Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 28315-SL

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF SDR 16.8 MILLION (USD 25.12 MILLION EQUIVALENT)

TO THE

GOVERNMENT OF SIERRA LEONE

FOR AN

INSTITUTIONAL REFORM & CAPACITY BUILDING PROJECT

April 14,2004

Public Sector Reform and Capacity Building Unit Country Department 10 Africa Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28,2004)

Leone2,450 = US$1 US$1.495 = SDR 1

CBOC CFAA CPAR cso CTB DfID D L C DS EO1 ESMF EU FMAS FMR GBA GDP GoSL GPN GRS HIPC IAPSO ICB IDA IFMIS I M C IPAM IRCBP IRCBPCU LG LGDG LGFC LGFD MDAs M & E M o F MLGCD MTEF NaCSA NCB

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Community Budget Oversight Committees Country Financial Accountability Assessment Country Procurement Assessment Review Civ i l Society Organizations Central Tender Board Department for International Development Development Learning Center Decentralization Secretariat Expression o f Interest Environmental and Social Management Framework European Union Financial Management and Accounting System Financial Management Report Government Budgeting and Accounting Act Gross Domestic Product Government o f Sierra Leone General Procurement Notice Governance Reform Secretariat Highly Indebted Poor Country Inter-Agency Procurement Services Office International Competitive Bidding International Development Agency Integrated Financial Management Information System Inter-Ministerial Committee on Local Government and Decentralization Institute o f Public Administration and Management Institutional Reform and Capacity Building Project Institutional Reform and Capacity Building Project Coordinating Unit Local Government Local Government Development Grant Local Government Finance Committee Local Government Finance Department Ministries, Departments and Agencies Monitoring and Evaluation Ministry o f Finance Ministry o f Local Government and Community Development Medium-Term Expenditure Framework National Commission for Social Action National Competitive Bidding

FOR OFFICIAL USE ONLY

NGO O&M PEFA PETS PFM PIC PPF PSR QCBS RPF SBD SOE SPN SRFP SLANG0 TA TORS UNDP WB

Non-Governmental Organization Operation & Maintenance Public Expenditure and Financial Accountability Public Expenditure Trachng Survey Public Financial Management Public Information Center Project Preparation Facility Project Status Report Quality and Cost Based Selection Resettlement Policy Framework Standard Bidding Documents Statement o f Expenditure Specific Procurement Notice Standard Request for Proposals Sierra Leone Association o f Non-Governmental Organizations Technical Assistance Terms o f Reference United Nations Development Program World Bank

Vice President: Callisto Madavo Country Director: Mats Karlsson

Acting Sector Manager: Guenter Heidenhof Task Team Leader: Yongmei Zhou

IThis document has a restricted distribution and may be used by recipients only in 1 the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization. --

SIERRA LEONE INSTITUTIONAL REFORM & CAPACITY BUILDING

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ........................................................................ 1 1 . 2 . 3 .

Country and sector issues ....................................................................................................... 1

Rationale for Bank involvement ............................................................................................. 2 Higher level objectives to which the project contributes .................................................... 3

B . PROJECT DESCRIPTION ..................................................................................................... 4 Lending instrument ................................................................................................................ 4

Project development objective and key indicators .................................................................... 4 1 . 2 . 3 . 4 . 5 .

Project components ............................................................................................................... 4

Lessons learned and reflected in the project design .................................................................. 7 Alternatives considered and reasons for rejection ..................................................................... 8

C . IMPLEMENTATION ............................................................................................................. 9 Partnership arrangements ....................................................................................................... 9 Institutional and implementation arrangements ...................................................................... 10

Monitoring and evaluation o f outcomeshesults ...................................................................... 10

Critical r isks and possible controversial aspects ..................................................................... 12 Grant conditions and covenants ............................................................................................ 13

1 . 2 . 3 . 4 . Sustainability ...................................................................................................................... 11

5 . 6 .

D . APPRAISAL SUMMARY ..................................................................................................... 13 1 . Economic and financial analyses .......................................................................................... 13 2 . Technical ............................................................................................................................ 13

3 . Fiduciary ............................................................................................................................ 13 4 . Social ................................................................................................................................. 14 5 . Environment ....................................................................................................................... 14 6 . Safeguard policies ............................................................................................................... 15

7 . Policy exceptions and readiness ............................................................................................ 15

Annex 1: Country and Sector or Program Background ................................................................. 16

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ............................ 21

Annex 3: Results Framework and Monitoring ............................................................................... 22

Annex 4: Detailed Project Description ........................................................................................... 31

Annex 6: Implementation Arrangements ....................................................................................... 45

Annex 7: Financial Management and Disbursement Arrangements .............................................. 47

Annex 8: Procurement ................................................................................................................... 53

Annex 9: Economic and Financial Analysis ................................................................................... 60

Annex 11: Project Preparation and Supervision ............................................................................ 62

Annex 12: Documents in the Project File ....................................................................................... 63

Annex 13: Statement of Loans and Credits .................................................................................... 64

Annex 14: Country at a Glance ...................................................................................................... 65

Map IBRD 32404

SIERRA LEONE

INSTITUTIONAL REFORM & CAPACITY BUILDING

Project Appraisal Document

Africa Regional Office

AFTPR

Date: April 14,2004 Country Director: Mats Karlsson Sector Director: Paula Donovan Project I D : PO78613

Lending Instrument: Technical Assistance Loan

Team Leader: Yongmei Zhou Sector: General public administration sector (100%) Themes: Administrative and c iv i l service reform (P) Environmental screening category: Partial Assessment Safeguard screening category: N o impact

[ 1 Loan [ ] Credit [XI Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 0.00

Borrower: Ministry o f Finance George Street Freetown, Sierra Leone Tel: (232 22) 222 21 1 Fax: (232 22) 228 472

Responsible Agencies: lRCBP Coordinating Unit Bank o f Sierra Leone Building Freetown, Sierra Leone Tel: (232 22) 221494 Fax: (232 22) 229617 E-mail address: kaindaneh(&ympatico.ca

Public Financial Management Reform Implementation Unit, Ministry o f Finance George Street Freetown, Sierra Leone Tel: (232 76) 603 108 E-mail address: pedecole~,.vahoo.co.uk

Decentralization Secretariat, Ministry o f Local Government and Community Development Freetown, Sierra Leone Tel: 232 76 610 508 E-mail address: emmanaaimar~vahoo.com

Local Government Finance Department, Ministry o f Finance Freetown, Sierra Leone Tel: (232 76) 610 410 E-mail address: obarrie 99@,yahoo.com

FY 5 Annual 9.6C

Expected effectiveness date: June 14,2004 Expected closing date: June 30,2008

Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7

I s approval for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7

[ ]Yes [XINO

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o

[XIYes [ ] N o

Have these been approved by Bank management? [ ]Yes IN0

6 7 8 5.5C 5.2C 4.82

Project development objective Re$ PAD B.2, Technical Annex 3 The proposed Project Development Objectives i s to help the post-conflict Government o f Sierra Leone (GoSL) establish a functioning local government system and improve inclusiveness, transparency, and accountability o f public financial management at all levels o f government.

Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 Component 1. Decentralization and Capacity Building wil l support the detailed design and implementation o f the government Decentralization Program. Component 2. Public Financial Management Reform wil l support the ongoing PFM reform agreed to with Government based on existing diagnosis o f the government expenditure management system. Component 3. Development Learning Center (DLC) will support the establishment o f a financially viable Development Learning Center, combining a Global Development Learning Network site and a Development Information Center. Component 4. IRCBP Coordination wil l finance contract staff, technical assistance, consultancies, equipment to fulfill the overall coordination and monitoring responsibilities for IRCBP implementation. Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 OP 4.01 and OP 4.12

Significant, non-standard conditions, if any, for: Re$ PAD C. 6 Board presentation: N / A Grant effectiveness:

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Qualified auditor for IRCBP selected on a competitive basis. Adoption o f the following manuals: the Project Implementation Manual, the Project Financial Management Manual, and the LGDG Operational Manual. The appointment o f the Capacity Building Manager o f the Decentralization Secretariat, and a Procurement Specialist in the IRCBP Coordinating Unit. Project Account opened and an initial deposit o f US$160,000 equivalent provided as counterparl

Cumulative 9.6< 15.1q 20.3< 25.14

Covenants applicable to project implementation:

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0 Annual project review.

The establishment o f the D L C as an independent entity wil l be a condition for initiating procurement o f the satellite equipment. Elected local councils will be a condition for disbursement under the Local Government Development Grant subcomponent. A public procurement law enacted as a condition for use o f IRCBP funds for the procurement reform subcomponent.

A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues Despite i ts abundant natural resource endowment, significant wealth o f well-educated people and freedom from marked religious and ethnic strife, post-independent Sierra Leone has had a tragic history, one marred by extremely poor governance, gross economic mismanagement, and war. After growing 4% annually in the 1960s, the economy deteriorated sharply over the next two decades as a result o f rampant corruption, massive state intervention, concentration o f state spending on the non-poor, dismantling o f local government, and economic policies that held back overall economic activity and heavily taxed agriculture and rural population.

Following the dramatic decline was a decade o f civi l war which kil led 20,000 people, maimed thousands, and displaced half the population. I t prompted an exodus o f professionals and businessmen, doubled Freetown’s population, wrecked most o f the infrastructure, business and much o f the housing stock, and caused a cumulative decline o f 48% in GDP per capita. In 1999, GDP per capita was only one-third o f the 1970 peak. By 2000, Sierra Leone was at the bottom o f the UN Human Development Index (HDI). Meanwhile, Sierra Leone has been consistently ranked as one o f the most corrupt countries in the world.

A decade o f conflict finally ended in January 2002 and the Kabbah government democratically reelected in May 2002 i s leading a relatively smooth resettlement, reintegration, recovery, and reconstruction process. But the challenge to maintain stability, create conditions for sustainable development, and rebuild social capital remains enormous: the economy i s s t i l l weak; access to and quality o f services and infrastructure i s extremely poor; the culture o f corruption i s still prevalent; and a demoralized and de- skilled public sector i s unable to face the tremendous challenge.

When the Kabbah government was f i rst elected in 1996, a National Good Governance and Public Service Reform Program was launched with strong support from DfID (UK). But the program was interrupted when the rebels deposed the government. Since the restoration o f peace, the program has been reactivated. Currently decentralization and public financial management reform receive priorities in the government reform program and also significant donor support.

a. Decentralization

The Kabbah government has chosen a route o f political decentralization to open up the political space and improve inclusiveness, as a way to address one o f the root causes for conflict. Democratic elections o f local councils, for the first time since they were abolished in 1972, are scheduled for May 2004. A Local Government Act 2004 was enacted in February 2004. This landmark legislation reflects a new vision o f inter-governmental relations, including a new assignment o f functional responsibilities, revenue authorities, and an accountability framework across various layers o f government. It gives local councils substantial autonomy in financial and human resource management, but also demands transparency and accountability in council operations.

Government i s designing a decentralization program which aims to include the following elements: A clear vision o f what functions will be devolved to local governments and when; The transfer o f financial and human resources to build up local capacity to undertake new responsibilities; An intensive capacity building effort to support the development o f local capacity to generate and build up financial and human resources; An intensive effort to sensitize the communities and local government officials o f the new governance paradigm which builds upon transparency, inclusion, and accountability;

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0 The reorientation and restructuring o f ministries and agencies towards their new roles and responsibilities; and strengthening their policy and monitoring roles.

The GoSL has recognized the need for a strong leadership to translate the vision o f decentralization into reality. Under the Local Government Act 2004, an Inter-ministerial Committee on Decentralization and Local Government (IMC) will be established, with the Vice President as the Chairman and representations from local councils. The legislation defines the responsibilities o f the I M C as 1) overseeing the proper implementation o f the Local Government Act; 2) overseeing the further development and implementation o f local government and decentralization; 3) protecting and promoting local democracy and participatory government; 4) arbitrating disputes between Ministr ies, departments and agencies o f Government, provincial administrations and local councils.

The Cabinet also decided to establish a Decentralization Secretariat as a Directorate o f the Ministry o f Local Government and Community Development to manage the implementation and coordination o f the decentralization program while at the same time providing a secretariat service to the IMC.

b. PFM reform

Government recognizes that effective and strategic use o f public resources i s a critical ingredient o f i t s development strategy, and that transparent and accountable utilization o f public resources i s required to restore popular t rust in government. In recent years, despite severe capacity constraint, Government has been able to gradually improve financial management. Government also recognizes that numerous weaknesses remain in public expenditure management. With the launch o f the decentralization program, the P F M reform needs to address an additional major challenge, i.e., to rapidly build up the capacity o f local governments to manage public resources in an inclusive, transparent, and accountable manner. Only with such capacity and commitment will political, administrative, and fiscal decentralization lead to improved efficiency in resource utilization and program implementation.

Based on the assessment, a PFM reform program has been developed with a vision o f establishing a decentralized (both to local governments and to ministries, departments, and agencies) public financial management system in the medium term. The next phase of reform wil l implement this vision by 1) establishing a legal and regulatory framework with clear definitions o f financial management accountability; 2) establishing decentralized budget, execution, accounting, and reporting processes and controls; 3) intensive training of vote controllers, program managers, and financial management staff, so they can perform financial management responsibilities devolved to them; and 4) implementing personnel management measures to reward performance and sanction poor management.

2. Rationale for Bank involvement Responding to the desire o f the post-war government to seek broader participatory approaches to governance, the World Bank Transitional Support Strategy (2002-2004) for Sierra Leone has 1) supported the National Commission for Social Action (NaCSA) to pilot methodologies o f participatory project formulation and implementation at the community level; 2) supported the Ministry o f Health and Ministry o f Education to empower front-line service providers and communities.

Consistent with these initiatives, the IRCBP i s designed as a major instrument through which the Bank supports the landmark institutional transformation envisaged in the Local Government Act 2004. To this end, the IRCBP will 1) assist GoSL to design and implement a sustainable fiscal decentralization strategy; 2) help newly elected local governments acquire the management ski l ls necessary to translate resources into service delivery improvements on the ground; 3) help establish a culture o f transparency and accountability in local governments.

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With i ts wealth o f international experience, the Bank i s well placed to assist GoSL in designing a phased approach to decentralization, including a fiscal decentralization strategy, an administrative decentralization strategy, and a comprehensive capacity building program. The framework o f this ambitious decentralization program and the core capacity to be established in the MLGCD and MoF to lead the implementation wil l provide a common framework for coordinating development partners’ support to GoSL’s decentralization program.

The design o f the IRCBP includes a strategic decision o f providing initial seed money for a nascent local government development grant system, with the expectation that a large number o f local councils will use the resources to address the pressing needs o f their localities, if strong capacity building support i s provided to them and transparent and accountable financial management i s required o f them. If central government can successfully implement the grant system and local governments can successfully utilize the seed money provided by IRCBP, i t wil l raise the confidence o f donors to provide budget support to local governments through the grant system rather than through discrete projects.

I t i s envisaged that the initial success in the grant system and the init ial management capacity demonstrated by local governments will also facilitate a transformation o f the National Commission for Social Action (NaCSA) from a social fund agency, which provides direct financial transfers to communities bypassing existing government structures, to one which supports the empowerment o f local governments through allowing and helping local governments to manage resources intended for communities in their local areas.

At the national level, the Bank, jointly with DfTD and EU, i s helping Government develop a prioritized P F M reform program which, if successfully implemented, wil l increase the confidence o f stakeholders in the national budget preparation and execution process and prepares the ground for a future multi-donor budgetary support (MDBS) framework. The target achievements agreed to in the PFM reform program and supported through the IRCBP will serve as essential inputs for the MDBS.

The intensive public sector reform effort in the country i s creating a strong demand for training in public administration. The country, however, lacks a strong training institution or a resource center with up-to- date development literature. Thus the opportunities for learning from international experiences have been limited to technical assistance by international consultants and study tours, both o f which are expensive. The Development Learning Center to be established under the IRCBP will create much needed opportunities for learning and ‘networking. These are crucial for implementing the ambitious reform agenda.

3. H i g h e r level objectives to which the project contributes The Interim Poverty Reduction Strategy (I-PRSP) o f Government o f Sierra Leone, discussed by the Executive Directors on Sep 13, 2001, adopted a two-phased approach to combating poverty. In the transition phase, extending through 2002, the focus was: (i) consolidating peace, (ii) resettlement and reconstruction, (iii) improving governance, (iv) maintaining a macroeconomic framework conducive to recovery. In the medium-term phase, government would increasingly shift to addressing longer-term development issues, including the following key priorities: expanding access o f the poor to health, education and markets, accelerating the economic recovery and growth, and deepening governance improvements, not least through the restoration o f decentralized government and service delivery.

The Transitional Support Strategy (TSS) 2002-4 supported the objectives o f the I-PRSP. I t s objectives have been helping mitigate the risk o f renewed conflict and laying the foundation for sustained poverty reduction and improvements in nutrition, health and education, while targeting the rural population, women and children. I t has three focuses: (i) governance, targeting institutional reform and capacity building down to the district level, with a heavy emphasis on enhancing participation and community

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driven development activities; (ii) accelerating economic growth; (iii) expanding access o f the poor to basic social services, infrastructure, markets and assets.

The proposed project i s part o f the proposed lending program under the TSS. By helping GoSL establish a functioning local government system and improve inclusiveness, transparency, and accountability o f public financial management at all levels o f government, the project directly contribute to government’s achievement o f the I-PRSP objectives and IDA’S achievement o f the TSS objectives.

B. PROJECT DESCRIPTION 1. Lending instrument This will be a mixture o f technical assistance and investment grant, for four years.

