Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 33002-TD

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT

IN THE AMOUNT OF SDR 6.7 MILLION (US$lO.O MILLION EQUIVALENT)

TO THE

REPUBLIC OF CHAD

FOR A

PUBLIC FINANCIAL MANAGEMENT CAPACITY BUILDING PROJECT

April 27,2007

Public Sector Reform and Capacity Building (AFTPR) Central Africa 1 Africa Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 3 1,2007)

l4AP AFDB ASYCUDA BEAC CAS CCIF

CCPP CCSRP

CEMAC

CERDO

CESRAP

CFAA CFPP

C I CID

COTCO CPAR CPIA CQ DAAFM

DGB DGDDI

DGI DHR ENAM

Currency unit = CFA (francs)

USD1.51326 = SDR1 CFA (francs) 500 = US$1

FISCAL YEAR January 1-December 3 1

ABBREVIATIONS AND ACRONYMS

Africa Action Plan African Development Bank Automated System for Customs Data Banque des Etats de 1 'Afrique Centrale (Central Bank o f Central African States) Country Assistance Strategy Cadre de Concertation entre les Institutions de Formation (Local Institutes Consultation Forum) Chad-Cameroon Pipeline Project Collige de ContrSle et de Surveillance des Revenus Pe'troliers (Oil Revenue Oversight Committee) Communautk Economique et Monktaire de 1 'Afrique Centrale (Central Af r ican Economic and Monetary Community) Centre d 'Etudes et de Recherchepour la Dynamique des Organisations (Center for Organisation Research and Studies) Cellule d 'Etudes et de Suivi des Re'formes de 1 'Administration Publique (Civil Service Reform Unit) Country Financial and Accountability Assessment Centre de Formation Professionnelle de la Chambre de Commerce (Chamber o f Commerce Vocational Training Center) Cellule Informatique (Information Technology Unit) Circuit Inte'gre' des De'penses (Integrated Financial Management Information System) Cameroon O i l Transportation Company Country Procurement Assessment Report Country Po l icy and Institutional Assessment Consultant's Qualifications Direction des Affaires Administratives et Financiires et du Mate'riel (Procurement, Administrative and Financial Directorate) Direction Gdne'rale du Budget (Budget General Directorate) Direction Ge'ndrale des Douanes et des Droits Indirects (Customs General Directorate) Direction Ge'ndrale des ImpSts (Tax General Directorate) Directorate o f Human Resources Ecole Nationale d 'Administration et de la Magistrature (State School for

FBS FMR GDP GEEP

GOC GPN H E C HIPC HRM IBRD ICR ICT IDA IDF IFC I F M I S IFPE

IGF IMF INSEED

IRSC IT LAN LCS M&E MDG MOF MOU M S C M MTEF N C B OCMP PAMFIP PDO PEFA PER P F M P I U PRGF PMR PRML PRMP PRSP QBS QCBS SBD

Admin is t ra t ive and Judic iary Studies) Fixed Budget Selection Financial Management Report Gross Domestic Product Gestion de 1 'Economie ci 1 'Ere Pe'trolikre (Management o f the Petroleum Economy Project) Government o f Chad General Procurement N o t i c e Ecole des Huutes Etudes Commerciales (Business Management School) Heavily Indebted Poor Country Human Resource Management International Bank for Reconstruction and Development Implementation Completion Report Information and Communication Technology International Development Association Institutional Development Fund International Finance Corporation Integrated Financial Management Information System Institut de Formation Professionnelle et d'Enseignement Supe'rieur (Vocational and Superior Education Institute) Inspection Ge'ne'rale des Finances (Ministry o f Finance Internal Audit) International Monetary Fund Institut National des Statistiques et des Etudes Economiques et De'mographiques (National Statistics Office) Institutional Reform Support Credit Information Technology Local Area Network Least-Cost Selection Monitor ing and Evaluation Mi l lennium Development Goals Ministry o f Finance Memorandum o f Understanding Ministry o f State Control and Moralization Medium-Term Expenditure Framework National Competitive Bidding OfJice Central des Marche's Publics (Central Procurement Agency) Plan d'Action pour l a Modernisation de l a Gestion des Finances Publiques Project Development Objective Public Expenditure and Financial Accountability Public Expenditure Review Public Finance Management Project Implementation Unit Poverty Reduction and Growth Facil ity Project Monitoring Report Petroleum Revenue Management L a w Petroleum Revenue Management Program Poverty Reduction Strategy Paper Quality-Based Selection Quality Cost-Based Selection Standard Bidding Document

SOE Statement o f Expenditures SPN Specific Procurement Notice SSA Sub-Saharan Africa sss Single Source Selection TOTCO Chad Oil Transportation Company UNDP United Nations Development Program U S A I D WBI Wor ld Bank Institute

Uni ted States Agency for International Development

Vice President: Obiageli K. Ezekwesili Acting Country Director:

Task Team Leader:

Marie Franpoise Marie-Nelly

Mamadou L. Deme Sector Manager: Helga W. Mul ler

A . 1 . 2 . 3 .

B . 1 . 2 . 3 . 4 . 5 .

C . 1 . 2 . 3 . 4 . 5 . 6 . 7 .

D . 1 . 2 . 3 . 4 .

CHAD

Public Financial Management Capacity-Building Project

TABLE OF CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE ......................................................... 1 Country and Sector Issues ............................................................................................... 1

Rationale for Bank Involvement ..................................................................................... 6

High-Level Objectives Contributing to the Project ........................................................ 7

PROJECT DESCRIPTION ......................................................................................... 8 Lending Instrument ......................................................................................................... 8

Project Development Objective and K e y Indicators ....................................................... 8

Project Components ........................................................................................................ 9

Lessons Learned and Reflected in the Project Design .................................................. 17

Alternatives Considered and Reasons for Rejection ..................................................... 19

IMPLEMENTATION ................................................................................................ 19 Partnership Arrangements ............................................................................................. 19

Institutional and Implementation Arrangements .......................................................... 20

Disbursement Arrangements and F low o f Funds .......................................................... 21

Monitoring and Evaluation o f OutcomesResults ......................................................... 22

Sustainability ................................................................................................................. 23 Critical Risks and Possible Controversial Aspects ....................................................... 24

Financing Conditions and Covenants ........................................................................... 26

. . .

APPRAISAL SUMMARY ......................................................................................... 27 Economic and Financial Analysis ................................................................................. 27

Social ............................................................................................................................. 29

Environment .................................................................................................................. 29

Policy Exceptions and Readiness .................................................................................. 30

List of Annexes

Annex 1: Country and Sector or Program Background ............................................................... 31 Annex 2: Major Related Projects Financed by the Bank and/or Other Agencies ........................ 45 Annex 3: Results Framework and Monitoring ............................................................................. 46 Annex 4: Detailed Project Description ........................................................................................ 52 Annex 5: Project Costs ................................................................................................................. 73 Annex 6: Implementation Arrangements ...................................................................................... 74 Annex 7: Financial Management and Disbursement Arrangements ........................................... 77 Annex 8: Procurement Arrangements .......................................................................................... 86 Annex 9: Economic and Financial Analysis ................................................................................ 91 Annex 10: Project Preparation and Supervision .......................................................................... 92 Annex 11: Documents in the Project File .................................................................................... 94 Annex 12: Statement o f Loans and Credits ................................................................................. 95 Annex 13: Country at a Glance .................................................................................................... 96 Annex 14: Map o f the Republic o f Chad ..................................................................................... 98

List of Boxes

Box 1 : Objectives and Results o f the Management o f the Petroleum Economy Project .............. - 4 Box 2: Reforms Implemented with Mixed Results ...................................................................... 37 Box 3: The Management o f the Petroleum Economy Project ..................................................... 38

List of Tables

Table 1: Donor Intervention in Support o f PAMFIP ................................................................... 10 Table 2: Safeguard Policies Triggered by the Project ................................................................. 30 Table 3: PAMFIP Financing by Donor and Component ............................................................. 44 Table 4: Arrangements for Results Monitoring ........................................................................... 48 Table 5: Timetable o f Required Actions ....................................................................................... 88 Table 6: Thresholds for Prior Review .......................................................................................... 90 Table 7: Bank Staff and Consultants Who Worked on the Project .............................................. 93 Table 8: Chad Statement o f IFC’s Held and Disbursed Portfolio as o f July 3 1, 2006 ................ 95

IBRD Map 33385

CHAD

Recipient IDA Other Donors

Grand Total

PUBLIC FINANCIAL MANAGEMENT CAPACITY BUILDING

Local Foreign Total 19.60 19.60 5.00 5 .OO 10.00

10.05 10.05 20.10 34.65 15.05 49.70

Project Appraisal Document

Annual Cumulative

Africa Regional Office

FYOS FY09 FYlO F Y l l FY12 FY13 1.56 2.14 1.96 1.90 1.71 0.73 1.56 3.70 5.66 7.56 9.27 10.00

AFTPR Date: April 27,2007 Country Director: Marie Francoise Marie-Nelly Sector(s): Public Sector Management

Sector Manager: Helga Mul ler

Team Leader: Mamadou Lamarane Deme

(1 00 percent) Theme(s): Public Finance Management,

BF-Public Financial Management, BI-Institutional Development

Project ID: PO90265 Lending Instrument: Technical Assistance/Investment Grant

Project Financing Data [ ]Loan [I Credit [ XI Grant [ ] Guarantee [ ] Other:

Environmental Screening Category: N o t required

Recipient: GOVERNMENT OF CHAD Responsible agency: Ministry o f Finance Address: B.P.144 Tel. (235) 52 38 14

Fax. (235) 52 48 09 N’Djamena, Tchad Dinanko NgomibC, SecrCtaire technique Permanent-PAMFIP Tel. (235) 52 04 52 Fax; (235) 52 04 51

Contact Persons: Email: pamfip@intnet.td

Estimated Disbursements ( Bank FY/USlO.O$m): I

Project implementation period: October 1,2007 - December 31,2012 Expected effectiveness date: October 1, 2007 Expected closing date: December 31,2012

Does the project depart from the CAS in content o r other significant resDects?

[ - I Y E S [XI NO

The development objective o f the Project i s to help the Government o f Chad improve the efficient

~~

Does the project require any exceptions from Bank policies? Have these been approved by Bank management? I s approval for any policy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Does the project meet the Regional criteria for readiness for implementation?

and transparent use o f public resources through enhanced public financial management system. Project description:

[ - I YES [XI NO [-] Y E S [X I NO [-I Y E S [XI NO [X ] Y E S [ - ] NO [X I Y E S 1 N O

The Project wil l support implementation o f key aspects o f the Government Public Financial Management Reform Action Plan (labeled PAMFIP in French) through the following main components: (a) Public Finance and Financial Accountability; (b) Human Resources Development; (c) Integrated Financial Management Information System; and (d) Coordination, Monitoring and Evaluation o f the Government Program. Which safeguard policies are triggered, if any? None. Significant, non-standard conditions, if any, for:

Board presentation:

None

Grant effectiveness:

0 Recruitment o f an independent audit firm, which is employed under terms and conditions satisfactory to IDA.

0 Adoption o f the Project Implementation Manual, which includes the administrative, financial, accounting and monitoring and evaluation (M&E) procedures, in form and substance satisfactory to IDA. Preparation o f the MOF 2008-2010 expenditure program to be included in the 2008-2010 Medium-Term Expenditure Framework (MTEF); and inclusion o f the annual expenditures o f the Ministry o f Finance (MOF) for 2008 in the 2008 draft Budget as adopted by the cabinet. Completion o f the M&E system for the Project, satisfactory to IDA. The positions o f head o f procurement services and head o f financial management within the Direction des Affaires Administratives et du Materiel (DAAFM) o f the M O F are f i l led in with qualified staff.

0

0

Covenants applicable to Project implementation:

Financial covenants are the standard ones for IDA projects, including the following:

0

0

0

DAAFM will comply with al l the rules and procedures required for withdrawals from the grant agreement. DAAFM wil l maintain or cause to be maintained records and accounts to reflect and be in accordance with sound accounting practices, operations, resources, and expenditures. DAAFM wil l produce quarterly financial management reports (FMRs). The records, accounts, designated accounts, and statement o f expenditures shall be audited by independent auditors acceptable to IDA on a yearly basis and no later than six months after the end o f the fiscal year.

In addition, provisions wil l be made to assert availability o f the government’s annual budget contributions to PAMFIP throunhout Proiect execution.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and Sector Issues

1. Chad i s one of the world’s poorest countries, struggling to overcome nearly four decades of civil war and continuing regional instabilities. Poverty i s widespread, and social indicators are well below the average for sub-Saharan Africa. I t ranked 173 among the 177 countries surveyed in the 2005 U.N. Development Programme (UNDP) Human Development Report. The incidence o f poverty (defined as the proportion o f households with annual spending below what i s necessary to meet minimal needs) is estimated at 55 percent according to a 2003 household survey; an estimated four-fifths o f the population o f about 8.8 mil l ion is living on less than a dollar a day.’ O f the population older than 15 years, more than 73 percent (and 76 percent o f women) are illiterate. Access to potable water has improved in past years, but is s t i l l l imited to one o f three people in 2005. Less than two percent o f the population has access to electricity. In this sprawling country twice the size o f France, a total o f only 1,021 kilometers o f roads has been paved.

2. Chad has made progress in macroeconomic stabilization and economic reforms in the past decade. Under the Government o f Chad’s (GOC’s) economic adjustment and reform program supported by the World Bank and the International Monetary Fund (IMF), it managed to contain inflation, improve the external current account deficit, and achieve several years o f robust economic growth. The construction o f a 1 , 1 00-kilometer pipeline to exploit the o i l fields in southern Chad, a project supported by the World Bank Group, has given the country a major new source o f revenues that holds promise for reducing poverty and creating a more sustainable economic footing for the future.

3. These developments have yet to produce the sustainable economic outcomes that are needed if Chad i s to achieve sustainable development. Chad remains highly vulnerable to political instability and armed rebellion. The situation has been made more precarious by the advent o f petroleum revenues, which have unleashed new economic opportunities, but also created new political pressures on how the revenues are used and distributed. The Darhr crisis in neighboring Sudan and other sources o f domestic and regional instability are putting heavy demands on government spending. As security and defense spending grow, poverty reduction and lasting economic and institutional reforms are losing ground to an unsustainable deficit and mounting budgetary arrears.

4. The Government and its development partners have laid out a number of strategic plans for confronting the country’s economic problems. The National Poverty Reduction Strategy Paper (PRSP) adopted in June 2003 focuses not only o n using o i l revenues for poverty reduction, but also calls for promoting good governance and strengthening institutional capacity to ensure effective management o f public resources. The Bank and IMF have financed numerous other projects and programs focused on public finance management (PFM), structural

’ L ine poverty was estimated by the Institut National de la Statistique et des Etudes Economiques et Demographi- ques (INSEED) and the W o r l d Bank team, using Wor ld Bank methodology

1

reforms, and poverty reduction; however, the Joint IMF/Bank Staff Assessment in 2004 and the government assessment o f implementation o f the PRSP in 2005 showed that l i t t le progress had been made on this agenda.

5. Foremost among these strategic plans to help Chad reshape its economic future was the Petroleum Revenue Management Program (PRMP). The PRMP was intended to help Chad avert the pitfalls that have plagued other resource-dependent countries.2 Agreed to among the GOC, the World Bank Group, and the European Investment Bank, the PRMP set out a strategy that entails five main principles3: (a) earmarking o f the bulk (80 percent) o f direct o i l revenues (royalties) for spending in priority sectors for poverty reduction; (b) allocating 5 percent o f these revenues to the o i l producing region; (c) allowing 15 percent to be allocated to none priori ty sectors; (d) saving 10 percent for fbture generations; and (e) ensuring transparency in o i l revenue management through creation o f a special oversight institution, Col l ige de ContrSle et de Surveillance des Revenus Pe‘troliers (CCSRP), known as the “Collbge,” a council o f representatives from c iv i l society and the GOC. These principles were also set forth in a Chadian Petroleum Revenue Management Law (PRML) (Law No. 001PW99, dated January 11, 1999) governing petroleum revenue management.

6. Despite increased oil revenues, however, the pipeline has so far not succeeded to steer Chad toward greater stability. The country’s financial and developmental situation has deteriorated. O i l production began in July 2003 and by mid-2004, the royalties and dividends related to o i l production started reaching the country. Revenues from the o i l production and exportation accounted for 45 percent o f government revenues in 2005, up from 32 percent the previous year. In 2006, the ratio increased to reach 73 percent reflecting the collection o f indirect revenue, namely the o i l company income taxes4. Chad had received nearly US$700 mi l l ion in direct o i l revenues and US$500 mi l l ion in indirect revenue by the end o f 2006 from o i l sales averaging 166,000 barrels a day. Nevertheless, weakening fiscal discipline, increased military expenditures, and reduced foreign budgetary aid meant that o i l revenues have been insufficient to spare the Government from recurring financial crises.5

7. T o address its budget and financial difficulties, the Government decided, in December 2005, to amend the PRML6, despite reservations and alternative recommendations from the World Bank and other development partners. The aim was to extract more o i l resources to finance the fiscal deficit and unplanned, mainly security-related, expenses. The unilateral change o f the P R M L led to a dispute that prompted the World Bank to suspend disbursements o f

’ The pipeline program (Chad-Cameroon Pipeline Project [CCPP]) benefited f r o m two IDA credits and one IBRD loan to the state and f r o m an IFC loan to the Chad Oil Transportation Company.

The P R M P is set forth in detail o n Schedule 5 o f the IBRD Loan Agreement (IBRD-Loan 4558-CD). Oi l company income taxes were planned to be collected only f r o m 2008, in the init ial forecast. The arrears stock grew to reach 1.5 percent o f gross domestic product (GDP) at the end o f 2004 and has heavily

weighted o n day-to-day cash management. The situation changed in 2006, with the arrival o f unexpected indirect o i l revenue.

Amendments abolished the Future Generations Fund and allowed use o f monies saved so far to cover the budget deficit; expanded priori ty sectors to justice, territorial administration, and security; increased the percentage o f direct o i l revenues used in nonpriority sectors f r o m 13.5 to 30 percent; and expanded the scope o f the l a w to a l l o i l fields in Chad.

4

2

al l ongoing International Development Association (IDA) - supported operations in Chad. After extensive discussions during the first six months o f 2006, involving al l key donors, the GOC and the World Bank signed a memorandum o f understanding in July 2006 pursuant to which the government agreed to allocate, in 2007, 70 percent o f its resources to priori ty poverty reduction programs and to develop by June 2007 a revised National Poverty Reduction Strategy Paper, which will form the basis for a permanent framework for government spending. In the same agreement, the two parties recognized that building a sound and sustainable PFM system i s essential to PRSP and PRMP goals.

Main Sector Issues

8. The central thrust of the reform program supported by the World Bank and IMF in recent years has been to improve allocation, execution, transparency, and accountability in the use of public resources. This is an important priority, given the availability o f resources under the Heavily Indebted Poor Countries (HIPC) Initiative in 2001 and from o i l revenues beginning in 2004. In spite o f multiple efforts made in the past decade to build capacity in Chad with the assistance o f external partners (Box l), weaknesses in PFM are s t i l l pervasive. These shortfalls include: (a) l o w mobilization o f non-oil revenues’ due to inadequate information systems and procedures and lack o f professionalism among staff as wel l as governance issues; (b) weak analytical capacity to define budget policies and formulate expenditure programs in line with PRS objectives and priorities; (c) a slow, inefficient, and nontransparent budget execution process with proliferation o f extra budgetary expenditure that hinder the integrity o f the budget system; (d) ineffective ex-ante controls leading to inadequate use o f public resources; (e) disregard o f procurement procedures; (f) poor or non-existent asset management; and (g) lack o f a strategic approach for using information and communication technologies (ICT) in PFM, resulting in dispersed and incompatible systems, inadequate knowledge sharing, and absence o f individual skills development. As a result, key development programs are underfunded and public resources fail to reach their intended beneficiaries.

9. In addition, institutional and human resource weaknesses in the Ministry of Finance (MOF) further constrain PFM effectiveness. High staff turnover, inadequate human resource management (HRM), and a poor pay incentive system are among the lingering problems. In the absence o f sound policies and practices (change management with a view to facilitating long overdue organizational changes and gradually advancing with a fiscally affordable incentive system), i t has not been possible to create an effective institutional environment for building, managing, and retaining capacity. Capacity development efforts have been undermined by inadequate progress in administrative reforms, mostly due to a lack o f political commitment. In 2001 the GOC adopted a far-reaching c iv i l service reform law, including sound principles for effective HRM; however, some application decrees have not been developed and, as a consequence, the law has not yet been implemented.

’ The non-oil-revenue to non-oil GDP ratio i s less than 10 percent o f GDP, whlch i s largely below the average o f similar sub Saharan African countries (around 20 percent o f GDP).

3

10. Years o f political turmoil and insecurity, compounded by overall weak institutional capacity to manage the budget process, have led to a poor governance environment. Concerns about governance issues in the use o f public resources in general and petroleum revenues in particular remain serious and high up on the agenda o f c iv i l society and donors that have supported development o f the Chad-Cameroon pipeline. The Collkge’s reports on the use o f the petroleum revenues in 2004 and 2005 underscored irregularities in transfers o f h d s , the poor quality o f expenditure management, and long delays in the delivery o f goods and services. Competitive bidding was found to be rare. The 2005 Transparency International Survey labeled Chad and Bangladesh as the two countries in the world where governance issues are notorious. Other governance ratings, such as the Kaufmann, Kraay, and Mastruzzi’ estimates for 67 IDA countries and the Bank’s 2005 Country Policy and Institutional Assessment (CPIAs) o f 36 sub- Saharan African countries, also showed that Chad ranks among the poorest performers in governance and PFM.

Box 1: Objectives and Results of the Management o f the Petroleum Economy Project (Gestion de I’Economie d 1’Ere Pbtroli2re - Cr. 331 6-CD)

T o ensure sound management o f o i l revenues, avoid distortions often generated by the development o f extractive industries (the “Dutch diseaseg”) and increase f h d i n g for poverty alleviation programs, the Chadian authorities, with the assistance o f the W o r l d Bank Group, established a legal framework to earmark o i l revenues for poverty reduction programs in 1999. In that context, IDA financed an operation to help Chad build institutional capacity to implement i ts o i l revenue management strategy as an integral part o f the broader Cameroon-Chad Pipeline Program (CCPP). The Gestion de I’Economie a I’Ere Pdtrol ike (Management o f the Petroleum Economy Project) or GEEP project (Cr.33 16-CD) was approved o n January 27,2000, with the fol lowing five components:

Public finance management (US$8.2 mil l ion) Poverty database and strategy (US$3.0 mil l ion) Human resource development ( U S 1 . 3 mil l ion) Oversight and control (US$1.3 mil l ion) Monitoring economic reform ( U S 3 . 7 mill ion).

The GEEP’s overall outcome was rated as moderately unsatisfactory. A l though some results are encouraging in several areas (for instance the economic management instruments available in Chad at the end o f the project in 2005 are more advanced than those available in 2000), major shortcomings mean that the project resulted in only modest institutional development impacts. Progress has been noteworthy in the areas of: (a) P F M specifically reflected in the init ial preparation o f expenditure programs in poverty-related sectors, streamlining o f budget and public accounting nomenclatures, init iation o f computerization o f the expenditure circuit, and procurement reform; (b) strengthening key institutions for financial control and oversight; and (c) poverty analysis and implementation o f macroeconomic reforms. Given extremely weak institutions, GEEP’s focus was primarily o n establishing and strengthening basic institutional arrangements for financial control and oversight, procurement, and statistics for poverty monitoring. Ma jo r activities included rehabilitation o f basic facilities, acquisition o f equipment, and development o f systems as prerequisites for m h e r capacity development. On the other hand, l i tt le progress was made o n c i v i l service reform and privatization efforts, due to lack o f government commitment. These outcomes leave lingering questions about the sustainability o f the results. Source: July 2006 implementation completion report.

Kaufmann D., A. Kraay, and M. Mastruzzi, 2006, Governance Matters V: Governance Indicators for 19962005, Wor ld Bank Institute, W o r l d Bank, Washington, D.C. Dutch disease i s an economic concept that ties an increase in revenues f r o m natural resources with raising

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exchange rate, which makes the manufacturing sector less competitive. The term was coined in 1977 by Economist t o describe the decline o f the manufacturing sector in the Netherlands after the discovery o f natural gas in the 1960s.

4

11. A consensus exists among donors” that Chad’s PFM system needs strengthening to ensure more transparent and effective management of the windfall expected from oil revenues in 2007. With rising world o i l prices, the country i s set to receive a sudden and unexpected increase in revenues, further challenging Chad’s PFM system. During the recent discussions to revive the PRMP and the IMF Poverty Reduction and Growth Facility (PRGF), the authorities concurred with al l donors that substantial improvements in PFM would be crucial in the coming years. To this end, the Chadian authorities and development partners have decided that i t i s essential to accelerate efforts to implement the govemment reform program in this area.

Government Strategy

12. I n 2005, the GOC prepared and adopted the action plan, Plan d’Action pour la Modernisation de la Gestion des Finances Publiques (PAMFIP), to modernize PFM covering all budget functions. The action plan is an umbrella govemment program intended to consolidate and deepen the ongoing and planned activities, which are intended to improve the quality o f PFM and strengthen institutional capacity to make the best possible developmental use o f public resources, including o i l revenues, to meet the Mil lennium Development Goals (MDGs), The five-year action plan focuses on the entire budget cycle and revenue mobilization. I t comprises the following components: (i) budget preparation; (ii) budget execution; (iii) revenue mobilization; (iv) procurement; (v) financial control and audit; (vi) restructuring o f the MOF and information and communication technology (ICT); (vii) human resource development (HRD); and (viii) program coordination and steering.

13. In the quest for an improved PFM system, expected outputs at the end of the five- year PAMFIP include the following: (a) an updated legal framework and streamlined procedures for P F M and financial accountability; (b) established, documented, streamlined, and applied operational guidelines in budget execution, procurement, accounting, and financial controls; (c) trained technical staff working in improved office facilities; and (d) an integrated, well-functioning, and more reliable financial management system in place, with adequate institutional arrangements and more competent ICT staff.

14. PAMFIP i s an action plan that builds on prior, joint analytic work. The GOC carried out significant analytical and sector work under the Gestion de 1’Economie A 1’Ere PCtroliere (Management o f the Petroleum Economy Project or GEEP), including the audit o f nine key ministries. The action plan to improve PFM reflects key recommendations from the diagnostic work carried out in the previous three years with donor support, including the country financial and accountability assessment (CFAA), public expenditure reviews (PERs), HIPC assessment and action plan, and the European Commission audit o f use o f i t s budget support, as wel l as priorities set out in the IDA-financed Institutional Reform Support Credit (IRSC).

The European Commission, African Development Bank (AFDB), U.N. Development Programme (UNDP), World 10

Bank, IMF, United States, and France.

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15. The preparation process was highly participative. To coordinate the preparation process o f the PAMFIP, the GOC appointed a Steering Committee and a Technical Secretariat for modernization o f PFM. Through a series o f interactive consultations between the Technical Secretariat and general directors o f the M O F and other institutions concerned with PFM, a home- grown, time-bound action plan for modernization o f P F M with indicative costing was completed and approved in July 2005 by the High-Level Interministerial Committee, which i s responsible for steering economic reforms.

16. The GOC has made financing available for this plan, albeit limited, from its national budget in 2005 and 2006. I t has also appropriated substantial amount (1.3 bi l l ion CFA, equivalent to US$2.6 million) in 2007 budget. PAMFIP wil l help establish program budgeting in the M O F in the medium term on a rol l ing basis (each fiscal year a program budget i s updated for the following three years), which wil l institutionalize the reforms within the ministry’s structures and adequately provide for i t s financing needs.

