Documentof The World Bank Public Disclosure Authorized

Report No. 14977-RU

STAFF APPRAISAL REPORT Public Disclosure Authorized

RUSSIAN FEDERATION

CONMUNITY SOCIAL INFRASTRUCTURE PROJECT Public Disclosure Authorized

APRIL 2, 1996

Public Disclosure Authorized buman Resources Division Country Department III Europe and Central Asia Region CURRENCY EOUIVALENTS (as of March 6, 1996)

C'urrency Unit = Ruble Rb I million US$207.4 US$1 = Rb 4824

WEIGHTS AND MEASURES Metric System

ACRONYMS AND ABBREVIATIONS

AGETIP - Agence d'Execution de Travaux d'Infrastructure Publiques BSEP - Black Sea Environmental Program CAS - Country Assistance Strategy CIS - Commonwealth of Independent States CPAR - Country Procurement Assessment Report CPIU - Central Project Implementation Unit CPPR - Country Portfolio Performance Review DRD - Decentralization and Regional Development Loan (Mexico) GDP - Gross Domestic Product GNP - Gross National Product GPN - General Procurement Notice IBRD - International Bank for Reconstruction and Development ICB - International Competitive Bidding IMF - International Monetary Fund MINNAT - Ministry of Nationalities and Federal Affairs MIS - Management Information System MOE - Ministry of Education MOF - Ministry of Finance MOH - Ministry of Health NAB - Novosibirsk Advisory Board NBF - Parts of the Project with no financing from the World Bank NCB - National Competitive Bidding NPV - Net Present Value NS - National Shopping Oblast - Region OECD - Organization for Economic Cooperation and Development PB - Project Bureau PCU - Project Coordination Unit PlJ - Project Implementation Unit PPF - Project Preparation Facility Raion - Sub-division of a region Rb - Ruble SA - Special Account SEDESOL - Mexico National Solidarity Program SOE - Statement of Expenditure TCHIF - Territorial Compulsory Health Insurance Fund TOR - Terms of Reference VAT - Value Added Tax Vodokanal - Water Company WBF - Parts of the Project with financing from the World Bank

RUSSIAN FEDERATION-FISCALYEAR January I - December 31 STAFF APPRAISAL REPORT

RUSSIAN FEDERATION COMMUNITY SOCIAL INFRASTRUCTURE PROJECT

TABLE OF CONTENTS

1. INTRODUCTION ...... I A. Economic and Sectoral Background ...... I The Soviet Legacy ...... 2 Sectoral Situation in Novosibirsk and Rostov Oblasts ...... 4 B. The Government's Reform Strategy ...... 6 Economic and Budgetary Reforms ...... 6 Sectoral Reforms ...... 7 C. The Bank's Assistance Strategy ...... 8

HI. LESSONS FROM EXPERIENCE ...... 10 A. Lessons from other projects in Russia ...... 10 B. Lessons from Other Countries ...... 11

III. THE PROJECT ...... 13 A. Project Evolution ...... 13 B. Government Commitment and Beneficiary Participation ...... 13 C. Project Objectives ...... 14 D. Project Description ...... 15 1. Education Component ...... 16 2. Health Component ...... 19 3. Water Supply and Sanitation Component ...... 25 4. Budget and Expenditure Management Component ...... 29 5. Monitoring and Evaluation Component ...... 31 6. Preparation of Future Projects ...... 32

IV. PROJECT ADMINISTRATION AND IMPLEMENTATION ...... 33 A. Project Administration at the Federal Level ...... 33 B. Project Administration at the Oblast Level ...... 34

'Ihe report is based on the findings of an appraisal mission in lune-July 1995. Tbe team comprised: Timothy King (task manager and mission leader), David 0. Davies (education), Howard Carter (water and sanitation), Dov Chernichovsky, Elena Potapchik (health), Mahesh Reddy (finance), Hugues Casting (contract management), Maria Van Beek (procurement), Ezedine Hadj-Mabrouk (enviromnent specialist), Joele La Vourch (disbursement and accounting), Eugene Finkel (participation specialist), Joy de Beyer (operational manual), Maria Gracheva (operations assistant), and John Pickard (Project Coordinator, Moscow). loe Scearce (implementation and procurement) also contributed to the Report. Peer reviewers are: William Dillinger (LAIEU), M. Louise Fox (EC4HR), Christine Kessides (TWUDR), and Leslie Pean (AF51N). Staff assistance was provided by Arlene Pastor. Robert Liebenthal and Yukon Huang are the managing Division Chief and Department Director, reapectively, for the operation. V. PROJECT COSTS, FINANCING, PROCUREMENTAND DISBURSEMENT ...... 39 A. Project Costs ...... 39 B. Project Financing ...... 41 C. Procurement...... 43 D. Disbursement...... 49 E. Reporting ...... 51

VI. PROJECTJUSTIFICATION AND RISKS ...... 53

VII. AGREEMENTSREACHED AND RECOMMENDATIONS...... 59

ANNEXES

1.1 EconomicSituation in Novosibirsk and Rostov Oblasts 1.2 The Structure and Capacity of ConstructionEnterprises in Novosibirsk and Rostov 1.3 Fiscal and Budgetary Systems in Novosibirsk and Rostov Oblasts

3.1 SelectionCriteria and Model Appraisal for Education Subprojects 3.2 EducationFacilities Managementand SupportingManagement Information System (NovosibirskMunicipality) 3.3 SelectionCriteria and Model Appraisal for Health Subprojects 3.4 Proposed Pilot Reforms in Health Financing 3.5 SelectionCriteria and Model Appraisal for Water Supply and SanitationSubprojects 3.6 Budget and Expenditure ManagementComponent: ConsultantTerms of Referenceand Hardware Specifications 3.7 PerformanceMonitoring Indicators

4.1 Project ImplementationSchedule 4.2 Project SupervisionPlan

5.1 Project Cost Estimates 5.2 Flow of Funds for Implementationof the Project 5.3 Detailed Procurement Arrangements 5.4 Technical Assistanceand Training: Terms of Reference

6.1 InstitutionalStrengthening Program: EnvironmentalIssues

7.1 Selected DocumentsAvailable in the Project File (to be prepared)

MAPS Russian Federation IBRD No. 27262 NovosibirskOblast IBRD No. 27263 Rostov Oblast IBRD No. 27264

PROJECT ID Number: RUPA35761 TABLES IN TEXT

3.1 Education Component: Schedule of Proposed Program of Disbursements (Identified Subprojects) ...... 17 3.2 Health Component: Schedule of Proposed Program of Disbursements (Identified Subprojects)...... 22 3.3 Water Supply and Sanitation Component: Schedule of Proposed Program of Disbursements (Identified Subprojects)...... 26

5.1 Components Project Cost Summary...... 39 5.2 Summary of Project Cost by Expenditure Category ...... 40 5.3 Financing Plan ...... 42 5.4 Summary of Proposed Procurement Arrangements ...... 44 5.5 Summary of Estimated Disbursements of IBRD Loan ...... 50 5.6 Estimated Schedule of Loan Disbursements ...... 50 I RUSSIANFEDERATION COMMUNIfY SOCIALINFRASTRUCTURE PROJECT

LOAN AND PROJECTSUMMARY

Borrower: RussianFederation

Benericiaries: Ministryof Nationalitiesand Federal Affairs, Novosibirskand RostovOblast Administrations,and suboblastadministrations in these oblasts.

Amount: US$200million

Terns: Payable in seventeen years, including five years of grace, at the standard variable interest rate for LIBOR-baseddollar single-currencyloans.

On-lendingterns: The two participatingoblasts would receive$194 million, half on a grant basis and half as a loan at a variable rate of interest of up to 2.5 percent above the World Bank's lending rate, payable in twelve years, includingthree years of grace. Repaymentobligations of raions and other local beneficiarieswill be determinedby their revenue capacities, but should not be smaller than 10% of their share of the loan.

Project Objectives: This is intendedas a replicabledemonstration project, designed to: (i) reduce the present deteriorationof education,health, and water supply and sanitation facilities in Novosibirsk and Rostov oblasts; (ii) improve the efficiency of managing public resources; (iii) foster private sector development; (iv) promote broad participation, including non-governmentalparticipation, in decision-making; and (v) monitor and evaluate the effectiveness of new financial, procurementand participatorypractices and disseminatethe reults in order to improve such practices elsewhere in the Russian Federation.

ProjectDescription: The proposed Loan would financesmall-scale investments in selected types of education, health and water supply and sanitation infrastructure and would introducenew mechanismsfor appraisingand implementingsuch subprojects. (i) The Education Component would finance the rehabilitation of schools providing general education (including an expansion of capacity in a small number of schools, and two to three new schools). (ii) The Health Component would include the rehabilitation and upgrading of the core functions of selectedmunicipal and emergencyhospitals and polyclinics. (iii) The Water Supply and Sanitation Component would include small-scale investments to rehabilitate and upgrade existing water and wastewater infrastructure. Each sectoralcomponent would includeconsulting services and training to strengthenlocal subprojectdesign and implementationcapacity and financial, managerial and environmental practices. (iv) A Budgetary and ExpenditureManagement component would provide consultingassistance to the administrationsto reform budgetary processes and control expenditures. (v) A Monitoringand EvaluationComponent would focus on the lessons for project replication, and assistance would be provided to prepare future projects. - ii -

Benefits: The project would meet an urgent need by preserving and improvingessential community services that are fundamentalto social well-being. It would also demonstrate important improvements in the efficiency of use of public resources, through innovationsin: (i) the process of determiningexpenditure priorities and project selection at a local level; and (ii) improvementsto the quality of social infrastructure, through design improvements and greater attentionto constructionquality. Approved subprojects would meet a set of selectioncriteria, wouldbe cost-effective,and where appropriatewould show positive present values at a 15% rate of discount. The project would also foster private sector development by encouraging the break-up and privatization of existing architectural and engineering design institutes and introducingcompetitive bidding procedures to privateconstruction companies. The project would promote broad participation, including non-governmental participation, in decision-making, which should itself contribute to improvements in design and construction quality of social facilities, and improved maintenanceprocedures. More generally, it shouldcontribute to a sense of local ownership of, and responsibilityfor, social infrastructure, and contribute to the RussianGovernment's policy of decentralization.

Risks: The complexity inherent in a multi-sectoral project in two oblasts could impede implementation. To reduce this risk, the project has sharply limited the range of eligible subprojectswithin each sector. The introductionof new methodsof subprojectselection and implementationis being done in a phased manner, beginning with a strategy of "preparation by doing" which has involved extensive training in issues of subproject selection, appraisal and designof model subprojects, and procurementprocesses. An alternativerisk is that in the interests of rapid implementation,the longer term benefits of the project in changing the way subnationaladministrations do business would be neglected. To reduce this risk, a strong emphasis would be placed on local ownership and participation, and the use of the established administrative structures at oblast level to the extent possible. A Mid-Term Project Review would focus on ways to ensurethat the provenmethods of implementationand other lessons from the project are gradually transferred into the regular programs of the oblast. Similarly there may be a reversion to construction methods that speed up subproject completion at the expense of construction quality, higher maintenancecosts, and shorter life of the facility. To reduce this risk, there will be extensive training of architects, engineers, site supervisors and clients, and regular supervision by consultants until a new implementationculture takes hold.

Poverty Category: Although the project is not part of the Program of Targeted Interventions, because its benefits are spread broadly among the population as a whole, preservationof universalaccess to basic social services is an essentialelement in any safety net. In Russia, this is particularly important because there is virtually no private provision of health or basic education services outside major metropolitanareas, both as a consequenceof Soviet policy, and because the vast majority of the population have suffered a severe decline in living standards, and could not afford private social services. - iii

Environmental Aspects: This project has an environmentalrating of "B". Environmental aspects related to the rehabilitationof hospitals and schools are limited to the use of non-hazardousmaterials and proper managementof medical waste and other solid waste. Subprojectsof the water and sanitation component as well as construction of new schools and extensions and medical facilities would require appropriateenvironmental analysis. The projectwould have a positive envirommentalimpact as it would: (i) improve overall hospital and school conditions and waste managementin these facilities; (ii) facilitate access to water supplyand sanitation;(iii) reduceenvironmental damage to underground water supplies; (iv) augment wastewatertreatment capacity and improve the standardsof treatmentand quality of water deliveredto the supply networks; and (v) limit losses of treated water from leakage and pipe failures. The project includes an environmentalinstitutional strengthening program which consists of three subcomponents: institutional support, training and environmentalstudies. Some of the training activities took place during project preparation, partially financed by the Black Sea Environmental Program (BSEP). Support from this source is expected to continue, and additionalgrant financing is being sought.

ESTIMATED PROJECT COSTS:

______fin US$ '000) %Total .______- Foreign Base Components Local Foreign Total Exchange Costs 1. Education - Rostov 36,667.0 3,799.0 40,466.0 9 15 2. Education- Novosibirsk 33,787.9 4,230.0 38,017.9 11 14 3. Health- Rostov 28,519.7 20,773.4 49,293.2 42 19 4. Health- Novosibirsk 32,850.6 24,565.5 57,416.1 43 22 5. Water and Sanitation - Rostov 23,662.6 7,085.7 30,748.3 23 12 6. Water and Sanitation - Novosibirsk 21,717.1 6,613.2 28,330.3 23 11 7. Expenditure Management - Rostov 597.0 1,227.0 1,824.0 67 1 8. Expenditure Management - Novosibirsk 597.0 1,227.0 1,824.0 67 1 9. Project ImplementationUnit - Moscow 4,664.4 1,780.0 6,444.4 28 2 10. Project Bureau - Rostov 4,428.2 1,041.0 5,469.2 19 2 11. Project Bureau - Novosibirsk 4,495.6 1,041.0 5,536.6 19 2 TOTALBASE COSTS (WBF & NBF) 191,987.2 73,332.8 265,370.0 28 100 PhysicalContingencies 9,348.5 5,418.1 14,766.5 37 6 Price Contingencies 8,001.6 8,001.6 100 3 TOTALPROJECT COSTS 1/ 201,335.6 86,802.4 288,138.1 30 109

1/ Pricecotingeccies arebased on rtandardinflation estimates and physicalcontingencies are 5% for consultantservicer, training and equipment,and 15% for civil worka. Cout includeUS$40.69 million equivalent in dutiesand taxes. - Iv -

PROJ3CT FINANCNG PLAN:

Local ForqBn Total i(nUSS million) WBF IBRD (90% of WBF-net of duties and taxes) 113.19 86.81 200.00 Government Cash Contnbution (10%) 24.21 24.21 Duties and Taxes 40.69 40.69

Sub-total Government 64.90 64.90 TOTAL WBF 178.09 86.81 264.90 NBF Government (in-kind): 23.24 23.24

TOTAL PROJECT (WBF+ NBIF) 201.33 86.81 288.14

ESTIMATED SCHEDULE OF LOAN DISBURSEMENTS

(US$ Million) Bank Fiscal Year FY97 FY98 FY99 FY00 FY01 FY02 FY03

Annual 7.0 22.5 47.0 49.0 35.5 29.5 9.5

Cumulative 7.0 29.5 76.5 125.5 161.0 190.5 200.0 I. INTRODUCTION

A. Econoniic and Sectoral Background

1.1 Decentralizationis the cornerstoneof Russianeconomic and politicalreform. This has been particularlyrapid and dramatic in the social sectors, where, since 1992, subnationalauthorities have had increasingfinancial responsibility,and considerablefreedom of policy action, for most educationand health activities.'' The importance of municipal budgets in the provision of social services is growing. In 1992, the Federal budget share in the total social expenditure(without housing subsidies) was 32%; in 1993 and 1994, it declinedto 18%. Meanwhilethe share of enterprise-financedservices (including housing and social services) has been decreasing as enterprises have been struggling to survive during a period of severe economicdecline, and as privatizationencourages and sometimesforces the transfer of their social assets and the costs of their maintenanceto municipalitybudgets. In the past, enterprises often provided maintenanceservices to an adopted school or public building, even where they had no ownership or formal responsibilityto do so. Such help is less and less available.

1.2 The fiscal position of subnational authorities varies considerably, and although a reallocative mechanismintended to reduce these disparities improved in transparencyand automaticity during 1994, the capacity to cope with increased expenditure responsibilities remains very unequal. Difficultieshave been compoundedby a fall in tax revenues. Tax contributionsby enterprises have in many cases droppedsubstantially, as large enterprises have encounteredserious financialdifficulties and mechanismsfor taxing a growing private sector remain weak. For many subnationaladministrations, the fiscal situation is extremely grave.

1.3 Although budgetary reform was intended to eliminate the automatic norm-based budgeting of the Soviet period, many authorities find it difficult to exercise any budgetary discretion. Salary scales for workers paid from the budget are established in Moscow, and other recurrent expendituresare likely to follow establishednorms-for example, a norm for class size and teachinghours may determine school staffing ratios, and the number of hospitalbeds for a particular sort of treatment may determine a norm for expenditureson pharmaceuticalsand patient food. In these circumstances,a municipal governmentfacing a fiscal crisis is apt to defer most maintenanceand capital repairs. Of the very limitedresources availablefor investment,most are going to housing and public utilities, with little remaining for social infrastructureand services. For example, in the city of Novosibirsk in July 1994, only about 20% of the minimumrequirements for the regular winterizationprogram of schools was met. In many of the local jurisdictions.,no resourceshave been allocatedto the maintenanceof facilities in the last three years.

1.4 This proposed demonstrationproject would focus on the rehabilitationof infrastructure to provide basic health, education, and water supplyand sanitationservices. These sectors were selected because of their importanceto householdwelfare and the immenseneed for additional investment. The need to continue to supply such services is unchallenged, although new financial mechanismsto be

' In this Report,the term "oblasts'is usedto referto the first leveldown of sub-nationalgovernments--i.e. to the 'subjectsof the Federation"--and"raions" to referto the secondlevel--i.e. municipal governments and rural raions. 2 CHAPTER1 developed in this project can increase efficiency. Moreover, rehabilitationcan often be justified from the potential savings in recurrent costs alone.

The Soviet Legacy

1.5 Lack of maintenance is only partly responsible for the very poor state of social infrastructure. The root causes lie in a Sovietsystem that underinvestedin educationand healthfacilities and housing, regarding such investment as "unproductive" compared with investment to produce commodities,misallocated the investmentthat did take place, and vastly overcentralizedprocesses of decision-making,design and implementation,ignoring local circumstances and distorting individual incentives.

1.6 Underinvestmentin educationalfacilities can be seen in the fact that multiple shift schools are common throughout the country, and the share of children assignedto the second or third shift has been growing steadily over the 1980s and 1990s. In the 1992/1993academic year, 24% of pupils attended second and third shifts, ranging from 10% in Komi-PermyatskyAutonomous Okrug to 38% in Chechen and Ingush republics. The most advancedarea was the North-West with an average coefficientof 15%; the city of St. Petersburg had only 12% of students attendingthe second shift. In general, the European part of Russia tends to be better placed than average, and Siberia, the Caucasus and especiallythe Far East, worse than average. Althoughthere may be efficiencyreasons in favor of a two-shift system (in terms of space and premises utilization), the pressure on facilities is great, the length of the school day is short, and the quality of educationcan suffer; and the third shift is clearly undesirable. In addition, there has been marginal investmentin basic maintenanceof existing facilities. Schools are often very poorly equipped in terms of basic sanitary facilities. This has led to facility closing and placed additionalpressure on the educationsystem.

1.7 Some health facilities were originally designed for other uses. Another manifestation of underinvestmentin, and misallocationamong, health facilities is the fact that some of the world's highest ratios of doctors and hospitalbeds per head of populationare found in under-equippedand often unsanitaryfacilities. A 1988government survey of the conditionof health facilitiesfound that 20 percent of Russianhospitals lacked piped hot water, three percentlacked piped cold water, and 17 percent lacked appropriatesanitation facilities. The survey also found that amonghospitals and polyclinics,one in seven buildings needed basic renovation. A 1988 inventoryof facilities found substantialunderinvestment in maintenanceof polyclinicsand hospitals, with 19 percentof polyclinicsand 23 percentof hospitalsrated as either "disastrous"or as "requiringreconstruction" 2-' Poor facilities,together with outdatedtechnology and medicalapproaches, may have contributedto the stagnationin Russianlife expectanciesin the 1970s and 1980s, in contrast to sustained improvementin OECD countries.

1.8 A well developed infrastructure of water supply and distribution and wastewater collectionand treatment appearsto exist only within urban centers. Wastewaterfacilities in rural areas generallyrely on individualseptic tanks, with municipalities'providing an emptyingservice. Much of the infrastructurewas developedin the early 1960s and some school buildingsand polyclinic (and their plumbing)date back to the early 1900s. Owing to a combinationof poor quality constructionmaterials and standards and subsequentlack of maintenance, much of the infrastructureis in a very deteriorated v Chernichovsky,D., Potapchik,E., Barnum,H., andTulchinsky, T. Russia:Health Sector Reform. World Bank.Mimeo. 1994, p. 18. CHAPTER1 3 condition. For example, most pipelinesfor water and wastewaterare of unprotectedsteel construction. As a result of corrosionthere are now high leakagelosses from water mains (believedto be in excess of 30% of water supply) and high levels of infiltrationof ground water into water mains and sewers. Little attention has been paid to standards of quality in plumbing and sanitary installations in building developmentswith the result that water wastage within properties is excessive.

1.9 Over-centralizationhas had many adverse consequences. For example, the design of facilitieshas generallybeen standardized,and local design instituteshave normally only adaptedcentral designs to local conditions. The extent of local adaptation has varied considerably, depending on the climate, soil conditions,and the local availabilityof buildingmaterials. Appropriateadaption was not, however, alwayspossible -- for example,the introductionof quantity-orientedprefabrication in the 1960's led to very simplifieddesigns for schools, which could not easily be adaptedto site conditionsor to the individualwishes of the clients. More cost-effectiveand efficient designs shouldbe developed.

1.10 Architects and engineers have worked in isolationfrom technologicalimprovements elsewhere--forexample, the designof hospitalshas continuedto incorporateinappropriate facilities which reduce cost-effectivenessand even success of treatment. Designers and buildershave paid little attention to existingGovernment building standards, without fear of adverseprofessional consequences or financial retribution. The inefficiencyof the water supply system is largely due to technicalfaults. Water losses are excessively high and although water consumptionvaries widely, it is generally far above levels commonlyfound in Western Europe and North America. Distribution systems generally rely only on pumpsto control the pressure, which results in high energy costs (over two-thirdsof the operatingcosts in some cases) and frequent pressure fluctuationsand network disruptions and breaks. Such designs therefore lead to very high general operating costs and prevent municipal water authorities from controlling or cutting costs, or improvingthe conditionof the water system. In wastewatertreatment, many costly investmentshave been made in projects that have proved to be inoperable. This applies particularlyin the field of sludgetreatment and disposal, wherethe technologyused is significantlybelow internationalstandards.

1.11 Distortedincentives created many problems. Buildingprograms were inefficient-- too many projects were started, and relativelyfew were completed, at least in the past decade; it may have been felt by their initiatorsthat the more constructionthat was started, the larger would be the subsequent constructionbudget. It is not unusualfor constructionof schools and water supply treatment works and pipelines, and sewer networks and wastewatertreatment plants to take up to 12 years to complete. In some cases, steel pipelines failed through corrosion before other construction on the project was completed.

1.12 There has been little attempt at a careful analysis of priorities and needs, resulting in an imbalancebetween new investmentand maintenance. Maintenanceand repair of the existing water and wastewater infrastructure have been significantly less than required for efficient operations. Investmentshave been largelydirected towards the constructionof new capital works to meet inordinately excessive per capita norms for drinking water supply and wastewatertreatment. (A water consumption figure of 360 liters per person per day is consideredthe norm, comparedwith about 200 liters in Western Europe.) Moreoverresponsibility for public investmentsin the social sectors was previously carried out by the relevant central branch ministries (e.g., Ministry of Health or Ministry of Education) whereas responsibilityfor maintenanceexpenditure was vested in local budgets.0 Decisionsabout new investment did not considersustainability, and there was little incentiveto maintainthe facilitiesproperly since their 4 CHAPTER1 replacementwould be financed by another budget. As a result, maintenancehas been neglected and repairs made only on an ad hoc basis when somethinghas gone seriously wrong, with the result that buildings have progressivelydeteriorated.

1.13 Little attention has been given to cost-effectivenessin design, especially given the distortions in prices compared with internationalones, which kept the price of energy low. Insulation of buildings and pipes is lacking, resulting in three times the input of energy compared with normal international standards3'. Designs of many schools have an excessive proportion of corridor space to teaching space, and are poorly adjusted to needs; classrooms frequently have the same design and equipment for all grades. In health, the use of hospital beds as the primary budgetary norm led to an overemphasis on bed capacity and lack of attention to other medical requirements. The ultimate users of facilities have played no part in the design process.