2. Project development objective and key indicators The proposed Project Development Objective i s to help the post-conflict Government o f Sierra Leone (GoSL) establish a functioning local government system and improve inclusiveness, transparency, and accountability o f public financial management at all levels o f government.

Key performance indicators include: All 19 elected local councils are able to make development plans that respond to local priorities through a participatory process and are able to prepare a budget consistent with Section 67 o f Local Government. Act 2004. 14 o f the 19 elected local councils meet the transparency and the financial management accountability requirement as per Local Government Act 2004 (Section 107,81, 105). 14 o f the 19 elected councils are able to deliver all services devolved to them at the levels o f the year before devolution. 90% donor funding i s captured in the fiscal reports using government budget classifications by program and object o f expenditures. 95% o f Vote Controllers submit regular in-year and annual budget execution reports to MoF and the relevant minister on time. In-year reports are published regularly for tracking poverty expenditure by function. Public Procurement Law enacted, embracing the principles o f transparency, accountability and efficiency. 90% o f funds provided for procurement are effectively utilized.

3. Project components (Detailed description o f the IRCBP i s attached in Annex 4.)

Component 1 Decentralization and Capacity Building (US$14.3m) This component finances the detailed design and implementation o f the government Decentralization Program.

Subcomponent 1.1 Strengthen policy and implementation capacity for the decentralization program The objective o f this subcomponent i s to establish and strengthen the policy advisory and strategic management role o f the Decentralization Secretariat (MLGCD) and the Local Government Finance Department (MoF), so they can jointly lead the implementation o f the Decentralization Program.

The subcomponent will finance the costs o f specialists, equipment and vehicles, technical assistance and training for both the Decentralization Secretariat and the Local Government Finance Department. I t will also provide technical assistance, vehicles, equipments, and training to the MLGCD (aside from the Decentralization Secretariat) so that the ministry can play an active role in monitoring local councils.

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Subcomponent 1.2 Start-up investment in local government administrative infrastructure This subcomponent will provide some modest start-up investment in office infrastructure, communications equipment, and vehicles to local councils.

Subcomponent 1.3 Capacity building to support decentralization

The objective o f this subcomponent i s to support the Decentralization Secretariat to manage an ambitious capacity building program to support decentralization. I t will finance the costs o f development and delivery o f training modules as outlined in the curriculum, as well as technical assistance provided to beneficiaries in building up skil ls.

Subcomponent 1.4 Local Government Development Grant (LGDG)

This subcomponent i s to finance the LGDG system with the objective o f helping local councils quickly establish credibility and capacity in development planning and execution. The LGDG offers them an incentive to adopt a transparent and accountable culture o f local governance and an opportunity to practice participatory planning, budgeting, financial management, and project implementation ski l ls .

Subcomponent 1.5 Monitoring & Evaluation This subcomponent will finance five categories o f M&E activities:

0 monitoring for due diligence purpose, ie., whether project implementation complies with financial management and procurement guidelines and social and environmental safeguard policies o f the World Bank. This would in particular include regular monitoring and audits o f local governments;

0 monitoring and evaluating for the purpose o f improving the effectiveness o f capacity building; 0 monitoring and evaluating for the purpose o f ensuring the sustainability o f the fiscal

decentralization strategy; evaluating the impact o f fiscal decentralization on infkastructure development and service delivery, which should include evaluation by beneficiaries to the project; and

0 evaluating the social impact o f decentralization, i.e., whether and to what extent decentralization improves social cohesion and empowers marginalized groups in local decision-making process.

Component 2 Public Financial Management Reform (US$6.2m) The objective o f this component i s to support the implementation o f a PFM reform program.

Subcomponent 2.1 Improve the legal and regulatory framework forpublicBnancia1 management The objective o f this subcomponent i s to establish the core policy advisory and implementation capacity for the PFM reform program. I t will finance the establishment o f the PFM Implementation Unit.

Subcomponent 2.2 IFMIS The objective o f this subcomponent i s to implement a new Integrated Financial Management Information System (IFMIS), which i s able to meet the control and information requirements o f the decentralized system o f financial management. This subcomponent will finance the design and acquisition o f a new Integrated Financial Management Information System (IFMIS), initially to be set-up in M o F to replace the current FMAS and then to be transformed to support the more decentralized financial control and accounting system. It wil l also finance the staffing cost o f the IFMIS implementation team, technical assistance and consultancies, equipment and vehicles, and intensive training for stakeholders. The component will also include the initiation o f training o f line ministries to prepare them for their new responsibilities and the new IFMIS.

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Subcomponent 2.3 Design and support implementation of interim financial management systems for newly elected local governments. This subcomponent will finance the development and implementation o f an interim Local Government financial management system and intensive training for local government financial management staff.

The local government FM system will initially be implemented on a manual basis. The project will later finance the acquisition and implementation o f a small standard accounting package for local governments. The experience o f using this simple computerized system wi l l prepare local governments for operating the IFMIS, when i t i s rolled out to local councils after 2008.

Subcomponent 2.4 Strengthen the Medium Term Expenditure Framework (MTEF) The objective o f this subcomponent i s to strengthen the MTEF process. It will finance technical assistance on how to improve the Cabinet policy process, strengthen the linkages between policy objectives and budget proposals, and use the MTEF process as a key driver to motivate vote controllers towards efficiency in management, and to reward budget entities for performance. This subcomponent will also finance intensive training for stakeholders on the MTEF process and program budgeting.

Subcomponent 2.5 Procurement reform The objective o f this subcomponent i s to finance the implementation o f a new legislative and regulatory framework for procurement, which i s currently being developed by the Steering Committee for Procurement Reform. This subcomponent will finance technical assistance, some logistical support, and intensive training to procurement oversight institutions, tender boards, and procurement staff. I t will also finance a nation-wide sensitization program to disseminate the new policy and law and promote transparency and accountability o f procurement, training o f procurement staff on the new regulations, annual public procurement forums for all stakeholders, and production o f annual public procurement reports for public information. The project will also finance, as the case may be, an action plan to be developed by the CPAl2-IP as described in Annex 8, Procurement management.

Subcomponent 2.6 Monitoring & Evaluation The Bank has conducted a HIPC Assessment in January 2004. Using sixteen modest benchmarks common to al l HIPCs, the assessment has provided the baseline data on the quality o f the government expenditure management system for the purpose o f tracking poverty-reducing expenditures. In addition, a participatory workshop was conducted in February 2004 for stakeholders to further assess the quality o f the government expenditure management system using a set o f standard PFM assessment indicators developed by the Public Expenditure and Financial Accountability (PEFA) Secretariat o f the World Bank. The consolidated assessment results and an action plan to improve high-priority areas formed the basis o f the PFM component o f IRCBP. Re-assessment o f the standard PFM indicators wil l be conducted annually so as to evaluate the impact o f the PFM reform initiatives.

Component 3 Development Learning Center (US$2.9m) The objective o f this component i s to establish an excellent information, communications, and training center to meet the demand for capacity building which cannot be satisfied through traditional means and existing institutions. This component will finance the establishment o f a Development Learning Center, combining a Global Development Learning Network (GDLN) site and a Development Information Center.

Subcomponent 3.1 Establishment of the DLC as an independent legal entity The objective o f this subcomponent i s to establish the D L C as an independent entity by legislation.

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Subcomponent 3.2 Constructing, equipping and stafflng the D L C The objective o f this subcomponent i s to construct the D L C facility, install the required equipment, and recruit staff, so as to make the D L C operational.

Subcomponent 3.3 Support the operation of the DLC The objective o f this subcomponent i s to assist the D L C become financially viable in three years. I t includes:

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financing o f operational costs on a decreasing basis over the f i rst three years o f DLC operation; purchase o f a light vehicle to facilitate transport and marketing services; technical assistance and staff training; and the establishment o f financial management systems and annual audits.

Subcomponent 3.4 Monitoring and Evaluation The objective o f this subcomponent i s to provide for consistent monitoring o f D L C activities, draw lessons, and improve on D L C operations. The overall Monitoring and Evaluation (M&E) component should be carried out by the DLC Board.

Component 4 IRCBP Coordination (US$l.lm) The objective o f this component i s to ensure that IRCBP implementation complies with the World Bank Financial Management Guidelines and the Procurement Guidelines, and to ensure effective coordination o f the first three project components, which will be implemented by MLGCD, MoF, and DLC (or the ESO, before the D L C i s legally established as an independent entity), respectively.

Specifically, this component will finance: 0 an IRCBP Coordinator to be responsible for the overall coordination o f the IRCBP

implementation; 0 a Chartered Accountant as the Principal Finance Officer for the IRCBP Coordinating Unit to be

responsible for financial management o f the IRCBP; 0 a Procurement Specialist, to be responsible for ensuring that all procurement under the IRCBP

comply with the World Bank procurement guidelines; 0 a Monitoring and Evaluation Specialist, to be responsible for setting up and maintaining an M&E

system for the IRCBP; and 0 technical assistance, training, and operational expenditures to strengthen the coordination and

monitoring function o f the unit.

4. Lessons learned and reflected in the project design

a. Strong leadership is key for effecting strategic changes The structural transformations envisaged under the government decentralization and PFM reform programs are going to significantly change the power balance within the political and bureaucratic structures. Leaders with clear vision and strong technical capacity are required to push through such strategic changes.

The Bank support to this process will need to combine high-level dialogues with the political leadership and strong support to build up the policy advisory and management capacity at the technical level. The IRCBP will invest heavily in financing professional staff and their training and hands-on mentoring for the Decentralization Secretariat, the Local Government Finance Department, and the PFM Implementation Unit, all critical change agents in the system.

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b. Successful decentralization requires a strong center A successful decentralization process requires a strong central government that i s capable o f effectively managing, supporting, and monitoring the process. Thus the project will help establish the management capacity in the Decentralization Secretariat and the capacity in the Ministry o f Finance to manage inter- governmental fiscal relations. The project will also help l ine ministries to develop and implement devolution plans, and to monitor the performance o f local governments.

c. Capacity building is more effective ifit is through learning by doing Based on the experience in other countries (e.g., Uganda Local Government Development Project), the IRCBP will adopt “learning by doing” as the approach that will be used for local government capacity building. They will be allowed to discharge responsibilities as they learn. Discretionary resources will be provided to the local councils, so they can learn how to plan and use resources based on local priorities. Learning will be supported by a mixture o f in-classroom training and on-the-job mentoring.

d. Realistic expectation and careful management of IFMIS implementation Existing implementation experience in Africa suggests that success o f IFMIS implementation depends on the leadership, project management skills, capacity in government agencies to accept and implement the change. The IFMIS component o f the project i s intentionally modest, given limited capacity in line ministries and local councils. I t will f i rs t be implemented in the Ministry o f Finance to replace the existing system and then transformed to support the more decentralized financial control and accounting system designed under subcomponent 2.1, in the Ministry o f Finance and one other l ine ministry.

e. Appropriate governance arrangement of the DLC is key to the success of DLC The implementation experience o f GDLN sites around the world and in particular in Africa showed that the success o f a D L C depends critically on i t s governance arrangement. First, for the D L C to become a self-financing entity at the end o f the third year o f operation requires it to be a commercially oriented entity, with autonomy in business management. Political interference and bureaucratic delays often reduce the capacities o f DLCs to respond to client needs in a timely manner and to recover costs in a reliable way. Second, since the client base o f the D L C i s much broader than the public sector, there i s a need to include key stakeholders in the decision making process, so D L C can become a knowledge, information, and communications center for all. Third, attaching the D L C to an existing training institution sometimes r u n s the risk o f the institution monopolizing the use o f the DLC and thus impeding other clients’ access to it. For these reasons, government has proposed a governing board with a minority stake by government, and with representations from other stakeholders, including the private sector and the civi l society.

$ Prime importance of the GoSL’s role of coordinating the many actors in the decentralization program The GoSL’s experience in the preparation of i t s decentralization program underlined the importance o f effective coordination o f the many stakeholders involved. The establishment o f the Local Government Finance Committee, the Local Govemment Service Commission and the I M C (all required under the Local Government Act 2004), and the Decentralization Secretariat, to be supported by the IRCBP and other development partners, will be key instruments in ensuring such coordination.

5. Alternatives considered and reasons for rejection

a. A more comprehensive project which would address the above three components and at the same time also address the weak human resource management system, legal and judicial reform, and agricultural sector capacity building, was originally envisaged in the Transition Support Strategy for Sierra Leone (2002-2004). This altemative was rejected during the Project Concept Review meeting, because it was recognized that given the current capacity o f govemment, such a comprehensive program was too ambitious. Regional experience in institutional reform also suggests a more selective approach in

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an environment with severe capacity constraint. The team was advised to focus the scope o f IRCBP on two areas, decentralization and public financial management reform, due to their strategic importance.

The choice o f focusing the Bank support on the decentralization process i s also based on the belief that an effective decentralization process can trigger broader public sector reform at the central government level. If a culture o f transparency and accountability can be established within nascent local governments and civi l society can gain confidence in holding local government accountable, the pressure for improving governance will inevitably spread to Freetown. If the capacity o f financial management and service delivery improves at the local level, pressure for further fiscal decentralization and more effective management o f public expenditure by central government agencies will grow. Implementation o f the ambitious agenda o f functional devolution will also trigger restructuring o f the line ministries.

I t was recognized that although full-scale agricultural sector capacity building and legal and judicial sector reform will not be covered by the IRCBP, there are contributions that the IRCBP can make in both areas, under the umbrella o f capacity building to support the decentralization process. For example, training, sensitization, and community mobilization activities can be funded to raise awareness on issues related to social just ice and exclusion. Similarly, training for local governments on strategies to revive agriculture can be funded. At the national level, the Decentralization Secretariat’s role includes responsibility for coordinating the development of a coherent and consistent legal and regulatory framework for Sierra Leone’s decentralized system o f governance.

b. The team originally considered relying on the Institute o f Public Administration and Management as the main provider o f training. Assessment o f PAM’S capacity shows that i t i s not ready to undertake this role. The team therefore chose to encourage an emergence o f private sector trainers through the provision o f Training o f Trainers programs. The Training o f Trainers programs can also include qualified civi l servants as potential trainers. This serves two purposes: 1) it leverages the existing capacity in the civi l service, and 2) it motivates civi l servants to become resource people for the decentralization process rather than a force o f resistance. While IRCBP will not provide earmarked funds for PAM, staff o f PAM are eligible to participate in the Training o f Trainers programs, if they meet the required qualifications. Regular participation in the Training o f Trainers programs could help PAM improve i t s curriculum and gradually grow into a training institution with sustainable capacity to address some o f the long-term capacity building needs for local governments.

C. IMPLEMENTATION 1. Partnership arrangements Currently, DfID, EU, UNDP and IDA are providing parallel financing o f the decentralization and PFM reform programs. The Decentralization Secretariat in MLGCD established to lead the implementation o f the decentralization program has become the common beneficiary o f various form o f technical assistance from development partners.

The LGDG designed by the M o F and financed by the IRCBP has the potential o f attracting future donor support. The Local Government Operational Manual under the LGDG subcomponent i s expected to be applied to all sources o f financing, including the Government and other donors.

The establishment o f the PFM Reform Implementation Unit to lead the P F M reform has also served the purpose o f coordinating donor support. DfID has financed consultancies to provide input to the preparation o f the P F M component o f IRCBP and i s expected to continue providing much needed technical assistance to the PFM unit. Advisors financed under the EU M o F Institutional Support Project are also expected to advise the PFM unit and the leadership o f M o F on various subcomponents financed under the IRCBP.

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2. Institutional and implementation arrangements

Component 1 on Decentralization will be managed by the Decentralization Secretariat (DS) o f the MLGCD under the political leadership o f the Inter-Ministerial Committee on Decentralization and Local Govemment (IMC).

Component 2 on PFM Reform wi l l be managed by the PFM Reform Implementation Unit o f the Ministry o f Finance, under the political leadership o f the Minister o f Finance.

Component 3 on D L C will be managed by the Establishment Secretary’s Office prior to the establishment o f the D L C as an independent legal entity, and then by the D L C after i t s legal establishment.

The IRCBP Coordinating Unit will be responsible for project coordination, as defined in Annex 4. The IRCBP Coordinator as the head o f the Uni t will report to the Steering Committee consisting o f the Financial Secretary (Chair), the Establishment Secretary, and the Permanent Secretary o f the MLGCD. The Minister o f Finance and the Minister o f Local Govemment and Community Development will provide ministerial oversight o f the IRCBP and report to Cabinet on the implementation progress o f IRCBP (see the attached chart in Annex 6 for the implementation and coordination arrangement for IRCBP) . The project wil l establish a quality assurance and implementation support mechanism for each implementing agency and the IRCBP Coordinating Unit. This refers to expert support to the implementing agencies in reviewing draft Terms o f References and contracts, draft policy papers and legislations, outputs o f consultants; specifications o f equipment to be procured and i t s acceptance testing; change management, communication campaigns to build support for the project, building project management sk i l ls etc.

3. Monitoring and evaluation of outcomesh-esults Intensive M&E i s a key part o f the IRCBP implementation process. Three categories o f M&E activities are envisaged:

monitoring for due diligence purpose, i.e., whether project implementation complies with financial management and procurement guidelines and social and environmental safeguard policies o f the World Bank; monitoring and evaluating whether the development objectives are being achieved - this should include evaluation by beneficiaries o f the project; and evaluating whether the policy and implementation framework developed under the project will be sustainable.

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Preliminary indicators to measure the achievement o f the development objectives have been developed in the Results Framework in Annex 3. During project implementation, outer-year goals will be reviewed and revised through annual reviews. Each implementation agency will develop a Monitoring and Evaluation (M&E) plan for i t s component. The IRCBP Coordinating Unit will also have an overall M&E plan for the entire project. Regular training o f M&E officers in the coordinating and implementation agencies will take place under the project.