2. Rationale for Bank Involvement

A range o f arguments support the Bank’s involvement in this Project:

17. First, although World Bank assistance has helped Chad become an oil-producing country, it i s clear that the country has yet to develop the capacity to manage its revenues efficiently and transparently. Under the GEEP, PRMP, and IRSC, IDA had a key role in supporting capacity building for PFM. Institutional capacity strengthening calls for continued support to consolidate and deepen earlier gains in public expenditure management and financial accountability. The July 2006 memorandum o f understanding signed between the World Bank and the Chadian authorities calls for the World Bank and the IMF to work in partnership with the GOC in preparing a new PRS and to support the GOC in developing a framework to guide annual budgetary processes, beginning with the 2007 budget. The MOU encourages the World Bank to stay engaged and step up its efforts to support PAMFIP implementation.

18. Second, strengthened PFM will create a platform for the country to make progress in PRS implementation and other development programs. The goals set for Chad’s PRS and sector programs in social sectors as well as infrastructure and capacity building cannot be achieved without efficient and transparent PFM. Development programs including IDA-financed projects are seriously constrained by the current deficiencies in PFM.

19. Third, improved PFM will also be key to better governance and achievement of high growth and overall development results in Chad. The Bank’s experience shows that strengthening PFM i s critical to building institutions that can sustain good governance and positively affect long-term development prospects. Because PAMFIP is meant to increase the quality o f PFM and promote stronger accountability institutions and fiduciary standards, i t is essential to support these efforts. The Bank can also be instrumental in helping the GOC develop and maintain stronger demand for good governance through interaction with parliamentarians, media representatives, and civil society organizations.

20. The authorities are expecting strong support from donors, especially the World Bank, in implementing PAMFIP. Consultations between the GOC and donors highlighted a

6

need to complement each other and to ensure that al l PFM reforms are h l l y financed. IDA support to PAMFIP focuses on areas not financed by other donors and in which IDA has a comparative advantage. These areas include financial controls and audit, improving the use o f technology, HRM, organizational realignment, change management, and leadership development. IDA also wil l provide complementary support to areas where other donors take the lead, for example, in budget preparation and execution and procurement. The monitoring and evaluation (M&E) system to be established for PAMFIP wil l provide a common framework for donor coordination and wil l help reduce transaction costs (Annex 1).

21. In addition, the World Bank Institute (WBI) has been closely involved in developing a new approach to capacity development. Building on the lessons learned from the GEEP, the Bank’s institutional knowledge and experience in supporting capacity development for PFM, and principles o f good governance, WBI wil l provide incremental contributions to cross-cutting issues: change management, capacity development, improved use o f ICTs, and HRM, based on clearly expressed local demand and evidence o f local ownership. In addition to consolidating results in governance and anticorruption activities, WBI wil l help the GOC strengthen the oversight institutions that had begun to be established during the past decade. Such interventions require a comprehensive approach, significant financial resources, adequate sk i l ls mix in the project team and coordination with al l stakeholders in monitoring progress.

3. High-Level Objectives Contributing to the Project

22. The proposed IDA project i s critical for implementing the priorities formulated in the PRS and ensuring that oil revenues and donor financing are efficiently used for these purposes. By focusing on improving PFM, the Project will promote good economic governance and strengthen institutional capacity. Expectations surrounding the public benefits o f o i l revenues are high among the population, and the GOC i s under increased pressure to deliver on the PRS , while increasing accountability and transparency in the use o f public resources.

23. The proposed IDA project i s at the core of Chad’s 2003 Country Assistance Strategy (CAS). The overarching objective o f the 2003 CAS is to help Chad make the best possible developmental use o f public resources, especially o i l revenues, to attain the MDGs. The CAS explicitly includes additional financing (US$ 10 million) to extend and deepen capacity building in procurement and PFM, provide technical assistance for structural reforms, and support the Collkge. This i s in line with the broad and long-term commitment made by the World Bank to capacity development and good governance, when it agreed to the financing o f the CCPP.

24. Finally, the proposed IDA project i s grounded in the World Bank Africa Action Plan (AAP) and mainly falls into the priority areas o f its “Building Capable States” pillar. The Project, through capacity development activities and partnership with other donors, i s a critical instrument to help Chad achieve better development results in the remaining three AAP pillars. I t wi l l help Chad in (i) accelerating shared growth, and (ii) supporting results framework; (iii) through strengthened development partnership.

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B. PROJECT DESCRIPTION

1. Lending Instrument

25. and conditions defined for Chad in the IDA-14 allocations for fiscal years 2007-09.

The IDA-financed operation will be a grant for a five-year period in l ine with terms

26. An investment/technical assistance operation has been chosen to ensure the necessary focus and discipline in prioritizing/sequencing, programming, and budgeting of activities commensurate with the absorptive capacity of the implementers of PAMFIP. This instrument will also allow for better donor coordination in support o f this government program, which in turn wil l ensure continuous dialogue with the GOC o n pol icy and technical issues. In addition, i t wil l contribute to strengthening national capacity to manage institutional and economic reforms through PAMFIP and establishing an M&E mechanism to inform policymakers on progress and to allow for corrections should they prove necessary.

2. Project Development Objective and Key Indicators

27. The overall Project Development Objective (PDO) of the proposed operation i s to help the GOC improve the efficient and transparent use of public resources through enhanced PFM system. To this end, the proposed Project will support the implementation o f PAMFIP in close coordination with other donors.

28. M o r e efficient use o f public resources in Chad will have two aspects: resources allocation and budget execution. It wil l require an improved budget process that leads to an allocation o f the bulk o f public resources, especially o i l revenue, to poverty-related needs. At the execution level, i t wil l involve keeping the discrepancy between actual and originally budgeted public expenditures small, notably in priority sectors, as a result o f improved budget monitoring and cash planning processes.

29. related to budget preparation and budget execution in priority sectors:

The efficient use of public resources will be monitored through two key indicators

0 Budget preparation. Annual approved budget for priority sectors wil l be at a l l times consistent with provisions o f the July 2006 memorandum o f understanding (70 percent o f total expenditure excluding debt service, but including capital spending and externally financed project expenditure) or with the future PRMP agreement to be concluded with the donor community. Budget execution. In addition, the priori ty sectors’ actual expenditures, compared with the original approved budget items (for expenditure financed with domestic resources), should improve during Project execution, and the difference between the two should not be greater than 5 percent at the end o f the Project. This wil l help in monitoring effective increases in resource allocations and availability to priority sectors.

0

30. The more transparent use of public resources in Chad translates into two targets. First, i t implies improvements in monitoring and accountability systems that allow al l stakeholders to know how public resources (including o i l revenues) are used. Second, at the

8

operational level, transparency implies that c iv i l servants are enabled to protect public resources against misappropriation and to report more effectively on the use o f public funds.

31. The transparent use of public resources will be monitored through two key indicators:

0

0

3.

Budget reporting. Quarterly budgetary and financial reports, including al l items o f budget estimates and covering expenditures at both commitment and payment stages, are regularly produced from the Circuit Intbgrk des Dipenses (CID) in a timely manner (issued within four weeks after the end o f the period, by the end o f 201 1).

Public Jinancial accountability. First, the treasury annual financial accounts (Comptes de Gestion du Trksor) are produced on a timely basis (each year at the end o f May) and submitted to the Chamber o f Accounts starting in 2010. Second, the annual budget execution law (Loi de Rgglement) is submitted to Parliament, in conformity with legal provisions, for fiscal 2010 (at end September 201 1). Third, the annual Collkge report i s prepared and made public by the end o f July.

Project Components

32. The proposed IDA project i s intended to support implementation of key aspects of PAMFIP, following the distribution of responsibilities between the GOC and donors and among donors themselves (table 1). In addition to coordination and monitoring and evaluation component, PAMFIP consists o f eight components and the donors (the European Commission, African Development Bank [AFDB], UNDP, France, United States, IMF, and World Bank Group) as well as the GOC have agreed to finance the following:

0 Budget preparation. IDA, European Commission, UNDP, and French support will encompass: (a) strengthening the quality o f the macro-economic, fiscal, and expenditure projections focusing on the medium-term expenditure framework (MTEF) tool and development o f program budgets in sector ministries and (b) enhancing and streamlining the budget preparation process, with improvements o f the budget calendar and guidelines for i t s application.

0 Budget execution. IDA, European Commission, and French assistance wil l encompass: (a) organizational and process improvements in the General Directorate o f Budget (DGB) and Procurement, Administrative, and Financial Directorate (DAAFM) (Direction des Affaires Administratives et Financikres et des March&) at the M O F and priori ty line ministries; (b) decentralization o f P F M and financial control to the priority line ministries; (c) development and enhancement o f tools and procedures for cash f low and debt management, and (d) set-up o f a monitoring mechanism to enhance budget execution at the central level and priority sectors along with an enhanced reporting system.

0 Procurement. The AFDB leads the reform activities within this component with additional support from IDA and the European Commission in implementation o f the training program. PAMFIP wil l seek to: (a) improve effectiveness and transparency o f procurement

9

transactions through the streamlining o f existing procedures and annual ex post audit o f contracts; and (b) disseminate procurement plans and results o f public tenders to the public on a more regular basis.

Table 1: Donor Intervention in Support o f PAMFIP

Institutions I I 8- 1 - DHR at MOF 8 - 2- Training 8- 3- Civil Service Reform

8- Integrated Financial Management Information System (IFMIS) 7- 1 - Cellule Informatique

9- PAMFIP Coordination and M&E 9- 1 - Steering Committee and Tech. Sec.

- -

Revenue mobilization. The European Commission and France wil l help in developing capacity in petroleum taxation. In customs, the European Commission, IMF, and IDA (through the regional project supporting the Communaute' Economique et Mone'taire de 1 'Afrique Centrale [CEMAC] Trade and Transit Facilitation Project (P079736) wil l j o i n their efforts to assist the GOC in: (a) professionalizing customs staff; (b) strengthening internal controls and computerizing procedures through the Automated System for Customs Data

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(ASYCUDA); and (c) improving existing key facilities, which account for more than 50 percent o f total customs collections (customs outposts at Nguely and N’Djamena Airport).

Financial control and audit. The assistance wil l come primarily from the World Bank Group (through an IFC grant and some financing through the proposed IDA project), AFDB, United States, and European Commission, to strengthen further the institutional capacity for financial control and audit to foster transparency and good governance. The supported activities wi l l focus on: (a) consolidation and strengthening o f institutional capacity o f internal audit (General Inspectorate o f Finance [IGF] and the Ministry o f State Control and Moralization [MSCM]) and external audit (the Chamber o f Accounts o f the Supreme Court, the Parliament through i t s Finance Commission, and the Collbge); and (b) definition and support for carrying out i t s roles for the Collbge within the new PRMP framework.

Restructuring of the MOF. IDA and the European Commission will help the GOC to implement the main recommendations o f the 2004 functional audit o f the M O F (financed under the GEEP). This wil l entail revisions o f the legal framework, especially the Organic Budget Law and training in change management, including M&E and leadership skills and tools.

Human resource management and development. IDA will take the lead in supporting the GOC to undertake a pi lot HRM system, based o n merit principles and on the 2001 c iv i l service law, not yet applied.

Information and communication technology. IDA will also lead assistance to the GOC in this area. The interventions wil l focus on: (a) design o f a comprehensive I C T strategy and implementation plan; (b) needs assessment and design o f business process re-engineering for ICT; (c) updating o f the existing integrated financial management information system (IFMIS) to reflect the re-engineered process and to make i t compatible with a new version o f the database platform; and (d) support to new institutional arrangements to manage implementation and coordination o f the I C T strategy.

33. Total cost of PAMFIP i s estimated to be around US$49 million, of which IDA would finance US$10 million. The components, activities, and amounts o f this government program are detailed in annex 1 , including commitment and components supported by each donor.

34. Target groups are technical and management staff in all units involved in the budget cycle, from preparation and execution to financial controls and audit. DGB, financial and administrative directorates in MOF and line ministries (DAAFMs), National Statistics Office (Institut National des Statistiques et des Etudes Economiques or INSEED), General Directorate o f Treasury, Directorate o f Payroll, Directorate o f Financial Controls (ContrGle Financier), Finance Commission o f the Parliament, IGF, Chamber o f Accounts, the Collkge, MSCM, and the MOF cabinet and General Secretariat. The Project will further strengthen local training institutions to ensure that training in PFM and I C T can be provided locally at lower cost in the medium- to long-term.

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35. The proposed IDA Project will primarily focus on the budget cycle and on strengthening institutional capacity, accountability, and transparency in PFM. To this end, the Project wil l establish or improve systems, procedures, and equipment and strengthen HRM and organizational arrangements at the MOF, its general directorates, as well as the financial and budgetary functions o f ministries in key priority sectors (health, education, infrastructure, agriculture, and rural development).

36. The proposed IDA Project components have been selected using the following three criteria: (a) activities that consolidate and deepen achievements in public expenditure management and financial accountability accomplished under the GEEP, and the IDA-financed structural adjustment support (Le., IRSC), as well as support for the objectives laid out in the PRMP; (b) cross-cutting issues o f PAMFIP (ICT, HRM, and leadership training and strengthening o f local training institutions) in which IDA has a competitive advantage; and (c) coordination and M&E o f PAMFIP, in which building capacity in reform management and leadership i s critical for the country.

Component 1 : Public Finance and Financial Accountability (US$2.33 million)

37. This component includes two subcomponents, dealing respectively with budget formulation and execution and strengthening oversight functions and institutions. The aim o f the component is to create enabling conditions for better fiscal discipline, optimal resource allocation, budget reliability and transparency, and operational efficiency.

Sub-Component 1-1 Budget Preparation and Execution (US$1.25 million)

38. Under this subcomponent, the proposed IDA Project will primarily consolidate achievements under the GEEP and contribute to achieving the PRMP objective as well as the IMF’s PRGF program. The objectives are to help the GOC: (a) align resource allocation with PRS priorities, as defined in the July 2006 memorandum o f understanding on the use o f o i l revenues; and (b) restore budget credibility by ensuring that the resources are delivered in a predictable manner to l ine ministries for their approved spending programs, especially in priority sectors.

39. following:

To this end, IDA will finance technical assistance, equipment, and training to the

Improve budget preparation. This means in the priority sectors” as well as at the DGB, specifically, the design and implementation o f the macro-fiscal projections and budget program 2008-1 0 and beyond.

” The priority poverty sectors are the ones determined in the July 2006 memorandum o f understanding and cover the following ministr ies and institutions included in the budget nomenclature: Ministr ies o f Health, Social Action, Education (primary and secondary, higher education, and vocational), Agriculture, Livestock, Environment and Fishing, Water, Infrastructures, Land Planning and Urbanism, Mines and Energy, Post and New Technologies, Jus- tice, State Control and Moralization, Human Rights, Finance (PRSP, PAMFIP, and De-mining), Decentralization, Solidarity and Microcredit, Petroleum, and Oi l Producing Region and the Supreme Court, High Court, and Collkge.

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Improve budget execution. The capacity o f the DGB will be strengthened to establish a monitoring mechanism for budget execution at the MOF level and to monitor major spending items (wages, utility bills, and capital spending). The capacity o f the technical and management staff o f DAAFMs in the priori ty ministries wil l also be enhanced to facilitate budget execution and monitoring in their ministries.

0 Enhance institutional reforms and restructuring. This will involve the following:

1.

.. 11.

... 111.

iv.

Organizational realignment o f the MOF and general directorates, equipping them with clear mandates, objectives, and indicators to strengthen or create effective work processes and enhance cooperation among staff and institutions based o n established procedures and calendars and to increase information sharing. Updating o f the financial legal framework, namely the Regime financier de 1'Etat including the Organic Budget Law, and i t s application decrees, (the RGglement Ge'ne'ral de la Comptabilite' Publique, the Plan Comptable de 1 'Etat, etc.), in l ine with new organizational charts and procedures. Updating o f the public accounting system and i t s alignment with the new functional budget nomenclature (technical assistance for revision and seminars o n i t s application). Development and updating o f operational manuals for macro-fiscal projections as wel l as for budget preparation and budget execution.

40. Main outputs will include the following: (a) operational and reliable tools, including operational manuals for multiyear macro-fiscal projections and budget execution, in place and staff trained in their use; (b) 2008-10 and 2009-1 1 macro-fiscal projections available; (c) program budgets in the priority ministries produced on a regular basis and in l ine with the PRS; (d) the Organic Budget Law and i t s application decrees, including the treasury accounting chart and Riglement Ge'ne'ral de la Comptabilite' Publique signed and made effective; and (e) a fixed budget preparation and execution calendar established and met throughout Project implementation.

Subcomponent 1-2: Financial Controls and Accountability (US$l. 08 million)

41. Under the GEEP, good progress has been made in building the capacity of the IGF, Chamber of Accounts, and Collbge. The latter has proven an innovative way o f raising public awareness on the use o f revenue generated by natural resources; hence, IDA will, jo int ly with other donors, continue to support it to consolidate achievements in this area.

42. including study tours, to accomplish the following:

The proposed Project will finance equipment, technical assistance, and training,

0 Clarify roles and enforcement capacities o f audit and oversight institutions (IGF, Chamber o f Accounts, Collbge, and MSCM) and develop and implement a capacity-building program for each institution.

13

Strengthen the Finance Commission o f Parliament, developing a communication strategy and training parliamentarians as wel l as staff in the budget approval and oversight process.

43. Main outputs at the end of the Project will include the following: (a) the audit system restructured and coordination improved among oversight and audit institutions, (b) mandatory audits carried out by oversight and audit institutions (the Chamber o f Accounts implements the annual audit o f the Comptes de Gestion du Trksor, and IGF and M S C M perform their annual audit programs), and (c) effective follow-up mechanisms for oversight and audit report recommendations (Collbge, IGF, MSCM, and Chamber o f Accounts) adopted and implemented.

Component 2: Human Resource Development (US$2.15 million)

44. This component i s intended to introduce and implement human resource reforms at the MOF, including a comprehensive capacity development plan. The component wil l provide support to the Directorate o f Human Resources (DHR) at the MOF, strengthening i t s capacities for developing and implementing new human resource processes and procedures. During the first two years o f the proposed Project, this will include the mapping o f ski l ls and qualifications o f existing staff against j o b descriptions developed for al l PFM-related posts at the M O F and the development o f a capacity developmenthraining plan based on the capacity gaps identified. With time, envisaged reforms include recruitment based on qualifications and identified skill gaps in the ministry, merit-based promotion, as well as development o f modem remuneration processes. The Project wil l contribute to the ro l l out o f these capacity development activities to the DAAFMs o f key priori ty ministries (health, education, infrastructure, agriculture, and rural development).

45. The capacity development strategy adopted for the Project tries to assist the MOF in understanding and identifying better its capacity development needs (the demand side), while developing sustainable local capacity to produce well-trained and competent professionals, particularly in the fields of PFM, ICT, and M&E (the supply side). The latter wil l be achieved by strengthening six identified local training institutions (public and private), making available technical assistance to build their pedagogical and managerial capacities and design curricula and training programs, particularly in PFM, procurement, ICT, and M&E.

46. accomplish the following:

IDA will provide financing for technical assistance, training and equipment to

Strengthen the DHR o f the MOF and human resource focal points at other directorates to define roles and responsibilities in developing and driving the envisaged reforms (in l ine with Government program priorities);

Develop j ob descriptions and profiles and specify j ob requirements for the main general directorates in the M O F according to defined mandates and in l ine with the new organizational charts;

Develop and apply management tools and streamlined procedures in HRM based on merit- based recruitment and promotion as wel l as suitable performance appraisal systems;

14

Design and implement annual capacity development plans for the MOF based on a comprehensive capacity development needs analysis;

Strengthen the capacity o f local training institutes (in the field o f public financial management) to equip these to respond better to demands for training; and

Strengthen the capacity o f M O F leaders to develop and drive reforms, including increasing their awareness o f their roles and responsibilities in this regard.

47. Main outputs expected under this component include the following: (a) increase in the number o f M O F managers with adequate profiles and qualifications for their jobs; (b) increase in the number o f M O F and l ine ministry staff skilled in use o f existing P F M systems (Le., at CID); (c) application o f basic principles o f human resource management and development, including competitive recruitment, annual performance evaluations, and merit- based promotions within the MOF; and (d) increase in the number and quality o f training programs delivered locally.

Component 3: Integrated Financial Management Information System (US$2.44 million)

48. This component will support the MOF in consolidating improvements in PFM initiated under the GEEP and by other development partners and provide a strategic framework for continued support. The current IDA objectives reflected at the time o f Project appraisal and based on lessons learned from GEEP outcomes and diagnostic studies (Chauvin report 200512) are: (a) helping the authorities to define a strategy and implementation plan relevant to PAMFIP’s objectives; (b) supporting part o f these PAMFIP activities through additional IDA financing; and (c) helping to assure the consistency and availability o f necessary funds from donors and government toward implementation o f a working, reliable, and sustainable Integrated Financial Management Information System (IFMIS). It is important to note that donor communication and coordination on PAMFIP’s I C T component is a critical task and a necessary condition for the project’s success.

49. The ICT component will support MOF in developing and implementing the comprehensive ICT strategy drawn around the four main recommended actions in Chauvin’s report:

Institutional framework Software development Network infrastructure

0 I C T human resource development.

‘’ Raymond CHAUVIN. ,2005. PAMFIP- Composante Informatique. Diagnostic et Strategie de Poursuite du Developpement, Not published.

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50. short-term technical assistance, equipment, maintenance, and training for the following:

Scope of IDA-financed activities: The proposed IDA Project will finance long- and

1.

.. 11.

... 111.

iv.

V.

Establishing I C T advisory and strategic expertise at the Technical Secretariat to help MOF make optimal use o f resources, technologies, and people to realize PAMFIP objectives. The chief information officer’s first priori ty wil l be the preparation o f a strategy to transform the current environment into a modern financial management system, given the constraints already analyzed and the proposed activities already approved.

Preparing a five-year implementation plan and budget to be discussed with development partners and the GOC to mobilize resources to support the plan and to utilize effectively the resources already planned by donors and IDA to support implementation o f PAMFIP.

Implementing parts o f the adopted plan, specifically activities related to: (a) supervising C I D base platform integration with other critical financial management applications, such as treasury, payroll, tax, and customs; (b) networking l i n k s between different offices and existing systems, hardware, equipment, and licenses; (c) training I C T staff and end users in the new systems; (d) financing maintenance and operating costs for the new infrastructure; and (e) setting-up the new organizational arrangements for I C T in PFM.

Guiding and supporting monitoring o f the adopted plan’s implementation by exercising a supervisory role to the I C T support infrastructure and by taking a leadership role in recreation and functioning o f user committees.

Creating overall a culture o f positive change management, transparency, incentives, information sharing and openness in MOF, by “leading by example” on transformational aspects o f I C T for the agency, i t s staff, and overall culture.

51. The expected outputs, at the end of the Project, will include the following: (a) an operational strategy and implementation plan for modernizing the PFM system o f the MOF; (b) mechanisms to monitor achievement o f the strategy and implementation o f the plan; (c) enabled infrastructure setup for MOF staff; (d) functioning, reliable budget execution system integrated with a treasury and public payroll component accessible to al l i t s users; (e) a qualified core group of MOF users using, owning, and improving on the system; and ( f ) a team o f information technology specialists (whether hired within the MOF or from the private sector) able to provide quality maintenance and user support services.

Component 4: Coordination, Monitoring and Evaluation of PAMFIP (US$1.29 million)

52. PAMFIP will be implemented by national institutions under MOF leadership (see section C.2 below). This component will, therefore, invest upfront and during the l i fe o f the Project in strengthening managerial and leadership capacity o f the MOF through the Steering Committee, the Technical Secretariat and DAAFM. The component i s further intended to build

16

consensus among the top leadership o f the MOF, the cabinet, and other government structures and institutions, as wel l as other stakeholders around the Project development objective.

53. Provisions for Project Preparation Facility (US$0.95 million) and contingencies (US$0.84 million) are included in the total project costs.

54. and training to accomplish the following:

T o this end, the proposed IDA Project will finance technical assistance, equipment,

0 Strengthen the Steering Committee and the Technical Secretariat to enable them to manage the Project and PAMFP efficiently;

0 Build consensus and elicit political willingness at the government cabinet level to implement programs, projects, and activities to achieve agreed-on results;

Develop an operational M&E system for PFM (see section C.4 below) in cooperation with other donors to disseminate information and encourage participation among members o f government as well as other PFM stakeholders.

55. At the end of the Project, the following outputs are expected: (a) the proposed Project wil l be implemented according to schedule and agreed-on procedures; and (b) an M&E system for the proposed IDA project and PAMFIP (involving government authorities, MOF staff, and users) i s fully operational.

4. Lessons Learned and Reflected in the Project Design

56. This i s the fourth IDA-financed Project for capacity building in economic management. Since the early 199Os, three IDA credits were extended to Chad to help implement economic reforms and build related institutional capacity. Performance o f the first two projects was overall satisfactory. In contrast, the outcome and institutional development impact o f the GEEP are rated as moderately unsatisfactory and modest, respectively. Overall project management was unsatisfactory. The GEEP project fe l l short in meeting i t s objective mainly for four reasons: (a) no explicit link existed between the GEEP and PRMP that would have strengthened the project’s relevance to Chad’s pol icy agenda and provided a clear unifying and integrating theme to i t s various project components; (b) the project’s institutional and implementation arrangements were not properly designed; (c) the strategy for institutional capacity building was incomplete; and (d) and the strategy for introducing modem I C T was not developed. These lessons learned from the GEEP and recommendations o f the 2004 IDA portfolio review, as well as those o f the C F A A report and PER 2004-05 have been incorporated in the proposed IDA Project.

57. Effective links are built between the development agenda objective and PFM reforms, underpinned by ownership and political willingness. The Government ownership and leadership o f the IDA portfolio in Chad are very low, which in the past has led to weak development impact, unsatisfactory project management, and high fiduciary risk. The Chad country team has recognized that continued IDA support for improvements in PFM could only

17

be secured through strong political commitment and preparation o f an operational action plan. The Project team supported the participatory process in preparation o f PAMFIP by working closely with technical staff and their line managers o f a l l PFM-related institutions, and the MOF in particular. The commitment and leadership at the highest political level, however, remain a weak link in the process o f design and launch o f PAMFIP. Frequent changes o f M O F senior staff make strong leadership o f the action plan difficult to achieve; however, PAMFIP has gained new momentum with the July 2006 memorandum o f understanding, and the Minister o f Finance i s taking the lead in its implementation. A clear link has been established between the objectives and implementation o f the PRMP, the PRS, and PAMFIP as well as the ownership and leadership o f these three programs. This relation i s h l l y reflected in the July 2006 memorandum o f understanding and wil l be further supported in the upcoming PRGF.

58. Project management will rely on the existing MOF institutional framework, and closer World Bank supervision will be pursued In line with the recommendations o f the 2004 IDA portfolio review, the Project design envisages reliance on national institutional arrangements for implementation, coordination, and M&E. This wil l help better anchor the reform program in the existing structures o f the MOF and prevent the implementation structures from becoming an isolated enclave within the ministry, as is true in many IDA-financed operations. The approach was discussed and agreed on with members o f the Steering Committee o f PAMFIP during the April and July 2005 pre-appraisal missions, as wel l as the February 2006 appraisal mission. Component 4 o f the Project wi l l strengthen the government’s own institutional arrangements for coordination o f PAMFIP to ensure adequate annual programming o f activities, budget costing, and M&E o f progress. PAMFIP i s a basis for donor coordination in mobilizing financial support and for joint M&E o f progress. The Project team in the field has been strengthened to include public expenditure, procurement, and financial management specialists, The Project team wil l supervise the activities on a continuous basis in coordination with other donors. Periodic supervision missions will be carried out joint ly with specialists from World Bank headquarters.

59. A strategic approach will be developed and implemented for capacity-building activities. Based on global experience in capacity-building efforts in the area o f PFM, WBI developed a new approach to capacity development in Chad, a centerpiece o f the design o f PAMFIP. Implementation o f the capacity development strategy wil l be supported under component 2 o f the Project, and WE31 wil l provide technical advice, participate in supervision, and facilitate twinning with training institutions abroad, in particular in the sub-Saharan African (SSA) region.

