Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No. 34255-PAK

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT PAPER

FOR

PROPOSED ADDITIONAL FINANCING

IN THE AMOUNT OF SDR 20.7 MILLION (US$30.0 MILLION EQUIVALENT)

AND RESTRUCTURING WITH REALLOCATION OF SDR 6.9 MILLION (US10 MILLION EQUIVALENT)

TO

THE ISLAMIC REPUBLIC OF PAKISTAN

FOR THE

AJK COMMUNITY INFRASTRUCTURE AND SERVICES PROJECT

November 17,2005

Agriculture and Rural Development Sector Unit South Asia Region

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

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CURRENCY AND EQUIVALENTS

ACS ADB AJK BHU DCC DPCO D H Q H DO FMR GDP IDA LGRDD N C B NGO NHA NRSP PC PCMU P&DD PSC PWD RHC THQH U N D A C

Currency Unit = Pakistan Rupee US$ 1 = PKR 59.7 (November, 2005)

FISCAL YEAR

July 1 - June 30

ABBREVIATIONS AND ACRONYMS

Additional Chief Secretary Asian Development Bank h a d Jammu and Kashmir Basic Health Unit District Coordinating Committee District Project Coordinating Officer District Head Quarter Hospital District Officer Financial Management Report Gross Domestic Product International Development Association Local Government and Rural Development Department National Competitive bidding Non-Governmental Organization National Highway Authority National Rural Support Program Provincial Coordinator Project Coordination and Monitoring Unit Planning and Development Department Project Steering Committee Public Works Department Rural Health Center Tehsil Head Quarter Hospital United Nations Disaster Assessment Committee

Vice President: Praful Patel, SARVP John W. Wall, SACPK

Sector Director: Constance Bernard, SASAR Sector Manager: Adolfo Brizzi, SASAR

Raja Rehan Arshad, SASAR

Country Director:

Task Leader:

TABLE OF C O N T E N T S

Page

A . B .

C . D . E .

F . G . H .

INTRODUCTION ....................................................................................................................... 1 BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING .......................................... 1 1 . 2 .

Project Data and Performance ...................................................................................... 1 The Earthquake Disaster ............................................................................................... 2

PROPOSED CHANGES .............................................................................................................. 2 CONSISTENCY WITH C A S ...................................................................................................... 4 APPRAISAL OF THE NEW ACTIVITIES .................................................................................... 4 1. Technical ....................................................................................................................... 4 2 . Inst i tut ional Arrangement and Implementation ............................................................ 5 3 . 4 . Environmental and Social Aspects ............................................................................... 6 EXPECTED OUTCOMES ........................................................................................................... 6

FINANCIAL TERMS AND CONDITIONS FOR THE ADDITIONAL FINANCING ......................... 7

Fiduciary Aspects ......................................................................................................... 6

BENEFITS AND ~ S K S .............................................................................................................. 7

A N N E X E S

Annex 1: Criteria and Process for Selecting El ig ib le Sub-projects .................................................... 8 Annex 2: Fiduciary Aspects .............................................................................................................. 10

Financial Management Arrangements ......................................................................... 10 1 . 2 . Procurement Arrangements .......................................................................................... 14

Annex 3: Environmental and Social Guidelines ............................................................................... 19

PROJECT PAPER DATA SHEET

Date: November 17,2005 Team Leader: Raja Rehan Arshad Country: Palustan Sector Director Constance Bernard, SASAR

Responsible agency: and Kashmir (GoAJK)

Planning and Development Department (P&DD), Government o f Azad J a m u

Current closing date: December 3 1,2007

Does the restructured or scaled-up 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?

To allow for further processing o f the operation, Management has approved a waiver o f OP 12.00 to allow for the financing o f cash grants and OP 8.50 to allow for the financing o f re l i e f activities. Such waiver i s necessary to allow the Government to respond effectively to the immediate needs o f the population .~

affected by the earthquake.

@ Y e s o N o @ Y e s o N o o Y e s @ N o

Revised project development objectives/outcomes:

The main objective o f the project i s to assist the GoAJK in implementing a program to restore vital economic and social infrastructure damaged andor destroyed by the October 2005 earthquake. Performance o f the project would be measured by how well GoAJK i s able to restore the damaged infrastructure to stimulate a return o f economic activity to normalcy. Works will be carried out in al l affected districts o f AJK: Muzaffarabad, Poonch (Rawalakot), Bagh, and Sadhnoti. It i s not possible to restore all reported damages with funds that would be available under this project. Consequently, work under selected sectors would be carried out and, furthermore, prioritization would be done within the sectors in each district. The project would comprise three components: (a) restoration o f economic and social infrastructure; (b) strengthening o f the safety net and capacity building programs; and (c) project management and implementation support.

Several benefits are expected to accrue from the project, namely: (i) restoration o f damaged roads would improve access, increase overall energy savings, quicker delivery o f agricultural produce to consumers in urban areas and consumer items to rural area, and savings in travel time; (ii) restoration o f health and education buildings would improve people’s access to health and education; (iii) repairs to water supply systems would make clean drinking water available, reduce incidence o f disease and help improve productivity and women’s conditions; (iv) provision o f relief assistance would improve the quality o f l i f e o f the affected people; and (v) with capacity building o f communities they would be better able to cope with the current and future disasters.

Does the scaled-up or restructured project trigger any new safeguard policies? N o

For Additional Financing [ 3 Loan [XI Credit [ ] Grant

Source Local Foreign

For Loans/Credits/Grants: Total Bank financing (US$m.): US$30 mi l l ion equivalent Proposed terms: (for IDA Credit) 35 years to maturity with a 10-year grace period

Total Borrower IBRD/IDA (additional financing) IBRD/ IDA (reallocation) Others Total

30.00 10.00

40.00

30.00 10.00

40.00

A. INTRODUCTION

1. an amount o f US$30 mil l ion to Government o f AJK and restructuring to reallocate US$lO mi l l ion to undertake recovery and reconstruction in areas struck by the earthquake.

2. The proposed additional credit and the reallocated amount would help finance the costs associated with emergency recovery and reconstruction needs following the October 8,2005, earthquake in northern parts of Palustan. The earthquake caused more than 73,000 deaths and wide-spread destruction o f household stock, roads, and basic infrastructure. Total IDA allocation being proposed for emergency recovery assistance i s US$40 mi l l ion o f which U S S l O mil l ion i s being proposed to be reallocated from the AJK Community Infrastructure and Services Project (C1SP)-the uncommitted amount in the project-and US$30 mil l ion to be provided as additional financing which will also be reallocated to emergency recovery assistance. The proposed additional financing would be needed to cater to help finance the costs associated with the huge requirement o f restoring essential social and physical infrastructure in the area in the wake o f the earthquake, for which the proposed reallocation o f US$lO mi l l ion would not be adequate by far. The US$40 mi l l ion would help finance early reconstruction o f the social and physical infi-astructure along with provision o f safety nets and technical assistance for disaster management. A number o f multi- and bi-lateral agencies as well GoP and GoAJK plan to support other similar projects. There will be close coordination with other projects in the area.

B. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING

This Project Paper seeks the approval o f the Executive Directors to provide an additional credit in

1. Project Data and Performance

A JK CISP 3. The AJK CISP (Cr. 3689), SDR 16.1 million, was approved on July 9,2002 and became effective on September 18,2002. Expected closing date o f the project i s December 31,2007. The objective o f the proposed project i s to improve the well-being o f underserved low income communities through the delivery o f cost effective and sustainable community development schemes, and basic infrastructure and services, using participatory community based approaches. T h i s was to be achieved by: (i) strengthening the role and capabilities of local governments at the district and lower levels to extend technical, financial, and management support to community-based organizations (CBOs); (ii) mobilizing and building the capacity o f CBOs to increase their participation in development activities; and (iii) effective governance, transparency, and accountability through improvements in operational, monitoring and evaluation, and financial and budgetary procedures for project implementation.