1.14 The inadequate state of existing infrastructureowes even more to the low quality of constructionthan of design. Such things as material for sealing the junction between windowframes and walls, or seasonedtimber for roof trusses, might be specifiedby the architect, but not readily available to the contractor. As a result the windowsleak and roof trusses warp, and buildings are uncomfortable and waste energy. In general, the quality of construction deteriorated after the introduction of prefabricationin the 1960s;as a result, older buildings are often in better condition than comparatively new ones. In addition, on-site supervisionwas lax: nobody involved in a civil works project had any incentive to reject constructionwork because of its low quality and the city building inspectorsstill lack power to reject poor workmanshipor materials. By the time a Departmentof Educationtook possession of a new school, it might be too late to do anything to correct its faults. The problem was a systemic one, rather than a lack of constructionskills; well constructedbuildings can be found, reflecting either the political clout of the original user, or an unusuallytough and energetic constructionsupervisor.

SectorndSituation in Novosibirsk and Rostov Oblasts'-

1.15 The oblasts of Rostovand Novosibirskhave been selectedfor the Project as being both differentfrom each other in economicstructure and geography,but also representativeof a large number of oblasts. The sectoral situation in both oblasts does not differ significantlyfrom the nationalpicture.

1.16 In education, insufficient funds have been allocated to carry out even minimal maintenance and rehabilitation. In Novosibirsk Oblast, while the school population has remained relatively constant, the number of school places is actually declining due to a decreased number of classroomsavailable for instruction. Rostov Oblast has been able to finance school rehabilitation at a level that is only marginally better than Novosibirskand substantialrehabilitation work is required there as well. In addition, substantialnew constructionis required due to lack of investnent in new schools during the past decade and in order to meet the needs of growing school age populationsin the suburbs of major municipalities. The settlement of new migrants in the suburbs has resulted in severe overcrowdingin surrounding catchmentareas -- double shifting of schools is the rule and triple shifting is common. Oblast and municipallevels of governmentdo not have adequatecapacities for school facility

3' Defininga NewInvestment Policy in Russia,Report No. 13438-RU,August 1994, Annex 5, p. 14.

1' Annex1.1 describesthe economicsituation in the two projectoblasts. CHAPTER1 5 planning consistent with their new responsibilities in this area. School facilities planning has only recently devolved from the Federal level of government.

1.17 In health, in 1988, 22 percent of the hospitals in Rostovoblast lackedaccess to sewage systems and about the same percentage lacked access to hot water. For Novosibirsk oblast, only informationabout access to hot water is available: 20 percent had none. Russia's allocationto health, which was estimated to be about four percent of GDP in 1993, has been low compared to that of other industrialeconomies, particularly in view of liberalizationof prices of equipment,pharmaceuticals, and other supplies over the last several years, although Russia still benefits from the favorable ratios of medical personnel and hospital beds inherited from the past. Recent estimates suggest that per-capita health expenditurelevels reverted in 1993 to 1990-91levels, but the state of medical facilitiesmust have further deterioratedin 1992-1993. This is certainly likely to be the situationin the project oblasts where levels of health finance are still only about 70-80 percent of 1990 levels.

1.18 The watersupply and sanitation situation is particularlyserious. In recent years, the incomeof water utilitieshas fallen and in consequenceinvestment in operationalrepairs and maintenance has been further curtailed. In most municipalwater supplysystems there are daily interruptionsin supply -- e.g. water availabilityis confinedto two hour periods in the morning, afternoonand evening. In many districts leakage levels from the distribution network are so high that it is not possible to maintain adequatepressure to properly supply dwellingapartments at the 4th or 5th story level and above. Lack of maintenanceat water treatmentworks coupled with inefficienttreatment systems are responsiblefor water quality problems both chemicallyand bacteriologically. The problems in bacteriologicalquality are further exacerbatedby lack of investment in cleaning and re-lining of the water main distribution network. Many municipalitiesobtain raw water for drinking water by abstractionfrom rivers, which are usually heavilypolluted due to untreatedor inadequatelytreated sewageor industrialeffluent discharges. In both oblasts great reliance is placed on high levels of pre-chlorinationin order to overcome the problems of pollution of the raw water abstractions. The operational condition and standard of maintenanceof the chlorinationstations is not considered to be satisfactory.

1.19 Sewerage systems in all the municipalitiesvisited during project preparation are in a deteriorated state. In many rural municipalitiessewer cleaning equipment is not available. Sewer blockages occur frequently due either to hydraulic overloading, poor design, insufficient gradients or structural failure of the pipeline. Most sewer networks depend on pumping stations at some point in the system. Standardsof electricaland mechanicalmaintenance at these stations are inadequateas financefor the purchase of spare parts is not available. Much of the electrical and mechanicalequipment in the pumping stations is now past its recognizedlife span (15-20 years) and is in need of replacement.Where pumping stations break down, pollution of an adjacent watercourse by a sewage overflow is usually inevitable. Similarly the vehicle fleets used for providing the municipalcesspit emptyingservice are in poor operating condition due to the age of the vehicles and the lack of spare parts. As a result the municipalitiesare not able to empty cesspits as frequently as required and as a consequencethere are health hazards arising from cesspit overflows. The continuing deterioration in the condition of the sewerage and wastewater infrastructureis the cause of enviromnentaldamage particularly with respect to pollution of both surface and undergroundwaters.

1.20 Waterdemand management(control of water leakage, water wastageand misusewithin properties) has been ignored. In both oblasts, there are high levels of water wastage due to the poor condition of plumbing and sanitary installations within most residential properties. Most factory B CHAPTER1 enterprises have metered water suppliesbut meters are old and have not been adequately maintained. In the cities of Rostov-on-Don and Novosibirsk the water undertakings are operated on behalf of the municipal authorities by vodokanals(water companies). Revenue income to meet operational costs has in the past been derived largely from factory enterprises with shortagesin operatingbudgets being made- up by subsidiesfrom either municipalbudgets (in the case of the larger cities of Rostovand Novosibirsk) or by oblast budgets. For domestic consumerswater charges are based on norms and cost recovery is only a fraction of the true cost of supply, although it is planned to phase out these subsidies by year 20055'. Rural raion administrationshave neither the financial resources nor the professionalexpertise required to enable them satisfactorilyto operate and maintain the existing facilities.

B. The Government's Reform Strategy

Economic and Budgetary Reforms

1.21 Economicreform is the establishmentof new systemsof responsibilitiesand incentives. However, old habits are difficult to change and today, the Russianeconomy resonates with echoes of all the problems of the Soviet system. Nevertheless,since 1991, major advances have been made towards a system in which decisions have been genuinelydecentralized, and are increasinglytaken in the light of true social costs and benefits. These includethe substantialliberalization of prices and foreign exchange markets, and also of most import and export controls. Despiteobvious pressures for protection, average tariffs on imports are only about 14%, and the recent Stand-by Agreement with the IMF reduces maximum import duties to 30%. The massive subsidizationof food and housing expenditures that characterized the Soviet regime has been considerablyreduced, in some instances being replaced by targeted assistance. Of particular relevanceto this project is the phasedelimination of subsidieson house maintenanceand public utilities to domesticconsumers which is due to be completedby the end of 1998. This shouldenable municipalvodokanals, such as those in Rostov-on-Donand Novosibirsk,which would benefit from this project, to recover their costs after that time.

1.22 A centerpiece of the economic reform program has been the largest privatization program ever undertaken. By the time the voucher program ended in October 1994, over two-thirdsof large and medium enterprises and over 80% of small enterprises had either been privatized or had a majority interestauctioned for vouchers. The constructionindustry is now almostentirely privatized,and there have been some moves in the direction of competitivebidding for publicly-financedcivil works.t'

1.23 As already noted, the centralized budgetary system has been replaced by a system of fiscal federalism, based on pre-assignedshares of the major taxes7'. However, the Federal budget still retains a significantredistributive function. In 1992 regions of the RussianFederation received transfers

5/ Removalof all subsidiesto housingmaintenance and publicutilities by year2005 is a Federallegal mandate. Therehave been suggestionsthat the timeperiod may be lengthenedbut the policyobjective is clear.

6' Annex1.2 discussesthe resultsof a surveyof privateconstruction firms in Novosibirskand Rostov-on-Don, undertakenas part of the preparationof this project.

7/In 1995, subnationalgovermments retain 25% of VAT,up to (but usually)63% of profittaxes, 90% of personalincome taxes, and 50% of the excisetax on alcohol. CHAPTER1 7 from the Federal Governmentof 13.5% of their other revenues; in 1993, 17.8%, and in 1994, 24.9%. This is still a low proportionby internationalstandards and the 1995 budget law as passed by the Duma proposes a significantreduction in this percentage.-8 ) In 1992 and 1993, the principles on which these transferswere distributedwere far from transparentand invited a negotiationprocess betweenoblasts and the Federal Government, which was not conducive to fiscal discipline, and results were far from equitable. In July 1994, the Government formed the Fund for Financial Support to Subjects of the RussianFederation to which it allocated22% of VAT revenues (raised to 27% in 1995) to be distributed on a lump-sumbasis among the regions in need of budget transfers in proportion to (a) the tax capacity of the region and/or (b) an estimate of expected expenditureneeds. The latter has tended to reduce the transparencyand equity of what in principle could be a much improvedarrangement. The introduction of this Fund has not eliminated targeted transfers. To ameliorate problems created by enterprise divestitureof social assets, for example, the Governmentincluded funds in the 1994 budget to contribute to the costs of operatingthe transferred facilities. Oblasts submitted requests that greatly exceededthe amounts budgeted, and again the resulting allocationlacked transparency.

1.24 Much less attention has been paid to fiscal relations between oblasts and raions, since these are entirely an oblast responsibility. Sub-oblastauthorities continue to lack an incentiveto manage expendituresefficiently. The extent to which the levy of authorized local taxes can augment existing revenuesis in most cases less than 2-3 % of the budget2'. Moreover,the budget preparation/management system currently in place is reactive rather than proactive. This reflects both uncertainty of revenue yields in a declining economic situation, and unpredictabilityof expenditure needs. The prior-year collection information is used and prior-year (enterprise) production information is used to forecast revenue yields. Both of these sources have proved ineffectivein a hyper-inflationarysituation. While desirable from a macroeconomicstandpoint, the biggest problem for local budgets, and the single significantcontributor to the deficits beingexperienced from Rostovto Vladivostok,is the price of energy --fuel oil and coal. Funds provided in the beginningof a budget year to lay in fuel stocks at seasonally low summer prices are being diverted to other areas of expenditure and then when winter sets in, additional funds are sought from the oblast or other higher government.

1.25 Current practicesof budget preparationare partly "norm" based and partly "prior-year actual" based. In both cases, real needs are ignored and the "bottom-line" budget is a result of negotiationswith the higher government. These methods do not provide the necessarytransparency for budget preparation. Often budgets are balancedon paper, but in fact operate at a substantialdeficit due to deferred payments.

Sectoral Reforms

1.26 The Governmenthas initiatedreforms in each of the social sectors. The Government strategy for education reform was reflected in the 1992 Education Law which encouraged curricular diversity and decentralized responsibilitiesfor finance and managementof compulsory education to subnationalgovernments. The same objectivesprovide the main thrust of the 1993 Federal Program for EducationalDevelopment. Gradual redistributionof governanceand managementfunctions is evidently

!' SeeFiscal Manaiement in the RussianFederation (World Bank Report No. 14862-RU,November 29,1995), Chapter2. 2' Annex1.3 describesthe recentbudgetary situation in Novosibirskand Rostov. a CHAPTER1 underway. Elements of new funding principles are being discussed and introduced,and the content of educationis changing. Institutionalautonomy is increasingin areas of curriculumdevelopment, selection of teaching methods,and budget management. The pace of reform, however, has been uneven and a lack of clear distributionof functions, appropriateinstitutional structures and incentivesystems make effective implementationof governmentplans very difficult, and in some cases unlikely.

1.27 In health, an April 1993 amended health insurance law fundamentallychanged the structure of health system finance, organization,and managementaccording to basic principlescommon to most OECD countries. The legislationseparates systems of (a) financing health care; (b) organizing and managingit or purchasingof care through "insurancecompanies" or sick funds; and (c) providing care. While the first function remains primarily "public," so as to ensure universal access and equity, it is anticipated that the two other functions, especially the third (provision of care), will eventually becomedecentralized and "non-governmental,"possibly private, so as to promote productionefficiency and client satisfaction. The separationof functionsand the changes in ownershipand managementof the provision of care potentiallyrevolutionize the system. Implementationof the reformshas varied widely, however. One element in the health component of this project will be to introduce new financing procedures on a pilot basis.

1.28 Reforms are also affecting the water supply and sanitation sector. In major cities, vodokanalshave been establishedas notionally independententerprises, expected to make an operating surplus to be invested in system improvements. This surplus is generally not sufficient for any major investment and has been eroded by the rate of inflation which has been much greater than permitted increases in tariffs. The Anti-MonopolyCommittee, for example, allows a 30% margin on costs when settingtariffs, but excludes many customarycosts from the rate base includingEnvironment Committee fees and fines. In addition,household fees only cover 10 to 20% of costs and have to be cross-subsidized by other users. As was noted above, the governmenthas legislated changes in this situationby raising user fees. Existingcross-subsidies and accountingpractices tend to distort decision-making(for example by encouragingvodokanals to inflatecosts or enter into barter arrangementswith enterprises). However, many of the costs are beyondthe control of vodokanalsand their inabilityto set tariffs further limits their capacity for rational and effective financial managementand planning.

1.29 Financialproblems are further exacerbatedby existinginstitutional arrangements. The municipalvodokanals lack managementautonomy and in many cases do not control investmentpriorities or planning. Distortedfinancial incentivesbias investmenttowards new capacityexpansion projects even when the existingfacilities are in critical need of rehabilitationand improvement.In many cases, deferred and under-fundedmaintenance has led to further operational inefficiencies.

C. The Bank's Assistance Strategy

1.30 The Country AssistanceStrategy (CAS)was discussed by the Board on June 6, 1995; a CAS ProgressReport was discussedwith the Boardon March 28, 1996. Since the last CAS, the Bank has continuedto operateunder an IntermediateCase scenario, which remains broadly appropriatein the current environment. This scenario assumes that there will be continued progress in macroeconomic stabilization, as evidenced by the recent agreementwith the IMF on an Extended Fund Facility (EFF) program. In this situation,the Bankwould aim to providearound $1.2-1.5 billion annuallyin investment lending, includinga "core" program of relativelystraightforward projects in infrastructureand the social CHAPTER1 9 sectors. In addition, the Bank would be willingto provide up to $1.5 billion annually in relatively fast- disbursing assistance if substantialprogress was achievedon key structural reforms in specific areas of the economy, such as agriculture and the social sectors, that are critical to the long-term sustainability of the stabilizationprocess. Over the past year, the Bank has been working with the Government, both within the framework of the EFF negotiationsand in separate discussions, to develop a consensus on specificprograms of structuralreforms that would allow these latter operations to move forward. In the meantime,the Bank has continuedto prepare 6-7 priority investmentprojects as the basis for a sustained program of Bank support for the Russianeconomy over the mediumterm.

1.31 The proposed operationis fully consistentwith the CAS described above and has been developed in close collaborationwith the Government. The project directly supports two of the Bank's priority objectivesdescribed in the CAS: (i) the developmentof public sector institutionsand procedures that would be supportiveof open and competitivemarkets and oriented toward the provision of physical, social, legal and institutionalinfrastructure not normally provided through the private sector; and (ii) measures to moderate the impact of transition on socially vulnerable groups by, among other things, maintainingsocial services and infrastructurewhile improvingthe efficiencyof public expenditures.

1.32 The proposed project emphasizes more strongly the specific needs of subnational governments, and especially the need to reduce the likely social and fiscal problems resulting from the withdrawal of enterprises from their traditional role of providing social services to their workers and others in their local communities. The proposed project would also respond to the problem that investmentsin constructing, equipping, and maintainingeducational and medical facilities and public utilities were often made by Soviet enterprises, even where the operating costs were paid from the State budget. Since these expenditureswere often on an ad hoc basis, there are no data on amounts spent. However, it is certain that the withdrawalof this assistance has clearly contributedto the deterioration of social infrastructure,which is being addressedin this project. The need to address these concerns was expressed in communiquesof the July 1993 Summit by the G-7 countries and at the meeting of the Finance Ministers in January 1994. It was requested that World Bank assistancebe directed towards amelioratingthis problem. The proposed project was to be the first response to this request; however, it soon became apparent that the issue was too complex to be addressed in a single project.

1.33 Eventually,three potentialprojects emerged. A reallocationof part of the Privatization ImplementationAssistance Loan (Loan No. 35460-RU, 1993) is being used to facilitatethe transfers of kindergartens to municipal administrations, responding to the fact that enterprises have frequently abandonedthe provisionof kindergartensand day care, whichaccounted for about one-thirdof enterprise social expenditures. Other planned projects would focus on issues of housing maintenanceand utility subsidieswhich were the most importantsocial expendituresof enterprises. Althoughnational legislation requires these subsidiesto be phased out over three years, the withdrawal of this enterprise support threatens an immediatefiscal crisis; a Housing DivestitureProject to deal with housing maintenanceand improvementsis also under preparation.

II. LESSONS FROM EXPERIENCE

2.1 This proposed project would be the first IBRD loan to the Russian Federation where prime responsibilityfor implementationwould be that of oblast administrations, involvingthe three sectors: education, health, and water supply and sanitation1!'. Neverthelessthere are lessons from the experience of projects in other sectors in Russia, and from similar multisectoral, regionally-oriented infrastructureprojects in other countries.

A. Lessons from other projects in Russia

2.2 The 1994 CountryPortfolio Performance Review (CPPR) observed that almostall projects approved by the Bank up to that time had experienced difficulties in implementation. Not all the problems were those of project design. However, it was observed that most Project Preparation and ImplementationUnits were establishedwhen the process of preparation was largely complete, and that this had reduced the participationof the implementingagency in the definition of the project, as well as resulting in start-up delays. For the preparation of this proposed project, a small Preparation Unit (financed by a Japanese Grant) was established in the Ministry of Nationalities and Federal Affairs (MINNAT)soon after the project was identified, and it has worked very closely with regular Ministry staff. In addition, oblast-level project coordinators were nominated by the two project oblast administrationsin consultationwith the Ministry. Thesepreparation units would becomefully operational PIUs (to be known as Project Bureaus.)

2.3 The CPPR also highlightedthe need for training and other assistanceto develop a strong local capacityfor procurementmanagement. An explicit objectiveof this proposed project is to improve methods of public procurement, especially of civil works. Officials involved in project design and coordinationhave already attendedtraining in procurement; other relevantcourses are under preparation.

2.4 Sources of delays reported in the CPPR include the time needed to receive necessary internal approvalsprior to loan effectiveness. Where these delays have prevented starting construction at an optimum time, they have been very costly in terms of timeliness of output, given the short construction season in Russia. Also, unfamiliarity with competitive bidding procedures and slow contractorprequalification processes in other projects initially gave rise to skepticismabout the openness of the competitivebidding process and reduced the amount of competition. The preparation process of this proposedproject is addressingthese potentialproblems, and is establishingmechanisms which would eliminate unnecessarydelays in 1996, once the loan is effective.

2.5 It was also found that Governmentpriorities among subprojects initiallyput forward for financing could change quite substantiallybetween appraisal and the start of implementation,and that there was a need for flexibilityin the program. The substantialunidentified component would allow for the adjustmentof priorities over time.

° Projects in all three sectors are, however, in the lending program in the next two years. It is anticipatedthat the preparatorywork for this project and the eventualimplementation experience will enable these other projects to focus more on policy and institutionalreform objectivesand less on issues of design and executionof civil works. 11 CHAPTER2

B. Lessonsfrom Other Countries

2.6 The World Bank's support of Mexico's NationalSolidarity Program offers some useful lessons. The Program combines Federal grants, loans from national developmentbanks and state and local government contributions, to finance over 30 subprogramns,including several types of social infrastructure, often intended to complement and strengthen normal investments. Since 1989, for example, Solidarity has provided over $600 million in additionalfinancing for educationalfacilities in poor communities. The program involves effective community participation in project selection and implementation,and shared responsibilityfor programswith state and municipalgovernments (varying, however, with the type of program).

2.7 Evaluations of the first Decentralizationand Regional Development (DRD) Loan to Mexico (3310-ME, 1990) made in support of the SolidarityProgram have found that the project has been successful in selecting investments that reflect community priorities and carrying these out cost- effectively. Introductionof eligibilitycriteria eliminateda significantnumber of uneconomicinvestments and led local agenciesto appropriate planningand prioritization. The project was, however, spread too broadly over sectors and institutions,which diluted the impact of institutionaldevelopment, and made project monitoringand supervisiondifficult. Consequentlythe second DRD Loan cut the numberof areas of project from ten to four, and the number of implementingstate agencies from over 70-24 (three in each of the eight states participating in the project). The proposed project establishes firm selection criteria for subprojects and limits sharply the number of these; only a narrow range of subprojects in three subsectors in two oblasts would be eligible.

2.8 The first DRD project foundthat there was a lack of institutionalincentives and capability on the part of the Federal agency managingthe Solidarity program and other state agenciesto provide technicalreview and guidance. In the proposed project, each oblast Project Bureau (acting as a PIU) will be advised by strong technical consultants with the mandate to monitor technical issues arising in the project (which among other things, would reduce the burden of supervisionand increasethe capacity to provide advice to all project beneficiariesas required).

2.9 One of the proposed project's objectives is to promote private sector developmentby stimulating local competitive bidding for small public works. In its approach to local contracting by constructioncompanies with no previousexperience of competitivebidding, the project is drawingheavily on the successful Bank experience in Africa with projects using the approach of AGETIP (Agence d'Execution de Travaux d'Infrastructure Publiques)(for example, Credit No. C2075to Senegal, 1990). The AGETIP experience emphasizestailoring the approach to the situation in each country and taking into considerationthe capacityof the local constructionindustry. Part of projectpreparation has involved surveys of the local construction industry (Annex 1.2). Among other things, experience suggests the importanceof trainingcontractors how to respondto bidding documents,and the importanceof ensuring prompt paymentto contractors. Attentionwould be paid to both of these during project implementation. CHAPTER2 12

2.10 In emphasizing strongly the role of local beneficiaries and in having a substantial unidentified component, the Project has a number of features of a Social Investment Fund111. It is likely that if this project were to be replicated in other regions of Russia, more explicit Social Investment Funds would be formed. A problem with such funds has been their tendency to by-pass line ministries, with the danger that any improvements in decision criteria or manner of implementation has not been carried into the regular program. In this project, the sectoral administrative departments have been the principal players in the identification and design of subprojects, and they would play a critical role in the selection of the unidentified components. Another issue has been a tendency for Social Investment Fund projects to avoid traditional sector conditionality, such as cost-recovery. These elements have not been neglected in either the water supply or the health components of this project.

2.11 Of the twenty-five municipal infrastructure fund projects approved in the 1980s, only a few have operated long enough to show sustainable results. The major lesson appears to be, however, that reforms in the structure of capital financing (more technical allocation procedures; shift from grant to loan terms) or internal financial management (accounting, taxation, capital budgeting) do little to improve local performance if functional responsibilities and revenue authority among different levels of government are ill-defined. The intergovernmental fiscal dimension is critical. In most countries, a corresponding reform is required in the design and administration of intergovernmental transfers (both recurrent and for capital funding). Russia is just now instituting an explicit intergovernmental transfer for recurrent purposes but does not have a directed grant or federal loan program for capital financing. The proposed project would, in effect, initiate such a channel that might be replicated elsewhere. In addition, it would focus on intraoblast fiscal relations between the oblast and local administrations. While the project is not proposing any immediate change in fiscal mechanisms, consulting services are being provided to help design a more transparent and efficient system, which may then be implemented on a pilot basis.

IL' A review by Soniya Carvalho 'Social Funds: Guidelinesfor Designand Implementation' (ESP Discussion Paper Series No. 24, March 1994)defines a social fund as "a mechanismthrough which resources are channeled,according to pre-determinedselection criteria, to demand-drivensubprojects proposed by public, private, or voluntary(formal or informal)organizations.' Individualsubprojects are generally not designed at the time the Fund is established,although often several are prepared for disbursementupon loan effectiveness.