60. Implementation of computerization of IFMIS will be initiated only when its strategy definition i s complete and adopted I C T in the area o f P F M features as a key component in PAMFIP. To overcome shortfalls o f the GEEP, which heavily focused on software development and equipment selection, and based on the Bank’s global experience, the proposed Project wil l support the adoption and implementation o f a well-defined strategy (see Project component 3).

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5. Alternatives Considered and Reasons for Rejection

61. An investment/technical assistance approach for the proposed operation has been chosen as the most suitable approach to ensuring effective IDA contribution to PAMFIP. The proposed Project will primarily support the core PFM functions and particularly improvement o f expenditure and financial operations. A procurement component and a tax and customs administration component were considered for inclusion in the Project; however, given support already available from the AFDB (procurement), France, and the European Commission (tax administration) and to come from the C E M A C Trade and Transit Facilitation, that would support customs, the Project team decided to focus on the P F M cycle. The proposed IDA project also addresses the areas in which the Government has shown willingness to carry out reforms, rather than attempting to tackle other areas in which little political commitment currently exists; however, the proposed IDA project will initiate activities in governance and leadership designed to strengthen the political backing needed to create an enabling environment for P F M reforms. These activities wil l be bolstered during the Project’s life, provided additional funding (including trust fund financing) i s secured to support them.

62. Two other options were considered for providing IDA support. The f i rst one was to continue IDA support through supplemental funding to the GEEP to bring efforts made to full fruition. The Project team rejected this option due to lack o f political commitment to c iv i l service reform, difficulty in reaching a consensus on changes in implementation arrangements, and the need to focus limited IDA resources on PFM as a priority CAS objective. The emerging ownership and commitment to P F M reforms also called for a fresh start-a new operation confirmed with the authorities during the April and July 2005 pre-appraisal mission and more recently during discussions to end the o i l revenue management dispute.

63. The second option was to provide IDA resources through programmatic lending. The Project team did not choose this approach, because the Government is not ready to receive budget support lending in light o f thus far unsatisfactory PRS implementation results and weak PFM. The only viable option seems to be support for implementation o f the PFM action plan through a traditional project approach.

C. IMPLEMENTATION

1. Partnership Arrangements

64. The donor community has supported implementation of PRS objectives through direct budget support, investment, and technical assistance projects. In the absence o f a strong national focus and leadership in PRS implementation, i t has been difficult to center pol icy and sector dialogue on the PRS. As a result, donor coordination remained a difficult task and the effectiveness o f their support has had a limited impact.

65. Preparation of PAMFIP has contributed to improving donor coordination. K e y donors participated in PAMFIP preparation during 2004-05 and since have initiated actions to support its implementation. AFDB has started supporting procurement reform, debt management, HRM reforms, and the M S C M and i s planning to provide additional assistance in 2007 through a SDR 2.2 mi l l ion grant. The European Commission and France are primarily

19

providing support to revenue mobilization and this assistance wil l be consolidated in 2007 through a technical assistance project worth EUR 5.1 million. UNDP i s providing technical assistance for budget preparation, specifically the budget program process and MTEF in parallel with i t s ongoing assistance to the PRS revision. USAID has dispatched long-term technical assistance to the Collbge, and IFC has provided financing to strengthen the Collbge’s capacity, including through equipment. The IMF i s contemplating a technical assistance mission to help in customs reforms as well as budget preparation, budget execution, and debt management, through i t s new African Technical Assistance Center, Central Africa.

66. Overall, the donor community has endorsed PAMFIP and stands ready to grant support in the medium-term for its implementation through short-term and long-term technical assistance, as well as financial contributions, provided that the GOC demonstrates political commitment to PFM reforms. During the f i rst ha l f o f 2006, al l key donors participated in three jo int World B a W I M F missions, which helped further evaluate Chad’s PFM system and sketch out priorities in the PFM sector. Building on these discussions, the Bank’s Project team i s discussing with partners and Chadian authorities the finalizing, by the end o f June 2008, o f an instrument substantiating their mutual commitments to PAMFlP financing and implementation plans. Concurrent with individual donor agreements, this instrument would set the general framework for harmonized donor assistance to PAMFIP on the scope o f activities, type o f assistance, a calendar, supervision, and M&E o f progress.

67. With current commitments, more than 60 percent of the total financing requirements of PAMFIP will be funded by donors and the rest by the GOC. IDA’S financing accounts for about 20 percent o f the overall financing needs. Donors have also indicated that their financing wil l be provided in the form o f parallel financing. Because most o f the remaining gap reflects the estimated cost for c iv i l works for building and rehabilitation o f government facilities, the GOC has committed itself to securing i t s funding with the additional resources expected from the windfal l o f o i l revenue (40 percent).

2. Institutional and Implementation Arrangements

68. MOF will be responsible for coordination of implementation o f the IDA Project and will rely on its internal institutional arrangements and staff. The fol lowing implementation arrangements are envisaged:

0 Participating beneficiaries wil l be responsible for implementing prograndproject activities in their respective fields as defined in annual work plans. Specifically, beneficiaries are al l agencies at the central government level involved in budget preparation and execution as wel l as financial control and audit (see target groups, section B : 3 - Project components).

0 Strategic coordination o f implementation o f PAMFIP and the proposed Project wil l be ensured by the Steering Committee, which i s chaired by the Secretary-General o f the MOF and comprises directors o f general directorates. Committee membership has been enlarged to include general managers o f al l beneficiary agencies outside the MOF. Each year, the Steering Committee wil l approve a three-year budget program, with i t s f i rst year priority annual work program. I t will oversee progress in program implementation and consider and take decisions on al l pol icy and institutional issues o f relevance to the reform process.

20

Day-to-day coordination o f PAMFIP and the proposed Project activities wil l be implemented by the Technical Secretariat to the Steering Committee, headed by a coordinator and staffed with four local professional staff in charge o f activity programming, follow-up/quality control for P F M and HRM and for M&E. The Technical Secretariat i s integrated into the MOF structure to oversee the reform process, assist planning o f activities and budget, facilitate contracting and coordinating o f activities and technical assistance from various donors, and play a critical role in M&E for both the IDA Project and the PAMFIP. The coordinator and required staff have been recruited in December 2006, as condition for appraisal.

Supporting the Technical Secretariat, DAAFM at the MOF will be responsible for al l financial and procurement management at the ministry. The DAAFM will be accountable to the Steering Committee for the use o f al l financial resources managed under PAMFIP, including donors’ contributions in conformity with their respective reporting requirements. A procurement specialist and a financial management specialist, familiar with World Bank procedures have been hired, as appraisal condition, to strengthen DAAFM management capacities.

IGF will be responsible for the internal audit o f the IDA Project accounts, as well as PAMFIP accounts in accordance with i t s role o f carrying out ex post control o f expenditures in the MOF. I t wil l prepare quarterly reports on financial implementation o f the IDA- financed Project.

Qualified, experienced, and independent auditors wil l be appointed in accordance with terms o f reference approved by IDA to audit use o f IDA Project funds and government resources. The audits wil l be carried out once a year and wil l be financed under the Project. The independent auditor mandate could be enlarged to other donor funds related to PAMFIP, provided they deem it necessary.

69. During Project preparation and appraisal, all stakeholders agreed that using the Government’s own institutional arrangements for implementing the IDA Project would foster a better sense of commitment from all general directors and agencies. In addition, the financial arrangement for Project implementation wil l help build needed capacity within the DAAFM and IGF, rather than having a project implementation unit dismantled at Project closing.

70. Institutional capacity in coordinating units (Technical Secretariat and DAAFM) i s weak. Efforts made during Project preparation to build up their capacity wi l l be Wher reinforced during Project implementation (component 4) with technical assistance wherever and whenever needed. In addition, the IGF will be strengthened.

3. Disbursement Arrangements and Flow o f Funds

71. The Technical Secretariat and the DAAFM at the MOF will be responsible for preparation o f technical and financial reports, as well as the consolidated budget and

21

financial statements for all Project components. The DAAFM will also monitor Project disbursements and ensure that i t complies with IDA guidelines.

72. IDA funds will flow through a designated account in a local commercial bank acceptable to IDA. Government hnds wil l f low throughout a local bank account as well, whi le the other donors will use their own procedures. The various bank accounts will be managed by the DAAFM and the Technical Secretariat together, and al l financial operations wil l be consolidated within one financial reporting system.

4. Monitoring and Evaluation of Outcomesmesults

73. The M&E system will serve to monitor and evaluate implementation progress of the proposed IDA Project in the context of the broader government program. I t s primary objective wil l be to help: (a) institutionalize M&E activities and build up national capacity to assess progress in improvements o f P F M on a regular basis beyond Project l i f e in the medium and long term; and (b) foster participation among stakeholders and decision makers in PFM through enhanced dissemination o f results and information sharing.

74. The M&E system to be set up works at two levels:

e At the level of PAMFIP, comprehensive Public Expenditure and Financial Accountability Program (PEFA) performance indicator^'^ wil l be used and adapted to the Chadian context to facilitate monitoring and assessment o f progress in implementing PAMFIP. The Government’s M&E framework wil l be established in consultation with al l donors and stakeholders and wil l be governed by a mechanism and process yet to be defined. Joint donor M&E missions wil l be regularly undertaken. The frequency o f joint evaluation missions wil l be defined in light o f the nature o f selected indicators to allow for a relevant evaluation o f progress. The GOC wil l encourage participation o f key stakeholders, P F M users, and c iv i l society in the M&E process to ensure adequate and timely dissemination o f results in implementation o f PAMFIP. The European Commission wil l take the lead in defining key PEFA indicators by the end o f June 2008 for the overall government program, along with the baseline, methodology, and evaluation processes in l ine wi th governing PEFA standards.

a At the level of the IDA-financed Project, performance indicators will reflect expected results from the activities to be financed under the Project. Performance indicators have been chosen to the extent possible to fit the PEFA set and have been adjusted to the Chadian context. The Project indicators matrix (Annex 3) was agreed upon at Project appraisal and was confirmed at Project negotiations. Establishing the M&E system under the Project i s a critical step towards developing an overall PAMFIP M&E system in the area o f PFM, the overarching objective. Once the Government M&E system has been established and has become operational, the Project indicators matrix i s expected to

l3 Public Financial Management: Performance Measurement Framework. June 2005, PEFA Secretariat, Wor ld Bank, Washington DC, USA

22

become i t s subset. The objective i s to streamline the supervision process and to cut transaction costs for the GOC and donors.

75. The responsibility for providing relevant information and monitoring progress, using identified performance indicators, w i l l be with designated directorates. The Technical Secretariat wil l be responsible only for data collection, analysis o f the results, and dissemination o f approved M&E reports. In addition, the Technical Secretariat wil l be responsible for monitoring the overall implementation o f PAMFIP against approved annual work programs and budgets. In regular consultation with participating beneficiaries, the Technical Secretariat wi l l prepare quarterly progress reports on PAMFIP implementation.

76. An M&E Steering Committee wil l be established to include the PAMFIP Steering Committee, donors, and other participants selected f rom PFM users. This committee will review and validate progress reports on performance indicators and recommend corrective measures, should it be necessary.

77. The IDA Project w i l l finance a short-term consultancy to specify and define the IDA-financed Project M&E arrangements, including proposed mechanisms @e., institutional framework and information system), and the related training program. Specific training sessions wil l be financed under the Project to ensure that focal points at al l implementing institutions wil l be able to carry out data collection and analysis, as well as stakeholders (members o f the Steering Committee, P F M users, and so on) to validate and use the M&E system results.

78. A mid-term review wil l be conducted within 30 months o f grant effectiveness to assess progress and make recommendations for any changes in PDO, content o f components, allocation o f Proj ect resources, and performance indicators, should i t be necessary.

5. Sustainability

79. Maintaining political commitment to PFM reforms and PRMP and PRS objectives i s critical for achieving sustained results for the Project. The GOC’s commitment to economic reforms, including PFM, has varied over time. The political commitment to the PAMFIP reform program was sustained during preparation o f the action plan, but challenged during the o i l management dispute. Consequently, proper and sustained implementation o f the July 2006 memorandum o f understanding signed with the Bank will be critical. Strengthening P F M through PAMFIP and donor support hinges primarily on concurrent efforts from the authorities to: (a) reactivate the Poverty Reduction and Growth Facility arrangement with the IMF by mid-2007; (b) revise the PRS by the end o f June 2007; and (c) adopt a permanent successor Petroleum Revenue Management Program by the end o f September 2007. Implementation o f the July 2006 memorandum o f understanding as wel l as continuous adhesion to sound financial management principles and practices wil l need to be closely reviewed through the PRGF arrangement and during the Project’s l i fe to ensure the effectiveness and sustainability o f PFM reforms.

80. Another concern for sustainability i s MOF’s ability to assimilate and retain upgraded technical skills. To achieve and sustain the PDO, it i s essential to retain trained staff,

23

particularly those wi th skills in high demand in the private sector (accountants and procurement and I C T specialists, for instance). Initiating key aspects o f c iv i l service reform (performance evaluation and pay system) in the M O F wil l be critical. Extension to other l ine ministries, notably priority sectors, is scheduled to start within the Project implementation period, allowing the key aspects of HRM reform applied to the MOF to be sustained.

81. The sustainability of capacity development efforts undertaken under the proposed IDA project hinges as well on the ability of local training institutions to deliver good quality training programs in basic PFM, HRM, and ICT. This will surely take time, and under the proposed IDA project, special attention wil l be given to institutionalizing the practice o f programming training needs and planning adequate budgets for training at the level o f al l beneficiaries. Beyond the Project, training needs should be budgeted and financed from the government’s own resources on a regular basis.

82. In addition, financing the IFMIS will require securing important funding from the government’s own resources with time, to be sustainable. Because the proposed IDA project i s not going to fund the actual implementation o f the I C T system in full, a need wil l exist to ensure government allocation o f sufficient resources to provide for I C T staff recruitment and incentives, recruitment o f senior international technicians for initial system reconfiguration, ongoing operations and maintenance costs, and so on. The IFMIS component implementation plan and financial plan wil l be developed early with IDA’S assistance. Based on these plans, high-level donor coordination meetings wil l be conducted together with the GOC to commit funds to financing implementation o f the I C T plan.

6. Critical Risks and Possible Controversial Aspects

83. The proposed IDA project i s a high-risWhigh-reward operation. Chad i s an important case study in encouraging o i l and mineral-rich SSA countries to improve transparency and tackle corruption. Mismanagement o f public resources, including o i l revenues would seriously undermine the credibility o f support to Chad and i t s development prospects. Joint monitoring o f progress by the GOC and the donor community during the l i f e o f the proposed IDA project should help in ensuring that genuine improvements in PFM, including capacity development, are taking place as a result o f PAMFIP in l ine with the July 2006 memorandum o f understanding objectives and provisions. C iv i l society wil l be kept informed on progress o f PAMFIP through the Collbge and M&E institutional system. Dissemination o f information on progress in improvements in PFM will be key to building constituencies in favor o f the reform.

84. Staff continuity in key PFM positions i s also a critical factor to the success of the Project. Currently, a high turnover o f technical staff and managers i s not conducive to building strong institutions. This practice is highly counterproductive and contributes to undermining costly capacity-building efforts. To mitigate this risk, a clear commitment to stabilizing the staff involved with the Government PFM reform wil l be included in the instrument referred to above (see section C. 1 on partnership arrangements).

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RISK TO PROJECT DEVELOPMENT OBJECTIVE High-level pol i t ical commitment to the July 2006 memorandum o f understanding principles and to government program reforms weakens.

Contributions by the Government and donors are insufficient or delayed.

High-level dialogue with the GOC will sharply focus o n implementation o f the July 2006 memorandum o f understanding, including PAMFIP. All donors wil l be sensitized to continue to contribute to the pol icy dialogue o n these issues. Meanwhile, constituencies for the o i l revenue management program and the P F M reforms wil l be strengthened through the CollBge intervention, the Finance Commission o f the Parliament, and further intensive public information. A three-year ro l l ing expenditure program will b e prepared for P A M F I P and agreed o n with the MOF. Donors already have pledged funds for PAMFIP. Changes in the PRMP have opened the possibil i ty o f financing an increasing share o f P A M F I P with time, because governance i s among the priori ty sectors that wil l receive 70 percent o f government total spending starting in 2007.

High

H i g h

RISK TO COMPONENT RESULTS Staff instabil ity in the MOF undermines P A M F I P implementation.

Diff icult ies arise in retaining trained staff.

Absence o f adequate legislation i s a hurdle in implementing HRM strategy in an isolated MOF. IDA financing i s used for budget substitution in the absence o f adequate overall financing o f PAMFIP.

Procurement re form and related capacity building are delayed.

Resistance to the business process engineering exercise and i t s resulting changed processes prevents implementation o f the ICT strategy.

Competent managers in the MOF should be in place and stay o n during P A M F I P implementation. This will be reflected in the instrument to be discussed between the donors and the GOC to support P A M F I P implementation The Project will support actions to link career management, remuneration, and promotion at the MOF with training received and performance. The new salary scheme under the 2001 Civil Service L a w wil l be implemented in the MOF. The GOC will be asked to produce the legal text that wi l l make possible application o f the 200 1 Civil Service L a w to the MOF. IDA will no t finance salaries, across-the-board training-related per diem, and other operating costs, which should be financed by the GOC, as underlined in the strategic note for P A M F I P implementation. The Government will commit i tself through the financing agreement to allocate enough finds in i t s own budget for PAMFIP, effectively making resources available to the Technical Secretariat. Continue close coordination with the team in the AFDB, which i s responsible for most procurement- related activities under P A M F I P through jo in t supervision missions. ICT staff wil l be supplemented with a senior international ICT advisor with experience in change management procedures as a mentor and with a quality control role.

High

Significant

Significant

Significant

Significant

High

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Government is unable to raise or allocate sufficient resources to implement the ICT plan fully, resulting in inoperable systems.

Local training institutions are slow in getting organized to provide quality training. Technical coordination unit (Technical Secretariat) i s weak and delays Project implementation. The focus o n P A M F I P objectives i s lost as a result o f ad hoc requests f r o m beneficiaries.

High-level donor coordination meeting wil l be conducted together with the GOC to commit funds to finance implementation o f ICT plan. This wil l be part o f the instrument to be discussed between the GOC and the donors. Continued efforts will be made to get the training institutions organized, and WBI will be closely involved in helping build up networks. The Technical Secretariat has been adequately staffed before Project appraisal, and i t s performance wil l be regularly assessed during Project implementation. Ensure through continued specific supervision f i o m the f ie ld that work programs are adhered to and that the Technical Secretariat does not get distracted by activities that are not part o f PAMFIP. Financial management and procurement specialists have been recruited to help in fiduciary aspects and build capacity o f the MOF DAAFM. Before grant effectiveness, ensure clear administrative and financial management procedures are defined in the Project Implementation Manual.

Disbursements are delayed because o f inadequate procurement and financial management capacity.

H i g h

H i g h

High

Significant

High

Overall Risk Rating

7. Financing Conditions and Covenants

The following conditions have been agreed for grant effectiveness:

Recruitment o f an independent audit firm, which i s employed under terms and conditions satisfactory to IDA. Adoption o f the Project Implementation Manual, which includes the administrative, financial, accounting and M&E procedures, in form and substance satisfactory to IDA. Preparation o f the MOF 2008-2010 expenditure program to be included in the 2008-2010 MTEF; and inclusion o f the annual expenditures o f the M O F for 2008 in the 2008 draft Budget as adopted by the cabinet. Completion o f an M&E system for the Project, satisfactory to IDA. The positions o f head o f procurement services and head o f financial management within the DAAFM at the MOF are filled in with qualified staff.

Financial covenants are the standard ones for IDA projects, including the following:

DAAFM will comply with al l the rules and procedures required for withdrawals from the grant agreement. DAAFM will maintain or cause to be maintained records and accounts to reflect and be in accordance with sound accounting practices, operations, resources, and expenditures. DAAFM will produce quarterly financial management reports (FMRs). The records, accounts, designated accounts, and statement o f expenditures shall be audited by independent auditors acceptable to IDA o n a yearly basis and no later than six months after the end o f the fiscal year.

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In addition, provisions wil l be made to assert availability o f the government’s annual budget contributions to PAMFIP throughout Project execution.

D. APPRAISAL SUMMARY

87. respectively. M a i n conclusions and outstanding issues are the following:

The Project appraisal and negotiations were completed in February and April 2007,

1. Economic and Financial Analysis

88. The proposed IDA project and, more broadly, the supported PAMFIP will be contributing to a more conducive environment for private sector development and economic growth in the medium term. M a i n lessons from World Bank experience suggest that “. . . neither good policies nor good investments are l ikely to emerge and be sustainable in an environment with dysfunctional institutions and poor g~vernance.” ’~ The Chadian private sector bears the weight o f the administrative and institutional public sector inefficiency. For instance, the private sector i s crowded out by significant government borrowing from the banking system, which represents usually 60 to 70 percent15 o f total domestic credit. At the same time, the public sector i s maintaining a massive stock o f domestic arrears,I6 thus putting additional cost on already high private sector interest rates.17 I t is expected that streamlined budget preparation and execution procedures, establishing an IFMIS, enhanced internal audit capacity, and trained c iv i l servants would improve management and control o f public resources. An improved financial management system wil l generate timely, more comprehensive, and more reliable budget execution data to decision makers. A strengthened budget execution and cash management wi l l help in reducing imbalances in the government’s accounts and the stock o f arrears.

89. Another important economic benefit of the proposed IDA project and government program includes the cost savings resulting from reduced delays in payments to government suppliers. Efficiencies in execution o f budgetary transactions would eventually lead to a reduction o f the cost o f goods and services to the GOC. The government currently incurs payment delays, because resources are inefficiently managed (e.g., scattered across various commercial bank accounts, obscure recording and accounting procedures, lengthy budget execution procedures, and so on). The costs o f publicly procured goods and services are higher than market prices (between 50 to 60 percent for recent construction and goods and services contracts), because suppliers factor in contract prices the cost o f delayed payments, some degree o f uncertainty on possible penalty payments, and time costs in terms o f efforts made in coping with ineffective processes and procedures.

The Public Sector Group 2000 Strategy, World Bank (not published) A s evidenced in June 2006, Chad Monetary Statistics reported by BEAC (Banque Centrale des Etats de 1’Afrique

Centrale), including credit to parastatals such as Societt Cotonniere Tchadienne (COTONTCHAD), SocietC Tchadi- enne d’Eau et d’Electricit6 (STEE), and Societt des Telecommunications du Tchad (SOTEL), which are 100 percent state-owned enterprises. l6 Almost 1 percent o f non-oil GDP fol lowing estimations at the end o f September 2006.

14

15

Interest rates for private sector short-term loans between 13 to 16 percent before tax are charged.

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90. Finally, the proposed Project will help in ensuring that increased resources are effectively provided for poverty reduction programs (education, health, rural road, drinkable water, electricity, etc.) and thus will enhance basic public services delivery. With better alignment o f public resources with the priorities set forth in the PRSP and with measures designed to make these resources actually available to priority sector ministries, the GOC i s more l ikely to meet i t s targets in service delivery, therefore creating enabling environment for more sustainable and shared growth.

Technical

91. The IFMIS component may be risky in technical terms, specifically when the existing CID i s rewritten into a new database platform. To mitigate this risk, the team will advise the GOC to prepare a back-up plan early in the Project and as soon as the CID consultancy (funded by the Project Preparation Facility) gets started. The back-up strategy would consider “off-the-shelf” solutions that could fit the MOF’s needs without large customization efforts. In addition, the Project team wil l closely supervise the contractors who wil l be tasked with update o f the C I D base platform, integration o f critical financial management applications, such as treasury, payroll, tax, and customs and networking l i n k s among different offices and existing systems.

Fiduciary

Procurement. The procurement assessment identified significant risks in the execution of procurement under PAMFIP, because the DAAFM at the MOF has little capacity in that area. A procurement specialist acquainted with World Bank procedures and rules has been recruited on a competitive basis. H e i s expected to provide “on-the-job training” to the officers in DAAFM to help them fully master the Bank’s guidelines, as well as the other partners’ guidelines; however, no procurement officer i s currently officially assigned to the DAAFM unit in charge o f procurement. The government will be asked to appoint a procurement staff person at DAAFM, before grant effectiveness.

92. Another area of risk i s the current legal procurement arrangements that require: (a) international bidders to have a local subsidiary or subcontractor (Article 7 o f the Procurement Code); and (b) signature by the head o f state o f any contract whose amount i s US$lOO,OOO or higher. Given the nature o f goods and services that the Project wil l finance (mostly technical assistance and external consultancy services), those legal arrangements are l ikely to considerably delay or block Project activities. To allow for smooth and efficient execution o f planned activities, the GOC has agreed during negotiations to the predominance o f the provisions o f the Bank’s guidelines on the national regulations for National Competitive Bidding, as recorded in the minutes o f negotiations dated April 16, 2007.

93. The Project Implementation Manual will define in great detail the procurement procedures for each category of expenditure. A general procurement plan for the Project implementation period and detailed procurement plan for the f i rst 18 months was adopted as a condition o f Project negotiations. T he procurement plan will then be updated annually. The procurement specialist in the Chad resident mission wil l regularly audit procurement with assistance from Headquarters staff.

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Financial management. The financial management arrangements have an overall risk rating of high. The rating i s mainly influenced by country issues, characterized by a weak financial management system. Significant progress should be made to ensure that the risk associated with a lack o f clear rules and regulations are mitigated at the Project level. The assessment also showed a dearth o f capacity in the DAAFM at the MOF. As for procurement, a financial management specialist has been hired. H e wil l assist the DAAFM staff to reinforce their donor funded Project management capacities. The financial arrangements have been complemented with appointment o f the IGF as the internal auditor and agreement on the Financial Monitoring Reports formats and submission calendar. The financial management specialist at the World Bank office in N’Djamena wil l review, from time to time, the Project financial and accounting activities.

94. Before grant effectiveness, the additional following measures should be taken to strengthen the Project financial management: (i) a Project Implementation Manual including annexes on Project administrative, financial, and accounting procedures wil l be finalized and adopted; (ii) an external auditor acceptable to IDA will be recruited; (iii) and a qualified staff wi l l be appointed to head the DAAFM unit in charge o f financial management.

2. Social

95. There i s no specific social risk associated to the Project implementation. The Project i s not planned to cause staff redundancies. However, introduction o f new business procedures wil l require the staff to assume new responsibilities and develop appropriate skills through the training provided by the Project. Change management activities wil l help address staff concerns regarding changes in business procedures and wil l provide necessary guarantee and support.

3. Environment

96. The environmental category i s C. The activities planned under the proposed IDA project do not include major construction or utilization o f materials that present any environmental risk.

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Safeguard Policies

Table 2: Safeguard Policies Triggered by the Project

Safeguard Policies Triggered by the Project Yes N o

Environmental Assessment (OP/BP/GP 4.0 1) [I [XI Natural Habitats (OP/BP 4.04) [I [XI

Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.1 1) [I [XI

Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OD 4.20, being revised as OP 4. IO) [I [XI

Forests (OP/BP 4.36) [I [XI

Safety of Dams (OP/BP 4.37) [I [XI

Projects in Disputed Areas (OP/BP/GP 7.60)* [I [XI

Projects on International Waterways (OP/BP/GP 7.50) [I [XI * By supporting the proposed IDA project, the Bank does not intend to prejudice the final determination o f the parties’ claims on the disputed areas.

4. Policy Exceptions and Readiness

97. The Project complies with al l World Bank Policies and no exception is required. Since completion o f i t s staffing in December 2006, the Technical Secretariat accelerated the Project preparation process. A draft procurement plan for the f i rs t 18 months o f Project implementation was reviewed by the Bank and agreed upon during negotiations. The following steps have been taken by the GOC towards meeting effectiveness conditions:

0

0

0

0

0

The Technical Secretariat has already advertised bids for audit o f the PPF and the same process wil l be followed to recruit an independent audit firm for the Project. Fol lowing expression o f interest for the preparation o f the Project Implementation Manual, bid documents wi l l be sent to seven f i r m s which have been short listed. Preparation o f the M O F 2008-2010 expenditure program wil l be undertaken along with the preparation o f the 2008-2010 MTEF. Terms o f references are being finalized for the establishment o f an M&E system for the Project. The Minister o f Finance has already appointed the head o f financial management unit within the DAAFM at the M O F and i s considering applications for the procurement unit.