4. The project has three complementary components briefly described as follows:

(a)

(b)

decentralized planning and implementation assistance, which would develop the capacity of the state, district, communities and CBOs;

community development, including mobilization, organization, and capacity building; health and environmental sanitation awareness (HESA); support to women and children (SWC) in areas o f health, ski l ls and management training, economic/functional literacy, and livelihood improvement through linkages to economic and micro-credit facilities; and field support and research studies; and,

community infrastructure, which involves investments in basic infrastructure and services (water supply, community latrines, storm water drainage, street pavements, street lighting, solid waste management, internal pathways, foot bridges, and taggingnumbering streets).

5. Current Implementation Status. AJK CISP i s currently rated as satisfactory for both PDO and IP. The project has disbursed SDR 6.4 mi l l ion out o f the total credit o f SDR 16.1 mill ion. The overall

(c)

implementation has significantly improved in the last one year. Most o f the critical actions were taken by the GoAJK resulting in improvement in implementation. Th is resulted in the social mobilization component being ahead o f the agreed targets, which established the ground for increase in the pace o f physical infrastructure implementation in the coming months.

2. The Earthquake Disaster

6. (Muzaffarabad, Bagh, and Poonch) o f Azad Jammu and Kashmir (AJK), as described in the Memorandum to the President (MOP) (paragraph 4).

C. PROPOSED CHANGES

7. A new Part Z: Recovery, Rehabilitation and Reconstruction Program would be added to the AJK CISP Project. The main objective o f the new Part Z i s to assist the GoAJK in implementing a program to restore vital economic and social infrastructure damaged and/or destroyed by the October 2005 earthquake. Performance o f the new project activity would be measured by how well GoAJK i s able to restore the damaged infrastructure to stimulate a return o f economic activity to normalcy.

8, Works will be carried out in al l affected districts o f AJK: Muzaffarabad, Poonch (Rawalakot), Bagh, and Sadhnoti. I t i s not possible to restore al l reported damages with funds that would be available under this project. Consequently, work under selected sectors would be carried out and, furthermore, prioritization would be done within the sectors in each district.

9. infrastructure; (b) strengthening o f the safety net and capacity building programs; and (c) project management and implementation support.

The recent earthquake o f October 8th resulted in widespread damage in three districts

The new project activity would comprise three components: (a) restoration o f economic and social

(a) Restoration of Economic and Social Infrastructure: The component will include, but not be limited to, restoration and reconstruction o f social and physical infrastructure such as roads, education and health facilities, water supply and sanitation systems, street pavement, foot bridges, etc. All reconstruction and restoration work would follow national building codes for earthquake conditions. All contracts for reconstructionhestoration would have to be awarded in the f i rs t eighteen months o f the project.

@) Strengthening o f the Safety Nets and Capacity Building: T h i s component would include two subcomponents:

(i) Strengthening o f safety nets, including among other things providing cash grants and in- lund assistance to the affected communities and households.

As part o f the rehabilitation and reconstruction efforts cash transfer schemes have an important role in initiating the process o f rebuilding safety-nets in the affected areas. While it i s anticipated that longer te rm support in the form o f credit schemes and public works will be essential for employment and income generation, the cash transfer i s a necessary f i rs t phase o f support. During this init ial period as the experience in other countries (such as those affected by the Asian tsunami) has shown, cash grants may also help regenerate local economies by creating purchasing power in affected areas. The choice o f cash transfer i s justified on various grounds. Specifically, it: (i) aids the households to make their own choice o f addressing the most vital needs to mitigate their immediate vulnerabilities, and as such, i s superior to any in-kind transfer; (ii) addresses the needs o f those who may be unable to participate in alternate safety net programs l i ke public works or those not yet equipped to use other forms o f safety-net support l ike credit

2

and inputs at this stage; and (iii) serves to infuse spending power in communities which will in turn revive economic activity in these areas.

Components

Restoration o f Economic and Social Infrastructure and Project Management and Monitoring Support Strengthening o f Safety Nets and Capacity Building

Total

The delivery o f these grants will be designed keeping in mind two broad principles: (i) ensure that the assistance i s disbursed expeditiously to the intended beneficiaries while ensuring that the institutional arrangements are in place to minimize the r isks o f mis- targeting and duplication; and (ii) The distribution o f benefits will take into account the scale o f impact in the different communities through the needs assessment, consultation with stakeholders, and other diagnostic tools available from statistical agencies in the country. This will greatly assist in prioritizing over communities and estimating budgetary needs. Furthermore, a combination o f community-wide targeting and individual targeting will be necessary as guided by the diagnostic assessments.

Amount in million US$ Pak Rupee

28.0 1,671.6

12.0 716.4 40.0 2,388.0

A waiver to OP 12.00 (disbursements) and OP 8.50 (Emergency Recovery Assistance) i s required to allow use o f IDA for cash grants including livelihood support. Management has granted this waiver. The operational procedures, eligibility criteria and delivery mechanisms, meeting high transparency and accountability standards against which cash grants and other safety-net support grants will be delivered to the targeted households, shall be defined and agreed with the Government before disbursements can be made from the Credit for these activities.

(ii) Capacity buildindtraining in order to enable communities to reconstruct with improved standards and to better handle disasters in the future. T h i s component would preferably be implemented through NGOs selected on the basis o f their expertise and experience and would be coordinated with PPAF where appropriate.

(c) Project Management and Monitoring Support: This component will finance project management and monitoring. I t will provide support to provincial and district level governments by financing staff and consultant recruitment and incremental operating costs. This component will also finance third party inspection and validation.

10. In order to meet IDA’S share o f the costs o f this project, i t i s proposed to reallocate US$lO.OO mi l l ion equivalent f i om the AJK Community Infrastructure and Services Project (IDA Credit 3689-PAK) and provide an additional financing o f US$30 mi l l ion to the AJK CISP, which will also be reallocated to the AJK emergency recovery assistance. Retroactive financing equivalent to a maximum o f 20% o f the credit, US$8 mi l l ion will be provided to GoAJK. T h i s would cover eligible expenditures o f the projects’ activities that have been pre-financed by the Borrower as o f October 8,2005 and up to the date o f the signing o f the Agreements or for a maximum period o f 4 months, which ever comes first.

The total cost o f the new activity i s estimated at US$40 mi l l ion al l o f which will come from IDA.

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D. CONSISTENCY WITH CAS

11. The Wor ld Bank Group’s 2002 Country Assistance Strategy (CAS) for Pakistan laid out a program o f support for Pakistan’s I-PRSP. The CAS specified the instruments best suited to pursue the strategy: (i) policy based fast disbursing lending to pursue the governance and sectoral reform agenda; (ii) programmatic sector and investment lending to support implementation o f reforms in economic management and governance (e.g., technical assistance to the central bank and reforms in tax administration and public financial management); social infrastructure and delivery systems for education and health; and community infrastructure services (including water management) at al l levels o f governments; and (iii) analytical work and other non-lending services to monitor developments in the areas o f l o w engagement and to encourage reforms.

