer environment for the initial registration system, lead the application systemsdevelopment activities and the preparation of training materials for this preliminary data collection,and train the Institute trainers in preparation for dissemination of the system to all regions and to theenterprises.

Scope of the Required Technical Assistance

4. Based upon the above general description, the Republic of Bulgaria seeks the serviceof an information technology individual consultant with broad experience in the development ofmicrocomputer based application systems that are rooted on: user friendly graphical interfaces (GUI);client-server architectures; SQL standard relational data bases; and modular development based on

- 142 - Appendix 4Page 2 of 17

modern system development methodologies and languages. It is estimated that this assignment willrequire about six staff months over a period of about one year, with a substantial part of the time inSofia, Bulgaria.

5. The target technical environment for the SIIS is a UNIX based client-serverenvironment with Windows based workstations supported by a relational data base system, underUNIX, to manage data storage. The initial registration system may be based on a differenttechnology but the Institute requires assurance that data migration to the target environment will beaccomplished with minimum effort. In addition, it would be desirable that as many modules aspossible of the initial registration system could be directly used or, at least, re-implemented in thetarget environment with minimum effort.

Deliverables

6. The key deliverable of this consultancy is a fully functional registration system to bedeveloped and be placed in operation in a collaborative venture between the Information TechnologyExpert and the Institute's development team. The following major deliverables are anticipated to bethe responsibility of the Consultant:

(i) a strategic plan for the project detailing all steps from initial systems analysis todelivery of the system in operational mode to the central office and all regions. Theplan should include the technical specifications for all software and equipment thatmust be purchased to support the system development activities.

(ii) design of forms to be used to capture: initial registration information, past wage andcontribution information, current periodic wage and contribution information. It isexpected that most data will be delivered to the institute in electronic form. Thereforeboth paper and electronic collection forms need to be designed.

(iii) technical supervision over the installation of target equipment and softwareenvironments and assistance to the Institute on acceptance of goods delivered.

(iv) training of development team staff in operations and technical support providingassistance to the Institute Informatics Management in identifying in-house technicalsupport requirements.

(v) fully operational computer systems for: data entry and validation (both at the instituteand to be given to public and private firms), workflow control over returns receivedand returns missing, load of received data into the registration data base, and basicreporting from the data base.1Y

It is understood that the responsibility of the consultant is limited because most of the application developmuitactivities would be undertaken by staff of the Institute. Therefore the responsibility of the Consultant is limited tothat normally attributed to a team leader.

- 143 - ARpnRdix 4Page 3 of 17

(vi) development of a testing plan to ensure that all systems operate properly before theyare deployed to the public and to the regions.

(vii) development of a training plan including the training activities necessary for successfuldeployment of the system. Technical supervision and quality control over theproduction of training materials, that will be developed in Bulgarian language,including:

Operational Procedures Manuals. This document should contain pertinent informationwhich are required for use by technical staff who will be responsible for operate andadminister the system and its data bases both centrally and at the regions. At aminimum, it should cover the following topics: hardware and software requirements;rules for estimation of data volume; installation procedures; system back up andrecovery procedures; security management procedures; and special operatingprocedures such as month-ending, year-ending, initialization, etc. It is anticipated thatthere will be two separate manuals for the data-entry modules (to be distributed to theregions and to interested enterprises) and for the central registry loading and data basemaintenance activities.

User's Manual. This document should be prepared for use by the end users insideand outside the Institute. It should describe all available functions of the data-entrysystem and how to use them. For each function, the required inputs, expectedoutputs, editing rules, limitations, and error/system messages should be fullydescribed. The User's manual should also describe how and when the User shouldinteract with the Institute's technical staff, and procedures for problem resolution.

(viii) by mid-October 1996, completion of development and testing of the software andhardware needed for the preliminary data collection required in the Pension Law andby end of December 1996, fully operational preliminary data system in place.

(ix) development of a user specification for the personal registration system to cover whatinformation is to be collected, when and to whom the information is to be supplied.

(x) the transfer of knowledge to the Institute staff.

Reporting and Communications

7. The information technology expert will work closely with, receive guidance from, andgive feedback to the Institute's Informatics Management. At the end of each business trip the expertwill prepare a concise report indicating progress against schedule, major issues and makingrecommendations to address them. At completion, the expert will submit a project completion reportthat will accompany the delivery of the software and final documentation.

- 144 - ARpendix 4Page 4 of 17

Tlming and Level of Effort

8. The technical assistance is expected to begin no later than April 1996 and to beprovided for about one year elapsed time.

Qualifications

9. The information technology expert to be selected for providing the technical assistanceis expected to have the following minimum qualifications:

(i) comprehensive systems development and technical knowledge and skills in all aspectsof planning, development, training, and operation of information technology systems,with a minimum 5 years of international experience working and operating in bothpublic and private environment;

(ii) sound technical knowledge of various types of application software systems andcomputer systems with emphasis on in the development of microcomputer-basedadministrative application systems that are based on: graphical interfaces (GUI);client-server architectures; SQL standard relational data bases; and modulardevelopment based on modern system development methodologies and languages; andproven experience in the development of registration systems.

- 145 - Amnadix 4Page 5 of 17

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

TERMS OF REFERENCE

PROJECT COORDINATOR

1. The following Terms of Reference define the primary responsibilities of theCoordinator of the Project Coordination Unit of the National Social Security Institute (NSSI) of theRepublic of Bulgaria.v The Unit will be responsible for coordination and implementation of activitiesunder the proposed Social Insurance Administration Project.

2. The Coordinator will oversee the establishment, and ensure the sustainability of aproject management structure with adequate and sufficient material and human resources for effectiveimplementation of project activities. The Coordinator will ensure that the PCU's agreed roles,functions and staffing are met and carried out. The Project Manager and staff of the PCU (includinglong- and short-term consultants) will report to the Director, who in turn will report to the Governorof the NSSI for all matters related to the project.