98. With financing from the PPF, the Technical Secretariat i s currently drafting terms o f references for studies and for technical assistance, along with bidding documents, which will help in launching the proposed Project at effectiveness.

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Annex 1: Country and Sector or Program Background

CHAD: Public Financial Management Capacity Building Project

1. Country Context

Chad i s one o f the world's poorest countries, struggling to overcome nearly four decades o f c iv i l war and continuing regional instabilities. Poverty i s widespread, and social indicators are well below the average for sub-Saharan Africa. I t ranked 173 among the 177 countries surveyed in the 2005 U.N. Development Program (UNDP) Human Development Report. The incidence o f poverty (defined as the proportion o f households with annual spending below what i s necessary to meet minimal needs) is estimated at 55 percent according to a 2003 household survey; an estimated four-fifths o f the population o f about 8.8 mi l l ion i s living on less than a dollar a day.'' Of the population older than 15 years, more than 73 percent (and 76 percent o f women) are illiterate. Access to potable water has improved in past years, but i s s t i l l limited to one o f three people in 2005. Less than two percent o f the population has access to electricity. In this sprawling country twice the size o f France, a total o f only 1,021 kilometers o f roads has been paved.

In the f i rst few decades following independence, Chad experienced continuous internal and external conflicts. Since 1990, when the regime presently in power overthrew the previous government, improved stability has been achieved. Multiparty elections were held in 1996 and 1997 and again in 2001 and 2002. President Deby, who has been in charge since 1991, won the last presidential elections in late M a y 2006; however, the government has continued to be challenged by sporadic rebel activities, as well as by spillover effects o f the current fighting in Darhr , Western Sudan.

Under these circumstances, Chad has been unable to generate significant domestic resources to deal effectively with development challenges. The Government o f Chad (GOC) has largely depended on external financing for public investment as wel l as for a significant share o f i t s recurrent expenditure. Fol lowing the 1994 devaluation o f the C F A franc, the GOC made good progress in implementing a series o f programs o f structural reforms intended to control inflation, liberalize the economy, and improve revenue mobilization. In this context, exploitation o f i t s o i l resources was seen as a means for Chad to improve i t s prospects for accelerating the process o f recovery and development.

During the six-year period o f 2000-05, Chad's economic and financial policies and development were dominated by the inflow o f the new petroleum revenues and the implementation o f the Petroleum Revenue Management Program (PRMP). This program has had and continues to have major repercussions o n the implementation o f the National Poverty Reduction Strategy (PRS) as wel l as associated public sector reform programs.

Line poverty was estimated by the Institut National de l a Statistique et des Etudes Economiques et Demographi- ques (INSEED) and the World Bank team, using World Bank methodology

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2. Petroleum Revenue Management Program

Significant o i l discoveries were made in Chad in the 1970s. Given that Chad is landlocked and remote from potential markets, the only viable solution for transporting o i l to international markets was to construct a pipeline from the oilfields in Chad to the coast o f Cameroon. In 1996 Chad and Cameroon agreed to build and operate a pipeline to transport o i l from the Doba Basin in southern Chad to an offshore loading facility located near Kribi in Cameroon.

In June 2000 the World Bank Group approved the Chad-Cameroon Pipeline Project (CCPP), which financed construction o f the pipeline.’’ To ensure that petroleum revenues are used consistently with the rationale for the project, a transparent framework was considered essential to develop. During preparation o f the CCPP, the GOC formulated a strategy for the use o f o i l revenues as a critical tool for poverty alleviation. In the context o f the PRMP, the GOC enacted a Petroleum Revenue Management Law (PRML) in 1999. The law provides for: (a) earmarking o f the bulk (80 percent) o f available direct o i l revenues for spending in priority sectors for poverty reduction; (b) allocating 5 percent o f these the revenues to o i l producing region; (c) allowing 15 percent to be allocated to none priority sectors; (d) saving 10 percent for fbture generations (in the Future Generations Fund); and (e) ensuring transparency in o i l revenue management through creation o f the special institution, the College, with representatives from c iv i l society, to oversee the use o f direct petroleum revenues (royalties and dividends). Implementing decrees were enacted in 2003 and 2004. Allocations under the 2004 and 2005 budgets were in line with the law. The College reviews draft budgets and approves disbursements o f o i l revenues.

Despite increased o i l revenues, however, the o i l era has so far not succeeded to steer Chad toward greater stability. The country’s financial and developmental situation has deteriorated. Oil production began in July 2003 and by mid-2004, the royalties and dividends related to o i l production started reaching the country. Revenues from the o i l production and exportation accounted for 45 percent o f government revenues in 2005, up from 32 percent the previous year. In 2006, the ratio increased to reach 73 percent reflecting the premature collection o f unexpected indirect revenue, namely o i l company taxes2’. Chad had received nearly US$700 mi l l ion in direct o i l revenues and US$500 mi l l ion in indirect revenue by the end o f 2006 from o i l sales averaging 166,000 barrels a day. Nevertheless, weakening fiscal discipline, increased mil i tary expenditures, and reduced foreign budgetary aid meant that o i l revenues have been insufficient to spare the GOC from recurring financial crises.21

l9 Total project cost was estimated at US$3.72 billion, o f which the costs of the pipeline (referred to as the export system) repre- sented US$2.20 billion. IBRD loans to Chad and Cameroon amounted to US$39.5 million and US$53.4 million respectively, which together with European Investment Bank loans o f US$15 million and US$26.5 million, respectively, would enable Chad to acquire an 11 percent share in Tchad Oil Transportation Company (TOTCO) and a 5 percent share in the Cameroon Oil Trans- portation Company (COTCO).

2o Oil company taxes were planned to be collected f rom 2008, in the in i t ia l forecast. 21 The arrears stock grew to reach 1.5 percent o f gross domestic product (GDP) at the end o f 2004 and has heavily weighted o n day-to-day cash management. The situation changed in 2006, with the arrival o f unexpected indirect o i l revenue.

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In 2004 and 2005, a tight financial situation continued to prevail despite the approval o f a new PRGF signed with the IMF at the beginning o f 2004. To address i t s budget and financial problems, the GOC decided to amend the P R M L as a way to get more o i l resources to cover the fiscal deficit and unplanned expenses (most o f them security related), despite reservations and alternative recommendations from the World Bank and other partners. I t submitted to Parliament in December 2005, amendments abolishing the Future Generations Fund and allowing use o f monies saved so far to cover the budget deficit; expanding the priority sectors to justice, territorial administration, and security; increasing the percentage o f direct o i l revenues used in none priority sectors from 15 to 30 percent; and expanding the scope o f the law to a l l o i l fields.

After lengthy discussions in the f i rst ha l f o f 2006, the World Bank and the GOC reached an agreement resuming cooperation. This was based on a memorandum o f understanding (MOU) which was signed in July 2006 providing the foundation for a long-term, durable framework for cooperation between the GOC and the World Bank. Among key features, the GOC eventually agreed to allocate 70 percent o f i t s 2007 budget to priority poverty reduction programs, excluding security. Furthermore, annual expenditures would be determined within a medium- term expenditure framework (MTEF) and h d s in excess o f those agreed-on annual needs would be reserved in a stabilization fund. The GOC, with the assistance o f the World Bank and other donors, wil l develop a revised National PRS by June 2007, which wil l form the basis for a permanent framework for government spending to be enacted in a revised law by September 2007. In the same agreement, both parties recognized that building a sound and sustainable public finance management (PFM) system i s essential to achieving PRS and PRMP goals.

3. Poverty Reduction Strategy

To reduce poverty and prepare the country for efficient use o f ftture o i l revenues, the authorities adopted the first National PRSP in June 2003. The PRS emphasizes that o i l revenues open up the possibility for accelerated economic growth and poverty reduction. The strategy document calls for promotion o f good governance and strengthening the institutional capacity to ensure effective absorption o f o i l revenues and also lists five pillars: (a) promoting good governance; (b) ensuring strong and sustained growth; (c) developing human capital; (d) improving living conditions for vulnerable groups; and (e) restoring and safeguarding ecosystems.

Through extensive consultations, stakeholders emphasized the importance o f improving national security and good governance as prerequisites for an effective implementation o f the o i l revenue management strategy. Despite init ial efforts to build awareness and strengthen national ownership o f the PRS, implementation during the first year has not been satisfactory. The f i rst annual progress report (APR) on the implementation o f the PRS in 2004 noted that progress was limited with significant delays in setting up institutional consultation and monitoring mechanisms. Identified shortfalls include the following:

0 Sector strategies are generally not in l ine with the PRS. Although the MTEFs for the priority sectors were prepared for 2004-06 and 2005-07, most o f their underlying strategies pre-date the start-up o f the PRS process and construction o f the o i l pipeline.

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Linkages between the MTEFs and the annual budget process remain weak. Capacity constraints and insufficient budgetary financing o f PRS-related activities in 2004 are the main reasons for the shortcomings in implementing the PRS. Although pro-poor expenditures benefited from o i l revenues since July 2004, budget outcomes do not reflect increased levels o f poverty-reducing spending, and continued weaknesses in budget execution have hampered improvements in service delivery to the poor. A monitoring and evaluation (M&E) system i s not yet in place; hence, reliable indicators to assess progress in implementation o f the PRS are not available. Because o f delays in completing the household living conditions survey, a baseline for PRS monitoring is not yet available.

The poor outcome o f the PSR so far has triggered a decision by the Chadian authorities to proceed with a revision o f the document in 2006 and 2007, in light o f increases in o i l revenues and changed pol icy priorities. The new strategy wil l need to be based on a long-term development vision that takes into account new prospects for growth and o i l revenues that would create opportunities to accelerate the pace toward Millennium Development Goals (MDG) and to reduce poverty. The PRS revision should be completed by the end o f June 2007 and wil l involve intensive work and participative exercises by Chadian teams in association with c iv i l society organizations and assistance from the donor community.

One o f the main challenges o f the PRS revision process wil l be programming o f o i l revenues for poverty reduction purposes, which are projected to increase sharply in years to come.22 The World Bank and IMF have worked with the Chadian authorities on a sustainable 2007-2009 MTEF that form the basis for the 2007 budget and for the design o f a stabilization fund mechanism; however, the main challenge for Chadian authorities wil l be to implement the Government P F M reform agenda swiftly to be able to manage the anticipated increase in o i l revenues efficiently.

4. Public Sector Reforms

Since the beginning o f i t s adjustment efforts in 1994, Chad has made good progress in structural reforms strengthened by the CFA devaluation (Box 2). One o f the central thrusts o f the reform program supported by the World Bank and the IMF in recent years has been to improve allocation, management, transparency, and accountability in the use o f public resources. Performance has been mixed in execution o f the budget, including efforts to shift resources in favor o f the poor.

As part o f the preparation o f the CCPP, an IDA-financed operation-the Management o f the Petroleum Economy Project (Gestion de 1 'Economie 6 1 'Ere Pe'troZiBre [GEEP], Cr.3316-CD) was approved on January 27, 2000 to help Chad build institutional capacity to implement i t s o i l revenue management strategy and avoid distortions often generated by development o f extractive

22 The Treasury received US$750 mil l ion in 2006 and i s expected to receive US$I. 1 bi l l ion in o i l revenue in 2007, representing almost twice the actual total o i l and non-oil revenue collected in 2005 (less than US$580 million).

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industries (the “Dutch disease”23). Project components included strengthening PFM, building a poverty database and supporting preparation of a PRS, c iv i l service reforms in key sectors, capacity building in the Chamber o f Accounts o f the Supreme Court and the Collbge, and continuing support to monitoring o f the reform program (Box 3). In spite o f results achieved in oversight and control and in procurement reforms, the GEEP outcome i s overall rated moderately unsatisfactory, due to major shortcomings in human resource development, public financial management, and privatization component or subcomponents. The institutional development impact i s deemed modest with respect to underachievement in most o f the areas.

Prevailing weaknesses in the organizational structure, management practices, and weak institutional capacity o f the Ministry o f Finance (MOF) to coordinate the budget process effectively have been pointed out in several recent diagnostic studies24 as a major constraint to ensuring the efficient use o f public resources. Despite multiple efforts made in the past decade to build capacity in Chad with the assistance o f external partners, the following weaknesses in PFM are s t i l l pervasive:

Insufficient analytical capacity exists for defining budget policies and formulating expenditure programs in l ine with PRS priorities. The budget execution process i s nearly paralyzed, inefficient, and l i t t le transparent. More important and most o f all, weakening in the application o f the existing fiscal and financial legislation during recent years has jeopardized the credibility o f the PFM system. The mult ipl ici ty o f ex-ante controls does not prevent the inadequate use o f public resources and corruption. Weak financial controls on the use o f public expenditure and the absence o f an effective M&E system compromise expenditure effectiveness for poverty reduction. Although new procurement legislation and regulations have been adopted, application o f these rules i s slow and compliance i s inadequate. The mobilization o f non-oil revenues, especially customs, has not reached i t s potential due to weak institutions, lack o f transparency on taxpayer filing, and excessive fiscal exonerations. Sustainability o f capacity-building efforts i s undermined by high staff turnover in the M O F and weak professionalism o f technical staff in charge o f PFM and inadequate management attention to career development o f staff. Ad hoc training abroad, even for basic technical skills (in public accounting, auditing, procurement, and information technology) i s the preferred practice, instead o f using local training ins t i tutions. Technical assistance i s mainly used to make up for nonexistent local capacity instead o f providing mentoring and training.

Dutch disease i s an economic concept that ties an increase in revenues f rom natural resources with raising exchange rate, which makes the manufacturing sector less competitive. The term was coined in 1977 by The Economist to describe the decline o f the manufacturing sector in the Netherlands after the discovery o f natural gas in the 1960s. 24 These include the findings and recommendations o f functional audits o f nine pr ior i ty ministries, the College’s report o n the use o f petroleum revenues in 2004, and by the IGF and the Chamber o f Accounts o f the Supreme court.

23

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e

e

5.

Lack o f a strategic approach to IT development in PFM leads to dispersed and incompatible systems and formidable technical problems and challenges.

Inadequate working conditions exist in many MOF offices in terms o f space, electricity supply, office equipment, and air conditioning (with average temperatures well above 90 degrees Fahrenheit year around). Frequent interruptions o f electricity made the installation o f costly individual electricity generators indispensable.

Governance Issues

Concerns about governance issues in the use o f public resources in general, and petroleum revenues in particular, remain serious and high on the agenda o f c iv i l society and the donor community, which has supported development o f the Chad-Cameroon pipeline.

Weak institutional capacity to manage the budget process effectively has led to a very poor governance environment. The Collbge’s reports o n the use o f petroleum revenues in 2004 and 2005 found irregularities in transfers o f funds, poor quality o f expenditures, and long delays in the delivery o f goods and services, as wel l as lack o f competitive bidding and cases o f overpricing o f goods and services. The 2005 Transparency International survey labeled Chad and Bangladesh as the two countries in the world where governance issues are notorious. Other governance ratings, such as the Kaufmann, Kraay, and M a ~ t r u z z i ~ ~ estimates for 67 IDA countries and the Bank’s 2005 Country Policy and Institutional Assessment (CPIAs) o f 36 sub- Saharan African countries, also showed that Chad ranks among the poorest performers in governance and PFM.

During the recent discussions around the PRGF revival and PRMP revision, the donor community insisted that the authorities implement i t s recently prepared program for P F M reform to establish international fiduciary standards and reinforce financial discipline. I t has been agreed in the July 2006 memorandum o f understanding that progress in improving PFM i s a prerequisite for effective PRMP and PRS implementation, putting PAMFIP front and center in the dialogue between development partners and the Chadian authorities.

Kaufmann D., A. Kraay, and M. Mastruzzi, 2006, Governance Matters V: Governance Indicators for 1996-2005, World Bank Institute, World Bank, Washington, D.C.

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Box 2: Reforms Implemented with Mixed Results

The Government o f Chad implemented structural reforms in September 2000-March 2004 under Bank and IMF programs, but with mixed results, as follows:

Revenue and Expenditure Management Adopted modalities for managing oil revenues, including Presidential decrees establishing sterilization and stabilization mechanisms and specifying the role and attributions o f the Petroleum Revenue Oversight Committee, specifying modalities for managing the Future Generations Fund and for oil revenues allocated to the oil-producing region Established and started to staff administrative and financial directorates (Procurement, Administrative, and Financial Directorates or DAAFMs) for budget management in all l ine ministries Prepared first procurement plans by line ministr ies Introduced a functional budget classification and presented current and investment expenditures jointly for each ministry, starting with the 2001 budget law Simplified expenditure circuit from 97 steps to 22 Implemented budget preparation module of a full-fledged IFMIS, launched implementation of the budget execution module, and started training Completed first annual public expenditure reviews (PER) in health, education, basic infrastructure, justice, and agriculture sectors Completed expenditure tracking study for health and education, tracing expenditures for basic facilities, and launched the implementation o f action plans Prepared first MTEF and 2004-06 program budgets in ministr ies of priority sectors, which were transmitted to the Finance Commission o f the Parliament Reviewed all Government accounts and extended definition of net credit to the Government from 19 to 76 accounts Installed the Systdme de Gestion et d 'Analyse de la Dette (a debt management software known under its acronym SYGADE) ) and trained personnel in its use Launched implementation o f action plan to improve tax operations Installed the Automated System for Customs Data (ASYCUDA) software in the N'Djamena customs outposts.

Transparency and Accountability Finalized national governance strategy and launched implementation Held a participatory Justice Roundtable in June 2003 Prepared draft legislation for improving disclosure of Government information to the population Published two audit reports of the use of Heavily Indebted Poor Country (HIPC) Initiative funds (fiscal 2001-02), two audit reports o f the five largest procurement contracts (fiscal 2001-02), audit o f the use o f the petroleum signing bonus, and the Auditor General's reports on budget execution in fiscal 2000,2001, and 2002 Published eight issues of a quarterly bulletin on public procurement Adopted a new procurement code and launched preparation of implementation decrees and standard bidding documents Made the Road Maintenance Fund (Fonds d 'Entretien Routier) fully operational Issued a Presidential decree on the Petroleum Oversight Committee (the Collkge), stipulating its right to publish its reports independently, and made Collkge fully operational in terms of staffing and equipment Issued the Collkge by-laws, its operational manual, and i t s quarterly and annual reports Issued and published the General Finance Inspection (IGF) reports on irregularities in 2001 and 2002 budget execution Audit by the Chamber o f Accounts of the Supreme Court of 2000, 2001, and 2002 budget execution, but Parliament could not considered draft settlement laws in 2000 and 2001. The 2002 Loi de Rkglement was adopted by Parliament before adoption o f the 2004 budget.

Civil Service Reform Adoption by Parliament o f new civil service Law introducing competitive recruitment and merit-based advancement and launched review of draft legal implementation texts Completed study o f the financial impact of key components of the civil service reform Completed functional audit of nine ministr ies and adopted an action plan for improving human resource management in the civil service and transparency in the payroll.

Incentive and Trade Policies Removed all price controls on petroleum products.

Privatization Privatized the national sugar company (Societk Nationale Sucriere du Tchad [SONASUT]), the utility company (Societk Tchadienne d 'Eau et d 'Electricitk [STEE]), the road maintenance and construction company (Societk Nationale d 'Etudes et de Realisation [SNER]), and an oil and soap factory Introduced two private cellular operators.

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BOX 3: The Management of the Petroleum Economy Project (Gestion de 1 ’Economie h 1’Ere Pktroli2re [GEEP], Cr.3316-CD)

The following i s excerpted from the July 2006 implementation completion report:

To ensure sound management o f o i l revenues and avoid distortions usually generated by the development o f extractive industries (the “Dutch disease”), while pursuing poverty alleviation programs, the Chadian authorities, with World Bank Group assistance, established a legal framework to earmark o i l revenues for poverty reduction programs. In that context, IDA financed an operation to help Chad build institutional capacity to implement its o i l revenue management strategy, as an integral part o f the broader Petroleum Development and Pipeline Project. The Management o f the Petroleum Economy Project (Gestion de 1’Economie a 1’Ere PttroliBre [GEEP], Cr. 33 16-CD) was approved on January 27, 2000 with the following five original components:

Publ ic jnance management (US$8.2 million). The PFM component included: (a) preparation and presentation o f a consolidated budget; (b) rationalization and simplification o f budget expenditure procedures; (c) reform o f treasury management and public accounting through modernization and harmonization o f public accounting and budget nomenclature, public debt management upgrading and consolidation with treasury operations, and implementation o f cash plans based on more robust analysis and forecasting; (d) strengthening o f internal control and audit in the budget expenditure management system; (e) modernization o f systems and equipment for enhanced revenue mobilization (tax and customs directorates); and ( f ) implementation o f a computerized financial management information system. Poverty database and strategy (US$3.0 million). The following two groups o f activities were planned: (a) strengthening o f the poverty and development database through two household surveys, two surveys o f economic and social services at the community level, and treatment o f economic, social, and sector statistics f rom the central bank, ministr ies, nongovernmental organizations, and donors; and (b) production o f a poverty profile and formulation o f a PRS in a participatory manner. Human resource development (USJ1.3 million). The objective was to support: (a) institutional assessment o f key economic administrations; (b) updating o f the civi l service Law and related rules and regulations; (c) harmonization o f the payroll and the civi l service census, introduction o f a single civi l servants roster, and the training o f i t s users; and (d) an HRD program in pilot ministr ies that included development o f a new organizational chart with appropriate definition o f departmental functions and job profiles for the key positions, selection o f staff on the basis o f competence, introduction o f a performance-based remuneration system, and an information-education-communication campaign in the civ i l service. Oversight and control (US$1.3 million). This component was designed to support the oversight and control function mandated b y the PMRL, including assistance to: (a) Collkge de Contrhle et de Surveillance des Resources Pttrolieres (CCSRP), referred to as the Collkge, which was being created; (b) Office o f the Auditor General (namely the Chambre des Comptes o f the Supreme Court in the context o f Chad); and (c) an information-education-communication program targeting civi l society. Monitoring economic reform (US$3.7 million). This component was directed at supporting: (a) pursuit o f a macro- economic stabilization and privatization agenda; (b) preparation and negotiation o f adjustment programs with external partners; (c) monitoring o f and reporting on implementation o f adjustment programs; (d) conduct o f workshops and surveys on good governance; (e) coordination o f national capacity-building policies and programs; and ( f ) information targeting the National Assembly and civ i l society on economic reform and capacity building. Project resources were to assist existing agencies, the Cellule Economique and National Secretariat for Capacity Building (SENAREC), in charge of, respectively, monitoring structural adjustment and coordinating capacity-building activities.

During the project’s life, changes took place including new components supporting procurement reform and construction.

The GEEP’s overall outcome was moderately unsatisfactory, and institutional development impact was modest. Results have been encouraging in several areas, when economic management instruments available in Chad at the end o f the project in 2005 are compared with the situation in 2000. Progress has been noteworthy in the following areas: (a) PFM, specifically reflected in initial preparation o f expenditure programs in poverty-related sectors, streamlining o f budget and public accounting nomenclatures, initiation o f computerization o f the expenditure circuit, and procurement reform, (b) strengthening the key institutions for financial control and oversight, and (c) poverty analysis and implementation o f macroeconomic reforms. Given extremely weak institutions, the GEEP primarily focused on establishing and strengthening basic institutional arrangements for financial control and oversight, procurement, and statistics for poverty monitoring. Major activities included rehabilitation o f basic facilities, acquisition o f equipment, and development o f systems as prerequisites for further capacity-building efforts; however, l i t t le progress was made in civ i l service reform and privatization efforts due to lack o f government commitment, which raises questions on the sustainability o f fragile results.

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6. Government Action Plan for Modernization of Public Expenditure Management (Programme d’Appui h la Modernisation des Finances Publiques [PAMFIP])

Objective. The action plan i s the overall umbrella program, PAMFIP, under which the Bank’s assistance wil l be situated. PAMFIP i s intended to consolidate and fixther ongoing and planned activities intended to improve the quality o f PFM and strengthen institutional capacity to make the best possible developmental use o f public resources, including o i l revenues, to attain the MDGs. This five-year government program i s a sequenced set o f activities focusing o n the entire budget cycle and revenue mobilization. The primary target group wil l be al l general directorates o f the MOF responsible for revenue mobilization, budget preparation and implementation, newly created financial and administrative directorates in the key ministries (DAAFMs), the Office Central des MarchCs Publics (OCMP), and oversight and financial control institutions. Local training institutions wil l also be supported to provide a sustainable and quality supply o f basic training in PFM to respond to the demand.

In the quest for a better PFM system, expected outputs at the end o f the five-year government program include: (a) an updated legal framework and streamlined procedures for public expenditure management and financial accountability at the ministerial level to pave the way for decentralization to local levels (to this end, the MOF will be restructured to realign its mission to sole responsibility for PFM); (b) established, documented, and applied operational guidelines in budget execution, procurement, accounting, and financial controls; (c) trained technical staff working in improved office facilities; (d) integrated, performing, and more reliable financial management system in place, with adequate institutional arrangements and more competent information technology staff; and (e) effective coordination and monitoring and evaluation o f progress in program implementation.

Scope. In addition to the coordination and Monitoring and Evaluation component, PAMFIP includes the following five thematic and three cross-cutting components:

0 Budget preparation. This government program i s intended to deepen ongoing efforts to: (a) strengthen the quality o f the macro-economic, fiscal, and expenditure projections as an input into budget preparation, focusing on the MTEF tool and development o f program budgets in sector ministries and (b) enhance and streamline the budget preparation process, including improvements o f the budget calendar and guidelines for i t s application.

0 Budget execution. PAMFIP i s intended to deepen ongoing reforms to increase actual budget expenditure and efficiency o f public expenditure, while enhancing financial discipline. The program wil l focus on: (a) improvements in organization and competencies o f the D A A F M s at the M O F and the priori ty l ine ministries; (b) decentralization o f public expenditure management and financial control to the priority l ine ministries; (c) development and enhancement o f tools and procedures for cash f low and debt management; and (d) set up o f a monitoring mechanism to improve budget execution at the central level and priority sectors, along with an enhanced reporting system.

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Procurement. PAMFIP wil l continue supporting implementation o f procurement reform with focus on decentralization o f procurement activities to the ministerial level and strengthening o f the procurement regulatory agency (OCMP). In addition, the program wil l support: (a) effectiveness and transparency o f procurement transactions through streamlining o f existing procedures and an annual ex-post audit o f contracts; and (b) dissemination o f procurement plans and results o f public tenders to the public on a regular basis.

Revenue mobilization. K e y challenges in revenue mobilization are twofold: (a) quickly build up capacity in petroleum taxation to empower the Tax General Directorate (DGI) to control the main government revenue stream better; and (b) gradually raise the share o f non-oil revenue collection to improve the current collection ratio (the current ratio o f less than 10 percent o f non-oil gross domestic product [GDP] i s too low). For tax collection, PAMFIP wil l mainly focus on building capacity in petroleum taxation, given the substantial share that the o i l company tax payments represent in government revenue (in 2007, income taxes from o i l companies wi l l represent more than 50 percent o f entire government revenue). In customs duty collection, PAMFIP wil l enhance professionalization o f customs staff, strengthening internal controls and computerization o f procedures (reinforcing the ASYCUDA system), and improve existing key facilities, which account for more than 50 percent o f total customs collections (customs outposts at Nguely and N’Djamena Airport).

0 Financial control and audit. PAMFIP i s intended to strengthen institutional capacity fbrther for financial control and audit to foster transparency and good governance. The activities wil l be mainly focused on: (a) redefining the audit and oversight institutions respective roles and enhancing the quality o f their work; (b) financing additional equipment, technical assistance and training o f targeted staff o f a l l institutions in charge o f oversight and controls; (c) disseminating audit reports; and (d) organizing follow-up on report recommendations.