12. The CAS Progress Report, which was presented to the Board on April 20,2004, confirms that the strategy set out in the 2002 CAS remains val id in light o f the full PRSP and proposes an extension o f this strategy until the next CAS i s prepared. The report pointed out the persistence o f high level o f poverty in spite o f improvement in growth performance and proposes to assist the government to address poverty, particularly vulnerable groups o f the society through improvement o f safety nets and supporting equitable growth. Based on the government’s strong progress in implementing reforms and i t s desire to reduce poverty, the program o f Bank support outlined in the CAS i s proposed to be expanded and fully aligned with the PRSP in the new CAS that i s under preparation for the period FY06-FY09. The proposed project activities described above are consistent with the expanded CAS, which aims to address poverty and vulnerability.

E. APPRAISAL OF THE NEW ACTIVITIES

1. Technical

13. participated in a mission, deployed immediately after the October 8,2005 earthquake, to take a preliminary stock o f the damage caused, ascertain views o f the various stakeholders on ways and means to repair the damage, and put together proposals for financing by the Bank o f a project to assist G o A X in rehabilitating the affected areas. Similar missions have visited the earthquake affected areas for preliminary damage assessment

14. The Bank has extensive experience supporting restoration o f damage due to natural (flood and drought) calamities in Palustan. I t has so far supported five such emergency operations - four o f them relating to flood damage restoration and one to drought emergency re l i e f assistance (DERA). These projects were successful in meeting their objectives o f restoring infrastructure and assisting in economic recovery. Factors contributing to successful implementation were: (i) flexible and demand driven designs; (ii) regular high level oversight by local/provincial and federal authorities; (iii) early fielding o f supervisory and implementation assistance consultants; (iv) enforcement o f performance based criteria for eligibility o f implementing agencies to undertake incremental work; (v) enforcement o f discipline in procurement planning and contract management; and (vi) mid-term reviews with flexibil i ty to introduce required changes.

15. offices to pre-finance project expenditures: (ii) delays in submission o f consolidated audit reports for multiple implementing agencies; (iii) frequent turn over o f 1ocalProvincial Coordinators; (iv) non- familiarity o f staff o f some o f the implementing agencies wi th IDA and other donors procurement and disbursement procedures and inadequate attention to contract management.

16. The Bank’s experience in supporting earthquake emergency rehabilitation operations comes from working with government across regions, more recently in Gujrat and Maharashtra in India, Turkey, Iran,

The appraisal below i s based on field visits and discussions with GoP and GoAJK. T h e Bank

On the other hand, the main constraints experienced were: (i) delays in releasing o f funds to field

4

Colombia and El SaIvador to mention a few. The Bank would draw upon its past experience for assisting GoAJK in the implementation o f the activities o f the EW.

17. The AJK line departments (such as P&DD, LG&RD, PWD, Education, and Health) have extensive experience in planning and executing c i v i l works. They have been engaged in the implementation o f Bank-assisted Northern Health, Education, and, more recently, AJK CISP projects. Nonetheless, i t has been repeatedly observed that preparation o f design and the necessary documents for works i s relatively weak and requires strengthening at both the state and district level. Capacity o f the government has been further impaired because government departments have suffered losses in terms o f both human l i fe and physical facilities (offices, equipment, records, supplies, vehicles, etc.). This deficiency in capacity will be addressed through hiring o f requisite s lu l l s from the market.

2. Institutional Arrangement and Implementation

18. and Development Department (P&DD), would oversee the project by providing policy guidelines, approving overall annual budgets and implementation plans, and ensuring vertical and horizontal coordination for smooth implementation o f the project. Members o f the PSC would be the Secretaries o f the departments o f Finance, Planning and Development, Local Government and Rural Development, Public Works, Social Welfare, Education, Health, and any other department which the ACS, P&DD might l i ke to co-opt. GoAJK will appoint a full-time Project Coordinator (PC), who will head a Project Coordination and Monitoring Unit (PCMU) based in P&DD, which would be responsible for coordination o f department and district activities, for organizing technical assistance as needed and for monitoring progress. The PC and staff o f the PCMlJ could be hired from the market andor seconded from the government. For the latter additional incentives/compensation within the c iv i l service compensation system, allowing for maximum flexibility, keeping in mind the emergency nature o f work, will be provided.

19. Respective l ine departments would be the implementing agencies for this project. These include but are not limited to Public Works Department (PWD), Local Government and Rural Development Department (LGRDD), Education Department, and Revenue Department'. Sub-projects will be selected based on pre agreed criteria. A District Coordination Committee (DCC), headed by the Deputy Commissioner who would be the District Project Coordination Officer (DPCO), and with district representatives o f al l concerned line departments would be established in each district to oversee the implementation o f the project.

20. the state government to enhance capacity in planning, preparation and implementation o f sub-projects and monitoring and evaluation. The PC and DPCOs will be assisted in their work by a team o f technical, financial and administrative experts who could be recruited from the government or the market on contract basis as consultants.

2 1. procurement, for hiring o f engineers, architects etc., for restoration o f infrastructure and for hiring c iv i l society organizations for social mobilization, third party validation etc. The TA may also be used to train relevant officials and hired consultants on earthquake resistant designs and construction.

A Project Steering Committee (PSC), headed by the Additional Chief Secretary (ACS), Planning

Technical Assistance. About 275 man months o f Technical Assistance (TA) will be provided for

This assistance may be used for hiring accountants for streamlined financial management and

The government established an Earthquake Reconstruction and Rehabilitation Authority ( E m ) soon after the earthquake. The ERRA i s an apex body at the federal level to lead and coordinate the reconstruction and rehabilitation effort. I t s role and responsibilities as wel l as detailed implementation mechanisms are currently being worked out. At present, it i s not implementing any earthquake related projects at the provincial and district levels. The government has indicated that until ERRA i s fully operational existing institutional arrangements already in place under the said project (s) will be used for implementation o f the earthquake related interventions and activities.

5

22. monitor and supervise implementation o f project activities through a system o f reporting which would include submission o f monthly and/or quarterly and annual progress reports, and spot checking o f works by i t s team of experts. A uniform simple progress reporting format focusing on physical and financial progress and outcomes achieved would be adopted. The state government and respective l ine departments would agree on a set o f outcome indicators for each type o f intervention. Progress reports would be shared with IDA within one month o f the end o f the reporting period and reviewed by the PSC on a regular basis.

23. Besides regular monitoring by government agencies, monitoring through third party inspectionhalidation will be conducted to ensure that infrastructure reconstructed i s according to standards and cash grants go to the affectees in most need. The third party inspectionhalidation will be managed by the P C M U under the guidance o f the PSC.

3. Fiduciary Aspects

24. Financial Management. One dedicated Special Account shall be established for the new project at a Muzaffarabad Branch o f the NBP and managed by the PCMU. Two signatories shall be identified for withdrawal o f eligible funds from the Special Accounts and for the withdrawal applications to be sent to IDA. Further details o f financial management arrangements are provided in Annex 2 to this document.

25. Procurement Arrangements. Works, goods and commodities financed under the project would be procured in accordance with the Guidelines for Procurement under IBRD Loans and IDA Credits M a y 2004. Consultants’ services would be procured in accordance with the Bank’s Guidelines for Selection and Employment o f Consultants by Wor ld Bank Borrowers, M a y 2004. Some procurements will be made under emergency procurement procedures. Further details o f procurement arrangements are provided in Annex 2 to this document.

Monitoring and Supervision. The state government and respective line departments would

4. Environmental and Social Aspects

26. Safeguard Policies and Arrangements. The proposed emergency project aims to assist the GoAJK to respond to the damages caused by the earthquake through measures aimed at restoring economic and social infrastructure and strengthening o f safety net programs. The activities involved include restoration o f road and bridges, repair o f water supply schemes, and repair and construction o f buildings. These activities trigger safeguard policies and the operation i s classified as Category B. The project will be implemented in accordance with the Environmental Management Framework (originally prepared for AJK CISP) and the Environmental and Social Guidelines provided in Annex 3.