Specifically regarding M&E o f the decentralization program, the project will conduct regular reviews o f the decentralization and capacity building process. This would include:

monitoring for due diligence purpose, i.e., whether project implementation complies with financial management and procurement guidelines and social and environmental safeguard

0

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policies o f the World Bank. This would in particular include regular monitoring and audits o f local governments;

0 monitoring and evaluating for the purpose o f improving the effectiveness o f capacity building; 0 monitoring and evaluating for the purpose o f ensuring the sustainability o f the fiscal

decentralization strategy; 0 evaluating the impact o f fiscal decentralization on infrastructure development and service

delivery. This should include evaluation by beneficiaries o f the project; and 0 evaluating the social impact o f decentralization, i.e., whether and to what extent decentralization

improves social cohesion and empowers marginalized groups in local decision-making process.

Regarding M&E o f the PFM program, the Bank has conducted a HIPC Assessment in January 2004. Using sixteen modest benchmarks common for al l HIPCs, the assessment has provided the baseline data on the quality o f government expenditure management system. In addition, a participatory workshop was conducted in February 2004 for stakeholders to assess the quality o f the government expenditure management system using a set of standard PFM assessment indicators developed by the Public Expenditure and Financial Accountability (PEFA) Secretariat o f the World Bank. The consolidated assessment results and an action plan to improve high-priority areas formed the basis o f this PFM component o f IRCBP. Regular re-assessment o f the indicators will be conducted annually so as to evaluate the impact o f PFM reform initiatives.

Regarding M&E of the DLC, the IRCBP wil l monitor four groups of functions: (i) the timeliness o f completion o f establishment o f the DLC; (ii) the level o f use; (iii) the type o f clients; and (iv) the level o f cost recovery.

4. Sustainability The sustainability o f IRCBP involves the following dimensions:

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The sustainability o f the local government management systems and basic capacity to mobilize local resources and manage local infrastructure and service delivery; The sustainability o f the inter-government transfer system; The sustainability of the management capacity to continue the decentralization process and the PFM reform process; and The financial sustainability o f the DLC.

As both the new inter-governmental relations and the local government management systems are emerging, they require constant monitoring, evaluating, and fine tuning to support their progress towards sustainability. As a result, a key part of the IRCBP implementation process i s a heavy emphasis on M&E.

The IRCBP implementation arrangements have been designed on the principle that if new structures are created to lead the reforms, they are created not as parallel structures o f government but rather as part o f the government structures. Careful attention has been paid to ensuring that the proper reporting relationship i s established between contract staff and the leadership o f the relevant ministries.

There i s a risk that the contract staff hired under the project will not be retained once project funding ends, unless government addresses the issue o f poor conditions o f service for professional and managerial staff in government. Currently, financed by the PHRD grant for this project, a study has been commissioned by Government on the public sector grading and pay structure to design realistic measures to tackle this issue. A Presidential Commission i s working on the creation o f a Senior Executive Service to fast track the improvement o f conditions o f service for senior civi l servants. The project will monitor the development o f government strategy in this area.

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The project will closely monitor the operation o f the DLC towards maximizing i ts financial sustainability. The average annual operating cost o f African DLCs i s US$250,000. Under a very conservative estimate o f US$400,000 annual operating cost o f the Sierra Leone DLC, full cost recovery can be reached if the D L C has at least one activity per day, 260 days per year, and charge US$45 per participant per day, and i s utilized at 68% o f i t s total capacity. If the D L C i s allowed management autonomy, reaching this target at the end o f the third year i s likely.

5. Crit ical risks and possible controversial aspects

Weak political leadership and lack o f sustained commitment to inclusive and accountable local governance.

required training for local councils and other stakeholders.

Poor performance o f local resource mobilization dilutes downward accountability o f local councils to 1 citizenry. Elite capture o f local politics and failure to address social exclusion issues. Corrupt and vested interests impeding structural changes such as procurement reform and fimctional devolution. Development partners co-financing for the Decentralization Program and the PFM reform program not materializing.

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Development partners (incl. IDA) continuing to channel funds to sector ministries to build their capacity to deliver functions that are to be, or have been devolved to local governments and therefore impeding the implementation o f the decentralization program. Failure o f GoSL to address the relationship between the social fund (NaCSA) and local governments.

Risk Mitigation Measures Risk Rating with Mitigation

Strengthen the capacity o f local councils and :ivil society as advocates for continued levolution o f power and resources; strengthen :he civ i l society as advocates for transparency, nclusiveness, and accountabili Recruit competent staff and provide intensive

rraining o f Trainer programs will be M implemented. Competent trainers wil l be certified and offered contractual employment to deliver training.

i s planned. [ntensive training on local revenue mobilization S

Provide incentive for inclusive decision- making through the eligibility criteria for councils to access the LGDG.

Mobilize stakeholders that support reform, such as civi l society, local officials, etc.

Unit to coordinate donor support for the decentralization and PFM reform programs. Cash flows from other donors has been conservatively estimated both in terms o f amount and timing. Continuous dissemination o f Local S Government Act and its implication for sector support operations. Within Bank, IRCBP team to play an active role in CAS process and in providing inputs to design o f new projects so as to ensure consistency with LG Act.

S

Publicize information to promote transparency.

Establish D S and P F M Reform Implementation

S

L

Dialogues between NaCSA, MoF, M L G C D are S ongoing, wi th IDA facilitation. IDA also provides opportunities for gov to learn f i om other countries.

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6. Grant conditions and covenants

The Grant wil l be effective if the following conditions are satisfied: 0

0

Qualified auditor for IRCBP selected on a competitive basis. Adoption o f the following manuals: the Project Implementation Manual, the Project Financial Management Manual, and the LGDG Operational Manual. The appointment o f the Capacity Building Manager o f the Decentralization Secretariat, and a Procurement Specialist in the IRCBP Coordinating Unit. Project Account opened and an initial deposit o f US$160,000 equivalent provided as counterpart funding.

Others: 0 The establishment o f the D L C as an independent entity will be a condition for initiating

procurement o f the satellite equipment. 0 Elected local councils will be a condition for disbursement under the Local Government

Development Grant subcomponent. 0 A public procurement law enacted as a condition for use o f IRCBP funds for the procurement

reform subcomponent. Annual review.

D. APPRAISAL SUMMARY 1. Economic and financial analyses Not applicable.

2. Technical The Decentralization Component supports a balanced approach to decentralization, with political, fiscal and administrative dimensions. I t represents a realistic assessment o f risks, and proposes reasonable mechanisms for mitigating those risks. I t features many o f the hallmarks o f successful decentralization programs: (i) a strategy with a phased approach (e.g., through 2008), (ii) a political champion and technical leadership to manage the reform, (iii) a well defined legal framework, (iv) a strong emphasis on managing the implementation process, (v) strong emphasis on capacity building, especially focused on learning by doing, (vi) mechanisms for resolving conflicts, (vii) a strong monitoring and evaluation system, including annual reviews o f decentralization and ways to feed implementation experience back into the policy framework, (viii) a pro-active change management program, including sensitization o f line ministries, and (ix) interim financial management arrangements for local governments.

The PFM Component consolidates previous assessment o f the government PFM system and i s based on a prioritized action plan. The sequence o f the PFM reform f i rst focuses on the generation o f timely and reliable financial information and improving internal control. Subsequently, i t will focus on building the capacity o f line ministries and local governments to support the implementation o f a decentralized P F M system. The design and rollout o f the IFMIS i s based on this sequence.

The design o f the D L C component i s based on the experience o f GDLN in eight African countries and stresses the importance o f a conducive governance framework.

3. Fiduciary The overall assessment o f fiduciary risks (financial management and procurement) i s high. A qualified Chartered Accountant has already been recruited to be the Principal Finance Officer o f IRCBPCU, and a

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draft Financial Management Manual for use by all implementing agencies under the project has been examined by Bank staff. The manual i s now being finalised.

There has been difficulty in identifying qualified Procurement Specialists o f Sierra Leonean nationality but the recently completed recruitment process has identified a qualified specialist familiar with the World Bank Procurement Guidelines. Supported by technical assistance, the successful recruitment o f this specialist will be beneficial in assuring a timely execution o f the Procurement Plan o f the first eighteen months o f IRCBP implementation. In addition to this appointment, however, it will be necessary to identify and recruit a suitable trainee procurement officer as a matter o f urgency.

Intensive training on FM and procurement for all implementing agencies will be conducted. The project emphasizes intensive monitoring o f the FM and procurement practices o f the new local councils and further links the integrity o f FM and procurement practices with their access to the LGDG subcomponent.

4. Social The proposed project i s expected to lead to positive social impact, as it focuses on empowering elected local councils in developing a capacity to respond to the needs and aspirations o f their local population. Participatory planning and budgeting, transparent and accountable management o f public resources w i l l lead to improved t rust in government and increased civic engagement in the public decision-making process.

5. Environment

The Environmental Category for the proposed project i s B. Some o f the infi-astructure development activities eligible for financing under the LGDG may have some environmental dimensions. The investments under this component fall under various sectors such as water supply, drainage, sanitation, solid waste management, access roads, construction o f schools and health facilities. However, the exact nature o f the investments or their possible impacts cannot be foreseen at this time, because the investment projects will only be identified and managed by local governments through a participatory planning and budgeting process during project execution. The potential environmental and social effects o f such community development projects, however, are well understood, unlikely to be significant, and readily manageable.

Government has prepared an Environmental and Social Management Framework (ESMF), which has been approved by ASPEN and disclosed by the World Bank and the Government. The ESMF has

developed an environmental checklist for sub-projects, so as to assist local governments to carry out environmental appraisal o f investments they make; prescribed a set o f mitigation and monitoring measures during implementation and operation o f the subprojects to eliminate, offset, or reduce adverse environmental and social impacts to acceptable levels; and established a screening process for sub-projects so as to enable local government staff to identify potential environmental and social impacts o f sub-projects and to address them by incorporating the relevant mitigation measures into the designs o f the sub-projects.

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.

The LGDG Operational Manual has incorporated the design o f the ESMF. Local governments wil l be required to apply the environmental checklists for appraising their investments and comply with relevant mitigation measures. In addition, routine checks will be made to ensure that individual investments also conform to nationally applicable environmental standards.

Government capacity in this area i s weak. Under the project, an environmental and resettlement training module will be developed as part o f the standardized training module for local governments.

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6. Safeguard policies The Safeguard classification for the project i s S2. Two components involve investments in infrastructure, the Development Learning Center (DLC) component, and the Decentralization Component (office buildings, and investment financed by the Local Government Development Grant (LGDG)). The project does not envisage displacing any settler within the locations chosen for the establishment o f a Development Leaming Center, the office buildings for local councils, or the investment sites financed under the LGDG. Availability o f land without any form o f encumbrances i s one o f the prerequisites for project site selection and implementation.

However, given the uncertainty o f land ownership and acquisition, government has prepared a Resettlement Policy Framework (RPF) prepared in accordance to OP 4.12. The RPF has been approved by ASPEN and has been disclosed by the World Bank and the Government. I t has established the resettlement and compensation principles, organizational arrangements and design criteria to be applied to meet the needs o f the people who may be affected by the project activities requiring land acquisition and/or denial, restriction or loss o f access to economic resources. If land taking i s necessary for a sub- project, then a resettlement plan will be prepared and presented for ASPEN approval.

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/RP/GP 4.0 1) Ex1 E l Natural Habitats (OP/RP 4.04) [I Ex1 Pest Management (OP 4.09) 11 [XI Cultural Property (OPN 11.03, being revised as OP 4.1 1) 11 Ex1 Involuntary Resettlement (OP/BP 4.12) 1x1 E l Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I 1x1 Forests (OP/BP 4.36) [I [XI

Safety o f Dams (OPBP 4.37) E l Ex1 Projects in Disputed Areas (OP/RP/GP 7.60). 11 Ex1 Projects on International Waterways (OP/BP/GP 7.50) [I [XI

7. Policy exceptions and readiness The project seeks no policy exception. If the effectiveness conditions are fulfilled, the project i s ready for implementation.

By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas

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Annex 1: Country and Sector or Program Background SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Despite i ts abundant natural resource endowment, significant wealth o f well-educated people and freedom from marked religious and ethnic strife, post-independent Sierra Leone has had a tragic history, one marred by extremely poor governance, gross economic mismanagement, and war. After growing 4% annually in the 1960s, the economy deteriorated sharply over the next two decades as a result o f rampant corruption, massive state intervention, concentration o f state spending on the non-poor, dismantling o f local government, and economic policies that held back overall economic activity and heavily taxed agriculture and rural population. Real GDP per capita peaked in 1970; during 1971-89, GDP per capita dropped 37%. By 1990,82% of the population lived below the poverty line, and Sierra Leone had one o f the most skewed income distributions in the world (a Gini Index o f .66).

Following the dramatic decline was a decade o f civi l war which kil led 20,000 people, maimed thousands, and displaced half the population. It prompted an exodus o f professionals and businessmen; doubled Freetown’s population, wrecked most o f the infrastructure, business and much o f the housing stock, and caused a cumulative decline o f 48% in GDP per capita. In 1999, GDP per capita was only one-third o f the 1970 peak. By 2000, Sierra Leone was at the bottom o f the UN Human Development Index (HDI). Meanwhile, Sierra Leone has been consistently ranked as one o f the most corrupt countries in the world.

A decade o f conflict finally ended in January 2002 with strong support o f the intemational community, including a large peace-keeping force. Since then, the Kabbah government was democratically reelected in May 2002 and i s leading a relatively smooth resettlement, reintegration, recovery, and reconstruction process.

But the challenge to maintain stability, create conditions for sustainable development, and rebuild social capital remains enormous: the economy i s s t i l l weak; access to and quality o f services and infrastructure i s extremely poor; the culture o f corruption i s still prevalent; and a demoralized and de-skilled public sector i s unable to face the tremendous challenge. At the same time, a shadow public service comprising o f contract employees mostly financed by donors i s responsible for much o f economic and fiscal management, program design, implementation and monitoring.

When the Kabbah government was f i rst elected in 1996, a National Good Governance and Public Service Reform Program was launched with strong support f iom DflD (UK). But the program was interrupted when the rebels deposed the government. Since the restoration o f peace, the program has been reactivated. The program designed in 1997 intended to deal with the following areas:

i. Improving the ability o f government, particularly at the executive level, to formulate and implement national policies as well as to analyze, manage, monitor and evaluate their effectiveness.

ii. Reactivation o f local government institutions through decentralization o f authority and responsibility and devolution of power from the center in Freetown to local and chiefdom councils.

iii. Increasing the level o f awareness o f the people about their rights, privileges and obligations as citizens and enhancing their capacity to participate fully in the social, political and economic l i fe o f the country.

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iv. Strengthening the capacity and efficiency o f the public sector to deliver essential services in a manner that discourages corruption and fosters transparency and accountability.

v. Re-enforcement o f judicial instruments for safeguarding the ru le o f law and individual human rights.

The Minister o f Presidential Affairs was made responsible for the governance reform program. With the support o f the DflD, a Governance Reform Secretariat (GRS) was established in the Ministry o f Presidential Affairs. I t was envisaged that the GRS would coordinate all governance reform activities.

The Governance and Public Service Reform Program has received strong support from donors, especially the Department for International Development (DflD), European Union (EU), United National Development Program (UNDP), the African Development Bank (AfDB), and the World Bank (See a full l i s t o f relevant donor projects in Annex 2).

Currently two areas where donor collaboration i s especially intensive are: decentralization, and public financial management (PFM) reform. It reflects the priority put on these two issues both by Government and by the development partners.

a. Decentralization

One major contributing factor to the ten-year civi l war in the nineties was the antagonism between a large section o f the population who were marginalized from the political process and deprived o f social services and economic development opportunities, and those who controlled resources through power and corruption. The Kabbah government has chosen a route o f political decentralization to open up the political space and improve inclusiveness. Democratic elections o f local councils (Freetown City Council, five town councils, and thirteen district councils), for the f i rst time since they were abolished in 1972, are scheduled for May 2004. By establishing democratically elected local councils to replace the existing Management Committees appointed by the President, the Government hopes to create a participatory local governance structure where people (including previously marginalized groups) can actively participate in the decision-making process at the local level.

A Local Government Act 2004 was enacted in February 2004. This landmark legislation reflects a new vision o f inter-governmental relations, including a new assignment o f functional responsibilities, revenue authorities, and an accountability framework across various layers o f government. I t gives local councils substantial autonomy in financial and human resource management, but also demands transparency and accountability in council operations.

The next challenge i s to design a decentralization program to implement this vision o f decentralization. Decentralization does not automatically create effective and accountable local governments. The elected councils may lack adequate revenue and expenditure management capacity to discharge their new responsibilities; they may be captured by local elites and fail to address needs o f marginalized groups; they may continue to be merely public employment agencies o f a large and unskilled staff rather than service delivery entities.

For decentralization to bring a sense of empowerment and tangible development results for local populations, i t must address these r isks and challenges and consciously promote inclusive, transparent, and accountable governance arrangement at the local level, give local government real power and resources, build up their capacity to respond to the aspiration o f their electorates. Therefore a decentralization program requires:

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0

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A clear vision o f what functions will be devolved to local governments and when; The transfer o f financial and human resources to build up local capacity to undertake new responsibilities; An intensive capacity building effort to support the development o f local capacity to generate and build up financial and human resources; An intensive effort to sensitize the communities and local government officials o f the new governance paradigm which builds upon transparency, inclusion, and accountability; The reorientation and restructuring o f ministries and agencies towards their new roles and responsibilities; and strengthening their policy and monitoring roles.