0 Restructuring ofthe MOF. PAMFIP is intended to support implementation o f the main recommendations o f the fbnctional audit o f the M O F completed in 2004 (financed under the GEEP), which include: (a) restructuring o f the MOF to allow for alignment o f i t s organizational structure with i t s missions and mandates; (b) strengthening the leadership o f the MOF for change management in budget preparation, execution, and monitoring; and (c) improving working conditions within the M O F (both offices and equipment). More than 90 percent o f the financing under this component wil l be targeted to improving the facilities through rehabilitation and construction within the MOF, which i s expected to be financed by the Government’s own resources.

0 Human resource management and development. PAMFIP i s primarily intended to pi lot in the M O F a human resource management system, which has been established in the 2001 c iv i l service Law, but not yet applied; hence, i t wil l focus o n building capacity o f the DAAFM at the M O F to implement the innovative human resource management (HRM) methods (adoption o f human resource development [HRD] planning and strategy, adoption and implementation o f new HRM procedures at the MOF, acquisition o f

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equipment, and staff training). Concomitantly, strengthening the supply side o f capacity development i s envisaged so local training institutions are better equipped with pedagogical and managerial tools to respond to identified training needs within P F M and information technology as foreseen in PAMFIP (technical assistance to design training curricula in line with needs assessments, financing training provided by the institutes, and improving management methods o f the institutes). Training wil l be a central activity throughout program implementation, responding to the identification o f l ow technical sk i l ls and competencies as one o f the main constraints to effective use o f public resources, including o i l revenues, for poverty alleviation.

Information and communication technology (ICT). The challenge wil l be to adjust institutional arrangements for I C T from the current “one-stop shop,” which has proven inadequate, to an institutional setup that clearly distinguishes among three roles: pol icy advice and design, s o h a r e development and I C T procurement, and implementation and maintenance. PAMFIP i s intended to develop a road map for use o f I C T in P F M that would ensure that investments in I C T yield efficiency gains and ensure separation o f the three roles above. To this end, the GOC seeks to: (a) carry out a needs assessment and re-engineer business processes; (b) design a comprehensive I C T strategy and implementation plan; (c) update the existing IFMIS based on re-engineered processes, ensuring their compatibility with a new version o f the database platform; and (d) support new institutional arrangements to manage implementation and coordination o f the I C T strategy.

Implementation strategy and M&E. The Government strategy i s built on lessons learned from the GEEP, in which weaknesses in the planning and institutional framework hampered implementation o f an init ial ly well-designed capacity-building project. In this regard, through the High-Level Interministerial Committee (HIC) in charge o f economic reforms, the authorities have decided to adopt an implementation strategy note for PAMFIP (an equivalent to a letter o f public sector pol icy development) that wil l direct and guide decisions in PFM reforms for the next 10 years. The Government also decided to use the action plan as a basis for program budgeting in the MOF in the medium-term on a rol l ing basis (each fiscal year a program budget i s updated for the following three years), hence, creating necessary conditions for institutionalizing the reforms within ministerial structures and adequately addressing financing needs.

Furthermore, the authorities have decided to integrate al l PFM reform activity in the action plan, including M&E activities. Conversely, the donors for Chad (the European Commission, UNDP, World Bank, AFDB, France, and others) have endorsed this strategy and are ready to grant adequate support to implementing the action plan through short-term and long-term technical assistance as well as financial contributions. The donors are poised to harmonize their interventions in terms o f scope, nature, calendar, monitoring modalities, and evaluation activities; however, they expressed the need to have the Government undertake urgent P F M measures agreed on with the IMF in the PRGF, intended to restore financial discipline, and clearly commit i t se l f to: (a) creating an enabling environment for effective technical assistance support; and (b) providing sufficient resources for P F M activities. These commitments wi l l be

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part o f an instrument yet to be discussed and signed between the two parties to underpin PAMFIP implementation and financing.

Financing requirements. The estimated cost o f PAMFIP i s approximately US$49 mi l l ion in five years. Along with the IDA assistance through the proposed IDA Project, key donors have indicated interest in supporting implementation o f this government program, as follows:

The AFDB is committed to supporting al l activities related to procurement reform and debt management as well as HRM reform. France and the European Commission wil l primarily provide support for revenue mobilization, including assistance to capacity building in petroleum taxation and revenue management and, with the AFDB, budget execution and financial controls. UNDP will provide technical assistance for budget preparation focusing on MTEF and budget programs as well as an M&E system. USAID has indicated interest in continuing i t s support to the Collkge, along with the IFC.

With current donor indications, more than 60 percent o f total financing requirements have been identified. IDA’S financing accounts for about 20 percent o f overall financing needs. The Government has committed itself to financing the remaining gap with the additional resources expected from the windfal l o f o i l revenues (40 percent).

Process. In the spirit o f taking the lead and promoting ownership o f the reform agenda, the Government started preparing a comprehensive, time-bound, and operational action plan to improve PFM consistent with recommendations o f the diagnostic work and priorities set out in the IDA-financed IRSC, approved by the Bank’s Board o f Executive Directors on November 30, 2004. The Bank project team worked closely with key donors (the European Commission, France, IMF, AFDB, United States, and UNDP) to support development o f such an action plan, notably focusing on institutional capacity building. A participatory approach was adopted during the f i rs t workshop in October 2004, which involved al l the directors concerned with revenue and expenditure management and their technical staff in the MOF, key stakeholders o f the General Directorate o f the Procurement, institutions responsible for financial accountability, including the Chamber o f Accounts o f the Supreme Court and the Collbge, and local training institutions.

The Minister o f Finance set up a coordination and steering structure to facilitate preparation o f i t s action plan: the Technical Secretariat to coordinate key stakeholders, including donors, and the Steering Committee to spearhead the process. In a participative process, six working groups, coordinated by the Technical Secretariat and supported by technical assistance financed by donors (PEFA Trust Fund) in the MOF and key ministries (Office o f the Minister o f Finance, General Directorate o f Budget (DGB), DGI, and DAAFMs o f health, education, and public works), proceeded with preparation o f the action plan. With two broadly based workshops (October and December 2004) and numerous interactive consultations between the Technical Secretariat and general directors at the M O F and other institutions concerned with PFM, ownership by technicians and their managers gained ground.

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PAMFIP was completed and approved by the Steering Committee in March 2005 and by the High-Level Interministerial Committee on July 26, 2005, indicating high-level political commitment to completing the ongoing PFM reforms and capacity strengthening.

Ownership. Although the Government strongly emphasized fostering national ownership in preparation o f the action plan, commitment and leadership at the highest level were constant concerns during this phase and constitutes a significant risk to implementation o f the action plan. In addition, strong and genuine ownership o f the program by technical staff and their l ine managers i s hr ther undermined by high staff turnover in the MOF. The leadership o f the action plan i s seriously challenged by the fact that the Minister o f Finance changed three times and the chairman o f the Steering Committee twice in the course o f preparing the action plan. The appointment o f the Technical Secretariat and the extension o f the Steering Committee to include other stakeholders has taken a long time and consequently delayed startup o f the action plan, including the use o f the Project Preparation Facility. Since May-2006, the GOC i s showing a greater interest in PAMFIP implementation, and the MOF i s taking the necessary actions to move forward (formal setup o f the Technical Secretariat, hiring o f necessary staff, availability o f budget, and so on).

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Table 3: PAMFIP Financing by Donor and Component

des Finances Contrde GBnBral d'Etat et de

44

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

CHAD: Public Financial Management Capacity Building Project

Latest Supervision Project Supervision Ratings

Sector Issues Project (Bank-financed projects only) Bank Financed Implementation Development

Progress Objective Health Second Population. and AIDS Unsatisfactory Unsatisfactory Agriculture Chad: Agricultural Services Marginally Marginally

Satisfactory Satisfactory Education Education Sector Reform Unsatisfactory Unsatisfactory Health Health Sector Support Unsatisfactory Marginally

Unsatisfactory Energy TD Critical Electricity and Water Unsatisfactory Unsatisfactory Transport TD National Transport Program Support Satisfactory Satisfactory Social TD Local Development Program. Support Marginally Marginally

Unsatisfactory Unsatisfactory Energy TD Petroleum Sector. Capacity Building Unsatisfactory Unsatisfactory

Sector Issues D o n o r Agencies

Budget Preparation Improvement o f management /budget execution Improvement o f management o f procurement Improvement o f efficiency in the mobilization o f fiscal receipt (Tax and Customs)

IDA, UNDP, France, EC, and IMF IDA, IMF, EC, and France AFDB, EC, and IDA E C and France

Monitoring, follow-up and transparency in public fiscal management:

Respectively:

AFDB

College (CCSRP) IDA, United States, and IFC Chambre des Comptes IDA, AFDB, and EC Inspection Gknkrale des Finances IDA, EC, and AFDB

Minist2re Charge du Contrble Gdnkral d'Etat et de la Moralisation

Improve access to public information Improve the efficiency o f the civi l service Improve coordination and reforms implementation and M&E

AFDB and IDA IDA, AFDB, and ACBF IDA, France, EC, and AFDB

45

Annex 3: Results Framework and Monitoring

Project Development

Objective He lp the GOC to improve efficient and

CHAD: Public Financial Management Capacity Building Project (PEFA indicator [PI] number in parenthesis)

Key Project Indicators

1. Budget DreDaration. Aggregate allocation to priori ty sectors equal or exceed 70 percent

expenditure for priori ty sectors compared with original approved budget shall not deviate more than 5 percent f r o m 201 1 (for expenditures financed with domestic resources).

3. Budget reporting. Quarterly budgetary and financial reports, including a l l items o f budget estimates and covering expenditures at both commitment and payment stages, are regularly produced f rom the Circuit IntCgrC des DCpenses (CID) in a t imely manner (issued within four weeks after the end o f the period, by the end o f 201 1).

4. Public Financial Accountability. (a) The Treasury’s annual financial accounts (Comptes de Gestion du TrCsor) are produced and submitted to the Chamber o f Accounts in a t imely manner (end o f May) f r o m M a y 2010; (b) the annual budget execution law (Loi de Riglement) i s submitted to Parliament, in conformity with legal provisions, for 2010 fiscal year (at end September 201 1); and; (C) the CollBge prepares i t s annual audit o n o i l revenue,

I

I

transparent use o f public resources through enhanced PFM.

Intermediate Outcome

Resource allocation

issuing i t by the end o f July. Intermediate Outcome Indicators

5. Extent o f multiyear perspective in fiscal i s optimized.

o f total expenditure (excluding debt service, but including capital spending and externally financed expenditure) or i s aligned with the future PRMP agreement

Use o f Outcome Information

This indicator will help monitor the effective increase in resource allocation to priori ty sectors in line with PRS and P R M P objectives.

This indicator will help measure the government’s abil ity to implement the budget supporting the public services delivering in pr ior i ty sectors

This indicator wil l help capture progress in reliable and t imely budget reporting to achieve needed transparency in budget execution.

This indicator wil l track improvements on accountability o f c i v i l servants and MOF adherence to the budget legal calendar.

Use of Outcome Information

This indicator wil l provide for monitoring effectiveness o f l i n k s among PRS, sector policies and priorities, and annual budgets.

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Intermediate Outcome

External and internal audits are carried out by effective organizations

Intermediate Outcome Indicators

6. Scope, nature, and follow-up o f external audit (PI-26) measured by mandatory audits regularly carried out by oversight and audit institutions (the Chamber o f Accounts implements the Comptes du Tr i so r annual audit and IGF performs 95 percent o f i t s annual audit programs).

Technical implementation o f the P F M capacity building project i s satisfactory

Use of Outcome Information

This indicator will track improvements in audit and control institutions. .

Financial management i s satisfactory and in l ine with fiduciary standards set by Bank and International Audit Standards.

7. Frequency o f M&R reports evidenced by: (i) M&E system for PAMFIP i s set up by June 2008, and (ii) M&E reports are regularly

This indicator wil l track the implementation o f the P A M F I P M&E system.

published (monthly, quarterly, and semiannually) including monitoring on key indicators.

8. Satisfactory annual financial audit report for the IDA Project measured by issuance o f successive annual audit reports with positive opinions (without qualification) f rom an independent auditor, acceptable to the Bank.

This indicator wil l reflect DAAFM credibil i ty and capacity to manage financial resources f r o m donors and national budget.

* P I i s PEFA Indicator.

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m a

0

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Y 00 0 0 b 4 N

6 0 N

r 0 Y e u 'El e

3 P

.- 3 Y

Y

6 i

ri

Annex 4: Detailed Project Description

CHAD: Public Financial Management Capacity Building Project

The government PFM reform program (PAMFIP) i s currently being developed into a multiyear expenditure program with clear objectives, sequenced activities, indicative cost and expected output, and intermediary performance indicators.

A. Plan d'Action pour la Modernisation de la Gestion des Finances Publiques (PAMFIP)

The expenditure program i s expected to be financed by external project and program aid and the Government's own resources, in particular o i l revenues focusing on the following:

0 Budget preparation. The International Development Association (IDA), European Commission, United Nations Development Programme (UNDP), and French support wil l encompass: (a) strengthening the quality o f the macroeconomic, fiscal, and expenditure projections focusing on the medium-term expenditure framework (MTEF) tool and development o f program budgets in sector ministries; and (b) enhancing and streamlining the budget preparation process with improvements o f the budget calendar and guidelines for its application.

0 Budget execution. Assistance from IDA, European Commission, and France wil l encompass: (a) organizational and process improvements in the General Directorate o f Budget (DGB) and Procurement, Administrative and Financial Directorates (DAAFMs) at the Ministry o f Finance (MOF) and priority line ministries; (b) decentralization o f public expenditure management and financial control to the priori ty l ine ministries; (c)development and enhancement o f tools and procedures for cash f low and debt management; and (d) setup o f a monitoring mechanism for better budget execution at the central level and in priori ty sectors along with an enhanced reporting system.

0 Procurement. AFDB leads the reform activities within this component with additional support from IDA and the European Commission in implementation o f the training program. PAMFIP i s intended to improve: (a) effectiveness and transparency o f procurement transactions through streamlining o f existing procedures and annual ex-post audit o f contracts; and (b) dissemination o f procurement plans and results o f public tenders to the public on a more regular basis.

0 Revenue mobilization. The European Commission and France will help in building capacity in petroleum taxation, which represents the main source o f Government revenue. In customs, the European Commission, the International Monetary Fund (IMF), and IDA (through the regional project supporting the Communaute' Economique et Monetaire de 1 'Afrique Centrale (CEMAC) Trade-Transport Facilitation-P079736) wil l j o i n their efforts to assist the Government in: (a) professionalization o f customs staff; (b) strengthening internal controls and computerization o f procedures (Automated System for Customs Data or ASYCUDA); and (c) improving existing key facilities,

52

which account for 50 percent o f total customs collections (customs outposts at Nguely and N’Djamena Airport).

Financial control and audit. The assistance wil l come primarily from the World Bank Group (through an International Finance Corporation (IFC) grant and some financing through the proposed IDA project), AFDB, United States, and the European Commission to strengthen institutional capacity for financial control and audit further to foster transparency and good governance. The supported activities wil l focus on: (a) consolidation and strengthening o f institutional capacity o f internal audit (IGF) and the Ministry o f State Control and Moralization (MSCM) and external audit (the Chamber o f Accounts o f the Supreme Court, the Parliament through i t s Finance Commission, and the Collkge); and (b) definition and support for carrying out its roles for the Collkge within the new Petroleum Revenue Management Program (PRMP) framework.

Restructuring of the MOF. IDA and the European Commission will help the Government implement the main recommendations o f the functional audit o f the M O F completed in 2004 (financed under the Gestion de 1’Economie ii l’Ere PCtrolikre (Management o f the Petroleum Economy Project or GEEP). This wil l entail revisions o f the legal framework, especially the Organic Budget Law, and training in change management, including M&E and leadership skills and tools.

0 Human resource management and development. IDA will take the lead in supporting the GOC to undertake a pi lot human resource management system, based on merit principles and on the 2001 c iv i l service statute, not yet applied.

0 Information and communication technology (ICT). IDA will lead assistance to the GOC in this area too. The interventions wil l focus on: (a) design o f a comprehensive Information and Communication Technologies (ICT) strategy and implementation plan; (b) needs assessment and design o f business process re-engineering for ICT; (c) updating o f the existing integrated financial management information system (IFMIS) to reflect the re-engineered process and to make it compatible with a new version o f the database platform; and (d) support to new institutional arrangements to manage implementation and coordination o f the I C T strategy.

The total cost of PAMFIP i s estimated to be around US$49 million, of which IDA would finance US$10 million. Annex 1 spells out the components, activities, and amounts o f PAMFIP, including commitment and components supported by each donor.

B. IDA-financed Project Components

The proposed IDA-financed operation will primarily focus on the expenditure process and i s intended to strengthen institutional capacity, accountability, and transparency in public finance management (PFM) by establishing or improving systems and work environment, procedures, and human resource management and organizational arrangements at the MOF.

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The proposed project components have been selected following three criteria: (a) activities that consolidate and deepen achievements in public expenditure management and financial accountability that were accomplished under the GEEP and under IDA-financed structural adjustment support (Le., Institutional Reform Support Credit), as wel l as the need to provide support to the objectives laid out in the PRMP; (b) cross-cutting issues o f PAMFP (ICT, human resource management, leadership training, and strengthening local training institutions), in which IDA has a competitive advantage; and (c) coordination and monitoring and evaluation o f PAMFP, in which building capacity in reform management and leadership i s critical for the country.

Target groups are technical and management staff in all units involved in the expenditure cycle, from preparation to financial controls and audit. The DGB, financial and administrative directorates in MOF and line ministries (Le. DAAFMs), the Statistics Office (INSEED), General Directorate o f Treasury, Directorate o f Payroll, Directorate o f Financial Control (Contrble Financier), Finance Commission o f the Parliament, IGF, Chamber o f Accounts o f the Supreme Court, Collbge, MSCM, and MOF’s Cabinet and General Secretariat. To ensure a sustainable national offer in PFM and I C T training, the proposed IDA project also targets local training institutions.

Component 1 : Public Finance Management and Financial Accountability (US$2.33 million)

This component includes two subcomponents dealing primarily with PFM procedures and processes along with organizational issues for budget formulation, execution, and controls. The component wil l particularly contribute to enhancing further the capacity o f the MOF and financial control and audit institutions at the central government level, initiated under the GEEP , creating enabling conditions for fiscal discipline, optimal resource allocation, budget reliability, operational efficiency, and good governance.

Sub-component 1: Budget Preparation and Execution (US$1.25 million)

This sub-component i s intended to improve budget formulation and execution at the level of priority ministries and at the MOF to optimize resource allocation and availability.

Status. In budget preparation, under the GEEP, a new accounting and budget nomenclature was implemented and the economic and functional classification o f expenditures was updated. Expenditure programs were introduced in nine pi lot ministries based on the findings o f public expenditure reviews in selected sectors. Since 2004, the budget has been prepared on the basis o f gradually improving three-year MTEFs. Fifteen economists were recruited and trained and operational manuals were prepared for PERs in 2005, with World Bank Institute assistance. Despite progress in this area thus far, much remains to be done.

In budget execution, a number o f reforms have been introduced in the past few years, with donor assistance, including IDA under the GEEP and IRSC. The expenditure circuit was simplified by reducing the number o f steps from 90 to fewer than 25, and i t s computerization was initiated. To increase transparency and efficiency in public expenditures, key achievements

54

in recent years have included progress toward a revised regulatory framework for public procurement.

Budget formulation and spending processes are nonetheless very complex and cumbersome. They result in delays in poverty reduction program implementation and seriously affect budget credibility. Procedure streamlining to improve budget preparation and execution, promised under PAMFIP, has yet to be achieved.

Challenges. The overarching objective i s to have resource allocation aligned with National Poverty Reduction Strategy (PRS) priorities, in line with provisions of the July 2006 memorandum of understanding reached between the World Bank and Chadian authorities on the use of oil revenue. The Government o f Chad (GOC) has tried to fulfill i t s commitment under the initial Petroleum Management Review Program (PMW) to increase resources for poverty-reducing spending, but has failed to succeed for a number o f reasons, including weak political will, as well as unforeseen security expenditure pressures and insufficient institutional P F M capacities. Under the July 2006 memorandum o f understanding with the World Bank, the Chadian authorities are committed to allocating at least 70 percent o f total spending to poverty reduction programs. ‘It i s important for the World Bank, with respect to i t s expertise and experience, to continue assisting the country to attain the best possible distribution o f its expected o i l windfall in the years to come.

A second challenge i s to have the budget appropriations made readily available to line ministries at the outset of the financial year to facilitate a prompt and efficient execution of the priority sector programs. Priority sectors suffered a great deal in the past three to four years, because the budget allocations for them were never made available o n time for the intended purposes. The budget preparation process i s too long and cumbersome and ridden with formalities that invariably lead to three- to four-month delays after the beginning o f the fiscal year. Although the Chadian authorities have managed to improve the situation in 2007 (the budget was in place on January 24), i t i s necessary to consolidate this progress through better organization and adequate procedures.

A third challenge i s to restore budget credibility by ensuring that resources are available to priority sectors in a predictable and reliable manner, in line with budget appropriations. In budget execution, despite improvements introduced under the GEEP, the implementation process i s s t i l l nearly paralyzed, inefficient, and scarcely transparent. The joint evaluation o f PFM in Chad (conducted during the f i rs t six months o f 2006 by the key donors and the Chadian authorities) has shown that the budget i s perceived as being designed to meet legal requirements formally and not as an effective operational instrument to manage public resources efficiently. This situation i s largely reflected in significant deviation between actual expenditure compared with the original budget, especially in priority sectors. These deficiencies are exhibited in: (a) a sharp increase o f unbudgeted expenditure, mostly security-related spending, in 2004-07; (b) implementation o f multiple budgets during a given fiscal year; (c) neglect o f procurement regulations with frequent use o f noncompetitive bidding; and (d) an opaque cash management system associated with the absence o f cash planning and financial operations carried out under various treasury accounts scattered in commercial banks. In addition, the most important budget items (salaries, utility bills, and so on) are not monitored and the budget execution monitoring

55

mechanisms have been disregarded, whereas the existing tools (four-phase table edited by the IFMIS) are ineffective. As a result, significant internal arrears have built up during the past two years (estimated at CFA 160 billion by the end o f 2006 or around US$320 million). Even though the budget was overspent in 2004 and 2005, the actual expenditure in priori ty sectors remained below targets, especially those expenditure that are financed with government non-oil and HIPC revenues.

The authorities have recognized that there would be no progress in PFM reforms unless urgent measures were taken to reverse this trend. An agreement was reached under the PRMP road map on measures to be undertaken to create the enabling environment for execution o f the 2007 budget in anticipation o f o i l revenues reaching their peak; however, there i s a need to build institutional capacities in budget and treasury management and financial controls to improve resource management on a sustainable basis, hence, removing the primary bottleneck to service delivery provided by priority l ine ministries.

Other remaining hindrances to tackle are capacity deficiencies, a complex legal framework for the budget, and MOF’s intricate organizational structure, which makes PFM operations very difficult to manage. The capacity o f the staff responsible for budget preparation and execution i s s t i l l weak, despite recruitment o f new economists financed under the GEEP. Projections o f government revenues, including o i l revenues, are not based on solid analytical work. The MTEF has a marginal impact on actual resource allocations, because the MTEF process i s not integrated in the budget agenda. Three-year expenditure programs have been prepared in key poverty alleviation-related sectors, but in several cases, they are not consistent with PRS objectives and are mostly not supported by sound sector strategies. In addition, the complexity o f the overall organizational structure at the MOF level, as wel l as at DGB , Directorate o f Financial Controls, and General Directorate o f Treasury levels contributes to impeding budget execution and monitoring.

Restructuring of the MOF was recommended by the 2003 audit of the MOF financed under the GEEP project, but was never undertaken. Little progress has been made in reforming budget procedures, processes, and organizational structures; hence, the current financial legal framework and MOF organizational structure critically need to be revised and aligned to allow for streamlined budget preparation and execution. This restructuring i s intended to align MOF’s overall institutional arrangements to allow for a transparent, effective, and efficient P F M system that i s able to support implementation o f the PRS.

Objectives. IDA’S support i s intended primarily to consolidate achievements under the GEEP and deepen some achievements to allow the country to implement a transparent and efficient public resource allocation mechanism. In addition, the project wil l seek to promote budget reliability through establishment o f and adherence to budget and financial procedures and legislation.

IDA will coordinate i t s activities and financing with other donors (France, European Commission, and UNDP), as well as the IMF, through the PRGF program.

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Scope of IDA-financed activities. equipment, and training to accomplish the following:

To this end, IDA will finance technical assistance,

0 Improve budget preparation in priority sectors26 as wel l as at the DGB, specifically design and implementation o f the macro-fiscal projections and budget program 2008-10 and beyond.

0 Improve budget execution. The capacity o f the DGB will be strengthened to establish a monitoring mechanism for budget execution at the M O F level and monitor major spending items (wages, utility bills, and capital spending). The capacity o f the technical and management staff o f DAAFMs in the priority ministries wil l also be enhanced to facilitate budget execution and monitoring in their ministries. Enhance institutional reforms and restructuring of the MOF. This wil l involve the following:

0

i. Organizational realignment o f the M O F and general directorates, equipping them with clear mandates, objectives, and indicators to strengthen or create effective work processes and enhanced cooperation among staff and institutions based on established procedures and calendars and increased information sharing Updating o f the financial legal framework, namely the Organic Budget L a w and i t s application decrees, including the Rbglement Genkral de la Comptabilitk Publique in l ine with new organizational charts and procedures Updating o f the public accounting system and i t s alignment with the new functional budget nomenclature (technical assistance for revision and seminars on i t s application) Development and updating o f operational manuals for macro-fiscal projections as wel l as for budget preparation and budget execution.

ii.

... 111.

iv.

Expected outputs. Main outputs will consist o f (a) operational and reliable tools, including manuals o f procedures for multiyear macro-fiscal projections and budget execution, in place and staff trained in their use; (b) availability o f three year macro-fiscal projections from 2008-10 to 201 1-13; (c) program budgets in the priority ministries produced on a regular basis and in l ine with the PRS; (d) a revised Organic Budget Law and i t s application decrees, including availability o f the treasury accounting chart and R2glement Gknkral pour la Comptabilitk Publique; and (e) a fixed budget preparation and execution calendar established and met throughout project implementation.

The priority poverty sectors are the ones determined in the July 2006 memorandum of understanding and cover the following ministr ies and institutions included in the budget nomenclature: Min is t r ies of Health, Social Action, Education (primary and secondary, higher education, and vocational), Agriculture, Livestock, Environment and Fishing, Water, Infrastructures, Land Planning and Urbanism, M ines and Energy, Post and New Technologies, Jus- tice, State Control And Moralization, Human Rights, Finance (PAMFIP, CollBge, and Oil-Producing Region), Economy and Planning (PRS, De-mining), Decentralization, Solidarity and Microcredit, Petroleum, , as well as the Supreme Court, and High Court.

26

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Sub-component 1-2: Financial Controls and Accountability (US$l. 08 million)

Status. Several institutions are involved in financial control and supervision o f budget implementation, including the Finance Commission o f the Parliament, the Chamber o f Accounts in the Supreme Court, IGF, the College, and MSCM.

Challenges. Good progress was made in building up capacity in the IGF, the Chamber of Accounts, and the Collhge under the GEEP. Indeed, the establishment o f the Collbge as an innovative watchdog for use o f natural resource revenue has been a major accomplishment under the GEEP. In spite o f ini t ial staffing and logistical difficulties, the College, which comprises c iv i l society representatives and public officials, has become an important actor in the o i l resource management governance structure. Its credibility was enhanced when its quarterly and annual reports started to circulate and were made available on i t s website. The 2004 and 2005 reports underlined serious shortcomings in key sectors, including education and health. The project financed public awareness seminars (in N’Djamena and 32 other localities), staff training, equipment, short-term consultant services, and missions to establish contacts with similar agencies in other African countries. Solid ini t ial steps have also been taken in the area o f external audit with restoration o f the Chamber o f Accounts in the Supreme Court. During the project, the Chamber o f Accounts gained new impetus, and completed audits o f the government accounts for fiscal 2000-03 and ten government agency-specific audits. The quality o f i t s reports has improved with time. I t also developed a work program that includes the remaining audits o f government accounts, auditing o f the largest government procurement contracts each year, and auditing o f a l l procurements and purchases under HIPC assistance.