27. The Safeguard Policy on Projects in Disputed Areas OP 7.60 will be triggered as the proposed project will be carried out in AJK, an area over which India and Palustan have been in dispute since 1947. By financing the proposed Credit, IDA, does not intend to make any judgment as to the legal or other status o f any disputed territories or to prejudice the final determination o f the parties’ claims.

F. EXPECTED OUTCOMES

28. The project i s expected to restore some o f the essential social and physical infrastructure damaged by the earthquake. The aim i s restoration o f economic and social activity in the area. Several benefits are expected to accrue from the project, namely: (i) restoration o f damaged roads would improve access, increase overall energy savings, quicker delivery o f agricultural produce to consumers in urban areas and consumer items to rural area, and savings in travel time; (ii) restoration o f health and education buildings would improve people’s access to health and education; (iii) repairs to water supply systems would make clean drinking water available, reduce incidence o f disease and help improve productivity and women’s conditions; (iv) provision o f re l i e f assistance would improve the quality o f l i fe o f the affected people; and (v) with capacity building communities would be better able to cope with the current and future disasters.

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G. BENEFITS AND R I S K S

29. There are two major risks, which emerge from the fact that the project would be able to restore only a part o f the damage that has occurred, and, therefore, there would be competing demands on the available funding. The f i rst r isk i s that influential communities may end up being the major beneficiaries o f the interventions. Well articulated selection criteria and transparency in the decision making process o f the DCC will address this risk. Second, because it i s an emergency operation requiring large quantities o f work to be done in a short period o f time, the implementing agencies may become overburdened resulting in delay and poor quality o f work. T o mitigate the risk, the PC office will retain a team o f consultants that will provide support to local governments in planning, implementation and monitoring.

H. FINANCIAL TERMS AND CONDITIONS FOR THE ADDITIONAL FINANCING 30. US$30 mil l ion credit would be provided with 35 years maturity, including 10 years grace, a service charge o f 0.75 percent and commitment fee not to exceed 0.5 percent.

3 1. Retroactive financing up to 20% of the proposed financing could be allowed in accordance with the Bank’s operational policy on retroactive finance.

32. There are no effectiveness conditions. The proposed components comply with all Bank policies.

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Annex 1 : Cri ter ia and Process for Selecting Eligible Sub-projects

1. specific sector are listed in the following table. The main criteria though are that sub-projects must be attributable to damage caused by earthquake o f October 2005.

Criteria the general eligibility criteria for the sub-project identification and selection for each

[Restoration o f Roads

Repair and/or Reconstruction o f Government Office Buildings

Repair and/or Reconstruction o f Schools

Repair and/or Reconstruction o f Health Buildings

Repair o f Water Supply Schemes

0

0

0

Sub-projects must be selected fkom those reported by the l ine departments. Reconstructiodrepairs o f the major bridges should get priority Roads that are vital for economic activities such as those used for transporting consumable goods, agricultural produce etc. should be given preference. Roads that benefit more population should get priority. Roads that pose risk to plying traffic. Completely destroyed buildings should be given priority over partially damaged buildings. Vital basic damaged furniture would be repaired or replaced in the restored buildings. Completely destroyed schools should be given priority. Vital basic damaged furniture and teaching equipment would be repaired or replaced in the restored schools. Completely destroyed dispensaries particularly in rural areas should be given priority. Vital basic damaged furniture and equipment should be repaired or replaced in the restored hospitalldispensary . All water supply schemes reported damaged would be restored to the pre-earthquake event condition. Those restoration works for schemes where the outages are frequent would be implemented on priority basis.

0

0

0

0

0

0

0

0

0

0

2. Process o f Sub-project Selection. The steps in the process o f implementing the Component would be, as follows:

(1)

(ii)

(iii)

The respective line departments in each district would prepare l i s ts o f sub-projects to be implemented in various sectors to match the district funding allocations given by PSC with justification. The l i s t s will be submitted to P C M U through the l ine departments for approval.

The P C M U would ensure that the selection o f sub-projects has been made based on the eligibility criteria, reflects the government priority, and that the cost estimates are reasonable and can be met through the district allocation.

After the l i s t i s approved by the PCMU, the concerned line department will prepare one PC-1. When the PC-1 i s approved, a copy will be sent to the P C M U for review and

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approval by the PSC. In the meantime, preparations such as design and bidding documents wil l be camed out in parallel and bidding documents will be issued after approval by PSC and communicated to the Deputy Commissioner.

(iv) The PSC will review and approve, or seek clarification and modifications on district PC-1 7 days after receiving the request. If there i s no response within 7 days the DPCO will instruct the issuance o f bids and the P C M U will send the necessary funding to the district.

(v) After the f i rst year o f the implementation, a mid-tern review would be carried out and based on the performances o f districts, funds that are not committed by this date will be reallocated to districts that have fully committed their allocation. Therefore, cut-off date for award o f al l contracts under this project i s eighteen months from effectiveness o f the project.

3. projects and the work plans reviewed by PSC. IDA would review the l i s t s o f the sub-projects and the work plans. The purpose o f the review would be to assure that eligibility criteria for selection o f sub- projects have been adhered. IDA no objection i s not required, except as stipulated in the section under procurement.

Bank Review o f the Sub-project Portfolio. IDA would be provided with the final l is ts o f the sub-

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Annex 2: Fiduciary Aspects

1. Financial Management Arrangements Territory Issues:

1. applicable at the Federal level. The accounting, internal control, reporting, and auditing systems are all based on the federal model while recognizing that AJK i s not a traditional province in the federation. The CFAA (2003) conclusions, equally applicable to AJK, indicate that there are significant challenges remaining within the country’s financial management reform agenda to improve the effectiveness and productivity o f public spending not only through a better allocation o f resources and a more careful choice o f policies and priorities but also through better implementation, more eff icient delivery o f services, and improved controls over financial flows.

The financial management arrangements at AJK are conducted on the same underlying principles as

2. government, judicial and police reform, and greater transparency in economic decision making. Legislation i s in place that requires audited annual accounts for al l levels o f Government, including the AJK Government, and the Auditor General o f Palustan i s already being re-organizing to conduct the required audits o f the accounts using a new methodology.

A series o f improvements have since been initiated towards this end, including rightsizing the

3. project, the quality o f audit o f government accounts has begun to be improved. The capacity o f the accounting staff, though, needs further improvement, and this i s being managed under the auspices o f the country-wide project (PIFRA).

There i s evidence that while there are further rooms for improvement particularly under the PIFRA

4. AJK has the highest accounts reconciliation rate when compared to the four provinces o f Palustan and the Federal Government. Reconciliation levels for receipts, expenditures, intergovernmental accounts, and suspense accounts have been held at 100% respectively over the past 3 years. This has resulted to a greater reliability and accuracy o f the financial and fiscal data supplied from the AJK despite the multiplicity o f financial transactions carried out through manual accounting processes.

5. management staffing designed in this project to support the emergency nature o f the implementation requisites, the financial management risk for this project i s rated ‘Substantial ’ due to nearly non-existent public administration arising from the loss o f l ives and the massive destruction o f the territory’s infrastructure by the earthquake in the province.

Notwithstanding the achievements made so far, and despite the planned incremental financial

Implementation and Institutional Arrangements

6. social infrastructure destroyed and damaged; (ii) strengthening o f the safety nets and capacity building programs; and (iii) project management and implementation support.