HI. THE PROJECT

A. Project Evolution

3.1 The proposed project evolved from discussionswith the RussianGovernment on project conceptsthat would support decentralizationof Federal responsibilities,help to maintaina basic minimum of social services, and respond to the additionalproblems created by enterprisedivestiture of social assets. In addition, there is a need to promote reforms in the managementof public expendituresat a subnational level. The concept agreed with the Governmentwas for a project that would: (a) be multisectoral, to stress the need to select expenditurepriorities rationally, rather than relying on traditional norms; (b) emphasizeimproved managementof public expenditures, focusing both on the choice of activities and the efficiency of implementation; and (c) be a monitorableand replicablepilot project in two or three oblasts.

3.2 To facilitateproject design, and, especially, implementation,only subprojects in health, education and water supply and sanitationinfrastructure would be included;subproject types within each sector would be restricted to the basic services of polyclinicsand general hospitals, to school facilities providing a general rather than a vocational education, and to small-scale water and sanitation investments. These priorities are all central to RussianGovernment policy of continuingto provide every householdwith basic social services. It was also found that designand qualityof constructionof facilities were often so unsatisfactorythat it would be cost-ineffectiveto rehabilitatethem; instead, it was suggested that the proposed project could provide a valuable opportunityto improve design standardsand foster an implementationculture that would lead to improved constructionquality, and to reduce implementation and supervision complexities. The oblasts of Novosibirsk and Rostov were selected by the Russian Governmenton the basis of agreed criteria. These are oblasts that are each reasonablyrepresentative of a broad class of oblasts, but that differ substantially in geographical and economically setting. Implementing the proposed project in only two oblasts reduced project complexity and length of preparation, without seriously compromisingthe benefits from regionaldiversity.

B. Government Commitment and Beneficiary Participation

3.3 Althoughthe project finances activitieswhich are exclusivelythe responsibilityof either oblast or sub-oblastadministrations, it is essential to have an active interlocutor at a Federal level to (a) assist with the many preparatoryactivities that require Federal action; (b) serve as a coordinatingagency during the process of project implementation;(c) carry out monitoring and evaluation activities whose resultscan be used in any future projects with similar objectivesand more generallyto ensure that lessons from the project are disseminatedto appropriateFederal ministries; and (d) represent the interests of the Federal Government,which is not only the borrower and guarantor of repayment,but will also directly finance half the loan repayment. The Ministry of Nationalitiesand Federal Affairs (MINNAT) was selected for this role, and has been very active in assuming this responsibility. At the start of project preparation, MINNAT provided facilities for the Preparation Unit, and staff of MINNAT have participated in all major Preparation Missions, as well as in discussions in Moscow. The proposed project has also been discussed with other concerned Ministries. An Interministerial Group has been organized to commenton some of the proposed methodologicalor financial innovations,to review the results and to disseminateproject lessons for individualsectors. Under the Chairmanshipof MINNAT, 14 CHAPTER3 the Group includes representatives of the Ministries of Education, Health, Construction, Finance, Economy, and Environment.

3.4 Project preparationhas been mainlythe responsibilityof the two oblast administrationsL2 . Facilities have been provided for a project coordinator in each oblast, and a long list of suitable subprojects of high priority was almost immediatelyproposed. All subprojects on which preparatory work has been carried out were initially suggestedby the oblast, in some cases followingconsultations with the administrationsof cities and rural raions. In most instances,the localgovernments have eventual responsibilityfor operating and maintainingthe facilitiesand the project is designedto ensure that these administrations,together with the directors of the facilities concerned, would play a much more direct role in implementationand in selectingfuture subprojectsfor consideration.

3.5 A major objective of the project would be to assist in introducing new methods of appraising and implementingsocial infrastructureprojects. Therefore, the preparation process has, to the extent possible, been one of "preparationby doing." Appraisals and design work on some of the identified subprojectsprepared by local and internationalconsultants have served as models for training Russian consultants to do the same thing with other identified subprojects, and eventually with the unidentifiedcomponent. The latter represents 25% of the subprojectsto be financedby the Loan, and would prepare the way for eventual replicationas a "Social InvestmentFund" project (para 2.10). The importance of beneficiary participation has already become evident. For example, work required for school rehabilitation was originally assessed by a local firm which provided technically competent assessments,but did not consultschool staff adequately. Only when the survey results were subsequently discussedwith the school director and staff, did it becomeclear that there were many other items in the schoolthat were also in urgent need of attention, and the rehabilitationplans were modifiedaccordingly.

C. Project Objectives

3.6 The principal goals of the proposed project are to:

(a) Reduce the present deteriorationof social infrastructureby financingthe rehabilitation and limited replacementof high priority facilities for providing health care, education, water supply and sanitation;

(b) Improve the efficiencyof managingpublic resources by:

(i) ensuringthat the selectionof subprojectsis based on sound criteria; (ii) raising facility design standardsand improvingthe incentivesto observe them; (iii) improving the quality and sustainability of construction by improved site supervision,and by encouragingbeneficiaries to take a more active role as clients during the design and the constructionprocess; (iv) introducingcompetitive procurement practices; (v) introducing improved methods of expenditure programming and budgetary managementby public authorities;and

LI Funds to assist project preparationwere providedby JapaneseGrants (Nos. TF025243, dated November2, 1994, and TF 029126 and TF 029234, dated July 24, 1995) totalling $1,650,000 equivalent. CHAPTER3 15

(vi) strengtheningenvironmental management practices through a program of studies and training linked to the health and water supply and sanitation components;

(c) Promote private sector developmentthrough:

(i) encouragingthe break-upand commercializationof existingdesign institutesinto independentengineering and architectural firms; (ii) providing training in procurement processes for engineers, architects, local constructionfirms, and public bid evaluation committees; and (iii) providing an environmentthat can facilitate the emergenceof private providers of medical care.

(d) Contribute to the Government's policy of decentralization by promoting broad participation,including non-governmental participation, in project decision-making;and

(e) Monitorthe effectivenessof new practices, and disseminatethe results, to promote their use in similar activitieselsewhere in the Russian Federation.

The indicators that will be used to monitor these objectivesare described in Annex 3.7.

D. Project Description Overview

3.7 The proposed project would introducenew mechanismsfor evaluating and implementing small-scale investments in social infrastructure, and finance a number of eligible subprojects to be implementedusing these mechanisms. To expedite project implementation,and to maximize benefits from work carriedout during the project preparationphase, preparationfunds have been used to identify, appraise and advance implementationof a number of selected subprojects in each sector. About 75% of the subprojectshave been identifiedand the remainderwould be identifiedas experienceis gained with implementingthe project. Each oblast would make a 10% cash contribution to the cost of each subproject. These subprojects, together with other Bank-financedcomponents, are described here as World Bank Financed (WBF) subprojectsL''. In addition, the project includes a number of subprojects that would be entirely financed by the Government, using the same selection and implementation processes as those financed by the loan. These are brought into the project after about two years experience has been gained with project implementationexperience in order to encourage the use of proceduresdeveloped under the project in the regular program of the oblast. These are described as Non- Bank Financed(NBF) subprojects. The Bankand the Governmentwould agree annuallyon the additional NBF subprojects. At Negotiations,it was agreed that the review procedures to be adopted with respect to these NBF subprojectswould be the same as for the unidentified subprojects to be financed by the Bank. The proportion of the loan to each sector (health, education and water supply and sanitation) would be not less than 25% and not more than 40% of the total loan amount in each oblast. This restriction would not apply to NBF subprojects. To ensure a broad geographicspread of the use of the

3/ The governmentcontribution in WBFalso includesother direct expenditures, such as incrementaloperating costs for health facilities. 16 CHAPTER3 new mechanisms,not more than 50% of the loan in each sector would be for subprojects in the capital city of each oblast.

1. Education Component

Summary

3.8 In Novosibirsk oblast, the identified parts of the education component include the rehabilitationof 20 schools, the constructionof two new schools and assistanceto improve the planning, managementand operationsof school facilitiesin the Novosibirskmunicipality (MIS program). Energy efficiency would be a major consideration. In Rostov oblast, the education componentcomprises the rehabilitationof 14 schools, buildingextensions to four schools, and the constructionof one new school. One of these subprojectswould be used to assistfacilities planning, management and operations following an evaluation of experience with the implementation of the MIS subproject in the Novosibirsk municipality. A school in each oblast was selected as a pilot subprojectto provide experience in design and procurementprocedures. In both oblasts, assistancewould also be providedto assist the Department of Education in all aspects of school facilities project management,including identification, preparation and implementationof the unidentified education subprojects. A summary of the education project components in each oblast is shown in Table 3.1.

Education Component Objectives

3.9 Recent World Bank education sector reports have called attention to the crisis in the physical condition of school facilities and the lack of capacity of oblast and raion administrationsto perform newly assigned functions formerly performed by the central governmentL4. These general findings were confirmedfor Novosibirsk and Rostovoblasts by identificationmissions during visits in July and October, 1994. The immediateobjective of the educationcomponent would be to help relieve an emergency situation in schools that have become so dilapidated,uncomfortable, inefficientand even unsafe as to constitute a constraint on effective teaching and a threat to the welfare of students and teachers who use them. This objective would be achieved by rehabilitating, extending or, in a few instances, replacing existing schools. Three new schools would be built in unserved areas of new settlementwhere there has been substantial in-migrationand where students are now attending severely overcrowdedschools at some distancefrom their homes.

3.10 The long-term objective would be to strengthen all aspects of school facilities management,including planning and operations, through (a) improvingmethodologies for formulating investmentprograms for schools; (b) demonstrating a facility managementinformation system in the Novosibirskmunicipality; (c) introducingparticipatory processes for definingeducation specifications in the design of facilities; (d) transferring recent technologyand introducingmodem buildingmaterials for school buildings; and (e) providingexamples of schools that are energy efficient, economicallyefficient and environmentallybenign.

SeeBernard Salome, with AndreiMarkov and NatashaTinpenko, Russia: Education Finance Report. World Bank, June 1994; and Russia: Education in the Transition, Draft Sector Report, September5, 1995. CHAPTER3 17

Table 3.1 Education Component Schedule of Proposed Program of Disbursements (Identified Subprojects) cm US$ '000)

Itnvtmst Ellewet - IBRD FSc Yean - TOTAL ROSTOV 1997 1998 1999 2000 2001 2002 2003

School Rehabilitations 362.9 1,658.4 5,699.0 2,151.8 701.0 10|s"71

5 2 7 School Extensions 2,509.7 1,761.3 756.8 ,D 3

New Schools 2,657.7 2,139.9 1,614.8 6T412.4

Computer, lab. equipt. & furn. 962.1 966.3 1.~4 for identified schools

Oblast cash contribution for 40.3 184.3 912.1 730.1 399.7 179.4 2,445.9 identified schools

TOTAL (WBF) 4032 1,842.71 ,118; ,26,.0 4,96.1 1.79-. . 6,381,6

Oblast in-kind Contribution 300 600 300 1200 (NBF) . ....

NOVOSIBIRSK __:.

School Rehabilitations 311.1 3,034.5 7,098.4 1,094.9 11 .5389

New Schools 3,189.2 2,139.9 1,076.6 6,405.7

MIS Program 351.4 329.5 1,389.6 50.4 2,120.9

Computer, lab. equipt. & fum. 1,115.3 372.8 1,418.1 for identified schools

Oblast cash contribution for 34.6 337.2 788.7 476.0 237.8 119.6 1,903.8 identified schools

TOTAL (WBF) 69.1 3,701.21 O91761 5,925. 2,758.5 1,6.2 23,547.5

Oblast in-kind Contribution 600 360 240 1,200 (NBF)II GRAND TOTAL (WBF) 114003 S,5.9 2%87 J42 14W 2,A4,3.

of which: LOOM 1,412A - ,4IA 16I, -U.1lm.? I7WV.- 2O,L6 4,4955A Oblat cash conttibutoc 74.9 51311 : 1 IEl- - 637 .,A 3 4,439.7

_____.__ .... '.-..-.__ - '...... __-,'.''I ' ; _ . , .I j Total oblast in-kind I 600 660 [ 840 300 || 2,400 contribution (NBF) j = - j - J =

Note: Including price and physical contingencies; excluding taxes and duties. 18 CHAPTER3

3.11 Better methodologiesfor formulating investmentprograms for schools were introduced during the preparationof the educationcomponent. The demonstrationfacility managementinformation system (MIS) is a multiphased subproject that would, through consultancy services, training, and computerization,progressively introduce improved facilities management in the Novosibirskmunicipality.

Selection Criteriafor School Facilities Subprojects

3.12 The selection of schools to be rehabilitated is based upon a cost-effectivenessanalysis detailed in Annex 3.1. Generally,this analysisgives a higher priority to schools with large enrollments, particularlythose that are double- and triple-shiftedand whose usage could be extended for at least 10 years at relatively low cost. A large number of existing schools, which were in other respects of high priority, were rejected for rehabilitation or extension, because of severely damaged foundations or unsatisfactorydesign features. School facilitiesplanning in both oblasts is complicatedby a precipitous decline in fertility largely, but not entirely, offset by substantial in-migrationduring the last five years. New construction would, therefore, be confined to situationswhere there is a need to replace existing facilities or, where there are substantial shifts in the geographic distribution of the populationdue to migration and/or the growth of new population centers. The Oblast would make a direct budgetary contribution of 10% of the cost of the rehabilitation and constructionof the selected subprojects; in addition, the purchasing of all furniture, laboratory and other equipment required to make the school operational would also be the responsibilityof the Departmentsof Education in the two oblasts. Before a school subproject was finally approved, the School Board would make a formal comrnitment to maintainingthe facility and would specify how this would be organized.

3.13 Specifically,the following selectioncriteria are applied:

(a) For rehabilitationschool subprojects, the selection criteria are:

(i) The subproject is cost-effectivein terms of costs per student place. This cost- effectivenessmeasure compares the school with and without the project.

(ii) After reconstruction,the schoolwould have an extendedlife, of at least 10 years:

i In general, this impliesthat buildingswith damagedfoundations and unstable load-bearingwails would not be eligible for repairs and reconstructionunder the proposed project.

* In general, a school's eligibility for reconstructionwould be enhanced if its design and workmanshipof its existing facilities are deemed to be of adequate quality. Many older buildings superior to newer structureswould be considered as candidatesfor reconstruction.

(iii) All required utilities serving the school are adequate.

(b) School Extensions (in addition to the adequacyof utilities): CHAPTER3 19

(i) the existing school should be rehabilitable to a standard comparableto the new construction;and

(ii) the new constructionshould be based upon establishededucational specifications.

(c) For new schools, the specificcriteria include, in addition to (a) iii above:

(i) The school replaces an existing school that is no longer viable, or it reduces overcrowding in the schools that are in adjacent catchment areas. The justificationwould be basedupon an analysisof school age populationprojections in the areas affectedand careful analysis of all affected school catchmentareas.

(ii) The location of the school should be consistent with existing master plans.

(iii) The site of the proposed new school should not involve the displacement and destruction of existing valuable structures, and should be the property of the oblast or raion government.

3.14 ConsultancyServices and Training. The project would finance 15 person-monthsof consultantservices to train and assist oblast staff in both Rostov and Novosibirsk in selected aspects of school facilities project management,including the identification,preparation and implementationof the unidentifiededucation subprojects. Consistentwith training needs, particular attention would be given to the location of schools, education specificationsand to all aspects of procurement.

3.15 Demonstration School Facilities Management Information System Project (MIS program). The work would require 22 person-monthsof consultancyservices to advise the municipality of Novosibirskon a strategy for the progressiveimprovement in organizationand managementprocesses, the design of a supporting management information system and to organize two study tours to examine state-of-the-artschool facilitiesorganizations in Europe or North America. About 24 person-monthsof local consultancyservices would be required for programmingsoftware. In addition, about 120 person- months of local technical staff would be employedto establish information data bases and arrange for their maintenance. The componentwould finance networks for the central administrationand links to at least two of the ten raions in the municipalityin a pilot demonstrationproject. This would includethe installation of about 50-80 computers. This pilot would be evaluated before the system is extended during the project to the remainder of the municipality. See Annex 3.2 for details.

2. Health Component

Sunmary

3.16 The proposedproject would financethe rehabilitationand upgrading of selectedcity and raion hospitals. Each such componentwould include: (a) an emergency and admission rooms; (b) an intensive care unit; (c) an operating room; (d) a central laboratory; (e) a central X-ray and imaging facilities; (f) wards; and (g) a delivery unit. The first five items are "core" requirementsto enable hospitals to function adequately. Suppliesfor operatingthe diagnosticand imagingequipment procured under the project would also be partially financed for the first two years of its operation. WBF also 20 CHAPTER3 includes equipmentfor selected facilities, whose rehabilitation is being financedby the Governmentas part of NBF. Consultancyservices would be provided to assistthe introductionon a pilot basis of new financial mechanismsto promote efficiency and financial stability.

3.17 In addition, the proposed project would finance the rehabilitation and upgrading of selectedpolyclinics. The polycliniccomponent would normallyinclude: (a) rooms for medicalspecialists; (b) laboratories; (c) x-ray and imaging; and (d) a day care unit for minor surgery.

3.18 The selectioncriteria listedbelow and elaborated in Annex3.3 are met by many facilities. The identified subprojectsare shown in Table 3.2. They includethree hospitals and two polyclinics in Rostov, and four hospitals and two polyclinics in Novosibirsk.

3.19 Two sites, one in Rostovand one in Novosibirsk,have been chosenas pilots prior to full project implementation,and the oblasts would receive substantial technical assistance to enable their designers to utilize the lessonsof internationalexperience. These subprojectswould both provide needed lessons for the designs of the remaining facilities, and also establish building standards and provide training that would enable Russianspecialists to design the remainingfacilities themselvesunder normal project supervision.

ComponentObjectives

3.20 The objectives of the health component are: (a) to rehabilitate and upgrade selected medical facilities in the oblasts of Novosibirsk and Rostov; (b) to improve the methodology and institutional capacity for similar efforts in the country as a whole; and (c) to develop new financial mechanismson a pilot basis and test these using project facilities. It is anticipatedthat achievementof these objectiveswould serve the broader systemic goals of improvingthe quality, efficiency, and equity of medical care in the country.1'5

3.21 Specifically,the proposed project seeks to improve access to modern care technologyin selected facilities and managementof patients. These improvementswould be achievedby a "package" of mutually complementaryprogram components, ultimatelyleading to:

(a) better patient flow within and across facilities; (b) an improved physical infrastructure designed to support basic medical technology,equipment, and patient conditions; (c) access to equipmentessential for proper and efficient diagnosis and treatment; (d) improved (acceptable)patient accommodation; (e) personnel who are trained to use and maintain the facilitiesand equipment; and (f) improved financial and institutionalmechanisms to support the functioningof rehabilitatedfacilities.

3.22 Accordingly, the proposed project is designed not only to rehabilitatefacilities but also to upgrade them; simply to reinforce existing, less effective, less efficient, and unsafe systems and

15' For detaileddiscussion of healthpriorities, see Chernichovsky,D., Potapchik,E., Barnum,H., and Tulchinsky,T., Russia;Health Sector Reform. World Bank, Mimeo. 1994. CHAPTER3 21

facilities for delivery of care would be counterproductive. Moreover, the rehabilitatedfacilities would serve as prototypes and stimuli for similar efforts beyond the immediate scope of the project.

3.23 This componentis also designedto improve methodologyand local capacityto invest in medicalfacilities through: (a)developing an initialinvestment program in medical facilitiesin each oblast; (b) establishing criteria for setting investment priorities in medical care; (c) developing a financial mechanismfor investmentin Russianmedical facilitiesin conjunctionwith the territorialhealth insurance funds; (d) developing guidelines for functional designs for buildings; (e) identifying and providing essentialequipment; (f) training programs; and (g) developingguidelines for maintenanceof facilities.

3.24 Annex 3.3 illustrates some of the common problems in both the structure and layout of existing medical facilitiesand how the subprojectswould serve as models. It is expectedthat this health componentwould improve the quality of care by improvingdiagnosis and treatment which could reduce the length of patient stays by as much as one-third.

Subproject Selection Criteria

3.25 An oblast investment program would be initiated as part of project planning and implementation. Within this program, Bank finance would be provided for selected parts of city and raion hospitals that would qualify as general hospitals in western terminology, and polyclinics. WBF would not finance specializedfacilities, whetherthese are separate institutionssuch as maternity homes, psychiatric hospitals, and tuberculosis hospitals, or specialized departments within general hospitals. These hospitals are the mainstay of the system dealing with the majority of the population; outside the main cities these hospitals, usually with an adjacent polyclinic, are normally the only medical facility available to the population. As such these facilities deal with the main causes of morbidity and (preventable)mortality: cardiovascular problems and trauma. Betterfunctioning of these hospitalsshould shorten the average length of stay of patients and reduce the need to refer patients to higher-cost oblast hospitals. Moreover,this focus reducesthe potentialcomplexity of the project and facilitatesreplicability. This does not, of course, implythat all specializedfacilities should be abandonedor neglected,and where their rehabilitationis undertakenin conjunctionwith loan-financedinvestments, such rehabilitationcould be financed as part of the oblast contributionto the Project. 22 CHAPTER3

Table 3.2 Health Component Schedule of Proposed Program of Disbursements (Identified Subprojects) (in US$ '000)

Invtmet Elenent - MD r_a Yea - TM AL ROSTOV 1997 1998 1999 2000 2001 2002 2003

Polyclinic #1 (Rostov-on-Don) 523.3 1,381.8 95.7 1,550.4 714.0 725.6 4,99 0.

Hospital (Martinovsk) 1,303.8 1,316.9 1,887.7 337.9 343.4 5,119.7

Hospital (Novocherkasak) 1,303.8 1,316.9 1,887.7 337.9 343.4 5ilU97

Polyclinic (Constantinovsk) 902.6 911.7 1,755.1 714.0 725.6 _ O59h0

Hospital (Shakhty) - equipment 1,592.1 337.9 343.4 2,Z73,4

Oblast cash contribution 58.1 543.6 404.6 3,072.6 3,032.9 7,111.8

Health Finance 251.8 84.5 336.3

TOTAL (WBF) 775.1 5,034.6 4,184.8 9,077.6 5,5143 55143 _ 30189.7

Oblast in-kind Contribution 1,272.4 1,285.4 288.4 2,B46.2 (NBF) (Hospital Shakhty) contribution

NOVOSIBIRSK

Polyclinic #1 (Novosibirsk) 903.4 2,462.8 918.8 725.6 5,010.6

Hospital (Cherepanovo) 716.3 2,028.5 1,738.4 337.9 343.4 5,164.5

Polyclinic #30 (Novosibirsk) 903.4 2,462.8 918.8 725.6 5,010.6

Hospital #1 (Novosibirsk) 1,304.0 2,909.2 633.0 343.4 5,189.6

Hospital (Iskitim) 1,316.9 3,298.6 641.9 5,257.4

Hospital (Chulim) - equipment 1,968.2 343.4 2,311.6

Oblast cash contribution 79.6 571.0 511.7 3,623.4 3,485.8 8,271.5

Health Finance 251.8 84.5 3363

TOTAL (WmF1 2M1A8 0,4 5,710.3 11,401.8 11,698.7 6,609.1 36,552.1

Oblast in-kind Contribution 1,272.4 1,285.4 288.4 2,846.2 (NBF) (Hospital-Chulim construction) .,~~~ : : I T I T GRAND TOTAL (WIF) 1026.9 5,915.0 9,895.1 20,479.4 171213.0 1223A ! !

Loan | 1,026.9 5,777.3 8,780.5 19,.63. 1| ,517.0 5,64.7 |S1,2S. Oblu" cash - 137.7 1,114.6 9163 | |6_____.7 I S3IM |

Total Oblast in-kind (NBF) |_ I| 1,272.4 2,557.8 | 1,573.8 J 288.4 ||5,692_ _ 4

Note: Including price and physical contingencies; excluding taxes and duties. Costs for design and preparation of bidding documents is not included. CHAPTER3 23

3.26 The followingcriteria have been establishedfor selectingfacilities for the project, and used to identify a preliminary list of subprojects!Y:

(a) Centrally located and easily accessible hospitals serving at least 50,000 population (and which are expected to continue to serve at least this size population in the foreseeablefuture); (b) Hospitals with high levels of utilization--i.e.an occupancyrate of above 90%; (c) Hospitals which are in need of rehabilitating and upgrading of their (i) emergency-cum-admissionunits, includingambulances, (ii) intensivecare units, (iii) surgery theaters, (iv) laboratories, and (v) X-ray and imagingunits; (d) Hospitals which are likely to have a high load of emergencypatients in need of intensivecare; (e) Hospitals which have access to: water supply, heating, sewage, and electricity; (f) Hospitals that with improved functioning can reduce the need for beds both within the hospital and in other facilities; (g) Hospitals that would not be classified as "structurally dangerous" by local building codes; (h) Hospitals whose structures are most flexible in terms of layout and design for rehabilitation and upgrading (e.g. spread-out facilities are given priority over narrow high structures); and (i) Hospitals whose managementand staff are most amenable to adoption of new technologyand functional reorganization.

