world bank documentdocuments.worldbank.org/curated/en/604241468340813111/pdf/multi-page.pdfdocument...

Document ofThe World Bank

Report No: 20341-TP

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED GRANT

IN THE AMOUNT OF US$12.7 MILLION EQUIVALENT

TO EAST TIMOR

FOR A

HEALTH SECTOR REHABILITATION AND DEVELOPMENT PROJECT

May 24, 2000

Human Development Sector UnitEast Asia and Pacific Region

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CURRENCY EQUIVALENTS

Currency Unit = US DollarsLC = US$ 1US$ 1 = LC

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

AMS Autonomous Medical StoreAusAID Australian Agency for International DevelopmentCAS Country Assistance StrategyECHO European Commission Humanitarian AssistanceGPA Governance and Public AdministrationHPMU Health Program Management UnitIDA International Development AssociationIHA Interim Health AuthorityJAM Joint Assessment MissionJICA Japan International Cooperation AgencyNGO Non-government organizationOH Office of HealthTFET Trust Fund for East TimorUNICEF United Nations Children's FundUNFPA United Nations Population FundUNTAET United Nations Transitional Administration in East TimorWHO World Health Organization

Vice President: Jemal-ud-din KassumCountry Manager/Director: Klaus Rohland

Sector Manager/Director: Alan RubyTeam Leader: Fadia Saadah

EAST TIMORHEALTH SECTOR REHABILITATION AND DEVELOPMENT PROJECT

CONTENTS

A Project Development Objective ................................................................. 2

1. Project development objective ................................................................. 22. Key performance indicators ................................................................. 2

B Strategic Context ................................................................. 3

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project ............. 32. Main sector issues and Government strategy ................................................................. 43. Sector issues to be addressed by the project and strategic choices ........................................ 6

C Project Description Summary ................................................................. 8

1. Project components ................................................................. 82. Key policy and institutional reforms supported by the project ............................................. 93. Benefits and target population ................................................................. 94. Institutional and implementation arrangements ................................................................ 10

D Project Rationale ................................................................ 11

1. Project alternatives considered and reasons for rejection ................................................... 112. Major related projects financed by IDA and/or other development agencies ................... 113. Lessons learned and reflected in the project design .............................................................. 134. Indications of Recipient commitment and ownership .......................................................... 135. Value added of IDA support in this project ................................................................ 14

E Summary Project Analysis ................................................................ 14

1. Economic ................................................................ 142. Financial ................................................................ 143. Technical ................................................................ 144. Institutional ................................................................ 145. Social ................................................................ 156. Environmental assessment ................................................................ 157. Participatory approach ................................................................ 15

F Sustainability and Risks ................................................................ 16

1. Sustainability ................................................................ 162. Critical Risks ................................................................ 163. Possible Controversial Aspects ................................................................ 17

G Main Grant Conditions ....................... 17

1. Effectiveness Conditions ....................... 172. Other ....................... 17

H Readiness for Implementation ....................... 20

I Compliance with Bank Policies ....................... 20

Annexes

Annex 1. Project Design SummaryAnnex 2. Detailed Project DescriptionAnnex 3. Estimated Project CostsAnnex 4. Economic AnalysisAnnex 5. Financial SummaryAnnex 6. Procurement and Disbursement Arrangements

Table A. Project Costs by Procurement ArrangementsTable Al. Consultant Selection ArrangementsTable B. Thresholds for Procurement Methods and Prior ReviewTable C. Allocation of Grant Proceeds

Annex 7. Project Processing Budget and ScheduleAnnex 8. Documents in Project FileAnnex 9. Statement of Loans and CreditsAnnex 10. Country at a Glance

Map No. IBRD 30885

East TimorHealth Sector Rehabilitation And Development Project

Project Appraisal Document

East Asia And Pacific RegionPacific Islands Country Unit

Date: May 24,2000 Team Leader: Fadia SaadahCountry Manager/Director: Klaus Rohland Sector Manager/Director: Alan RubyProject ID: P0-70294 Sector: HNPLending Instrument: Emergency Relief Grant Theme(s): Health, nutrition and population

Poverty Targeted Intervention: [X] Yes [ ] No

Project Financing Data[ ] Loan [ ] Credit [X] Grant [] Guarantee [ ] Other (Specify]

For Loans/Credits/Others:Amount (US$m): US$ 12.7 millionProposed [] To be defined [] Multicurrency [xl Single currencyterms:

[] Standard [] Fixed [] LIBOR-Variable based

Financing plan: a3 To be definedSourme Local Forein Total

Special Financing: IDA Managed Trust Fund for 2.2 10.5 12.7East Timor

Total: 2.2 10.5 12.7Grantee: UNTAETGuarantor: NAResponsible Agency: UNTAET Office of Health

Estimated disbursements (Bank FY/US$M):FY

Annual 12.7Cumulative 12.7Project implementation period: 15 monthsExpected effectiveness date: June 30, 2000 Expected closing date: February 28, 2002Implementing agency: UTNTAET Office of Health

Contact person: Dr James TullochAddress: C/o UNTAET, Dili, E. Timor

A: Project Development Objective1. Project development objective: (see Annex 1)

The overall goal of the program is to address immediate basic health needs of the population of EastTimor and develop health policies and health system appropriate to the country. This goal will beachieved through two specific objectives: restoring access to services to a basic package of services, andlaying the foundations for health policies and health system development.

Restoring access to basic health services involves a) implementing a transitional strategy for serviceprovision focused on basic necessities for a functioning system b) a pharmaceutical logistics system toassure the timely availability of drugs and medical supplies c) reconstruction, rehabilitation and re-equipping of a number of health facilities, d) establishing a referral system and facilities e) re-building anadministrative infrastructure, f) capacity strengthening and g) a small grant scheme to support communityand stakeholder participation.

Policies and system development involves the identification and exploration of policy issues, consensusbuilding, and pilot programs. It also involves planning for health system design - the organizationalstructure and supporting systems, and human resources development

Donor assistance to the health sector will be coordinated within an overall framework, or sector wideprogram.

The overall program is planned for three years. The program will be implemented in phases, with the firstone covering a 15 months implementation period. The first grant agreement that will support this Projectfunds the first phase of the program.

2. Key performance indicators: (see Annex 1)

The key performance indicators for the first phase of the program are:

Li Children under one year of age fully immunized (at least 30% by mid-term and 60% by completion)Li Villages with access to a permanent source of health care (at least 90 % by completion)Li Health facilities selected in the district health plans appropriately utilized (at least 40% by mid-term

and 80% by completion)Li Health facilities with less than two weeks of stock-out of selected essential drugs over a three-month

period (at least 90% by completion)o Options paper on health financing (completed by mid-term)o Options paper on the role of the private sector (completed by mid-term)o Regulations on pharmaceuticals (promulgated by mid-term)o Consultations with stakeholders regarding health policy (at least on quarterly basis)

In addition to the above indicators, the program will consider others in the subsequent phases of theprogram. For instance, two economic indicators that have been shown in other settings to be very goodproxies for quality in primary health care systems are: 1) "the average salary levels of medical personnel(adjusted for changes in consumer prices)," and 2) "the proportion of pharmaceuticals and supplies in thetotal budget." The reason that these indicators are so quality-sensitive is the tendency of government-managed systems to employ more health workers than they can afford to pay adequately and to reducenon-personnel expenditures to free up funds to pay the salaries of their numerous employees. The resultis under-paid health workers who lack the incentive to provide good-quality care, as well as acuteshortages of necessary complementary inputs. Moreover, the program will consider two other indicators:

the number of outpatient visits to primary care facilities per primary care provider and hospital occupancyrates (see Annex 4 for more details).

B: Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)

Document nurnber: 20341-TP Date of latest CAS discussion: NA

Donor support for the reconstruction of East Timor is taking place through the United NationsTransitional Administration in East Timor (UNTAET). Established by the Security Council Resolution1272 (S/RES/1272) on October 25, 1999, UNTAET is expected to continue for approximately 2.5-3years. During that time, UNTAET's mandate is to oversee the country's reconstruction, develop Timoreseadministrative and technical capacities, and implement a strategy to hand over functions to an EastTimorese administration. Funding for the UNTAET effort is provided through (i) a $31 millionUNTAET trust fund funded through assessments on UN member states, which supports UNTAETs $700million administrative costs; (ii) a $126 million short-term humanitarian pledge; and (iii) a $146 millionmedium term development trust fund (Trust Fund for East Timor, TFET) pledge that is managed by IDA.Additional resources are provided through bilateral and NGO contributions, which are likely to besignificant.

No CAS has yet been prepared for East Timor, which voted for independence from Indonesia August 30,1999. The World Bank-led Joint Assessment Mission (JAM) in November 1999 identified priority short-term reconstruction initiatives and estimates of external financing needs. To foster compatibility withlonger term development objectives the JAM used a comprehensive development framework approachcovering eight sectors, including health, and incorporated international technical expertise from fivedonor countries, four UN agencies, the European Commission, the Asian Development Bank and theWorld Bank.

One of the poorest regions in Indonesia before the disruption, East Timor now faces the need forextensive rebuilding and rehabilitation, while at the same time establishing its political, economic andsocial structures and planning for long term development. In the violence that followed the referendum itis estimated that over 75 percent of the population of 850,000 was displaced, and of those who went toWest Timor approximately 100,000 are still refugees. Almost 70 percent of physical infrastructure wasdestroyed or rendered inoperable. The situation is exacerbated by the exodus of higher level personnel, asthe Indonesians who occupied most technical and managerial positions have now left the country. Evenbefore the disturbances the territory lagged behind the rest of Indonesia in most social indicators, and 30percent of the population lived below the poverty line - twice the national average. Per capita income isnow estimated to be $210 - 40 to 50 percent below its 1996 level.

The JAM found that virtually the entire pre-independence govemance structure had disappeared - atevery level. flowever, this also presents an opportunity for reform. Under Indonesian occupation thecivil service was characterized by overstaffing, multiple layers of bureaucracy, duplication of functionsbetween line ministries and decentralized departments, a top down organizational culture, and very lowlevels of pay, encouraging the establishment of fringe benefits. Policy recommendations for thetransitional period are that the aggregate numbers for the civil service should not exceed 12,200. Thenumber pre-supposes no rehiring of paid civil servants at the village level, substantial cuts in managementand administrative staff, and replacing the previous full-time paid civil service positions at the sub-districtlevel with the community-elected sub-district council being developed through the CommunityEmpowerment and Local Govemance Project.

After the disturbances the economy was hit by a dramatic supply shock, due to the destruction or lootingof local inventories of manufactured goods, the closing of the border with West Timor, and the lack ofcivilian access to ports. The physical infrastructure and equipment in every bank was destroyed or looted,and financial systems broke down. Commerce within East Timor has re-started, though it is constrainedby continued closure of borders with Indonesia, small port capacity, and almost non-existent mail andland line telephone services. There are also only limited financial services. It is hoped that the precursorsof the Central Bank and the Treasury will be in place by July 1. The presence of many intemationalNGOs, and the international staff of UNTAET is creating something of a dual market. There is very littlecash in the indigenous market, and very little to start the economy moving again.

The social sectors were also hard hit by the violence. In the Eastern part of East Timor, schools, clinicsand other public buildings were targeted for destruction, while in the West and Central areas, thedestruction was even more widespread and included houses and businesses. Few health facilities andeven fewer schools remain usable, and most senior level staff, who were Indonesian, have left theterritory. In any case, the previous system is not a good model for the future. With respect to health, aworking group which included the main stakeholders in the sector made the following assessment of theeffects of the Indonesian system in January 2000: "The facilities or services provided in East Timor werebased on a standard that was not relevant to local population needs, situation and/or capacity tomaintain... .This legacy is evidenced in the high ratio of facilities to the population served as well as thepresence of facilities that are unnecessary or too costly to maintain." In addition, "this highly-centralizedsystem employed too few East Timorese at managerial administrative and decision-making levels(provincial), resulting in a severe dearth of current managerial capacity in health. Conversely, the verylow field presence of doctors meant that more junior East Timorese health professionals (especiallynurses and midwives) were put in charge of the facilities, which then fueled the need to quickly produceparamedical level personnel resulting in the current over-capacity."

It is against this background that the proposed health program supports the main objectives of the TrustFund for East Timor. These are to help in the reconstruction and development process, specifically to: (a)start rehabilitation processes and ensure access to basic health services; and (b) begin long-term buildingof a health system that will contribute to the development process in East Timor. Such a system aims toimprove health outcomes for the East Timorese population and establish a sustainable, efficient andequitable health care system. Building needed capacity for the East Timorese to provide services and toplan and manage their health care system is essential to achievement of these objectives..

2. Main sector issues and Government strategy:

The health sector in East Timor faces many challenges including

> A shatteredgovernment health care system. Extensive destruction to the health infrastructure, loss ofsenior staff at central, district and sub-district levels, and of consumables and equipment during thepost-referendum violence caused a breakdown of the health system. A survey conducted in January2000 found only 23 percent of facilities not damaged. Only 20-30 of the 160 doctors working in thecountry before the disturbances remain in the territory; the rest returned to Indonesia. On the morepositive side, most of the nurses and midwives who comprised about 80 percent of the technical staffare East Timorese locals and still in the territory. Clearly a major reconstruction effort is needed. Itwill be important, however, not to simply rebuild all facilities without consideration of the newstructure of the health system. Efforts to establish a Central Health Authority have started, with anInterim Health Authority (IHA) being formed in February consisting of 16 members from East Timorand seven international UNTAET staff. For the transition from the emergency to the post-conflictrehabilitation phase, the Interim Health Authority has prepared a work plan for 2000 whichemphasizes immediate needs for reconstruction and delivery of basic services, while beginning work

on essential elements of a functioning health system - minimum standards, monitoring and evaluation,logistics systems and guiding principles. There is general agreement that the transitional strategyshould provide flexibility for the future and should not put in place elements that could distort thefuture development of the health system. It also has to be realistic and take into account the presentlimited capacity for management and technical oversight.

> Heavy reliance on NGOs for health care services. With the collapse of the government health caresystem, NGOs (mostly international) became the main service providers. The Church and religiouscharities continued to operate clinics and some small hospitals, as they have done for many years, andthe coffee cooperatives also have their own health facilities. In general, the services focus mostly onessential curative services, medical screening of returnees, and detection and prevention ofcommunicable diseases such as malaria and measles. Very few public health interventions (non-clinical) are provided. In terms of geographic coverage, at least some sub-districts in all districtsreceive some health services. It is estimated that about 71 facilities at sub-district level or higher areoperating in the 13 districts were operating in February 2000, compared with 96 before thedisturbances. Services below the sub-district level (i.e., at the community level) are scarce. (Getting afirm baseline figure is difficult as many clinics are operating in temporary premises.) In order toensure coverage of as many districts and sub-districts as possible, many NGOs have assumed primaryresponsibility for service delivery in a specific area. These de facto arrangements help to increaseaccess to services and reduce duplication of effort in some districts. However, each NGO has its ownpersonnel, approach, budget and drug supply systems. Many of the NGOs receive support as part ofthe humanitarian and emergency relief funds - most of which will be ending in the near future. Thereis a clear need for a transition strategy from this "relief' type of service delivery toward a moresystematic approach for health care delivery that ensures the delivery of a basic package of services atthe district level to a common standard.