The project will entail the implementation o f three key components: (i) restoration o f economic and

7. There shall be a Project Coordination and Monitoring Unit (PCMU) established in the Planning and Development Department o f A X under the administrative leadership o f a Project Coordinator. This unit shall oversee the day-to-day implementation and administration o f the project under the general and specific direction o f a Project Steering Committee (PSC).

8. The key participating and implementing agencies are the AJK l ine departments including, Public Works Department (PWD), Local Government and Rural Development Department (LGRDD), Education Department and Revenue Department. Each o f the three affected districts shall establish a District

10

Coordination Committee (DCC) that shall be responsible for overall coordination o f the implementation arrangements o f the project at the district level in collaboration with the Project Coordinator. The District Coordination Committee shall establish, in association with line departments and the PCMU, the primary priority schemes and programs that the project would support bearing in mind the pre-set qualifying eligibility criteria set by the PSC as regards the schemes and programs to be financed under the project. Sub project criteria and selection process i s provided in Annex 1.

9. Infrastructure and Services Project - AJK CISP (IDA Credit 3689-PAK) to the tune o f $40 mi l l ion will require the signing o f a ‘Letter o f Agreement’ (LOA) between the IDA and the GoP for additional financing o f AJK CISP in the sum o f $30 mil l ion and the reallocation o f a total o f $40 mil l ion from A J K CISP to the new project (AJK ERP). The DCA o f the AJK CISP shall be amended accordingly under a ‘Part Z’ arrangement to reflect the changed nature o f the financing/disbursement categories in order to support the achievement o f the objectives o f the new emergency project (AJK ERP). The Part Z shall also authorize the establishment and operation o f one separate Special Account, through which shall be transacted the financing activities o f the new project under the management o f the PCMU.

This project, which shall secure resources from another Bank-finance project - AJK Community

10. eligible expenditures. The Special Accounts will be replenished based on FMRs received by IDA from the P C M U on a quarterly basis. The init ial deposit to the Special Account shall be the equivalent o f six months estimated expenditure o f the project. With the benefit o f the Country Financing Parameters, and due to the special emergency nature o f the project, the IDA shall finance 100% (including taxes and duties) of the new Part Z disbursement category.

The IDA Credit allocation for this project would be disbursed over a two-year period to finance

Strengths and Weaknesses

1 1. There are currently two active Bank financed projects in A X : CISP and GEF PAMP. The financial management arrangements for both projects are adequate and there are no FM issues. The latest due audited financial statements (FY 2003/04) have been received by the Bank and are acceptable. The demonstration o f the satisfactory financial management implementation experience in AJK implicit ly provides the inertia for this project to be implemented without any significant fiduciary r isks. The fact that the new ERP would be executed with the integrated support of the very departments that are managing the current active projects in AJK, coupled with the incremental staff that the new project will hire to manage the financial management arrangements i s both a strength and an opportunity that the project would be well managed from an FM perspective.

12. directly to the Auditor General o f Pakistan who determines the form and content o f the accounts of the Federation. The Accountant General i s familiar with the accounting and reporting requirements o f Government o f AJK and the donors and he will provide the necessary guidance to the Planning and Development Department and the P C M U in maintaining fiduciary assurances relating to the project’s financial activities.

Another key strength in the area o f FM for AJK i s that the territory’s Accountant General reports

Funds Flow, Budgeting and Accounting Arrangements

13. through the SBP to the nominated account o f the project at the NBP, and the procedural arrangements for accounting for Public Debt as provided for in the Ministry o f Finance Circular o f 25 November 2002 relating to the maintenance and operation o f revolving fund accounts opened for IDA/JBRD/ADB loandcredits as well as the updated Circular fiom the Ministry, o f June 6,2005, shall be observed for this emergency project.

The governing principles for establishment o f a Special Account, the transfer o f Credit proceeds

11

14. Muzaffarabad Branch o f the NBP and managed by the PCMU. Two authorized officials shall be identified for withdrawal o f eligible funds from the Special Account and for the signing o f the withdrawal applications to be sent to IDA.

One separate and dedicated Special Account shall be established for the new project at a

15. provide front-loading o f funds, on revolving imprest account basis to each o f the line departments that would be directly implementing the activities o f the project at the district levels. The PSC, having approved a scheme, activity, or program for implementation by eligible line departments or agencies, would authorize the P C M U to release the equivalent o f funds from the relevant Special Account, based on the project expenditures for three months (on fi-ont-loaded basis), to the respective Line Departments.

Due to the special emergency nature o f the activities to be financed for this project, the P C M U shall

16. Each L ine Department’s Principal Accounting Officer (PAO) shall establish and operate an Imprest Bank Account for the purpose at the local branch o f the NI3P in the Muzaffarabad. Having received the confirmation that the account has been established by the PA0 at the NBP branch, the PCMU shall transfer the equivalent o f 3 months’ projected expenditures that would be incurred at the district level and paid for under the primary authority o f the P A 0 o f the l ine department, based on the pre-agreed budget.

17. account and the rendering o f monthly accounts against the imprest fund in accordance with the reporting format that i s consistent with the requirements o f the P C W . The PA0 shall ensure that the accounts are rendered to the PCMU within 7 days o f the end o f each calendar month. H e shall s i g n the accounts as a true and fair reflection o f the state o f affairs o f the related financial transactions o f the department, and shall ensure that those accounts are rendered with a certified copy o f the Bank statement and al l the expenditure acquittances o f the imprest account.

Each PA0 shall assign an accounting office? who will assist in the maintenance o f the imprest

18. statement and the supporting expenditure acquittances from the P A 0 o f l ine departments, shall replenish the imprest account fi-om the relevant Special Account to the extent o f the expenditures that have been vouched. This would bring the total allocated imprest holding o f the PA0 to i t s original level. This level could be further enhanced or varied downwards, based on the projected expenditure pattern o f the l i ne department for eligible project activities in the succeeding period o f 3 months. Based on estimations, the required total amount (ceiling) o f the funds to be placed in the ‘second generation accounts’ (revolving imprest accounts) to be held by PAOs i s about $4 million. The rendered statements o f expenditure from the l i ne departments will, inter alia, form the basis for the PCMU to prepare withdrawal applications against the credit in order to replenish the Special Account on a timely basis.

The PCMU, upon receipt o f the certified statement of the imprest account together with the bank

19. the authority o f the P A 0 through imprest accounts held under his primary responsibility. The l ine departments that shall be implementing approved schemes, activities and programs would provide the full and requisite documentation for al l payments made from the imprest account for eligible expenditures.

Disbursement o f the funds released to the line departments, i t i s reiterated, would be expended under

20. NGOs and their contractual fees should be formally approved by the PSC. Upon certified delivery o f services according to the agreed contract terms, which should be in conformance with Bank’s procurement guidelines, the PCMU will release payments to the contracted NGOs directly from the relevant Special Account held with it.

Where NGOs are to deliver services that are eligible for financing under the project, the selected

* Line Departments that do not have the staff to assign as Accounting Officer shall be entitled to secure the services o f an appropriately competent person on short-term contract basis through the PCMU.

12

2 1. T h e operational procedures, eligibility criteria and delivery mechanisms, meeting high transparency and accountability standards, against which Safety-net Grants will be delivered to the targeted households, shall be defined and agreed with the Government before any disbursements can be made from the Credit for these activities. For this reason, Safety-net Grants, where applicable, have been provided under a separate and distinct disbursement category.