3. Specific responsibilities of the Coordinator include, but are not limited to, those listedbelow:

(i) ensure first-line contact between the NSSI and the World Bank team for all mattersrelated to activities under the project.

(ii) ensure first-line contact and communications with other entities (for example, projectworking groups, beneficiary institutions, etc.) and agencies (other donors, non-governmental organizations, etc.) involved in the social security sector to ensurecooperation and coherency in planned and on-going programs, as well as regularexchanges of up-to-date information regarding the project.

(iii) acquire adequate facilities, equipment and other resources to ensure the efficientoperation of the PCU and fulfillment of its responsibilities.

(iv) together with the Project Manager, arrange and approve short-term staff training, asneeded, for PCU staff in areas such as planning and organizational skills, Englishlanguage, procurement under World Bank Guidelines, and World Bank loandisbursement procedures, and other areas as may be considered appropriate.

1 Given that a project's implementation environment is a dynamic one, the responsibilities outlined here will likelyevolve over time and thus may require reassessment and modification as implementation progresses.

- 146 - Appendix 4Page 6 of 17

(v) together with the Project Manager, oversee the selection and hiring of short- or long-term technical assistance (for example, auditors, translators and interpreters, projectmanagement support, labor economists, etc.) to the PCU, including approval ofTerms of Reference and short lists of candidates and supervise the work of suchcontractual assistance.

(vi) ensure regular monitoring of the status of project activities (through the preparationand updating of implementation plans and schedules, disbursement projections, etc.),including preparation and transmission of comprehensive progress reports as requiredunder the conditions of the Loan/Project Agreements, and any other reportingrequirements under the project (for example, annual audits).

(vii) together with other individual(s) the NSSI may appoint, serve as authorized signatoryto documentation regarding procurement of goods and services (e.g., final approval ofbidding documents, signing of contracts, etc.), withdrawal applications, and otherdocumentation or correspondence concerning project activities.

(viii) oversee monitoring of project status, ensuring that implementation activities are inaccordance with project objectives.

- 147 - Appendix 4Page 7 of 17

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

TERMS OF REFERENCE

PROJECT MANAGER

1. The following Terms of Reference define the primary responsibilities of the Managerof the Project Coordination Unit of the National Social Security Institute (NSSI) of the Republic ofBulgaria.2' The Unit will be responsible for coordination and implementation of activities under theproposed Social Insurance Administration Project.

2. The Manager will oversee the day-to-day implementation of the project. The staff ofthe PCU (including long- and short-term consultants) will report to the Project Manager, who in turnwill report to the Project Director for all matters related to the project.

3. The Manager will lead and manage the staff in the PCU in carrying out the day-to-dayactivities in support of implementation of the project. Specific responsibilities include, but are notlimited to, those listed below:

(i) acquire adequate facilities, equipment and other resources to ensure the efficientoperation of the PCU and fulfillment of its responsibilities.

(ii) together with the Project Director, select and hire core staff (procurement officer,accountant, administrative assistant) on the basis of profiles and responsibilitiesacceptable to the NSSI and the World Bank.

(iii) arrange and approve short-term staff training, as needed, for PCU staff in areas suchas planning and organizational skills, English language, procurement under WorldBank Guidelines, and World Bank loan disbursement procedures, and other areas asmay be considered appropriate.

(iv) supervise daily activities of the PCU, evaluating performance and operatingeffectiveness (including on-going staff performance evaluations and feedback), makingrecommendations for change, as necessary.

(v) together with the Project Director, oversee the selection and hiring of short- or long-term technical assistance (for example, auditors, translators and interpreters, projectmanagement support, labor economists, etc.) to the PCU, including approval of

3' Given that a project's implementation environment is a dynamic one, the responsibilities outlined here will likelyevolve over time and thus mnay require reassessment and modification as implementation progresses.

- 148 - Appendix 4Page 8 of 17

Terms of Reference and short lists of candidates and supervise the work of suchcontractual assistance.

(vi) with the assistance of concerned PCU staff, develop and oversee the implementationof standardized administrative and operating procedures for the PCU, including, butnot limited to, record-keeping and filing systems - with administrative assistant;reporting formats for financial transactions under the project (credit and counterpartfund accounts) - with the accountant; procurement and contract tracking system - withthe procurement officer, etc.

(vii) ensure that goods and services under the Loan are procured in accordance with WorldBank Guidelines, providing assistance as needed and together with the procurementofficer, to project working groups in drafting terms of reference, defining technicalspecifications, negotiating contracts, etc.

(viii) together with the procurement officer, provide first-line contact with interestedsuppliers of goods and services regarding that status of project-related activities, andplanned or on-going procurement.

(ix) together with any other individual(s) the NSSI may appoint, serve as authorizedsignatory to documentation regarding procurement of goods and services (e.g., finalapproval of bidding documents, signing of contracts, etc.), withdrawal applications,and other documentation or correspondence concerning project activities.

(x) ensure regular monitoring of the status of project activities (through the preparationand updating of implementation plans and schedules, disbursement projections, etc.),including preparation and transmission of comprehensive progress reports as requiredunder the conditions of the Loan/Project Agreements, and any other reportingrequirements under the project (for example, annual audits).

- 149 - AppndixAPage 9 of 17

REPUBLIC OF BULGARIA

SOCLAL INSURANCE ADMINISTRATION PROJECT

TERMS OF REFERENCE

PROCUREMENT OFFICER

1. The following Terms of Reference outline the primary responsibilities of theProcurement Officer of the Project Coordination Unit (PCU of the National Social Security Institute(NSSI) of the Republic of Bulgaria.A This Unit will be responsible for coordination andimplementation of activities under the proposed Social Insurance Administration Project.

2. The Procurement Officer will provide assistance to the PCU of the NSSI in theexecution of international and local procurement of goods, works and services under the aboveproject. The Procurement Officer will work as part of a core team of staff in the PCU, under thesupervision of, and reporting to, the PCU Manager.