> A previous system that did not perform well. Health status was poor in East Timor before thedisturbances. UN figures estimate life expectancy at below 50 in 1995. The previous health caresystem in East Timor had many limitations and public health services such as clean water andsanitation were also limited. The massive destruction presents an opportunity for addressing the mainconstraints that limited the performance of the previous health system. These include:o A system that was chronically under-funded and public subsidies that were not pro-poor.o An incentive system that did not match the stated goals of the health system, especially with

regard to being pro-poor.O Poor quality of services and low utilization of public health sector facilities.O Lack of responsiveness to needs and demand of the beneficiaries, especially the poor.u Inadequate quality assurance systems and regulatory frameworko Highly centralized system that could not adequately respond to local needso Health information system that was inadequate for planning and/or evaluation of health services

Clearly, East Timor will not be inclined to rebuild the previous system. Moreover, the developmentof the new system should ensure that the appropriate lessons learned are reflected in the design of thenew system.

> Little knowledge of consumer needs, demands and expectations. Under the Indonesian system,people had little to say about the nature of the health services they received. Many consumers soughttraditional health care, and utilization rates of public health sector facilities were very low. Theinformation provided to the beneficiaries was inadequate, at best. Not surprisingly this situation hasnot changed much in recent months. Very little has been done during the emergency period to providepreventive services and information. However, if the health system is to work well in the future, it isimportant to give careful consideration to the provision of information to consumers, to ensure that

people participate in decisions about the health care system and that they can provide necessaryfeedback to health care providers. Moreover, efforts to provide health promotion need to start as soonas possible.

> Future policy direction and health system definition needs to be developed Development of thesystem over the long term will require a clear health policy. East Timor is in a unique position toformulate and apply health policies and legislation suited to its particular needs. Different options canbe considered and tried out, to avoid rapid decisions that may have long-term deleterious effects.However, policy work will be especially challenging because while it is necessary to address urgentpolicy issues, it would be best if this were done within an overall policy framework that shows clearlyhow the various pieces fit together. The outline of a simple but fairly general health policy frameworkmight include the following elements: sector objectives and context; role of government in financingand/or provision of health services, basic health services (i.e., what should be included, and to whatpopulation groups, raising issues such as health promotion, targeting, financing options, quality vsaccess) and beyond basic services (i.e., what will be the government role in provision and financing asincomes rise in the future).

D 3ependence on donors. East Timor is totally dependent on donor support, and this will continue forthe next two to three years. Although the main channels for donor support have been the UNTAETtrust fund and TFET, several donors have also provided support to NGOs working in health. Whileinvaluable during the emergency phase, there is a need for a more coordinated approach for thetransition period, and beyond. The IHA recognizing that national capacity to deal with many separatedonors will remain limited for the foreseeable future, has indicated that it wishes to see suchcoordination. In addition, the 1IHA wishes to see assistance to the sector guided by an overall strategyfor the transition period, and beyond. Bilateral projects that are not within the strategic frameworkcould seriously jeopardize future development (e.g. un-programmed investments in hospital care thatincur high running costs). Moreover, defining a clear health policy for East Timor would provide afirm basis for such a sector-wide approach beyond the period of post-conflict rehabilitation. There isan opportunity here to work on one sectoral program that is supported by different donors.

Against this background, what is the strategy of the transitional government and what are the strategicchoices that need to be considered? A major issue that runs throughout the choices below is the questionof balance between addressing urgent needs and considering future development. It is important thatwhat is addressed in the short term does not distort the medium to long term development of the system.

3. Sector issues to be addressed by the project and strategic choices:

Issue Strategic choicesA shattered government Civil works, pharmaceuticals and human resource development have beenhealth care system identified as key elements that need to be addressed immediately. Policy and

systems development are longer term issues. Addressing these issues willstart in the first year of implementation of the program.

The IHA is giving priority to services at the district level, to definition of abasic package that will meet the main needs of the communities, to bedelivered through a system with fewer but more strategically placed physicalfacilities than previously. The emphasis is therefore on primary rather thantertiary health care, and services with public goods aspects, and externalities.

The program will also build on existing East Timorese capacity. To this end,the nurses and midwives are critical to delivery of a basic package of servicesto the community at district and sub-district level and human resource

_development will pay particular attention to their training and career needs.

Heavy reliance on An important strategic choice for the transition period is what agency orNGOs agencies is best able to ensure a basic package at the community level, and

involves consideration of the role of government in assuring health services.The option chosen by the project is for government to finance services, butfor the NGOs to be the service providers, according to standards set bygovernment. A Memorandum of Understanding (MOU) between governmentand the main NGO service providers will define the contractual relationship.It will provide a bridge from the emergency period to the assumption ofresponsibility by the East Timorese health authority, while providingflexibility as systems and policies become better defined. Moreover, TheEuropean Commission's Humanitarian Office (ECHO) which has been one ofthe major agencies funding NGOs in East Timor is going to provideadditional funding to NGOs to help bridge the emergency to the rehabilitationphase. There is a strong commitment by ECHO to co-operate and co-ordinateclosely with the Interim Health Authority and to adhere to its principles,guidelines and conditions.

Little knowledge of The program has identified health promotion as an immediate need that willconsumer needs, be addressed starting with the first phase of the project. In addition,demands and establishing two-way communication between the health service and theexpectations consumer will be part of the formal process of systems development. District

level and some sub-district level health committees are planned, and the IHAis looking at the most effective ways to use them to strengthen communityparticipation. However, institution building of this kind will take time, andmany existing community and non-govemment organizations can act as a linkbetween individuals and the health system. Thus in the short term a smallgrants program will stimulate and support organizations of civil society activein the health field.

Policy direction and An important strategic issue for East Timor is deciding on whether to get thehealth system design policy and systems right before delivering any services, or to begin providingneed to be developed services at the community level to meet the urgent needs of the poor, with the

attendant risk of future distortion of the system. Also, there is a big risk if ahealth policy framework is imposed without adequate consultation. Manycountries have good policy papers, but they do not reflect reality. The bestoption is to allow some time for building capacity and conducting neededstudies and analytic work, as well as employing a wide consultative process.However, there are some urgent policy choices that need to be made fairlysoon to minimize distortion of future development of the system.

Dependence on donors The options for donors are to stick to a traditional bilateral project approach orto support policy development and implementation through a sector program.For the transition from emergency to post-conflict rehabilitation, the InterimHealth Authority has opted for one single sector rehabilitation program to befinanced through the TFET and to discourage individual donors from bilateralprojects outside this strategic framework. The donors contributing to theTFET have chosen to abstain from bilateral projects and will provide fundingoutside TFET only to activities that fall within the strategic framework. Thisprovides a good starting point for a sector wide approach to health if thefuture govemment wishes to continue with this model.

C: Project Description Summary1. Project components: (see Annex 2 for a detailed description and Annex 3 for a detailed cost

breakdown)

lnjwatle IDA- % of WDA.

000 -< -. $m) Total IgA 2Conoii: :: : ::it I;:L:: of.....E 0 fC h4hol f tiodin}!_t000. 0000:

Component 1. Restoring access to HB 17.5 85% 10.0 57%basic health services.

This will include the following activities:

A transitional strategy for serviceprovision focusing on accelerateddelivery of selected high priorityprograms (e.g. immunization, TB,nutrition, health promotion) andsupported by a Memorandum ofUnderstanding (MOU) between thehealth authority (IHA/HO) and serviceproviders at the district level to provide abasic package of services to themaximum number of people in eachdistrict. The transitional strategy willalso support temporary repairs, somenew building, and re-equipment. It willre-establish an administrativeinfrastructure at the central and districtlevels, and training for the delivery ofbasic services, and for management andadministration. Moreover, a plan foraddressing hospitals needs and preparingan action plan for excess hospitalcapacity will be developed. A major partof the this component involves theestablishment of apharmaceuticals/logistic systems for EastTimor. Stakeholder participation willalso be supported through variousconsultation mechanisms including asmall grants scheme and establishmentof health boards at the district and sub-district levels.

Component 2: Health Policies and HB/HY 1.9 9% 1.8 95%Health System Development.

This component addresses medium tolong tenn issues. Through capacitybuilding, studies and stakeholderconsultations it will begin the process ofdefining and developing health policiesappropriate to the country. It will alsosupport a strategy for human resourcedevelopment. The Project will alsosupport technical assistance, study toursand specific policy papers. These paperswill address issues of private practiceand health financing. Moreover, anumber of regulations related to thehealth sector wvill be issued includingregulations on pharmaceuticals.

Component 3: Program Management BU/BY 1.2 6% 0.9 75%Unit.

This component will include provisionfor program management andadministration at the central and districtlevel. It will develop and supportcapacity to monitor and evaluate, andprovide technical assistance to theprogram management team (IHA/OH)

Total 20.7 100% = 12.7 62%

2. Key policy and institutional reforms supported by the project

> Ensure that the system development is guided by a clear policy for the future of the health sector;E Ensure that government subsidies are targeted to the poor and to public goods and other areas thatmay require government interventions (e.g. market failures)

> Define the role of government in a) financing and b) delivery of health services> Institute mechanisms for community participation in the choices about their health care and provision

of information to consumers of health services> Maintain oversight over policies in other sectors that affect health outcomes> Create an Autonomous Medical Stores (AMS), responsible to government but run on commercial

lines by non-government employees.

3. Benefits and target population:

Except in a few urban areas poverty is almost universal, with currently only limited NGO services toprovide for basic needs. The whole population will benefit therefore from the restoration of the healthservices, and the development of appropriate health policies and systems. However, the emphasis is onthe district and sub-district level, with the objective of reaching the majority of the population living inrural areas whose agricultural livelihoods were disrupted by the violence, and of establishing mechanisms

0

to serve those in the most remote areas whose access to health services is very limited, and in some casesnon-existent.

Women of reproductive age (1 5 to 49) and children under 5, who represent 23 percent and 15 percent ofthe population respectively, will benefit significantly from the project. One of the most urgent andwidespread needs is for maternal and child health services - particularly maternity care and care of thenewborn. Even when there were government services providing family planning, ante natal care,assistance at delivery and some post natal care, fertility was high - between 4 and 5 children per woman(UN figures), and child survival was low - one in five children dying before their fifth birthday. Thissituation is now undoubtedly worse. Many districts report deaths of mothers in childbirth, though thereare no firm figures.

The re-establishment of a health system will provide employment opportunities to health workers.In addition, there will be benefits to local builders and craftsmen involved in the re-building of the healthfacilities, with similar benefits to the community, and with the additional benefit of the psychologicalimpact of seeing reconstruction efforts.

4. Institutional and implementation arrangements:

Implementation Period. The first grant agreement funds implementation for 15 months of this three yearprogram.

Project Management. The project will be implemented by UNTAET/GPA. The Office of Health (OH) inthe Directorate of Social Services in the GPA is the responsible unit for health services in East Timor andwill be the Health Program Management Unit (HPMU). The OH and East Timorese health staff haveformed an Interim Health Authority (IHA) that is working closely to implement the health program. TheIHA has two coordinators, the Head of the OH and the senior of the East Timorese health staff.

The OH will be designated the HPMU with overall responsibility for project activities. The Head of theGPA/OH will be designated the Project Director and will be accountable for policy development, physicaland financial progress of the Project in accordance with the agreed implementation program. Moreover,the key counterpart for the Project Director in the IHA (the co-coordinator) will be appointed as theDeputy Project Director. The Project Director will also be responsible for monitoring quality delivery ofbasic health services by the service providers and the efficient procurement of drugs and medical suppliesand their distribution by the proposed AMS. The staff of the IHA will work in parallel with the ProjectDirector and his staff in all aspects of Project implementation.

The Program Director will be supported by key technical specialists in the following areas: (a) healthpolicy, regulation and legislation development; (b) health service delivery; (c) management of physicalinfrastructure (re)construction; (d) procurement; and (e) financial and administrative management. Thesekey technical specialist will be supported by specialists on short-term consultant assignments or long-termstaff assignments, and support staff as required. In general, there will be a national counterpart for eachappointed international staff to be trained to take over the responsibilities in a reasonable period of time.The establishment of the HPMU and the appointment of the procurement andfinancial managementspecialists are conditions of effectiveness.

Disbursement Arrangements. The proposed Project is expected to disburse over a period of 15 monthsfrom date of effectiveness. Disbursement will start using traditional disbursement methods - directpayments or Statement of Expenditure (SOE) reimbursements. All disbursements against contracts forgoods costing $200,000 equivalent or more and works costing US$ 250,000 equivalent or more, andoperating costs, training, fellowships and workshop, services of consulting firms costing US$ 100,000

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equivalent or more and individual consultants costing US$ 50,000 equivalent or more will be fullydocurnented. All contracts below the above thresholds will be made against certified Statements ofExpenditures. The documentation supporting SOE disbursements will be retained by the PMU for at leastone year after the receipt by IDA of the audit report for the year in which the last disbursement was made.

Financial Management. A Financial Manager (FM) with qualifications and experience acceptable to IDAwill be appointed within the Health Program Management Unit (HPMU). The UNTAET Central FiscalAuthority will provide guidance and oversight of the FM. The HPMI will also recruit adequatebudgeting, accounting and support staff. The Financial Manager will establish appropriate accountingand internal control procedures for authorizing payments, recording of all project related expenditures,periodic financial reporting and preparation of annual financial statements for external audit. Theaccounting system will be designed to maintain separate project accounts for TFET funded activities inaccordance with the Grant Agreement. Details of financial management arrangements are given in Annex6.

Audit The HPMIJ will prepare annual financial statements for the Project and have them audited by anindependent external auditor acceptable to IDA. The auditor will be required to provide an opinion on thefinancial statements, the operations of the Special Account and the withdrawals from the grant based onstatements of expenditures (SOEs). The independent auditor will be appointed on terms of referenceacceptable to IDA no later than December 31, 2000. The first audit will be carried out for the financialyear ending June 30, 2001 and annually thereafter.

D: Project Rationale1. Project alternatives considered and reasons for rejection:

Option 1: Rebuild the old system: This is perhaps the easiest option that East Timor could choose.However, as discussed above, the previous system had many limitations and did not provide the desiredquality services, especially to those in the remote areas and the poor. The IHA has decided against thismodel.

Option 2: Address immediate needs through the delivery of basic services, and leave policydevelopment until later. This option was not favored, as to the extent possible the IHA. wishes to developan overall policy framework that would take into account activities to be undertaken in the short term, aswell as over the medium to long term. It is thought that this would provide a coherent system in whichthe pieces all fit together, rather than an uncoordinated patchwork of services.