22. technical assistance costs etc., a budget for the same shall be approved by the PSC, and the Planning and Development Department would furnish the authority to the PCMU. All such expenditures shall be paid directly out o f the relevant Special Account by the PCMU.

In respect o f PCMU’s other expenses, including incremental operating and staffing costs, support

23. Replenishment o f the Special Accounts by the P C M U shall be based on simplified Financial Monitoring Reports (FMRs). The formats o f all these reports shall be made available to the PCMU, and the Bank FM staff will provide the required training on their use for disbursements from IDA.

Project’s Financial Reporting

24. costs and technical assistance support, as well all expenditures made by Line Departments (as per returns from the imprest accounts), the PCMU shall provide, within 14 days of the end o f each calendar month, a comprehensive statement o f expenditures in a format that accords with the government’s reporting requirements to the AG-AJK and the Planning and Development Department. The statement o f expenditures shall be categorized according to the pre-specified codes o f account based on the new chart o f accounts as would have been agreed with the AG-AJK. This will ensure that the whole set o f expenditures for the entire project i s captured by the government in i t s monthly c iv i l accounts during any fiscal year. For this purpose, inter alia, the AG-AJK shall provide specific accounting codes for the project to use.

For al l expenditures from the Special Account made for purposes o f the approved PCMU’s operating

25. constituents o f these reports shall be as follows: (a) Actual and Forecast Cash F low Statement according to Components, Sub-Components and Activities; (b) Summary Statement o f Expenditures according to Categories; (c) Special Account reconciliation Statement; (d) Physical Progress Report; and (e) Procurement Status Monitoring Report. These reports shall be provided to IDA not later than four (4) weeks after the end o f each quarter - (a reporting lag o f 4 weeks has been chosen in the light o f the short duration o f this project as well as the emergency nature o f the project itself).

The PCMU shall also provide quarterly Financial Monitoring Reports to IDA on the project. The

External Audit

26. purpose of this project, the P C M U shall be the key custodian o f a l l the supporting documents related to FMR-based withdrawals.

Since separate auditing o f the financial statements shall be carried principally o f the PCMU for the

27. under terms o f reference agreed with IDA and in accordance with acceptable standards o f auditing. Audited financial statements will be submitted to IDA within six months (by December 3 1) o f the end o f the Government’s fiscal year (which i s June 30) or such other date as the IDA may agree.

The financial statements o f the project will be audited annually by the Auditor General o f Palustan

28. The auditing and certification o f the P C M U financial statements does not, as per normal government auditing requirements, preclude the auditing o f Line Departments’ and D C transactions related to the project by the Auditor General.

13

Incremental Financial Management Staffing

29. In the absence o f a financial management team at the Planning and Development Department to support the accounting, internal control, and financial reporting function o f the project at the PCMU, a financial management cell shall be established at the PCMU whose responsibilities will include: (a) the accounting for the budget allocations to schemes and activities under each component, sub-component and activity; (b) the monitoring o f disbursements against the budgets; (c) the provision o f monthly c iv i l accounts reports relating to project expenditures to the AG-AX, with copies to the Finance and Planning and Development Departments in accordance with government’s own reporting requirements; (d) collation and aggregation o f utilization reports and the acquittances o f the project according to components, sub- components, activities and disbursement categories; (e) submission o f withdrawal applications to IDA for the eligible expenditures under FMR-based disbursement method; (f) maintaining the Special Account o f the Project; (g) providing quarterly Financial Monitoring Reports (FMRs) to IDA in accordance with the format that would be provided and agreed during appraisal; (h) preparation o f annual financial statements in accordance with the format to be agreed during negotiations, coordinating the audit thereof as wel l as the project management’s responses to the Audit Management Letter.

30. carry out to ensure the financial management arrangements are well catered for, and having regard to the paucity o f adequate staff at the Planning and Development Department to support these arrangements, there will be a need to contract in two incremental staff to the PCMU. One o f the two should be a qualified accountant (at least a qualified member o f ICAP, I C M A or ACCA) and should be the project’s Finance Manager. He/She should be supported by an experienced B.Com qualified person who should also be contracted from the market. In addition, the Department o f Planning and Development shall, through the AG-AJK, deploy one other accounting staff with good book-keeping knowledge and familiar with the government’s NAM and new Chart o f Accounts. The two contracted finance and accounting staff shall be remunerated from the budget allocated to the PCMU under the Credit. For the purpose o f reinforcing internal control principles and practices in the management o f the project finances, there should be a clear segregation o f duties o f the finance and accounting staff.

In the l ight o f the enormity o f activities that the project financial management team would need to

Required Action

3 1. proposed financial management positions to be fi l led so that the team could initiate, plan and achieve a state o f readiness to implement the project. The Government o f AJK could pre-finance the positions under some form o f retroactive financing arrangement. The FM team o f the Bank can provide induction training to the project’s FM team to spearhead the implementation o f the proposed FM arrangements as a matter o f urgency.

The immediate requirement would be the establishment o f a P C M U and the sanctioning o f the

Financial Covenants

32.

2. Procurement Arrangements Institutional Capacity

The traditional financial covenants as applicable to investment projects shall apply.

33. financed projects, most recently the AJK CISP. A formal capacity assessment has not been done and although staffs o f various departments are generally conversant with the systems and procedures to be followed for procurement in Bank financed projects, i t i s perceived that some procurement capacity will have been eroded due to the disaster.

The Implementing Agencies staff in the GoAJK have previous experience o f implementing Bank

14

34. that will be involved in implementation o f the project, and particularly those who have limited knowledge and experience o f Bank financed procurement, it i s proposed that a procurement focal person shall be located within the PCMU. The focal person shall be assisted by the services o f the planning & supervision consultancy firm and/or individuals. The consultants will assist through the focal person al l implementing agencies in carrying out procurement under the project, including procurement planning and monitoring, shopping, design o f restoration works, preparation o f bidding documents, bid evaluations and contract award. Procurement Focal persons shall be identified at the district level. The Bank will conduct procurement training workshops during the implementation o f the project, for key procurement staff o f a l l the implementing agencies in order to improve and update their knowledge o f the Bank's procurement procedures. Each implementing agency will assign within the f i rst month o f the project effectiveness, qualified and trained focal points/resource persons for procurement.

Procurement Methods

35. Goods and Works to be financed under the Project shall be procured in accordance with the Guidelines for Procurement under IBRD Loans and IDA Credits, M a y 2004. The Bank's sample Bidding Documents for N C B procurement, which are already being used on other Bank financed projects in Pahstan, will be used for procurement o f Goods and Works. Consultants Services financed under the program shall be procured in accordance with the Bank's Guidelines for Selection and Employment o f Consultants by World Bank Borrowers, M a y 2004. The Bank's Standard Request for Proposal document will be used in the selection o f consulting f i rms . Options o f procurement through direct contracting, and single source selection shall also be applicable to the procurements pertaining to emergency relief works and services, with prior approval o f the Bank for a period o f one year from the effective date o f the agreement. All contracts awarded without competition will be negotiated based upon the prevailing market rates.

Civil Works

36. Civ i l works generally comprise:

In order to strengthen the procurement and implementation capacities o f the implementing agencies,

e Repairs or re-construction o f damaged road embankments, pavements, culverts, small

Restoration o f Buildings involving reconstruction and/or repairs o f damaged boundary

Repair o f Water Supply Schemes involving repairs to damaged pipelines, pumping

bridges, retaining walls, and other ancillary works;

walls, rooms, sanitary facilities, and other ancillary works;

equipment, and other ancillary works; and

e

e

37. (NCB) procedures. Small c iv i l works estimated to cost less than US$30,000 per contract, will be procured following National Shopping procedures.