3. The Procurement Officer will:

(i) ensure the procurement of goods, works and services in accordance with World Bankguidelines for all items financed through the Loan, using standard World Bankdocumentation.

(ii) establish and maintain in the PCU/NSSI a data base of letters of interest received fromsuppliers of goods, works and services for purposes of their possible inclusion onfuture short lists or for future consultation.

(iii) work with concerned technical working groups in the preparation of technicalspecifications for agreed lists of equipment (including information technology, officeequipment and supplies, vehicles, etc.) to be purchased under the project according tovarious procurement methods.

(iv) assist the PCU/NSSI and concerned technical working groups in formulatingappropriate evaluation criteria, preparation of draft bidding documents, andtransmission of those documents to the World Bank in a timely fashion for review andno objection, in accordance with World Bank requirements outlined in theLoan/Project Agreements and the Staff Appraisal Report.

(v) monitor receipt of proposals and ensure their safekeeping until bid opening.

Y Given that a project's implementation environment is a dynamic one, the responsibilities outlined here will likelycvolve over time and thus may require re-assessment and modification as implementation progresses.

- 150 - Appendix 4Page 10 of 17

(vi) carry out public bid openings and draft minutes of these openings.

(vii) assist the concerned technical working groups, or other individuals comprising theevaluation committee for a given tender, in the evaluation of proposals received, onthe basis of criteria stipulated in the bidding documentation.

(viii) ensure preparation of comprehensive evaluation reports according to World Bankstandard formats and timely transmission of evaluation reports to the World Bank forreview and no objection.

(ix) notify winning bidders in a timely fashion, and draw up contracts for approval andsignature by those individuals authorized to sign on behalf of the NSSI, ensuringtransmission to the World Bank of draft contracts requiring prior review and noobjection.

(x) establish and maintain on the premises of the PCU efficient procurement andcontracting tracking system (noting important approval dates, awards, contractamounts, etc.), as well as a proper filing system to ensure quick retrieval ofprocurement information by PCU staff, visiting supervision missions, annual auditors,etc.

- 151 - Aoendix 4Page 11 of 17

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

SAMPLE TERMS OF REFERENCE

FOR THE AUDIT OF A BANK-FINANCED PROJECT

Objective

1. The objective of the audit is to enable the auditor to express his professional opinionon the financial position of the (name of project) ............... (Cr\Ln no ..... ) at . 199.. and ofthe resources and expenditures for the accounting period ended on that date, as presented by theaudited financial statements of the project.

2. The audit will be carried out in accordance with International Standards on Auditingand will include such tests and controls as the auditor considers necessary under the circumstances.The opinion of the auditor will include specific references as to whether:

(i) all external funds provided have been used in accordance with conditions of therelevant financing agreements, with due attention to economy and efficiency and onlyfor the purposes for which the financing was provided;

(ii) counterpart funds have been provided and used in accordance with the relevantfinancing agreements, with due attention to economy and efficiency and only for thepurposes for which they were provided;

(iii) goods and services financed have been procured in accordance with the relevantfinancing agreements;

(iv) all necessary supporting documents, records and accounts have been kept in respect ofall expenditures, including Special Account payments and expenditures made on thebasis of Statements of Expenditure (SOEs), for which separate audit reports havepreviously been submitted (see below);

(v) where Special Accounts have been used, that they have been maintained in accordancewith the provisions of the Credit\Loan Agreement;

(vi) the financial statements audited, including the Special Accounts, have been preparedin accordance with consistently applied International Accounting Standards and give atrue and fair view of the financial situation of the project at .......... 199.. and ofresources and expenditures for the year ended on that date.

- 152 - Arngendix 4Page 12 of 17

Audits of Statements of Expenditure (SOEs)

3. In addition to the audit of the financial statements, the auditor is required to audit allStatenents of Expenditure (SOEs) used as the basis for the submission of withdrawal applications.

4. Audits of SOEs will be carried out within the framework of and under the sameguidelines as the audits of the annual financial statements and will include such tests and controls asthe auditor considers necessary in the circumstances. The auditor will be required to express hisopinion as to whether:

(i) the SOEs audited have been prepared in accordance with the provisions of theCredit\Loan Agreement;

(ii) all expenditures have been made wholly and necessarily for the realisation of projectobjectives and with due attention to economy and efficiency;

(iii) all information and explanations necessary for the purpose of the audit have beenobtained;

(iv) all supporting records and documents necessary for the purposes of the audit havebeen retained; and

(v) the SOEs audited can be relied upon to support the related withdrawal application\s.

Reports

S. The annual audit report should be received no later than .... months-F after the end ofthe accounting period to which the audit refers. The SOE reports should be attached to eachwithdrawal application made on the basis of an SOE.

6. In addition to the audit "opinion" report, the auditor will prepare a "managementletter". In this letter the auditor will:

(i) present his comments and observations on the accounting records, systems andcontrols that he has examined during the course of his audit;

(ii) identify specific deficiencies and areas of weakness in systems and controls that havecome to his attention and make recommendations for their improvement;

(iii) report on the degree of compliance of each of the financial covenants of theLoan\Credit Agreement and give comments on internal and external matters affectingsuch compliance;

1 The delay should not exceed six months. A delay of three months is perfectly reasonable and achievable underefficient financial management.

- 153 - AlpondixPage 13 of 17

(iv) communicate matters that have come to his attention during the audit that might havean impact on future audits; and

(v) bring to the borrower's attention any other matters that the auditor considerspertinent.