Option 3: Concentrate only on health policy and system development, and leave service deliveryuntil decisions have been made on overall direction and the package of services. In a country asdevastated as East Timor, it would not be advisable, either from a health or political standpoint to delayaddressing the urgent needs of the population until the health policy options are addressed.

Option 4: Balancing the short and medium to long term. This is the option chosen for project design:a) restoring access to basic health services while retaining sufficient flexibility that future development ofpolicy and the health system would not be distorted, and b) making a start on addressing the major policyissues on which East Timor will have to decide. This approach protects basic services while providing thetechnical inputs needed for policy development. The approach also allows for a wide consultative processthat will ensure higher ownership and participation in the development of policy.

2. Major related projects financed by the Bank and/or other development agencies:(Comtpleted, ongoing and planned)

Secorissue P!rojec)i ;5\ ; ; ~ t; 0. _; Lat; s bt Supeviio (For 590)

Implementation DevelopmentProgress (IP) Objective (DO)

IDA-financed

Community The Community Empowerment and NA - NAEmpowerment Local Governance Project aims to build Project declared

equitable, accountable, transparent and effective Marchparticipatory local governance structures 21, 2000.through which communities can work torehabilitate basic economicinfrastructure. The elected sub-districtcouncils provide the potential for broadercommunity participation in other sectors- including health

Education School System Revitalization to raise the NA NArehabilitation quality of the educational program in the Project under

medium term, and rebuild the schools as preparationquickly as possible.

Employment creation Small labor intensive works and job NA NAand debris collection creation to provide short term

employment and income opportunitiesfor the poor in the capital, Dili. Thesolid waste and debris activities willreduce the risks to health in the poorareas of Dili, while increased incomewould contribute to improved nutrition.

Other developmentagencies

Roads, transport, ports and power project NA NATransport supporting rehabilitation and long terminfrastructure planning for infrastructure investment.

This project is critical to health sectordevelopment as access, referral, and drugsupply depend heavily on adequateroads, a well functioning transportsystem and ports.

Water and Sanitation A joint mission will be appraising the NA NAADB project at the end of April. Water supply Project not yet

and sanitation needs are urgent, and a appraisedsignificant contributor to poor health.

3. Lessons learned and reflected in the project design:

Lessons learnedfrom other post-conflict situations

Lessons from many post-conflict situations (including Cambodia, Mozambique, Bosnia, West and CentralAfrica, the Palestinian territories) point to the following factors as key for addressing health sector issuesin a post-conflict situation:> need to maximize the value of donor international community inputs to the formulation and

development of health policy> need to develop a clear conceptual framework to guide health system development as countries

emerge from conflict; this should be informed by multidisciplinary approaches to understanding thewider context and consequences for health

> the approach should establish processes to involve a wide range of stakeholders in a participatory andtransparent process of identifying needs and priorities and considering alternative models andapproaches to health system development

> careful consideration should be given to limited capacity of a range of different stakeholders(government at central and local level, UN agencies, NGOs, traditional, public and private sectorproviders) in financing, providing and overseeing health service provision

> the need to promote evidence-based policy and planning to ensure that more good than harm resultsfrom interventions proposed and that resources are used as equitably and efficiently as possible.

Lessons learnedfrom health sector development programs in other countries

Key findings for IDA's work in the health sector identified in the recent OED reviewv are a) that the mostcomplex projects are found in countries with least capacity to implement, b) that project documentationprovides plentiful lists of suggested indicators but country capacity to collect data and to monitor andevaluate is rarely assessed, and progress towards development objectives is rarely a focus of supervision,and c) that institutional assessment is weak. These findings present important lessons for work in EastTimor. First, despite the broad and pressing needs facing the East Timorese in establishing a functioninghealth system, the re-structuring must be calibrated with emerging capacity; second, the Interim HealthAuthority and UNTAET need agreement on a few monitorable indicators that will guide programdirection and project implementation, and third, proposals for health systems development need to takeinto account the broader political and government framework designed to take the country forward afterthe transition period.

4. Indications of recipient commitment and ownership:

UNTAET as the provisional govemment is the recipient of the funds, and established an Interim HealthAuthority (IHA) in February 2000. The IHA has 16 members from East Timor, and seven internationalstaff. The IHA has already started work. It has:

* formed itself into working groups to address main sector issues* surveyed facilities to determine their physical condition and whether and how they are functioning* is working on developing a human resource roster to identify all employed and currently unemployed

health workers* begun work on developing national minimum standards.

l Investing in Health. Development Effectiveness in the Health, Nutrition and Population Sector. WorldBank 1999.

The IHA team worked very closely with the mission and showed a high level of commitment to theprogram. IHA ownership of the program has been facilitated by the leadership of its two coordinators - ahighly qualified East Timorese doctor and, on the international side, by a WHO expert who is head of theOffice of Health at UNTAET. Many of the staff have also had experience of running a district, or ahospital, and their understanding of the issues and the needs of the country has helped project design.

5. Value added of IDA support in this project:

The health system of East Timor was devastated by the recent violence, and rebuilding is hampered by thefailure of the previous system to train more than a few East Timorese for health management. Inresponse, the international community has pledged assistance and funds, and at the multi-donor agencymeeting IDA was entrusted the mandate for this type of Project, with the assumption that IDA canmobilize both in-house and external highly qualified technical assistance to rebuild the health system.IDA has drawn on its experience in the health sector over the past thirty years, its expertise in policydevelopment and financing issues and, with the full cooperation of major donors to TFET whoserepresentatives were part of the joint mission, has secured agreement on a sector approach and an overallframework for assistance to the sector in the transition period. Such an approach reduces the risk of over-stretching very limited capacity with numerous separate projects.

E: Summary Project Analysis: (detailed assessments are in the project file, see Annex 8)

1. Economic: (supported by Annex 4)

See Annex 4.

2. Financial: (see Annex 5) NPV=US$ million; FRR= %

3. Technical: This is an unusual situation in which the recipient of the grant is the UN as a transitionaladministration, charged with both meeting immediate needs and building capacity among the EastTimorese to take responsibility for the health system, both management and service delivery, at theend of a two to three year period. The Project design tried to build on potential strengths in thesystem. Key among them is the presence of several NGOs with the capacity to deliver services atdistrict level and below. The IHA will contract with the NGOs to deliver services during the transitionperiod, and though the system will rely heavily on expatriate doctors, the agreement will includeprovision for staffing with and training of the more plentiful East Timorese nurses and midwives.Upgrading their skills to enable them to play a larger role in service delivery will reduce the relianceon doctors in the future. The program will also focus its efforts on a limited package of services inthe short term - heavily focused on priority programs such as immunization which have brokendown, and drawing on the expertise of other agencies - WHO, UNICEF, UNFPA. Moreover, thepolicy development component will pay special attention to both the content as well as the process ofdeveloping health policies. To this end, the process will be highly consultative and will involve keystakeholders and beneficiaries. Such a process is likely to strengthen the ownership in the policies tobe adopted. As regards the civil works and other implementation issues, the program managementunit will include highly qualified staff to assist with these important implementation issues and avoidbottlenecks. Finally, there were three main investment cost assessments: for civil works andequipment, for pharmaceuticals and for training. These used available local data for building costs,information from NGOs on equipment and pharmaceuticals, and information on overseas trainingprograms, checked against the international experience of the experts on the team..

4. Institutional:

a. Executing agencies: UNTAET is the formal implementing agency.

b. Project management: In order to build capacity, the Office of Health has established a joint teamwith East Timorese counterparts - the Interim Health Authority - and this will be the HealthProject Management Unit. The project director will be the head of the Office of Health, and theEast Timorese co-coordinator of the IHA will be deputy project director. The IHA will bestrengthened by several experts contracted to provide technical assistance. A key consultant willbe the project financial officer, whose appointment will be a condition of effectiveness. Allconsultants will work closely with one or several East Timorese, who besides this on the jobtraining will also attend courses overseas.

5. Social:

The objective of the program is to support the reconstruction and development program by restoringaccess to basic health services, and build systems and policies that ensure access to health services for thepoor. The impact of the program is expected to be population wide - and especially important to the 80percent of the population in rural areas. In order to achieve the positive impact hoped for, it is importantthat services are of adequate quality to create demand. If not, people will continue to turn to churchproviders, to traditional medicine, or in the case of women in childbirth to family members. There issome danger of a backlash with regard to the transitional authority and other donor agencies, if thepromised benefits of assistance are seen as slow to materialize.

The program also makes provision for a small grants program to finance the activities of groups withincivil society. This small grants scheme recognizes that many organizations are eager to participate in there-building of the country, but often feel somewhat excluded. The grants will therefore fund activities ofprofessional associations, community groups, women's groups, local NGOs, groups which will not begovernment service providers but whose activities help to build a broad constituency for health.

6. Environmental assessment: Environmental Category [] A [] B [X] C

The project will have minimal or no adverse environmental impacts. It involves rehabilitation and somenew construction of health centers, to repair or replace those damaged or destroyed in the violence inSeptember 1999 that followed the Referendum. The construction will take place in villages and town,mainly in the same locations as previously, and there will be little or no new development. In fact, theenvironment will be improved both visually and with respect to health by the replacement of unsafe andburned out structures with functional buildings. Moreover, guidelines for land acquisition have beendrafted and the adoption of these guidelines is a condition of loan effectiveness.

Malaria and dengue fever are both highly endemic in East Timor. However, the health system does notplan to use mosquito vector control measures (e.g., spraying of pesticides) that would be likely to haveadverse effects on the environment. Instead, other measures will be used that have less seriousenvironmental effects (e.g., treated bed nets, health education). A water and sanitation project, also to befinanced from the TFET and prepared by the Asian Development Bank will address some of the dangersposed by poor drainage and standing water which provide breeding grounds for the mosquito. Anadditional environmental concern is the disposal of medical waste. The project will provide healthcenters with incinerators that will be used to dispose of their own medical waste.

7. Participatory approach:

a. Primary beneficiaries and other affected groups: the mission members and East Timorese counterpartson the IHA consulted widely with organizations in the communities, including the church. Ananthropologist on the team conducted a wide range of interviews and discussions with local people in

several districts to ascertain where they are currently going for services, if at all, and what they wouldexpect of their health system and providers.

b. Other key stakeholders: The mission and the IHA also had discussions with all the major internationalNGOs active in health, and several smaller agencies too. They also met with local NGOs, with women'sgroups and with the midwives' association. The specialist agencies of the UN were consulted and theirexperience helped to guide program direction. Representatives of three of the main donors to TFET -from AusAID, the European Commission and Portugal were part of the mission team, and other donors,e.g. JICA were met with.

F: Sustainability and Risks

1. Sustainability:

See Annex 4

2. Critical Risks: (reflecting assumptions in the fourth column of Annex 1)

Risk Rlsk Risk Minimization Measure

From Outputs to ObjectiveThe transitional authority structure and S Ensure that key functions needed for the

procedures will not be in place by July 1, program are built into the HPMU2000, especially the financial, procurementand payroll systems.

The recovery program for the economy of the H Ensure that the health policy options take thiscountry will be slower than expected risk into account.From Components to OutputsThat restoring access to public facilities will M The investments in public facilities will focusnot increase utilization and access to basic on those where the demand is high and otherhealth services options are not feasible. The program will also

invest in improving quality of the service thatshould minimize this risk.

That training studies and stakeholder M Policy development is a lengthy process and isconsultations will not translate into increased both technical and political. The project willcapacity leading to effective policy ensure the technical inputs and consultationsdevelopment and implementation fit within the policy development framework

and identify key intermediate outputs.Moreover, the participation of the EastTimorese staff at the different stages isconsidered an integral part of the process.

That NGOs will not be able to provide the M Consultations with NGOs indicated that manybasic package of basic services and expand of them are willing and able to provide theseaccess services.

The logistic system designed will not ensure N The design for this sub-component has takenthat drugs are available in a timely manner into account the different risks involved and

selected the most feasible and efficient option

That rehabilitation /reconstruction and N The IHA has asked that all civil works plannedequipping will not be done according to plan by other agencies and service providers be

cleared with them and be consistent with theoverall plan

That an action plan to downsize the access M The IHA has agreed no more than fivebed capacity of hospitals will not be hospitals will remain in the country anddeveloped informed stakeholders about this decision.

MThat improved capacity for the IHA/HO will Efforts to ensure that capacity building effortsnot be achieved. and training match the capacity and needs of

the IHA were made. Moreover, the IHAstructure will be revised to fit with the overalldesign of the program, thus linking capacitybuilding with results.

Overall Risk Rating S I__Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

3. Possible Controversial Aspects:

Controversial issues in the project design include:* A decision not to rebuild all health facilities that existed before the disturbances. The excess capacity

is a particular concern when it comes to hospital bed capacity and dealing with issue is likely to becontroversial.

* The decision to have an autonomous medical store* Health financing options as well as those dealing with the role off the government role of the public

and the private sectors may be controversial issues.

G: Main Loan Conditions

Effectiveness Conditions(a) that the Health Program Management Unit has been established within UNTAET's

Governance and Public Administration Pillar, with qualified personnel in adequatenumbers, including a financial manager and a procurement specialist acceptable to IDA;

(b) that an action plan for the financial management of the Project, acceptable to IDA, has beenadopted;

(c) that an action plan for procurement under the Project, acceptable to IDA, has been adopted;

(d) that the Guidelines for Compensation and Resettlement, acceptable to IDA, have been issuedby the Recipient; and

(e) that the Guidelines for the preparation of district health plans, acceptable to IDA, have beenadopted.

Others:

Implementation

1. UJNTAET shall establish and thereafter maintain until completion of the Project, a HealthProgram Management Unit within UNTAET's Governance and Public Administration Pillar, withcompetent personnel in adequate numbers, including:

(a) a program director who shall be the senior health professional in UNTAET's Governanceand Public Administration Pillar;

(b) a health planning and management specialist;

(c) a procurement specialist; and

(d) a financial manager.

2. In carrying out Component 1 of the Project, UNTAET shall enter into agreements with non-governmental organizations for the delivery of district health services in accordance with guidelinesagreed with IDA.

3. In carrying out Component 1 of the Project, UNTAET will:

(a) take measures to avoid or minimize the acquisition of land or assets of persons and to avoidthe displacement of said persons;

(b) where the acquisition of land or assets or the displacement of persons is unavoidable,ensure that the Recipient shall, before carrying out the works which would result in suchacquisition or displacement, make available to Affected Persons, compensation inaccordance with the Guidelines for Compensation and Resettlement; and

(c) in the event that there are two hundred or more Affected Persons:

(i) prepare a resettlement plan in accordance with the Guidelines for Compensation andResettlement and furnish such plan to IDA for approval; and

(ii) prior to the carrying out of the works, ensure that all Affected Persons shall havebeen compensated in accordance with the provisions of said plan.