The GoSL has recognized the need for a strong leadership to translate the vision of decentralization into reality. Under the Local Government Act 2004, an Inter-ministerial Committee on Decentralization and Local Govemment (IMC) will be established, with the Vice President as the Chairman and representations from local councils. The legislation defines the responsibilities o f the I M C as 1) overseeing the proper implementation o f the Local Government Act; 2) overseeing the further development and implementation o f local government and decentralization; 3) protecting and promoting local democracy and participatory government; 4) arbitrating disputes between Ministries, departments and agencies o f Government, provincial administrations and local councils.

The Cabinet also decided to establish a Decentralization Secretariat as a Directorate o f the Ministry o f Local Government and Community Development to manage the implementation and coordination o f the decentralization program while at the same time providing a secretariat service to the IMC. The responsibilities o f the DS will include:

further developing a decentralization policy and designing a decentralization program for implementation; coordinating the development o f a coherent and consistent legal and regulatory framework for Sierra Leone’s decentralized system o f governance; coordinating and monitoring the development and implementation o f sector devolution plans; collaborating with the Ministry o f Finance in the development o f a fiscal decentralization strategy, and agreeing on a combined (MoF and MLGCD) monitoring and evaluation system for this strategy; coordinating and monitoring the development and implementation o f an administrative decentralization strategy; managing and coordinating a sensitization program and a capacity building program, covering not only local governments, but also central government ministr ies and agencies, parliamentarians, c iv i l society groups, and local communities; monitoring, documenting, and evaluating the decentralization process and providing regular reports to the Inter-ministerial Committee and other stakeholders; liaising with development partners and the civi l society to coordinate support for the GoSL’s Decentralization program.

b. PFM reform

Government recognizes that effective and strategic use o f public resources i s a critical ingredient o f i ts development strategy, and that transparent and accountable utilization o f public resources i s required to restore popular trust in government.

In recent years, despite severe capacity constraint, Govemment has been able to gradually improve financial management. For example, reasonable central control o f public expenditure has been established through a centralized commitment and accounting system in the Accountant General’s Department. A

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Medium Term Expenditure Framework (MTEF) was adopted in 2001 and i s gradually introduced to all l ine ministries in an effort to 1) improve effectiveness and efficiency o f the public sector in the allocation and utilization o f resources; 2) enhance transparency and accountability; 3) ensure firm adherence to the established expenditure control and commitment levels to prevent the recurrence o f domestic and external payments arrears, and to l imit the need for external borrowing to sustainable levels.

To enhance the participatory nature o f the budget process, the government has established budget committees in al l ministries, departments, and agencies (MDAs). These committees internally review and endorse the development objectives and policies, as stated in the strategic plans, o f all MDAs. Furthermore, Government has established local Community Budget Oversight Committees (CBOC) in all districts. These committees participate in the annual budget discussion when MDAs defend their budget proposals as well as monitor budget implementation in their respective regions and districts. Following the elections o f local councils, communities will continue to participate in the CBOC activities, but will also participate in the budget development o f their local councils.

To improve the efficiency in the utilization o f public funds the Government has also initiated a procurement reform. The first phase o f the reform intends to develop a new public procurement policy, legislation, and regulations, which embrace the principles o f transparency, accountability, and efficiency. The legal and regulatory framework i s to replace the existing outdated 1963 framework, which i s plagued by controversies and allegations o f unfairness, lack o f transparency, waste o f public funds and fraud.

Despite these efforts, recent assessments, including the Country Financial Accountability Assessment (CFAA) 2001 and the H P C Assessment and Action Plan in January 2004, identified numerous weaknesses remaining in public expenditure management, including:

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0

that the budgeting system does not yet present a real and comprehensive view on planning; that the current accounting system has not yet progressed to produce reliable financial statements or meaningful figures for the purpose o f budgetary control; that the system o f internal control and audit i s ineffective in line ministries; that the public procurement system has unclear ru les and weak enforcement, enabling inefficient use o f public funds and contributing to a lack o f transparency and accountability; that serious human resource constraints hampers effective financial management; that the management o f assets, liabilities and internally generated revenue i s very weak; that the Financial Management and Accounting System (FMAS) lacks critical functionality, controls, audit trails and system documentation, and i s unstable and inaccessible to departments; that service delivery continues to suffer in the absence o f monitoring o f results, poor information, and a weak control environment in line ministries; that external auditing i s in arrears and at present still does not address high r isk areas, and that Parliamentary oversight i s not yet effective.

In light o f the government launch of the decentralization program, the PFM reform needs to address an additional major challenge, i.e., to rapidly build up the capacity o f local governments to manage public resources in an inclusive, transparent, and accountable manner. Only with such capacity and commitment will political, administrative, and fiscal decentralization lead to improved efficiency in resource utilization and program implementation.

Based on the assessment, a PFM reform program has been developed with a vision o f establishing a decentralized (both to local governments and to ministries, departments, and agencies) public financial management system in the medium term. The next phase of reform will implement this vision by 1) establishing a legal and regulatory framework wi th clear definitions o f financial management accountability; 2) establishing decentralized budget, execution, accounting, and reporting processes and

19

controls; 3) intensive training o f vote controllers, program managers, and financial management staff, so they can perform financial management responsibilities devolved to them; and 4) implementing personnel management measures to reward performance and sanction poor management.

While the decentralized financial management system i s being implemented, quick fixes o f the current system can be implemented to generate reliable and timely financial management information, improve the payments system and payroll management.

The Cabinet has endorsed the establishment o f a PFM Reform Implementation Unit in the MoF to lead the PFM reform. The unit will perform the following tasks:

Implement quick fixes to improve the payment system, payroll management, and reporting; Specify and acquire a new Integrated Financial Management Information System (IFMIS), initially to be set-up to replace the current FMAS in MoF; Develop the objective and framework o f decentralized public finance management and further develop the new Government Budgeting and Accounting Bill and i ts regulatory framework, covering accountability arrangements, internal control requirements, information system requirements; Design the required decentralized budget, execution, accounting and reporting processes and controls; Introduce a new Chart o f Accounts in the budget and accounting system; Set-up a new IFMIS for the new decentralized financial management system and pilot the Ministry o f Finance and one other Ministry on it; Initiate training for other l ine ministries for roll-out o f the new IFMIS; Establish interim Local Govemment financial management systems and provide intensive training for local government financial management staffi and Establish and make operational institutions created under the procurement law and provide training to all public procuring entities.

Donors have a strong interest in supporting PFM reform, both to minimize fiduciary r i sks to their aid spending, and to transform the current aid relationship to one that i s based on strong domestic policies and implemented by a credible government budgetary process.

20

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Table. Donor Projects Supporting GoSL Governance Reform since 1996

Donor agencies

World Bank

DfID

EU

UNDP

AfDB

Project names

ERRC I11

PSMS I PSMS I1 Transport Project NSAP

GRSP I

GRSP I1

~

ENCISS Budget support AG Support Project (completed)

M o F Support Project

Decentralization Support Project Budget support Interim Governance Support project (ongoing)

Institutional Support Project for Capacity Building in the Public Sector

Sector issues addressed

Procurement reform; Local government legislation Capacity building for public sector Capacity building for public sector Procurement reform Local government capacity building, community participation Public sector reform, restructuring o f ministries Restructuring o f ministries; Records management; Strengthening o f Establishment Secretary’s Office; strengthening Office o f President C iv i l society capacity building PFM reform P F M reform: establishing an Financial Management and Accounting System PFM reform: strengthen MoF, AG, - NRA Decentralization

P F M reform Decentralization: Support legislative process for the Local Government Act; national consultations; support line min is t r ies in developing devolution

Procurement reform: develop procurement pol icy and legislation; Strengthening civ i l society; P F M reform, legal and judicial reform

plans.

OED I Latest rating

1

WA

PSR IP rating

5

VIA 3

Latest PSR DO

rating

5

21

Annex 3: Results Framework and Monitoring

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Give stakeholders - citizens, c iv i l society, advocacy associations, ACC and Parliament a sound and transparent basis o n which to hold GoSL accountable.

Results Framework

Enable Parliament, local councils, citizens and development partners assess the distributive equity of the Budget; Facilitate monitoring o f PRSP implementation.

Give citizens, c iv i l society advocacy associations, the private sector, ACC, Parliament, and development partners a national standard against

PDO

I

upport the post-conflict iovernment o f Sierra Leone (GoSL)

establish a hnctioning local overnment system and improve iclusiveness, transparency, and ccountability o f public resource ianagement at al l levels o f overnment.

Use of Outcome Information Enable the Inter-ministerial Committee on Local Government and Decentralization, MoF, LGFC, ACC, citizens, and civ i l society ionitor performance o f councils in ieeting their responsibilities and ie i r financial accountability.

Outcome Indicators All 19 elected local councils are able to make development plans that respond to local priorities through a participatory process and are able to prepare a budget consistent with Section 67 o f Local Government Act 2004.

1 14 out o f 19 elected local councils meet the transparency and the financial management accountability requirement as per Local Government Act 2004 (Section 107, 81, 105).

14 out o f 19 elected councils are able to deliver al l services devolved to them at the levels o f the year before devolution.

90% donor funding i s captured in the fiscal reports using government budget classifications by program and object o f expenditures.

95% of Vote Controllers submit regular in-year and annual budget execution reports to M o F and the relevant minister o n time.

90% o f reporting entities have unqualified audit reports by the Auditor-general.

In-year reports are published regularly for tracking poverty expenditure by function.

Public Procurement Law enacted, embracing the principle o f transparency, accountability and efficiency.

hable sector ministries to monitor lected councils' capacity for service lelivery and identify related :apacity building needs to meet ninimum standards for service lelivery.

'rovide information to development iartners interested in supporting the iew local councils on their xedibility and capacity.

3ive MoF, MoDEP, D A C O and ievelopment partners a sound and h-ansparent basis on which to deepen their collaborative support for GoSL's MTEF.

To enable MOF regularly monitor budget execution.

22

PDO

Component One: Decentralization and Capacity Building

3ubcomponent 1.1 Strengthen policy md implementation capacity for decentralization

Subcomponent 1.2 Start-up investment in local government administrative infrastructure i s effective and timely

Subcomponent 1.3 Capacity for management and implementation o f decentralized governance i s incrementally strengthened

Outcome Indicators

90% o f the funds provided for procurement i s effectively utilized.

B

8

a

Legal and regulatory framework in place; inconsistencies between lawshegulations resolved; Strategic planning for decentralization program in place;

Transparent and fair inter- governmental transfer system established;

Lean and competent local government staff recruited on merit basis. X number o f local councils equipped with furniture, telecom facilities; X local councils have operational office buildings.

Annual development plans prepared by Local councils use participatory, inclusive methods Elected local councils generating increased revenue with councils raising at least Le 2000 per capita per year.

Elected local councils able to prepare a budget consistent wi th Section 67 o f Local Government Act 2004

Elected local councils receive a tied grant for each devolved service, consistent wi th Local

tcome I vhich to evaluate progress o f mprovement in procurement ractices

To ensure effective planning and )udgeting by spending entities; acilitate effective service delivery.

Clomponent One:

3" smooth, conflict-free levolution process and clear ielineation o f responsibilities.

Ensure proper planning and sequencing o f decentralization; ?rovide benchmarks against which iecentralization progress can be measured.

Ensure effective resource allocation for equitable development.

Ensure that new local councils do not become public employment'welfare agencies. To ensure the new local councils have the necessary logistics to operative effectively

Ensure local councils' development reflect local priorities

Enable MLGCD, M o F (LGFD) and councils monitor improvement in local council revenue generating capacity.

Ensure sound budgeting practices o f local councils, enable MoF incorporate and analyze local council budgets within national Budget framework

Ensure electorate can hold local councils accountable for delivery o f those services for which the tied

23

PD

Subcomponent 1.4 Build Local Councils' Capacity to design and implement infrastructure development projects satisfactorily.

Subcomponent 1.5 Capacity to carry out effective monitoring and evaluation o f the decentralization activities supported by the IRCBP and those o f the broader GoSL decentralization program i s strengthened

Component Two: Public Financial Management Reform

Subcomponent 2.1 Improved legislative and reeulatorv framework

ome Indicato Government Act 2004.

Numbers o f elected local councils wi th financial management capacity in place: proper bookkeeping, accounts prepared on time and audited

Elected Local councils able to procure goods and services according to National Procurement Law & guidelines.

All ministries in Schedule I1 o f the Local Government Ac t 2004 have devolved al l services as specified respectively in the Statutory Instrument o f August 2004.

Local councils complete the projects submitted in previous year's LGDG work plan with satisfactory financial and contract management.

Annual review o f the decentralization process completed, including 1) assessment o f the impact o f fiscal decentralization o n infrastructure and service delivery; 2) assessment o f the social impact o f decentralization, Le., to what extent and how decentralization improves social cohesion and empowers marginalized groups in local decision-making process. Regular and random audits o f local governments regarding financial management, procurement, contract management are carried out.

GBA enacted with the improvements suggested in the

e of Outc Fants are being received.

%sure MLGCD, M o F (LGFD) and :ouncils can monitor the financial ind procurement management o f :ouncils, and take action through Wher capacity building training where necessary.

3nsure monitoring o f financial and xocurement management o f :ouncils by M o F and LCs, and take iction through further capacity milding training where necessary.

Ensure sector ministr ies implement :onsistent devolution and rubsequent monitoring o f the full range o f devolved services; provide basic transformation o f sector MDA roles to policy formulation, regulation and monitoring.

The M o F (LGFD), LGFC and MLGCD (DS) can monitor the rate o f development o f councils and target needs by using further training or other capacity building means.

MLGCD (DS) reporting to I M C and MoF( LGFD) can monitor the operational efficiency and developmental effectiveness o f the elected local councils; react through revision o f strategic planning and/or support fiuther capacity building.

The Government, through the LGFD, can monitor the effectivenesr o f individual inputs and the input mix, and take necessary action for greater effectiveness and efficiency. Component Two:

The Government and the M o F have greater ability to explain the public

24

PDO or P F M

hbcomponent 2.2 Implement a new FMIS in M o F and one l ine ministry

jubcomponent 2.3 Implement nterim local government financial nanagement systems

Subcomponent 2 .4 The MTEF process i s strengthened

Subcomponent 2.5 Procurement reform

Subcomponent 2.6 Monitoring and evaluation

Outcome Indicators PFM Action Plan 2004 New Financial Regulations issued, including for local governments.

Accounts reconciled on time Reliable and timely financial statements Internal control strengthened Audit trail exists Vote controllers enabled to monitor control financial position and performance

Local Governments Accounts reconciled on time Reliable and timely financial statements Internal control established Audit trail exists Councils and CAO able to monitor and control financial position and performance X councils submit Annual Financial Statements and audited opinions to Parliament on time

Vote controllers report regularly on budget performance Budgeting based on better program costing information In-year reports for tracking poverty reduction expenditure by function are published more regularly

Procurement law enacted (2004: Oversight bodies established and made operational (2005) Public Procurement annual report produced (2007 onwards) Annual procurement forum held (2006 onwards) 400 government staff receive procurement training (annual) Procurement audits conducted annually on about 10 procuring entities (annual)

Annual update o f P F M Standarc Assessment indicators;

Use of Outcome Information :count to the Parliament, the people nd development partners; ensure overnment operates according to :andard public sector accounting ractice.

‘0 ensure public sector ianagement, greater efficiency in le use o f public funds, minimize ormption and improve service rovision.

-0 institute efficiency and control in x a l government financial nanagement

To facilitate forward thinking in Sovernance; ensure sound medium- :erm planning and budgeting; and facilitate monitoring o f poverty reduction process.

To institute controls in public procurement, reduce leakages and ensure transparency and efficiency in service delivery;

To foster healthy competition and reduce resource waste.

This provides the Government with a way to continually improve the efficiency, effectiveness and morale

25

zomponent Three: Development Learning Center

I f the public sector, thus ensure letter governance and service leliverv.

'

Subcomponent 3.1 D L C established i s an independent legal entity

Subcomponent 3.2 Timely :onstruction and Installation o f D L C

hbcomponent 3.3 Operational [mplementation o f D L C services

Subcomponent 3.4 Establishment and satisfactory functioning o f the M&E program for the D L C

4.1 Component Four: Program

Effective coordination o f the 3 Coordination

e Indica

D L C i s established by law as an autonomous business entity wi th an independent Board.

Construction o f the D L C i s completed in a timely manner as per the planned specifications D L C adequately equipped to provide the required services

An effective and needs based training program i s established and implemented to enhance the performances o f c iv i l servants(2005 onwards) Priority private sector training needs identified programs developed and implemented(2005 onwards) Annual Numbers o f users o f D L C services by key categories: i.e. decision makers, public servants, donors, c iv i l society and the private sector(2005 onwards) Financial management systems are established and annual audits completed (2005 onwards) Levels o f Cost recovery increase annually through the three years o f operational function to achieve financial viability(2005 onwards)

M&E capacity needs assessment undertaken and program designed and implemented Regular monitoring and evaluation o f D L C activities

e Annual work plan and

26

:omponent Three:

The D L C Board can take remedial iction to ensure construction and :quipment timetables are met.

The D L C Board can monitor the liversity and level o f market need 'or D L C Services and provide a )asis for longer-term plans for D L C :o become self-financing.

To ensure needs are addressed and enable the D L C Board, IRCBP and the GoSL to monitor rate o f achievement o f D L C objectives. To inform and improve GDLN Program impact o n trainees.

Component Four:

To give GoSL and development

PDO comuonents o f the IRCBP has been incrementally established and IRCBP implementation complies wi th the World Bank Financial Management and procurement Guidelines.