Polydinic Facilities

3.27 Priority among urban polyclinicswould be for those which have the capacity, mainly in space and location,to serve also as diagnosticcenters for a networkof 6-8 existingpolyclinics, combining to serve a population of about 300,000. The rationale for this criterion is that it would raise the level of care in the community, and among other things, save on the need for hospitalization.Services in the community would become more efficient because of a more rational allocation and use of expensive equipment. Moreover, such facilities could attract qualified personnel to care in the community and would serve as in-servicetraining centers.

3.28 The selectedrural polyclinicswould normallybe adjacent to (or part of) a raion hospital, on which they depend for almost all services. They have consequentlybeen regarded as part of their respectivehospital complex, and are subject to the above criteria set for hospitals. They would need to be upgraded as diagnosticcenters serving the hospitals as well.

3.29 Different polyclinicservices may be ultimatelyprivatized (or given an independentnot- for-profit status), turning the polyclinic into a medical center, housing different services under the same roof, and sharing a varietyof supportingadministrative and other non-medicalservices. Thus, the design of the rehabilitatedunits providesto the extent possiblefor their operationas self-containedadministrative and financial units.

16YThe rationalefor selectingthese subprojectsis describedin Annex 3.3. 24 CHAPTER3

FinancialMechanisms

3.30 The current system for determining and financing medical investments provides little incentiveto make efficient choices, and indeed can be positivelydistorting. For example, where hospital budgets still depend on the number of beds and their occupancy,hospital boards cannot be expectedto make rational investmentchoices that would lead a reductionin the required number of beds. Efficiency requires that investmentsshould be made only if these bring in a reasonablereturn, and this can be most easily achieved if investmentdecisions are made by provider institutionsthat can anticipatereceiving this return through a compensationsystem whichincludes the costs of capital in the basis for reimbursements. The financingmechanism also shouldprovide a systemof inter-facilityincentives with respect to provider compensation. For example, the proposalto establishdiagnostic centers serving a networkof polyclinics will only be successfulif all concernedhave an economic incentive to make it function.

3.31 To address these issues, an effort would be made to stimulate work with regard to a reimbursementsystem, using project facilitiesas a pilot. As part of project planning and implementation, a simple but fundamentalinvestment mechanism for the health systemwould be developedas a prototype and on a pilot basis. This would have three aspects:

(a) appropriate budgetary and other payment mechanismsto providers who benefit from the project; (b) loan repaymentby providers; and (c) financingthe additionalrecurrent operationalcosts that the rehabilitatedfacilities would incur followingproject implementationon a decliningbasis.

3.32 With respect to (a), it is proposedto developa systemfor budgetingraions on a capitation basis, with an intra-regional equalization mechanism, and to develop alternative payment or reimbursementmechanisms, such as diagnosticrelated groups (DRGs), to medicalproviders. With respect to (b) an investmentfacility will be establishedwithin the Territorial CompulsoryHealth InsuranceFunds (TCHIF) as part of the projectL'. This facility would become an extra-budgetarymeans to finance investmentsin medical facilities,with the ability to mobilizefunds from external sources, such as World Bank loans, and would on-lend these, along with matching local funds, to medical facilities. The facilities would then repay the loan from the revenues they receive from the TCHIF (either directly or indirectly through "insurers") for services rendered to the population. These revenues would include compensationfor capital cost.L" The investmentfacility of the TCHIF would in turn repay the loans it received, includingliabilities to the oblast budget for matchingfunds. The oblast authoritiesmay use this mechanismfor some or all of the health componentsof the project. Annex 3.4 discussesthis mechanism in greater detail. Preparatory work on these reforms in Novosibirskhas been assistedby USAID and the proposed project would include local consulting services to assist with the developmentof different financial mechanisms, and these would be piloted in Cherepanovo Central Raion Hospital. At Negotiations, it was agreed that these mechanismsand the subprojectsto be includedin the pilot would be agreed with the Bank before implementationof the pilot begins, which would not be later than one year after the date of effectiveness.

2'' The TCHIF, created under Federal Health Insurance legislationin 1993, are describedin Annex 3.4.

LI See Chernichovsky,D. and Potapchik, E., "Neededfinancial mechanisms for implementationof the Russian health insuranceand health sector reform". (project files) CHAPTER3 25

3.33 With respect to (c), potential savings in length of patient stay could more than compensatefor increases in running costs associatedwith upgrading (see Annex 3.3).

Training

3.34 A substantialtraining (studytours) sub-componentis proposed. (For each facility in each oblast, 5 trainees would participatein these tours (see Annex 3.3). This would include:

(a) Physician training courses in use of laboratories and imaging units, in emergency care and resuscitationand on use of referral protocols. (12-weekcourse)

(b) Training of architects and engineers (alreadyunder way as part of project preparation) to develop and adopt standards and/or guidelines for such things as the layout of units in the general hospitals and polyclinics; the functional relationshipsamong units; the minimalsize of units; and the technicalrequirements to meet electro-mechanicalneeds such as heating, electricity, air conditioning. (7-weekcourse)

(c) Training for laboratorytechnicians, imagingtechnicians and maintenanceengineers and technicians and administrativepersonnel. (7 week-coursefor each specialty)

Health personnel would also participatein training activitiesas part of the enviromnentalstrengthening program (see Annexes 5.4 and 6.1).

Consulting Services

3.35 (a) A total of 110 person-monthsof foreign and 475 person-monthsof local consulting services would be provided for design and supervisionof facilities.

(b) The development of new financial mechanisms would require 16 person-months of foreign and 56 person-monthsof local consultingservices.

(c) A total of 21 person-monthsof foreign consultingservices would be provided to conduct training and supervisestudy tours.

3. Water Supply and Sanitation ComponentL'

Summary

3.36 The componentwould be targetedmainly at the rehabilitation,refurbishment and renewal of the existing infrastructure, includingthe rehabilitationof water mains to reduce leakage levels, the refurbishmentof chlorination installationsto provide better security in drinking water disinfectionand the renewal of electrical and mechanicalpumping machinerythat has outlived its useful operating life. In wastewater,the work would includethe rehabilitationof existingsewerage networks, the provisionof new cesspit tanker vehicles to improve cesspit emptying and the renewal of electrical and mechanical

L9 Grant assistance for the preparation of this component was received from the U.K. Know-HowFund. 26 CHAPTER3

Table 3.3 Water Supply and Sanitation Component Scbedule of Proposed Program of Disbursements (Identified Subprojects) (in US$ '000)

Imvamt Elmsut -- IBRD Flsca1 Yearv- TOTAL ROSTOV 1997 1998 1999 2000 2001 TOTAL

Drinking water 350.0 1,325.0 527.5 2,202.5

WaterDistribution 653.4 1348.5 1,530.0 1,066.0 4,597.9

Wastewater Treatnent 314.3 1,175.0 1,729.3 119.2 3,337.8

Sewerage 106.0 910.0 1,943.4 2,002.0 106.0 5,067.4

Oblast Cash Contribution 58.3 150.9 192.9 299.6 701.7

TOTAL (WM 817.7 3,073.7 6,166.3 5,24.4- 224.2 15,907.3 Oblast in kind 1,000 1,000 600 2,600 Contribution (NBF)

NOVOSIBIRSK

Drinking water 195.1 607.0 1,637.5 699.8 420.0 3,559.4

Water Distribution 332.2 1,799.4 1,950.0 245.0 4,326.6

Wastewater Treatment 1,057.7 719.3 715.1 2,492.1

Sewerage 272.0 1,956.1 920.0 283.2 3,431.3

Oblast Cash Contribution 27.8 148.9 371.6 98.1 31.5 677.9

TOTAL (WE?) 555.1 2,827.3 2 1,449. 14,487.3

Oblast in-kind 850 700 500 2,050 Contribution (NBEF)

GItMN TOTAL (WM 1372. 1 5,901.0 1 13,139.2 8,306.6 1,674 i 30,39i ..as Ca. C.t.buio 6.1 9,6.5 3.... 31. 1,3791 Loan 1,286.7 5,601.2 12,574.7 7,908.9 1,642.5 29,015.0 ObbtCash Contributsbn 11 1 2*8 | S645 | 397.7 | 31.5 |1,379.6

Tota Oblast in-kind 1 1,850 1,700 1,100 4,650 contribution (NBF) j_ _ . _ I

Note: Including price and physical contingencies; excluding taxes and duties. Costs for design and preparation of bidding documents is not included. CHAPTER3 27 plant at key pumping stations. Where new constructionis proposed, it would be limited to providing facilities to enable more efficient use of the existing infrastructure. Individualsubprojects would be limitedin size and scope, with a ceiling of about US$2.0 millioneach. Consultancyservices and training would be provided in all aspects of design, construction, operations, and institutional and financial managementof water and wastewater services.

Component Objectives

3.37 The central objectives are to sustain and/or restore basic water supply and sanitation services, and to the improve the technicaland economicefficiency of the supplying entities.

Subproject Selection Criteria

3.38 Subprojectproposals would complywith the long-termstrategy for developmentof water and wastewater services in the municipality. Specificcriteria are:

(a) Subprojects would be self-containedand would not rely on other works to secure the envisaged benefits;

(b) Where there are alternativetechnical feasible options, these would be subject to a net present value (NPV) analysis, to demonstratethe cost-effectivenessof the options;

(c) Municipalities would be required to demonstrate sustainability by showing that requirements for trained personnel could be met either by present staff or through training programs that they propose, and that the supply of consumablesfor operation and maintenanceare adequatelybudgeted;

(d) Where the water company (vodokanal)or other enterprise is operating the assets of the water and wastewater infrastructure on a license or rental agreement from the municipality, there would be an agreement on the respective responsibilities for maintenanceand renewal of existing assets and the provisionof new infrastructure(i.e. extensionsto the existing installations);and

(e) The environmentalimpact would be acceptable.

Financial Mechanisms

3.39 At present, vodokanals generally estimate that enterprises pay the full costs of water supply services, but that householdsare still subsidized. Under the housing reform law, these subsidies are due to be removed by 2005. Consultancyservices to assist in developingstandards to carry out the eventual achievementof full cost-recoveryby the major vodokanalswould be provided. As an interim measure, operating entities need to demonstrateto the Bank that their income is sufficientto cover all operatingcosts and a reasonablestandard of maintenance. Corporatizedvodokanals would be required to provide annual accounts and financial projections. Where water supply services have not been corporatized, the departments that provide them should maintain separate accounts for them. At Negotiations, it was agreed that as a condition of eligibility for a subproject in the water sector, the 28 CHAPTER3 operating entity would be required to present a financial projection acceptableto the Bank that would document (i) that its projected receipts (includingbudgetary subsidies)will be adequateto meet its costs of operation and maintenance,and (ii) that its dependenceon such subsidieswill decline steadilyand will be eliminated by 2005. The institutionalstudy (see below para. 3.42) would include a review of cost- recoverypolicy, and this agreementwould be reviewed in the light of the recommendationsof that study. Oblasts would be asked to confirm that as a conditionof eligibilityfor a subproject in the water sector, the operating entity will demonstratethat its revenue is sufficientto cover its costs of operations and maintenance.

Training

3.40 (a) With regard to architecture and engineering: training would be include workshops for the design of water supply and sewerage systems to western standards; design of water and wastewater treatment plants; the design and constructionof structural buried pipelines; capital works programming; projectplanning and appraisal;competitive bidding procedures and the supervisionof constructionworks.

(b) In operational management:training would be include workshops and study tours in water demand management;leakage detection and control; asset managementand planning and sewer and water main surveys.

(c) For the construction aspects of subprojects: workshops are proposed for preparation of specifications and bills of quantities; construction planning and scheduling and site management; reinforced concrete constructionand the constructionalaspects of structural buried pipelines.

(d) On institutionalaspects: trainingwould be includeworkshops and studytours in management and administration;operational control; financialmanagement; water demandmanagement including cost recovery and water metering; asset managementand planning and manpowerplanning.

A total of about 20 person-monthsof consulting services would be provided to carry out the above training, which would includeseminars and study tours, for both oblasts.

Consulting Services

3.41 The difficultiesexperienced in the managementand operationof the water utilitiesin both the rural raions and the city municipalities(Rostov and Novosibirsk) require that an institutional preparation study be undertaken on an oblast-widebasis in each oblast requiring a total of 12 person- months. The prime objectiveof the studieswould be to examinethe rationale for a reorganizationof the water/wastewater utilities so that rehabilitation of existing assets and future capital investments in extension and improvementof the infrastructurecan, in the long term, be afforded and sustained by efficient managementthroughout the whole of each oblast. Initially,the institutionalpreparation study would make an appraisal of the managementand operationof the existing structure and activitiesof the water/wastewaterservices in each oblast. Following a preliminary report with recommendations,the study would then be continued and would focus on the problem areas identified. Particular aspects to be reviewed include water demand management;asset managementplanning; cost recovery; capital investmentplanning and revenue budgeting and cost control. During project preparation, discussions were held with the oblast and city municipalitiesand their respectivevodokanals and in both oblaststhere is a willingnessto cooperate in undertakingthe institutionalstudy described. CHAPTER3 29

3.42 Institutionaldevelopment of the vodokanalsand their respective design instituteswould be carried out in close collaboration with the Water Sector Study to be carried out by the EC3 Infrastructure,Energy and EnvironmentDivision and the Black Sea EnvironmentalInitiative to ensure a unified approach. This is particularlyimportant where an oblast is common to two or more projects. Institutionaltraining programs would be addressedthrough a combinationof trainingcourses, studies and secondments. They would include contributions to the environmentalaction plan for the Azov Sea (Rostov), environmentalaudit workshops, managementcourses and study tours. Some of the training activities took place during project preparation partially financed by the Black Sea Environmental Program (BSEP). Supportfrom this source is expectedto continue and grant financingis being sought. The institutionalprogram also includes studies which would contribute to improving the financial and administrative structure of the agencies, budgetary and cost control, manpower planning and privatization. During the early stage of implementation, missions to each oblast would include an institutional specialist from the Water Sector Study, and at the appropriate time supervision of this componentmay be subsumedunder the Water Sector Study, as least as far as Rostov is concerned.This would ensurefull coordinationof the content, timing and directionof institutionalstrengthening prografns for both projects. (See also Annexes 5.4. and 6.1).

4. Budget and Expenditure Management Component

Component Objectives

3.43 Consultingservices would be provided to assistoblast and raion governmentsto improve budgetary managementand expenditure.This would includethe developmentof a computerizedModel BudgetingSystem and improvementsin fiscal relations between the oblast and raion governments. The results would be used to reform budgetaryand expendituremanagement processes for social expenditures. This work would be closely coordinatedwith the introductionand monitoringof pilot financing reforms to be introducedas part of the health component(see para. 3.32) and outlined in Annex 3.4.

Rationale

3.44 Annex 1.3 includesa discussionof budgetary processesat oblast level. Intra-oblastfiscal relations are currently a function of negotiated budgeting, based on a set of traditional norms and dominated by past allocations. The formats in which budgets are presented are inadequate as "stand- alone" transparentdocuments. Sufficientdetail is not requested, and it is not feasibleto prepare detailed reports manuallywithout errors. This creates the appearanceof many gray areas in the budget which are not clearly justified, and therefore, are subject to arbitrary cuts by the oblast. Meanwhile, raions reallocate money provided by the oblast for targeted programs to other programs without requesting approval from the oblast on a timely basis. The timeliness of requesting approvals can be greatly improvedby an automatedprocess.

3.45 In additionto reformed budgetary mechanics,reforming expenditure policies requires an analysisof optionsfor reducing, preferablyeliminating, subsidies of all types, and placinggreater reliance on user-chargesand/or privatizationof service provision etc. For expendituresthat remain a budgetary responsibility,there need to be clear rules as to which level of governmentcarries the responsibility. Budgetdecisions should greatly reduce and preferablyeliminate the use of traditionalexpenditure norms, and shouldfind other ways to ensure that the implicationsof investmentfor future recurrent expenditures 30 CHAPTER3 are considered before investments are approved. On the revenue side it is necessary to analyze and present options for ways to increase local revenues, for example, land and property taxes. More transparent transfer mechanismsto redistribute revenues to poorer raions, which would also provide a greater incentive to better budgetary managementat the raion level, need to be developed. Mechanisms are required to protect the poorest raions against a collapseof services if revenues decline dramatically. An appropriate borrowing policy needs to be established.

Swnmary Description

3.46 Assistancewould be provided with respect to the following:

(a) Local revenues: Identify those local taxes which have significantpotential and prepare for their introduction and administration;formulate financing and cost recovery strategies for public services for which charges are to be levied; formulate policies for the use of borrowed funds;

(b) Budgetformulation: Develop budgetary forecasting models which enable the oblast to test the probable effects on revenues and expenditures of alternative economic assumptionsand policy strategies; consolidatebudgets to encompass all financial transactions at the sub-national level, including those relating to extra-budgetaryfunds; review and improve procedures for drawing up annual budgets; develop a medium-termfinancial programmingsystem;

(c) Expenditure management/budgetary control: Devise adequate means of controlling and monitoring expenditure and revenues against budget allocations/targets,including systems of regular financial managementreports, supported by appropriate formal financial regulations. Implement controls on restricted account for expenditures like utilities and seasonal expenditures. Reviewself-governance legislation to possiblychange expenditure authority based on expenditure items and sub-nationalgovernment; and,

(d) Reviewsocial expenditurepolicy with a view to identifyingareas of budgetary expenditure for which expenditureauthority might be decentralized,or wholly privatized, or made in some way more efficient. (See Annex 3.4 on Health Financing for a discussionof reforms that would be piloted under this project.)

3.47 The hardware componentcomprises 50 computers, networkequipment and software in each oblast (10 for each city or raion). System requirementsare presented in Annex 3.6.

Public Finance Training

3.48 A training workshop for one week, for government budgeting and financial reporting would be included in this componentin each oblast. The course would be designed and presented by practitioners and professors. Theory would be the first segment of the course, and followed with case studies developedand led by practitioners. In addition, a one-monthstudy tour is planned for about 15 financiers in each oblast. CHAPTER3 31

ConsultingServices

3.49 A total of 44 person-monthsof consultingservices would be required to complete this componentin both oblasts. About 192 person-monthsof local consultingservices would be includedfor both oblasts.

5. Monitoringand EvaluationComponent

3.50 Annex 3.7 lists performanceindicators for the project objectivesas a whole and for each of the three sectors. Responsibilityfor such routine monitoring--i.e., for collectingthe data listed in the third column of the Table of Indicators--wouldbe that of the Project Bureau in each oblast. At Negotiations.the Governmentand the oblasts confirmedtheir acceptanceof these performanceindicators as the basis for routine monitoring. In addition there would be Consultants' reports and regular supervisionof the budget and expendituremanagement component. The Central Project Implementation Unit (CPIU) in Moscow, reporting to the MINNAT would oversee an annual report on the project. Causes of delays and actions to accelerate implementationwould be identifiedby the Project Bureaus in consultationwith the CPIU.

3.51 Since this would be the first World Bank project with investmentsin any type of social infrastructurein Russia, as well as representingseveral other innovationsin implementationprocesses, evaluation both of the process of project implementationand of its impact is extremely important. MINNAT would have responsibilityfor recruiting academicinstitutions in each oblast to collaboratein designing and implementinga series of studies to ensure that the experience of each oblast could be evaluated on a comparativebasis. Advice from foreign academics or consultingfirms with experience in the design, implementationand analysis of similar work elsewhere would be drawn on. The broad objectiveswould be to assess: (a) what could be improved in the implementationof the on-goingproject, and (b) lessons for the design of future projects.

3.52 The evaluationwould be based on structured interviewswith stakeholders.Policy makers and implementors,such as mayors, deputygovernors, politiciansand financialofficers in the oblast, raion and city administrations,would be interviewedwith respect to the overallshape of the project. Questions to these stakeholders would include: Is there evidence that the sectoral mix of subprojects was very different from what might have prevailed if there had been no constraints? What would be the results if similar projects in the future offered a differentor a wider menu to communities? What would have been the consequenceof changingthe terms on which communitiesreceived financefor subprojects?Are there any continuingconstraints to wider communityparticipation in project design?

3.53 Sector-specific stakeholders such as oblast and raion officials in charge of health, educationand water supply, school authorities,parents, hospitalstaff and patients in specificsubprojects would be interviewedconcerning what they consideredto be most important among selectioncriteria for subprojects, and the extent to which these had been met, and component-specificquestions designed to complementroutine measuresof output in assessingthe outcomes listed in the fourth column of Annex 3.7. They would also be asked to evaluate the preparation period (too long/short, use of preparation funds, adequacyof consultation with stakeholders,etc.). 32 CHAPTER3

3.54 Jointly with the CPIU, the oblast Project Bureaus would organize a Mid-Term Project Review prior to December 31, 1998. It would endeavor to draw preliminary conclusions from the monitoring and evaluation with respect to the future operation of the project and it would offer an opportunityfor the oblasts to exchangetheir experiences and possibly learn from each other. It would give specific guidance on: (a) the selection of the unidentified component; (b) whether the project managementstructure should be continued in its present form; (c) whether implementationprocedures have been developedthat might usefullybe adopted for other oblast investments; (d) implicationsof the findingsof the budgetary and expendituremanagement component, and healthfinancing innovations,for future fiscal and financial practices in the oblasts and raions; and (e) what, if any, measures might be needed to ensure project sustainability. It would summarizethe lessons for replicability of the project to other oblasts.

6. Preparationof Future Projects

3.55 It is anticipatedthat, if the project results are regarded as successful,this project would be followed by others of a similar type. A follow-on project might focus on oblasts contiguous to Novosibirskand Rostov,to maximizethese oblasts' capacityto absorb the lessons from this project. (It might also widen competitionamong design firms and contractors.) Close proximity of project oblasts would also simplify supervision. The project includes US$1.25 million for consulting services to facilitate the preparationof a second project. This componentwould be administeredby the CPIU. IV. PROJECT ADMINISTRATION AND IMPLEMENTATION

A. Project Administration at the Federal Level

4.1 The Federal Government's responsibilities would be exercised by the Ministry of Nationalitiesand Federal Affairs (MINNAT), through a Central Project ImplementationUnit (CPIU) which would have oversight and coordinationresponsibility for the administrationof the project, and would be responsible for ensuring that the Agreement between the Government and the World Bank would be carried out in an efficient and effective manner. A Project Bureau (PB) established in each oblast wouldhave the responsibilityfor the implementationof those subprojectcomponents contained in their respective subsidiary agreements. The Project PreparationUnit, establishedwith financing from a Japanese Grant (No. TF025243,dated November2, 1994) would be expanded into a centraljuridically independentunit (CPIU). Directors of these units have been nominatedand approved by the Bank. At Negotiations, the Government submitted to the Bank for its approval the Draft Charter of the CPIU (which will serve as a model for the two PBs) and the further steps necessaryfor the legal establishment of these three units were agreed. The Governmentalso provided assurancesthat the CPIU and the PBs would be adequatelystaffed and maintainedthroughout the project implementationperiod. A Condition of Loan Effectivenesswould be the legal establishmentof the CPIU, and the appointmentof its Director and key staff.

4.2 The MINNAT's responsibilitieswould include:

(a) Establishmentand Chairmanshipof an Inter-MinisterialWorking Group. Membership includes relevant Federal Ministries--Education,Health, Construction, Environment, Economy and Finance. The Group's focus would be a technicalone. It would discuss proposed methodologicaland financialinnovations, review reports on the progress of the project, and help to disseminateany useful lessons that can be derived from activities in each sector or for the preparation of similar projects.

(b) Project Administration. The CPIU would maintain a Special Account (for eligible expendituresunder WBF)and ensure timely replenishmentof subsidiaryProject Accounts in each oblast. It would oversee the work of the finance sections of each PB. It would establishan appropriatefinancial accounts system to provide informationon the proper receipt and use of funds in accordance with the Loan Agreement. It would also coordinate training programs. A CPIU architect or engineer would review civil works documents, ensure consistency across oblasts and assist the oblast technical units with problem-solving, training and identifying specialists where required. A CPIU procurementspecialist would monitor the procurementactivities of oblast PBs, provide advice where required and assist the evaluation of bids for works and goods and the selection process for consultantservices, as appropriate.