(a) not later than October 31, 2000, prepare draft regulations concerning pharmaceuticals,under terms of reference acceptable to IDA;

(b) furnish such draft to IDA for comments; and

(c) thereafter, taking into consideration the comments of IDA, take the steps required topromulgate the regulations.


(a) not later than November 30, 2000, prepare an options paper, under terms of referenceacceptable to IDA, which shall address the issues related to the private provision ofhealth services;

(b) furnish the options paper to IDA for comments; and

(c) promptly thereafter, prepare an action plan taking into consideration the comments ofIDA on the options paper.


(a) not later than January 31, 2001, prepare an options paper, under terms of referenceacceptable to IDA, which shall address the issues of health financing, including fees forhealth services;

(c) furnish the options paper to IDA for comments;. and

(c) promptly thereafter, prepare an action plan taking into consideration the comments ofIDA on the options paper.

7. UNTAET will:

(a) maintain policies and procedures adequate to enable it to monitor and evaluate on anongoing basis, in accordance with the performance indicators for the Project, the carrying out of theProject and the achievement of the objectives thereof,

(b) prepare, under terms of reference satisfactory to IDA, and furnish to IDA, on or aboutMarch 31, 2001, a report integrating the results of the monitoring and evaluation activities performedpursuant to paragraph 7.(a) above, on the progress achieved in the carrying out of the Project during theperiod preceding the date of said report and setting out the measures recommended to ensure the efficientcarrying out of the Project and the achievement of the objectives thereof during the period following suchdate; and

(c) review with IDA, by May 31, 2001, or such later date as IDA shall request, the reportreferred to in paragraph 7. (b) above, and, thereafter, take all measures required to ensure the efficientcompletion of the Project and the achievement of the objectives thereof, based on the conclusions andrecommendations of the said report and IDA's views on the matter.

Financial:

i. UNTAET will maintain or cause to be maintained records and accounts adequate to reflect inaccordance with sound accounting practices the operations, resources and expenditures in respect of theProject of the departments or agencies of UNTAET responsible for carrying out the Project or any partthereof.

2. UNTAET will:

(a) have the records and accounts referred to in paragraph I above including those for theSpecial Account for each fiscal year audited, in accordance with appropriate auditingprinciples consistently applied, by independent auditors acceptable IDA;

(b) furnish to IDA as soon as available, but in any case not later than six months after the endof each such year, the report of such audit by said auditors, of such scope and in suchdetail as IDA shall have reasonably requested; and

(c) furnish to IDA such other information concerning said records and accounts and the auditthereof as IDA shall from time to time reasonably request.

3. For all expenditures with respect to which withdrawals from the Grant Account were made on thebasis of statements of expenditure, UNTAET will:

(a) maintain or cause to be maintained, in accordance with paragraph 1 above, records andaccounts reflecting such expenditures;

(b) retain, until at least one year after IDA has received the audit report for the fiscal year inwhich the last withdrawal from the Grant Account was made, all records (contracts,orders, invoices, bills, receipts and other documents) evidencing such expenditures;

(c) enable IDA representatives to examine such records; and

(d) ensure that such records and accounts are included in the annual audit referred to inparagraph 2 above and that the report of such audit contains a separate opinion bysaid auditors as to whether the statements of expenditure submitted during such fiscalyear, together with the procedures and internal controls involved in their preparation,can be relied upon to support the related withdrawals.

H: Readiness for Implementation

[X] 1. a) The engineering design documents for the first year's activities are complete and ready for thestart of project implementation.

The preliminary designs for the civil works were done during the mission.

[X] 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

A procurement plan for the first year activities has been prepared as well as terms of reference forkey technical assistance contracts.

[X] 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

A tentative implementation plan was prepared. A more detailed plan that will be translated to thelocal language is under preparation.

[] 4. The following items are lacking and are discussed under loan conditions (Section G):NA

I: Compliance with Bank Policies[X] 1. This project complies with all applicable Bank policies.[ ] 2. The following exceptions to Bank policies are recommended for approval. The project complieswith all other applicable Bank policies.

Team Leader: d aadh, Senior Health and Population Specialist, EASHD

Sector Manager/Director: Alan Ruby, Sector sector, E^II)

Country Manager/Director: Klaus Ro untry rector, EACNI

ANNEX 1: PROJECT DESIGN SUMMARY

East Timor: Health Sector Rehabilitation and Development Program

f#Irarchy of Key Performance Monitoring and Critical AssumptionsIndicators Evaluation

Sector-related CAS Goal: NA Sector Indicators: Sector / Country Reports: (from Goal to Bank Mission)

Project Development Outcome / Impact Indicators: Project Reports: (from Objective to Goal)Objective:Address immediate basic The transitional authorityhealth needs and develop structure and procedures willappropriate health policies be in place by July 1, 2000,and systems especially the financial,

procurement and payrollsystems.

The recovery program for theeconomy of the country willproceed as expected

Output from each Output Indicators: Project Reports: (from Outputs to Objective)component: i) Children under one year of age Project monitoring andRestoring Access fully immunized (at least 30% by evaluation/EPI statistics That restoring access to public

mid-term and 60% by facilities that are equipped andcompletion) supplied will increase

utilization and help addressii) Villages with access to a Project monitoring and basic health needspermanent source of health care evaluation(at least 90 % by completion)

iii) Health facilities selected in the Project monitoring anddistrict health plans appropriately evaluation/service statisticsutilized (at least 40% by mid-termand 80% by completion)

iv) Health facilities with less than Project monitoring andtwo weeks of stock-out of evaluation - inquiries to healthselected essential drugs over a centers/records of the AMSthree-month period (at least 90%by completion)

Policy and system v) Options paper on health Project monitoring and That training, studies anddevelopment financing (completed by mid- evaluation/supervision mission stakeholder consultations will

term) translate into increasedcapacity leading to effectivepolicy development and

vi) Options paper on the role of Project monitoring and implementation.the private sector (completed by evaluation/supervision missionmid-term)

vii) Regulations onpharmaceuticals (promulgated bymid-term)

viii) Consultations withstakeholders regarding healthpolicy (at least on quarterly basis)

Project Components/Sub- Inputs: (budget for each Project Reports: (from Components tocomponents: component) (US $mill) Outputs)

Restoring Access to Basic 9.5ServicesTransitional strategy for Project monitoring and That NGOs will be able toservice provision evaluation provide the basic package of* Accelerated health services and expand

implementation of accessselected high priorityactivities

* Further define the basicpackage of healthservices

* Develop and adopt anessential drug list and That the logistics systemstandard guidelines designed will provide timely

• Pharmaceuticals logistics availability of drugssystem

* MOU with serviceproviders at district level

. Ensureemergency/essentialhospital care

* Provide key specializedservices

Rehabilitation and equipping Project reports and site visits That rehabilitation andof health centers equipping will be done. (temporary) repairs to equipping will n

HCs according to plan

. construction of selectednew HCs

* equipping of HC- provision of kits-procurement of standardequipment

* transport andcommunications

. staff support andoperating costs

Hospital services 1.7 Completion of hospital That an action plan to* transitional plan assessment downsize hospital capacity will

be developedPolicy and systemdevelopment: 0.9 Completion of training, studies That studies, training,* studies, training, and consultation consultation will lead to

consultation definition of clear options for. human resource strategy policy development and system

designProject implementation andmanagement Supervision reports That improved capacity for* administration administration, monitoring and. monitoring and evaluation, together with

evaluation technical assistance will build. capacity building/TA the capacity of IHA/HO for

support program management

Annex 2: Project DescriptionEast Timor: Health Sector Rehabilitation and Development Project

The context

In the violence of September 1999, East Timor was devastated. Over 75 percent of the populationwere displaced during the disturbances, and returned to find many homes and most public buildings- including health centers and hospitals - destroyed. Agriculture and commerce were disrupted,and most infrastructure services - transport, ports, mail, telephones, banks - were no longerfunctioning. The civil service had disintegrated: the exodus of Indonesians included most officialswith management and government experience, and senior health personnel. In this situation, theIN stepped in to provide a transitional govemment, and start rebuilding a governance structure andsectoral capacity. Initial efforts have focused on the central level and on establishing districtadministration in each of the thirteen districts. During the emergency period international NGOsand relief agencies have been providing for basic needs.

Restoring access to basic health services for the whole population is an urgent need and one forwhich there is a high demand. This will be a main focus of the East Timor Health SectorRehabilitation and Development Program (ETHSP) in its first year, and comprises the firstcomponent of the project. At the same time, it is important to start work immediately ondevelopment of health policies and a health system suited to East Timor. This will be the secondfocus of the ETHSP in the first year, and the second component. Given the lack of establishedadministrative and managerial capacity at central level, a third focus, and the third component, willbe to put these quickly in place.

Project Component 1 - Restoring Access to Basic Health Services US$ 10.0 million

Transitional strategy for service provision In East Timor, at present, health services are providedby a large number of different entities and coverage of the population is uneven both in terms ofphysical access and in terms of the services provided. This situation has arisen from a much neededemergency response but cannot be considered adequate and has now become difficult to manage.Therefore, a transitional strategy will be implemented during the period between the currentemergency situation and the development of the future health system. This strategy must:

* be able to be rapidly implemented* ensure delivery of basic services to the maximum possible population* build capacity among East Timorese health staff* ensure more efficient use of resources* not interfere with the development of the future health system* take into account the principles developed by the East Timor Health Professionals Working

Group, including sensitivity to culture, religion and traditions of the East Timorese people.

It is recognized that many of the current service providers can and will play an important role in thetransitional strategy. There is, however, a need for some reorganization of services to ensure moreequitable coverage, more efficient use of resources, and a clear division of responsibilities alongwith greater accountability. This reorganization should be achieved in a way that allows easiercoordination, monitoring and evaluation by the East Timor Interim Health Authority (IHA).

The strategy will include immediate acceleration of selected high priority activities:immunization, TB control, micronutrient supplementation and targeted health promotion - all ofwhich are currently either non-existent or are reaching only a minority of the people. Theseactivities will not be vertical programs, but will be delivered through the health facilities andintegrated into a basic package of services for which there will be standard guidelines adapted tothe East Timorese context. The basic package will include health promotion activities,management of childhood illness, management of pregnancy and childbirth, other reproductivehealth services including family planning, and malaria control. These priority activities and basicservices address the most pressing health needs of East Timor. A heavy toll in maternal and childmortality and morbidity is undoubtedly being exacted by unassisted pregnancy and childbirth, andfrom childhood diseases. In addition to maternal and child health, much of which may beimproved by preventive services, the two most serious health problems are malaria and TB, forboth of which the project will provide treatment according to WHO guidelines. The program willbenefit from the experience of several agencies in these areas: WHO for standard guidelinedevelopment, UNICEF in support of immunization, UNFPA for family planning and reproductivehealth, and CARITAS for TB control.

The NGOs, mainly international, who with the Church and religious charities, are the main serviceproviders are playing a crucial role in the health sector. The ETHSP recognizes their importance,and seeks to build upon their current activities. Though the IHA will gradually take charge ofassuring health services, in the short term it will reach an agreement (MOU) with the serviceproviders at the district level. The agreement will ensure the provision of the basic package ofservices to the maximum number of people in each district, and define the roles and responsibilitiesof the IHA with regard to funding, standards, supervision and general oversight, and those of theNGOs with regard to the services provided. The NGOs will be requested to present District HealthPlans, formulated in consultation with the District Health Committee which will form the basis ofthe agreement. Capacity building will be an important element in the MOU, with NGOs beingasked to employ East Timorese staff and ensure their involvement in capacity strengtheningactivities.

Standardization of treatment protocols and cost-containment will require limiting the range ofdrugs available throughout the health services to a list of essential drugs designed especially for theconditions of East Timor. This also makes it possible to improve procurement and prescribing.Under this component Essential Drug Lists for different levels of the health services will bedeveloped along with Standard Treatment Guidelines (both with technical input from WHO)These are vital for ensuring cost-effective treatment and for improving drug management.

Pharmaceutical logistic system This is an essential early element of the transition strategy, andone that is critical to establishing the credibility of the health system. The broad objective is to re-establish a viable procurement, storage, inventory and delivery system that will ensure a constantsupply of high quality, affordable, safe and effective essential drugs and medical supplies for theentire population. The pharmaceutical component considered options for achieving this broadobjective, and the lessons from East Timor's own and international experience.

The previous Indonesian system was over-complicated, unresponsive and expensive; recreating itis not recommended for East Timor. Essential features for the East Timor system are considered tobe: access to internationally competitive prices, integration of storage and distribution for all drugsand health supplies into a single system, adequate drug financing and professional andcommercially sound management practices.

Internationally, reform of traditional public sector supply organizations has tried to introducecommercial management practices into restructured medical stores or to contract out services. The

latter is not considered a viable option for East Timor in the short term as the private sector isfunctioning at a very low level of activity. While not ruling this out in the future, for now thechoices to be made are within the confines of the public sector.

Two broad alternatives within the public sector were considered. The first was a traditional CentralMedical Store working as a department within the Ministry of Health. This arrangement hastypically failed in many, if not all, countries around the world. Following considerable discussionof the reasons for failure, the first option was rejected. The second, and eventually agreed, optionis a legally established Autonomous Medical Store (AMS) with a mandate to supply the publichealth system with essential drugs and supplies and to be managed following commercial practicesbut within the public sector. It will establish a procurement and distribution system operating froma single warehouse in Dili. The component will support the construction of the central warehouse.The management will be responsible to a Board of Trustees (BOT) drawn from variousgovernment and non-government organisations. The BOT will be responsible for overseeing therunning of the medical store and for guaranteeing its autonomy. This approach should providebudgetary independence and rationalise decision making. It could eventually permit managementto hire and fire and pay salaries commensurate with market rates for attracting, retaining andmotivating good staff, although initially this aspect may be controlled by the IHA. Thisautonomously managed but public pharmaceutical and medical supplies system, may reasonably beexpected to result in higher productivity, lower costs and a high level service.

For an interim period the management of the autonomous agency will be contracted out to acompany experienced in the procurement and logistics of pharmaceuticals for developingcountries. The contractor will set up and manage a financially self-sustaining, but non-profit,autonomous supplies organization in East Timor. It will also train and develop local staff andmanagers to assume full responsibility for the management within a three year period. The successof the system will be monitored on the basis of indicators designed to measure drug availability inhealth facilities and drug prices against international averages. Program implementation will bemeasured against milestones established in the contract. Moreover, the contractor will beresponsible for procurement of pharmaceuticals. Prior to negotiations, UNTAET providedassurances that adequate budgetary allocations will be made for funds required to finance thepurchase of drugs and that drugs will be procured by the managing contractor of the AutonomousMedical Store.

Other key elements of the transitional strategy are the provision of laboratory and critical essentialspecialized services (e.g. mental health), provision of staff and ensuring operating costs.