Outcome Indicators Drocurement ulan for IRCBP are produced by October o f the preceding year (2004 onwards) Financial management o f IRCBP compliant wi th IDA FM Guidelines Procurement practice under IRCBP i s compliant wi th IDA Procurement Guidelines M&E plan developed and implemented for IRCBP and monitoring report produced regularly IRCBP Coordinator effectively coordinates the three components o f IRCBP Steering Committee o f IRCBP convened regularly for progress updates on IRCBP implementation and strategic guidance.

Outc Jartners anoverall measure ofthe :apacity within Sierra Leone to manage :omplex public sector management issues and institutional change.

27

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Annex 4: Detailed Project Description

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Component 1 Decentralization and Capacity Building (US$14.3m)

This component finances the detailed design and implementation o f the government Decentralization Program. The design o f the Decentralization Program i s based on the premise that ceftain service delivery and development needs o f the population can be addressed more effectively by empowered local governments with a strong capacity to manage participatory development planning and implementation with accountability. The draft Local Government Act 2004 has specified a l i s t o f functions that are to be devolved by the l ine ministries and agencies to the local councils, during the 2004-2008 interim period. The implementation o f the decentralization program can be seen as three phases.

Phase 1 : June-December 2004. This i s the f i rst seven months after local government elections (scheduled for May 2004) and will be a "grace period" for implementing functional devolution as envisaged under the LG Act 2004. During this period, newly elected officials will need to be trained on their core duties, responsibilities and accountabilities. Central agencies will need to prepare for the handing-over o f core local government service delivery responsibilities during the 2004-2008 Transition Period as defined by the Local Government Act 2004. Local government staffs will need to develop core competencies, including planning, budgeting, financial accounting and reporting, basic procurement, and broad community participation and inclusion in transparent and accountable ways. Basic budgeting, accounting, reporting and accountability capacities will also need to be strengthened at the center, with an initial focus on decentralization policy implementation.

The key outcomes o f this phase would be having in place the institutional capacities at central and local levels to mobilize and effectively utilize resources to meet core local government responsibilities, al l with transparency and with upward and downward accountabilities clearly defined and with agreed M&E systems and capacities in place. This may be too tall an order for just a seven-month phase, but these must be substantially in place as a prerequisite for phase 2.

Phase 2: January 2005- Mav 2008. During this period, local governments wil l assume responsibility for delivery o f core local responsibilities. Most o f these responsibilities are to be devolved from the line ministries, and during this phase, service provision w i l l be primarily financed and mandated with accompanying delivery guidelines from the central government. The fundamental outcome o f this phase, most importantly in i t s early stages, should be continuity in the quality and coverage o f the core local services mandated for delivery by local governments. Over time, quality should be improved and coverage expanded in parallel with improved revenue mobilization. A secondary, but very important, outcome would be the effective design by central government and utilization by local governments of untied development grants in response to local priorities determined by inclusive decision-making. The grant system needs to be designed, monitored and evaluated by a transparent and accountable process, supported by learning by doing. I t s success will form the basis for an expansion o f development grants in the next phase.

Phase 3 June 2008 and beyond. Success of the two previous phases will provide the basis for sustainability o f the decentralization process. Local governments will have increased autonomy in the mobilization and allocation o f resources, as well as transparent accountability. The P F M reform supported by the second component o f IRCBP wil l have advanced sufficiently to support sustainable reforms, including civi l service, financial planning, reporting and auditing, both within the center as well as in intergovernmental dimensions. M&E of outcomes for this phase should focus on sustainability, including

31

lessons learned (good results, as well as mistakes and omissions identified along the road) and benchmarks for the future.

This component o f IRCBP wil l support the implementation o f the f i rst two phases o f the decentralization program.

Subcomponent 1.1 Strengthen policy and implementation capacity for the decentralization program

The objective o f this subcomponent i s to build and strengthen the policy advisory and strategic management role o f the Decentralization Secretariat (MLGCD) and the Local Government Finance Department (MoF), so they can jointly lead the implementation o f the Decentralization Program.

The Decentralization Secretariat i s expected to perform the following tasks: 0 further develop a decentralization policy and design a decentralization program for

implementation; 0 coordinate the development o f a legal and regulatory framework for decentralization; 0 coordinate and monitor the development and implementation o f sector devolution plans; 0 collaborate with the Ministry o f Finance in the development o f a fiscal decentralization strategy,

and agree on a combined (MoF and MLGCD) monitoring and evaluation system for this strategy; 0 coordinate and monitor the development and implementation o f an administrative

decentralization strategy; 0 manage and coordinate a sensitization program and a capacity building program covering not

only local governments, but also central government ministries, departments and agencies, parliamentarians, civi l society groups, and local communities; monitor, document, and evaluate the decentralization process and provide regular reports to the Inter-ministerial Committee and other stakeholders; and liaise with development partners and civi l society to coordinate support for the GoSL’s Decentralization program.

0

0

The LGFD will design a fiscal decentralization strategy, including revenue assignment and the design o f an inter-governmental transfer system. Based on analyses o f local revenue generation capacity and demand for services, the LGFD will advise the Local Government Finance Committee (which i s mandated by the Local Government Act 2004 to advise M o F on the amount and allocation o f transfers and grants for local governments). The LGFD will also provide technical support to local councils to improve their local revenue generation capacity.

This subcomponent will finance the costs o f specialists, equipment and vehicles, technical assistance and training for both the Decentralization Secretariat and the Local Government Finance Department.

It will also provide technical assistance, vehicles, equipments, and training to the MLGCD (aside from the Decentralization Secretariat) so that the ministry can play an active role in monitoring local councils.

The UNDP has recruited three specialists to be posted in the Ministry o f Education, Science and Technology, the Ministry of Health and Sanitation, and the Ministry o f Agriculture. Each o f them will be working with one focal point in each ministry to assist with the preparation o f the sector devolution plans and their implementation. If necessary, IRCBP will finance consultants to assist other ministries and agencies to prepare and implement their sector devolution plans.

32

Subcomponent 1.2 Start-up investment in local government administrative infrastructure

Given that elected local councils have not existed for thirty-two years, and most local government infrastructure was destroyed during the civil war in the 1990’s. This subcomponent will provide some modest start-up investment in office infrastructure, communications equipment and vehicles. Without this investment, the newly elected councils will have great difficulty in operating.

Since 2001, the UN Agencies o f OCHA and UNAMSIL have focused on establishing District Recovery Committees and updating District specific infrastructure and social needs assessments, while undertaking key road and communications reconstruction. The MLGCD and NaCSA have collaborated in responding to the community based and local councils requests for a wide range o f reconstruction needs. MLGCD and NaCSA will continue this collaboration, but the MLGCD has identified the priority areas for infrastructure investment under the IRCBP as Makeni and Koidu town councils, and the 13 District Councils. I t i s noted, however, that the infrastructure needs o f Freetown City Council have not yet been assessed.

Subcomponent 1.3 Capacity building to support decentralization

This subcomponent will support the Decentralization Secretariat to manage an ambitious capacity building program to support decentralization. I t i s important to note that capacity building goes beyond delivery o f training and involves engaging and mentoring stakeholders and facilitating a process through which they learn to set goals, plan and implement actions to achieve them.

As identified during Program preparation, the success o f the decentralization program i s dependent upon four sets o f core capacity:

0

0

the capacity o f new local councils to respond to development needs o f their locality; the capacity o f local councils to generate, increasingly over time, substantial, sustainable and autonomous own-source revenues, and to manage these effectively, in combination with fiscal transfers from central government; the capacity o f central government ministries and agencies to respond to the institutional transformation and to develop their new policy, monitoring, and coaching roles; and the capacity o f communities to engage local councils and to demand inclusive, transparent and accountable local governance.

0

0

Thus the necessary coverage o f the capacity building program i s much broader than building the capacity o f local councils. I t will include capacity building for the leadership o f the decentralization program (the Inter-ministerial Committee, the Decentralization Secretariat, the Local Government Finance Department). I t will also include capacity building for central government actors, so they can develop their core capacity in policymaking, monitoring, as well as play a coaching role for the local councils.

To promote civic activism and accountable local governance, this subcomponent i s also prepared to support: 1) an extensive education and sensitization program so people understand the roles and responsibilities o f local councilors, chiefdom councils, public servants, and communities; 2) training communities groups and NGOs on sk i l l s to monitor government performance and advocating for government accountability and transparency. Since the DfID and EU both have large programs in this area, the need for financing from IRCBP in this area may be limited.

The Secretariat will contract out the development and delivery o f training modules. This subcomponent finances the cost o f contracting out the development and delivery o f training modules.

33

A draft outline o f a curriculum to be provided under the Decentralization Program has been developed, identifying the training modules, target groups, linkages with performance requirement under the Local Government Development Grant subcomponent. Further work i s needed to elaborate the sequencing o f development and delivery o f these training modules.

The next step i s for the Secretariat to develop a roster o f qualified trainers for various subject areas. In cases where qualified trainers are not readily available, Training o f Trainers programs will be conducted to train and certify trainers, who will then be contracted to conduct training for target groups.

Wh i le IRCBP will not provide earmarked funds for IPAM, staff o f PAM will be eligible for participating in the Training o f Trainers program, i f they meet the required qualifications. Regular participation in the Training o f Trainers programs and accumulated training experience can help IPAM improve i t s curriculum and gradually grow into a training institution with sustainable capacity to address some o f the long-term capacity building needs for local governments.

This subcomponent will finance the costs o f development and delivery o f training modules as outlined in the curriculum, as well as technical assistance provided to beneficiaries in building up skills.

The enormous needs for capacity building cannot be fully met by the modest contribution o f the IRCBP. DfID, EU, and UNDP have also expressed commitment to make significant contribution to the capacity building program.

Subcomponent 1.4 Local Government Development Graizt (LGDG)

The objective o f this subcomponent i s to help local councils quickly establish credibility and capacity by offering them incentives to adopt a transparent and accountable culture o f local governance and offering them opportunities to practice participatory planning, budgeting, financial management, and project implementation skills.

The Ministry o f Finance i s designing a Local Government Development Grant, as part o f an emerging inter-governmental transfer system to support the decentralization process. The assumption i s that local councils can only learn to properly identify, plan, budget, and implement development projects, if they have discretionary resources. Given that locally generated revenue i s expected to be very modest at the beginning, the central government will provide capital spending budgetary support to local councils through an LGDG.

Currently, the bulk of central government discretionary budget finances recurrent expenditures, and capital expenditures are mainly financed by donor projects. The LGDG requires some seed money, hence this subcomponent. Over time, the need for external financing o f LGDG will decrease, as local councils will be able to generate more own revenue to finance development projects.

Early evidence o f credibility and management capacity by the local councils may convince some donors who are interested in financing local development projects to provide aid through direct budgetary support to local governments, or indirect budget support to local governments (e.g., budget support to central government, which i s then transferred to local government through the grant system), instead o f financing discrete projects.

Early evidence o f credibility and management capacity by the local councils can also facilitate a transformation o f the National Commission for Social Action (NaCSA) from a social fund agency, which provides direct financial transfers to communities bypassing existing government structures, to one which

34

supports the empowerment o f local governments through allowing and helping local governments to manage resources intended for communities in their local areas.

NaCSA i s already preparing their District staff to make available to local councils, their technical support services and information on available financing for development, should this be requested, to assist the councils in the formulation o f their development plan in a transparent and consultative manner.

The LGDG i s designed both as a financing mechanism but also as an incentive mechanism to encourage local councils to adopt practices of transparency and accountability and to acquire sk i l ls o f participatory planning, budgeting, financial management, and project management. The LGDG provides the incentive by stipulating the minimum conditions for local councils to access the LGDG. The minimum conditions have been derived from the Local Government Act 2004, therefore the LGDG helps enforce the legal requirement on transparency, inclusiveness, and proper financial management.

The minimum conditions for a council to access LGDG for the f irst time (expected to be in January 2005) are: 0 presentation o f a l i s t of projects to be financed by LGDG. The project l i s t need to be prepared in a

participatory process and approved by the council, and must be eligible as defined in the Positive L i s t in the LGDG Operational Manual; a procurement plan for the proposed projects for LGDG financing;

financial management staff at post; local council budget prepared in a manner consistent with the Local Government Act 2004 Section 67; meeting the transparency requirement as per Local Government Act 2004 Section 107.

0

e open a bank account;

0

0

During the budget preparation process for FY2005, the LGFC will advise the MoF on the allocation o f the LGDG among local councils. Based on the allocation, each local council will submit a l i s t o f projects to be financed by LGDG. M o F will release the grant in quarterly tranches. Local councils will be required to submit to the Accountant General (MoF) the following monthly reports, with a copy to the LGFD and the Auditor General’s Office:

i)

ii) revenue returns; iii) iv) reconciliation statements; and v) financial performance reports.

expenditure returns, including supplementary statements by projects showing the source o f funding;

copy o f the bank statement;

Within the year, random inspections and audits will be conducted by MoF, MLGCD, Auditor General’s Office, and the World Bank Supervision Missions.

The local councils will continue receiving subsequent quarterly releases during the year if the above financial reports have been submitted and if random inspections and audits reveal no malfeasance.

The minimum conditions for accessing LGDG in subsequent years will be stronger than those in the first year and will include:

A strategic plan which i s prepared in a participatory process and debated and approved by local councils; Trained financial management staff at post (if not qualified when recruited, then must have taken mandatory training on financial management offered under IRCBP);

0

0

35

0

0

0 Meeting accountability requirement

Local government budget i s prepared in a manner consistent with the Local Government Act Section 67; Meeting transparency requirement as per Local Government Act Section 107;

o Accounts prepared, debated by local council, and submitted to Auditor General, consistent with the Local Government Financial Regulations (LGA Section 8 1);

o A comprehensive inventory o f the assets of the council be updated on an annual basis and submitted to MLGCD (LGA Section 105);

0 Plan for maintenance o f infrastructure i s prepared and budgeted in local council budget.

The amount o f LGDG available to each council in the subsequent year will be determined by the LGFC. In general, satisfactory project implementation in the previous year will be rewarded by increased funding; and slow project implementation in the previous year will lead to reduced funding in the following year. However, given the considerable differences between councils in their capacities for development planning, revenue mobilization and expenditure management, the evaluation process o f the proposed projects of the councils w i l l include identification o f capacity building requirements to increase any given council’s access to the LGDG funding.

The LGDG subcomponent and the capacity building subcomponent are designed to be mutually reinforcing. The capacity building subcomponent offers sk i l l s training and mentoring to local governments, and the LGDG offers them an opportunity to develop sk i l l s by practicing them. The minimum conditions for accessing LGDG provide an incentive for local governments to acquire management ski l ls and therefore generate the demand for capacity building support.

Subcomponent 1.5 Monitoring & Evaluation

This subcomponent will finance five categories o f M&E activities: 0 monitoring for due diligence purpose, i.e., whether project implementation complies with

financial management and procurement guidelines and social and environmental safeguard policies o f the World Bank. This would in particular include regular monitoring and audits o f local governments;

0 monitoring and evaluation to improve the effectiveness o f capacity building; 0 monitoring and evaluating for the purpose o f ensuring the sustainability o f the fiscal

decentralization strategy; 0 evaluating the impact o f fiscal decentralization on infrastructure development and service

delivery. This should include evaluation by beneficiaries o f the project; and 0 evaluating the social impact of decentralization, i.e., whether and to what extent decentralization

improves social cohesion and empowers marginalized groups in local decision-making process.

36

The key operational components o f the decentralization component and expected donor contribution are summarized below.

o Legal and regulatory framework o Strategic planning o Capacity building o Monitoring & evaluation o Information, Communication &

2008 I Component 2. Public Financial Management Reform (US$6.2m)

The objective o f this component i s to support the implementation o f a PFM reform program, which has been developed with a vision o f establishing a decentralized public financial management system in the medium term. The next phase o f reform wil l implement this vision by 1) establishing a legal and regulatory framework with clear definitions o f financial management accountability; 2) establishing decentralized budget, execution, accounting, and reporting processes and controls; 3) intensive training o f vote controllers, program managers, and financial management staff, so they can perform financial management responsibilities devolved to them; and 4) implementing personnel management measures to reward performance and sanction poor management.

Wh i le the decentralized financial management system i s being implemented, quick fixes o f the current system can be implemented to generate reliable and timely financial management information, improve the payments system and payroll management.

This component will establish a P F M Reform Implementation Unit in M o F and finance the following activities to support the reform:

0

0

0

Implement quick fixes to improve the payments system, payroll management, and reporting; Specify and acquire a new Integrated Financial Management Information System (IFMIS), initially to be set-up to replace the current FMAS in MoF; Disseminate and build consensus on the vision for decentralized public financial management and further develop the new Government Budgeting and Accounting Bill and i ts regulatory fiamework, covering accountability arrangements, internal control requirements, information system requirements;

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Design the required decentralized budget, execution, accounting and reporting processes and controls; Organize intensive training for vote controllers, program managers, and other stakeholders on the new processes and systems; Introduce a new Chart o f Accounts in the budget and accounting system; Set up the new IFMIS for the new decentralized financial management system and pilot the system in the Ministry o f Finance and one other Ministry; Initiate training for other l ine ministries for roll-out o f the new IFMIS; Establish interim Local Government financial management systems and provide intensive training for local government financial management staff; Establish and make operational institutions created under the procurement law and provide training to al l public procurement entities.

The DfID and EU will also provide technical assistance to these work streams. In addition, DfID i s expected to finance three other priority areas o f the PFM reform not funded by IRCBP. These include: 1) providing assistance to the Auditor-general to improve capacity and clear the audit backlogs, 2) providing assistance to Parliament to strengthen their oversight roles; 3) improving the revenue base and the operational capacity o f the National Revenue Authority.