(c) Monitoringand Evaluation.Activities would include:(i) submittingsemi-annual progress reports to the Governmentand the World Bank on implementationprogress including works in progress, procurementof goods and services, and disbursementsby each oblast (based on data from the local PBs); (ii) organizing (jointly with oblast PBs) a mid-term 34 CHAPTER4

review (see para 3.54); (iii) contracting special studies of project benefits, to be carried out by Russian and foreign experts; (iv) preparation of an ImplementationCompletion Report; and (v) initiatingrequests on the Government's behalf for Bank review, should modificationsin the project design be required.

(d) Representationon the Advisory Board in each oblast. The MINNAT would monitor decision-making,and the overall effectivenessof project implementation.

(e) Assisting Replicationof the Project in other oblasts. Activitieswould include: (i) the developmentof a Project Manual as a starting point for similar activities elsewhere in Russia. This would be based on the OperationalManuals that will be developedby the two PBs; (ii) soliciting interest in the project's methods and achievementsfrom other oblasts; and (iii) administering project preparation funds for these oblasts. At Negotiations,the Governmentconfirmed that the Project Manual would be submittedto the Bank for its review no later than September 1998.

B. Project Administrationat the OblastLevel

4.3 Implementationof specificcomponents as set forth in the SubsidiaryLoans wouldbe the responsibilityof Novosibirskand Rostov Oblasts. To carry out this work, a PB and an Advisory Board (NAB and RAB) would be establishedin each oblast, as a conditionof effectivenessof the Subsidiary Loan Agreements.

Project Bureau

4.4 Each Project Bureau would report directly to a First Deputy Governor. It would have an independentjuridical status, free from oblast regulationslimiting numbers of oblast employees,and allowfor adequatepay to attract qualifiedand highly motivatedpersonnel. The PBs wouldbe established initially for three years. At the Mid-Term Project Review (para. 3.54), a decision would be taken on whether to merge its functions as a part of the administrationorganization or to maintain its separate status. Incrementaloperating costs, includingoffice facilities,of the PBs has been includedin the WBF Project cost and eligible expendituresmay be reimbursedfrom the proceedsof the Loan.

4.5 Each Project Bureauwould have three sections. The PB ImplementationSections would include an architect, an engineer, a site specialist, and one to three junior staff. These staff would be trained in all aspects of World Bank procurement procedures and would be assisted by a procurement specialist.it' It would oversee all technicalaspects of implementation,and wouldrepresent the oblast in any formal contracts. They wouldbe requiredto meet periodicallywith the clients, such as local sectoral departments and the directors of facilities selected for rehabilitation. The PB staff would normally determine whether it would attend particular meetingsbetween clients and designersor contractors, but would be required to do so if requested by the client or consultants. This section would work closely with a FinanceSection which wouldbe responsiblefor maintainingan accountin a local bank (the Project Account)to be periodicallyreplenished from the Special Account, for eligible WBF Project work, and t" Training of Preparation Unit Staff has been given by The Crown Agents in Moscow (with assistance from the U.K. Know-HowFund), and new Bureau staff would receive similar training. CHAPTER4 35 into which the oblast would make its budgetary contribution to the project. This section would be responsible for establishingan acceptableaccounts system which would be audited on an annual basis. It would be responsiblefor ensuringprompt paymentto locally-basedcontractors and/or other appropriate payments. It would be thoroughly familiar with World Bank disbursement procedures and auditing requirements.

4.6 Each Project Bureau would also contain a Planning Section. The Section, which would include a senior specialistin project evaluationand preparation and an assistant, and would draw on the staff of sectoral departmentsand local consultantswhere needed, would oversee the selection of staff for the design of subprojects. It would be responsible for ensuring that clients actively participate at the design stage of subprojects. This section would also organize the collection of data required for the measuring of outputs listed in Annex 3.7 on PerformanceIndicators. It would also be responsiblefor developingthe Operational Manual into a document that would serve future needs in the oblast, and would assist the CPIU to develop a more general Project Manualto use for replication in other oblasts. It should provide this documentto the CPIU not later than September 1997.

4.7 A major part of the work of the Planning Section, beginning in the second year of the project, would be the appraisal of a new set of subprojects to be proposed by the oblast sectoral departments. At Negotiations,the Government confirmed that: (i) the basis for their selection and appraisal would be the selectioncriteria as set out in Annexes3.1, 3.3 and 3.5 (possiblymodified in the light of experience and agreed with the Bank); (ii) a list of these subprojects, sufficientto complete the utilization of the loan, would be availablefor discussionat the mid-term project review scheduled for about June 1998, and would be reviewedat that time, or earlier, by the AdvisoryBoard; and (iii) detailed design of each subprojectwould not begin until an appraisalreport on it had been reviewedby the Bank. At Ne2otiations,the Government also confirmed that except with the agreement of the Bank, these proposals would ensure that: (a) no more than 40% or less than 25% of the Loan funds would be allocated for any one sector; and (b) not more than 50% of the loan in each sector would be for subprojects in the administrativecapital of each oblast.

4.8 Each PB wouldbe advisedby an internationally-recognizedconsulting firm, to be selected by the oblast authorities in accordancewith agreed procedures. The consultingfirm would provide an engineer, an architect and a procurementspecialist who would be stationed in the each oblast, with the ability to call on other specializedadvisors from the selectedfirm as might be required. It is anticipated (althoughnot required)that such firm or firms would form a joint venture with a Russianfirm, and would ensure that the standardsadopted in every facet of WBF are consistentwith those as set forth in the Loan Agreement and to the extent practicable also for NBF. As a part of any joint venture, expatriate specialists would train their local counterparts in international procurement and financial procedures, includingthose of the World Bank and in additionwould provide an independentreview on the technical aspects of the project, these specialistswould:

(a) provide training and advice to ensure that designs are of high standard and bidding documents conform with agreed World Bank guidelines, where required;

(b) provide assistancewith the procurementprocess as may be required; and 36 CHAPTER4

(c) make periodic site visits to ensure that implementationof the subprojectsinvolving civil works are being carried out efficiently and effectively and to provide an independent verificationof progress of each subproject.

4.9 The training and advisory program would includetraining of architects, engineers, civil works contractors, site supervisors and the clients in order to involve the clients in an active role to ensure that the work is satisfactorilycarried out as set forth in the subproject agreements.

The Advisory Boards

4.10 Each Advisory Board would meet on a regular basis (at least twice a year) to review the progress of implementingthe project. Its role would be strictly advisory, without formal votes, and its views would be non-binding. Accurate records of its discussions of subprojects would, however, be maintainedand used by decision-makersin guidingthe selectionof future subprojects. The Board would be chaired by the First Deputy Governor. It is expected that the majority of its members would be prominentlocal citizens. The MINNAT would be representedon the Board. Meetingswould be attended by senior oblast officials concernedwith their particular sector and by the Director and senior staff of the PB.

4.11 While its meetings would be private, regular press conferences would be held to disseminatetheir outcomes, and to foster public awarenessand understandingof the project and of the benefits that it provides to its citizens. In Novosibirsk, the Board members have been selected and the in Rostovoblast, the selectionprocess is underway. At Negotiations,it was agreed that meetingsof the Advisory Boards would be held at least twice each year until the Mid-Term Review.

4.12 Each oblast may decide whetherto ask its AdvisoryBoard to review and commenton the initialsubproject list. Becauseof the progressthat has alreadybeen made in preparing these subprojects, it would not be expected that this discussionwould lead to any changes but this discussioncould affect and improve the criteria used for future subprojects. Each Board would receive the list of subprojects to be financed from the unidentified portion of the project before the mid-term review, so that its comments would be availableto the Bank at the time of the review.

Project Supervision

4.13 World Bank Supervisionmissions would monitor all aspects of project implementation along with the CPIU and the PBs to ensure due diligenceof the Borrower in achievingthe objectivesof the project. In particular, WBF would be reviewed for compliancewith the Loan Agreement. Review would include, inter alia, the monitoring of procurement activities, contract management,and record- keeping, and use of the Special Account. Budgetaryprovision for adequate funds in the Health sector for recurrent costs (incrementaloperating costs) financedunder WBF would also be carefully reviewed. Project Launch workshopswould be undertakenin both Novosibirskand RostovOblasts on or about June 1996, and a Mid-Term Review(see para. 3.54) would be undertakenprior to December31, 1998. Upon completionof the project, an ImplementationCompletion Report (ICR) would be prepared. All activities would place special emphasison the procurementprogress and financial reporting.

4.14 The consultantsto each PB would visit each subproject site regularly, and would report their findings to MINNAT and to the Bank via the CPIU as a part of periodic progress reports. The CHAPTER4 37 consultants would also carry out prior review of all proposed subprojects in order to streamline and accelerate the Bank's review process. However, as this project is the first of its kind in Russia and comprises three sectors, inter alia, about 29 weeks and two supervisionmissions are anticipated in FY 1997, with 20-35 person-weeksand two missions in each FY through 2002 followed by a mission in FY2003to discuss an ICR of the Project (Annex 4.2).

Flow of Funds, On-Lending and Repayment Arrangements

4.15 Except for the funds provided directly to MINNAT, proceedsfrom the Bank Loan would be on- lent to the two participatingoblasts. On-lendingarrangements would be reflected in SubsidiaryLoan Agreementsbetween the Ministry of Finance and the two oblasts. (This agreement would also include a Schedule settingout the implementationobligations of each oblast.) Each oblast would be responsible for repaying 50% of the funds provided to it. The repaymentperiod wouldbe 12 years includinga three year grace period. Interest paid by the oblasts will be at a rate which is not more than 2.5% above the rate charged by the Bank on the Loan. Paymentsby each oblast would include its share of the Laon committment fee. The present state of macroeconomic instability makes it impossible to devise appropriate ruble-based terms, and so repayment obligations would be denominated in US dollars. Repaymentobligations would be small in relation to the current budgets of the oblasts, and in relation to the budgets that might be reasonably expected at the end of the Bank Loan grace period (see Tables 4R and 4N in Annex 1.3). A Conditionof Loan Effectivenesswould be the effectivenessof at least one Subsidiary Loan Agreementbetween the Ministry of Finance and an oblast that reflect these terms and obligations. A Conditionof Disbursementto any oblast would be the effectivenessof a SubsidiaryLoan Agreementbetween Ministry of Finance and that oblast.

4.16 Financial arrangementsbetween oblasts and raions have been agreed in principle, but details still need to be determined. Each Oblast Administrationwould be responsible for paying the budgetary cash contributionof 10% of WBF subprojectcosts into the project accountmaintained by the PB in advanceof disbursementsfrom that account. At Negotiations,the Governmentconfirmed that each oblast would make its budgetary cash contribution of 10% of WBF subproject costs into a Project Accounton a scheduleto be agreed annually with the Bank in advanceof anticipateddisbursements.

4.17 Repaymentobligations by beneficiary administrationsand organizations would need to differ accordingto their revenue capacities,but oblast officialsagree that it is desirable that all beneficiaries of the project recognize that the World Bank Loan has to be repaid. This should increase a sense of ownership of project facilities and encourage future maintenance. In the case of budget-financed subprojects (such as all the education subprojects), it is feasible for the budgets of major major municipalitiesto assumethe entire repaymentand debt service obligationsof the oblast incurred for that subproject. In contrast, the budgetary expenditures of many raions already exceed their entire tax revenues by very large amountsand they have little opportunityunder current Russianlaw and practice to increase these revenues. For these repaymentobligations should be smaller, but neverthelessshould not be less than 10% of their share of the loan. Even if the effect of this small amount is merely to increase the implicit subsidy from the oblast it is important that the investmentnot be regarded as an entirely free gift, and it is also possible that a later reform to the system of property ownership and taxation may change the revenue situation of such local governments, so that they can develop some repaymentcapacity. Repaymentobligations would therefore vary dependingon the revenue situationof the beneficiaryagency. These obligations would be reflectedin sub-loanagreements between the oblast and the beneficiary. At Negotiations,the Government confirmed that sub-loan agreements would be 38 CHAPTER4

signed between the oblasts and the beneficiary agency before beginning to implement any subproject (except where work has already begun as part of project preparation).

4.18 For education subprojects, the beneficiary agency would be a local government department. This may also be the case for some of the health subprojc. However, for at least some health subprojects a proposed pilot financial mechanismdescribed above (para. 3.32) and in detail in Annex 3.4 would, for the purposes of the loan, replace the local health department with the Territorial Compulsory Health Insurance Fund (TCHIF). For these subprojects the TCHIF would on-lend the proceeds of the loan to providers, and would itself be repaid by adjustmentsin the payments it makes to these providers. Eventually the TCHIF would be responsible for repayment of such loans from the revenues of medical facilities. In the water supply and sanitation sector, there are corporatized vodokanals (water and sanitation public utilities) in the principal cities that are organized as public corporations, for whichcost-recovery is scheduled,by law, to be completedby year 2005. These entities would be required to make full repaymentto the oblast. However, most raions operate water systems through small governmentdepartments, which have only limited possibilitiesof cost-recovery,and their obligations would need to be substantiallylower. V. PROJECTCOSTS, FINANCING,PROCUREMENT AND DISBURSEMENT

A. Project Costs

Summaryof Project Costs

5.1 Total Project Cost is estimated at US$288.1 million which is composed of WBF (IBRD Loan plus Government cash contribution and applicable duties and taxes) and NBF (financed by the Government on a parallel basis). The summary of costs by components is shown in Table 5.1 and a summary of project costs by category of expenditure for WBF is shown in Table 5.2. Annex 5.1 (Tables 1-13) contains additional details of project costs, including a cost breakdown by oblast and the CPIU.

Table 5.1. Components Project Cost Summary

(in US$ '000) %% Total (in USS '000_ = Foreign Base Components Local Foreign Total Exchange Costs

1. Education - Rostov 36,667.0 3,799.0 40,466.0 9 15

2. Education - Novosibirsk 33,787.9 4,230.0 38,017.9 11 14

3. Health - Rostov 28,519.7 20,773.4 49,293.2 42 19

4. Health - Novosibirsk 32,850.6 24,565.5 57,416.1 43 22

5. Water and Sanitation - Rostov 23,662.6 7,085.7 30,748.3 23 12

6. Water and Sanitation - Novosibirsk 21,717.1 6,613.2 28,330.3 23 11

7. Expenditure Management - Rostov 597.0 1,227.0 1,824.0 67 I

8. Expenditure Management - Novosibirsk 597.0 1,227.0 1,824.0 67 1

9. Project Implementation Unit - Moscow 4,664.4 1,780.0 6,444.4 28 2

10. Project Bureau - Rostov 4,428.2 1,041.0 5,469.2 19 2

11. Project Bureau - Novosibirsk 4,495.6 1,041.0 5,536.6 19 2

TOTAL BASE COSTS (WBF & NBF) 191,987.2 73,382.8 265,370.0 28 100

Physical Contingencies 9,348.5 5,418.1 14,766.5 37 6

Price Contingencies 8,001.6 8,001.6 100 3 TOTALPROJECT COSTS I/ 201,335.6 86,302.4 288,133.1 30 109

1/ Price contingencies are based on standardiflation estimates andphysical contingencies are 5% for consultant services, training and equipment, and 15% for civil works. Costs include US$40.69 million equivalent in duties and taxes. 40 CHAPTER6

Table 5.2. Summaryof Project Cost By ExpenditureCategory

(in US$ millon) Foreign % of Costs as % Base Expenditure Category Local Foreign Total of total Costs 1. Civil Works: 97.6 21.13 118.73 18 49

2. Goods: (a) Equipment, Vehicles and Supplies- 38.66 24.70 63.36 39 26 (b) Health Sector Consumables- 12.91 14.13 27.04 52 11 ------_------Sub-total-Goods: 51.57 38.83 90.4 43 37

3. Consulting Services: (a) International- 0.05 10.11 10.16 99 4 (b) Local- 15.61 15.61 7

Sub-total Consulting Services: 15.66 10.11 25.77 39 11

4. Training: (a) International- 0.28 3.32 3.60 92 1.5 (b) Local- 1.63 1.63 0.7

Sub-total Training: 1.91 3.32 5.23 63 2.2

5. Operating Expenses 2.0 2.0 0.8

TOTAL BASE COST (WBF) 1/ 168.74 73.39 241.13 30 100

Physical Contingencies 9.35 5.42 14.77 37 6

Price Contingencies 8.00 8.00 100 3

Sub-total (WBF) Contingencies 9.35 13.42 22.77 59 9

TOTAL (WBF) 2/ 178.09 86.81 264.90 33

TOTAL (NBF) 23.24 23.24 l

TOTAL PROJECT COST (WBF+NBF) 201.33 86.81 288.14 30

1/ Basecost date-March 1996. 2/ Includesduties andtaxes of US$40.69 million equivalent.

Basis of Cost Estimates

5.2 The costs for Civil Works, Goods (equipment, vehicles and supplies) and Services, including local and overseas training have been based on current prices and recent fees paid in similar projects financed by the Bank and other donor agencies in the Russian Federation. Costs for foreign consultantshave been estimated on the basis of the cost of fees, accommodationand subsistencein the RussianFederation and includesalaries, housing,subsistence, transportation, translation and interpretation services, and miscellaneousfees. Base cost estimates reflect prices in March 1996. CHAPTER5 41

Foreign ExchangeComponent

5.3 For WBF, the foreign exchangecomponent was estimated as follows: (a) Civil Works- 18%; (b) Goods (equipment, vehicles, and supplies), an average of 43%; and (c) Consulting Services: foreign consultants-100%;local consultants and local training-O%;and overseastraining and study tours- 100%. The foreign exchangecomponent WBF is estimated at US$86.8 million (39% of total WBF, net of duties and taxes).

ContingencyAllowances

5.4 For WBF, physical contingenciesrepresenting about 6% of the base cost of the project were based on an allowanceof 15% for civil works and 5% for goods and services. Price contingencies represent about 3 % of the base project cost plus physical contingencies.Project costs and contingencies are estimated in US dollars only, based on World Bank forecasts that after 1996 the differencesbetween domestic and internationalinflation would be offset by frequent changes in the exchange rate and, that changes in the country's general price level will match expectedannual increases in internationalprices. Annual international inflation rates used are as follows: 1997, 3.8%; 1998, 3.0% 1999, 2.5%; 2000, 2.3%; 2001, 2.5%, 2002, 2.0%, and 2003, 2.0%. In making these estimates, it is recognized that in countries which have severe price inflation and have not yet completed a very major economic adjustment,there is a serious danger of inflationof domesticcosts in dollar terms. If price contingencies are inadequate,the number of unidentifiedsubprojects that can be financedfrom the loan would have to be reduced.

Custom Duties and Taxes

5.5 WBF would be subject to duties and taxes estimated at US$40.7 million equivalent. These estimates are based on an estimated 20% tax (VAT) levied on all local contracts for civil works and goods. For imported goods (equipment,vehicles, materials and supplies), an average of 20% of the estimatedcost has been used to calculatecustoms duties (this averagepercentage is based on recent duties paid by foreign firms for similar type of works and goods). Salaries of local consultants include 41 % health and unemploymentinsurance and pensioncontribution. Project costs include an average of 30% personal incometax on local consultingservices. For foreign consultants,it is anticipatedthat due to the short term assignments (less than 183 days per annum), local tax would not be applicable. Customs duties and taxes were not calculatedfor the unidentifiedsubprojects under either WBF or NBF.

B. Project Fincing

5.6 The proposed Loan of US$200.0 million would finance90% of the cost of WBF net of duties and taxes. The oblast administrationswould finance US$24.2 million (10% of WBF) in cash and US$40.69million equivalentrepresenting duties and taxes expectedto be levied on the WBF. The Loan would finance 100% of the foreign exchangecost and about 82% of local costs for the project, excluding duties/taxes. NBF represents about 8% of the total project (WBF & NBF) of which the Government would finance 100%. Table 5.3 details the proposed financialarrangements. 42 CHAPTER5

Table 5.3. FinancingPlan

Local | Foreign Total

(in USS milLion)

WBF

IBRD (90% of WBF-net of duties and taxes) 113.19 86.81 200.00 Government Cash Contribution (10%) 24.21 24.21 Duties and Taxes 40.69 40.69

Sub-total Government 64.90 64.90

TOTAL WBF 178.09 86.81 264.90

NBF Government (in-kind): 23.24 23.24

TOTAL PROJECT (WBF+NBF) 201.33 86.81 288.14

RetroactiveFinancing

5.7 Retroactivefinancing up to US$15.0million (8% of the Loan Amount)for works, goods and services procured after March 1, 1996, under WBF, would qualify for retroactivefinancing provided that payments would be for expenditureseligible under the Loan Agreement and that procedures for procurement for Works, Goods and Services, and processing and clearance comply with the Bank's Procurement and Use of Consultant Guidelines. Documentation for expenditures claimed under retroactive financing would be the same as those for disbursement against payment made after the Loan Agreementis signed. The ExecutiveDirectors were originally notifiedthrough the MonthlyOperational Summary dated January 2, 1996. The purpose is to ensure that pilot subprojects would be implemented during the 1996 building season.

IncrementalOperating Costs

5.8 WBF includes the financing of incremental operating costs for: (a) the Health sector consisting of consumable goods (supplies) required to operate diagnostic and imaging equipment to be provided under WBF (US$23.8 million excluding duties and taxes; these consumables would be partially financed by the IBRD); (b) the CPIU (US$0.75 million); and (c) the two PBs (US$0.62 million each) for office rent and supplies, training materials, maintenance of office equipment, communications (including international telephone calls and facsimile transmissions), and vehicle operation and maintenance.

Recurrent Cost Implications and Sustainability

5.9 Numerous proposed subprojects would result in cost-saving to the entities involved, especially in Water Supply sector, as discussed in Chapter VI, and in Annexes 3.3 and 3.5. In the Health component, it is anticipated that cost-savings measures would require several years to achieve measurable CHAPTER5 43 results, and therefore, some additionrecurrent costs would be created. This is not expected to add any undueburden on the budgetaryallocations of the agenciesreceiving assistance under the project. Another element in sustainabilityis the continuationof new implementationpractices. This would be supported by the implementationof Government-financedsubprojects in the later years of the project.

C. Procurement

Implementing Agencies

5.10 The CPIUwould monitorand have oversightresponsibility for all procurementactivities, inter alia, of the PBs while the oblast's PBs would have the primary responsibilityfor the procurement under their portion of the project. They would be responsiblefor the procurementof goods and services financed under the CPIU, includingthe supervisory engineer and the medical procurement consultant (para. 5.24). The CPIU would also be responsiblefor the preparationof a proposed follow-up project.

5.11 The Project Bureausin Rostovand Novosibirskoblasts would be responsiblefor project coordination,including procurement, in their respectiveoblasts, togetherwith Departmentsof Education, water and health, of the oblast, municipality or raion where procurement would take place. The procurementof some water supplyand medicalequipment, benefitting institutions in both oblasts, would be coordinatedbetween the two Project Bureaus.

Suummaryof Procurement Procedures

5.12 WBF. All civil works, goods and servicesto be financedunder WBFwould be procured in accordancewith the Bank's "Guidelines-Procurementunder IBRD Loans and Credits", dated January 1995and "Guidelines-Useof Consultantsby World Bank Borrowersand by the World Bank as Executing Agency",dated August, 1981. StandardBidding Documents for Works, Goods, Supplyand Installation, InformationSystems, Computer Systems,and Form of Contracts (Services)issued by the Bank would be used to the extentpracticable and as appropriatefor the works, goods, specializedmedical equipment, computers, MIS, and services to be procured. Civil works, goods and services would be grouped to the extent practicableto encouragecompetitive bidding. Major project elements, their estimated costs and proposedmethods of procurementsummarized in Table5.4 and Annex5.3 contain a detailedprocurement plan and schedule of identified subprojects. U4 CHAPTER5

Table 5.4. Summary of Proposed Procurement Armngements" (US$ Millions)

Intermational National 1 Competitive Competitive Total Not Bank Project Elanent vBidding Bidding Other WBF Financed TOTAL

I.Civil Works 73.10 58.60 131.70 23.24 154.94 (56.20) (45.98) (102.18) (0) (102.18) 2. Goods: 2.1 Equipment 65.85 0.70 0.40" 66.95 66.95 (54.09) (0.60) (0.30) (54.99) (54.99) 2.2 Vehicles 0.38 0.80 " 1.18 1.18 (0.33) (0.70) (1.03) (1.03) 2.3 Incremental Health 30.24 30.24 30.24 Operational Expenses (10.53) (10.53) (10.53)

3. Consultants Services 26.33 26.33 26.33 (22.77) (22.77) (22.77)

4. Training 5.0 5.0 5.0 (5.0) (5.0) (5.0)

5. Recurrent Incremental Operating Expenses 2.0 7/ 2.0 2.0 (2.0) (2.0) (2.0)

6. PPF Refinancing 0.25 1.25 1.5 1.5 (0.25) (1.25) (1.5) (1.5)

TOTAL 169.57 59.55 35.78 264.90 23.24 288.14 (121.15) (46.83) (32.02) (200.00) (0) (200.00)

Figuresin parenthesesare the respectiveanounts financedby the Bank. 1/ Includescontingencies and duties and taxes on identifiedsubprojects only. 2/ includesun-identified subprojectr in proportionto other components. 3/ WBFis World Bank-financedportion of the project,which includesthe IBRDloan plus Governmentcash contributionand applicableduties andtaxs. 4/ NBF consistsof parael Governmentfinancing. 5/ NationalShopping for off-the-shelfitems. 6/ NationAlShopping for ceespitemptying vehicles. 7/ NationalShopping for off-shelf items;communications and transport cost. CHAPTER5 45

5.13 NBF. For civil works, goods and services to be financed in parallel under NBF (not Bank-financed),the various Government agencies involved would be encouragedto follow the same procurement procedures as required under WBF, although this would not be a mandated requirement under this Loan/Project.