The first component also supports the rehabilitation and equipping of health centers, includingcommunications and transport. Minor and/or temporary repairs (and in a few cases majorreconstruction and rehabilitation) have been undertaken by the current NGO service providers insome areas. There remains, however, a major need for rapid reconstruction of the physicalinfrastructure. The program will focus, in the first year, on the construction of 25 new healthcenters at sub-district level in areas where destruction and demand are greatest. A number ofadditional health centers will also be built in the second year of the program (no more than 30).However, the building needs will be constantly re-assessed.

Hospital services. While the reconstruction and rehabilitation will focus on facilities for primaryoutpatient care, an assessment of inpatient capacity will also be conducted during the first yearalong with the development of a transitional strategy for hospital services. This will include a planfor the management of the national referral hospital in Dili following the withdrawal of theInternational Committee of the Red Cross planned for mid-2001 and for the phased reduction ofinpatient beds where it is excessive.

In addition, the component will support the re-establishment of an administrative infrastructureat the central and district levels. Buildings previously used by the provincial health administrationhave all been destroyed. Rehabilitation of a building for the health authority is an urgent need inorder that the work of the ETHSP can be carried out efficiently. This work, which forms partsetting up the government, will be financed through the UNTAET Trust Fund. In terms of staffing,the administrative staff for the system will be recruited as civil servants. Technical staff may berecruited on contractual basis till the health policy is better defined. This will provide the health

system with the flexibility needed to meet the medium to long-term needs while ensuringemployment for the East Timorese staff.

There is a need to standardize the implementation of the basic package of services according to thestandard guidelines, as mentioned above. Some staff will be required to take on supervisory rolesthat they did not have before. This will require a well focused but quite extensive training programin the first year for staff currently providing health services and those being reintegrated into thesystem. Similarly, many staff of the IRA are being asked to take on roles for which they have littletraining and experience. Capacity strengthening in these two areas will, therefore be an importantpart of this component.

Moreover, the project activities will be complemented by a small grant scheme component(average cost about US$ 300,00 per year) to support stakeholder participation in health sectorissues. This activity will be supported by AusAID and will focus on activities other than healthservice provision including community participation in health promotion activities. Thismechanism will allow some small local NGOs to contribute to the overall health program in areaswhere they are best placed to do so. Part of this scheme will support the development andstrengthening of health professional organizations.

For all the activities above there will be an extensive process of consultation with service providersand other key stakeholders. District Health Committees are being established, and may also beformed at sub-district level also. These health committees will work closely with the civiladministration - including the District Health Officers in the District Administration offices, withthe other organizations being established to ensure community participation in government services- including those being set up under the Community Empowerment Project, with the Church, andtake account of traditional community decision making arrangements.

Project Component 2-Health Policies and Health System Development US$ 1.8 million

Statements have been made and expectations of the health system raised that if followed couldprofoundly affect the nature of the health system in East Timor. Pressure from the population andthe political community to adopt one or other orientation to health care can be expected to grow.For these reasons there is an urgent need to equip stakeholders in the health sector with a betterunderstanding of policy options, and their long-term implications, and to start the policy debate.This component must, therefore, start immediately although it will address issues related to themedium to long-term development of the system. It has three sub-components: policydevelopment, system design and implementation, and human resource development

Policy development will require both technical inputs and capacity building. The policy issuesfacing E. Timor are the same as those facing every other country in the world, though differentcountries decide on different approaches. After discussion with the IHA it was agreed that policydevelopment should not take place piece-meal, but would take place within an overall frameworkwith four main dimensions. Some indication of the issues to be addressed within each dimension ispresented below:

Sector objectives and context. This would involve clear statements about the health sector and itsobjectives. For example, is poverty reduction an objective influencing health service provision?.Moreover, such a framework should address the broader determinants of health outcomes andexamine the role of other sectors and keep an oversight over policies in other sectors that willinfluence the health outcomes. In addition, health policy development needs to examine broaderissues of political and administrative structure and how the broader government and civil servicecontext affects the health sector.

Another important area that needs to be addressed in policy development is the role of government.More specifically, the health sector team will examine and, to the extent possible, define the role ofthe government in the areas of regulation, delivery of public goods, financing versus the provisionof services, ensuring equity and so forth. Related issues will be the role of the private sector andthe health financing options to be adopted.

Another area that the health policy development will need to address is basic health services. Inaddition to defining the basic package of services, the work will involve consideration of issueslike access versus quality; financing of basic health services; targeting; role of the private sector inbasic services; community participation, and planning and resource allocation. Finally, the healthpolicy work will address issues of health services that go beyond the basic package. For suchservices a better understanding of the future demand, expenditure and financing is needed.

Development ol policies addressing the above issues will be achieved through a combination ofstudy tours to gain understanding of how decisions taken in other countries have affected the natureand scope of their health systems, focused studies and training as well as an extensive consultationprocess with the key stakeholders and beneficiaries of the future health system. Consultation isessential. Although it would be technically possible for a group of experts to sit down and draft acomprehensive health sector policy in a few weeks such a health policy would be unlikely to meetthe needs of East Timor, even in the short run, and in the absence of involving the participation ofkey stakeholders would risk being rejected by those whom it is intended to serve. The IHA isalready actively planning the process, which is considered so important that the number ofstakeholder consultations will be monitored as an indicator of progress.

The second part of this component involves the design of a health system appropriate to implementthe agreed health policy and to the demographic, geographic and epidemiologic conditions of EastTimor. This will include the design of the administrative structure and of the supporting systems,for example, for logistics, information, monitoring and evaluation. Although it may be possible toresolve a number of important and urgent policy and design issues during the first year (or evensooner), other health policy issues will require more time to resolve, and the piloting of differentoptions. In some cases (e.g., the role of the private sector), issues may need to be revisited as moreexperience is gained and as the government's regulatory capacity and confidence expands.Accordingly, it is anticipated that the policy and systems development process will be ongoingthroughout the period of the project. A critical aspect of this process will be dissemination ofpolicy decisions and the rationale for them.

Underpinning both policy development and system design will be legislation, health regulation andsurvey data. Specialized technical input will be required for the conduct of a baseline demographicand health survey and for the development of specific elements of the strategy, especially those thatrequire a multi-sectoral approach, for example, for nutrition.

The final sub-component of the medium to long-term system development is a human resourcestrategy that takes into account the current profile of health staff and more importantly its future

configuration as determined by the health policy and system design. Clearly there are predictableelements of human resource development that will need to be addressed before a comprehensivestrategy is developed, for example, the need to create opportunities for medical students part waythrough their studies to complete them. In addition, career paths, salary scales and employmentpolicies for health workers need to be developed that do not repeat the weaknesses of the previoussystem - overstaffing, multiple layers of bureaucracy, wages at levels that did not provide incentivebut encourage fringe benefits and unregulated private provision, and poor patient/providerinteraction.

Project Component 3 - Program Management Unit US$ 0.9 million

Since the project will cover most areas of the health sector, a health program management unit(HIPMU) will be integrated within the Office of Health/IHA and will be designed to maximize itscapacity to manage and implement health programs. The IRA, or its East Timorese members, isexpected to become the future ministry/department of health. This is a key reason for including theHPMU within the IHA structure, and for the emphasis on building administrative capacity. Criticalareas of capacity building are health planning and management, procurement and financialmanagement. Monitoring and evaluation of the Program will also be carried out under thiscomponent. Consultant support to the HPMU will be funded under this component - indeed thehiring of a procurement specialist and a financial manager is a condition of project effectiveness.The "on the job" training will supplemented by formal training as needed.

In terms of specific functions, the H!PMU will be responsible for implementation of the program.This includes: coordination of health service delivery; ensuring adequate progress in thedevelopment of health policies and system design; monitoring and evaluation of the quality andprogress of program implementation; and ensuring that adequate follow-up action is taken for theprogram to meet its development objectives. Moreover, the HPMU will also be responsible forfinancial management and procurement for the program. The UNTAET central fiscal andprocurement authorities will play an oversight role in ensuring that these functions are carried outin accordance with agreed policies and procedures.

The HPMU will also be responsible for ensuring the efficient procurement of drugs and medicalsupplies (and their distribution) by the proposed Autonomous Medical Store and for the quality ofall aspects of the Health Sector Program. In addition, the HPMU will be responsible for reportingand recording requirements and communications with IDA.

As regards staffing, the head of the HPMUI will be the Program Director who is also the seniorhealth professional in GPA. A senior East Timorese health professional will be designated as theDeputy Program Director. The Directors will be accountable for progress of the Program inaccordance with the agreed implementation plan. The Program Director will be supported by keytechnical specialists in the following areas: (a) health policy, regulation and legislationdevelopment; (b) health service delivery; (c) management of physical infrastructure(re)construction; (d) procurement; and (e) financial and administrative management.

In general, there will be a national counterpart for each appointed international staff to be trained totake over the responsibilities in a reasonable period of time. A comprehensive staff developmentand a training program will be implemented to train national staff on all aspects of healthadministration.

Natrix of East Timor Health Sector Development Program for the Transitional Period 2000-2002

Overall Goal: Address immediate basic health needs of fhe populatfon of East rimor and develop thehealth policies and a health system appropriate to the country

Program Objectives PhasesYearI Year2 Year3

1. Restoring access to basic health servicesa. Transitional strategy for sevice provision

i-accelerate implementation of selected high priority activities X(e.g., immunization, health promotion, TB control)ii-further define and elaborate the basic package of health services Xiii-develop and adopt an essential drug list and standard guidelines Xiv-pharmaceuticals logistics system

-onstruction of new central warehouse X-establishmentlmanageffentftraining contract X X X

v-phamiaceuticals/medical supplies/lab supplies X X Xvi-MOU with service providers at the district level (NGOs/DHA/others) X Xvii-ensure emergency/essential hospital care X Xviii-provide laboratory and key specialized services X X Xix-staff support and operating costs X X X

b. Rehabilitation and equipping of health centersi-(temporary) repairs to HCs Xii-construction of new HCs

-25 high priority sub-districts X- additional sub-districts x

iii-equipping of HC-immnediate provision of kits X-procurement of standard equipment X X

iv-transport and communications X Xv-others X X

c. Hospital servicesi-transitional plan for five referral hospitals X Xii-assess overall capacity and physical status Xiii-prepare an action plan for reducing excess capacity X Xiv-construction/rehabilitation/equipping as needed X Xv-staff support and operating costs X X X

d Re-establishment of administrative infrastructurei-central level xii-district level xiii-maintenance X X X

Program Objectives PhasesYear 1 Year2 Year3

e. Capacity strengtheningi-for basic package x xii-for health adrrinistration and management X X

f. Smallgrantscheme/communityparticipationto support cormmunity partidpation, professional organizations and X X Xselected services outside the basic package based on agreed guidelines

2. Health policies and health system developmenta. Policy development

i-studies/TAN surveys x xii-baseline survey Xiii-stakeholder consultation x X Xiv-piloting/modification X Xv-evaluation/ consultation/consensus building X Xvi-development of specific strategy components (e.g., nutrition) X X Xvii-health regulation and legislation x x xviii-capacity building X X Xix-dissemination x x x

b. System designAmplementation plan

i-organizational stnuctureladministration X Xii-supporting systems

-logistics X-information system' monitoring and evaluation X X-others X X

c. Human resource developmenti-HR strategy Xii-implementation of HR development program (including fellowships) X X

3. Program management unita. Project adrirnistration X X Xb. Monitoring and evaluation X X Xc. Capacity building/support to the health authonty X X X

Annex 3: Estimated Project Costs

East Timor: Health Sector Rehabilitation and Development Program

Local Foreign TottlProject Cost By Component a. uS-$ milion

Component 1. Restoring access to basic health 1.7 7.6 9.5services

Component 2. Health policies and system 0.2 1.5 1.7development

Component 3. Program management unit 0.2 0.7 0.9

Total Baseline Cost 12.1Physical Contingencies 0.1 0.5 0.6

Price Contingencies 0 0 0

Total Project Costs 2.2 10.5 12.7

L-ocal Foreign TotalProject Cost by Category US $ million

Goods 0.3 2.2 2.5Works 0.9 3.4 4.3Services (including contract for AMS) 0.4 4.0 4.4Training 0.4 0.7 1.1Operating Costs 0.2 0.2 0.4

Total Project Costs 2.2 10.5 12.7A/ numbers may not add up due to rounding errors

Annex 4: Economic AnalysisEast Timor: Health Sector Rehabilitation and Development Program

1. Analysis of HNP Project Objectives

East Timor is a post-conflict country that is completing a period of emergency assistanceand transitioning to a more development-oriented form of assistance. The country iscurrently being administered by the UN Transitional Administration in East Timor(UNTAET). The majority of Indonesian civil servants have left the territory, and publicrecords and original plans for building and utilities have been lost or destroyed. East Timoris left with an infrastructure which is 70 percent destroyed, a population recovering fromconflict, half of which has been displaced, no functioning police force, a civil service thatlacks the majority of its senior staff and an extremely weak revenue base.

No Country Assistance Strategy (CAS) or Country Economic Memorandum (CEM) hasyet been prepared, and there has not yet been any Economic Sector Work (ESW). Strategicwork to date has included a multi-donor supported Joint Assessment Mission (JAM) inNovember 1999. A "Health and Education Background Paper" was prepared in connectionwith the JAM. This report identifies the immediate provision of health care and thedevelopment of a new health policy as the health sector's two key priorities. According tothe report, achieving these objectives requires: 1) restoration of primary health careservices at the sub-district level, 2) re-establishment of inpatient services, 3) re-establishment of a central health authority that will ultimately become the country'sministry of health, and 4) health manpower capacity building. The report identifies twokey overall issues in implementing the provision of basic health services: 1) managerialand technical inputs (doctors) will have to be provided from external sources during theinitial and much of the transitional phase, and 2) expansion and continuation of theprovision of basic health care is urgent, but the extent thereof should not preempt thenecessary and upcoming health reforms.

The three objectives of the East Timor Health Sector Rehabilitation and DevelopmentProgram (ETHSP) essentially parallel the recommendations of the JAM report: 1) ensuringaccess to basic services, 2) policy and system development (including human resourcedevelopment), and 3) project implementation and management (including support to theInterim Health Authority). It is likely that the sector's two main objectives, i.e., restorationof basic services and the development of a new health policy, are achievable within thetime frame of the project. However, the task of health manpower capacity building and thefull implementation of the new health policy can be expected to extend beyond the periodof the project.

The project's policy framework addresses two key cross-cutting issues of risk pooling andcost containment. The project contributes to broad risk pooling by supporting thecontinuing operation of secondary and tertiary care facilities that do not currently chargefees (but in which user fees may be gradually introduced depending on the country's healthpolicy). The project supports cost containment by focusing on the provision of a basic setof primary health care services at the sub-district level within the context of an overalldistrict health strategy that includes a strong health education component. Many of theissues that will be addressed in the health policy development component of the projecthave additional implications for cost containment. Examples include: 1) the role of the

government in the health system, 2) inter-sectoral linkages in health, 3) user fees andalternative forms of health financing, 4) basic health services package, 5) basic drugs list,and 6) the role of the private sector.