Governance and transparency issues have became prominent on the PFM agenda and PRMP, reflecting the serious concerns that have arisen in the donor community and the population along with the recent development of oil production in Chad. Although the oversight institutions created (Collbge) or strengthened (Chamber o f Accounts and the Finance Commission o f the Parliament) under the GEEP project have helped in improving the accountability environment, the impact o f these organizations on the quality o f public spending and, more generally, management o f petroleum revenues, appears to have been limited. The internal and external control institutions have emphasized serious shortcomings in PFM, including inadequate procurement procedures and lack o f asset management. Lit t le has been done, however, to take appropriate sanctions and correct these deficiencies, except for starting up the Cour de Discipline Budgktaire and establishment o f M S C M in charge o f addressing corruption in the public sector.

In addition to the absence of political commitment to tackle governance issues, the ex post control and audit institutions experience similar deficiencies. Their respective roles are not clearly defined. Their capacity remains weak for dealing with the formidable task o f enforcing existing fiscal laws and regulations, weak management o f human resources in PFM, and limited financial autonomy. Overlaps exist in their mandates, inadequate coordination, and lack o f sharing experience and information. In addition, there i s no systematic follow-up on audit recommendations, and they al l lack communication strategies.

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Objectives. IDA, jo int ly with other donors, wil l continue its support to consolidate results achieved under the GEEP. The authorities have recently made important decisions (e.g., dismissal o f ministers on corruption charges) that may give more strength to corruption-fighting efforts at a time when the donor community for Chad and c iv i l society have renewed pleas for good governance and better transparency.

Scope ofDA-flnanced activities. The proposed IDA project wil l provide financing to the IGF, Collbge, Chamber o f Accounts, Finance Commission o f the Parliament, and M S C M for additional equipment and technical assistance to streamline procedures in line with their respective mandates, prepare operational manuals, and provide on-the-job training. The new financing under the proposed IDA project will, first, support improvements in coordination and rationalization o f the oversight and external audit function and, second, attempt to contribute to increasing: (a) public awareness o f findings and recommendations o f external audits and (b) accountability o f civil servants in PFM. The proposed IDA project will finance equipment, technical assistance, and training, including study tours, to accomplish the following:

Clarify roles and enforcement capacities o f audit and oversight institutions (IGF, Chamber o f Accounts, Collbge, and MSCM) and develop and implement a capacity- building program for each institution.

Strengthen the Finance Commission o f Parliament, developing a communication strategy and training parliamentarians as well as staff in budget approval and oversight processes.

Expected output. The main outputs at the end o f the project will include: (a) audit system restructured and coordination improved among oversight and audit institutions; (b) mandatory audits carried out by oversight and audit institutions (Finance Commission o f Parliament annually reviews the Lo i de R;glement, the Chamber o f Accounts implements the annual audit o f the Comptes du TrCsor, and IGF performs its annual audit program); and (c) effective follow-up mechanisms for oversight and audit report recommendations (Collbge, IGF, and Chamber o f Accounts) adopted and implemented.

Component 2: Human Resource and Capacity Development (US$2.15 million)

Status. Under the GEEP, significant project funding was allocated (about US$1.2 million) to contribute to implementation o f the Government’s administrative reform program, including updating the c iv i l service statutes, harmonizing the payroll and c iv i l service census, institutional assessments o f key ministries, a human resource development program in pi lot ministries, and development o f a new organizational chart and job profiles and descriptions for key positions. Notwithstanding, little has been achieved. A new civ i l service law was adopted in 2001, but i t s application decrees have not yet been enacted. A c iv i l service census was conducted in 2002, which led to elimination o f about 100 “ghost” or irregular workers from the payroll. The census has, nevertheless, not been updated since 2002. A large investment was made to develop a computer system for staff management, but mid-course, the GOC decided to import software developed in Burkina Faso. As a result, harmonization o f the c iv i l service roster and payroll has not been achieved and the tools for effective control o f staffing are not yet in place.

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The HRM units established in l ine ministries do not have adequate files on their staff, the staffing and training needs are not regularly assessed, j ob profiles and descriptions are lacking, recruitment o f staff i s not done competitively, and staff performance evaluations do not take place.

Training activities, including those supported under the GEEP , have until now been conducted without any strategic approach. The sustainability o f training costs has not been systematically considered, a large part o f the training activities has been carried out abroad and/or by foreign trainers and institutions, and local training institutions are marginally empowered to respond to the expressed training needs. Furthermore, technical assistance financed by donors has tended to take the form o f capacity substitution, rather than capacity development o f local staff.

Challenges. The main challenge will be to support the MOF in developing and implementing human resource reform within the ministry. This new human resource management system will serve as a test case before it i s rolled out in priority sector ministries (health, education, infrastructure, agriculture, and rural development) at a later stage. Despite direct support provided to al l general directorates under the GEEP, management o f the budget process and human resources at the M O F remains weak. As a result o f lack o f demand and commitment, institutional change at the M O F - envisaged under the GEEP - has yet to be implemented. The M O F established the Directorate o f Human Resources (DHR) in 2006, but its staffing i s inadequate both in numbers and skills. Furthermore, at the directorate level, high staff turnover,. lack o f staff/career planning, absence o f focal points for HRM, and the discrepancy between skill m i x and job requirements al l contribute to an extremely l ow productivity level.

A second challenge will be to implement a capacity development plan that will yield lasting results. Main constraints for in-house training and local institutions to respond effectively and efficiently to the challenge o f providing training in PFM, M&E, and information technology (IT) include: (a) insufficient funding; (b) poor organizationaVmanagement capacity; (c) weak capacity to deliver training programs; (d) feeble development and/or updated curricula for basic training in PFM, including the use o f existing budget preparation and execution tools (Circuit IntCgrC des DCpenses [CID]), treasury operations and accounting, management o f tax and custom duties operations, public procurement and financial control, and M&E; (e) lack o f trainers or staff in many areas o f P F M and IT; and ( f ) inadequate training facilities.

Objectives. This component i s intended to introduce and implement human resource reforms, including a comprehensive capacity development plan, at the MOF. The component wi l l provide support to the DHR at the MOF, strengthening i t s capacities for developing and implementing new human resource processes and procedures. The component wil l also provide support for the M O F in identifying capacity development needs and ski l l gaps o f i t s staff; and strengthen local training institutes to respond better to these identified needs. This i s expected to be achieved through enhanced leadership skills; knowledge o f management tools, instruments, and practices; as wel l as improved cooperation among individuals and their respective institutions.

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The importance o f HRM and development in PFM justifies IDA’S lead in supporting most o f the activities identified in the action plan under this component. I t is expected that government financing o f activities under this component wil l gradually increase during project implementation and that the government wil l eventually take on total financing by the end o f the project.

Scope of IDA-financed activities. The proposed IDA project will focus on supporting strengthening and capacity development of the DHR at the MOF to improve HRM and HRD. Identified activities and support are intended to contribute to transforming the MOF and render it more effective and efficient in i t s operations. IDA will provide financing for technical assistance, training, small works, and equipment to accomplish the following:

0 Strengthen the DHR and human resource focal points at other directorates to define roles and responsibilities in developing and driving the envisaged reforms (in line with government program priorities).

Develop j o b profiles and descriptions and specify j ob requirements for the main general directorates, according to defined mandates and in l ine with the new organizational charts.

0 Develop and apply management tools and streamlined procedures in HRM resting on merit-based recruitment and promotion as well as suitable performance appraisal systems.

0 Design and implement annual capacity development plans for the M O F based on a comprehensive capacity development needs analysis.

Strengthen the capacity o f local training institutes (in the f ield o f public financial management, procurement, M&E, and ICT) to equip them better to respond to demands for training.

Strengthen the capacity o f leaders at the MOF to develop and drive reforms, including increasing their awareness around their roles and responsibilities in this regard.

Serving as a pilot, the human resource reforms undertaken in the MOF under the project wil l later be rolled out to D A A F M s o f key priority ministries (health, education, infrastructure, agriculture, and rural development).

T o assure that, with time, national institutions can provide basic training in PFM and ICT to match the national demand, the project will ultimately support strengthening of local training institutions. IDA will finance a capacity development program for six local training institutions (public and private), making technical assistance available to build their pedagogical and managerial capacities and design curricula, particularly in PFM, procurement, M&E, and I C T (see the appendix to this annex). Local training institutions will further benefit from IDA financing through the P F M and I C T training program o f PAMFIP under components 1,3, and 4.

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Expected output. M a i n outputs expected under this component include: (a) increase in the number o f MOF managers with adequate profile and qualifications for their jobs; (b) increase in the number o f M O F and l ine ministry staff skilled in use o f existing PFM system (CID); (c) basic principles o f HRM and HRD , including competitive recruitment, annual performance evaluations, and merit-based promotions applied within the MOF; and (d) increase in the number and quality o f training programs delivered locally.

Component 3: Information Financial Management System (US2.44 million)

Status. Under the GEEP, support was provided in promoting I C T as one o f the vehicles for improving the PFM system; however, the lack o f a strategic road map with priority activities sequenced wel l and implementation arrangements and the lack o f skilled experts in PFM development and rollout resulted in unsatisfactory performance o f the project.

The most important issue, that is the leadership o f the I C T efforts, was left unresolved under the GEEP. There was no mandate, nor expertise in the Technical Secretariat coordination unit in M O F to provide sound, strategic advice on I C T to support the MOF’s business un i t s and their strategic objectives under PAMFIP. An I C T support unit, the Cellule Informatique (CI) was established at the MOF in 2002 and financed under the GEEP. C I was tasked with spearheading the installation o f the computerized expenditure system. C I had, however, no responsibilities for coordination and standardization o f the overall I C T work at the MOF, within other units such as taxes, treasury, external debt, payroll, and so on.

With a narrow focus on computerized expenditure system processes and in the absence o f a broader framework for I C T needs assessment and business process re-engineering for al l o f MOF, significant resources allocated under the GEEP to PFM were underutilized. Another finding from the GEEP project related to the inability to identify and retain experienced I C T developers and support professionals to assist in large public sector reform activities using I C T as a tool to develop collaborative, efficient, and transparent processes across the agency.

After important delays in launching I C T activities under the GEEP, in October 2002, the GOC initiated implementation o f computerized programs for budget planning, allocation, and expenditure accounting (called CID), an IFMIS that had been already in use in Burkina Faso. After two years o f effort modifying and installing the Burkina system in Chad, only the budget preparation module has been tested and proved reliable.27 Although the MOF could produce tables showing various totals in the expenditure chain, the generated data and reports are not reliable and not consolidated. For instance, three tables relate to the regular, oil, and HIPC budgets, instead o f only one consolidated and accurate table. Budget monitoring i s st i l l done through the re-posting o f data generated by separate and mostly manual systems in different agencies, such as treasury, payroll, customs, taxes and external debt.

Diagnostic and strategy reports (2005-06). Between 2005 and 2006, some progress was achieved in appraisal o f the information and communication needs o f the MOF. In the last 2005 quarter, Raymond Chauvin, with finding from the Wor ld Bank, appraised the I C T component o f

27 In contrast, i t later stopped being operational and i s no longer used by the DGB in budget preparation.

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the project. H i s report (now dubbed “Rapport Chauvin”) offered specific findings and recommendations, which were approved by IDA, donors, and the Government. Some o f the Chauvin recommendations were followed up, under additional studies commissioned by the European Commission in 2006, specifically the subsequent diagnostic studies with their associated authors:

Study o f the existing C I D application (DaCosta) 0 Report on the treasury I C T situation (Jean-Pierre Dandine, Ecorys)

Report on the state o f the payroll system (ADE) 0 Report on the overall needs for human resource management (Sable)

Report on the overall technical assistance effort (Jean-Claude Coureau).

As the Chauvin report’s findings and recommendations are st i l l relevant today in 2007. The IDA funding under the proposed IDA project wil l support the implementation o f most o f them.

Objectives. Based on lessons learned from Bank experience, GEEP outcomes and the Chauvin report, current IDA objectives are to: (a) assist the Chadian authorities in defining a strategy and implementation plan relevant to PAMFIP’s objectives; (b) support part o f PAMFIP activities through additional IDA financing; and (c) help in assuring consistency and availability o f necessary funds from donors and GOC toward implementation o f a working, reliable, and sustainable IFMIS. It i s important to note that donor communication and coordination on PAMFIP’s I C T component i s a critical task and necessary condition for the project’s success.

ICT strategy. The I C T component wil l support the MOF in developing and implementing the comprehensive I C T strategy drawn around the four main Chauvin report’s recommended pillars for action:

0 Institutional framework 0 Software development 0 Network infrastructure 0 I C T human resource development.

Because the I C T component wil l need significant financing support in the medium and long te rm that exceeds currently available IDA resources for the proposed IDA project, focus wil l be on helping prepare the strategy, assist the GOC in identifying resources to underpin implementation o f the strategy, and provide part o f the overall financing to implement it.

The strategy wil l highlight specific issues and areas for improvement as follows:

Institutional framework to sustain ICT in MOF. Under PAMFIP, the challenge will be to adjust institutional arrangements for the I C T with a clear distinction among several and distinct functions: (a) I C T pol icy advice strategy formulation and architecture design (maitre d ’oeuvre), (b) software development and project implementation (maitre d ’ouvrage), and (c) maintenance, user support (support continu des utilisateurs). I t i s critical to define these functions and map them into three different organizations. The most critical and missing arrangement is the strategic advisory function, which wil l determine how the other two functions are handled in the

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MOF. The two other functions (development and user support) can be filled more easily and wil l benefit from the presence and leadership o f a quality advisor helping the minister and PAMFIP team on a daily basis.

Considerable resistance to change i s expected, as there i s a need to create support and ownership for the change management program that wil l accompany introduction or upgrades o f I T applications. One mechanism for achieving this wil l be establishing a clear organizational structure for I C T development and support in cooperation with the business managers at MOF’s DAAFMs and under the leadership o f the strategic advisor.

The framework wil l delineate new implementation and coordination arrangements for I C T in PFM. Examples follow:

A software development unit wil l be contracted out, preferably a specialized international enterprise to develop, update, integrate, and implement the I C T systems in cooperation with local enterprises, in accordance with the several past needs analyses and diagnostics for C I D (implementation o f the recommendations in reports from Chauvin, Coureau, DaCosta), treasury (Dandine), and payroll (ADE). An operation and maintenance unit called the Centre des Ressources Informatiques (CRI), reconstituted from current C I qualified staff, wil l continue with a refocused mandate and incentives to maintain and keep a trouble-free I C T environment for a l l MOF users. I t i s expected that the GOC wil l finance recruitment o f additional staff and adequate salaries for I C T staff to be part o f C I which will be accountable for a l l I T support in al l o f the M O F or alternatively subcontract a private company to offer that service after negotiation o f specific service-level agreements. If the latter scenario i s adopted, i t is expected the contractor will fully absorb and retain the current I C T staff distributed among the C I group (fewer than seven), customs, treasury, payroll, tax, and other units (for a total o f less than 15 staff already assuming the function o f I C T support within the MOF).

Software development. At present, the MOF uses a variety o f computer software systems for PFM, including CID, payroll (an outdated commercial package with a high risk o f collapse and low security), tax (a home-grown database with maintenance and security needs), customs (ASYCUDA, which i s barely utilized), debt (SYGADE) and the treasury system (old database with very l ow security). These systems are no longer state o f the art and do not necessarily serve the Government’s needs for accountability, transparency, and efficiency.

Although some information flows exist between C ID and the Treasury, the systems are outdated, not securely protected, and not optimized in terms o f being fully integrated or networked. The systems are hardly maintained or supported by the C I at the MOF, whose staff lacks appropriate training and the needed infrastructure to be connected to their constituents’ offices v ia a local area network (LAN). The budget application (CID) is operating on an outdated database platform using Oracle version Sj, for which legal licenses have not been secured, since it was imported from Burkina Faso in 2002; hence, the software needs to run o n an updated platform with legal licenses o f the current Oracle version (lOG), which entails portability, as well as updating o f the clientherver interfaces.

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IDA will finance some elements o f the needed software development activities to support P A M F P . At appraisal, the Project team, the donors, and the GOC agreed that IDA’S support would concentrate on financial management application improvements and development for the DGB in expenditure management and in integrating budget applications with payroll and the HRM application (for which the AFDB i s providing most o f the financing) and the Treasury (for which the European Commission and France wil l provide most o f the financing). IDA will also commission hrther studies to help the MOF decide on the best choices available, given the Chadian context, for both payroll and treasury applications. Software development work wil l include the following:

The C I D applications wil l need to be ported to the latest version o f the Oracle database management system tool and programmed to produce consolidated budget reports for the oil, general, and H P C budgets; the payroll system needs stabilization, and decisions should be made on upgrading or replacement o f the existing system. Because the payroll and other existing systems utilize a variety o f formats, the data are not interoperable, and l i t t le compatibility exists among them; the treasury system needs to be set up and integrated into the C I D and payroll; the European Commission i s currently taking action to help in identifying needs for improvements o f the other existing financial applications in the area o f PFM, such as fine-tuning, upgrading, and integrating the customs solution (ASYCUDA) and the external debt solution (SYGADE), selection o f a treasury application, and training the users; and the AFDB i s financing development o f a procurement system to be integrated in the PFM, as well as HRM system that wil l be linked with the payroll system. Progress on al l these projects wil l be considered as integral parts o f the resulting overall strategy.

The GOC wil l be also supplementing donor financing through its budget, in al l the above described areas.

Infrastructure improvements. There i s a clear need for upgrading o f hardware, particularly servers, and personal computers, to facilitate sharing and processing o f information. Around 450 personal computers exist at the MOF, o f which more than 300 are not working due to hardware failures or virus problems. Since the users are not connected to local area networks (LANs), they must physically exchange diskettes to share data. This results in daily problems with virus infections and huge efficiency losses, which distract MOF users from getting interested in their core applications, that is, payroll, treasury, CID, and so on.

The databases used by the critical applications (CID, payroll, treasury, customs, etc. ) need to be linked to one another via physical connections through LANs, which wil l allow processing o f consolidated financial data, once these different applications are integrated with one another. All o f the MOF main offices should be linked together v ia a MOF LAN. The latter objective i s a challenge, as the M O F and line ministries are distributed in different areas o f the capital, and a communication solution with adequate coverage and maintenance arrangements ought to be financed to link al l users together and make the financial applications available to al l the relevant

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users at their desktops. Today, with the proliferation o f affordable wireless broadband technology, the LAN can easily be put together, but maintaining it will require training and empowering the I C T experts at the MOF, or subcontracting from the private sector through a maintenance contract with adequate service level agreements (the alternative to creating an in- house support unit, called C R I earlier).

Helping the users o f the PFM to have working, functional desktop computers with registered software licenses, reliable LAN connections, functioning printers, and a virus-free environment i s critical. Successful adoption o f the PFM will depend on assuring such an enabling environment i s made available and i s maintained for i t s users.

Lack o f connectivity to the Internet and lack o f standardized e-mail packages to communicate with one another and with the donors are big obstacles to IFMIS development. I t is essential that MOF users in al l agencies have a functioning broadband connection to the Internet so they can communicate with their partners and donors v ia e-mail. Having access to the Internet will also benefit MOF, as the Internet helps create a culture o f information disclosure and transparency that wil l be critical for other aspects o f the project. In particular, a l l the information portals that the M O F i s planning to create for the other government agencies and i t s citizens will need reliable access to Internet.

ICT human resource development. There was no chief information officer or a Ministry o f Information Technology in Chad under the GEEP. Chief information officers play an instrumental leadership role as I C T i s introduced within an agency. They are in charge o f the strategy, application choices, procurement, standards, architecture, development, design, daily usage, productivity improvements, and M&E; however, recently (March 2007) the M O F was tasked with the I C T mandate (MinistBre des Finances et de 1 'Informatique), without yet having the needed staff and in-house expert advisors. There i s no overall direction or an I C T pol icy and strategy for the GOC. Under the proposed IDA project, IDA will allocate funding for recruitment and retention o f an advisor, who wil l assist the M O F in these areas.

Chad's I C T private sector i s quite weak, as most o f the local universities and vocational training institutes do not yet have adequate training to produce young skilled graduates who can fill in the needed expertise gaps in software development, network and hardware maintenance, user support, and business requirements analysis for the M O F and government agencies in general. I t i s hoped that the current project wil l create some positive momentum around I C T in Chad and ign i te the interest o f youngsters and academicians in focusing on I C T vocational training.

I t i s envisaged that the strategy wil l also outline plans to train staff on many levels:

0 Senior I C T staff in the current C I and the future C R I wil l need training in I C T management and in supervision o f technical professionals. Technical I C T staff wil l need training in networking and interconnections; LAN, wireless hubs, and router management; database administration; data and messaging management; security; and specific applications that wil l be in use by ministries.

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End users in the DAAFMs will need training in basic computer literacy, such as Word, Excel, PowerPoint, and so on as well as in basic f i le management and use o f peripherals, such as printers, e-mail, and Internet usage. End users wil l also need continuous training in use o f the PFM packages that wil l be installed in the MOF and other l ine ministries, that is, upgraded CID, treasury, tax, customs, and payroll. The adoption o f the P F M packages by their targeted user community and daily usage o f the PFM application wil l be the most tangible indicator for the effectiveness o f the I C T strategy implementation.

The strategy wil l also examine incentives to attract and retain qualified IT staff under different organizational scenarios and arrangements and at competitive salaries. The strategy will look at incentives for M O F staff to adopt and “own” the new processes and the newhpgraded applications and wil l put together a change management plan in coordination with the other donor partners and the Government, inspiring itself through earlier studies and assessments done in 2006 (earlier reports have been cited, but in particular Sable).

Scope of IDA-$named activities. The proposed IDA project wil l finance long- and short-term technical assistance, equipment, maintenance, and training for the following:

0 Establishing I C T advisory and strategic expertise at the Technical Secretariat to help the M O F make the optimal use o f resources, technologies, and people to realize PAMFIP objectives. The chief information officer’s f i rst priority wil l be preparation o f a strategy to transform the current environment into a modern financial management system, given the constraints already analyzed and the actionable activities already approved.

0 Preparation o f a five-year implementation plan and budget, which wil l be discussed with development partners and the GOC, to mobilize resources to support the plan and effectively utilize the resources already planned by donors and IDA to help support the implementation o f PAMFIP. Several scenarios will be made in the preparation plan, and the choice o f scenario in the next five years wil l depend on the following:

i.

.. 11.

... 111.

iv.

Success o f the readaptation o f the C I D application to the M O F needs under a new platform and i t s degree o f integration with existing payroll and treasury systems. Successhl deployment o f infrastructure connecting the key MOF units and deployment o f functional desktop computers that are maintained and serviced under high-quality standards, whether maintenance i s done in- house (CID) or v ia an outsourced contract to the private sector. Decisions and implementation pertaining to the long-term choices o f treasury and payroll software, the integration o f these products with the CID, and the level o f training and “hand holding” the users will receive. Preparation o f a backup plan early on in the project (in 2007) and as soon as the C I D consultancy (fimded by the Project Preparation Facility [PPF]) gets started, in case the C I D software turns out to be too risky to update. The backup strategy should consider “off-the-shelf’ solutions that could fit the MOF’s needs without large amounts o f customization.

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Implementation o f parts o f the adopted plan, specifically: (a) activities related to supervising the contractors who wil l be tasked with updating the C I D base platform integration with other critical financial management applications, such as treasury, payroll, tax and customs networking links among different offices and existing systems, hardware, equipment, and licenses; and (b) training o f I C T staff and end users in the new systems, maintenance and operating costs for the new infrastructure, and setup o f the new organizational arrangements for I C T in PFM.

Guidance and support to monitor i t s implementation by exercising a supervisory role to the I C T support infrastructure and by taking a leadership role in re-creating new committees.

Overall, creating a culture o f positive change management, transparency, incentives, information sharing and openness in the MOF, by “leading by example” on the transformation aspects o f I C T for the agency, i t s staff, and the overall culture.

Expected output. The expected outputs at the end o f the project will be: (a) an operational strategy and implementation plan for modernizing the PFM system o f the MOF; (b) mechanisms to monitor achievement o f the strategy and the plan in place; (c) an enabling infrastructure setup for MOF staff; (d) a functioning, reliable integrating budget execution system with a treasury and public payroll component accessible to al l users; (e) a qualified core group o f M O F users who are using, owning, and improving the system; and (0 a team o f I C T specialists (whether hired within MOF or outside in the private sector) able to provide quality maintenance and user support services to the newly created infrastructure and its users.

Component 4: Coordination, Monitoring, and Evaluation of PAMFIP (US$1.29 million)

Status. Management o f the GEEP was deemed unsatisfactory. The technical unit, which was in charge o f project activities in the MOF, and the Economic Unit (Cellule Economique) under the supervision o f the Ministry o f Planning, which was in charge o f al l other project components, did not execute the project according to agreed-on procedures. Annual work programs were not prepared on time. Coordination among institutions responsible for project implementation was weak. Procurement and financial management procedures were inadequate. Management o f resources was not cost-effective. In addition, reporting on project activities was late and not informative and M&E was nonexistent. All these shortcomings illustrate the MOF’s weak capacities in planning, programming, and implementing projects and M&E activities, a l l issues that GEEP’s I C R and the 2003 functional audit report o f the MOF pointed out.

Challenges and objectives. The lessons learned from the GEEP showed that i t s poor outcome was mainly due to an inadequate institutional framework reflected in weak implementation arrangements and M&E system, inadequate ownership, and lack o f political commitment. Consequently, PAMFIP and the proposed IDA Project wi l l be implemented according to the decisions made during the 2004 IDA portfolio review, intended to reinforce national institutions and procedures (Annex 6).

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Each directorate and agency wil l be responsible for implementation o f its action plan. The Steering Committee, including general directors in the MOF and general directors o f concerned agencies, wil l monitor implementation o f the reform program and provide assistance as required. The Technical Secretariat established for project preparation wil l be responsible for coordinating, supervising, and M&E o f program implementation. Under the PPF, IDA has supported on-the- j ob training o f Technical Secretariat members. External expertise in the fields o f HRM, PFM, and M&E will be available during the f i rst two years o f project implementation to build up i t s capacity further.

The DAAFM in the M O F wil l be responsible for procurement and financial management in close coordination with the Technical Secretariat.

But overall, i t i s expected that the M O F wil l show leadership in implementing the reform agenda regarding the impact that PAMFIP wil l have on ministry capacity to carry out i t s mandate and the Government’s ability to meet i t s economic and development objectives. To this end, a need exists to build the consensus deemed necessary to support the project development objective with MOF’s high-level management, at the Government cabinet’s level, as wel l as at the stakeholders’ level.

The M&E system wil l serve to monitor implementation o f the proposed project in the context o f the broader PAMFIP. I ts primary objective will be to help: (a) institutionalize M&E activities and build up national capacity to assess changes in PFM on a regular basis in the medium and long term beyond the project’s life; (b) foster participation among stakeholders and decision makers in P F M through enhanced dissemination o f results and information sharing; and (c) create a platform for coordination and harmonization o f donors intervention and supervision.

Scope of IDA-financed activities. The proposed IDA project will finance technical assistance, equipment, and training to accomplish the following:

0

Strengthen the Steering Committee and Technical Secretariat to enable them to manage the IDA project and PAMFIP efficiently Build consensus and elicit political willingness at the Government cabinet level to implement programs, projects, and activities to achieve agreed-on results Develop an operational M&E system for PFM in cooperation with other donors to disseminate information and encourage participation among members o f GOC as wel l as other PFM stakeholders.

Expected output. At the end o f the project, the following outputs are expected: (a) the proposed project i s implemented according to schedule and agreed-on procedures; and (b) an M&E system for the proposed IDA project and PAMFIP (involving government authorities, MOF staff, and users) i s fully operational.