UnidentiriedProject Components

5.14 WBF includes financing for subprojects (civil works and goods), not yet identified, estimated at US$44.8 million (17% of total WBF). Procurementunder these subprojectswould follow procurementprocedures established for similar identifiedsubprojects financed under WBF. The proposed methods of procurementfor the unidentifiedsubprojects would be subject to prior review by the Bank.

Procurementof Civil Works (VVBF)

5.15 Civil works under WBFare estimatedat US$131.7million equivalent of which US$102.2 million (78% of civil works under WBF) represents the identified works and the balance of US$29.5 million representingcivil works to be identified.

5.16 Civil works under WBFwould be grouped in packagesthat would encourageinternational competition, while at the same time taking into accountthe scatteredlocations, the need to carry out the work without disrupting ongoing operations, and extreme climatic conditions(i.e., the relatively short Russian construction season, which only extends from April to September in the Novosibirsk area- somewhatlonger in the Rostov area), all influencingthe various starting dates and packaging. Award of contracts for bid packages combining subprojects would be based on the lowest evaluated bid on individualsubprojects contained in the packageor the lowest evaluatedcombined bid for all subprojects containedin the package. Annex 5.3 details the proposed procurementplan and includes the packaging and timetable for civil works in the identified subprojects.

5.17 Civil works consistingof both new and rehabilitatedworks would be procured utilizing the methods described below. Civil works not yet identified would follow procurement procedures establishedfor identifiedcivil works and such procedures(including packaging) would be subject to prior review by the Bank.

(a) InternationalCompetitive Bidding (pCB)procedures would be utilized for civil works estimated to cost US$2.0 million equivalent and above for a total of about US$73.1 million (56% of total civil works). Included are two bid packages estimated to cost between US$1.0 million and US$2.0 million, for the installationof chlorinationsystems in Novosibirsk and for installation of specific water supply equipment in Rostov, involving installation techniques and equipment not available in Russia. Fourteen separate bid packages are planned under ICB for the identified subprojects.

(b) National CompetitiveBidding (NCB) procedures in accordancewith the provisions of para. 3.3 and 3.4 of the Guidelines would be permitted for the procurement of civil works that cannot be grouped in packages above US$2.0 million, for a total of about US$58.6 million (45% of total civil works). Such works are more suitably procured under NCB due to the works' scattered location over a large geographical area making 40 CHAPTER5

it unlikely that international contractors would be interested in bidding. Thirty-one separate bid packages are planned under NCB for the identified subprojects.

5.18 To encourageparticipation of the local constructionindustry and to familiarizelocal civil works contractors in the competitivetype bidding process, inter alia, the staff of the CPIU and the PBs would carry out short training courses to firms who express interest in bidding (para. 4.7). Local contractorsare expectedto participatein biddingon the subprojectsin various bid packages. Annex 1.2 provides an overview of the structure and capacity of constructionenterprises in both Novosibirskand Rostov Oblasts and concludes that there should be no difficulty in obtainingeffective local competition in the bidding for civil works under the project.

Procurementof Goods (WBF)

5.19 Goods (US$98.4 million) consisting of equipment (computers, other office equipment, medical equipment and supplies, electrical and mechanicalequipment for water supply and sanitation sector; vehicles; etc.) would be procured utilizingthe following methods of procurement. All lists of goods and proposed grouping for procurement purposes would be subject to review by the Bank. Identified goods represent about US$83.6 million (85%). Goods to be identified represent the balance of US$14.8 million (15%). A scheduleand packagingof goods for the identifiedsubprojects is contained in Annex 5.3. Goods not yet identifiedwould follow procurementprocedures established for identified goods and such procedures would be subject to prior review by the Bank.

(a) InternationalCompetitive Bidding (ICB) procedures would be utilized for goodsestimated to cost US$96.5 million (98% of total goods)for contractsabove US$300,000equivalent each, and for vehicles (except cesspit emptying vehicles), regardless of their value. Twenty-ninebid packagesare plannedunder ICBfor the identifiedsubprojects, including two contractsfor supplyof health sector consumablesfor operationof 11 health facilities.

(b) National CompetitiveBidding (NCB) procedures in accordance with the provisions of para. 3.3 and 3.4 of the ProcurementGuidelines would be permitted for the procurement of goods that cannot be grouped in packagesabove US$300,000equivalent. This would include such items as office equipment. NCB procurementwould be permitted up to an aggregate amountof US$1.0 million (about I % of total goods). Four bid packages are planned under NCB for the identified subprojects

(c) NatfionalShopping (NS) procedures for contracts up to US$50,000equivalent each may be used for locally available, off-the-shelf items of small value and standard specifications,mainly office supplies,up to an aggregate amount of US$0.5 million. In addition,the procurementof cesspitemptying vehicles estimated at US$0.8 millionwould be procured using NS due to their specializedtechnical requirements and the need for compatibilitywith existing equipment. In accordance with para. 3.5 and 3.6 of the Guidelines, at least three price quotationsfrom qualified suppliers would be required.

(d) Direct Contracting(DC) procedures, in accordance with para. 3.7 of the Procurement Guidelines, would be permitted for the procurementof proprietary medical equipment, supplies and spare parts, yet to be identified, with prior approval of the Bank. CHAPTER5 47

Preferencefor DomesticallyManufactured Goods

5.20 Contracts for Goods for WBFto be awarded on the basis of ICB, the Borrower may, as set forth in the Loan Agreement,grant a margin of preference of up to 15% or the amount of applicable customs duties, whichever is lower, to qualified domestic manufacturersof goods in accordancewith World Bank ProcurementGuidelines (January 1995). Where appropriate,the technicalspecifications of the equipmentwould be specifiedand the procurementpackages would be designed so as not to preclude domestic manufacturersfrom competing. It is anticipatedthat Russian suppliers and/or manufactures would be competitivefor the supply of goods.

ConsultingServices (WBF)

5.21 WBFwould includefunds for about 37 person-yearsof internationalconsultants (US$11.2 million) and about 350 person-yearsfor local consultants(US$16.2 million) which would involve, inter alia, project implementationsupport consistingof: design, supervision,procurement, auditingand other studies, includingpreparation of a proposed follow-upproject as contained in Annex 5.3. Draft Terms of Reference(TOR) have been prepared (see Annex 5.4).

5.22 Consultants would be hired on terms and conditions (including review of their qualifications)in accordancewith principlesand procedures satisfactoryto the Bank on the basis of the "Guidelinesfor the Use of Consultantsby World Bank Borrowers and by the World Bank as Executing Agency", dated August 1981, and Standard Forms of Contract, where applicable, would be utilized.

5.23 Individualconsultants to the CPIU and the two PBs previously hired under the Japanese Grants may be considered for further consultancyunder the project where this would be more efficient and effective than any alternative. Retention of the services of these consultants would require prior review by the Bank on a case-by-casebasis.

5.24 Architecturaland engineering (A/E) services for the preparation of detailed designs of civil works, and supervisionof constructionof schools; water assets; hospitals; and clinics would be grouped into packageswhich, becauseof their size, would be attractivefor internationalconsulting firms to submit proposals. Such internationalfirm(s) would be encouraged(although not required)to enter into joint ventures with national A/E firms. From time to time specializedassistance would also be required in the Health componentfor the preparationof procurementdocumentation for medical equipment and supplies.

Training (WBF)

5.25 For overseastraining and studytours (US$4.0millon) and localtraining (US$1.7million) financed under WBF (total of US$5.7 million), the qualificationsof candidates along with their course of study, proposed training institutionsand costs, and in-countrylocal training courses would be subject to prior review by the Bank. Staff would be selected on the basis of establishedcriteria, to be agreed upon with the Bank as part of the annual reviews. Details of the proposed training are contained in Annex 5.3.

5.26 The Project Bureaus would organize workshops for all interested contractors on the methodologyof completing bidding documents. 48 CHAPTER5

ProjectPreparation Facility (PPF)

5.27 A PPF of US$1.5 million (AgreementLetter P275-0-RU,dated November20, 1995)was granted to the RussianFederation to financefurther preparationof the Project (WBF) and would provide funds for: (a) ConsultingServices to assist in the design of (i) two health facilities, (ii) three water supply and sanitation facilities, (iii) an educationalmanagement system, and (iv) the establishmentof the two Project Bureaus and the Central Project Implementation Unit; and (b) For the procurement of (i) equipment to support to an educational Management Information System, and (ii) leak detection equipment to enable engineers to complete designs of improvement to the water and sanitation infrastructure.

Notificationof BusinessOpportunities

5.28 A General Procurement Notice (GPN) would be published in the UN publication "DevelopmentBusiness" and, as appropriate,would be updated and publishedannually thereafter. For civil works and goods to be procured through ICB, individual bidding opportunities would also be advertisedin one or more major local newspapers30 days prior to availabilityof bidding documentsand transmittedto potential bidders who expressedan interest in bidding. These local advertisementswould be in the English and Russian language. The local advertising procedures would be repeated for all bidding packages using NCB. These advertisementswould be in the Russian language.

Review by the Bank of ProcurementDecisions

5.29 Schedulingof Procurement. Prior to the issuance of any invitationfor bidding, the proposed procurement plan (Annex 5.3) for the project (WBF) would be reviewed by the CPIU and the PBs and the Bank advised of any proposed modificationsfor its review in accordancewith the provisions of para. I of Appendix I of the ProcurementGuidelines of January 1995. Procurementof all works, goods and services would be undertaken in accordancewith the agreed procurementplan which would adjusted as appropriate and includedas a part of the semi-annualreport and would be subject to Bank review.

5.30 Prior Bank review:

(a) Civil works and goods. Prior review of the bidding documentsfor civil works and goods, includingreview of evaluationsand recommendationsfor award of contracts, would be carried out for all procurement utilizing ICB procedures. For NCB, all bidding documents above US$1.0 million equivalent;and (b) all documentsand recommendationsinvolving direct contractingwould require prior Bank review. Accordingly,about 75% (by value) of procurementtransactions would be subject to prior review by the Bank. Master list of goods to be procured would also be subject to prior review by the Bank.

(b) Consultants. Terms of Referencefor all consultingassignments would be subject to prior Bank review. Terms and conditions of contracts, invitation packages and evaluation reports of assignmentscosting more than US$50,000each for individual consultants, and US$100,000each for firms would be subject to prior review by the Bank. All documentsand recommendationsinvolving sole source selectionof consultantswould also be subject to prior review. Accordingly,about 80% (by value) of these transactionswould be subject to prior review by the Bank. CHAPTER5 49

5.31 Post Review. In respect to each contract not covered by the above would be carried out in accordancewith para. 4 of Appendix 1 of the Guidelinesfor Procurement,dated January 1995 and would also be reviewed during the Bank's project supervisionmissions.

CountryProcurement Assessment Report (CPAR)

5.32 A CPAR for the RussiaFederation is currentlybeing discussedwith the Governmentand is expectedto be issued about June 1996. For this proposed project, the Borrower would follow agreed procurementprocedures (in accordancewith Bank Guidelines)as described above and as set forth in the Loan Agreement.

D. Disbursement

Schedule

5.33 The proposed Loan would be disbursed over a period of six and one-half years which includes six (6) months for finalizationof accounts and submissionof withdrawal applications. The method of disbursement and schedule, shown in Tables 5.5 and 5.6. The Project is expected to be completed by June 30, 2002, with a Loan Closing Date of December31, 2002.

5.34 Disbursement procedures would be in accordance with those described in the 'DisbursementHandbook' and as set forth in the Loan Agreement.

Method of Disbursement

5.35 A summary of the estimateddisbursement is contained in Table 5.5 below. 50 CHAPTER5

Table 5.5. Summary of Estimated Disbursements of IBRD Loan (US$million equivalent)

Amount of loan Percent of expenditure Category allocated to be financed

1. Civil Works 100.00 75% 2. Goods: 50.00 100% of foreign Equipment, Vehicles and Supplies expenditures; 100% of local expenditure (ex- factory) and 75 % of local expenditures for other items procured l ______locally 3. Consultants' Services 22.20 100% of foreign and 65% of local l______expenditures

4. Training 5.00 100% 5. Health Sector 11.00 100% of foreign and (Incremental operating costs) 75% of local expenditures

6. Incremental 2.00 100% Operating Expenses

7. Project Preparation Facility 1.50 Amount due pursuant to Section 2.02 (c) of the Loan Agreement.

8. Unallocated 8.30 -- Total 200.00 90%

Table 5.6. Estimated Schedule of Loan Disbursements (US$ Million) Bank FBscanYear FY97 FY98 FY99 FYOO FYOI FY02 FY03 Annual 7.0 22.5 47.0 49.0 35.5 29.5 9.5 Cumulative 7.0 29.5 76.5 125.5 161.0 190.5 200.0 CHAPTER5 51

5.36 Disbursementswould be fully documentedexcept for itemscosting less than US$50,000 equivalent where certified Statements of Expenditures (SOE) would be used with payment from the SpecialAccount. Disbursement/procurementdocuments using SOE procedureswould be retained by the CPIU for a period of at least two (2) years after disbursementand made availableto Bank staff and to auditors.

Special Account

5.37 To facilitate payments of small and medium size amounts in foreign currency and all payments in local currency, the CPIU would open and maintain a Special Account in US dollars in a commercial bank acceptable to IBRD. The selection process and criteria would follow the Bank's standardizedprocedure. The maximumauthorized allocation of the SpecialAccount would be US$15.0 million. The initial amount to be depositedat the beginning of disbursementswould be US$5.0 million. This amount would be increasedto the maximumauthorized allocationonce cumulativedisbursements have reached US$20.0 million. The allocationto the SpecialAccount would be replenishedon the basis of satisfactorydocumentary evidence, to be providedto IBRD by the CPIU, of payments made from the account for works, goods and services required for WBF. In addition, monthly bank statements of the Special Account, which have been reconciled by the CPIU, would accompany all replenishment applications. Payments not made through the Special Account, either through the issuance of special commitmentsor direct paymentsto suppliers, would be at a minimumUS$50,000. The CPIU would be responsible for monitoringany funds from this special account which would be transferred to the PB's Project Accounts, which would be in commercial banks acceptableto the IBRD, and replenishment procedures, etc., as outlined above would apply.

E. Reporting Semi-AnnualReports

5.38 Semi-annualprogress reports covering all componentswould be prepared by the CPIU and sent to the World Bank within one month of the end of each six (6) month period (i.e., by end-July and end-January). The format would be mutually agreed upon prior to the date of the first submission and would be modifiedas necessaryduring the implementationof the project. The purpose of the reports would be to provide managers with timely informationon implementationof projects components and lesson learned. The CPIU would set up reporting guidelinesand deadlinesfor the receipt of information from the PBs in each oblast, in order to prepare the report. The first report would be issued before the first World Bank supervision mission. The reports would include, inter-alia:

(a) progress achieved against agreed implementation and disbursement schedules, and key performancesindicators; (b) the status of all contractswith special attention given to procurement activities; (c) work programs and proposed expendituresfor the coming quarter; (d) status of compliancewith covenants and major agreementsunder the Project; (e) descriptionof issues and problem areas along with recommendedcorrective actions; (f) descriptionof progress in resolvingprevious problems and addressingearlier recommendations; and (g) status of the Special Account. 52 CHAPTER5

ImplementationCompletion Report (ICR)

5.39 The CPIU would prepare an ICR upon completion of the Project and in any event not later than six (6) months after final disbursementof the Loan Proceeds. Included in the ICR would be an assessmenton the execution and initial operation of the project, costs and benefits derived or to be derived, the performanceof the Borrower, the Bankand other agenciesinvolved in the project regarding their respectiveobligations and accomplishments,and includinglessons learned. The ICR would include plans for the future operation of the facilities which had been financedunder the project, includingthe indicatorsfor monitoring and evaluating future operations.

Accountsand Auditing

5.40 The CPIU would be responsiblefor the appropriate accounting of the funds provided under the loan and by the Borrower, would maintain consolidated accounts for the project and would prepare monthlyfinancial reports, and would ensure that audits of the financial statementsor reports are timely submitted to Bank. Accountingfor all Special Account transactions and for all other project- related accounts would be maintained in accordance with internationalaccounting standards. Project accounts, including the Special Account, maintained by the CPIU would be audited annually in accordancewith the Bank's "Guidelinesfor Financial Reporting and Auditing of Projects Financed by the World Bank", dated March 1982.

5.41 For WBF, audits would also be carried out at the same time and for corresponding periods, in accordancewith Bank's guidelines, for SOEs against which disbursementshave been made or are due to be made from the loan and SOEs which would be included in the audit reports accompanyingthe financialstatements. The auditedfinancial statements for the SpecialAccount, project accounts, and SOEs of the preceding fiscal year and the resulting audit report in such scope and detail as the Bank may reasonablyrequest, includinga separateopinion by the auditor on disbursementsmade against certified statementsof expenditure,would be sent to the Bank within six months of the end of the Government's fiscal year. Funds to carry out the audits have been includedin WBF. VI. PROJECT JUSTIFICATION AND RISKS

Benefits

6.1 The proposed project would meet an immediateand urgent need to preserve and improve essential communityservices that are fundamentalto social well-being. So far, subprojects accounting for 75% of WBF have been identified:

(a) The educationsubprojects so far identifiedinclude rehabilitation of 34 schools, expansion and rehabilitation of four schools, and three new schools. Benefits from these subprojects include improvementsto the learning environment, which should be safe, hygienic, and warm in the bitter winters. Schoolclosings (becauseof heating and water and sanitation failures) would be averted and instruction would not be interrupted. Improvementsto school design should improve pedagogical effectiveness. Education subprojects already identified would provide such benefits for a total of about 40,000 pupils, and it is anticipatedthat several additional schools would later be identified for upgrading in the later years of the project.

(b) Health subprojects so far identified include the rehabilitation and upgrading of four polyclinicsand seven hospitalsto benefit a total combinedcatchment population of about 1.5 million. Imminentclosing of medical facilitiesbecause of unsafe structures would be avoided, preventing a decline in access to care of people in their catchmentareas. Patientsof upgradedfacilities would receivehigher qualityand clinicallymore efficacious and appropriatecare as a result of better diagnostic and medical testing capacity. It is estimatedthat the length of hospitalstay would decline from an averageof 17 days to an average of 9-12 days (see Appendixto Annex 3.3).

(c) Sixty-twowater and sanitationplant rehabilitationsubprojects have been identified. The estimated beneficiarypopulation for the identified is approximatelyone million in each oblast. Benefitsinclude the assuranceof safe water and sanitary facilities, and improved efficiency through the reduction of leakages.

6.2 The method of analysiscarried out to ensure that all subprojectsare individuallyjustified from an economicperspective is explainedbelow, and illustratedthrough model appraisalsfor subprojects in each sector (presented in Annexes 3.1, 3.3 and 3.5).

6.3 This project would also demonstrate important innovationsin the efficiency of use of public resources:

(a) the process of determining regional and local expenditure priorities and subproject selection would improve; (b) design improvementsand better constructionquality, and commitmentof beneficiaries to future maintenancein the selected subprojectswould provide models for replication elsewhere in the oblast and in other parts of Russia; (c) new methods of public procurementof goods and services would lead to cost-savings; 54 CHAPTERU

(d) pilot programs in educationfacilities planning and health financingwould lead to more efficient resource use in these sectors, also on a replicable basis; and (e) new systemsof managementof budgetary expenditurewould be developed.

6.4 The project wouldalso fosterprivate sectordevelopment by promotingcompetition among engineering and architecturalfirms and competitivebidding by private constructioncompanies. Lastly, the project would contributeto a sense of local ownershipof, and responsibilityfor, social infrastructure, and contribute to the RussianGovernment's policy of decentralization.

Economic Analysis

6.5 Only the benefits of the project arising from the individualsubprojects can be readily quantified. No attempt is therefore made to try to aggregateall the benefits from the project. As with all Bank projects, the economicappraisals serve to reduce the risk of acceptingsubprojects that are cost- ineffective,or benefit only very few peopleA'. Each subproject would therefore be subjectedto separate economic appraisal, and is expected to show a positive present value when its benefits and costs are discounted using a 15% discount rate.

6.6 Benefits are calculatedby estimatingcost-savings resulting from the project rather than trying to maintainthe service in alternativeways. No attempt is made to put an monetaryevaluation on the services themselvesL'. In some cases, the alternative mightbe no service at all--for example, where a facility might have to be closed if it is not rehabilitated. The only alternative to rehabilitationwould be a new facility-'. In others, there would be unacceptablypoor quality or dangerous services--for example, in facilitieswith inadequatesanitation or without water. Another possibilitymight be growing repair costs and declining services for some limited period, and then the need to replace the asset at a

21/ Note that while the cost per beneficiaryhousehold or individualmay be an indicator of priority, there would be no suggestionthat this should be minimizedfor the project as a whole. The result might be a concentrationof subprojects in urban areas, which might not only be politicaflyunacceptable, but also would limit other project benefits,such as improvedgovernment expenditure policies, to unnecessarilyfew places.

r For projects providingbasic health and educationservices, it is normaly impossibleto measure the streams of benefits and costs in comparableways--i.e. in terms of monetary flows. Althoughfor certain educationprojects-those whose objectivesare relatively narrow trainingones-it may be possible to measurea high proportion of the benefits in terms of increased labor productivityof the beneficiaries,improved earnings are only one of the reasons why countries have compulsorygeneral education,and there is also no way to measurehow such educationaffects earnings in countries where it has been virtually universalfor decades. While it sometimesmay be possible to estimatethe life-savingeffects of alternativehealth investments,it is not possible to express these in monetaryterms. In water supply and sanitation projects, there is greater interest in "willingnessto pay" as an indicationof benefits, but since many of the benefitsare health benefits and are not confined to the beneficiaryhousehold, such a measure can at best be partial.

The alternativeof leaving the populationwithout the service at all is not considered. For example,it has long been Russianpolicy to make nine years of general educationfree and compulsory,and to provide two further years almost universally(except to those students who attend vocationalschools) and few would argue that this policy should be abandoned. Similarly,there is universal access to polyclinicsand to the lower levels of the hospital pyramid, and the project's focus on core servicesthat will continueto be provided free of charge to the user, is also not likely to be disputed. The benefits to the populationof clean water and sewage facilitiesare also not in dispute, and as noted, Russia has now imposed user charges which are intendedto rise progressivelyuntil they eliminatehousehold subsidies by year 2005. CHAPTER6 55 higher future cost. A rehabilitationproject is therefore "service-preserving"or "cost-saving"rather than service-increasing.

6.7 The schoolrehabilitation subproject in Novosibirskused as a basis for the model appraisal illustratesthe analysis. Withoutrehabilitation the schoolhas little or no useful life, and it is assumedthat it would have to be closed in 3 years if not rehabilitated. This would mean that students would have be transferred to two schools 8 and 12 km away, which would incur significanttransport costs. This travel is subsidized, both directly and through fuel subsidies, so there would be a difference in projected economicand financialcosts. There would be some smalladdition to maintenancecosts in the alternative schools. In addition, since both schools alreadyoperate two shifts, this alternativewould entail a decline in the quality of education, as well as higher recurrent costs. The alternativeof building a new school cannot yet be justified, although it is expectedthat in about 10 years an increasein school-agepopulation would justify the increase.