2. Range of Alternatives Considered in Project Design

The ETHSP will rely initially on a traditional developing country health sector model inwhich the government and (in this case) NGOs are the main provider of health care.Although some provision of services by local NGOs is anticipated (mainly church-sponsored clinics), it is not expected that either commercial (for-profit) providers or privatepharmacies will be operating initially' Although some private provision of health servicesis expected in the future (possibly through side practices by government health workers),the Timorese health professionals fear the development of an uncontrolled commercialhealth sector before the government has developed the necessary regulatory systems.

The main alternative considered in project design would involve the government leavingthe provision of outpatient curative care to the private sector. Under this alternative,government would focus exclusively on the provision of public health services (i.e.,services whose social benefits differ from their private benefits together with a limited setof highly cost-effective and mostly preventive services) and on the provision of secondaryand tertiary care. Under this alternative, curative outpatient care would be mainly providedby church-sponsored clinics (about 20 of which are currently in operation) as well as byvillage midwives and other private practitioners (most of whom initially would be formergovernment health workers).

This alternative was rejected mainly for the three reasons. First, the supply of serviceswould be inadequate initially to meet demand. Consequently, there would be a danger thatforeign commercial providers would establish practices with the intention of making lots ofmoney by exploiting consumer ignorance and limited government regulatory capacity (ashas occurred in Cambodia). The second reason is that it would be very difficult to providegood-quality primary care under conditions in which preventive and curative care wereprovided separately. Third, the poor would not enjoy the same degree of access to healthservices under this alternative model. Although in principle it would be possible for thegovernment to provide targeted subsidies to the poor that would enable them to accessprivate services, the capacity to identify the poor effectively (targeting) and to administervoucher or other demand-side financing schemes is not yet in place.

Another set of alternatives considered during project design involved the drug procurementand distribution system. In addition to the alternative selected (i.e., an autonomouslymanaged public sector entity) the alternatives of resurrecting the former Indonesian systemand a purely private sector system were considered. The former Indonesian system, inwhich drug procurement for the government health system was managed by a departmentof the Indonesian Ministry of Health, was rejected because of its inefficiency and lack oftransparency. A purely private system was rejected because it was judged that the marketwas too small (especially in the presence of widespread smuggling) to support an efficientprivate enterprise performing the broad range of functions needed. There was also concernthat a purely private distribution system would be limited to the major towns and would actas an agent for private pharmaceutical firms in promoting branded drugs. The

2 One notable exception is the private clinics and health insurance program administered by theCoffee Plantation Cooperative.

establishment of an autonomously managed public sector entity, independent of theMinistry of Health, was judged to be a good compromise between these two alternatives.

There are no surveys or other sources of information presently available that providereliable information on demand patterns. In the absence of such information it is difficultto determine whether Timorese are prepared to utilize health services provided bygovernment facilities at the sub-district level sufficiently to justify the major investmentthe project will make in rehabilitating them. The existence in most districts of church-sponsored clinics, which mainly provide curative outpatient services and charge fees, couldimply that the population was not entirely satisfied with government-provided services inthe past. On the other hand, current plans are focused on the need to provide better-qualityservices in government facilities than were provided previously. Clear evidence of thisintention is the decision to avoid over-staffing of primary care facilities so that the staffworking in them can be paid adequately.

The benefits provided by the project are likely to be equitably distributed among theTimorese population. The staff of the Interim Health Authority, as well as Timoresepolitical leaders, have a strong commitment to health equity. Early health policydocuments have stressed the need to provide equal access to basic health services.Although recent estimates are not available on the incidence of poverty in East Timor (the1998 estimates were 36%), a majority of the population is believed to be below the povertyline currently. Accordingly, the IRA does not plan to charge fees for health servicesduring the immediate future. The project's health policy component will support thedevelopment and testing of effective targeting methods to enable the poor to be exemptedfrom fees if and when they are imposed in the future.

3. Assessment of Fiscal Impact and Financial Sustainability

It is hard to estimate the budget envelop for the system since it will depend, to a largeextent, on the policy decisions that will be made by the IRA. The recurrent costs foroperating the health system if no changes are made in the general policy direction of thesystem are estimated to be US $7.8 million in year 1, $9.8 million in year 2 and $10.9million in year 3. By comparison, the size of this year's overall governmental budget(excluding UN costs) $31 million. If the overall budget increases by 5 percent annually(i.e., to $32.6 million in year 1 and to $34.2 million in year 2 and $35.9 million in year 3),recurrent health costs will absorb about 30 percent of the health budget by year 3.Although these shares are considerably higher than those found in the region, a substantialshare (20-30%) of the recurrent health costs during the project period are due to the extracosts of employing foreign doctors while Timorese complete their medical training abroad.Additional savings may be expected from the cost containment measures (discussed above)that will be considered in the project's health policy development component.

4. Quantitative Analysis (CBA and CEA)

The limited data currently available in East Timor (as a new country), as well as thequestionable reliability of some of the data available from Indonesian sources, makes it

3Some of the more reliable Indonesian data sources involve national surveys (e.g., DHS) in whichEast Timor's population (less than one-half of one percent of Indonesia's total) is not very wellrepresented. This implies that East Timor-specific survey-based statistics have very large samplingerrors.

difficult to prepare empirically based cost-benefit analysis (CBA) or cost-effectivenessanalysis (CEA). The project's design, as a mixture of service delivery, policy and systemdevelopment, also complicates the use of quantitative project analysis techniques.However, it may still be useful to provide order of magnitude estimates of the project'seconomic benefits in relation to its costs.

4.1 Cost-benefit analysis

The ETHSP consists of three components: 1) restoring access to basic services, 2) healthpolicy and system development, and 3) project implementation and management. Thebenefits and costs of the first two components are examined separately. The thirdcomponent is assumed to support the other two, and its costs are distributed between thefirst two components in proportion to their total costs.

4.1.1 Restoring access to basic services

Even prior to the recent post-consultation violence the available evidence suggests that thehealth status of East Timor's population was relatively poor, both compared to the rest ofIndonesia and to other countries in the region. For example, the UN estimates that theunder 5 mortality rate for East Timor was 201 during the period 1995-99, while averagelife expectancy at birth was only 47.5.4 Other estimates suggest that the under 5 mortalityrate is about 124 and average life expectancy at birth is 55-58 years. According to the 1997Indonesia DHS (but presumably based on a very small sample for East Timor), thecontraceptive prevalence rate was 27 percent (compared to 57% for all Indonesia) and theTFR was 4.43 (compared to 2.78 for all Indonesia). Subsequent to the violence, most ofEast Timor's doctors (130 of 160), as well as most of its senior health administrators,returned to Indonesia. Much of the country's health infrastructure was also seriouslydamaged or destroyed, along with most of its equipment. Although emergency medicalassistance is currently being provided by more than a dozen international NGOs, it isanybody's guess whether the territory's current health status is better or worse than it wasbefore the post-consultation violence.

Despite ambiguities about the current level of health status indicators, it is clear that in theabsence of continuing donor assistance (initially, in the form of relief assistance fromseveral international NGOs) the availability of even basic medicines and supplies,including vaccines, would be severely limited. Although many nurses, midwives and otherstaff remain, the country's health system would clearly cease to function in the absence ofthe assistance provided through the ETHSDP.

Although it is difficult to quantify the impact of a collapsed health system on the healthstatus and social welfare of East Timorese, it is possible to get some idea by consideringthe vulnerability of its population to a number of health problems, based on servicedelivery statistics from the former health system (Table 1). In addition to the usualchildhood diseases that could be expected to take a terrible toll in the absence ofimmunizations and good-quality primary health care for children under 5, the country'stwo most serious health problems are malaria and TB. Both of these diseases would likelytake a heavy toll in lives and morbidity among both prime working age adults (15-44) andschool-age children (5-14) in the absence of a functioning health system. Although these

4The fact that the 1997 Indonesia DHS obtained an estimate of only 49 for the under 5 mortalityrate illustrates the unreliability of the available health data for East Timor.

two age groups have fewer health problems and consequently use the health system lessoften than other age groups, the absence of a functioning health system would clearlyaffect them as well. In 1998, for example, prime working age adults (15-44) made 538outpatient visits per 1,000 to government health facilities (health centers and hospitals, netof referrals) while school-age children made 583 outpatient visits per 1,0005

Table 1. Diseases Observed in New Outpatients at Public Health Centers in East TimorAge of new outpatients

5-14 15-44 45+Diarrhea 26.8 17.3 27.6Dysentery 4.8 3.7 5.2TB (confirmed) 0.0 4.0 8.7Clinical TB 0.3 20.8 44.0Leprosy 0.2 1.8 2.1Malaria (confirmed) 11.4 8.9 9.6Clinical malaria 53.6 41.1 0.0Pneumonia 1.8 0.9 1.4Other 1.0 1.5 1.3Total 100.0 100.0 100.0Source: Indonesian government health service statistics

East Timor's GDP was estimated to be US$ 431 in 1996 (compared to Indonesia's nationalaverage at the time of US$ 1,153). Since it is believed to have declined by 40-45% in 1999,the current level of GDP per capita is probably around US$ 250. Since East Timor'seconomy is predominantly agricultural (and will continue to be during the period of theproject), the significant loss of manpower (including the time of family members caring forthe sick) that would occur from these and other diseases would have a significant adverseimpact on economic output. If the health services provided by the project improved overalllabor productivity by only 5 percent annually, this would translate into annual benefits ofmore than US$ 10 million (Table 2).

In addition to agricultural output, the value of non-agricultural home production notincluded in GDP (in which women and children probably play the major role) is also likelyto be adversely affected by a collapsed health system. If the value of home production isequal to only 20 percent of GDP and labor productivity in home work is increased by only10 percent by the project's health services (given that labor is the main input in homeproduction), there would be an additional benefits of more than US$ 4 million annually(Table 2).

In addition, improving the health of school-age children and their teachers ought tosignificantly increase the returns to the substantial investments in education that areprojected to occur during the life of the project.6 According to the JAM reports, externalfinancing of East Timor's schools is expected to be US$14.8 million in 2000, US$25.6million in 2001, and US$17.4 million in 2002. Even if the gains in educational productivity

5 The comparable figures are 1,260 outpatient visits per 1,000 among children 0-4 and 1,446outpatient visits per 1,000 adults age 45 and over.6 In addition to morbidity-related effects, a zero return would be obtained from cumulativeinvestments in the schooling of children who die before they enter the work force.

due to the health project are only 10 percent, this would translate into additional benefits ofUS$ 1.5-2.6 million per year (Table 2).

These are admittedly crude estimates of the annual net economic benefits from the project,but their magnitude is impressive (US$ 16-20 million annually). When properly discountedand compared to the discounted annual costs of the project they imply a cost-benefit ratioof about 0.6 (Table 2).' Moreover, the estimates in Table 2 do not include an imputedeconomic value for the substantial (but difficult to estimate) additional welfare gains, dueto reduced pain and suffering and losses of life, that would accrue to the population fromreduced morbidity and mortality.

Table 2. Benefit-cost Analysis of Project's Service Delivery ComponentYear 1 Year 2 Year 3 Totals

Benefits (US$):GDP 10687500 11951404 13364777 36003681Home production 4275000 4780562 5345911 14401472Education 1482100 2559800 1736300 5778200Total benefits 16444600 19291765 20446987 56183353Discounted total benefits 16444600 17537968 16898337 50880905

Costs (US$):Recurrent cost 7825000 9848000 10980000 28653000Capital cost 1274900 1430300 1004200 3709400Total costs 9099900 11278300 11984200 32362400Discounted total costs 9099900 10253000 9904298 29257198

Discounted net social 7344700 7284968 6994039 21623708benefitsCost-benefit ratio 0.575013Source: See text and footnote #5

4.1.2 Health policy and system development

This component of the project has three sub-components: 1) policy development, 2) systemdesign/implementation, and 3) human resource development. Since these are basicallyinvestment activities, their benefits can be expected to extend beyond the three-year life ofthe project. Their main effect is potentially to reduce the cost of providing a given leveland quality of health services. In the policy component, for example, many of the issuesthat will be addressed by the project have the potential to reduce the social cost ofproviding health services. One example is user fees. In the absence of user fees, thegovernment has to rely more heavily on tax financing of health services. Since theadministrative and distortionary costs of financing health services through taxes are likelyto be quite high in East Timor, use of alternative forms of financing could be associatedwith significantly lower social costs.. For example, if the social cost of collectingadditional tax revenue is as much as one dollar per dollar of additional revenue raised (i.e.,

7 The assumptions used to obtain the estimates in Table 2, in addition to those already provided inthe text are as follows: GDP per capita is assumed to grow at 10 percent per annum from a year 1value of US$250; the project's capital cost is assumed to be equal to 10 percent of the cumulativeproject investment costs in each year; the 1998 population of East Timor is assumed to be 855,000and to grow at 1.66% per annum; and the discount rate is assumed to be 10 percent.

higher than estimates for the US but about the same as estimates for Sweden), each dollarof financing through user fees would be associated with real savings of one dollar. Inaddition, user fees can be expected to reduce social losses due to moral hazard (i.e., theeconomic burden of excessive consumption due to pricing at less than marginal cost).

To get an order-of-magnitude idea of the potential benefits from user fees alone, assumethat marginal cost pricing were applied to only one-fourth of the recurrent costs of thehealth system (Table 2). This would reduce tax financing by approximately US$1.5-2.5million dollars annually and produce an equivalent economic benefit in only one year (dueto the reduction in deadweight loss of an equivalent amount). If user fees also reduce lossfrom moral hazard for these services by an amount equal to 10 percent of recurrent costs,this would contribute additional economic benefits of US$ 0.6-1.0 million dollars per year.In other words, the social gains from only one policy reform might produce annualeconomic benefits of the same order of magnitude as the project's entire expenditure on thepolicy component. The potential social benefits from this component of the project areindeed large relative to its cost.

The net benefits of the project's investment in developing system capacity are alsosubstantial. For example, in the case of the pharmaceutical procurement and distributionsystem, the World Bank and WHO have estimated that as much as 70 percent of all drugexpenditure when these functions are performed inefficiently.8 Such losses occur from avariety of inefficiencies, including: ordering unneeded drugs or the wrong quantities,paying higher than necessary prices, losses due to frequent stockouts and to holding drugsbeyond their expiration date, and losses due to pilferage. In the current project, spending ondrugs is projected to cost US$ 2.6 million in year 1. If drugs were procured and distributedless efficiently, the cost could be as much as 70 percent higher (US$1.8 million) in year 1alone. Clearly, the project's investment in an efficient drug procurement and distributionsystem has a low cost-benefit ratio.