- 154 - Appendix 4Page 14 of 17

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

TERMS OF REFERENCE

TELEPHONE TECHNOLOGY EXPERT(S) FOR TIE DEVELOPMENTOF SPECIFICATIONS FOR WIRING, PBX AND RELATED EQUIPMENT

Background

1. The project. The Republic of Bulgaria is receiving a loan of about US$25 millionfrom the World Bank to help finance improvements of the country's social insurance administration in(a) operational and administrative efficiency; and (b) institutional capacity. The organization incharge of the project is the National Social Security Institute (the "Institute"). Most of the loanproceeds will be used to design and implement, practically from scratch, a comprehensive SocialInsurance Information System (SIIS) at the Institute that will gather and hold vital, wage andcontribution data on employees from all the country's public and private sector enterprises. Data onenterprises and on self-employed individuals will also be collected and processed. Under separateTerms of Reference, a consultant will take up an assignment comprising several longer visits to thecountry, to assist the Institute with the design and piloting of the SIIS.

2. Telephone component. As part of the loan, an amount of about $2.7 million has beenestimated for investments in improved electronic communications. Mostly this would constitute therewiring of the Institute's buildings, and the installation of Private Branch Exchanges (PBXs), and oftelephone sets, while a lesser fraction of the funds is earmarked for data communication equipmentand design/engineering work. The Institute comprises a headquarters (in Sofia) and 28 regionaloffices, for a total of about 2,500 staff. As a rough approximation, about 500 staff work atheadquarters, and 50 to 100 in each regional office. The expectation is that the investment willprovide a PBX for each site and implement a total of 1,000 or more individual telephoneextensions/stations. Future expansion to the full complement of one station per employee (plus extraneeds) should be as straightforward as can prudently be prepared for now. The Institute's buildingstypically date from 1970, more or less.

3. Commercial and regulatory environment. Since 1988/89, telecommunications inBulgaria has been largely deregulated, and private businesses are allowed to install telephone wires aswell as PBXs and telephone sets. Wires have to conform to certain specifications, and equipment hasto be approved for use in Bulgaria, under standards and procedures which have been set by agovernmental commission. A number of private businesses have sprouted serving the sector.International firms are represented among them. The telecommunications branch of the former PT&Tmonopoly operates as one of the commercial players (though it currently remains fully state-owned).Legislation towards further liberalization of the telecommunications sector is under activeconsideration.

- 155 - Appendix 4Page 15 of 17

Summary of Overall Requirements and Delivarable

4. These Terms of Reference cover the services of one or two experts in electroniccommunications to assist the Institute in developing technical specifications for a procurement to beconducted under World Bank International Competitive Bidding ([CB) rules. The procurement wouldaddress, if feasible in one package, the cost-effective wiring of all offices of the Institute for voiceand data, the supply and installation of PBXs and telephone sets at headquarters and in each regionaloffice, and data communications interfaces and equipment to the extent indicated from progress in thecomputerization part of the project. As deliverables, the consultant(s) would produce drafts of theTechnical Specifications and the Schedule of Requirements sections, provide comments onimplications, if any, on the other sections (such as Instructions to Bidders, General and SpecialConditions of Contract) of the standard bidding documents, and advise the Institute on managementand operation of the investment. The consultant(s) are expected to cover the areas detailed in thefollowing section ("Scope of Work") and take into account any other aspects that they deem to have abearing on the task.Scope of Work

5. Confirm user requirements. This would be achieved primarily through discussionswith project counterparts at the Institute. The list of requirements to be developed would need to bemindful of the loan funds available for the procurement, while achieving a maximum of utility for thetypical conduct of Institute business (by, e.g., allowing extensions/stations to be shared withinworkgroups). PBX functionality, interface types and capacities between PBXs and central telephoneoffices (e.g., trunk lines), and any Institute-wide telephone interfaces, would all need to be discussedand defined. The potential expediency of PBX alternatives such as electronic key systems for smalloffices and/or Centrex-type arrangements should be judged. The data communications requirementswill also need to be ascertained, to the extent possible by progress in the computerization track of theproject. For this, the consultant(s) should interact with the SIIS consultant as feasible. It is expectedthat office wiring and PBX will support the (future) implementation of data communications.

6. Establish standards and market situation. The consultant(s) would gather therequired facts and details on Bulgarian standards and regulations - if necessary in translations - for thetelephone and data wiring of buildings, the approval status and availability of brands of PBX,telephone set and data communications equipment, the functions and features offered by the publictelephone service, and prospective regulatory developments. They would obtain an adequate pictureof the market situation -- including an idea of the domestic and foreign firms/corporations alreadyactive in the Bulgarian market and capable of meeting the project's requirements, public servicesavailable or planned for wide-area communications with potential usefulness for the project such asISDN, X.25 and frame relay networks, and prices that can reasonably be expected. The consultant(s)will share these findings with the Institute to improve the likelihood of eliciting a solid response to theICB.

7. Ascertain the physical environment. From blueprints of the buildings as may beavailable at the Institute or at the state organization with (previous) responsibility for the constructionof government property, and/or through site visits, if necessary of all 29 premises of the Institute, theconsultant(s) are expected to obtain all the required information for producing physical descriptions ofthe Institute's buildings satisfactory for bidders' understanding of the wiring and installation effort.

- 156 - Appendix 4Page 16 of 17

The consultant(s) would determine any need for the Institute to add photographs and/or outlines offloor plans to the descriptions, and advise on any requirements for physical modifications in buildingswhich the Institute would need to prepare for this procurement. This is a crucial aspect of theassignment, since it would not be practical or economical to anticipate bidders to inspect more than afew of the 29 premises of the Institute. The description of requirements for each building should takeinto account plans, if any, that exist about renovations and/or replacements to ensure expedient wiringand installation approaches. Further, although reuse of installed wires is not expected to be apractical option, this aspect should also be probed.