6.8 The cost-savingsthat arise in health are more complex. In one hospital for which a detailed appraisalhas been completed, it is anticipatedthat the improvementswould enable the hospital to operate with one-thirdfewer beds, and could lead to closing 256 of the present 770 beds in the system, amountingto an annual saving of over US$800,000. Similar savings are likely to result from many of the upgraded health facilities. Simulatingon a system-widebasis--assuming that length of stay can be reduced by 30% and the number of beds by 35%, and 10% of patients currently treated in hospitals would be able to be treated on an outpatientbasis instead--wouldimply annual savings of approximately US$5 million in a catchment area of 300,000. These benefits can be supplementedby an estimate of health benefits to households, expressed in terms of years of life savedl'.

6.9 Evaluationof the rehabilitationof the water supplysubprojects has much in common with the education subprojects.Without the project operational, maintenanceand environmentalcosts would rise over time. (Environmentalcosts and benefits are difficult to measure and the analysis uses as a proxy the penaltiesfor non-compliancewhich are alreadybeing leviedbut whichwould rise substantially in the absenceof the project.) The model appraisalshows that the present value of these additionalcosts of operating the facility in the absenceof the project is greater than the present value of the capital costs of the subprojectplus the slight increaseover current operatingcosts that the subproject would require, when these are discounted at 15%.

6.10 Cost estimationis difficultin Russia, and the Bank and other foreign agencieshave found that estimates of civil works have frequently turned out to be underestimates. Where plausible, recent comparativeRussian estimates could not be found, Europeancost levels have been assumed. There seems no need to depart from marketprices either for labor or for tradable goods. The exchangerate no longer seems very much undervalued; World Bank forecasts are that the ruble will appreciate about 10% in 1996, and thereafter will retain the same real relationship to internationalexchange rates. There is therefore no longer a case for expecting a major increase in money wages in dollar terms. There is growing unemployment,especially in Novosibirsk,but open unemploymentremains below 10%, so there

TheM modelappraisal in healthshows the very largepotential for savinglife, especiallybetween ages 15 and 60. Attemptingto measurethe specifichealth consequences of an individualsubproject where such a high proportionof healthproblems reflect behavioral, environmental or otherfactors beyond the control of an individualinstitution would be excessivelyspeculative. 56 CHAPTERb

is no case for using a shadow price for labor. On the other hand, there is plenty of capacity in the local construction industry (see Annex 1.2) so there is no need for concern that the project might drive up construction labor costs. With respect to tradables, Russia's price liberalization and relatively low domesticprotection make it unnecessaryto perform cost-analysesusing other than domesticprices. This appears to be true even for energy, so long as industrial rather than householdprices are used.

Social Beneits

6.11 The Project is designed to introducestakeholder participation through the involvement of all levels of government as key actors at all stagesof the project cycle, and through the participation of several non-governmentalrepresentatives on oblast AdvisoryBoards. One of the most important roles of the AdvisoryBoards is to discuss and influencethe selectionof subprojectsfor the unidentifiedportion of the loan. Althoughit is more costly per beneficiaryto renovaterural schools, hospitals and water and sanitationplants becauseof lower populationdensities, but subprojectsclearly shouldnot be concentrated in urban areas for reasons of equity. Cities are likely alreadyto be relativelyfavored becauseof a better fiscal position, and because schools and health facilities already benefit from their capacity to find sponsors among prosperous enterprises and affluent users or parents. The direct benefits of the project should be well distributed over the oblast populations; similarly, the long-run benefits of improved governmentexpenditure policies and procedures should be widely spread over the two oblasts.

6.12 Local participationwould be particularlyimportant in relation to future maintenanceand sustainability. School Boards, which include parents, teachers, and senior pupils, already organize programs of winterization, painting, clearing rubble and delegating to parents, teachers and school childrenthe task of completingit, using both voluntary labor and monetarydonations.21' As a condition of final approval of the subproject, the Board would be asked to make a formal commitment to maintainingthe facility and to describe how this would be organized. For subproject schools, Directors together with selected Board members and a representativeof the local administrationwould form a constructioncommittee to represent the client interest in the constructionprocess. Workshopswould be held to introducethe staff of raion sectoraldepartments, headmasters, and representativesof teachersand parents to key aspects of subproject implementation, and their own responsibilities26'.

6.13 Hospitalsare currently managedby a hospitalboard headed by a chief doctor and heads of departmentsin the facility. The Boards take decisionson the maintenanceof the facility in consultation with the local administrationand to a lesserextent solicit the views of patientsthrough patient satisfaction questionnaires. However, in Novosibirsk oblast, there are plans to establish a Guardian Council comprising the chief doctor, his first deputy, city administrationofficials and chiefs of some state and private companies. The aim would be to educate the public on environmentaland hygiene issues, and generate enthusiasm in the private sector to contribute funds to the maintenanceand modernizationof

2' In one subproject (School No. 30 in Novosibirsk), out of approximately Rb5O million needed for maintenance in 1994, about RblO million were given by the city Department of Education and a similar amount was collected from the parents. In another school in Rostov (School No. 34) also included in the project, out of a similar amount needed for maintenance in 1994, parents contributed about Rb30 million in cash and kind (labor), and the rest was drawn from the raion budget. Schools in urban areas have been able to attract sponsorship from state enterprises and the military industrial complex. However, in some areas, the level of contribution has dropped due to shutting down of these enterpises.

E Such workshops have already been held as part of project preparation of the education component. CHAPTER0 57 hospitals. For hospitals, the role of Board and/or GuardianCouncil would be as described for the School Boards above.

Future Selectionof Subprojects

6.14 Oblast sectoraldepartments would be expectedto consult with city and raion officials in developinga list of proposed new subprojectsfor the unidentifiedcomponent of the project, whichwould be reviewedby the Advisory Board. These need to meet the agreed sectoral selectioncriteria. An annex to the draft Operational Manual suggests proceduresthat might be followed, but these are not the only possibility.

EnvironmentalAspects

6.15 The project is classified in Category B. Major environmentalconcerns have been identified and addressed for the known and pre-appraised/appraisedsubprojects of the three project components. The environmentalaspects of the rehabilitationwork of hospitals and schools (health and educationcomponents) concern generallythe use of non-hazardousbuilding and insulationmaterials, the proper disposal of building materials and old equipment and materials, proper managementof medical and solid waste, adequate storage and handling of pharmaceuticaland chemical products and proper indoor and outdoor safety of the facilities and its systems.In general, the environmentalconcerns of the water and sanitation component of the project are related to: poor potable water, water availability, leakage and loss of water, lack of water and wastewater treatment capabilities, lack of treated water storage facility, inadequatestorage and handling of chemicals, sewageflooding and sludge management and disposal. Water leakagehas the secondaryeffect of underminingbuilding foundationsand causing structuraldamage. Environmentalanalyses with enhancementand mitigationmeasures have been carried out for known subprojectsas part of pre-appraisal/appraisalreports (see Annexes 3.1, 3.3 and 3.5). In conformitywith Bank and Russianrequirements, detailed environmentalguidelines and procedureshave been developed in the Operational Manual for subprojects not yet identified or appraised. These procedures are intendedfor the use of the Project ImplementationUnit and Bureaus, the Regional and Local EnvironmentalCommittees, the Applicantsand the regional/local Design Institutes.

6.16 In addition, the project has developed an environmental institutional strengthening program which includesthree subcomponents:institutional support, training, and environmentalstudies (see Annex 6.1). Someof the training activitiestook place during project preparation,partially financed by the Black Sea EnvironmentalProgram (BSEP). Supportfrom this source is expectedto continue, and additional grant financing is being sought.

6.17 The project would have an important positive environmental impact in the three components as it would: (a) improve overall hospital and school conditions and waste and system management in these facilities; (b) facilitate access to water supply and sanitation; (c) reduce environmentaldamage to underground water supplies and rivers; (d) augment wastewater and water treatmentand managementcapacities; (e) improve potable water quality; (f) reduce health risks; (g) limit losses of treated water from leakageand pipe failures; (h) reduce environmentaldegradation of the Black Sea through improvementsin the Rostov wastewaterand water systems; and (i) strengthen institutional capacitiesthrough training and better knowledgeof environmentalconditions and managementpractices. 58 CHAPTER0

Risks

6.18 A multi-sectoralproject in two oblasts suggests that a major risk would be excessive complexitythat could impede implementation. To reduce this risk, the project has sharply limited the range of eligible subprojectswithin each sector. The project would introducenew methodsof subproject selectionand implementationbut is doing so in a phased manner, beginningduring the preparationphase. The project itself would begin with the implementationof preappraisedsubprojects. During preparation, training is being provided on methods of appraisal, design and implementationof model subprojects.

6.19 An alternativerisk is that in the interestsof rapid implementation,the longer term benefits to the project in changing the way subnationaladministrations do business would be neglected, so that after the project is completed, reliance on top-down direction and norm-basedallocations would return. To reduce this risk, a strong emphasishas been placed on local ownershipand participation. Although initialresponsibility for project implementationat the oblast level would be given to a PIU that is not part of the regular administrativestructure, the Mid-TermProject Reviewwould focus on ways to ensure that the proven methods of implementationand other lessons from the project are gradually transferred into the regular programs of the oblast. Similarlythere may be a reversionto constructionmethods that speed up subproject completion at the expense of construction quality, higher future maintenancecosts, and shorter life of the facility. To reduce this risk, there would be extensivetraining of architects, engineers, site supervisors and clients, and regular supervisionby consultants. VII. AGREEMENTSREACHED AND RECOMMENDATIONS

7.1 At Negotiations,agreements were be reached, or assurancesgiven, as follows:

(a) The review procedures to be adopted with respect to non-Bank financed subprojects would be the same as for the unidentifiedsubprojects to be financed by the Bank (para. 3.7).

(b) The health financingmechanisms and the subprojects to be included in the pilot would be agreed with the Bankbefore implementationof the pilot begins, and not later than one year after the date of project effectiveness(para. 3.32).

(c) As a condition of eligibility for a subproject in the water sector, the operating entity would be required to present a financial projection acceptableto the Bank that would document(i) that its projected receipts (includingbudgetary subsidies) will be adequate to meet its costs of operation and maintenance, and (ii) that its dependence on such subsidieswill decline steadily and will be eliminatedby 2005 (para. 3.39).

(d) The performanceindicators proposed as the basis for routine monitoring were accepted (para. 3.50).

(e) The CPIU and the PBs wouldbe adequatelystaffed and maintainedthroughout the project implementationperiod (para. 4.1).

(f) The Project Manual would be submitted to the Bank for its review no later than September 1998 (para. 4.2).

(g) A condition of effectivenessof a Subsidiary Loan Agreementbetween the Ministry of Finance and a participatingoblast would be the legal establishmentof a Project Bureau and an AdvisoryBoard in that oblast (para. 4.3).

(h) A new set of proposed subprojects,selected on the basis of the criteria set out in Annexes 3.1, 3.3 and 3.5 (or modifiedin the light of experienceand agreed with the Bank), would be sent to the Bank and to the oblast Advisory Board in advance of the Mid-Term Review. Detaileddesign of each subprojectwould not begin until an appraisalreport on it had been reviewed by the Bank (para. 4.7).

(i) Exceptwith the agreementof the Bank, the selectionof this new set of subprojectswould ensure that: (i) not more than 40% or less than 25% of the Loan funds would be allocatedfor any one sector; and (ii) not more than 50% of the loan in each sector would be for subprojects in the administrativecapital of each oblast (para. 4.7).

(j) Meetingsof the Advisory Boards would be held at least twice each year until the Mid- Term Review (para. 4.11). 00 CHAPTER7

(k) The budgetarycash contributionof 10% of the cost of WBF subprojectswould be made by oblast administrationsinto the Project Accountsmaintained by the PBs on a schedule to be agreed annuallywith the Bank in advanceof anticipateddisbursements (para. 4.16).

(O) Implementationof any subproject would not begin until a sub-loan agreementwould be signed betweenthe oblast administrationand the beneficiaryagency, except where work has already begun as part of project preparation (para. 4.17).

7.2 Conditions of Loan Effectivenessinclude:

(a) The legal establishmentof the CPIU and the appointmentof its Director and key staff (para. 4.1).

(b) The effectiveness of at least one subsidiary loan agreement between the Ministry of Finance and a participatingoblast (para. 4.15).

7.3 A Condition of Disbursementto any oblast would be:

(a) The effectivenessof a subsidiary loan agreement between the Ministry of Finance and that oblast (para 4.15).

Recommendation

7.4 Subject to these agreements and conditions, the proposed project would be eligible for a Bank loan of US$200 million in dollars at the standard variable interest rate, repayable in seventeen years, including a five-yeargrace period. ANNEX 1.11'

THE ECONOMICSITUATION IN NOVOSIEBIRSKAND ROSTOV OBLASTS

A. NOVOSIBIRSKOBLAST

1. NovosibirskOblast, located in the southeast of the western Siberian plain, has a total area of 69,600 square miles and a population of 2.80 million. The oblast developed rapidly in the late 19th century because of the construction of the Trans-Siberian railway. The city of Novosibirsk is at a junction of several railroads, and also has two airports and a river port. The region is not as rich in natural resources as the other parts of Siberia, but nevertheless,there are coal deposits in the south, oil and natural gas deposits in the north, and numeroussources of mineralizedwater are available. The city of Novosibirsk is the largest scientific, industrial, cultural, and administrativecenter in Siberia. About 70,000 students study in the city's 16 universities,and in various academiesand institutes.

2. Of the oblast's total populationof 2.80 million, 2.05 million (74%) live in towns. However, in 1991, as in other parts of Siberia, the negativemigration toward rural areas changed to positive for the first time since 1960-65. Until 1991, the oblast had been losing its peopleto other regions of Russiaand the former Soviet Union. In 1991, the migration balance changed in the oblast's favor and was responsible for 56% of the total increase in the population.

3. The oblast's mortality rate rose during 1989-93, with life expectancydecreasing by 4 to 5 years for men and more than 2 years for women. At the same time, birth rates decreaseddramatically and the number of abortions per thousand women of reproductiveage increased, even in comparison with the high figures of the mid-1980s. As a result, the 1994 birth rate was only 7 to 9 per thousand in urban areas and 9 to 11 per thousand in rural areas.

Trends in Industry and Agriculture

4. The oblast's major sphere of production is industry, especiallymachine building, light industry and the food industry. The military industrialcomplex dominates industry in the oblast, which has one of Russia's highest concentrationsof militaryproduction facilities. However, this industry has suffered greatly as demand for its products fell sharply and no financing was available for comprehensive conversionto civilian enterprises. In 1991-93the output of military productsfell by two-thirds and their share in the oblast's overall industrialoutput was halved. Currently, 19 major enterprises are being converted.

5. The decline in civil production has not been as dramatic. Production of consumer goods was 30% less in 1993 than in 1991 because demand dropped through a fall in incomes and increased competition for inputs. Some of the more significant declines in output since 1990 have been in the medical industry (70%), the ferrous metals industry (65%), and the chemical industry (60%). The

This annex is based on materialprepared by Mr. V. Silvestrovof the Institute of Economicsand Industrial Engineering,Academy of Sciences,Siberian Branch, Novosibirsk; Mr. A. Kalashnikov,co-Director, Project CoordinationUnit, Moscow; SobolevConsulting Agency, Moscow; and Messrs. V. Ovchinnikov (director)and A. Kolesnikov,North CaucasusScientific Research Instituteof Economicand Social Problems, RostovState University, Rostov. 62 ANNEX1.1 nonferrous metals industry has been the only one that was not seriously affected, with a minor decrease in production in 1991, followed by steady growth of 2.5% in 1992 and 5.2% in 1993.

6. In recent years Novosibirsk has lost its relative status as a highly developed industrial region, especially since prices were liberalized in 1991. In 1992 the oblast's contribution to Russia's total industrial production fell to 0.97%, compared to 1.54% in 1991. Later, when fuel prices stabilized, the oblast recovered lost ground in monetary terms, but output nevertheless decreased. In 1994 and 1995 the rate of industrial recession was higher than in Russia as a whole, and much higher than in other parts of western Siberia.

7. The oblast's share of all-Russia capital investment also decreased during the years of reform, and it now receives 1.2% of investment, compared with 1.6% in 1991. Many of the military industrial enterprises, which were financed by the government of Russia's budget, have experienced cuts in budgetary transfers and purchase orders. This became especially important in the second half of 1994, when the financing of salary adjustments for the enterprises' employees from the federal budget was discontinued.

8. The oblast is dependent on fuel and energy supplies from other parts of Russia: Krasnoyarsk and Kuzbass for coal, Tomsk and Tyumen for natural gas, and Omsk for gasoline. In turn, Novosibirsk provides considerable quantities of agricultural produce for domestic markets and exports machinery, equipment, and raw materials to international markets.

9. As concerns the distribution of labor, in 1994 state-owned enterprises accounted for 68% of industrial production, enterprises with combined state private ownership structures and without foreign participation accounted for 23%, and the private sector accounted for 9%.

10. In contrast with industry, the banking and finance sector, whose activities are concentrated in the city of Novosibirsk, has experienced a boom. However, the overabundance of financial operators, the weakness of the real sector of the economy, and the city's decreased export potential have led to a flight of financial resources.

11. Reforms in agriculture have not yet had a positive impact. The oblast's administration managed to obtain centralized credit from the federal budget, and in spring, for the first time, paid for grain and vegetables purchases in advance. However, the situation remains tense as the structural reforms in agriculture have failed to stabilize production.

Employment Trends

12. About 10% of the labor force is unemployed because of the negative industrial growth. According to information from the oblast's employment center, by January 1955 30,377 people were looking for jobs, of which 23,249 were registered as unemployed. About 13.3% of those registered as unemployed were university graduates, 30.7% were people between the ages of 16 to 29, and 8.9% were approaching retirement. Hidden unemployment, estimated at 266,000 people by the end of 1994, is growing. For instance, the number of part-time workers and furloughed employees tripled in 1994 compared with 1993, and exceeded the number of people officially registered as unemployed. The high- tech industries, which use highly skilled labor, have laid off the most people. During 1992-93 the largest ANNEX1.1 63

reductionsin industrialpersonnel occurred in light industry (42.5%), machinebuilding (24.1 %), and the timber processingand paper industry (22.5%). In someareas, however, employmenthas increased. The largest increaseshave taken place in microbiologicalenterprises (42%), electric power plants (25%), the fuel industry (17%). Bankingemployment has also grown rapidly.

Poverty

13. The adverseimpact of the decline of the militaryindustrial complex can be seen in people's living standards. About 30 to 40% of people in the oblast live below the poverty line, as average wages are dangerously close to the minimum needed to survive. A random family survey at the end of 1994 revealed that the average incomeof about 41 % of the population was below the subsistence minimum standard of living.2' About 20% more people in the oblast live below the poverty line than in the rest of Russia. Amongthe 78 republics, oblasts and regions of the Russian Federation, in December 1994 Novosibirsk Oblast was 76th in terms of per capita income. Average per capita income was as low as Rb 156,000 per month and the ratio of income to the survival minimum was 1.2, compared with Rb 876,000 and 4.6, respectively, in Moscow. For most of people, the main source of cash income is their salary (63.7% of all income).

14. By January 1995, social protectioninstitutions had registered521,000 people who needed urgent help, including low-incomefamilies with children, handicappedpeople, old people living alone, and children.

Social Sectors

15. Of all the oblasts in western Siberia, Novosibirsk has the greatest range of educational achievement. While the share of people with higher education is larger than the Russian average, the oblast has the secondlargest proportionof people with less than a secondaryeducation in westernSiberia. Rural areas of Novosibirskhave the largest proportionof people with only a primary educationor less. The decline in the number of educated people reflects a decline in enrollment. In 1988-93, total enrollment in higher education institutions and professional secondary schools decreased by 2.5% to 28,000 students, yet during the same period, the number of young people in age 16 to 20 increasedby 8,000 (5%).

16. Despite the budget deficit, Novosibirskhas the best medical facilities in the region in terms of the provision of hospital facilities and outpatient clinics. Ninety-seven percent of the population is provided with medical insurance. The oblast has developed new ways to organize medical care, a network includingin-patient departments, 8 departmentsto train nurses and general practitioners. Other social services are insufficient,especially homes for the elderly and the disabled.

-' Extractsfrom report of Socialand EconomicSituation in NovosibirskOblast as of Jan. I-Feb. 15, 1995. 64 ANNEX1.1

B. ROSTOV OBLAST

17. RostovOblast lies in southern Russiaon the Don and SeverskiDonets rivers. With a population of 4.4 million in 1994 that is growing at 0.4% annually, the oblast is the sixth largest in Russia. The area of the oblast dates back to the 17th century, when Cossacksorganized into military settlements to protect the southern flank of Russia that lived there. By the middle of the 19th century, the area had a military administrativecenter in the capital city of Novocherkassk,and an industrialand trade center in Rostov-on-Don. The latter became a major transport hub with the completionof railroad construction and presence of the biggest port in the Sea of Azov. The oblast was also one of the biggest agrarian centers of the Russianempire becauseof the availabilityof the large areas of fertile black earth and arable land. In the 20th century the oblast's development was based on the following: its economic and geographicposition at the junction of the CentralEuropean part of Russia, the North Caucasusand Trans- Caucasia; its favorable agro-climaticconditions; the availabilityof labor; the well-developedtransport structure; and its natural resources (coal, quartzite, limestone, sand, and other minerals).

18. About 68% of the oblast's population lives in urban areas, concentrated in the Rostovo- Shakhtinskiindustrial district, although migrationto rural areas has increasedin recent years. Migration into the oblast has also risen with 562,000 people arriving in 1994, 30% more than in 1993. More than half the migrants (52%) are from Central Asia and the Caucases, and 16% are from Ukraine. Migration from north Siberia and the far east of Russia has doubled in the past 10 years. The birth rate (9.5 per 1,000) and death rate (15 per 1,000) are slightly higher than in the rest of Russia.

Economic Structure

19. The oblast's economy is based on industry and agriculture. The main branches of industry are engineeringand metalworking(27.8% ), the food industry(18.7%),electrical energy (8.8%), and the fuel industry (8.9%). The oblast producesabout 90% of the Commonwealthof IndependentStates' (CISs) bio-protectionequipment for atomic power stations, 80% of combineharvesters and electric locomotives, 50% of cultivators, 33% of high capacity boilers, and 25% of oil pipes. In 1993 the largest volume of exports was in machinesand equipment(about 84%). Rostovis one of Russia's foremostoblasts in meat processing, butter and vegetableoil manufacturing,canning, wine making, and cereal production. It is also the largest cereal producer, with gross production of wheat, barley, rice, mustard, maize, and sunflowerssecond only to Krasnodar Krai. In recent years, demand for electrical energy has exceeded production by 30%, and this deficit is growing becauseof Russia's decliningvolume of coal production.

20. During 1993, 1,507 enterprises were totally or partially privatized, more than half of them small enterprises belongingto the municipal authorities. The private sector accountedfor about 56.2% of the total volume of industrial products and employed42.8% of the oblast's manpower.

Unemployment

21. The oblast's unemploymentrate is 5% of the economicallyactive population,about 2% less than the Russianaverage. As of June 1, 1995, 25,539 people were registered as unemployed,most aged 30 to 49. About 30% of the employedwork in industry; 17% in agriculture; 11% in construction; 10% in trade and public catering; and the rest in consumer services, education, and health. ANNEX1.1 65

Wages

22. In March 1995average annual wageswere Rb 213,000. Real incomesfell by 26.5% during 1995 because of inflation. In 1994 the structure of income was as follows: 53.5% from wages, 23.9% from pensions and subsidies,8.0% from agriculture, 14.3% from participationin private enterprise, and 0.3% from stipends. Wages in industry and the private sector are higher than in the social sectors. In education, for instance, the average salary in 1994 was only 60% of the average salary in industry.

Living Standards

23. About 64.5% of the oblast's populationlives below the poverty line, which in December 1994 was Rb 148,500. This number has increasedby 14% since 1993. More than half of those below the poverty line consume less than 2 kg. of meat and 1 kg. each of fruit and sugar per month. Single mothers and pensionersare among those swelling the growing ranks of the poor.

24. In 1995 70% of housing was private. Roughly half of the apartments have water, sewerage, central heating, and bathrooms. The population's health has deteriorated since 1991 because of a lack of money, equipmentand drugs. The oblast has 37 health institutionsand 38 doctors per 10,000people.