Subcomponent 2.1 Improve the legal and regulatory framework for public financial management

The objective o f this subcomponent i s to establish the core policy advisory and implementation capacity for the PFM reform program. It wil l finance the establishment o f a PFM Reform Implementation Unit in M o F to perform the following tasks:

Develop and disseminate a vision, and build a consensus to gradually build up the financial management capacity o f budget entities and devolve financial management authority to them; revise the draft Government Budgeting and Accounting Act to include the improvement identified in the PFM Action Plan (attached in Annex 1); prepare financial regulations, including those for local councils; design the required decentralized budgeting, execution, accounting and reporting processes and controls.

0

0

0

This subcomponent will finance the cost of a team o f specialists for the unit. I t will require three qualified accountants, two economists, and two IT specialists. I t will also finance the office equipment and a vehicle for the unit.

After the initial design stage, the P F M unit will implement the following subcomponents.

Subcomponent 2.2 IFMIS

This subcomponent finances the implementation o f a new Integrated Financial Management Information System (IFMIS), which i s able to meet the control and information requirements o f the decentralized system o f financial management.

The current FMAS lacks critical functionality, controls, audit trails and system documentation, and i s inaccessible to departments. Independent assessments by multiple technical advisors have concluded that the system must be replaced by a new IFMIS. Government has been advised to purchase an integrated off-the-shelf package rather than develop another bespoke system.

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The PFM Reform Implementation Unit will be responsible for specifying and acquiring a new Integrated Financial Management Information System (IFMIS), initially to be set-up in MoF to replace the current F M A S and then be transformed to support the more decentralized financial control and accounting system designed under subcomponent 2.1, in the Ministry o f Finance and one other l ine ministry. The component will also include the initiation o f training o f line ministries to prepare them for their new responsibilities and the new IFMIS.

This subcomponent will finance the staffing cost o f the IFMIS implementation team, technical assistance and consultancies, equipment and vehicles, and intensive training for stakeholders.

Subcomponent 2.3 Design and support implementation of interim financial management systems for newly elected local governments.

This subcomponent will finance the development and implementation o f an interim Local Government financial management system and intensive training for local government financial management staff.

The local government FM system will initially be implemented on a manual basis. The project will later finance the acquisition and implementation o f a small standard accounting package for local governments. The experience o f using this simple computerized system wi l l prepare local governments for operating the IFMIS, when it i s rolled out to local councils after 2008.

Subcomponent 2.4 Strengthen the Medium Term Expenditure Framework (MTEF)

The objective o f this subcomponent i s to strengthen the MTEF process. It will finance technical assistance on how to improve the Cabinet policy process, strengthen the links between policy objectives and budget proposals, and use the MTEF process as a key driver to motivate vote controllers towards efficient management and to reward budget entities for performance. This subcomponent will also finance intensive training for stakeholders on the MTEF process and program budgeting.

Subcomponent 2.5 Procurement reform

The objective o f this subcomponent i s to finance the implementation o f procurement reform. Currently UN IAPSO i s being engaged under the World Bank Transport Project to manage the f i rs t phase o f procurement reform. Ongoing activities include:

0 A spend analysis; 0 Procurement training; 0

0

Procurement audit in collaboration with the Auditor General; and Preparation o f interim procurement regulations (to be completed by March 30, 2004).

The following i s expected fi-om the f i rst phase o f procurement reform by June 30,2004: 0 A detailed situational analysis; 0

0

0 Standard Tender Documents; and 0

A draft public procurement policy; A draft Public Procurement Bill, including amendments o f other laws that have procurement- related provisions that would be inconsistent with the new procurement law;

An implementation plan for the second phase o f procurement reform.

This subcomponent will finance the implementation o f the second phase o f procurement reform. I t will finance technical assistance, some logistical support, and intensive training to procurement oversight

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institutions and tender boards. It wil l also finance a nation-wide sensitization program to disseminate the new policy and law and promote transparency and accountability o f procurement. It will also fund the training o f procurement s taf f on the new regulations, the organization o f annual public procurement forums for al l stakeholders, and the production o f annual public procurement reports for public information. The project will also finance, as the case may be, the action plan to be developed by the CPAR-IP as described in Annex 8, Procurement management.

Subcomponent 2.6 Monitoring & Evaluation

The Bank has conducted a HIPC Assessment in January 2004. Using sixteen modest benchmarks common for all HIPCs, the assessment has provided the baseline data on the quality o f government expenditure management system. In addition, a participatory workshop was conducted in February 2004 for stakeholders to assess the quality o f the government expenditure management system using a set o f standard PFM assessment indicators developed by the Public Expenditure and Financial Accountability (PEFA) Secretariat o f the World Bank. The consolidated assessment results and an action plan to improve high-priority areas formed the basis o f this PFM component o f IRCBP. Regular re-assessment o f the indicators will be conducted annually so as to evaluate the impact o f PFM reform initiatives.

Public Expenditure Tracking Surveys (PETS) have become a regular part of government monitoring system and can be used for tracking grants transfer to local governments.

The results indicators and an M&E arrangement have been described in the Annex 3 o f the PAD.

Component 3 Development Learning Center (US$2.9m)

The objective o f this component i s to establish an excellent information, communications, and training center to meet the demand for capacity building which cannot be satisfied through traditional means and existing institutions.

This component will finance the establishment o f a Development Learning Center, combining a Global Development Learning Network (GDLN) site and a Development Information Center. It will include a satellite-based video conference facility, a computer lab, a Public Information Center with development literature, donated by the World Bank and other donors, and classrooms for training senior executives. Combining modem communications technology with this information center, the D L C i s expected to become an excellent information, communications, and training center. It i s expected to attract a large audience o f government officials, public servants, development practitioners, and researchers, and serve as a link between Sierra Leone and the outside world.

This component includes three subcomponents:

Subcomponent 3.1 Establishment of the DLC as an independent legal entity Government i s initiating the preparation o f a bill to establish the D L C as an independent entity with an independent board. The establishment o f the D L C as an independent entity will be a condition o f procurement o f the Satellite equipment. An Act o f Parliament will be necessary to state clearly the responsibilities o f the DLC, the role o f the Board, and the mission o f the DLC. The D L C legislation should allow the DLC management staff to run the D L C on a commercial basis and thus ensure i ts financial sustainability by the end o f IRCBP.

Government proposed the following board to govern the D L C operation: four representatives &om the public sector (Establishment Secretary, the IRCBP Coordinating Unit, Ministry o f Finance, and Ministry

40

o f Education); and six representatives from the private sector and civi l society (Sierra Leone Labor Congress, Sierra Leone Association o f Journalists, Campaign for Good Governance, Chamber o f Commerce, SLANGO, Women’s Forum). The Board will be chaired by the Establishment Secretary, who i s responsible for capacity-building within the civi l service. The Board i s charged with monitoring the D L C management and deciding i ts development policy, approving i t s annual business plan and program o f activities, assessing the Center’s financial statements and providing recommendations to help it become financially self-sustaining.

I t has been agreed that before the DLC i s established as an independent entity, the Establishment Secretary’s Office (ESO) wil l be responsible for the physical establishment o f the D L C including procuring the architectural designs based on the GDLN standards and the bidding documents required for the civi l works identified in (a) above.

Subcomponent 3.2 Constructing, equipping, and staffing the DLC

The objective o f this subcomponent i s to prepare the DLC so as to make it ready for operation. It includes: 0 Construction o f the D L C facility with a videoconference room with 30-person capacity; a

computer room outfitted for 30 computer stations (hardware, software and Internet hook-up); a Public Information Center; one or two classrooms for training; a technical and administrative center; and electrical and telephone installations.

0 Purchase and installation o f equipment: a small aperture terminal (VSAT - satellite communication terminal); video, telecommunications, and microprocessor equipment; office and classroom furniture; various other equipment for operations and security. Staffing: once the D L C i s established as a autonomous legal entity, staff will be recruited. 0

Subcomponent 3.3 Support the operation of the DLC

The objective o f this subcomponent i s to assist the D L C begin operation and become financially viable in three years. I t includes:

0

0

0

0

financing o f operational costs on a decreasing basis over the f i rs t three years o f D L C operation; purchase o f a light vehicle to facilitate transport and marketing services; technical assistance and staff training; establishment o f financial management systems and annual audits.

This component will be implemented by the DLC, once it i s legally established. For D L C to be sustainable within three years o f becoming operational, i t needs to be operated as a highly efficient business free o f political interference.

Daily management o f the Center will be entrusted to the D L C Director, who will be competitively selected on the basis of proven experience in enterprise management or management o f a similar educational institution. The Director i s expected to be open to innovation and to have a strong capability for communications and marketing. The Director wil l be assisted by a small team comprising: an IT Officer for the management o f the equipments, a Training Coordinator to organize the courses/workshops and assist the participants, an Accountant, and an Office Assistant.

Subcomponent 3.4 Monitoring and Evaluation

The objective o f this subcomponent i s to constantly monitor the D L C operation, draw lessons, and improve on D L C operations. The overall Monitoring and Evaluation (M&E) component should be carried out by the D L C Board.

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Component 4 IRCBP Coordination (US$l.lm)

The objective o f this component i s to ensure that IRCBP implementation complies with the World Bank Financial Management Guidelines and the Procurement Guidelines, and to ensure effective coordination o f the f irst three project components, which will be implemented respectively by MLGCD, MoF, and the D L C (or ESO, before the D L C i s legally established as an independent entity).

This component will finance contract staff, technical assistance, consultancies and equipment to fulfill the overall coordination and monitoring responsibilities for IRCBP implementation, including

Serving as a focal point for contact for all matters related to the smooth preparation and implementation o f IRCBP; Coordinating the preparation o f a Letter o f Development Policy to be submitted to the World Bank indicating government commitment to reform supported by IRCBP; Leading and coordinating the preparation o f the Project Implementation Manual; Ensuring that project implementation i s in compliance with the stipulations o f the Project Implementation Manual; Managing the PHRD grant, the Project Preparation Facility (PPF), and the IRCBP Special Account, and the LGDG Deposit Account in compliance with the financial covenants o f the Project and the World Bank Financial Management Guidelines. Management o f the Government Counterpart Project Account in accordance with the provisions o f the Project Implementation Manual; Initiation and coordination o f the preparation o f annual work plans o f the various implementing agencies based on a standardized format; Coordinating the preparation, monitoring and reporting on the execution o f the overall procurement plan o f the Project for the procurement o f goods and consulting services consistent with procurement guidelines o f the World Bank and the specific provisions o f the Development Grant Agreement. This would include:

o reviewing proposed expenditures to determine i t s eligibility and compliance with the guidelines contained in the Project Implementation Manual and authorizing commitment in accordance with World Bank guidelines and the specific provisions o f the Development Grant Agreement; assisting the implementing agencies in the preparation o f Terms o f Reference (TORS) and Request for Proposals (RFPs) for consulting assignments/studies and provide guidance in the selection o f consultants/consulting f i rms; and assisting the implementing agencies to monitor the work o f consultants to assure quality and consistency with the agreed terms o f reference and expected deliverables for the assignment.

Ensuring the provision o f logistical and other support to local and international consultants engaged under the project; Conducting, commissioning, or coordinating monitoring and evaluation activities o f related to LRCBP implementation; Implement a communications program to disseminate information on the progress o f implementation o f IRCBP; Preparation of a Project Status Report (PSR) on a quarterly basis for review by the Steering Committee and onward transmission to the Task Team Leader o f the Project; Providing Secretariat services and providing regular updates for the Steering Committee o f the Project; and

o

o

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Facilitate information sharing and discussions among implementation agencies o f IRCBP and other reform implementation units.

Specifically, this component will finance: 0 an IRCBP Coordinator to be responsible for the overall coordination o f the IRCBP

implementation; a Chartered Accountant as the Principle Finance Officer for the IRCBP Coordinating Unit and be responsible for financial management o f the IRCBP;

0 a Procurement Specialist, to be responsible for ensuring that all procurement under the IRCBP comply with the World Bank procurement guidelines; a Monitoring and Evaluation Specialist, to be responsible for setting up and maintaining an M&E system for the IRCBP; and technical assistance, training, and operational expenditures to strengthen the coordination and monitoring function o f the unit.

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Annex 5: Project Costs SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Local Foreign Total U S $million U S $million US $million

1. Decentralization and Capacity Building 2.87 14.3 17.17 2. Public Financial Management Reform 0.06 6.2 6.26 3. Development Learning Center 0.13 2.9 3.03

5. Unallocated 0.62 0.62

Project Cost By Component and/or Activity

4. Program coordination 0.01 1.1 1.11

Total Baseline Cost 3.07 25.12 28.19 Physical Contingencies Price Contingencies 3.07 25.12 28.19

Total Project Costs Interest during construction

Front-end Fee Total Financing Required 3.07 25.12 28.19

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Annex 6: Implementation Arrangements SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Component 1 on Decentralization will be managed by the Decentralization Secretariat (DS) o f the MLGCD under the political leadership o f the Inter-Ministerial Committee on Decentralization and Local Government (IMC).

Component 2 on PFM Reform wil l be managed by the PFM Reform Implementation Unit o f the Ministry o f Finance, under the political leadership o f the Minister o f Finance.

Component 3 on D L C will be managed by the Establishment Secretary’s Office prior to the establishment o f the D L C as an independent legal entity, and then by the D L C after it i s established.

These three implementing agencies will have the specific responsibilities listed in the box below.

Tasks for implementation agencies o f IRCBP

Participating in the preparation o f the Project Implementation Manual with the primary responsibility o f preparing the portion related to the respective components; Ensuring that project implementation o f the respective components i s in compliance with the stipulations o f the Project Implementation Manual; Preparing annual work plans o f the respective components based on a standardized format designed by the IRCBP Coordinating Unit; Preparing the procurement plans o f the respective components for the procurement o f goods and consulting services consistent with procurement guidelines o f the World Bank and the specific provisions o f the Development Credit Agreement. On this task they will be assisted by the Procurement Specialist o f the IRCBP Coordinating Unit; Preparing the Terms o f Reference (TORS) and Requests for Proposals (RFPs) for consulting assignments/studies financed by the respective components o f IRCBP; and monitoring the work o f consultants to assure quality and consistency with the agreed terms o f reference and expected deliverables for the assignment; Preparing specifications o f goods and works to be procured; inspecting goods received and works commenced to ensure quality; managing contracts with respect to contractors; Developing training programs, ensuring quality o f training materials and evaluate effectiveness o f training delivery; Reporting on the execution o f the procurement plans to the IRCBP Coordinator on a regular basis; Providing logistical and other support to local and international consultants financed by the respective components; Conducting, commissioning, or coordinating monitoring and evaluation activities o f related to the respective components; Implement a communications program to disseminate the implementation progress o f the respective components; Reporting the implementation status o f the various components to the IRCBP Coordinating Unit on a quarterly basis.

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The IRCBP Coordinating Unit will be responsible for project coordination, as defined in the box in Annex 6. The IRCBP Coordinator as the head o f the Unit will report to the Steering Committee consisting o f the Financial Secretary (Chair), Establishment Secretary, Permanent Secretary o f the MLGCD. The Minister o f Finance and the Minister o f Local Government and Community Development will provide ministerial oversight o f the IRCBP and report to Cabinet on the implementation progress of TRCBP. (see the attached graph for the implementation and coordination arrangement for IRCBP).

The Project will finance a quality assurance and implementation support mechanism for each implementing agency and the IRCBP Coordinating Unit. This refers to expert support to the implementing agencies in reviewing draft Terms o f References and contracts, draft policy papers and legislations, outputs o f consultants; specifications o f equipment to be procured and i t s acceptance testing; change management, communication campaigns to build support for the project, building project management ski l ls etc.

Implementation Arrangement for IRCBP

Leaming Center u

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Annex 7: Financial Management and Disbursement Arrangements

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Executive Summary

The objective o f the Financial Management Assessment i s to determine whether the entities identified for the implementation o f the Institutional Reforms and Capacity Building Project (IRCBP) has adequate and acceptable financial management capability to undertake the assigned tasks. Financial management responsibility o f the IRCBP i s vested in the finance unit o f the IRCBP Coordinating Unit (IRCBPCU). Since the unit was new and did not have any existing system, the Bank team assisted the Government team to establish a finance unit within the IRCB coordinating unit. Currently, the finance unit i s headed by a professionally qualified accountant, Principal Finance Officer (PFO), who will be responsible for the day to day management o f project funds, ensure effective flow o f funds to facilitate project implementation, submit timely withdrawal applications, prepare quarterly financial reports including Financial Management Reports (FMRs) and arrange for the conduct o f audit o f the project. The PFO has worked on previous Bank funded project and has the required experience to manage the new project.

During the project preparation, resources were made available for the preparation o f accounting procedures manual to guide project implementation. The manual outlines financial management arrangements, within the Ministry, the accounting system including the recording and reporting, internal controls, f low o f funds and auditing arrangements.

Conclusion

The project has been assisted to establish a financial management system, documented in a procedures manual and headed by qualified staff. The FM system as presently assessed i s satisfactory and meets the Bank’s Financial management requirement for the IRCB project.