8. Draft Technical Specifications and provide related advice. Based on theinformation obtained and own judgment, the consultant(s) will discuss with the Institute feasibleapproaches that would meet requirements, and their funding and other implications. They would thendraft the Technical Specifications and the Schedule of Requirements (including the requirements forinstallation, acceptance, manuals, and training) for inclusion in the bidding documents, and advise onother parts of the latter such as feasible delivery schedules, warranty and spare part provisions, meritevaluation aspects (if any), and any need for stipulating post-qualification of the lowest evaluatedbidder. To this end, the consultant(s) will perform a walkthrough with the Institute of the variableparts of the World Bank's standard bidding documents and suggest appropriate markups. They willalso specifically advise on (a) whether and how to package the procurement into several lots (thepreference being one lot only); (b) which parts of the overall requirements, e.g., in datacommunications, should rather be deferred to a future procurement; and (c) specify any extra andseparate design or planning work if a case can be identified for such work. Equally importantly, theconsultant(s) will advise the Institute on the management and organizational provisions that will needto be in place for the implementation and operation of the new telephone system.Timing and Level of Effort

9. The consultant(s) should perform and complete the assignment between August andOctober, 1996.9' Unless the consultants are resident, the bulk of the information gathering would takeplace through a mission to Bulgaria of about three weeks duration. The stay would need to beextended by about a week, if it were found that all 29 sites of the Institute require a personal visit.Technical Specifications and Schedule of Requirements would need to be drafted during the visit in aform that is comprehensive enough to be discussed with the Institute before departure. The drafts andother inputs could be completed after the mission. The total effort, including travel times, isestimated to take 9 staffweeks (or 45 workdays, by one, or distributed over two, experts).

Qualifications

10. The consultant(s) should have a track record in the planning, design, and managementof private branch telephone systems, including building wiring, PBX technology, and the interfacerequirements to trunk lines and central offices. They should be familiar with relevant industrystandards such as EIA/TIA 568, IEEE 802, X.25/frame relay, ISDN and T/E-series. Their expertisemust include practical up-to-date knowledge of data communications, specifically local area

V Tentative plans are for the bidding, evaluation, and contract award to complete by April 1997, and fordelivery and installation of all wiring and equipment to occur between May 1997 and March 1998.

Appendix 4- 157 - Page 17 of 17

networking using twisted pair/central wiring closets and the wiring requirements of servers (multi-usercomputers). If the assignment is performed by two consultants, it is expected that one of the twowould be a resident with in-depth knowledge of the Bulgarian telephony market, regulations, andother practical considerations.

- 159 - Apendix5Page 1 of 4

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

SYSTEM TECHNICAL DESCRIPHION11

A. Introduction

1. During the World Bank mission to Bulgaria in December 1995, a report was prepareddescribing the design of a new information system for the Social Insurance Institute (ref. "SocialInsurance Reform in Bulgaria: Improvement of Operations", December 1995).

2. In February 1996, during a new visit to the Social Insurance National Institute inSofia, an alternative solution for the Social Insurance Information System has been outlined, based onfurther discussions and new requirements for system flexibility and expandability.

B. UNIX System Architecture

3. The new solution is UNIX based. In this scenario, the central system is a UNIXsystem according to the standard XPG4 (X/OPEN Portability Guide v.4). The national data base islocated in the central office, where also the system administration and system security are defined andmanaged.

4. The regional offices are equipped with UNIX processing capacity and a subset ofreplicated data for routine operations. Only the updated data are transferred on-line to the centraldata base, while periodically (daily, weekly, etc.) all data transfer will is made in batch mode.

5. This allows a great reduction in communication lines costs, as they are tremendouslyhigh at present to allow a completely on-line system (and the public X.25 network does not workefficiently). It also reduces NSSI operational dependency on the quality of the Bulgarian country-wide communications network that has not yet achieved acceptable levels of reliability.

6. The UNIX system allows future adjustments, in case the telecommunication costs willgo down, as the system design is flexible enough to consider such changes. Adjustments are to beeffected by central decision to augment or reduce the amount of operational information from thecentral data-bases that will be replicated in the regional office data bases.

7. The two layers will communicate either in real time or in batch mode, during an

1' Prepared by Angelo Colucci and Paola Zanichelli during the World Bank mission in Sofia, February 19-23,1996.

- 160 - Appendix 5Page 2 of 4

initial phase, using cheaper phone lines, due to the present expensiveness and low quality of publicand private X.25 network.

8. Unlike the mainframe solution (detailed in the document referred to above), a periodof transition during which the old and the new systems will coexist does not seem cost effectivealthough feasible from a technical viewpoint. New systems will be developed in the new UNIXenvironment using modem high-level programming languages. Existing IBMNVM based applicationsystems will be migrated to the new environment at a pace determined by the NSSI. Existingapplication systems and data will transition through a parallel run phase that shall for as long asnecessary to ensure the correctness of the newly developed application system.

9. The data-bases, currently based on VSAM file, will be restructured using relationaldata base according to SQL standard as previously described and, obtaining the same results insecurity and efficiency described in the mentioned document. Also the considerations about thecooperative and distributed processing remain valid.

10. It is necessary to underline that the mid-range systems of the identified class and theprinting tools, which can be usually connected to them, are not usually able to support the currentprinting environment. Therefore, the NSSI shall take advantage of the change in computingarchitecture to attempt to take advantage of recent developments in printing technology.

11. Considering that, in this architecture, it will not be cost effective to use the old IBMsystems during the operational phase, for the central system it is advisable to foresee the acquisitionof two UNIX systems. One of the two computer systems shall be used, in the operational phase, formaintenance of application systems and for future application systems developments. This computersystem shall also provide backup for the most critical applications.

C. Transition Period to the Second Solution

12. In case of conversion to UNIX architecture, it is not economical to consider a periodof transition in which the current applications function both on the old and new systems. UNIXsystems, to be used, need new applications specifically developed for the new architecture. Theperiod of transition, therefore, exclusively consists in the implementation of the new system, the newapplications and the information data base. New versions of current applications shall be run inparallel with the current applications until the NSSI is ensured they are correct.

1.13. A pilot-LAN will be also implemented as described in Chapter 8.3.2.3. of thereferred document. In this context the recruitment, training and retention of technical personnelcontinues to be critical for the success of the project, as the personnel in the Computer Center atpresent has no experience on UNIX environment.