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Appendix to Annex 4: Approach to Capacity Development and to Strengthening Local Training Institutes

Background

Chad has a l ow basic capacity to carry out even the most essential processes, and urgent needs have been identified for development o f cross-cutting skills such as accounting, budgeting, procurement, human resource management (HRM), information technology (IT), and so on. Government offices and private f i r m s alike compete for the very l o w numbers o f people able to handle basic software packages, such as Excel and database management tools, website management, basic management techniques, and budgeting tools and methods. Capacity development efforts in the past which were primarily made up o f technical assistance consisting o f substitution, rather than knowledge transfer have not led to significant results nor have they developed sustainable solutions locally to capacity challenges. At the same time, local training institutes are ill equipped to deliver the level o f services required and are not at al l able to compete with training institutes in the intemationalhegional arena. The training facilities at the level o f each general director are also malfbnctioning and not responding to the specific needs o f the c iv i l service.

The Capacity Development Approach Adopted

The approach to capacity development adopted in PAMFIP envisions a diverse supply o f training services with institutions that intervene at various levels o f the market, developing sustainable and long-term solutions to capacity development challenges. In-service training for public sector institutions will, to the extent possible and without compromising quality and costs, be managed and provided by local public sector training institutes; however, Chad’s needs in the public financial sector encompass a number o f critical capacities that are only delivered by private sector institutions, and a strategy for strengthening local public and private sector institutes is thus in order. During the period in which the project i s in effect, the percentage o f training programs provided by local institutes (public and private) should increase.

The strategy for strengthening local institutes, so that these become better equipped to serve as lead providers o f training programs foreseen in PAMFIP, i s composed o f the following four major components:

Establishment of clear lines of communication and cooperation between DHR of the MOF and local training institutes. This cooperation between the DHR o f the MOF (charged with development o f annual capacity development plans for the ministry) and local training institutes wil l clearly outline priori ty training needs and identify training needs that can be responded to locally.

The DHR and local training institutes wil l also put in place standardized procedures for organizing training activities, with the aim o f assuring a higher level o f conformity between training provided and reform priorities. These standardized procedures wil l also include development o f procedures to evaluate training programs provided.

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The DHR and representatives from the training institutes will meet on a regular basis to discuss procedures and the training programs provided. In addition to adhering to these procedures, the institutes constituting the Cadre de Concertation entre les Institutions de Formation Publiques et Privbes au Tchad (CCIF) wil l adhere to certain quality standards, as wil l be expressed in a quality assurance document (charte de qualitb) to be developed by the institutes.

Supply: Strengthening local training institutes so that they become first-class providers of capacity development

programs and activities, including developing curricula, pedagogical capacity, evaluation skills etc.

Technical Training of Partnerships Means of assistance trainers communication

t t t t

Direct support to local training institutes to build operational management skills, pedagogical capacity, and curricula. Technical assistance wil l be available to the training institutes to address these challenges, with the intention o f developing the institutes into modem providers o f training programs that respond to the particular needs o f the c iv i l service, both in terms o f the administrative capacity o f the institutes and in terms o f pedagogies adopted and curricula developed. This work wil l include, but not be limited to, the following:

0 Adoption o f new organizational structures and introduction o f more efficient management procedures for the different training institutes

0 Modernization o f curriculum and improved access to training modules and international research

0 Introduction o f modem means o f communication that wil l facilitate the local institutes’ access to information and knowledge.

Training of trainers at local institutes as part of action plan technical assistance. This wil l involve associating Chadian training institutes and trainers with planned technical assistance initiatives and training programs delivered by foreign f i r m s and individuals to provide specific and targeted training o f trainers’ modules. A training o f trainer’s component should be included in al l action plan technical assistance.

Encourage partnerships and strategic alliances. Involving Chadian training institutes as service providers in programs delivered by foreign f i r m s and institutions, exploring twinning opportunities, and developing partnerships with regional and international institutes. This wil l open up new possibilities for access to information and knowledge for Chadian training institutes.

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Operational Aspects

Although in-service training for public sector institutions wil l as far as possible be managed and provided by local training institutes, standard procurement rules wil l be used in awarding contracts for such training programs.

In July 2004 six public and private training institutes in N’Djamena established a framework for cooperation and consultation named CCIF. The aim o f the CCIF i s to respond better to the challenges o f training in the domain o f public financial management (PFM). The institutes constituting CCIF wil l also work together to develop capacities and resources to be able to provide better quality training in the future than what has been the case in the past. In August 2005 the CCIF included the following institutes:

0 Ecole Nationale d’ Administration et de l a Magistrature (ENAM) 0 Universit6 de N’Djamena, Facult6 de Droi t et des Sciences Economiques 0 Centre d’Etudes et de Recherche pour l a Dynamique des Organisations (CERDO) 0 Institut de Formation Professionnelle et d’Enseignement Sup6rieur (IFPE) 0 Ecole des Hautes Etudes Commerciales-Tchad (HEC) 0 Centre de Formation Professionnelle de la Chambre de Commerce (CFPP).

PAMFIP: Organizational Chart for Capacity Development (CD) STP: 1. Assure conformity with

priorities of reforms (PAMFIP)

stakeholders CCIF: 2. Assure coordination wit

1. Assure quality and pertinence of training

DRH: 2 . Report on results from 1. Framework for the evaluation

preparation of annual 3. Coordinate and CD plans communicate with DRH

needs

priorities

CD plans

CD plans

analysis of evaluations of CD activities

technical assistance ;

2 . Centralization of CD

3. Identification of CD

4. Development of annual

5. Implementation of annual

6. Centralization and

7 . Development of TORS for

DGs and other partners: 1. Communicate CD

2. Coordinate with DRH needs

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Annex 5: Project Costs

CHAD: Public Financial Management Capacity Building Project

ID Project Costs by Components -

1. Public Expenditure & Financial Accountability (a+b)

a) budget preparation and execution b) @uncial controls

2. Human Resource Management 3. Information Communication Technology 4. Project Coordination, monitoring and Evaluation

Total Baseline Cost (1+2+3+4) Project Preparation Facility

1.13

0.56 0.57

1.22

1.22

0.60 4.17 0.40

1.20

0.69 0.51

0.93

1.22

0.69

2.33

1.25 1.08

2.15

2.44

1.29

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Annex 6: Implementation Arrangements

CHAD: Public Financial Management Capacity Building Project

The IDA-financed project will be implemented through the Government’s own institutional arrangements devised for the broader PAMFIP. The Ministry o f Finance (MOF) will be responsible for coordination o f implementation o f the IDA project, and i t will rely on i t s internal structures and staff to ensure that implementation i s undertaken as planned in the context o f the broader government program. The following implementation arrangements are envisaged.

Strategic coordination of implementation and monitoring of progress under PAMFIP will be ensured through the Steering Committee, which was established for PAMFIP’s preparation in 2004. I t i s chaired by the Secretary-General o f the MOF and comprises the directors o f al l general directorates o f the MOF. As PAMFIP wil l cover al l aspects o f modernizing PFM, including procurement and external audits, which are under the responsibility o f autonomous agencies, the Steering Committee has been enlarged to include general directors o f a l l participating agencies. The Steering Committee wil l be responsible for strategic and pol icy guidelines in PAMFIP implementation. I t wil l annually approve the multiyear expenditure program, including the budget for the coming year, which wil l be part o f the overall government budget. I t will review progress in program implementation and assess results against an agreed- on, results-based indicators framework.

Day-to day operational coordination of PAMFIP and of the proposed Project will be ensured by a Technical Secretariat to the Steering Committee that i s integrated in the MOF structure to oversee the reform process, assist in planning of activities and budget, facilitate contracting and coordinating of activities and technical assistance from various donors, and also play a critical role in M&E for the broader PAMFIP. The Technical Secretariat i s headed by a coordinator and comprises four professional staff, including: (a) a specialist in program implementation and planning who wil l review with al l directorates and agencies their work plans, arrangements for implementation, and proposed budget; (b) a specialist in human resource management, who wil l coordinate with the General Directorate for Human Resources (DHR) at the M O F implementation o f c iv i l service reform in the M O F and o f the training program; (c) a Public Financial Management (PFM) specialist who wil l coordinate and follow-up on implementation o f P F M activities with al l beneficiaries; and (d) a specialist in program monitoring and evaluation (M&E) who wil l assist in collection o f data and evaluation o f results against expectations. The Technical Secretariat wil l help general directorates prepare their annual work programs. I t wil l consolidate the work programs into an overall program, which wil l be submitted to the Steering Committee. I t wil l provide technical support as required by general directorates for the implementation o f their work programs and M&E system. I t wil l monitor progress in implementation on a regular basis. It will be supported by the MOF’s Procurement, Administrative, and Financial Directorate (DAAFM) in the areas o f financial and procurement management.

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The Technical Secretariat will be strengthened under the IDA-financed project to enable it to fulfill its mandate. Under the Project Preparation Facility (PPF), IDA i s supporting on-the- j ob training o f secretariat members. External expertise in the fields o f HRM and HRD, PFM, and M&E wil l be available during the f i rst two years o f project implementation to develop the capacity o f the Technical Secretariat further.

The general directorates concerned will be responsible for preparation and implementation of their work programs. The PAMFIP and the proposed IDA-financed project will be implemented by al l agencies at the central government level involved in budget preparation and execution (DGB , D A A F M s in l ine ministries, INSEED, General Directorate o f Treasury, Directorate o f Payroll, Cellule Informatique, and Cabinet o f MOF’s Secretary-General), in financial controls and audits (IGF, Chamber o f Accounts o f the Supreme Court, Collbge, Public Finance Commission o f Parliament, and MSCM), and in training (a network o f six public and private training institutions). Each general directorate and agency will prepare an annual work program, including a procurement plan. I t wil l implement i t s procurement plan with assistance from the DAAFM. They wil l prepare terms o f reference for the recruitment o f consultants and define specifications for equipment and office technology needed. They wil l formulate the training needs o f their staff and prepare a training program with the help o f the MOF’s DHR. A focal person wil l be appointed in each general directorate to work closely with the Technical Secretariat on technical aspects and the DAAFM for procurement and financial management.

MOF’s DAAFM will provide support to general directorates on procurement and financial management issues. The DAAFM will be responsible for the fiduciary aspects o f the project. I t wil l be accountable to the Steering Committee for the use o f a l l resources managed under PAMFIP, including donor contributions in conformity with their regpective reporting requirements. Created in late 2003, the DAAFM has not yet developed relevant experience and institutional ski l ls in financial management and procurement. The project wil l finance a financial management specialist and a procurement specialist with good knowledge o f Bank procedures. They were recruited in late 2006 on a competitive basis. They wil l be responsible for al l financial management and procurement matters under the project and PAMFIP, and wil l provide on-the-job training to the staff o f the DAAFM. As a condition o f grant effectiveness, an adequate team o f specialists in financial management and procurement wil l be in place.

The IGF will be responsible for preparing quarterly audits on project management and accounts. I t has been strengthened under the GEEP and the quality o f its reporting on budget execution has improved. Taking experience under the GEEP into account, i t is important to assess on a regular basis the quality o f project management and review accounts. The IGF wil l carry out a detailed audit o f project accounts on a quarterly basis. I t will review expenditures made under the project, the procedures used, and the quality o f services rendered. It wil l send i t s report to the MOF within a month o f the end o f the quarter, with copies to IDA and other donors contributing to PAMFIP financing.

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Annex 7: Financial Management and Disbursement Arrangements

CHAD: Public Financial Management Capacity Building Project

Summary of the Financial Management Assessment

The objective o f the assessment is to determine whether the implementing entity has acceptable financial management arrangements that wil l ensure: (a) finds are used only for the intended purposes in an efficient and economical way; (b) preparation o f accurate, reliable and timely periodic financial reports; and (c) safeguarding o f the entities’ assets.

A. Financial Management Arrangements

1. Country Issues

The proposed IDA Project activities are designed to address the key country PFM issues. As indicated in Annex 1, Chad i s confronted with persistent P F M difficulties which can be summarized as follow:

Budget preparation is s t i l l be a very limited participatory exercise and the poverty reduction strategy priorities are not reflected in government spending programs. Budget execution i s ridden with cumbersome procedures and controls with l i t t le value added. Lack o f budget discipline during these recent years as wel l as uneven application o f financial and procurement regulations result in total absence o f budget credibility.

0 Weak human resources management tools and capacities, absence o f appropriate incentives, and severe working conditions undermine M O F staff morale and motivation. And absence o f functioning and reliable Integrated Financial Management System makes P F M operations hard to steer, implement, and control.

Since Chadian capacities are weak and the environment i s not conducive to transparent and effective project financial management, the Project team has discussed and agreed upon implementation arrangements which wil l suit the proposed IDA Project needs.

2. Project Financial Management System

The objectives o f the project’s financial management system are the following:

0

0

Ensure that funds are used only for their intended purposes in an efficient and economical way Ensure that hnds are properly managed and f low regularly and predictably to meet the objectives o f the project Enable the preparation o f accurate and timely financial reports Enable project management to monitor the efficient implementation o f the project Safeguard project assets and resources.

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Furthermore, the following features are necessary for a strong financial management system:

Significant Weaknesses Government funds not provided, provided after a delay, or not provided in a sufficient amount. Too long delays in procurement

The project implementing unit should have an adequate number o f skilled and experienced staff. The internal control system should ensure the conduct o f an orderly and efficient payment and procurement process and proper recording and safeguarding o f assets and resources. The accounting system should support the project’s requests for funding and meet i t s reporting obligations. The system should be capable o f providing financial data to measure performance when linked to the output o f the project. An independent, qualified auditor should be appointed to review the project’s financial statements and internal controls.

Action Responsible Body Completion Have the Government include all MOF Before effectiveness and PAMFIP funding in the budget of MOF

Prepare the bids and the procurement plan long before the start of the fiscal year DAAFM approved by IDA prior to

throughout project execution

Technical Secretanat and

The first 18 month procurement plan prepared and

project negotiations and will be updated throughout project execution on a regular basis

a. Strengths

Conditions for Effectiveness

(Yes/No)

N o

Yes

The country’s commitment to implementing PAMFIP and recommendations o f the April 2006 multi-donor assessment i s one o f the major strengths in this project’s implementation.

Remarks

T h i s risk arises from the weak political will or lack of capacity.

Heads of procurement and financial units should be in place prior to grant effectiveness.

b. Weaknesses and Action Plan

Risk Inherent Risk Country level

Entity level

Risk Rating

High

High

c. Risk Assessment and Mitigation

Project level High No

Risk Mitigating Measures Incorporated into Project Design

Implementation of PAMFIP to (a) strengthen budget operations and (b) enhance accountability and good governance. Training sessions in World Bank operations and procedures of staffs from the MOF. DAAFM at the MOF i s to be staffed with adequate and qualified team before grant effectiveness. Creation in the MOF of the Technical Secretariat (TS), which i s

The project i s to be implemented by the Technical

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Risk

Overall inherent risk

Control Risk risk

Control Risk Budgeting Budgeting

Accounting

Internal Control

Funds flow

Financial reporting

Auditing

Overall control risk

Overall risk

Risk Rating

High

High

High

High

High

Substanti al

High

High

High

Risk Mitigating Measures Incorporated into Project Design

implementing the project with support o f the DAAFM, staffed with specialists from outside the ministry to strengthen fiduciary management. Strong supervision plan by IDA and implementation of a sustainable financial management system.

Preparation of the budget three months before the beginning of the fiscal year. Strong follow-up by the project team on Government funding as well as other donor funds to be used in the project. IDA’S Development Financial Agreement contains a suspension clause in case of the failure to contribute Government funding on an annual basis. Implementation of an accurate computerized accounting system before effectiveness. The former GEEP software was installed in the DAAFM prior to negotiations and i s currently being adapted to the Project needs. IGF was appointed (by MOF’s decree) as the internal auditor prior to negotiations. The grant Letter o f Disbursement, including clear provisions for flows o f funds was discussed during negotiations and agreed upon. The format o f the financial management reports (FMRs) have been discussed and agreed upon at negotiations. The FMR templates have been supplied to the Technical Secretariat and, DAAFM at negotiations. Recruitment o f an external auditor acceptable to IDA prior to project effectiveness. The work of the auditor will be processed on a yearly basis. Al l the above.

Conditions for Effectiveness

O(es/No)

No

No

N o

No

No

Yes

No

Remarks Secretariat o f the MOF, which has no experience in IDA project daily management.

Budget preparation may be hampered by uncertainty on the Government’s contribution to the project, which may not be delivered in time. In addition, donor coordination can be poor.

The DAAFM team has no accounting system capable o f recording and reporting financial transactions.

The capacity o f IGF will be reinforced in the framework of PAMFIP. The risk arises from the uncertainty in government funds regularity and other donor disbursement.

The governance environment may jeopardize the auditors’ judgment and diligence.

The overall control may be weak, because of the poor governance environment, which may negatively impact the control tools and actors.

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d. Implementing Entity

The Technical Secretariat i s the coordination entity and general directorates involved in PFM are implementing entities o f PAMFIP and the proposed IDA project. The DAAFM at the MOF i s the fiduciary organ that wi l l support the Technical Secretariat in procurement and financial management issues.

3. Description of Financial Management Arrangements

a. Internal Control and Financial Management Manual

The main focus o f internal control is placed on the following:

Segregation o f duties Physical control o f assets

0 Authorization and approval 0 Clear channels o f command 0 Arithmetic and accounting accuracy 0

0 Supervision Integrity and performance o f staff at al l levels

All this wil l be clearly explained and described in administrative, accounting, and financial procedures annexes o f the Project Implementation Manual (PIM). The financial management annex is to describe the major transaction cycles o f the project, hnds f low processes and the accounting records, supporting documents, computer files, and specific accounts in the financial statements involved in the processing o f transactions

b. Budgeting

Because PAMFIP i s funded from the national budget, i t presents its funding request to the Government via the MOF. The MOF follows the government budget calendar in preparing i t s own budget. The Technical Secretariat and DAAFM have prepared a f i rs t budget comprising government funding for 2007 prior to project negotiations. They will henceforth prepare a consolidated budget reflecting al l donors and government funding on an annual basis. The budget needs to be integrated in the accounting system to facilitate a regular follow-up o f budget execution.

c. Accounting

The proposed project shall use the accrual basis o f accounting with a double entry accounting system. The Organization pour 1 'Harmonisation du Dro i t des Affaires en Afrique (OHADA) system o f accounting based on International Financial Reporting Standards in recording and reporting financial transactions o f the project wi l l be adopted. To alleviate risks that are generic to this type o f project, the following actions were agreed on:

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Establishment of a computerizedfinancial management system, acceptable to IDA, which wil l provide the recipient, IDA, and other donors with accurate and timely information regarding resources and expenditure. The financial management system wil l include budgetary accounting and financial reporting for internal control device and auditing elements.

Books of accounts. The computerized accounting system will be capable o f performing the following: journal processing, budgeting, financial reporting, bank reconciliation, general and auxiliary trial balances, general and auxiliary ledgers. In addition to the computerized accounting system installed and the books needed to maintain an accurate and complete record o f transactions, DAAFM will maintain a set o f additional books o f registry, either within i t s system or outside it, for control purposes. These books, to be filed with great care, include:

i. A fixed assets register 11. A contract register iii.

.. A book o f control for document deliveries and controlled stationery such as checks, bills, invoices, and forms.

d. Audit Arrangement

Internal Audit

IGF will be responsible for overall internal auditing o f the IDA project and PAMFIP. I t has been already appointed as the internal auditor by MOF’s decree prior to negotiations. The internal auditor wil l report to the MOF, the Ministry o f Planning and Economy, and IDA.

External Audit

The GOC wil l appoint an independent auditor acceptable to IDA before grant effectiveness. The audits wi l l be conducted in accordance with auditing standards and terms o f reference acceptable to IDA. The external auditor wi l l be responsible for the annual audit o f the project financial statements and wil l provide a unique opinion on the: (a) project accounts; (b) transactions o n the special accounts; and (c) statement o f expenditures (SOEs) and eligibility o f expenses withdrawn on the basis o f SOEs. The auditor will also prepare a management letter providing observations and comments and recommendations for improving accounting records, systems, controls, and compliance with financial covenants in the Development Financial Agreement. The project management audited financial statements shall be submitted to IDA within six months after the end o f the project’s fiscal year. In addition to the audit report, the auditor wil l be required to prepare a management letter in which internal control weaknesses and recommendations for improvements are highlighted

e. Reporting and Monitoring

Formats o f the various periodic FMRs to be generated from the financial management system were agreed upon with the Technical Secretariat and DAAFM at the M O F at project

81

negotiations. There wil l be clear linkages between the information in these reports and accounting data. The financial reports will be designed to provide quality and timely information to project management, implementing agencies, and various stakeholders on project performance.

The content o f the quarterly FMRs to be produced by both the Technical Secretariat and DAAFM will include the following:

0 Discussion o f project progress Sources and uses o f funds statement

0 Uses o f funds by project activities (supports the sourceshses o f funds) 0 Physical progress report (physical outputs) 0 Physical progress report (status o f large works and services)

Procurement monitoring report (narrative and tables).

The financial statements should be prepared in accordance with international accounting standards. The IDA grant FA requires submission o f audited financial statements to IDA within six months after the end o f the fiscal year, which coincides with the calendar year.

The project financial statements wil l comprise the following:

0 A statement of sources and uses of funds/cash receipts and payments, which recognizes al l cash receipts, cash payments and cash balances controlled by the entity, and separately identifies payments by third parties on behalf o f the entity. A balance sheet indicating the assets and liabilities being managed by the agency. The accounting policies adopted and explanatory notes. The explanatory notes should be presented in a systematic manner; items on the statement o f the above-mentioned statements should be cross-referenced to any related information in the notes. Examples o f this information include a summary o f fixed assets by category o f assets and a summary o f SOE withdrawal schedule, listing individual withdrawal applications.

0

f. Information System

The DAAFM has installed a computerized accounting system that he will operate before grant effectiveness.

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g. Supervision Plan

1

2

3

4

An odsite supervision mission will be conducted three times a year, based o n the risk assessment o f the project. The mission’s objectives wil l include that o f ensuring strong financial management system i s maintained for the project throughout i t s l i fe . A review wil l be carried out regularly to ensure that expenditures incurred by the project remain eligible for IDA hnding. The implementation status report (ISR) wil l include a financial management rating for the component.

Action Responsible Limit date

Agreement o n FMR formats. Technical Secretariat Completed at

The recipient has established an accounting and financial Technical Secretariat Completed before management system for the project satisfactory to IDA and has finalized the 18-month project budget based o n grant disbursement and government contribution to PAMFIP.

Appointment o f IGF as internal auditor o f the project

The Government has adopted the “Project Implementation Technical Secretariat At effectiveness Manual,” including annexes o f Administrative, Financial and Accounting procedures in f o r m and substance satisfactory to IDA.

and DAAFM negotiation

a n d D A A F M negotiation

Minister o f Finance Completed before negotiation

and DAAFM

h. Financial Management Action Plan

5

The time-bound action plan below indicates actions to be taken to strengthen the project financial management system.

The recipient’s project account has been opened and the reference sent to IDA. and DAAFM appraisal.

Technical Secretariat Completed before

6 The recipient has appointed heads o f DAAFM financial Minister ofFinance At effectiveness management before grant effectiveness.

B. Disbursement Arrangements

1. Flow o f Funds: Bank Accounts

The following bank account wil l be maintained by the Technical Secretariat for the purposes o f implementing the Project:

1. Designated account. One designated account shall be operational for project implementation and shall be denominated in the local currency (CFA francs). This account wil l receive funds from IDA. This bank account will be opened at a major local commercial bank and wil l be jo int ly signed (mandatory) by the Technical Secretariat coordinator and the director o f DAAFM at the MOF. Furthermore, the following measures shall be taken:

83

0 The local commercial bank mentioned above wil l commit i tself in writing to respect the mandatory double signature and wil l commit i t se l f to pay back any amount disbursed in violation o f the proposed double signature regime. The bank wil l do this before the accounts are opened. The local commercial bank mentioned above will also commit itself in writing not to accept any alienation o f IDA’s funds related to OHADA law for debts protracted by the GEEP closed project.

0

2. Ini t ial and authorized deposit. Funds f low arrangements for the project through the designated account wil l be as follows: the amount authorized and the initial deposit in designated account wil l be respectively CFA 400,000,000 (CFA four hundred million) representing approximately four months o f recurrent payments in various components and CFA 200.000.000 (CFA two hundred million) as agreed during negotiations.

2. Disbursements

Upon grant effectiveness, the recipient wil l be required to present a withdrawal application for initial deposit to the designated account, drawn from the IDA grant, in the amount o f CFA 200.000.000 (CFA two hundred million) agreed at negotiations. The deposit amount wil l be increased to the authorized level (CFA 400,000,000) once the total cumulative withdrawals under the project wil l reach EUR 2.000.000 (EUR two million).

Transaction-based disbursements. Disbursements wil l be made, on the basis o f incurred eligible expenditures. Replenishment o f funds from IDA to the designated account wi l l be made on evidence o f satisfactory utilization o f the advances, reflected in SOEs and/or on full documentation for payments above SOE thresholds. Replenishment applications wil l be required to be submitted regularly on a monthly basis. If ineligible expenditures are found to have been made from the designated account, the recipient wil l be required to refimd these amounts. If the designated account remains inactive for more than six months, the recipient may be requested to refund to IDA amounts advanced to the said designated account.

Direct payment. The option o f disbursing funds through direct payments on contracts above a predetermined threshold wil l also be prescribed in the Disbursement Letter. Withdrawal applications for such payments wil l be accompanied by relevant records such as copies o f contracts, contractors’ invoices, and appropriate certifications.

Letter of credit. Payments may also be made to a foreign commercial bank for expenditures against an IDA special commitment covering a local commercial bank’s irrevocable letter o f credit (LC). IDA’s disbursement letter stipulates a minimum application value for direct payment and special commitment procedures.

Local taxes. Funds wil l be disbursed in accordance with project categories o f expenditures, as shown in the Development Financial Agreement. Financing o f each category o f expenditure wil l be authorized at 100 percent, including taxes.

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Uses of statement of expenditures. Disbursements for al l expenditures will be made against full documentation, except for items claimed under the SOE procedure. SOEs wil l be used for payments claimed under contracts for: (a) works in an amount less than US$500,000; (b) goods in an amount less than US$250,000; (c) consulting f i rms in an amount less than US$lOO,OOO; and (d) individual consultants in an amount less than US$50,000. SOEs will also be utilized for al l small equipment, office supplies, and training and for expenditures submitted by TS. Documentation supporting al l expenditures claimed against SOEs wil l be retained by the DAAFM at the MOF. They wil l be made available for review when requested by IDA periodic supervision missions and project external and internal auditors.

Amount of the Grant

Allocated (expressed in US$ million)

Allocation o f Grant Proceeds

Percentage of Expenditures to be

Financed

Category

2.00

0.60

1 .oo

0.70

10.00

(1) Goods for the Project

100%

100%

Amount payable pursuant to Section 2.07 o f the General Conditions

100%

(2) Consultants’ services and Audits

I (3) Training

I (4) Operating Costs

Advance

100% : 100%

I

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Annex 8: Procurement Arrangements

CHAD: Public Financial Management Capacity Building Project

General

Country procurement assessment reports (CPARs) for Chad carried out in 1993 and 2000 and the audit o f five large contracts carried out by the Chamber o f Accounts o f the Supreme Court in 2002 together highlight the dysfunction o f procurement procedures in Chad. The principal deficiencies identified in the CPARs were:(a) absence o f a procurement regulatory body; (b) lack o f a formal recourse available to the tenderers to allow them to dispute the decisions o f contract awards; (c) very low procurement thresholds; (d) cumbersome and time-consuming approval process o f contracts, compromising the rapid disbursements o f national and external resources; and (e) excessive use o f direct contracting. Following the recommendations o f these reports, the GOC, with technical and financial support from IDA, undertook a procurement reform, and a new procurement code was published in December 2003. The procurement code and i t s implementation decrees took into account most o f the recommendations o f the CPARs. Line 2, Article 5, o f the code recognizes the primacy o f international agreements in the event o f a conflict with provisions o f the code and implementation decrees. Still, deficiencies remain in the national procurement system, namely: (a) a requirement that foreign bidders must associate with national bidders or subcontract to national bidders; (b) obligation o f a l l bidders (national and foreign alike) to obtain a qualification certificate before submission o f a bid; and (c) a cumbersome procedure for the award and signature o f contracts, involving the minister o f finance and the president o f Chad in contracts o f relatively l o w value (US$lOO,OOO). The deficiencies have been extensively discussed with the Government, during appraisal, and their rectification in the code and regulations i s part o f the broader governance dialogue. For international competitive bidding (ICB), the procedures specified in the procurement guidelines and the use o f the Bank’s standard bidding documents are mandatory. For national competitive bidding (NCB), the GOC agreed during negotiations to the primacy o f the provisions o f the Bank’s guidelines on the national regulations, as recorded in the minutes o f negotiations dated April 16,2007.