COUNTRY ACCOUNTABILITY ISSUES

The Bank has carried out a limited-scope Country Financial Accountability Assessment (CFAA) for Sierra Leone in 2001. The report documents the public financial management system architecture, identifies weaknesses and makes recommendations to address them. A stakeholders workshop was organized by the government o f Sierra Leone in June 2002 to discuss the CFAA report and agree actions to address the identified weaknesses. An action plan was agreed upon at the end o f the workshop and i s presently under implementation. Since the CFAA was limited in scope it did not cover in detail the line Ministries and the non-existent decentralized structures. Recently, a HIPC AAP (January 2004) and a P F M assessment by stakeholders (February 2004) were conducted. The r isks o f the PFM system were summarized in Section A l a

The last Country Procurement Assessment Review (CPAR) for Sierra Leone was carried out in 1985. The CPAR findings indicated that public procurement procedures and regulations are scattered in various circulars, which are often not clear, contradictory and subject to misinterpretations. The conflict that gripped the country in the years 1991 -2002 eroded the effectiveness o f public sector management and destroyed the efficiency o f public institutions, including public procurement practices. Public procurement lacks a comprehensive legal framework and uniform and codified procurement procedures and regulations. The capacity o f procurement staff i s weak. Institutional and organizational arrangements for defining responsibilities and accountabilities and for collective decision-making in awarding contracts are a major weakness in public procurement. The Bank w i l l conduct and complete by April 30, 2004 a

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CPAR Issues Paper (CPAR-IP) to address the most pressing issues. The CPAR-IP will provide a comprehensive analysis o f public procurement practices and agree with government on an action plan detailing priority issues, the strategies and resources needed to address those issues and bring about institutional improvements within an agreed time frame. The CPAR-IP wil l also inform on the on-going procurement reforms as basis for developing a legal framework for public procurement.

The summary risk analysis i s based on this work and our FM assessment o f the project implementing and coordinating agencies.

SUMMARY OF RISK ANALYSIS

I Risk

Inherent Risks:

Country

a) Weakness in legislative scrutiny o f Budget and Audited Accounts.

b) Weakness in the Banking sector and limited bank branches at District and provisional levels, leading to large movement o f cash from the center to the provinces with the risks associated with cash holding. Most banks are located in mainly the capital, Freetown and major Regions.

c) Inadequacy o f remuneration o f public sector financial staff.

Overall Inherent Risks: Control Risk: The IRCBPCU is new and may not have adequate FM staff and system.

Funds Flow

Delays in transfer o f funds to decentralized district structures when put in place.

Risk Rating

M

S

S

S

M

S

Risk Mitigation Measure

A new Government Budgeting and Accounting Act, currently being prepared, i s expected to address thu issue.

Bulk processing o f major items will be done at the IRCBP Coordinating Unit. For decentralized structures, local banks may not exist, but al l local councils, wi th or without local bank branches would be required (under the LG Act) to open bank accounts at the nearest bank branch. U s e o f checks would be encouraged and used to the extent possible. Intense monitoring would be undertaken by teams (including audit firms) o f funds sent to districts for project activities.

Key accounting staff wil l be recruited at competitive salaries. The staff to be recruited would be required to have a minimum acceptable qualification (as defined in TOR).

The IRCBPCU would be assisted to set up an effective and operational finance and accounting unit, including job description o f staff, functional responsibilities and reporting relationships. A professionally qualified staff has been recruited to be the Principle Finance Officer o f the IRCBPCU and other support staff would be required to have a minimum acceptable qualification. The PFO has developed an Accounting Manual for IRCBP.

Increase monitoring and set service standards for time to effect transfers. Also introduce simplified finds f low arrangements.

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Poor record keeping by implementing groups at the lower levels (districts, provisional etc).

Delays in submission o f expenditure returns.

Fear o f misapplying project funds sent to the Districts and Provinces, for other activities.

Simplify the accounting record and documents to be kept at the lower levels. Increase training o f staff at al l levels.

Disbursement and funds f low arrangements would be designed to ensure that future and subsequent releases are linked with submission o f returns.

Engage audit f i r m s to carry out periodic (quarterly) checks o f beneficiary activities. And apply sanctions when such misapplications are detected.

IRCBPCU has no in-house internal audit (IA) department External Audit

Internal Audit

M Private audit f i r m s would be engaged on periodic basis to perform some o f these functions. I t i s not expected that the Audit report will be late, but

M to ensure i t s timely submission, the selection of independent auditors would be completed before the

IRCBPCU has no information systems facilities in house and the accounting system i s not computerized.

Overall Control Risk

project becomes effective. Information Systems

IRCBPCU will be assisted to introduce an adequate FM system and also assist it to computerized the accounting system with a simple software. S

S

ACCOUNTING SYSTEM

Financial management responsibility o f the IRCBP will be vested in the IRCBP Coordinating Unit. The unit will also be responsible for preparing withdrawal applications to the Bank. The unit wil l therefore need to maintain an adequate accounting system capable o f accounting, recording and reporting on a l l financial transactions undertaken by the project and introduce systems o f internal controls, f low o f funds and auditing arrangements which are satisfactory to the Bank.

The IRCBP Coordinating Unit currently has a Principal Finance Officer, who i s a professionally qualified accountant. The Principal Finance Officer will be responsible for the day to day management o f project funds, ensure effective flow o f funds to facilitate project implementation, submission o f timely withdrawal applications, preparation o f quarterly financial reports including FMRs and arrangement for the conduct o f audit o f the project.

The Coordinating Unit will be assisted to document i t s system and computerize it as soon as possible. A Financial Management Manual has been prepared for use by staff o f IRCBP Coordinating Unit and other implementing agencies.

FLOW OF FUNDS

To facilitate disbursements, two Special Accounts will be established. Funds for all components other than the LGDG subcomponent will be disbursed through Special Account A, to be established and

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operated in U S dollar at a commercial bank and managed by IRCBPCU, under terms and conditions satisfactory to the IDA. The Authorized allocation for the SA shall be US$1,500,000. Upon grant effectiveness, an initial amount o f US$750,000 would be deposited by IDA into this account until an aggregate disbursement has reached SDR 4 million. Further deposits would be made into this account against full documentation.

For all components other than the LGDG subcomponent, all request for payments from the implementation agencies shall be submitted to the IRCBP Coordinating Unit for processing and payment. However, to facilitate implementation, avoid all minor payments being sent to the Coordinating Unit, and minimize the frequency o f request from the implementation agencies, the implementation agencies will operate an imprest account. The imprest account will be used to finance their operating cost expenditures, such as travel and transport, minor stationery purchases etc.

Under the D L C component, payments for major items such as civi l works and equipment for the center shall be paid for centrally by the IRCBPCU. However since the D L C i s to be autonomous, it wil l be required to manage i ts quarterly approved budgets for its operations. Prior to the beginning o f each year, the DLC Management will prepare a budget for i t s operations which wil l be approved by the governing Board. Based on the approved budget, D L C will prepare a quarterly cash flow statement for submission to IRCBPCU for funding. In the f i rst instance the IRCBPCU will transfer funds to D L C from i ts counterpart funds account (project account). On the submission o f returns from DLC, the IRCBPCU will reimburse the D L C account from the special account. By this method the IRCBPCU will be able to account for payments made from the SA and as a result submit timely withdrawal applications.

The funding for the LGDG Subcomponent will be disbursed through Special Account B, to be established and operated in U S dollar at the commercial bank and managed by the LGFD o f MoF, under terms and conditions satisfactory to the IDA. This account will only be a holding account to receive and transfer funds to local councils. This account will be maintained for the sole purpose o f implementing the LGDG subcomponent and to facilitate easy monitoring o f movement o f funds into the account. M o F wil l transfer grants financed by LGDG to a bank account o f each local council according to the LDGD Operational Manual.

The criteria and eligibility for the local councils to receive funding under the LGDG are all set in the LGDG Operational Manual. Starting from GoSL fiscal year 2005, the GoSL budget will include the Local Government Development Grant as a budget line under the MoF. The budget will provide details on the amount financed by IRCBP, and the amount to be provided by the GOSL and any other development partner, in a particular year. The actual amount released and spent under the line will, however, depend on local councils meeting minimum conditions as set out in the LDGD Operations Manual.

Each year the M o F will release grants to the local councils which meet the minimum conditions for accessing LGDG. Within the year, quarterly releases will be made as long as the required financial reports have been submitted on time and if random inspections and audits reveal no malfeasance. Any local council found in breach o f any agreed financial regulations will have i ts funding stopped, until all recommended actions are implemented.

Note: As part o f the budget guidelines provided for preparing the GOSL budget, a timetable should also be provided for the receipt o f proposals, proposal review clearances and fbnding allocation o f the Development Grants. This process will ensure that they are included in the budget for the following year.

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AUDITING ARRANGEMENTS

Independent and qualified auditors acceptable to the Bank would be selected to carry out annual audits of IRCBP, including audits o f both Special Accounts. The selection o f auditors shall be on competitive basis and in accordance with the Bank‘s guidelines and would be in place before the project becomes effective.

For Special Account A, the project financial statements will be audited in accordance with Intemational Standards o f Auditing (ISA) and a single opinion will be issued to cover the project financial statements, SOEs and the special account, in accordance with the Bank’s new audit policy. The auditors’ report, including the single opinion would be furnished to the World Bank within six months o f the close o f each fiscal year.

For Special Account B, the IRCBP Coordinating Unit will cause audits to be performed, including audits on local government expenditures financed by the LGDG subcomponent o f IRCBP. A Consolidated Audit o f the entire Special Account B will be prepared and submitted to IDA within six months o f the close o f each fiscal year.

REPORTING AND MONITORING

The project will prepare quarterly project financial monitoring reports (FMRs) in the areas o f finance, procurements, including complaints from bidders, and project progress. IRCBP Coordinating Unit will be required to prepare these reports on quarterly basis as part o f project quarterly implementation reports. The Principal Finance Officer will have the responsibility o f ensuring that the systems put in place are capable o f producing these reports. The reports are:

The Quarterly Financial Reports which would consist o f a statement o f cash receipts by sources and expenditures by main expenditure classifications for the period and cumulatively; cash balances o f the project; and supporting schedules comparing actual and budgeted expenditures;

Quarterly Physical Progress Report includes a narrative information and output indicators, linking financial information with physical progress and report on issues that require attention;

Quarterly Procurement Management Report would consist o f information on procurement for goods and works and that for consultants’ services and compliance with agreed procurement methods. The report compares procurement performance against the plan agreed at negotiations and appropriately updated at the end o f each quarter. The report should also provide any information on complaints by bidders, unsatisfactory performance by contractors and any contractual disputes.

DISBURSEMENT ARRANGEMENTS

The proceeds o f the grant would be disbursed over a 4-year period. A period o f four months after the closing date would be allowed to make disbursements for expenditures incurred until the closing date o f the grant.

51

Disbursements for all expenditures under Special Account A would be against full documentation, except for items o f expenditures under contracts and purchase orders below US$lOO,OOO equivalent each, for works and consulting f irms, US$150,000 for goods and US$50,000 for consultant services (individuals), training and incremental costs for which disbursements would be based on statement o f expenditures (SOEs). Supporting documentation for SOEs would be retained by IRCBPCU for review by IDA missions and external auditors.

For Special Account B, the disbursement will be report-based. Required reports will include documentations that beneficiary LCs have met the minimum conditions, Financial Management Reports on Special Account B. The replenishment o f Special Account B i s subject to the following conditions:

1.

2.

3. 4.

receipt by IDA every quarter a consolidated report on the implementation o f the LGDG subcomponent as defined by the MoF; receipt by IDA a statement by M o F that only the local councils that have met the minimum conditions have benefited from LGDG; LGDG expenditures o f the previous year have been properly managed; and if fraud was detected, government has taken action to sanction the local council involved.

52

Annex 8: Procurement SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Procurement Environment

1. The current procurement practices for goods, works and services as described in the Finance Act o f 1963 are deficient and outdated to meet the country’s needs. The last Country Procurement Assessment Report (CPAR) for Sierra Leone was prepared in 1985. A Country Portfolio Performance Report has not been carried out lately. However private consulting f i r m s have carried out some studies on public procurement practices. The studies indicate that Sierra Leone’s procurement rules and procedures are scattered in various circulars, which are often not clear, contradictory and subject to misinterpretations. The conflict that gripped the country in the nineties eroded the effectiveness o f the public sector management and destroyed the efficiency o f public institutions, including public procurement practices. The studies cite (i) lack o f a comprehensive legal framework, (ii) lack o f a uniform and codified procurement procedures and regulations, (iii) weak capacity o f procurement staff, and (iv) loose institutional and organizational arrangements for defining responsibilities and accountabilities and for collective decision-making in awarding contracts, as major factors contributing to weaknesses in the public procurement system.

2. Review o f procurement practices under on-going Bank-financed projects identified the following unacceptable practices: (i) extensive use o f sole source method for selection o f consultants, and for procurement o f works and goods (ii) extensive and repetitive use o f shopping procedures, often including same firms, (iii) unclear procedures for opening o f bids and criteria for bid evaluation and contract award, (iv) post contract negotiations, (v) mandatory use o f the state insurance company for goods contracts, and (vi) over-centralization o f procurement processing at the Central Tender Board [CTB], recently by Task force in the Office o f the Vice-president (VP). A quick review o f the procedures followed by the Task Force indicates that the situation has become worse in terms o f transparency and efficiency as selective tendering, splitting o f tender packages, and sole source are often used instead o f open competitive tendering. The Bank has planned to complete by April 30,2004, a CPAR Issues Paper to address the most pressing issues in public procurement, including informing the on-going procurement reforms. The CPAR-IP will provide an action plan detailing required improvements.

3. Except for Donor-financed projects (including World Bank), the Task Force i s responsible for advertising, opening and evaluation o f bids and for award o f contracts, with the procuring entities providing tender documents. Prior to the transfer o f CTB to VP’s office, CTB was overloaded and overwhelmed by 3 s responsibility. Government Ministr ies complained o f inefficiencies at CTB. Nevertheless decision-making i s not wholly centralized as procurement processing for some public agencies and for donor-financed projects i s not by the Task Force.

Procurement procedures

4. Efficient public procurement systems are necessary to check against corruption and are a means o f ensuring value for money, in addition to responding to demands o f a democratic culture that requires that use o f public funds be explained to the people. The on-going procurement reforms will provide a procurement law that will ensure sound and uniform public procurement systems. In the meantime for Bank-financed projects, including this project, procurement procedures are described in the project’s Procurement Implementation Manual (PIM), including simplified procedures by local councils. Under the

53

on-going procurement reforms, Interim’ Public Procurement Rules and Procedures (pending enactment of a procurement law) will be published by March 30, 2004 for use by al l by al l public entities. These Interim Public Procurement Rules and Procedures would also apply to this project, provided the Bank clears them as acceptable to use under the NCB procedures. The use o f procurement procedures in the P I M and/or Interim Public Procurement Rules and Procedures would cease to be used once a procurement law i s enacted, subject to the any exemptions that the Bank may require to apply to al l IDA financed projects. The P I M containing these procedures was finalized at appraisal.

Procurement Implementation Arrangements

5. The IRCBP Coordinating Unit will coordinate project activities, but the various components will be implemented by the appropriate implementation agencies:

0

0

0

0

Component 1 by the Decentralization Secretariat o f the MLGCD; Component 2 by the PFM Reform Implementation Unit o f Ministry o f Finance; and Component 3 by the Establishment Secretary’s Office prior to the establishment o f the DLC, and then by the D L C after i t s establishment. The local councils will handle any procurement related to projects financed under the Local Government Development Grant subcomponent. The exact procedures to be followed by local councils will be provided in the LGDG Operational Manual.

6. There i s very l i t t le (almost none) procurement capacity in the implementing agencies and the IRCBPCU. Given that the procurement capacity i s non-existent, at a minimum the IRCBPCU will recruit a Procurement Specialist to manage project procurement. The Procurement Specialist will: (i) plan and process all procurement to be done centrally for all components, (ii) assist the implementing agencies to prepare procurement plans for their respective components, (iii) monitor the implementation o f the procurement plans, and (iv) train staff in the other implementing agencies (with particular attention to the newly formed Local Councils) in use o f procurement procedures agreed under the project, including compliance with World Bank Procurement Guidelines. Each implementing agencies will recruit staff that would be trained to handle procurement work. The Procurement Specialist has been identified through a competitive selection process before Negotiations and wi l l need to be in place before Efectiveness.

Use o f Bank Guidelines

7. Contracts for works, goods and Consulting services to be financed under the project would be procured in accordance with the Guidelines: Procurement under IBRD Loans and I D A Credits, January 1995 and as revised in January and August 1996, September 1997 and January 1999. Consultants will be selected in accordance with the Guidelines: Selection and Employment of Consultants by World Bank Borrowers January 1997 and as revised September 1997 and January 1999. National Competitive Bidding (NCB) procedures will include: (a) an explicit statement to bidders o f the evaluation and award criteria; (b) national advertising with public bid opening; (c) award to the lowest evaluated responsive and qualified bidder and (d) foreign bidders would not be precluded from participation in NCB.

8. The Bank’s Standard Bidding Documents (SBD) will be used for ICB (and with appropriate amendments for all NCB) for goods. The Bank’s Standard Request for Proposals (SRFP) would be used for all consulting assignments. Less competitive bidding and selection procedures should not be used as an expedient alternative to more competitive methods. Fractioning o f large procurements into smaller ones should not be done to allow use o f less competitive methods. The detailed procedures to be followed

’ To be used pending enactment o f a procurement law.

54

are described in the PIM. Domestic preference will be allowed for ICB contracts, provided that there are qualified domestic manufacturers and contractors to benefit from domestic preference.

Advertising

9. A General Procurement Notice (GPN) i s mandatory and will be published in the UN Development Business and in the dg Market as provided under the Guidelines. Specific Procurement Notices (SPN) will be required for contracts to be procured under ICB and NCB procedures and for expressions o f interest (EOI) prior to the preparation o f the shortlist for consultant contracts with an estimated cost o f US$lOO,OOO or more to obtain. SPNs will (as a minimum) be published in a newspaper o f wide national circulation. In addition, EO1 FOR consultant contracts with an estimated cost o f US$200,000 or more will be advertised in Development Business and in the dg Market. Sufficient time would be allowed (not less than 6 weeks for ICB, and 30 days for NCB and for EOI) to allow candidates adequate time to obtain documents and respond appropriately.