38. prior approval o f the Association. All negotiated contract will be based upon the existing market prices. Direct contracting will be allowed only for the procurements being made within one year o f the project signing.

39. accordance with the provisions o f the said procurement method.

Goods and Commodities

40. vehicles and other good required by PCMU and implementing agencies in carrying out their duties.

41. package will be procured through National Shopping procedures. Packages costing more than U S $25,000

Civ i l works under the project will generally be procured following National Competitive Bidding

Works as envisaged for the emergency relief can be procured on the basis o f direct contracting, with

Works which the Association agrees meet the requirements o f Force Account may be carried out in

Goods and commodities under the project would generally include office furniture, office equipment,

Given the nature o f the Project, goods and commodities estimated to cost less than US$ 25,000 per

15

will be procured through National Competitive Bidding (NCB) procedures. Vehicles regardless o f the estimated cost shall be procured through shopping procedures after prior approval o f the Bank.

42. Goods which are required to be procured for emergency relief shall be procured through direct contracting with prior approval o f the Bank. The negotiated price shall be based upon market rates. Direct contracting will be allowed only for the procurements being made within one year o f the project signing

Improvement of Bidding Procedures under National Competitive Bidding

43. The following improvements in bidding procedures will apply to al l procurement o f Goods and Works under National Competitive Bidding, in order to ensure economy, efficiency, transparency and broad consistency with the provisions o f Section 1 o f the Guidelines:

Invitation to bid shall be advertised in at least one national newspaper with a wide circulation, at least 30 days prior to the deadline for the submission o f the bid. bid documents shall be made available, by mai l or in person, to al l who are willing to pay the required fee; foreign bidders shall not be precluded f iom bidding and no preference o f any kind shall be given to national bidders in the bidding process; bidding shall not be restricted to pre-registered firms; qualification criteria shall be stated in the bidding documents; bids shall be opened in public, immediately after the deadline for submission o f bids; bids shall not be rejected merely on the basis o f a comparison with an official estimate without the prior concurrence o f the Association; before rejecting all bids and soliciting new bids, the Association’s prior concurrence shall be obtained; bids shall be solicited and contracts shall be awarded on the basis o f unit prices and not on the basis o f a composite schedule o f rates; contracts shall not be awarded on the basis o f nationally negotiated rates; cost estimates shall be prepared on the basis o f market rates. contracts shall be awarded to the lowest evaluated and qualified bidder; and post-bid negotiations shall not be allowed with the lowest evaluated or any other bidders.

Consultants ‘ Services and Training 44. Consultants’ services urgently required for implementation o f the emergency relief may be engaged, with the Bank’s prior concurrence, either on single-source basis, through Selection Based on Consultants Qualifications, or by amending existing consultants’ services contracts under other on-going Bank financed projects. Other services o f consultancy may be hired following the Quality-and-Cost Based Selection, Quality Based Selection, Fixed Budget Selection, Least Cost Selection, or Selection Based on Consultants’ Qualifications. Likewise NGOs will be hired for the three identified sectors o f work using Quality and Cost Based Selection, or Single Source Selection. Single source selection will be allowed only for the procurements being made within one year o f the project signing. The procedure will be agreed with the Bank and mentioned in the procurement plan before any procurement i s actually made.

Procurement Planning

45. District Coordinating Officers at the district level, will coordinate the preparation o f procurement plans by each implementing agency for all the identified contract packages for Goods, Works and Consultants’ Services as part o f the Project Implementation Plan to be completed according to the agreed milestones. Procurement o f the contract packages under the project will be carried out in accordance with this

The Office o f the PCs in the Planning and Development Departments at the provincial level, and the

16

procurement plan, agreed by the Bank. Considering the emergency nature of the program, which will require some adjustments during implementation, the procurement planning process will be flexible. However, the procurement plans will be updated and monitored quarterly.

Review of Procurement by the Bank

46. Prior Review:

i) the f i rs t goods and works contract to be executed through N C B as wel l as national shopping regardless o f i t s value,

(ii) al l contracts for goods and works estimated to cost more than US$ 100,000 equivalent per contract

(iii) the f i r s t consultancy services contract regardless of i t s value

(iv) consultants' services with f i rms estimated to cost more than US$ 100,000 equivalent per contract, and

(v) the f i rs t individual consultant contract regardless o f i t s value.

(vi) services o f individual consultants estimated to cost more than US$ 50,000 equivalent per contract .

All other contracts will be subject to post review by the Bank and emphasis would be placed on ex-post procurement and end-use audits which will be camed out on a regular basis to verify that the activities financed under the project are procured in accordance with agreed procedures and are used for the intended purposes.

Procurement Information and documentation

47. Procurement information will be recorded and reported as follows:

(a) Complete procurement documentation for each contract, including bidding documents, advertisements, bids received, bid evaluations, letters o f acceptance, contract agreements, securities, related correspondence etc., will be maintained by the implementing agencies in an orderly manner so as to readily available for audit.

(b) Contract award information will be promptly recorded and contract rosters, in the Bank's sample format, maintained by each implementing agency, and the PC in the in PCMU.

(c) Comprehensive quarterly reports by PCMU, indicating.

(i) revised cost estimates, where applicable, for each contract; (ii) status o f on-going procurement, including a comparison o f originally planned and actual

dates o f the procurement actions, including preparation o f bidding documents, advertising, bidding, evaluation, contract award and completion time for each contract; and

procurement actions. (iii) updated procurement plans, including revised dates, where applicable, for the

17

Table 2.1: Threshold for Procurement Methods and Prior Review

48.

49.

Sr. YO.

1.

2.

3 .

Expenditure Category

Works - Civi l Works

Goods

Consulting Services Firms

Individuals

Contract Value

Threshold (US$)

> 100,000

Between 25,000 and 100,000

< 30,000

> 100,000

Between 25,000 and 100,000

< 25,000

> 100,000

< 100,000

> 50,000

< 50,000

~~

Procurement Method

NCB

NCB

National Shopping

NCB

NCB

National Shopping

S S S/QCB S/LCS/ QBS/FBS/SBCQ

SSS/QCBS/LCS/ QBS/FBS/SBCQ

Section V- CG

-do-

Total estimated value o f contracts subject to prior review: US$5 million.

Overall Procurement Risk Assessment - Medium to High

Contracts Subject to Prior

Review (US$)

(12.75 million)

All

First contract

First Contract

(9 million)

All

First contract

First Contract

(1 million)

All

First contract by each LA.

All

First contract by each LA.

50. special procurement supervision for post-review/audits).

Frequency o f procurement supervision missions proposed: Once in every six months (excluding

18

Annex 3: Environmental and Social Guidelines

1. The proposed emergency project aims to assist the Government o f AJK to respond to the extensive damage caused by the 2005 earthquake through measures aimed at the rehabilitation o f economic and social infrastructure. Subprojects financed under the project will consist earthquake damaged water control systems, roads, school and health facilities and other infrastructure such as bridges and culverts.

2. As the project i s an emergency recovery one, i t has not required a full Environmental Assessment. Based on the government reports and reports from Bank missions it i s concluded that the project i s an Environmental Category B project, which i s not likely to have significant environmental impact. Nevertheless, it will be necessary to take into account environmental and social issues during the planning, design and implementation o f project components to ensure that they meet the Bank’s environment and social safeguard requirements. Additionally, the government has agreed to develop appropriate guidelines to deal with potential environmental, indigenous peoples and resettlement and land acquisition issues along the l ines discussed below.