1.14. The new design takes advantage of the fact that the Bulgarian universities arepreparing an increasing number of UNIX experts. Moreover, other public Administrationinformation system are moving towards UNIX (e.g., the EGN system and the Bulgarian

- 161 - Appendix 5Page 3 of 4

Telecommunications Company). Therefore, "ad-hoc" training for system operators and systemadministrators on UNIX operation system and networking (TPC/IP, X.25, SNMP for networkmanagement) is required but may be readily available in the country. Application programmers shallbe trained to use the new programming tools in due time in order to build the new applicationsneeded to set up the new system. System administrators will need also training in physically setting-up SQL data base and in production of procedures for backups and restores of logical data.

D. Technical Summary

15. This chapter describes the UNIX solution in terms of hardware and softwarearchitecture according to what outlined in Chapter 8.2 of the mentioned document. For costingpurposes that document made reference to HP and other proprietary products, but the loan wouldprocure similar products readily available from several manufacturers. It is expected that most ofthese goods and services will be procured using International Competitive Bidding procedures.

16. Central System

Central Processing Unit and Storage 2 central computer systems; 256 MB RAM; 2 Cards X.25 forWAN connection 64 Kbps; 4 Units cartridge Dat 8 GB; powerSPEC-INT92 E 135; TPC-C e 400

Disk Sub-System RAID 100 GB (formatted) shared by two machines

2 Spare feeders for Disk Array; 1 Additional Module for eachDisk Array, including a second storage processor and 32 MBcache

Management software for Disk Array capacity

Printing Sub-System High capacity laser printing subsystem: 200 ppm; on-line andoff-line printing

Operating System UNIX XPG4 compatible

Transmission Protocol TCP/IP

Development Environment C language; Rapid development environment

RDBMS Oracle/Informix

- 162 - Appendix 5Page 4 of 4

E. Development Plan: Activities

17. The table below indicates the key activities considered during project implementation.Development and implementation of systems include the training of inspectors at the central andregional level to the level of proficiency required for effective use of the new systems. Paralleltesting activities will be executed at each site and new systems will be activated as the "official"system only after NISI is ensured of their correctness.

ACTIVITIES Year 1 Year 2 Year 3 Year 4

Project Management x x x x x x x x x x x x x

General Design & Master Planning x x x

EDP Staff Training x x x x

Central System HW and SW x xinstallation

SW development and implementation

- Register System x x x x x x

- Contribution & ST Benefit x x x x x x

- Audit Support _ x x x X X

- Pension Management x x x x x x

- Customer Service x x x x x x x

- Financial Management x x x x

- Integrated MIS x x x x x x x

Regional system HW and SW x x xinstallation I

Telecommunications installation x x x x

[Massive data base loading I.....L. I L L II T h x I _ IParallel testing of new applications J [ I I T I .I.II T x Ix I x I x T xActivation of the new system j ( I TTI1 T11 X1 I x T x | I xT

The detailed costs are found in Appendix I of the PIP.

- 163 - Appendix 6Page 1 of 9

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

MATRIX OF PROCUREMENT AND REPORTING RESPONSIBILITIES

1. The following matrix seeks to clarify responsibilities for key steps in procurement andreporting during implementation among the various players involved in the project. The followingdefinitions are used in the matrix:

(a) Project Coordination Unit (PCU) refers to the unit in the NISI responsible for thegeneral administration of the credit and coordination of project activities. The PCU iscomprised of a project manager, project coordinator, procurement officer, accountant,and staff assistant. The PCU may be supported by short-term consultants in specificareas in order that it be able to more efficiently fulfill its role.

(b) Ad Hoc Committee (AHC) refers to the technical groups established during projectpreparation for each subcomponent and maintained throughout implementation toprovide technical support to the PCU.

2. The PCU is encouraged to organize regular meetings of representatives of the AHCs,as well as any other individuals involved in project activities both within and outside of the NISI, inorder to keep all parties up-to-date on project status and identify obstacles early on in order to seekmutually agreeable solutions. Meetings should ideally be organized around an established agenda,with time allotted for questions or other open discussion. The PCU Coordinator will be responsiblefor keeping the Governor of the NISI informed of the outcome of these meetings, and will seek hisguidance in resolving issues if necessary.

- 164 - Appendix 6Page 2 of 9

PROCUREMENT OF GOODS THROUGH COMPETITIVE BIDDING(Goods requiring prior review)

ITEM/ACTIVITY REVIEW CLEARANCE/DECISION COMMENTS

Equipment Lists. The Lists are discussed and PCU verifies conformity WB reviews and providesconcerned AHC prepares agreed with concemed of lists with component comments and/or nolist of requirements in parties, seeking technical objectives, agreements objection.consultation with technical inputs as necessary. AHC reached during projectcolleagues, as necessary. ensures conformity of preparation, and estimated (NOTE: ALL("Schedule of equipment lists with agreed budgets. Lists are correspondence will beRequirements" in the project inputs, budget submitted to WB for channeled through PCU,Standard Bidding estimates. review. Major issues or which will be responsibleDocuments) other relevant points are for sharing information

highlighted in PCU with concemed technicaltransmittal correspondence colleagues/AHCs.)to WB.

Equipment The technical PCU ensures accuracy and Bid specifications mustSpecifications. AHCs specifications are discussed completeness of be 'vendor-neutral ' toprepare draft technical and reviewed as necessary specifications. PCU ensure faimess to allspecifications in with NISI and/or other forward specifications to bidders.consultation with technical experts. WrB for review. Majorspecialists as needed, and issues or other relevantwith inputs from the PCU points are highlighted inprocurement officer. PCU transmittal

correspondence to WB.

Bidding Documents. PCU collaborates as Before submitting bidding Use of WB's StandardPCU prepares complete necessary with AHCs in documents for WB review Bidding Documents isbidding documents with drafting final bidding and clearance, PCU ensures mandatory.technical assistance if documents. their accuracy, conformityrequired, and technical with Bank standards andinputs from the AHCs if completeness.required, especially withrespect to final Scheduleof Requirements(equipment lists);Technical Specifications;and Special Conditions ofContract.