The economic gains from the project's human resource sub-component are also potentiallyquite large. For example, each family doctor trained who is able to replace a foreign doctorproduces a savings to the health system of US$ 20,256 per year (i.e., the differencebetween the project's estimated annual cost of a foreign family doctor, US$ 22,800, andthat of a Timorese doctor, US$2,544). The discounted value of these annual savings over aten-year period (assuming a discount rate of 10%) would be US$ 124,464. Of course, thisassumes that the Timorese doctors trained abroad return to practice in the Timorese healthsystem.

4.1.3 Project implementation and management

This component of the project provides both recurrent and capital assistance to thecountry's Interim Health Authority (expected eventually to become the country's Ministryof Health). For the purposes of benefit-cost analysis, the costs of this component areallocated to the other two components (and sub-components) proportionately (according totheir costs). Since the benefits do not change, the effect of this component is to raisemarginally the project's cost-benefit ratios above what they would otherwise be.

4.2 Cost-effectiveness Analysis

8 The World Bank, Better Health in Africa, 1994, p. 76 ff.

Much of the project's resources will be used to support a package of mainly primary healthservices, most components of which have been shown to be cost-effective in a variety ofsettings. The IHA has already prepared documents that highlights key services to beprovided in the first phase of the program. These include: health education and promotion,maternal and child health (including emergency referrals for obstetric complications), otherreproductive health services, TB and malaria control among others.

5. Sensitivity and Risk Analysis

5.1 Sensitivity Analysis

Since project benefits are found to exceed project costs in all years, varying the discountrate has no effect on the qualitative conclusions that are obtained from the cost-benefitanalysis. For example, increasing the discount rate from 10 percent to 12 percent wouldnot significantly change the cost-benefit ratio in the analysis of the project's servicedelivery component (Table 2). However, if the productivity enhancing effects of theproject's health services were assumed to be only half as large as in the analysis presentedin Table 2, the cost-benefit ratio would rise to 1.20 and the service delivery component ofthe project would appear no longer to be desirable on economic grounds. However, asmentioned above, the analysis in Table 2 does not include any imputed value for thereduced pain and suffering and loss of life that would be directly attributable to the project-provided health services. If this were included, it is likely that the project would againappear to reflect a socially desirable use of resources.

5.2 Risk Analysis

The main risk to the project's financial sustainability would arise from the possibility thateconomic growth would be slower than anticipated. In this case, the country's rapidlygrowing population will increase the demand for health services while the government'sability to provide them will stagnate. Under these conditions both access and quality arelikely to decline while the distribution of benefits would be likely to become increasinglyskewed toward higher income groups (as is typically the case in other under-fundedgovernment health systems). Alternatively, the same scenario might instead lead tocontinuing heavy dependence on donor financing of recurrent health system costs. On theother hand, the project's policy development component will consider many issues thathave the potential to reduce the cost of the public health system, including: 1) the overallrole of the government in the health system, 2) the role of the private sector, and 3)alternative financing measures (e.g., user fees, community financing, health insurance).

6. Institutional Capacity

Institutional capacity is currently very limited in East Timor. Most of the seniorgovernment officials, including most doctors and senior health officials, were Indonesianand have since left the territory. However, the IRA (which is expected soon to become theterritory's Central Health Authority and ultimately the country's Ministry of Health) willbe provided with substantial resources for capacity development through the project.Moreover, the Interim Health Authority is expected to continue to function underUNTAET for the first two years of the project, during which it will continue to receivesubstantial long-term technical assistance. Accordingly, it is not anticipated that the limitedTimorese institutional capacity at this time will be a serious constraint to theimplementation of the project.

7. Contribution to Poverty Alleviation

No post-conflict poverty assessment (or a poverty profile) is yet available for East Timor.However, given its predominantly rural population, predominantly agricultural economyand weak rural infrastructure, it is likely that most poverty is rural and concentrated in theagricultural sector. Under these conditions, poor health is likely to be a very seriousconstraint on the income-earning potential of the poor (whose main source of income istheir own manual labor). In East Timor, poor adult health is largely a consequence ofmalaria and TB, both of which can be addressed through an effective and broadlyaccessible primary health system. By strengthening this system the project is likely tocontribute significantly to the labor resources of the poor and thereby to contribute to thealleviation of income poverty even in the short run. At the same time, the improved healthof poor school children that will result from the project will raise their learningproductivity and contribute additionally to poverty alleviation over the longer term.Finally, the increased access to good-quality primary health care will effectivelysupplement the cash incomes of the poor, resulting in substantial improvements in theirwelfare beyond what is registered in usual poverty measures.

8. Environmental Impact

Malaria and dengue fever are both highly endemic in East Timor. However, the healthsystem does not plan to use mosquito vector control measures (e.g., spraying of pesticides)that would be likely to have adverse effects on the environment. Instead, other measureswill be used that have less serious environmental effects (e.g., treated bed nets, healtheducation). An additional environmental concern is the disposal of medical waste. Theproject will provide hospitals with incinerators that will be used to dispose of their ownmedical waste as well as that of nearby health centers.

9. Economic Performance Indicators

In the short-term, the project is design assumes that that good-quality primary health careservices can be provided through a government health system and NGOs and that thepopulation will use these services if they are available. Although the quality of care canand should be directly measured and monitored, two economic indicators that have beenshown in other settings to be very good proxies for quality in primary care systems are: 1)"the average salary levels of medical personnel (adjusted for changes in consumer prices),"and 2) "the proportion of pharmaceuticals and supplies in the total budget." The reason thatthese indicators are so quality-sensitive is the tendency of government-managed systems toemploy more health workers than they can afford to pay adequately and to reduce non-personnel expenditures to free up funds to pay the salaries of their numerous employees.The result is under-paid health workers who lack the incentive to provide good-qualitycare, as well as acute shortages of necessary complementary inputs.

When salaries shrink and medicines and supplies become scarce, consumers tend to avoidpublic health facilities and shift their demand for health care to the private sector. Sincegovernment-managed facilities nevertheless tend to retain their staff when faced withdeclining utilization, reductions in utilization are typically manifested in declining laborproductivity. Therefore an additional economic indicator that is sensitive to quality is the"number of visits to primary care facilities per primary care provider (i.e., doctors, nurses,midwives)."

Poor quality in the hospital sector also tends to lead to lower utilization of inpatientservices, particularly in secondary hospitals (since quality tends to decline last in tertiarycare facilities). The under-utilization of secondary hospitals is usually most evident intheir occupancy rates, which often hover around 20 percent in poorly funded healthsystems. Therefore, the "occupancy rate in secondary hospitals" ought to be a goodeconomic indicator for inpatient services.

10. Overall Project Justification

An important feature of the ETHSP is that it will involve a Sector-Wide Approach(SWAP) to donor assistance. The main benefit of a SWAP in the current context is that itwill not overburden the limited capacity of East Timor's Interim Health Authority. In factit should help to free up staff time to deal with important policy development issues as wellas to benefit from capacity building resources provided by the project. A secondary benefitof a SWAP is that it will help IHA avoid a situation in which individual donors channelassistance to individual programs so that the system becomes a series of vertical programswith many duplicative functions (e.g., training, logistics, MIS, M&E).

Although the service delivery and financing approaches adopted by the project (i.e., directprovision by the government, tax and donor financing) are fairly conventional bydeveloping country standards and appropriately raise questions, the fact that this aspect ofthe project has not been preceded (and could not have been) by a systematic policydevelopment process makes it difficult to strike out in more innovative directions at thistime. Instead, the project will support such a policy development process, at the end ofwhich the Timorese government is likely to make significant modifications to the servicedelivery and financing system that is initially put into place.

Annex 5: Financial Summary

NA

Annex 6: Procurement and Disbursement ArrangementsEast Timor: Health Sector Rehabilitation and Development Project

Procurement Assessment

The UNTAET has recently established a central procurement office that deals with the UNTAETTrust Fund financed procurements. This central procurement unit is supported by the UnitedNations Operational Services (UNOPS) to develop a government procurement unit within theadministrative services component. However, to date, no procurement capacity has beenestablished in the sectoral units that are likely to evolve into departments or ministries in the future.Since these units will need to conduct their own procurements, and given the technical nature ofsome of these issues the HPMU needs to establish some procurement capacity within the Office ofHealth at IJNTAET. This capacity who will consist of a qualified international consultant willassist the Project Director in all steps of procurements including the preparation of procurementdocuments, publishing advertisements, preparation of short lists, evaluation of bids, preparation ofcontracts and so forth. The consultant will also ensure that the Bank Guidelines for theprocurement under the project are followed and will prepared reports needed for the supervisionmission. The procurement officer will also work closely with an East Timorese counterpart whowill be identified by the Project Director. This will facilitate transfer of skills and capacity buildingefforts. Moreover, procurement training will be conducted as part of the Project Latnchworkshops.

Procurement methods (Table A)

Procurement under the Grant will follow in all aspects the Bank's Guidelines: Procurement underIBRD Loans and IDA Credits, January 1995, revised January and August 1996, September 1997and January 1999, for Goods and Works and the Guidelines: Selection and Employment ofConsultants by World Bank Borrowers, January 1997, revised September 1997 and January 1999.For procurement of works, goods and services under the Grant, the Recipient will use: The Bank'slatest Standard Bidding Documents for ICB procurements, Standard Form of Consulting Contractsand Requests for Proposals (dated July 1997, revised April 1998 and July 1999), and Standard BidEvaluation Report Forms.

Inmplementation

A procurement officer will be recruited to support the Project Director in the implementation of theagreed procurement plan. The appointment of the Project Procurement Off cer is a condition ofeffectiveness, as well as adoption of a procurement plan acceptable to IDA.

A procurement agent will be used during the first three months to purchase the basic officeequipment (computers, furniture, supplies, photocopier) and vehicles in order to expedite theproject start-up.

Advertisement

A General Procurement Notice will be published in the May 31, 2000 issue of DevelopmentBusiness announcing goods and consultants services to be procured and inviting eligible suppliers,

contractors and consultants to express interest and to request expressions of interest and to requestany complementary information from the HPMU (UNTAET - GPA/HO). In addition, specificprocurement notices will be published in newspapers and/or Development Business, dependingupon the value of the individual requirements.

Goods

International Competitive Bidding (ICB) .Medical equipment, non-medical equipment, vehicles,communications equipment, etc. which are estimated to cost US$ 200,000 equivalent or more percontract will be procured using International Competitive Bidding (ICB) procedures in accordancewith the Bank's Guidelines. Total value of goods procured through ICB will account for about 64percent of total goods value (not to exceed US$ 1.6 million equivalent).

International Shopping (IS). Procedures for IS will be used for contracts for equipment to cost lessthan US$ 200,000 (i.e. computers, vehicles and motorcycles, office supplies, equipment andfurniture). These contracts will be awarded after solicitation and evaluation of at least three writtenprice quotations from suppliers in at least two different countries, in accordance with proceduresacceptable to IDA. The total value of IS is estimated to cost no more than US$ 500,000 orequivalent.

National Shopping (NS). Minor sundry items including spare parts, office supplies, medicalsupplies and selected equipment costing less than US$ 50,000 per contract may be purchased onbasis of shopping by comparing price quotations obtained from at least three local suppliers, inaccordance with Bank Guidelines. Aggregate amount of national shopping is estimated to cost lessthan or equal to US$ 200,000 or equivalent.

Procurement from United Nations Agencies (IAPSO) will also be used for contracts estimated tocost less than US$ 50,000 or equivalent or less with an aggregate value not exceeding US$ 200,000equivalent will also be used. This will be used for small scale procurements that may not befeasible through national shopping due to limited local markets. This will includes goods likecomputers, other non-medical equipment, supplies, consumables, and spare-parts.

Civil Works

Limited International Bidding (LIB). Given the emergency nature of the situation, LIB procedureswill be used for contracts for civil works which are estimated to cost US$ 250,000 equivalent ormore per contract. Estimated total value for this procedure will not exceed US$ 3.9 million orequivalent.

Small Works Contracts (SW). SW will involve contracts for less than US$ 50,000 (aggregate not toexceed US$ 400,000 or equivalent) for building of small units for village health workers andcertain aspects of the construction work that may be handled by local workers (e.g., painting).Procurement of small scale works will be under lump sum fixed price contract awarded on thebasis of quotations obtained by at least 3 qualified domestic contractors in response to a writteninvitation and according to the Bank Guidelines. The invitation would include a detaileddescription of the works including basic specifications, the required completion date, a form ofagreement acceptable to IDA and relevant drawings where applicable. The award will be made tothe contractor offering the lowest price quotation for the work and who has the experience andresources to complete the contract successfully. Moreover, the capacity of local counterparts issufficient to carry out this work.

There are no civil works planned that may cost greater than or equal to US$ 50,000 or equivalent orless than US$ 250,000 or equivalent.

Consulting Services

The following procurement procedures will be used:

1. Quality and Cost Based Selection (QCBS) procedures will be used for the key activitiesincluding: design and supervision of the construction of health centers, baseline survey andinformation, education and communication (IEC) materials and campaigns for healthpromotion activities. The total value is estimated not to exceed US$ 2.4 million or equivalent.About 55 percent of consulting services will be procured using the QCBS procedures.

2. Least Cost Selection (LCS) procedures will be used for selection of an auditor to carry outaudit of the Project. The value of contracts awarded through LC selection will not exceed US$30,000 or equivalent.

3. Individual Consultants (IC) procedures will be used for contracting individuals to provideservices for the following areas: policy and legal issues; essential drugs and standard treatmentguidelines, development of essential drug kits, and IEC materials for health promotion. IC willalso be used for technical assistance in the following areas - health planning and policydevelopment; health services delivery, implementation of physical construction of healthfacilities; procurement; finance and administration. These consultants will be hired as part ofthe HJPMU and the Interim Health Authority. Individual consultants will be selected under theprocedures specified in Section V of the Bank Guidelines for the Selection and Employment ofConsultants on the basis of their qualifications through comparison with other qualifiedcandidates. The total cost of this category will not exceed US$ 1.4 million (about 32% of thetotal consulting services)..

4. Single Source Selection (SS). SS will be used to hire a procurement agent to handle thepurchase, consolidation and shipping of the goods required for the start-up purchases andcontracting of the UN Agencies (WHO, UNFPA and UNICEF) to provide technical support tothe program. The services to be contracted from UN agencies relate to technical support to theInterim Health Authority and Office of Health at UNTAET in the areas of: delivery of childhealth services, standard treatments and protocols, training modules and reproductive healthservices. In addition, SS may be used to higher consultants for highly specialized policy orlegal assignments. These contracts are estimated to cost less than or equal to US$ 100,000with a total estimated cost that will not exceed: US$ 600,000 or equivalent (about 14% of thetotal cost of consulting services).