Procurement Capacity Assessment

10. As there i s very l i t t le (almost none) procurement capacity in the implementing agencies and the coordinating unit, the procurement risk under the project i s rated “high”. However, this risk will be mitigated by recruitment o f a qualified Procurement Specialist in IRCBPCU and formation o f a Tender Committee as described below.

Procurement Planning

11. A Procurement plan for the f i rst eighteen months o f the project as part o f the project’s i s incorporated into the PIM. Procurement plans under Local Government Development Grant to local councils would be part o f each council’s annual development plan. By November 30, the IRCBPCU would submit to the Bank a consolidated procurement plan for IRCBP for the following year, including those prepared by each local council accessing the LGDG. Each quarter, the IRCBPCU will submit to IDA a procurement monitoring report as part o f the Financial Management Report (FMR), to show how each contract on the procurement plan has progressed. The PIM includes sample formats for procurement plans.

12. Tender Committee. In order to enhance transparency in procurement by collective decision- making, the IRCBPCU will form a Tender Committee o f not less than 5 senior government staff chaired by the PS o f MLGCD, including the Project Coordinator, the Account and two other members one from each o f MOF and MLGCD, with the Procurement Specialist as i ts Secretary. The Committee will be responsible for approving all proposed contract awards above thresholds defined in the PIM, use o f selective tender or shopping or direct purchase in l ieu o f open competitive bidding, and generally for dealing with all procurement matters under the project. The Financial Secretary would handle any complaints and appeals on procurement decisions in order to remove conflict o f interest.

Scope of Procurement and Procurement Methods

13. Works contracts estimated to cost US$2.24 million would consist o f (i) contracts for D L C building, and (ii) minor constructions for local Councils. Constructions under the Local Government Development Grant to local councils are not included, given it i s difficult to determine how much councils will allocate for works contracts in their development budgets. Works contracts estimated to cost US$500,000 and above will be procured on basis o f ICB, and below that by NCB. Small contracts estimated to cost less than USD 50,000 equivalent would be procured on the basis o f simplified bidding documents by soliciting quotationshids from not less than three qualified contractors. In all cases, the award o f contract

55

shall be made to the contractor who offers the lowest price for the required work, and who has the experience and resources to successfully complete the contract. Where beneficiary communities wish to participate, simplified procedures under “Community Participation in Procurement’’ will be applied. These procedures are described in the PIM.

14. Goods contracts are estimated to cost about US$4.81 million under all components o f the project. Good’s contracts will include vehicles, office equipment and furniture. Goods contracts under the Local Government Development Grant to local councils are not included, given it i s difficult to determine how much councils will allocate for goods contracts in their development budgets. To the extent possible and practicable, goods would be combined into packages worth at least US$150,000 and procured by ICB. Contracts estimated to cost US$30,000 to US$150,000 equivalent would be procured by NCB. Procurement for readily available off-the-shelf goods that cannot be grouped together and estimated to cost less than US$30,000 equivalent would be procured on the basis o f comparison o f quotations [sample quotation form will be provided in the PIM] from at least three eligible suppliers. Requests for and such quotations will be in writing, and will include time and place for delivery o f the quotations, a clear descriptiodspecification and quantity o f the goods; as well as requirements for delivery time, place for the delivery o f goods, and where needed installation requirements as appropriate. Quotations wil l be opened and evaluated at the same time. N o aggregates are established for any type o f procurement method. Packages will not be split for purpose o f using a less competitive method.

15. Alternatively, goods may also be procured from UN Agencies [e.g. IAPSO - Inter-Agency Procurement Services Office] provided that such a contract does not exceed US$lOO,OOO for each type o f goods.

16. Consulting Services (US%5.60 million) and Training (US$3.81 million). Consulting services will include long term and short term technical assistance, financial and procurement audits and engineering services for civi l works. Other assignments will be for training, studies and IT services. Consulting assignments estimated to cost less than US$200,000 equivalent may be procured on the basis o f short-lists featuring only local f i rms, provided a sufficient number o f qualified local f i rms are available and foreign consultants who wish to participate are not excluded from consideration. Assignments in excess o f US$200,000, and specialized technical assistance assignments, must be procured on the basis o f international short-lists.

17. As a rule, consultant services will be selected through Quality and Cost Based Selection (QCBS) method. Consulting assignments costing less than US$50,000 for f i rms may be procured by comparing the qualifications of consultants who have expressed an interest in the assignment or who have been identified. Financial auditors, procurement auditors and civi l works consultants would be selected using Least-Cost-Selection procedures. Individual consultants will be selected in accordance with Part V o f the Guidelines for Consultants.

18. Training Programs are geared toward building capacity, information sessions and improving management and staff ski l ls . Training programs would be part o f the Project’s Annual Work plans to be prepared in accordance with procedures specified in the PIM. Training programs costing US$lO,OOO equivalent or more would be cleared with the Bank prior to their initiation.

Review of procurement by the Bank

19. All goods contracts estimated to cost US$150,000 equivalent or more and works contracts estimated to cost US$200,000 or more will be subject to IDA prior review in accordance with the procedures in Appendix I o f the Guidelines for Procurement o f goods and works. All consultant contracts estimated to cost US$lOO,OOO or more for f i r m s and US$50,000 or more for individuals would be subject to prior

56

review in accordance with the procedures in Appendix I o f the Guidelines for Selection o f Consultants. All single source selection will be subject to IDA prior review irrespective o f value.

20. Contracts, which are not subject to prior review, will be selectively reviewed by the Bank during project implementation and will be governed by the procedures set forth in paragraph 4 o f Appendix I o f the Guidelines for procurement o f goods and works or for selection o f consultants as the case may be.

2 1. Procurement Audits and Contract ManagementExpenditure Reports. Annual procurement audits wil l be used to report on fiduciary compliance. Not later than three months after the end o f each financial year, the IRCBPCU will submit to the Bank a procurement audit report prepared by consultants selected in accordance with the guidelines for selection o f consultants and Terms o f Reference to be incorporated in the PIM. In addition, the IRCBPCU will prepare and submit to IDA on a quarterly basis contract management and expenditure information.

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

Procurement Method'

Expenditure Category ICB N C B Other N.B.F. Total Cost

1. Works 0.84 1.20 1.10 0.00 3.14 (0.64) (0.60) (I .00) (0.00) (2.24)

2. Goods 1.80 (1.80)

3. Consulting 0.00 Services and audit

(0.00) 4. Grants to Local 0.00 councils

(0.00) 5. Operating Costs 0.00

(0.00)

2.06 (1.60) 0.00

(0.00) 0.00

(0.00) 0.00

(0.00)

1.44 (1.31) 9.63

(9.63) 7.43

(6.00) 2.69

(2.54)

0.00

0.00 (0.00)

(0.00) 0.00

(0.00) 0.00

(0 $00)

5.30 (4.71) 9.63

(9.63) 7.43

(6.00) 2.69

(2.54)

Total 2.64 3.26 22.29 0.00 28.19 (2.44) (2.20) (20.3 6) (0.00) (25.12)

' Figures in parentheses are the amounts to be financed by the {Loan/Credit/Trust Fund}. All costs include contingencies.

57

Table A1 : Consultant Selection Arrangements (optional) (US$ mill ion equivalent)

NOT USED

Selection Method

Total QCBS QBS SFB LCS CQ Other N.B.F. Consultant Services Expenditure Category

A. Firms 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

B. Individuals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) Total 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value Contracts Subject to Expenditure Category Threshold Procurement Method Prior Review

(US$ thousands) (US$ millions) 1. Works Over $500,000 ICB All

2. Goods

3. Services

US$50,000-500,000 N C B Contracts above 200,000

Over US$150,000 ICB All US$30,000-150,000 N C B None

Below US$30,000 Shopping None

Over US$200,000 QCBS (international All

US$50,000-200,000 QCBS (national Contracts above advertisement)

f i r m s advertisement) 100,000, and TOR for al l others

Below US$50,000 f i rms CQ None

All individual Individual selection All contracts over consultants US$50,000

Sole source contracts Sole source All

'Thresholds generally differ by country and project. Consult OD 11.04 "Review o f Procurement Documentation" and contact the Regional Procurement Adviser for guidance.

Tota l value o f contracts subject t o prior review: (US$6.5M)

Overal l Procurement Risk Assessment: High

58

Frequency o f procurement supervision missions proposed: One every 3 months during the first year, thereafter as needed but at least twice a year (includes special procurement supervision for post- reviewlaudits).

Table C: Allocation of (Grant) Proceeds

Expenditure Category Amount in US$ mill ion Financing Percentage 1. Works 2.17 100% foreign expenditures and

90% local expenditures 2. Goods 4.64 100% foreign expenditures and

90% local expenditures 3. Consultants’ services, training 9.79 100% and audits 4. Local Government 6.00 100% Development Grant 5. Operating Costs 1.42 90% 6. Refund o f Project Preparation 0.60 Advance 7. Unallocated 0.50

Total Project Costs 25.12 Interest during construction

Front-end Fee Total

59

Annex 9: Economic and Financial Analysis SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Not applicable.

60

Annex 10: Safeguard Policy Issues SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Two components involve investments, the Development Learning Center (DLC) component, and the Decentralization Component (office buildings, and investment financed by the Local Government Development Grant). The project does not envisage displacing any settler within the locations chosen for the establishment o f a Development Learning Center, the office buildings for local councils, or the investment sites financed under the LGDG. Availability o f land without any form o f encumbrances i s one of the prerequisites for project site selection and implementation.

However, given the uncertainty o f land ownership and acquisition, government has prepared a Resettlement Policy Framework (RPF) prepared in accordance to OP 4.12. The FPF has been approved by ASPEN and has been disclosed by the World Bank and the Government. It has established the resettlement and compensation principles, organizational arrangements and design criteria to be applied to meet the needs o f the people who may be affected by the project activities requiring land acquisition andor denial, restriction or loss o f access to economic resources. If land taking i s necessary for a sub- project, then a resettlement plan will be prepared and presented for ASPEN approval.

Infrastructure investments under the Local Government Development Grant may have some environmental impact. The investments under this component fall under various sectors such as water supply, drainage, sanitation, solid waste management, access roads, construction o f schools and health facilities. But the exact nature o f the investments cannot be foreseen at this time, as they will only be identified and managed by local governments through a participatory planning and budgeting process during project execution. The potential environmental and social effects o f these common community development projects, however, are well understood, unlikely to be significant, and readily manageable.

Government has disclosed an Environmental and Social Management Framework (ESMF) approved by ASPEN. The ESMF has

developed an environmental checklist for sub-projects, so as to assist local governments to carry out environmental appraisal o f investments they make; prescribed a set o f mitigation and monitoring measures during implementation and operation o f the subprojects to eliminate adverse environmental and social impacts, offset them or reduce them to acceptable levels; established a screening process for sub-projects so as to enable local government staff to identify potential environmental and social impacts o f sub-projects and to address them by incorporating the relevant mitigation measures into the designs o f the sub-projects.

a

0

0

The LGDG Operational Manual has incorporated the design o f the ESMF. Local govemments will be required to apply the environmental checklists for appraising their investments and comply with relevant mitigation measures. In addition, routine checks will be made to ensure that individual investments also conform to nationally applicable environmental standards.

Government capacity in this area i s weak. Under the project, an environmental and resettlement training module will be developed as part o f the standardized training module for local governments.

61

Annex 11: Project Preparation and Supervision

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Planned Actual PCN review August 2003 August 2003 Init ial P ID to PIC September 2003 November 2003 Initial ISDS to PIC September 2003 November 2003 Appraisal January 2004 February 3-24 2004 Negotiations March 2004 March 30-April 2004 BoardRVP approval May 13,2004 Planned date o f effectiveness July 1, 2004 Planned date o f annual review July 1 each year Planned closing date June 30,2008

Key institutions responsible for preparation o f the project: 0

0

0 Ministry o f Finance 0 Establishment Secretary’s Office

Governance Reform Secretariat, Ministry o f Presidential Affairs Ministry o f Local Government and Community Development

Bank staff and consultants who worked on the project included:

Name Title Unit Yongmei Zhou Economist, Team Leader AFTPR Smile Kwawukume Public Sector Management AFTPR

Harry Gamett Lead Public Sector Management AFTPR

Gert van der Linde Lead Financial Management AFTFM

Fred Yankey Senior Financial Management AFTFM

Mbuba Mbungu Senior Procurement Specialist AFTPC Marc L i x i GDLN Africa Region AFTQK

Barjor Mehta Senior Urban Management WBI

Francesca Recanatini Senior Economist WBIGG Jacob Saffa Human Development Specialist AFTH3

Specialist

Specialist

Specialist

Specialist

Coordinator

Specialist

Bank funds expended to date on project preparation: Bank resources: US$180,000 Estimated annual supervision cost: US$178,000

62

Annex 12: Documents in the Project File SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

0

0 FMAS review 2003 0

HIPCAAP2004 0 Local Government Act 2004 0

P F M Action Plan and Results Framework 2004

Recommendations on a new Chart o f Accounts 2003

Cabinet Memorandum endorsing IRCBP (January 2004)

63

Annex 13: Statement of Loans and Credits

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Ong. Fm. Rev’d

PO74128 2003 HEALTH SECTOR 0.00 0.00 0.00 0.00 0.00 20.26 2.15 0.00

PO74320 2003 WREHABILITATION OF BASIC 0.00 0.00 0.00 0.00 0.00 19.98 -0.09 0.00

PO78623 2003 S L - ERRC 111 0.00 30.00 0.00 0.00 0.00 15.39 -15.39 0.00

PO79335 2003 NATIONAL SOCIAL ACTION PROJECT 0.00 35.00 0.00 0.00 0.00 34.18 1.23 0.00 PO73883 2002 HIV/AIDS RESPONSE PROJECT 0.00 15.00 0.00 0.00 0.00 15.00 1.51 0.00

PO70201 2001 Second Public Sector Management Support 0.00 3.50 0.00 0.00 0.00 1.23 1 .os 0.00

RECONSTR./DEVELOP. PROJECT

EDUCATION

PO02420 1996 TRANSPORT SECTOR PRO 0.00 35.00 0.00 0.00 0.00 1.44 4.48 2.54

Total: 0.00 118.50 0.00 0.00 0.00 107.48 - 5.06 2.54

SIERRA LEONE STATEMENT OF IFC’s

Held and Disbursed Portfolio In Mill ions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

200 1 MSICIH I1 Sierra 3.43 0.00 0.00 0.00 3.43 0.00 0.00 0.00

Total portfolio: 3.43 0.00 0.00 0.00 3.43 0.00 0.00 0.00

Approvals Pending Commitment FY Approval Company

~~~

Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

64

Annex 14: Country at a Glance

SIERRA LEONE: INSTITUTIONAL REFORM & CAPACITY BUILDING Sub-

Sierra Saharan Low- POVERTY and SOCIAL Development diamond' Leone

2002 Population, mid-year (millions) 5.2

140 GNi (Atlasmethod, US$ billions) 0.73

Average annual growth, 1996-02

GNI per capita (Atlas method, US$)

Population (Y$ 2.1 Labor force (%) 2.2

M o s t recent es t imate ( la tes t year available, 1996.02)

Poverty (% of population belo wnatlonalpo vertyline) Urban pc pulat io n (%of to tal po pulaf io n) 38

Infant mortality (per YpOO live births) l76 Child malnutrition (%ofchildrenunder5) 27

57 illiteracy(%ofpopu/afionage 259

Life expectancyat birth (pars) 37

Access to an improved water source (%ofpopulation)

Gross primaryenrollment (%of school-age population) 93 Male 116 Female EO

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992

GDP (US$ billions) t 3 0.68 Gross domestic investmentlGDP D.4 8.3 Exports of goods and serviceslGDP S.8 22.4 Gross domestic savingslGDP 3.2 7.4 Gross national savingslGDP 3.0 -6.0

Current account balance/GDP -116 -14.6

Total debt/GDP 48.5 204.0 Total debt service/eXports 26.3 16.1 Present value of debtlGDP Present value of debtlexports

interest paymentslGDP 0.9 2.2

1982-92 1992-02 2001 (average annualgrowth) GD P -0.6 -2.9 5.4 GDP percapita -2.7 -5.1 3.3

A f r i ca i ncome

688 450 306

2.4 2.5

33 46 a5

58 37 86 92 EO

2001

0.75 7.9 l7.l

- a 3 -9.8

-15.6 11

158.6 80.9 1113

703.9

2,495 430

1,072

19 2.3

30 59 81

76 37 95 113 87

2002

0.79 77.4 16 .O -8.8 -6.5

-219 2 2

Life expectancy

T

GNI Gross per primary capita enrollment

Access to improved water source

-Sierra Leone Low-income group

Economic rat ios '

Trade

T

Indebtedness 2002 2002-06

6.3 6.5 4.2 4.6

-Sierra Leone Lowincome group

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

lga2 lgS2 2o02 1 G rowth of i nves tment and GDP (%) I 37.1 40.2 5.8 30.6 6.3 5.1

47.1 29.2

88.2 82.3 8.6 ll.3 V.2 20.9

25.9 23.3 37.3 42.2

(average annual gro wth) Agriculture Industry

Services Manufacturing

1982-92 1992.02 2001 2002

-2.3 -0.3 3.8 7.2 2.7 -4.2 5.6 6.6

0.0 -2.7 4.7 6.6

Growth o f expor ts and impor t s (%)

MO

50

0

-50 Private consumption -6.0 -3.4 l l .5 7.7 General government consumption -5.7 2.4 27.9 28.2

-Exparts -Inparts Gross domestic investment 60.7 -0.1 5.0 5.5 Imports of goods and services 0.0 -E1 623 34.6

65

MAP SECTION