Use of Bank Guidelines

Procurement o f goods and services required for implementation o f the project and to be financed from the proceeds o f the grant wil l be governed by the procurement guidelines under International Bank for Reconstruction and Development (IBRD) loans and IDA credits published in M a y 2004, revised in October 2006 (the guidelines). Standard bidding documents (SBDs) and the standard evaluation report wil l be used for ICB. N C B wil l be implemented in accordance with Chad’s national procedures, which are deemed acceptable to IDA; as far as they are geared toward cost efficiency, transparency, and consistency with overall objectives mentioned in the Bank’s procurement guidelines. In the absence o f standard bidding documents, the Bank’s documents wi l l be used with appropriate adjustments, taking into account provisions on “publications and notifications,” “currency o f bidding and payment,” and “settlement o f conflicts’’ and eliminating any provision intended to favor local bids.

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N C B wil l be consistent with IDA key procurement objectives, ensuring that: (a) methods used for bid evaluation and contract award are h l l y disclosed to potential bidders and not applied in an arbitrary fashion; (b) adequate time (four weeks) i s given to al l bidders for preparing their bids; (c) bid evaluation and bidder qualifications are clearly specified in the bidding documents; (d) no domestic preference margins are applicable to domestic manufacturers and suppliers; (e) eligible bidders, including foreign bidders, are not excluded from participation; ( f ) a contract i s awarded to the lowest bidder in keeping with transparent procedures as defined in the documents; (g) bid evaluation reports clearly explain the reasons for excluding some bids; and (h) before any bidding takes place, standard bidding documents are prepared and attached to the Project Implementation Manual for submission to IDA for approval.

Consultant service contracts financed by the IDA grant wil l be awarded in accordance with Guidelines for the Selection and Employment of Consultants by World Bank Borrowers f rom M a y 2004, revised in October 2006. The World Bank’s standard request for proposal (SRFP) wil l be used. Simplified contracts wi l l be used for short-term assignments, that is, those not exceeding six months, to be implemented by companies or individual consultants.

Advertising

A general procurement notice (GPN) wil l be prepared and issued upon the World Bank Board o f Directors’ approval o f the proposed IDA project in the United,Nations Development Business or Development Gateway Market and in local gazettes. The GPN wil l be updated annually and submitted to IDA. Specific procurement notices (SPNs) for goods and works will be issued in the local newspapers with wide circulation and in international newspapers for ICB. For consultant services, notices wi l l be issued in local and international newspapers to obtain expressions o f interest. Notices for consultant services expected to exceed US$200,000 equivalent wil l be issued in United Nations Development Business and Development Gateway Market. Expressions o f interest wi l l be used for preparing the short lists, which shall include at least six f i rms. Adequate response time (at least 15 days) for preparing and submitting bids will be given.

Procurement Plan

A procurement plan for the first 18 months o f project implementation was prepared and submitted to IDA before negotiations. I t has been agreed upon during negotiations and i t wil l be updated annually.

Procurement Capacity Assessment

During project appraisal, procurement capacity in the MOF was assessed, concluding that there i s no adequate capacity. Indeed, no qualified procurement officer was on board at the time o f project appraisal and negotiations in the DAAFM in the MOF.

Taking the assessment into account, a time-bound action plan has been prepared to reinforce the DAAFM. The plan includes: (a) recruitment o f a procurement officer well acquainted with Bank procedures (done before project appraisal); (b) preparation o f an 18-month procurement plan

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updated annually to ensure the project i s implemented within the agreed-on time frame; (c) training o f the procurement officer according to the Bank’s and other donor guidelines; and (d) provision for regular audits o f procurement procedures. The GOC i s to appoint a procurement staff person at DAAFM as soon as possible. The procurement specialist financed under IDA project wil l train the DAAFM staff in the Bank’s and other donor’s guidelines.

Table 5: Timetable o f Required Actions

Actions Preparation o f the 18-month procurement p lan

Assignment o f a procurement officer to the DAAFM Participation o f the procurement specialist in training seminars at the regional center Participation in training seminars o f the procurement staff at the regional center Audits o f procurement procedures

Responsible Staff

Technical Secretariat- Dates or Unit

Has been completed at Negotiations P A M F I P Before effectiveness MOF’s Cabinet

As soon as possible Technical Secretariat- P A M F I P and DAAFM

After effectiveness Technical Secretariat- PAMFIP and DAAFM

At least once a year Bank project team and during project external auditors implementation

Procurement Modalities

The procurement o f vehicles, equipment, works (including office rehabilitation), consulting services, studies, and training wil l be managed by the DAAFM, more specifically by i t s procurement officer. He/she will be responsible for a l l bidding documents (ICB, NCB, and local shopping), invitations to express interest, and their submission to the association for approval before publication. In close cooperation with the Technical Secretariat, the procurement officer will submit al l award proposals for contracts requiring prior IDA review to IDA before final award. Documents for contracts below the threshold for IDA’S prior review wil l be kept by the grant beneficiary for an ex post review by auditors and supervision missions.

Works

There is no c iv i l work envisaged under the project financing.

Goods

Goods procured under this project would include procurement o f computer equipment, office equipment and furniture, vehicles, motorcycles, and so on. Each goods contract package, estimated to cost US$250,000 equivalent or more per bid package, would be procured through ICB. A contract estimated to cost less than US$250,000 equivalent would be advertised locally and carried out in accordance with Chad’s procurement laws and regulations, with the qualifications described in paragraph 1 above. Procurement for readily available off-the-shelf goods that cannot be grouped or standard specification commodities for individual contracts for less than US$20,000 equivalent may be procured through shopping according to procedures detailed in paragraph 3.5 and 3.6 o f the IBRD/World Bank’s Guidelines: Procurement under

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IBRD Loans and IDA Credits, M a y 2004, revised in October 2006, and a memorandum dated June 9,2000, “Guidance on Shopping,” issued by IDA.

Consultant Services, Audits, Training, and Studies

Consultancy services may include technical assistance, specialized studies, financial studies, audits, technical issues and training, and so on. The selection method would include quality and cost-based selection (QCBS), quality-based selection (QBS), fixed budget selection (FBS), consultant qualification (CQ), least-cost selection (LCS), and single-source selection (SSS) as appropriate. All consultancy service contracts estimated to cost US$lOO,OOO equivalent or more for f i r m s would be awarded through the QCBS method. In the case o f an assignment requiring individual consultants, selection wil l follow procedures stipulated in section V o f the consultants’ guidelines. Short l i s ts o f consultants for services estimated to cost less than US$50,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f these guidelines.

Single source selection. In exceptional cases, the SSS method would be used in accordance with the provisions o f paragraphs 3.9 to 3.13 o f the guidelines, with IDA’S prior agreement.

Training, Seminars, and Conferences.

The total cost o f these activities has been estimated at US$2.0 million, to be financed by the proposed grant. These activities wil l be carried out in accordance with annual programs approved by IDA. These programs will identify al l training activities (seminars, training trips, and so on), including the number o f participants and estimated cost.

IDA Review

Unless IDA shall otherwise determine by notice to the recipient, the following contracts shall be subject to prior review by IDA: (a) the f i rst five contracts for goods procured on the basis o f NCB; (b) each contract for goods estimated to cost the equivalent o f US$250,000 or more procured on the basis o f ICB; (c) each contract for consultants’ services provided by a firm estimated to cost the equivalent o f US$lOO,OOO or more, and the f i rst three contracts for consultants’ services provided by a firm estimated to cost less than US$lOO,OOO; (d) each contract for consultants’ services provided by a firm procured on the basis o f SSS; (e) each contract for individual consultant services estimated to cost the equivalent o f US$50,000 or more; and (0 each contract for individual consultant services procured on the basis o f SSS. All other contracts shall be subject to post-review by IDA.

Project Implementation Manual

A Project Implementation Manual wil l define implementation procedures and internal organization o f project implementation as well as the M&E system and activities. The manual wi l l include procurement procedures, including selection o f consultants and contract award, and a description o f internal organization for project administrative and financial management, including supervision and internal controls. I t wil l also define disbursement procedures.

89

Table 6: Thresholds for Prior Review

Expenditure Category Contract Amount Procurement Procedure Prior Review

1. Works Less than US$4,000 Shopping Not applicable

2. Goods > or = US$250,000 ICB Prior review

< US$250,000 NCB Five f i rst contracts

< us$20,000 Shopping Post-review 3. Consultants >or = US$lOO,OOO QCBS Prior review

A. Firms < us$loo,ooo QC and others None (post-review, except f i r s t three contracts and a l l contracts for Audits )

Five first contracts

sss Prior review

B. Individuals > or = US$50,000 Individual consultant Prior review < US$50,000 Individual consultant Post-review

sss Prior review

90

Annex 9: Economic and Financial Analysis

CHAD: Public Financial Management Capacity Building Project

The proposed IDA project and, more broadly, the supported PAMFIP will be contributing to a more conducive environment for private sector development and economic growth in the medium term. M a i n lessons from World Bank experience suggest that “...neither good policies nor good investments are likely to emer e and be sustainable in an environment with dysfbnctional institutions and poor The Chadian private sector bears the weight o f the administrative and institutional public sector inefficiency. For instance, the private sector i s crowded out by significant government borrowing from the banking system, which represents usually 60 to 70 percent2’ o f total domestic credit. At the same time, the public sector i s maintaining a massive stock o f domestic arrearsY3’ thus putting additional cost on already high private sector interest rates.31 I t i s expected that streamlined budget preparation and execution procedures, establishing an IFMIS, enhanced internal audit capacity, and trained c iv i l servants would improve management and control o f public resources. An improved financial management system wil l generate timely, more comprehensive, and more reliable budget execution data to decision makers. A strengthened budget execution and cash management will help in reducing imbalances in the government’s accounts and the stock o f arrears.

Another important economic benefit of the proposed IDA project and government program includes the cost savings resulting from reduced delays in payments to government suppliers. Efficiencies in execution o f budgetary transactions would eventually lead to a reduction o f the cost o f goods and services to the GOC. The government currently incurs payment delays, because resources are inefficiently managed (e.g., scattered across various commercial bank accounts, obscure recording and accounting procedures, lengthy budget execution procedures, and so on). Costs o f publicly procured goods and services are higher than market prices (between 50 to 60 percent for recent construction and goods and services contracts), because suppliers factor in contract prices the cost o f delayed payments, some degree o f uncertainty on possible penalty payments, and time costs in terms o f efforts made in coping with ineffective processes and procedures.

Finally, the proposed Project will help in ensuring that increased resources are effectively provided for poverty reduction programs (education, health, rural road, drinkable water, electricity, etc.) and thus will enhance basic public services delivery. With better alignment o f public resources with the priorities set forth in the PRSP and with measures to make these resources actually available to priority sector ministries, the GOC is more likely to meet its targets in service delivery, therefore creating enabling environment for more sustainable and shared growth.

28 The Public Sector Group 2000 Strategy, World Bank (not published) 29 A s evidenced in June 2006, Chad Monetary Statistics reported by BEAC (Banque Centrale des Etats de 1’Afi ique Cen- trale), including credit to parastatals such as Societt Cotonniere Tchadienne (COTONTCHAD), Societt Tchadienne d’Eau et d’Electricit6 (STEE), and Societt des Telecommunications du Tchad (SOTEL), wh ich are 100 percent state- owned enterprises.

31 Interest rates for private sector short-term loans between 13 to 16 percent before tax are charged. Almost 1 percent o f non-oi l GDP fo l lowing estimations at the end o f September 2006. 30

91

Annex 10: Project Preparation and Supervision

CHAD: Public Financial Management Capacity Building Project

Planned Actual PCN review October 7, 2004 October 6,2004 Initial PID to PIC October 13,2004 October 14, 2004 Initial ISDS to PIC November 22,2004 November 17,2004 Appraisal mid-November 2006 February 12-23,2007 Negotiations End of December 2006 April 13-1 6,2007 Board approval May 24,2007 Planned date o f effectiveness Planned date of mid-term review Planned closing date

October 1, 2007 April 20 10 December 3 1,20 12

Key institutions responsible for preparation o f the project:

The Ministry o f Finance, the Ministry o f Economy and Planning, Chamber o f Accounts, Oversight and Control o f Petroleum Revenue Committee (Collkge), General Directorate o f Public Procurement, Ministry for State Control and Moralization, Parliament Finance Committee.

92

Table 7: Bank Staff and Consultants Who Worked on the Project

Name Mamadou Deme Marie Francoise Marie-Nelly Stefanie Teggemann Ronnie Hammad Barbara Weber Beatrice Alperte Emile Finateu Karen Cecilie Sjetnan Arleen Seed Wi l l i am Dorotinsky Edward Mountf ie ld Roland Clarke Samia Melhem Etienne Nkoa Hughes Agossou Charles Donang Pierre M o r i n Gradimir Radisic Daniel Tommasi Jean Claude Courau Reynaldo Castro Jerome Chevallier Natalie Munzberg Eric Champagne Mark Nelson Mohamed Kathouri Joel Tokindang Wolfgang Chadab Odile Keller Nancy Benjamin Madeleine Chung-Kong Paulette Thioune Zoua

Title Sr. Public Sector SpeciaMTeam Leader Sr. Program Manager Public Sector Specialist Senior Operations Officer Operations Officer Sr. Public Sector Specialist Sr. Public Financial Management Specialist Consultant Sr. ICT Specialist Lead Public Sector Specialist Senior Economist Senior Country Economist Senior Operations Officer Public Financial Management Specialist Sr. Public Financial Management Specialist Sr. Procurement Specialist Sr. Procurement Specialist Sr. EconomistKonsultant Consultant Consultant Consultant Consultant Counsel Consultant Sr. Operations Officer Sr. Monitoring and Evaluation Specialist Sr. Economist Finance Officer Advisor Sr. Country Economist Sr. Program Assistant Team Assistant

Bank funds expended to date on project preparation: 0 Bank resources: U S $ l , 130,607 0 Trust funds: US$13,176 0 Total: US$1,143,783

Unit AFTPR AFRVP AFTPR AFTKL AFTKL AFTPR AFTFM WBIRC ISGEA PRMPS PRMED ECSPE CITPO AFTFM AFTFM AFTPC AFTPC AFTPR AFTPR AFTPR AFTPR AFTPR LEGAF AFTPR WBICD AFTKL AFTP3 LOAG2 PRMPS AFTP3 AFTPR AFMTD

Estimated Approval and Supervision costs: 0

0

Remaining costs to approval: US$3 10,000 Estimated annual supervision cost: US$140,000

93

Annex 11: Documents in the Project File

CHAD: Public Financial Management Capacity Building Project

a

a

a

a

a

a

a

a

a

a

a

a

Project Appraisal Document: Management o f Petroleum Economy Project, dated December 29,1999, Report No. 19427-CD. Development Credit Agreement for the Management o f Petroleum Economy Project (Credit 3316-CD), dated March 20,2000. HIPC Status o f Implementation, August 23, 2001. Etude du renforcement des capacitks de coordination de l’action gouvernementale, Jean- Marc Bertrand, Novembre 2002. Mid-Term Review Report for Management o f Petroleum Economy Project (Cr. 3316- CD) conducted in July/July 2003. Audit fonctionnel des neuf ministbres pilotes, Jean-Marc Bertrand, Bruno Servan, Denis L e Callo, Thierry Bkcheret, AoQt 2003. Country Procurement Assessment Report (CPAR) (in French), Volumes 1 to 3, September 27,2003. Country Assistance Strategy, November 12, 2003. Audit du Systbme Intkgre de Gestion des personnels civils de 1’Etat (SIG), Gilles Chatin, fkvrier 2004. Country Financial Accountability Assessment (CFAA), October 2004. Public Expenditure Review, Mars 2005. Collbge de Contr8le et de Surveillance des Ressources Pktrolibres (CCSRP)-Rapport de mission sur sites des projets financks sur ressources pktrolibres, Ma i 2005. Plan d’action pour l’amklioration de la gestion informatique, diagnostic et stratkgie de poursuite du dkveloppement, CESRAP-Technical Secretariat, Raymond Chauvin, Mai 2005. Gestion de l a trksorerie, consolidation de l a gestion budgktaire, comptabilisation des revenus pktroliers et des opkrations sur financement extkrieur dans les comptes du Trksor, Jean-Luc Helis, Sarah Lacoche, Fklicienne Guinikoukou, Gaktan Guiraud, Emile Finateu et Luc Lecuit, IMF, June 2005. PFM Performance Measurement Framework, PEFA Secretariat, April 26,2005, ICR o f the GEEP Project, draft September 2005. PRSP Progress Report and Joint Staff Advisory Note, June 9,2005. Implementation Completion Report, Management o f Petroleum Economy (Cr. 33 16-CD), Report No. 32710-TDY Draft September 2005. Implementation Strategy Note (Development Policy Letter)

94

Annex 12: Statement of Loans and Credits

CHAD: Public Financial Management Capacity Building Project

Original Amount (US$ millions)

Difference between expected and actual

disbursements

Project Fiscal Purpose ID Year

IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

PO66998 2005 TD-Local Development Program 0.00 23.00 0.00 0.00 0.00 19.60 1.85 0.00 PO78138 2005 TD-GEF Community Based Ecosystems 0.00 0.00 0.00 6.00 0.00 5.27 -0.10 0.00 PO74266 2004 TD-Agricultural. Services & Producers’ 0.00 20.00 0.00 0.00 0.00 9.74 2.36 0.00

PO77240 2003 TD-Critical Electrical & Water 0.00 54.80 0.00 0.00 0.00 27.00 21.25 0.00 PO00527 2003 TD-Education Sector Reform 0.00 42.34 0.00 0.00 0.00 33.40 17.05 13.44.

Organizations

PO72226 2002 TD-Population & AIDS 2 0.00 24.56 0.00 0.00 0.00 2.69 -2.07 -2.50

PO35672 2001 TD-National Transport Program . 0.00 67.00 0.00 0100 0.00 4.67 -0.57 -11.13

PO55122 2000 TD-Health Sector Support. 0.00 41.51 0.00 0.00 0.00 1.70 -0.74 0.74

Total: 0.00 273.21 0.00 6.00 0.00 104.07 39.02 0.93

Table 8: Chad Statement o f IFC’s Held and Disbursed Portfolio as o f July 31,2006 fMillions o f US. dollars)

Chad Statement o f IFC’s

He ld and Disbursed Portfolio As o f 07/3 1/2006

(In U S Dollars Mi l l ions)

Held Disbursed

F Y Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002 Finadev Tchad 0.00 0.19 0.00 0.00 0.00 0.00 0.00 0.00 2006 TOTCO 8.65 0.00 0.00 8.65 8.65 0.00 0.00 8.65

Total Portfolio: 8.65 0.19 0.00 8.65 8.65 0.00 0.00 8.65

Approvals Pending Commitment Loan Equity Quasi Partic

2000 ChadOil 0.00 0.00 0.00 200.00 2002 FinadevTchad 0.28 0.00 0.00 0.00

Total Pending Commitment: 0.28 0.00 0.00 200.00

95

Annex 13: Country at a Glance

CHAD: Public Financial Management Capacity Building Project

Chad at a glance BH3108

Chad

P 7 4w 3 P

3 4 3 0

25 44

117 33 42 218 7 %

M a6

1995 1 4

132 31 P

1 4

-8 4 0 5

6 3 1 4 7

4 8

2004

285 2112

170 4

Sub- Saharan

Afdca

74 1 745 552

2.3 2.3

35 48

coo 20 58

83 SO E7

ZOOA 4.3

24.9 52.8 30.5 18 3

0.3 3e.5 2.0

18.1 34.t

2005

5 6 2.1

$7.7

-8.8

LOW. 1K;DmC

2353 580

13b4

1 8 23

30 5B 80 39 75 M

104 $10 PO

2Ms 6 5

174 58 P 37 0 20 7

3 1

ZW5-09

28 04

# Q - STRUCTURE ot the ECOHONY

1985 1995 ZOO4

381 s a 241 z: (XOfGDPI AprrOJlluW lndusby 131 13t 4 5 5 512

Mnnufauunng 104 112 5 2 4 7 swvscs 489 505 m3 281

General govf Iina convinovon expenditure 11 7 7 3 5 0 4 D lmpm of gcods and sewices 3 1 3 338 472 383

1985-85 199545 2004 ma5 p w q e mudgmMbJ *pnCiibrc 4 1 2 7 -53 8 1 lnduswy 10 I R I l z E l 5 0

srrrrrr 16 5 6 i a 6 2

Housohatd Anal m a u m v t m o x ~ s n d i t ~ ~ 1 0 3 9 0 2 4 9 General gost fin& wmumptm expndirufe -85 6 3 -183 3 6 Gross C a p l u l fwrnauml 1.5 16.7 -3Y 1 -262 Impom of go& and ~cmices -34 138 1 4 -121

Noti 2005 data are preliminary ertmaas

Hwsehold h a l mumptmn exp+IpdihCp io04 9 1 4 6 4 5 5 8 1

Manufacturing

96

PRICES and GOVERNMENT FIHANCE

Dcmesdc prices /X diunpe) Ccnsumer pnces Implicn GDP defmtcr

Gowmmenr Finance (74 OfGDP, i x I u d € S cwrenfgrants) Current revenue Cuntnt budge balance Owrail SumkjrkJehai

TRADE

(US$ mitons) T w l exoorts (fob)

COmR Caaie Manufacures

T m l impom t&J Food Fuel and energy Capital pods

Expcrt price index (2K+fOOJ impor4 pme index [.*WW#!J) T m s of trade (2Knl=fOO,l

BALAHCE of PAYMENTS

(US minium) ixpcrts of p o d s and s e w a s lmponr of gceds and s 9 ~ i c e s Resouroe balance Ne4 ncme Ne1 wrrent tnnders

Cunent a c x ~ w balance Finmong items me?) C h m s in ne! reserves Memo. Resenes including @OM (USS mJliomJ Conversion rate (DEG, kaVUSS}

EXTERNAL DEBT and RESOURCE FLOWS

{USS mrncm) Toai debt Wtandmg and asbvrsed

IERD IDA

T m l debt s e w 10RD IDA

Official rants Official m a tors Pnvate creditors Foreign direcl inresmnt (net mMrms) Ponfotio equity \net m N w )

M'orld Bank program Cmirments D,sbursements Principal r e p a p n t s Net flcms Interest Darner.% Net trwskrs

Composition of ne8 resource flows

1985

5 2 -6 1

4 6

1985

# 44 2s

5 %e5

t o @l

198s

$23 324

-2p1

-5 107

-1 a5 87 16

449.3

1W

217 0

4.0

(7 0 5

12% 5 a 54 0

0 4 4 0 1

-1

1995

6 2 8 8

8 2 4 7 5 a

199s

243 128 50

277 22 22

126

150 142 1 I 3

1895

317 488 .1?1

-5 55

.121 185 -e3

4982

1995

812 0

370

16 0 4

121

0 33 0

87 42

1 41

3

58

38

2004

-5 4 $3 3

8 2 1 5 a 5

Z W

2 184 48

302

738

57

241 118 205

2Wd

2.274 2a3d

24 1 594

1 8s 488 34 1 -55

282 527 7

2004

1701 37

874

4% 1

1 i

21 1 94 0

478 0

23 80 4

78 8

68

m5

2.855 Bd ?Ax 710

76

285 t 18 241

zoos 3,210 2 . m 1 .w

-1.52% $35

t 76 -t28 48

371 529 8

Mo5

35 86.1

i 16

w 12 53 8

44

Current =aunt baame to CDP (%) I

Thc WwM 8ank Gmwp This wble was prepared by wnm+qrart staff: figurer may M w t r c m other Wcdd Bank plWzshed data 8113MB

97

MAP SECTION

1963 Level1973 Level

2001 Level

TT ii bb ee ss tt ii

BBoo

dd éé ll éé EE nn nn ee dd ii

BB oo rr kk oo uu

SS aa hh aa rr aa DD ee ss ee rr tt

K A N E MK A N E M

B AB AT H AT H A

S A L A M AS A L A M ATTG U E R AG U E R A

B I LB I L T I N ET I N E

MOYEN- CHARIMOYEN- CHARITTANDJILEANDJILE

C H A R I -C H A R I -B A G U I R M IB A G U I R M I

LOGONE LOGONEOCC.OCC.

O U A D D AO U A D D A ÏÏ

B O R K O U - E N N E D I - T I B E S T IB O R K O U - E N N E D I - T I B E S T I

L A CL A C

LOGONE ORIENTLOGONE ORIENTALAL

MAMAYO- KEBBIYO- KEBBI

FadaFada

Koro TKoro Torooro

SalalSalal

BokoroBokoro

KKéélolo

KoumraKoumra

HarazHarazééMangueigneMangueigne

PalaPala

MasalasefMasalasef

MelfiMelfi

Abou DeAbou Deïïaa

MangalmMangalméé

Goz BeGoz Beïïdada

OumOumHadjerHadjer

MassenyaMassenya

GGéélengdenglengdeng

BoussoBousso

MassaguetMassaguet

MoussoroMoussoro

MouzarakMouzarak

Oum-ChaloubaOum-Chalouba

ZouarZouar

AozouAozou

MaoMao

AtiAti

MongoMongo

BolBol

Am TAm Timaniman

AbAbééchchéé

BiltineBiltine

SarhSarh

DobaDoba

LaiLai

BongorBongor

MoundouMoundou

Faya-LargeauFaya-Largeau

NN´́DJAMENADJAMENA

K A N E M

B AT H A

S A L A M ATG U E R A

B I L T I N E

MOYEN- CHARITANDJILE

C H A R I -B A G U I R M I

LOGONEOCC.

O U A D D A Ï

B O R K O U - E N N E D I - T I B E S T I

L A C

LOGONE ORIENTAL

MAYO- KEBBI

Fada

Koro Toro

Salal

Bokoro

Kélo

Koumra

HarazéMangueigne

Pala

Masalasef

Melfi

Abou Deïa

Mangalmé

Goz Beïda

OumHadjer

Massenya

Gélengdeng

Bousso

Massaguet

Moussoro

Mouzarak

Oum-Chalouba

Zouar

Aozou

Mao

Ati

Mongo

Bol

Am Timan

Abéché

Biltine

Sarh

Doba

Lai

Bongor

Moundou

Faya-Largeau

N´DJAMENA

NIGER

NIGERIA

LIBYA

SUDAN

CENTRAL AFRICANREPUBLIC

CAMEROON

LakeChad

MbakaouRes.

Wad

i How

ar

Logone

Gribingui

B amingui

O Fama

Bahr el

Ghaza

l (Soro

)

Batha

Chari

Bahr

Salam

at

Vina

Ban goran

To Séguédine

To Akhaltsikhe

To Nyala

To Birao

To Kaga Bandoro

To Bossangoa

To Bozoum

To Maroua

To Fotokol

To Maroua

T i b e s t i

Bo

d é l é E n n e d i

B o r k o u

S a h a r a D e s e r t

Emi Koussi(3,415 m)

Tarso Emisou(3,376 m)Pic Touside

(3,315 m)

15°E 20°E 25°E

15°E 20°E

10°N

15°N

20°N

15°N

20°N

CHAD

0 100 200

0 100 200 Miles

300 Kilometers

IBRD 33385

SEPTEMBER 2004

CHADSELECTED CITIES AND TOWNS

PREFECTURE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PREFECTURE BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endorsemen t or a c c e p t a n c e o f s u c h boundaries.