Training

Expenses for staff training will be disbursed with prior approval of IDA based on semi-annualtraining plans. Training costs will cover in-service training for basic health services as well ashealth administration and management for health works, fellowships, and workshops. The totalcost of the training activities will not exceed US$ 1.1 million or equivalent.

Operating costs

This includes operating costs of the HPMU including per diem for HPMU staff and officeconsumables (but excluding salaries), and the cost of Project launching and planning workshops.

This will be procured based on the transitional government procedures, acceptable to IDA.

Prior review thresholds (Table B)

IDA's prior review of procurement will cover the following:a) master lists of equipment, packaging of contracts and updated cost estimates;b) Goods: all ICB; and the first two packages of IS and NS and all procurements through the

United Nations Agencies.c) Works: all LIB and the first two package of SW;d) Consultants: terms of reference for all consulting assignments; all consulting contracts costing

more than US$ 100,000 for firms and 50,000 for Individuals, contracts for assignments of acritical nature9, as reasonably determined by IDA; and all single source contracts.

Disbursement

The proposed Project is expected to disburse over a period of 15 months from date of effectiveness.Disbursement will start using traditional disbursement methods - direct payments or Statement ofExpenditure reimbursements etc. All disbursements against contracts for goods costing US200,00 or more and for works costing US$ 250,000 or consulting contracts for firms costing US$100,000 equivalent or more and individual consultants costing US$ 50,000 equivalent or more willbe fully documented and all single source contracts. All other contracts will be made againstcertified Statements of Expenditures. The documentation supporting SOE disbursements will beretained by the HPMU for at least one year after the receipt by IDA of the audit report for the yearin which the last disbursement was made.

Special Account

To facilitate timely project implementation UNTAET will establish a Special Accountdenominated in US$ under terms and conditions acceptable to IDA with a commercial bankacceptable to IDA. The authorized allocation for the Special Account will be US$ 700,000. Thereplenishment applications should be submitted by HPMU and/or UNTAET/CFA on a monthlybasis or when the balance of the SA is 20 percent of the initial amount, whichever comes first. TheSA will be audited annually by independent auditors acceptable to IDA.

Financial Management Assessment

The UNTAET Financial Office in Dili is currently responsible for all accounting and reportingactivities. There is a proposal to establish a Central Fiscal Authority (CFA) to assume financialmanagement responsibilities of UNTAET. The financial management functions of CFA are beingestablished and the staff are being recruited. Therefore, the basic institutional framework ispresent to establish sound intemal control procedures and accounting and reporting arrangements.Most of the staff currently on board need to be trained on the Bank disbursement procedures. Asenior Disbursement Specialist form the World Bank visited Dili at the end of March andconducted a training seminar on IDA disbursement procedures. However, as most of the financialstaff are still not recruited, additional training workshops will be needed. Subject to the above, it isthe assessment of the Joint mission that JNTAET is taking adequate steps to meet the minimumstandards of financial management and accountability as required by IDA. The followingparagraphs describe the financial management arrangements expected to be put in place for

9 This includes assignments that may have significant implications for the future development and design ofthe program.

accounting, reporting and auditing of project expenditures. IDA and UNTAET/ CFA will have towork closely in the coming months to establish policies, procedures, staffing and systems toimplement the agreed FM arrangements.

Proposed Financial Management Arrangements.

The objectives of the FM arrangements are summarized below:(a) to ensure proper planning, budgeting, accounting, reporting and auditing of the TFET

funded activities;(b) to ensure proper planning, budgeting, accounting, reporting and auditing of special

account for TFET funded activities;(c ) to establish a Financial Management Capacity at the OH/IHA to manage effective

and economic delivery of health services; and(d) to establish accounting and reporting capacity at the District Health Administration to

ensure that resources are used for purposes intended.

Accounting Organization and Staffing.. A Financial Manager (FM) with qualifications andexperience acceptable to IDA will be appointed within the Health Program Management Unit(HPMU). The HPMU will have primary responsibility for all financial management activities ofthe Program. The FM will report to the Program Director. The UNTAET/CFA will provide overallguidance and supervision to the FM in ensuring that functions are carried out in accordance withthe agreed guidelines. The FM will be assisted by sufficient staff to carry out planning, budgeting,accounting and reporting functions for the Program. To carry out financial and accountingfunctions at the level of District Health Administrations, accountant/bookkeepers will be appointedif the work volume justifies. The appointment of the Financial Manager is a condition ofeffectiveness.

Funds Flow. The funding sources for the Program will come from the Trust Fund for East Timor(TFET) (for investment costs) and the UNTAET Trust Fund (for operating costs). The FM will beresponsible for requesting disbursement from the TFET for agreed Project activities. Thedisbursement requests will be routed through the designated UNTAET official authorized to signapplications to withdraw funds from the Grant Account established for the Project. Based onauthorized requests to disburse funds, IDA will withdraw and pay funds directly to a supplier ortransfer funds to a Special Account to be managed by UNTAET/CFA under agreed procedures.The disbursement procedures for UNTAET TF allocated to the Program will be determined byUNTAET/CFA.

It is likely that the Project funds will flow from IDA directly to suppliers and contractors of theProject components subject to International Competitive Bidding procedures e.g., civil works,procurement of equipment, management of the Autonomous Medical Store (AMS) (whichmanagement includes training and capacity building at the AMS and the procurement ofpharmaceuticals and medical supplies for the Program). For all other expenditures funded by theTFET, a Special Account will be established with a bank acceptable to IDA under the control ofthe UNTAET/CFA to channel TFET funds. All operating costs (except those associated with theHPMU as specified in the Grant Agreement) will be funded from the 1NTAET TF. Purchase ofpharmaceuticals and medical supplies will also be funded from the UNTAET TF. The proposedfund flow arrangements are given in Chart I. During negotiations, the assurances from UNTAETwere provided that adequate budgetary allocations will be madeforfunds required to financepurchase of drugs and operating costs and that drug procurement will be carried out by the AMScontractor.

Planning & Budgeting. The fund flow arrangements described above requires careful planningand budgeting to ensure that financial resources are available for project implementation. Thepreparation of the budget plans for investment and operating cost components will be theresponsibility of the HPMU. The budgets will be prepared for the following categories: (a)investment costs and any operating costs of the PMU to be financed by the TFET; (b) purchase ofdrugs by the AMS and financed by UNTAET TF; and (c) operating cost for health facilities andadministrative structure (hospitals, clinics, NGOs and church clinics) financed by IJNTAET TF.

The budgets should be prepared in such detail to allow meaningful monitoring of Projectimplementation. The investment cost budgets should be coordinated with the procurement plansand supported by a cash forecast for at least three months. The budgets for the DHAs and serviceproviders should be similarly coordinated with the proposed memorandum of understanding(MOUs) to be signed with the service providers.

Accounting and Reporting. The primary responsibility for maintaining accounting records for theproject will be with the FM /HPMU. The HPMU with the guidance of the CFA will establishappropriate accounting and internal control procedures for authorizing payments, recording of allproject related expenditures, periodic financial reporting and preparation of annual financialstatements for external audit. The accounting system should be designed to maintain separateproject accounts for TEFT funded activities in accordance with the Trust Fund Grant Agreement.The FM/HPMU will ensure that quarterly and annual financial reports comparing budgeted andactual expenditures are prepared for the Project. The draft formats of the reports was agreed atnegotiations. The financial reports shall be prepared and submitted to IDA no later than 60days following the end of the quarter.

Auditing. The INTAET/CFA will be responsible to carry out internal auditing of the projectactivities. The PMU will prepare annual financial statements for the Project and have them auditedby an independent external auditor acceptable to IDA. The auditor will be required to provide anopinion on the financial statements, the operations of the Special Account and the withdrawalsfrom the grant based on statements of expenditures (SOEs). The independent auditor willappointed on terms of reference acceptable to IDA.

Financial Management of the AMS. The proposed AMS is to be established as an independententity and will be operated under commercial principles. The establishment and management ofthe AMS will be contracted to a commercial contractor. The establishment of adequate financialmanagement of AMS will be part of the terms of reference of the contractor.

HEALTH SECTOR REHABILITATION & DEVELOPMENT PROJECT

FUNDS FLOW

East Timor Trust UN Trust FundFund (TFET)

Investment CostsCivil Works Recurrent CostsEquipment Drugs

Consulting TA Operating Coasts

TET SA UNTAETJ | Darwin | |Darwin

|Cnrc t otors_/ Suppliers | Drug Supplier

Central Fiscal AuthorityHealth Project Management Unit

Dili

DRA NGO Supplier

Annex 6, Table A: Project Costs by Procurement Arrangements(in US$ million equivalent)

Expenditure Category Procurement Method Total Cost(including

._________ _ IC B LIB Other Contingencies)1. Works 0.0 3.9 0.4 4.3

2. Goods (including 1.6 0.0 0.9 2.5transport)

3. Services (T.A.) 0.0 0.0 4.4 4.4

4. Training 0.0 0.0 1.1 1.1

5. Operating Costs 0.0 0.0 0.4 0.4

Total 1.6 3.9 7.2 12.7

Annex 6, Table Al: Consultant Selection Arrangements (optional)(in US$ million equivalent)

Consultant Services Selection Method Total CostExpenditure Category (inciuding

contingencies)QCBS QBS SFB LCS CQ Other

A. Firms 2.4 0.0 0.0 0.03 0.0 0.6 3.0

B. Individuals 0.0 0.0 0.0 0.0 1.4 0.0 1.4

Total 2.4 0.0 0.0 0.03 1.4 0.6 4.4

Annex 6, Table B: Thresholds for Procurement Methods and Prior Review

JEixpenditure000 X Contract Value Procuroment Contracs Subject toC o 0i: L A(Thrsholdi) Method Prior Review

US $ thousands US $ millions1. Works

> US$ 250,000 LIB US$ 3.9< US$ 50,000 SW First Two Packages

(US $ 50,000)

2. Goods> US$ 200,000 ICB US$ 1.6< US$ 200,000 IS First Two Packages

(US$ 300,000 M)<US$ 100,000 NS First Two Package

(US$ 20,000)< US$ 50,000 UN Agencies ALL

(US$ 0.2 M)

3. Services (T.A.)>US$ 100,000 (Finns) QCBS US$ 2.4> US$ 50,000 (Ind.) LCS

CQ US$ 0.7All SS SS US$ 0.6

Total value of contracts subject to 9.6 Million (75%)prior review

Overall Procurement Risk Assessment:HighAverageLow

Frequency of procurement supervision missions proposed:One every 4 month(s) (includes special procurement supervision forpost-review/audits)

Annex 6, Table C: Allocation of Grant Proceeds

Epio.ndtip. 0009*~y Amount in U$ntilon t~n ncng P000#0~gGoods (including transport) 2.3 100%Consultant Services and 4.2 100%

StudiesCivil Works 4.2 100%

Training, fellowships and 1.0 100%workshops

Operating costs 0.4 100%

Unallocated 0.6Total 12.7

Annex 7: Project Processing Budget and ScheduleEast Timor: Health Sector Rehabilitation and Development Project

7ProjectSchedule P:: 0 ; 70 7 ;;lManned Actu(tfinlo PCD

Time taken to prepare the project(months)First IDA mission (identification) 02/01/2000Appraisal mission departure 03/20/2000 03/20/2000Negotiations 04/26/2000Planned Date of Effectiveness 06/30/2000

Prepared by: Office of Health, UNTAET/GPA and the Interim Health Authority, East Timor

Bank staff/mission members who worked on the project included:Name Speciaiy

Fadia Saadah World Bank, Senior Health and Population SpecialistJanet Nassim Operations OfficerJorge Torgal Consultant, Gulbenkian FoundationMalcolm Clark Consultant, Pharmaceuticals LogisticsVoltaire Andres Consultant, Management and LeadershipJames Knowles Consultant, Health PolicyCarlos de Soza Consultant, ProcurementNigel Wakeham Consultant, ArchitectLindsay Sales Consultant, Health PlanningJocelyn Grace Consultant, Community ParticipationNatacha Medan World Bank, Operations OfficerWijaya Wikrema World Bank, Financial Management SpecialistChristopher Knauth European CommissionAlison Heywood AusAIDMaureen Law World Bank, Sector Manager, HNPKarin Nordlander World Bank, LegalHung Kim Phung World Bank, DisbursementHilary Kiell World Bank, ProcurementChandra Chakravarthi World Bank, Operations Assistance

Interim Health Authority StaffJames Tulloch Co-coordinator, IHASergio Lobo Co-coordinator, IHANelson Martins IHAAlves Domingos IHATomas Luis Amaral IHAAntonio Caleras IHAArtur Corte Real IRADomingo Da Cruz IHARui Paulo De Jesus IHAEugenio Dos Santos IHAFrancisco Dos Santos IRAJoanico Dos Santos IHAMarcario Faria IHALidia Gomes IHAAvelino Guterres IHAIsabel Hemming IHASue Ingram IRARuth Leano IHALuis Lobato IHATraver Mulligan IHAVincente Reis IHAJose Ruiz IHAWei Sun IHARigoberto Torres IHAJoyce Smith WHO, Human Resources

Annex 8: Documents in the Project File*

East Timor: Health Sector Rehabilitation and Development Progject

A. Documents Prepared by the Interim Health Authority - East Timor

> Extract from the Joint Working Group on health services: review of health careprovision in Timor Loro Sae, January 2000.

> Further tables from analysis of review of health service provision> Reports of IHA team visits to districts, March 2000> Workplan 2000 (as prepared by Joint Working Group on Health Services, 10 January

2000)> Draft outline of detailed plan of action for 2000> Minimum standards for health service in Timor Loro Sae (revised version following

workshop on health services providers on 15-16 February 2000)> Final draft from the East Timor Health Professionals Workgroup workshop on health

services, 10 December 2000> The pre-crisis health system in East Timor> Selected tables from the 1998 Health profile of East Timor.> East Timor IHA - Summaries of district information - district support group, March

2000.

B. Bank Staff Assessments

> Implementation Specialists Report. Nigel Wakeham, Implementation Specialist> Pharmaceutical logistics system. Malcolm Clark, Pharmaceutical Logistics> Economic analysis paper James Knowles, Economist> Policy options paper James Knowles, Economist> Costs of district health component Lindsay Sales, Public Health Specialist> Other background notes on:

human resource development Joyce Smith, WHOhealth promotion Alison Heywood, AusAIDcommunity participation Jocelyn Grace, Anthropologist

> Proposal for small grant program Janet Nassim, World Bank> Procurement Plan Carlos Souza, World Bank> Financial Management Plan Wijaya Wikrema, World Bank

C. Other> Aide Memoire> Terms of Reference for the HPMU, procurement and financial specialists> Note on the disposal of medical waste in health centers.

Annex 9: Statement of Loans and Credits

NA

Annex 10: Country at a Glance(Health facilities - Ainaro District)

MAP SECTION

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