- 165 - Appendix 6Page 3 of 9

ITEM/ACTIVITY REVIEW CLEARANCE/DECISION COMMENTS

Bid Invitation. The PCU Prior to invitation of bids PCU keeps AHC andinvites bids through which will necessitate local NISI officials concemedadvertisements in local currency budgets (e.g., for informed about thepapers and, in the case of taxes or duties, for site progress of bids.ICB, through notification preparation, forof all embassies/legations installation), the PCU willof member states of the ensure the availability ofBank (and Taiwan, China) those funds.in Sofia. The PCU shouldpublish bid notices inDevelopment Business bytransmitting draft noticesto the Task Manager atIBRD headquarters,requesting publication. .

Bid Opening Procedures. These procedures shouldBefore bid invitation, the inter alia include thePCU prepares a draft stipulation that the bidprotocol of its proposed opening takes placebid opening procedures, immediately after theincluding the composition closing time for bidof the bid opening submission (no later thatcommittee and the 1/2 hour).procedures to be followedduring bid opening.

Bid Opening. The PCU During bid opening, the Incomplete submissions are Completeness of bids,arranges for the bid PCU Director and/or rejected at the time of bid bid amounts and namesopening to take place with procurement officer opening and the incomplete of the bidders arerepresentative(s) who verifies the completeness bids returned to the bidders announced and recordedwould like to attend (e.g., of submissions (e.g., that (see WB guidelines). in written minutes of theAHCs, any participating all requested items, such bid opening.bidders, etc. as the bid security have

been submitted).

- 166 - Appendix 6Page 4 of 9

ITEMIACTIVITY REVIEW CLEARANCE/DECISION COMMENTS

Bid Evaluation/ Award recommendations PCU verifies format and A suggested standardReconunendation. PCU are discussed and reviewed quality of evaluation report format for bid evaluationassists AHCs in carrying as necessary within the and recommendations for reports has been providedout technical evaluation of NISI and with concerned award, and submits to WB by WB.bids received on the basis technical experts (AHCs). for review and no-of criteria stipulated in the All parties seek to ensure objection. WB reviews report,bidding documents, and in that the evaluation was providing comments orpreparing the bid properly carried out on the observations and/or noevaluation report. basis of established objection to

evaluation criteria. recommendation foraward.

Contract Award. After PCU staff prepares draft PCU forwards the draft WB provides commentsreceipt of WB no- contract(s)(in line with contract(s) to WB for no- and/or no objection.objection, PCU initiates WB's standard objection, confirming inpreparation of contract(s) documents). covering letter that aswith winning bidder(s). concerns the contracting

parties, the contract is inorder.

Contract Signature and Signature of contracts and Payments made through PCU ensures that onePayments. PCU arranges payment authorization special account. Any original signed copy ofcontract signature with provided by PCU Manager counterpart financing contract(s) is forwardedappropriate parties and and/or his/her designated obligations (such as the to WE for project files.initiates payment through authority. amounts for customs dutiesappropriate procedures. and taxes) are also

processed in a timelyfashion.

Customs Clearance, Inclusion in the contractDelivery and Lnstallation. of adequate provision forPCU will coordinate with assistance in installationappropriate officials to and training, if needed,ensure that goods is verified by PCU inimported under the project consultation withare cleared through concerned technicalcustoms in a timely colleagues/AHC.fashion. PCU coordinateswith receiving entities forensuring timely deliveryand installation.

- 167 - Appendix 6Page 5 of 9

PROCUREMENT OF GOODS THROUGH SHOPPING AND DIRECT CONTRACTING

ITEM/ACTIVITY REVIEW CLEARANCE/DECISION COMMENTS

Equipment list (Schedule Lists discussed and agreed PCU verifies conformity of WB reviews and providesof Requirements). The with concerned parties, list with component comments and/or noconcerned AHC prepares seeking technical inputs as objectives, agreements objection.list of requirements. necessary. AHC ensures reached during preparation,

conformity of list of and estimated budgets.requirements with agreed PCU submits list to WB forproject inputs, and budget review.estimates.

Solicitation of Suppliers. PCU reviews quotes and PCU selects lowest cost WB's standard format forPCU contacts a minimum ensures with AHC that supplier who meets shopping will be used byof 3 eligible suppliers, goods offered meet requirements. PCU.shares with them the list necessary requirements.of requirements, and PCU informs WB ofobtains quotes. outcome of shopping

process.

Contract with Supplier PCU and supplier sign PCU maintainsand Payment. PCU contract. PCU initiates documentation on file fordraws up contract with payment through special post-reviews duringselected supplier. account. supervision mission.

- 168 - Appendix 6Page 6 of 9

CONSULTING SERVICES

ITEM/ACTIVITY REVIEW CLEARANCE/DECISION COMMENTS

Terms of Reference. During the course ofTORs for major packages project implementationare substantially agreed any revisions to agreedupon at negotiations. TORs may be proposed,

discussed and agreedbetween NISI and WB.

Short Lists. PCU assists PCU submits shortlist for WB may assist inAHCs in preparation of WB review and no compiling a shortlistrepresentative shortlists objection. under certainfor consulting assignments circumstances.(refer to WB's guidelinesconcerning hiring ofconsultants).

Letter of Invitation. PCU submits the LOI to Standard LOI will beLetter of Invitation (LOI) WB for review and no provided to PCU.prepared by PCU in objection. Particular thought shouldconsultation with be given to statement ofAHCs/technical evaluation criteria incolleagues. LOI.