Environment and Social Issues

3. subprojects will consist o f rehabilitation or reconstruction o f infrastructure such as roads, bridges, culverts, water systems and school and health facilities damaged by the earthquake. Repairs and rehabilitation o f provincial and rural roads will fol low existing alignments and will require little or n o land acquisition.

The magnitude o f adverse impacts from the Project i s anticipated to be minor. Civ i l works in

4. would facilitate screening on whether or not the subproject i s likely to have significant environmental impacts or require land or asset acquisition or result in resettlement or impact on indigenous peoples. Subprojects whose expected environmental and social impacts are negligible and do not require special attention would be cleared for approval. Subprojects expected to generate moderate impacts would require preparation o f an environmental and/or social analysis and incorporation o f recommended mitigation measures in the subproject design before approval. Subprojects with significant environmental r isks or requiring landasset acquisition and resettlement will generally not be considered for financing. A check l i s t o f likely environmental impacts will be used by each executing agency in determining whether the proposed work can be expected to result in significant environmental impacts, and if so, to require additional studies and actions to ensure that the subproject work meets with Bank environmental and social requirements.

All subproject proposals are required to contain basic environmental and social information that

Dealing with potential land, asset acquisition and resettlement issues

5. Impacts will be minimized through careful selection o f the proposed subprojects so as to (i) minimize land acquisition; (ii) require that al l subprojects involving land acquisition meet commitments to replace acquired land with equivalent or better land or other equivalent productive assets; (iii) emphasize participatory resolution o f land issues; (v) ensure sign-off that the land acquisition rules are followed by the project staff; and (vi) require a Resettlement Action Plan in the event that any resettlement involves more than 100 persons.

6. carefully reviewed to reduce their impacts through alternative alignments. Proposals that require more than minor expansion along rights o f way will be treated similarly. In the guidelines to be approved, principles and instructions to compensate affected persons will be spelt out to ensure that all persons

Subproject proposals that would require demolition o f houses or acquisition o f land will be

19

negatively affected, regardless o f their land tenure status, will be assisted to improve, or at least to restore, their living standards, income earning or productive capacity to pre-project levels. Compensation can consist of:

0

0

0

0 other acceptable in-kind contribution.

replacement land with an equally productive plot or other equivalent productive assets; materials and assistance to replace fully solid structures that will be demolished; replacement o f damaged or lost crops, at market value;

7 . o f assets located in a proposed subproject area are informed o f their rights to compensation and the options that are available to them. These discussions and agreements reached should be documented and include the following:

The guidelines should also require that the project ensures that al l occupants or land and owners

0

0

0

for landasset acquisition against compensation, names o f affected persons and details about the nature and level o f compensation; for any voluntary contribution, names o f contributor and details about the contribution; copies will be recorded in the subproject field log book and project implementing unit documentation and be available for examination.

8. executing agency will:

The guidelines should also make provision for acquisition against compensation in which case the

0

0

0

not approve the subproject unless satisfactory compensation has been agreed to between the affected person and the project; not allow works to start until compensation has been completed to the satisfaction o f the affected persons; in the event that more than 100 persons are affected and require compensation in a village, a compensation plan has to be prepared and approved by the Bank before the subproject can be approved.

9. Where Resettlement Action Plans are required to be prepared, they should be done in accordance with the Wor ld Bank's Operation Policy on Involuntary Resettlement, and include an entitlement matrix, an indicative budget, indicative figures on the number o f persons negatively affected, consultative mechanisms, grievance procedures, implementation procedures and details for external monitoring and evaluation o f resettlement and compensation. An independent agency acceptable to the Bank will be required to monitor and evaluate implementation o f the RAP. Any proposed compensation and resettlement activity under the project should be brought to the attention o f the PSC and the PSC will notify the relevant government departments.

Dealing with potential indigenous peoples concerns

10. ensure that all subprojects will be screened by the executing agency to determine whether there are indigenous peoples. Should i t be determined that there are communities o f I P that may be affected by the subproject, the following steps are required:

Most subprojects will be located in the earthquake hit areas. Nevertheless, it i s necessary to

0

0

meaningful consultation with affected indigenous peoples; mechanisms incorporated into project design and implementation to foster the informed participation o f affected indigenous peoples;

20

0

0

avoid, minimize or mitigate adverse impacts upon them; ensure that benefits intended for them are culturally appropriate.

11. The starting point should be the general identification o f indigenous peoples and their presence in the particular subproject context and the inclusion o f this information in the subproject identification. During the process o f screening, the executing agency may require additional information to be provided, including through consultation with potentially affected groups on a site-specific basis. Technical judgment by qualified social scientists and NGOs that interact with indigenous peoples should be obtained in situations lacking clarity and to assist in determining the groups to which the policy applies and the l ikely project affects them.

12. Subprojects, which may have adverse impacts, as well as those in which indigenous people are among the proposed beneficiaries both require informed participation. Where indigenous peoples have their own representative organization, such organizations may be the channels for communicating local preferences, but where views are contested, the objective i s to ensure that directly affected groups can make their voices heard and for the development o f consensus measures to be incorporated into project design.

13. In subprojects where adverse impacts are anticipated, a social assessment should be undertaken to determine the nature and extent o f impacts and the measures required to avoid, minimize or mitigate such impacts. Based on this assessment, the executing agency should prepare a plan in consultation with the affected groups. The content and level o f detail o f the plan may vary according to the specific characteristics o f the subproject and the nature o f impacts to be addressed. Because the needs and priorities of indigenous peoples may change over the l i fe of the subproject, the proposed measures should include mechanisms for periodic review and adjustment.

14. In order to ensure that the process and rationale for project interventions are clear and transparent, whenever indigenous people are affected by a sub project, information on identification, consultation, and measures to be incorporated into the subproject should be documented along the l ines o f the guidelines for resettlement and land acquisition. The World Bank’s Operational Directive on guidelines for indigenous peoples i s to be used for further guidance in developing appropriate procedures when required.

Mitigating sectoral environmental concerns

15. culverts. Repairs include digging up damaged road sections and placing back earth fill and aggregates with appropriate compaction and rebuilding of entire road sections destroyed by the earthquake. Prior to selection and implementation o f sub projects, i t will be necessary for the executing agency, to undertake an init ial screening on l ikely environmental problems, including the review o f past experience with any significant environmental protection problem. Particular attention should be paid in the screening to encroachment on fauna and flora, land use, encroachment on historical and cultural sites, erosion and siltation, interference with water quality and drainage patterns, noise and dust pollution, and other key environmental parameters. Should the screening based on the guidelines indicate that there are potentially significant environmental impacts, the executing agency would be required to prepare a summary Init ial Environmental Examination (IEE) with proposed mitigation measures to address or lessen the potential effects identified. Environmental safeguards may also need to be specified in the technical specifications for contractors to ensure that they fully adhere to mitigation measures during the implementation o f sub projects.

Roads. Proposed work in sub projects consists o f rehabilitation o f rural, roads, bridges and

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16. In order to minimize environmental problems and reduce the potential for land acquisition and resettlement problems in road subprojects, it will be necessary to ensure that work undertaken will be done on the existing road p la t fod r igh t o f way. Land acquisition for widening lands and shoulders or adding extra lanes in steep inclines, improving curves or strengthening bridges will not be permitted without carrying out a more detailed IEE. No upgrading i.e. changing o f road category or additional new road lanes or construction o f new roads i s to be financed by the project.

17. (EMF) with mitigating measures for small roads, link bridges, water supply and sanitation schemes etc. This framework will be applied in relevant earthquake rehabilitation and reconstruction work.

Others. The original project, AJK CISP had i t s own Environmental Management Framework

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