OUTPUT BASED AID (OBA)

Financial Management Perspective

Saidou DiopFinancial Management SpecialistSenegal and The Gambia CoAFTFMThe World Bank

WashingtonMarch, 2008

Why Growing Interest in OBA?

Growing Interest in OBA Definition. OBA is one method for improving the delivery of

basic services such as water, sanitation and electricity, when the inability of users to pay full cost would justify performance-based subsidies to complement or replace user fees.

Main Aspects of OBA :

Focusing project implementation on results ( i.e, outputs)

Reducing transaction cost, particularly for high capacity borrowers

Providing innovative and efficient means for disbursing, using new designs that remain consistent with Bank policies and procedures.

Does OBA change Fiduciary approach ?All Bank Fiduciary and Safeguard policies required under

investment lending apply to OBA operations:

Financial Management/Reports, Audit, Disbursement (OP 10.02), expenditure eligibility (OP 6.00)

Disbursement – question of expenditure-based vs OBA approach performance-based – definition of eligible expenditures/allocation

Procurement standards (OP 11.00) - OBA Projects are not exempt from Bank Procurement requirements –- distinguishing:(a) OBA through competitive selection of service providers; and(b) OBA through direct arrangements with incumbent service providers.

Fromdesign to

Implementation

How do we get there?

SO, What Fiduciary Arrangements for OBA ?

During Appraisal and Preparation• Project Components. Define classes of Outputs,

estimated their Unit cost and OBA subsidies• FMA. Assess reliability on providing credible data on

unit cost of output• FMR/IFR. Include certified list of outputs completed

and delivered, form basis for disbursement • Audit TORs. Specify sampling review of outputs and

UC and reporting on reasonableness

Fiduciary Processes in OBA : Areas of focus (1)

During Implementation• Supervision. Sample-verification of physical delivery

of outputs and their technical quality as complement to recipient reporting on output completion

• Disbursement. Payment based on output delivery - upon independent verification of pre-defined output(s), in pre-agreed amount for the specified service – regardless of actual cost

MTR. Adjust unit cost if deem necessary after independent review (UC variances).

Fiduciary Processes in OBA : Areas of focus (2)

MEF

Auditors/consultants

Firms / OCBs/consult.

Invoices

PIRPIP

OVR

AGETIP Validated RPONAS RP

Quarterly IFRAdvance ceiling

Quarterly replenishment

Seed fundQuarterly reimbursement

Payment

Quarterly RP

CFPOVCOVR

AGETIP

GPOBA

PaymentInvoices

ONAS

Senegal On site sanitation – A GPOBA structuring Project

Sample of IFR (1/2)

Current Quarter Year to Date

Cumulative to Date

Sources of FundsWorld BankTOTAL

Less:Uses of Fund

Installation of Water Service ConnectionTOTAL

Surplus/ Deficit

Next 6 months

Actual

IFR1- Report on Sources and Uses of FundsFor the quarter ending/ period

in USD

Forecast

IFR2- STATEMENT OF EXPENSES

To: World Bank Loan Department

Executing Agency: East Meets West Foundation

Trimester from: [date] Disbursement category: **

Number of connections

during the period

Service start date

Financial cost per connection

*

Subsidy amount per connection

(USD) **

Percentage of subsidy:

80% / 20% **

1. 1 Danang Hoa Vang GGGG 20.00 XXXXX 125.00 100.00 80% 1,600.00

2 100.00 0.00

3 100.00 0.00

4 100.00 0.00

20.00 1,600.00

** As defined in the Grant Agreement

Confirmation by the Operator:

- - - - - - - - - -- - - - - - - - - - - - - - -- - -- Date: - - - - - - - -- - - - - - - - - - - -

NAME (authorized representative):

TITLE:

TOTAL:

I hereby certify that, in accordance with the provisions of the Grant Agreement dated [insert date], this quarterly request for disbursement has to be sent for review and clearance to the Task Team Leader at The World Bank, which is acting as Administrator of the Global Partnership on Output-based Aid. I also certify that the information provided on this invoice is accurately presenting the number of eligible water connections made during the aforementioned period and the number of eligible connections which have been in service for at least six months. I also understand that the Word Bank Task Team Leader might request that the conclusion of an independant verification agent be received prior to disbursing the funds, in accordance with the provisions of the Operations Manual. This request will be officially submitted to the Loan Department of the World Bank in Manilla only after official clearance of the World Bank Task Team Leader has been received, and will reflect the amounts that have been found acceptable to the World Bank for the given quarter.

No. CommuneSubsidy Amount requested for the

periodDistrictProvince

* Cumulating Investment Costs (EMWF Line Item Cost of Construction + Implementation Cost + Financial Cost) and Financial Contribution from the Beneficiary (i.e. excluding Estimated Value of In-Kind Contribution and Estimated Value of Land Provided).

Project ID

Number of eligible GPOBA connections submitted for payment during the period

Some Examples

Morroco Social Priorities Program Basic Education Project (P005501)

Mexico Decentralized Infrastructure Reform Loan (P0800149)

Albania Health System Modernization Project (P082814)

Link to OBA - www.gpoba.org

Salient Challenges

Complexity in determining and monitoring unit costs

Joint capacity assessments in OBA Project involving other Donors

Using the borrower’s fiduciary systems Securing agreement among stakeholders

(Service Providers, CBO/NGO) Elaborate FM Guidance note for OBA

Conclusion

OBA operations are responsive to the Bank’s heightened focus on beneficiary ownership, stronger partnerships and results, while continuing to meet the Bank’s fiduciary obligations.

Challenge is to scale up and implement in collaboration with borrowers and development partners in ways that will support a country´s poverty reduction agenda.

Some Outputs of Senegal OBAShower+TCM

Shower

TCM: Manual

Discharge

Toilet

ToiletShower+BALP

Thank you.Thank you.