Transmission of LOI Authorized PCU PCU forwards copy ofpackage. PCU ensures representative signs LOI fnal package to WB fortransmission of LOI before transmission. project files.package (including LOI,TORs, supplementalinformation, and draftcontract form) to eachshortlisted firm/consultant/

Bid Evaluation/ The evaluation findings PCU forwards evaluation PCU will format theRecommendation. PCU and resulting award report and recommendation evaluation report alongassists AHCs in evaluation recornmendations are to award to WB for review the lines of the standardof proposals received in discussed and reviewed as and no objection. provided by WB.accordance with necessary within the NISIevaluation criteria outlined and among technicalin LOI, and in preparation colleagues/AHCs.of evaluation report.

- 169 - Appendix 6Page 7 of 9

ITEMIACTIVITY REVIEW CLEARANCE/DECISION COMMEINTS

Invitation to Negotiate. PCU and concerned AHC Note: TA contracts areUpon receipt of WB no expert(s) negotiate contract the result of extensiveobjection to the selected details with selected negotiations betweenconsultant(s) or firm, consultant(s) or firm, parties, which isPCU invites selected including payment terms distinctly different fromconsultant(s) or firm to and work plan for carrying equipment contracts,negotiate a contract. out planned activities. where negotiation with

suppliers is not allowedunder WB-financedprocurement.

Contract Award. Draft PCU ensures agreements PCU forwards draftcontract is prepared by of all parties on draft contract to WB for reviewPCU, on the basis of document. and no-objection,WB's standard contract confirming in the coveringform for consultants, letter that the draft has beenreflecting agreements agreed by all partiesreaching among all parties concerned.during negotiations.

Contract Signature and PCU ensures that payments PCU forwards onePayment. PCU ensures are made in a timely original copy of thesignature of contract by fashion. signed contract to WBauthorized representatives for project files.and processes payment(s).

- 170 - Appendix 6Page 8 of 9

AUDITING

ITEM/ACTIVITY REVIEW CLEARANCE/DECISION COMMENTS

PCU will maintain Project accounts will be PCU forwards Audit Note: Under its Articlesseparate project accounts: audited annually by Reports to WB within six of Agreements, the Bankfor expenditures through extemal auditors, financed months after the closing of must assure itself thatthe WB credit, as well as by the project. For local the Govemment's fiscal project funds areexpenditures from expenditures, normal year. appropriately spent,Government counterpart Government financial hence the importance offinancing. A Special regulations will apply. timely, good qualityAccount will be audits.established to allow timelypayments of expenses Sample terms offrom loan funds. reference for hiring aPCU is responsible for consultant auditor arehiring auditor(s) in a provided in the PIP.timely fashion so as toensure up-to-datereporting.

Appendix (.-171- Page9of9

PROGRESS MONITORING AND REPORTING

ITEM/ACTIVITY REVIEW CLEARANCE/DECISION COMMEINNTS

PCU coordinates Comprehensive progress Semi-annual progress The iippoi:ance ofpreparation of a semi- reports are finalized by the reports are transmitted to action-oriented progressannual progress report on PCU, and reviewed by the WB for observation and repoir': La hardly beproject implementation, as Minister before comment, according to the oversuited. Progi,.well as on the status of transmission to WB. timetable for submission reports are a u.sL,ulsector reform activities. established in the credit mechanism for shanngCollaboration with agreement. PCU notes in information withconcemed AHCs and covering correspondence concemed partiesinclusion of their inputs that concerned technical regarding overall statuswill be essential. colleagues/AHCs and the of project and sector

Minister have endorsed the reform activities,report. difficulties encountered,PCU ensures circulation of progress made, problemsprogress reports to solved or solutionsmembers of AHCs and proposed for those stillother interested parties. unresolved issu; . It

thus al,o becomes ;inimportant tool IIensuring that theobjectives of the projectare being achieved.Reports should inuludeinformation about, interalia: (a) physicalprogress (status ofsta,fing, contractinvitations, awitrds, TAprogress etc ': (h)financial prtgress(status of budgets,commuitments, and loca!and foieign currencyexpenditures); (c) projectoutcomes (fulfillment oflegal covenants, changesin monitoring indicatorsand other measurableindicators of change; and|(d) frank assessments ofprogress onimplementation of theagreed sectoi reformagenda.

Page I of I

REPUBLIC OF BULGARIA

SOCIAL INSURANCE ADMINISTRATION PROJECT

Chart 1: IMPLEMENTATION RESPONSIBILITIES AND ADDITIONAL RESOURCE REOUIREMENTS

ADDITIONAL RESOURCECOMPONENT ACTIVITY IMPLEMENTING AGENCY REQUIREMENTS

PROJECT MANAGEMENT Implementation of Project Activities NSSI 1 Project Manager1 Procurement SpecialistOffice EquipmentStudy tours/training for senior officers

Component 1: Procedural reforms, NSSI. Department of Operations Office EquipmentINTEGRATED SOCIAL New information system: TA, Policy, Systems and IT Staff TrainingINSURANCE SYSTEM Equipment and Training

Component 2.1: Design and Operation of Actuarial NSSI. Department of Policy, Planning 2 professional staffACTUARIAL DEVELOPMENT Program: Technical Assistance, and Information Statistics and Office Equipment

Training Equipment Actuarial Analysis Division Staff Training

Component 2.2: Design and Operation of Policy and NSSI. Department of Policy, Planning 3 professional staffPOLICY PLANNING AND Planning Function and Information, Policy Office EquipmentANALYSIS Planning and Analysis Division Staff Training

Component 2.3: Design and Operation of Public Affairs NSSI. Department of Policy, Planning 2 professional staffPUBLIC AFFAIRS Program and Information, Public Affairs Office Equipment

Division Audio-Visual EquipmentMedio timeStaff Training

Component 2.4: Design and Operation of new Resource NSSI. Resource Management Office EquipmentRESOURCES MANAGEMENT Department Department, Human Resource Audio-Visual Equipment

Division Staff Training

F.T. - Full time staff P.S. - Permanent Staff

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IMAGING

Report No: 15531 BUL

Type: SAR