25. Of the approximately 2.2 million members of the labor force, 41% have higher and special secondary education (mainly engineers), 32% have secondary education, 18% have an incomplete secondaryeducation, and about 9% have a primary or no educationaccording to the 1989 census. Since 1991, because of reforms in the economyand in education, the number of economists,lawyers, doctors, and financial specialistshas increasedand the number of engineers has decreased. In 1994/95the oblast had 1,928 schools, of which 15 were professional-technicalschools, 73 were specialized secondary schools, and 18 were institutionsof higher education. The number of studentsin state higher education establishmentshas decreased during the last 10 years because of budgetary constraints and economic reforms. As a result, 10 to 30% of students in higher education attend private establishments.

m:\king\annexl.1 ANNEX 1.2

THE STRUCTURE AND CAPACITY OF CONSTRUCTION ENTERPRISES in NOVOSIBIRSK and ROSTOVL'

1. An importantobjective of the CSIP is to supportthe emergingprivate sector constructionindustry capable of handling contracts for the CSIP subprojects. During the course of three missions to the participatingoblasts, a set of interviews was conductedby an internationalconsultant, and a survey was conducted. The survey questionnairewas designedin English, translatedand used by Russianconsultants as basis for detailed interviews with firms in each oblast. The surveys took place in Novosibirsk in October-December1994, and in Rostov in January-March 1995.

The following issues were examined:

* Structure of the enterprise (assets, principals' equity, turnover); * Type of constructioncapability; * Previouslycompleted projects; * Overview of company accounts (simplifiedbalance sheet); * Organization and management; * Economicdata (Equipment,materials in stock, labor resources etc.); and = Current problems facing the enterprise.

2. About 80 to 100 enterprises were identified by each oblast administrationas being licensedfor construction work. In Rostov, 54 firms were selected as a sample for interviewand initiallycontacted by phone; of these 39 were successfullyinterviewed. In Novosibirsk, only 27 firms were successfully interviewed. The interviews were also useful as a means of disseminating information about Bank procurement practices which should be followed in each oblast.

Results

3. Enterprises were grouped in three categories:

(I) Large enterprises, with: * more than 10 professionalengineers and directors, * a 1994 turnover greater than $1 million, * net value of fixed assets greater than $1 million, and * more than 500 employees.

4. In Novosibirsk, 5 enterprises in this category were interviewed. One of these, with a turnover of about $30 million in the first nine months of 1994, was several times more active than any of the others. All five had at least 50% state ownership. Most of the contractscontinued to be for the public sector, with the share of private clients in turnover ranging from 5% to 30%. The averagewas 13%.

5. In Rostov, 9 enterprises in this categorywere interviewed. The two largest had turnovers of a little over $10 million in 1994. Only four out of these 9 had 50% or more of public ownership. The proportion of turnover for private clients ranged from 10% to 100%, averaging56%.

1' Summary of reports by R. Castaing Consultants. 67 ANNEX1.2

(2) Medium enterprises,with: * 2 to 10 professionalengineers and directors, * 1994 turnover between $200,000 and $1 million, * net value of assets between. $200,000 and $1 million, and * between 200 to 500 employees.

6. In Novosibirsk, 12 enterprises in this category were interviewed. Four had a majority public ownership, in five there was a minoritystate shareholding,and three were fully private. The proportion of turnover for private clients ranged from 2% to 90%, averaging49%. There is a correlation between the type of ownership and their clients; the three fully private firms obtain 90% of their turnover from private clients.

7. In Rostov, 24 enterprises in this category were interviewed. Ten had a majority and five a minority public ownership. Nine were fully private. Forty-four percent was the averageproportion of turnover for private clients, but it was at least 60% for all nine private firms.

(3) Small enterprises,with: * only I or 2 engineers/directors, * 1994 turnover between $40,000 and $200,000, * net value of assets between $40,000 and $200,000, and * between 20 to 40 staff.

8. In Novosibirsk, 10 enterprises in this category were interviewed. Three had a majority public ownership, in three there was a minoritystate shareholding,and four were fully private. The proportion of turnover for private clients averaged 53%. For the fully private firms, it was at least 80%.

9. In Rostov,6 enterprises in this categorywere interviewed,three of whichwere wholly privately- owned. The firms with substantialstate ownershipdid over 90% of their businesswith public contracts. The three private firms did at least 50% of their work for private clients. The average share of private clients was 26%.

BusinessConditions and Constraints

10. The following problems were cited in interviewswith the constructioncompanies:

(a) Ruble inflation, affectingthe completion time of projects and the inability to complete certain projects at all. (b) Restrictive conditionsand proceduresfor obtainingcontracts or the opportunityto bid. (c) Only a few firms answeredquestions related to unfair competitionand/or dumping. They indicated that the market is still tightly controlled, and parastatals still enjoy a near-monopoly. (d) Banking conditions make short-term construction loans either very expensive or impossibleto obtain. Interest rates up to 60% p.a. were quoted. (e) Due to inflation, clients often delay payments for work completed. (f) Delayed payments frequentlylead to problems in meeting payroll obligationsand other bills. ANNEX1.2 69

I. These issues are fairly common across all sectors of the economy. Many enterprises have diversified into other sectors. Both large and small enterprises have taken an interest in producing or marketing building materials. Medium and small firms have also diversified into commercial activities, equipment rental, or producing private homes or "cottages" if this is not already their primary activity. The majority of firms that were diversifying their activities indicated that they planned to hire additional employees in the near future.

12. Larger enterprises were reluctant to admit that they subcontracted any of their work to smaller specialized firms. Smaller firms, on the other hand, admitted that much of their work was subcontracted to others in specialized fields, such as electrical work.

13. Both oblasts indicated that they and the principal municipalities now use competitive bidding procedures to select contractors. In reality, however, it appears that the list of contractors invited to bid is usually small--sometimes two or three--suggesting that this is more a process of negotiation rather than a fully transparent competition on price.

Conclusion

14. Although public ownership and contracts remain dominant in the construction industry, privatization and private contracting have been important elements in the construction industry. There should be no difficulty in obtaining effective local competition for civil works contracts under this project.

Appendix

15. The questionnaire sought information in 15 categories:

a. Designation/Registration or License No./Date of licensed activity; b. Name of Manager(s)/Director(s); c. Address; d. Telephone/Telex/Fax; e. Working Capital ('000 rubles)/Reference Year/Status; f. Human resources: (site workers, administrators, professionals, directors); g. Net present value of fixed assets (broken down by: vehicles, machinery, office equipment, buildings, other); h. Turnover for 1991, 1992, 1993, 1994 (reported in actual rubles at the time); i. Type of works (broken down by: civil works, housing, secondary works/rehabilitation, non-residential works, etc.); j. References (foreign firms, domestic institutions, other clients); k. Simplified Income Statement for latest full year; 1. Simplified Balance Sheet for latest full year; m. Professional staff (number of engineers and directors); n. Estimated or actual turnover for 1994; and o. Ratio of fixed assets to number of staff.

16. Summary tables and a file of raw data on each enterprise are available in the Project Files. m:\king\annexl .2 ANNEX 1.3

FISCAL AND BUDGETARY SYSTEMS IN NOVOSIBIRSK AND ROSTOV OBLASTS

Revenues

1. The financial condition of all Russian oblasts (regional) and municipal governments is heavily dependent upon the manufacturing enterprises within their jurisdiction. VAT and corporate income tax are shared with the Federal Government ( and from 1995 personal income tax although only to a very limited extent). These taxes are predominantly collected from enterprises. In addition, transfers are made to oblasts ("regions" in Table 1.3.1) both on a block grant basis, through the so-called Fund for Financial Support of the Subjects of the Federation which aims to equalize partially the fiscal position of different oblasts and through a variety of other mechanisms, that are sometimes netted out against each other through the so-called "mutual settlements" channel. As can be seen in Table 1.3.1, the structure of tax revenue in Novosibirsk and Rostov is fairly similar to the average for Russian oblasts, but in both oblasts, especially Novosibirsk, VAT provides a larger share of total revenue, and corporate profits tax a smaller share.

Table 1.3.1 Federal-Regional Tax-Sharing 1995, and Contributions of Different Taxes to Revenues, 1994

Federal Regional % Federal % Region. % Novo- % Rostov Tax % % Revenue Revenue sibirsk Rev. Revenue 1995 1995 1994 1994 1994 1994 VAT 75 25 35.3 13.6 23.7 19.0 Profit Tax 37 63 21.6 28.7 24.0 25.4 Personal 10 90 0.16 15.7 16.2 17.7 Income Tax Excise * 5.60 2.7 3.0 1.6 Property Tax 100 4.4 5.0 5.8 Other Rev** 37.3 14.9 10.1 15.2 Federal 19.9 18.1 14.1 Transfers*** Memo: % share of GDP 12.6 17.5

* Only the alcohol excise is shared, 50% to Federation and 50% to Regions. Includes Privatization Revenue. Includes net 'mutual settlements". 70 ANNEX1.3

2. Faced with declining sales and reduced orders, especially serious in the defence industry which is important in both oblasts, many enterprises have made losses and/or have been unable to pay their tax obligations. Moreover, a high proportion of employees are on involuntary leave (furlough) at approximately one-fifth the regular wage, and such wages are not taxable which further reduces local revenues.

3. In Rostov revenues in constant rubles fell 37% from 1991 to 1992, and were still 21 % lower in 19941' (Appendix Table 2R). Revenues from federally-set taxes and federal subsidies were 32% and 57% lower respectively. An increase of 151% in revenues from locally-set taxes, reflected a shift in policy, but these taxes still remain an insignificant proportion of the revenue base. Consequently, the oblast still has very little control over its own revenues, which means that its creditworthiness cannot be established independently of national fiscal policies.

4. The trends were similar in Novosibirsk (Appendix Table 2N). Revenues in constant rubles fell by almost 70% from 1991 to 1992, and were still 41 % lower in 1994. Federally-set tax revenues and federal subsidies fell over the period by 33% and 57%, respectively. An increase of 157% was recorded in revenues from locally-established taxes, but these still provide an insignificant proportion of total oblast revenues.

5. The great importance of the manufacturing sector as a source of tax revenue means that the Oblast Administrations are dependent upon their principal cities for tax revenue. Both Rostov-on-Don and Novosibirsk municipalities negotiate the proportion of their tax revenues that will be passed up to the oblast budget. Primarily agricultural raions receive little tax. Other jurisdictions cannot meet 20 to 60% of their expenditures even by retaining the entire oblast share of the federally-set taxes, plus their locally established taxes.

6. Oblast officials expected a recovery of Federal Government orders for local industry in the autumn of 1994. When this did not happen, the oblasts were forced to borrow money in order to continue operating. The municipality of Novosibirsk formed a bank and began issuing "veksals". A total of Rb 1.8 billion (US$360,000) has been issued as a test.2' The oblast has been authorized to issue an issue of Rb 50 billion ($10 million). In Rostov, city officials are borrowing from banks and recording these receipts as revenues. The banks are issuing commercial paper (certificates of deposit) to attract long-term deposits. The paper is being issued as a term-deposit at 140% per annum, with a maturity of March 1, 1997. The City of Rostov is an equity holder in the commercial bank, "Doninvest" Bank.

7. Appendix Tables IR and IN contain the financial statements as of December 31, 1994 for the two oblasts. Both oblasts show balanced operations, in order to remain in compliance with the budgetary law as mandated by the Russian federation. However, both oblasts had large amounts of payables that were not reported officially. In Novosibirsk, the payables in the beginning of 1995 were reported at Rb 200 billion (US$50 million). Oblasts and principal cities within the oblasts admitted to being in arrears with utility enterprises. The huge debts owed to the utilities are being passed on to the federal level.

' The accuracy of the large reported gaps between revenues and expenditures in 1991 and 1994 is being verified.

2' These are promissory notes, issued in connection with a specific program and payable in three months, that can be used to settle all payments, including taxation, related to that program. ANNEX1.3 71

Expenditures

8. Appendix Tables 1R and IN summarize 1994 expenditures for each oblast, consolidated for the whole of the oblast, and show how the total has changed in real terms over the last few years. The structure of expenditure does not differ greatly in the two oblasts. In Rostov, expenditures classified as for the "people's economy" consisting of agriculture, transport, housing and utilities, comprised 43 % of the total expenditures. Housing and utilities were about half of this amount. In Novosibirsk, the comparable figure was 39%; compared with Rostov a much smaller proportion went to housing and utilities, and a much higher proportion went for assistance to agriculture. Rostov made loans to enterprises consisting 4.1 % of its budget. These were not recorded separately for Novosibirsk, but may be included in the 9.3%, classified as "other expenditures." In the summary budgets, capital and recurrent expenditures are not disaggregated. As with revenues, total oblast expenditures fell in 1992 to 30% of its 1991 figure and had recovered to only about 60% in 1994. Contrary to expectations, capital expenditures appear to have fluctuated less than recurrent expenditures, and actually is higher in 1994 in real terms than in 1991. (This may well reflect the inadequacy of the consumer price index as a deflator, but the rise in real investment in Rostov appears to be especially remarkable. Although unconfirmed, it is possible that these increases are directly related to increases in federal housing funds allotted to construct housing for the decommissioned military personnel.)

9. For this project, there is particular interest in social expenditures (Appendix Tables 3R and 3N). In Rostov, health expenditures in 1992 were only 44% of their 1991 level in real terms, and education expenditures were 43 %. The deflators are those of the consumer price index, and probably overstate the rate of inflation for a labor-intensive social sector. There was then a marked recovery, and in 1994 budgetary health expenditures were 56% of their 1991 level and education expenditures were 78%. Since the health data do not include expenditures by the Territorial Health Insurance Funds (THIF), the fall in health expenditure has been less severe than these data indicate. In both sectors, surprisingly, wages fell more sharply than other expenditures. In Novosibirsk, the trends are similar but more pronounced. In 1992 health expenditures fell to 36% of their 1991 level and recovered to 66% in 1994. Education expenditures fell to 37% and recovered to 73%. Non-wage recurrent expenditures had recovered to about their 1991 level by 1994. In both oblasts, therefore, the share of both sectors has been protected, and has even risen slightly, especially if the THIF expenditures are included.

10. In 1994, capital expenditure in health in Rostov Oblast was 21 % lower than in 1991; in education they were II % lower. This is a substantially smaller drop than recurrent expenditures, which is surprising. In Novosibirsk oblast capital expenditures in health were 26% and in education 59% lower than in 1994. This is more in line with expectations at a time of severe economic difficulty.

Debt Capacity

11. In both oblasts, with a loan of US$72.5 million each, the repayment amount on an annual basis with interest capitalized (as worst case scenario), will amount to the equivalent of less than 2% of the 1994 budget (see Appendix Tables 4R and 4N). For most raions the situation is quite different. Scales of repayment which will vary from 10% to 50% of the amount of the loan will be proposed by the oblast authorities. 72 ANNEX1.3

Budget Preparation and Control

12. The system of budget preparation, in both oblasts, continues to evolve from budgeting based on expenditure norms to budgeting based on availability of revenues. The first step is to forecast revenues based on prior-year collections. Expenditure requests from raions are based on prior year spending plus an inflation index. The requested budgets are verified, by the oblast, for compliance with the established norms. Expenditures are then programmed into the budget, taking into account the availability in revenues, thereby implying across-the-board expenditure cuts. The oblast finance departments approve the budgets of the raions only to the extent of determining the subsidy level. The raions are free to re-program expenditures within reasonable guidelines. The entire budgetary process is in a constant state of flux at the sub-national level due to the frequent changes in federal regulations. Year-to-year changes in tax sharing arrangements mean that lower level authorities do not know their revenues until upper level budgets have been finalized, and this process is often delayed. This does not encourage good budgetary practice. While greater local budgetary control has been proposed and legislated, full autonomy over local budget operations has not been approached.

13. The City of Novosibirsk and City of Rostov-on-Don establish their own capital investment priorities but capital spending priorities for rayons and smaller towns, dependent upon subsidies, are determined at the oblast level. Capital expenditures are not separated from the recurrent budget, leading to a loss of transparency and budgetary control. Novosibirsk and Rostov-on-Don have both a budget and an "extra-budget." Extra-budgetary funds are obtained from user fees, and fines and other penalties are used to provide working capital loans to municipal enterprises for various manufacturing activities. These loans are on a revolving basis. The extra-budget fund is also used to finance some long-term capital investments. The City of Novosibirsk utilizes extra-budget funding to finance housing construction through the Municipal Bank of Novosibirsk.

14. A typical budget format is shown in Table IR. The budget is a two-page summary of all activities, and lacks transparency and a hierarchical format. Budget and accounting formats are still those used in the Soviet period, although changes are now beginning to be implemented.

15. Financial reporting in both oblasts is based on cash expenditures. Presently, encumbrance accounting does not exist and although accrual accounting is in practice it is not represented on the budget-to-actual reports. The accrued expenditure amounts are recorded and maintained only in the sub-ledgers. Understandably, the necessary level of detail in reporting procedures would be difficult to obtain under the manual systems of accounting currently in practice at the sub-national level. Senior officials have requested urgent and immediate technical assistance in reclassifying the budget and structuring a hierarchical reporting format. If effective autonomous municipal management is ever to be realized, administrations at all levels of government must have automated accounting systems, competent personnel, and sound technical assistance.

m:\king\annexl .3\fiscbudg ANNEX1.3 73

Table IR Rostov Oblast ConsolidatedBudget as of December31, 1994 (in million Rubles)

1994 Actual % Vaiance Actual 1.01 |Description | 12Month |as of 1.01.95 for 12 Mts for 9 M1s | % ofTotal |

Revenues

Corporate IncomeTax 452,320.0 512,586.0 113.3% 60,266 25A4% PersonalIncome Tax 344,719.0 357,544.0 103.7% 12,825 17.70% Natuml ResourcesFees 12,145.0 8,616.0 70.9% -3,529 0.4% RegistrationFees 3,096.0 6,157.0 198.9% 3,061 0.3% PropertyTax 187,946.0 116,238.0 61.8% -71,708 5.8% Value Added Tax 331,943.0 383,522.0 115.5% 51,579 19.00/0 Excise Tax 42,783.0 31,658.0 74.0% -11,125 1.6% PrivatizationIncome 5,776.0 10,552.0 182.7% 4,776 0.5% Liquor Licenses 3,096.0 4,439.0 143.4% 1,343 0.2% Land Tax 29,411.0 55,976.0 190.3% 26,565 2.8% Special Tax (3% on VAT) 31,765.0 31,503.0 99.2% -262 1.6% Other Taxes 148,704.0 189,520.0 127.4% 40,816 9.4% Prior Year balanceb/f 8,373.0 8,373.0 100.0Y 0 0.4% Total Revenues 1,602,077.0 1,716,684.0 1,738,928.0 114,607.0 85.1% Transfers 35,780.3 37,782.0 105.6% 2,002 1.9% Min. of Fin. Clearing (Federal) 267,422.0 246,057.0 92.0% -21,365 12.2% Budget Loans 5,789.0 5,789 0.3% Loans from Banks 10,808.0 10,808 0.5% TotalAdjusted Revenues 1,905,279.3 2,017,120.0 105.9% 111,841 Deficit 0 Total Revenueswith Deficit 1,905,279.3 2,017,120.0 105.9% 111,841 ANNEX1.3

Table IR RostovOblast ConsolidatedBudget as of December 31,1994 (in million Rubles)

I| 1994 Actual % Variance Actual 1.01 Description 12Month as of 1.01.95 for 12Mts for 9 Mts % ofTotal

Expenditures

1. Peoples' Economy - Agriculture 181,450.0 166,165.0 91.6% -15,285 8.3% - Transport 66,625.0 61,852.0 92.8% -4,773 3.1% - CommunalServices (ZEK) 599,959.0 452,717.0 75.5% -147,242 22.5% - Other sectors 257,280.0 184,224.0 71.6% -73,056 9.2% ub-total Peoples' EconomySector 1,105,314.0 864,958.0 78.3% -240,356 43.0% 2. Social-CulturalSector 0.0%o - Education 445,236.0 408,979.0 91.9% -36,257 20.3% - Culture, Art & Mass Media 53,673.0 50,891.0 94.8% -2,782 2.5% - Health & Physical Culture 333,148.0 306,687.0 92.1% -26,461 15.3% - Youth Services 497.0 474.0 95.4% -23 0.0% - Social Security 33,230.0 33,526.0 100.9%/D 296 1.7% sub-total Social-CulturalSector 865,784.0 800,557.0 92.5% -65,227 39.8% 3. Archives 642.0 626.0 97.5% -16 0.0% 4. Justice Dept. & Police 356.0 6,791.0 1907.6% 6,435 0.3% 5. Legislative Body expenses 535.0 956.0 178.70/ 421 0.0% 6. Adminstrationexpenses 48,018.0 50,775.0 105.7%/ 2,757 2.5% 7. Chernobyle Support 2,546.0 2,546 0.1% 8. Children allowance 130,354.0 112,992.0 86.7% -17,362 5.6% 9. Other 121,745.0 70,979.0 58.3% -50,766 3.5% 0.0% sub-total Budget Expenditures 2,272,748.0 1,911,180.0 84.1% 95.1% Budget Loans 21,071.0 81,558.0 387.1% 60,487 4.1% Loans from banks 4,394.0 0.2% Clearing with higher budget 12,683.0 12,683.0 100.0% 0 0.6%/e Total Expenditures 2,306,502.0 2,009,815.0 87.1%

Surplus (Deficit) 7,305.0

Information: includes Capital Expendituresof: 312,046.0 261,015.0 83.6% 13.0%

Source: Oblast of Rostov,Finance Department ANNEX1.3 75

Table IN Financial Statement Novosibirsk Oblast - Consolidated as of December31, 1994

[Item| | 1994 Variance %of |Description # | | Plan | Actual | /age Amount Total

Revenues 1 Excises 54,000 50,234 93.0% 3,766 3.0%/ 2 VAT 440,357 , 401,267 91.1% 39,090 23.70/ 3 Tax on Profit 476,700 405,772 85.1% 70,928 24.0%/e 4 Income 261,963 273,134 104.3% (11,171) 16.2% 5 Natural ResourcesFees 1,478 6,297 426.0% (4,819) 0.4% 6 State Duty 6,789 6,035 88.9% 754 0.4% 7 Fees and Other Non-Tax 36,515 106,904 292.8% (70,389) 6.3% 8 Income from Privatization 8,897 9,449 106.2% (552) 0.6% 9 Property Taxes 231,724 84,055 36.3% 147,669 5.0%/ 10 License Fees 1,200 2,607 217.3% (1,407) 0.2% 11 Land Tax 26,588 18,566 69.8% 8,022 1.1% 12 Special Taxes 34,015 18,664 54.9% 15,351 1.1% 13 Transfer(s)from RepublicanBud 159,282 80,433 50.5% 78,849 4.8% 14 MOF MutualPayments 225,082 225,082 100.0% - 13.3% 15 Loans from Ministry of Finance - - - 0.0% 16 Budget Balance 1,140 1,140 100.0% - 0.1% Total Revenues 1,965,730 1,689,639 86.0% 276,091 100.0°/e

Expenditures 1Peoples Economy 777,386 644,763 82.9% 132,623 39.2% -- Agriculture 269,019 174,176 64.7% 94,843 10.6% -- Transportation 87,389 89,097 102.0% (1,708) 5.4% HHousing & CommunalServices 285,087 207,513 72.8% 77,574 12.6% Other Enterprises 135,891 173,977 128.0% (38,086) 10.6% 2 Social / CulturalMeasures 978,912 792,933 81.0% 185,979 48.2% - Education 370,792 323,098 87.1% 47,694 19.6% - Cultural& Mass Media 71,074 49,611 69.8% 21,463 3.0&/e -- Health & PhysicalTraining 331,693 278,818 84.1% 52,875 16.9%/e -- Social Securities 97,115 61,205 63.0% 35,910 3.7% - Chernobyl 268 184 68.7% 84 0.0%/ - Youth Policy 2,207 2,917 132.2% (710) 0.2% -Rehabilitation 182 118 64.8% 64 0.0%/0 - Summer Children'sRest 3,907 3,907 100.0% - 0.2% -- Fees & Comnpensations 101,674 73,075 71.9% 28,599 4.4% 3 Science 426 355 83.3% 71 0.00/% 4 Management 48,719 49,916 102.5% (1,197) 3.0%/o 5 Other Expenditures 156,664 153,653 98.1% 3,011 9.3% 6 Reserve Fund 7 MOF Mutual Payments 3,623 3,623 100.0% - 0.2% Total Expenditures 1,965,730 1,645,243 83.7% 320,487 100.0%/0 Information: Capital Expenditures 130,676 105,322 80.6% 25,354 6.4%

Source: Oblast Dept of Finance - Novosibirk Table 2R Rostov Obla ~~ 200 R~~~~~~svmu.s A na1ysi l991-199430 CEI6sCOMStatl 2001 2,609 940 303 CamunaultiveIdaxl 200 I 5,2181 1 49,049 1 148,619

Revenues 99 1993 1994 % chg. Amount % of Amount % of Amount % of Amount % of 1991-94 Constant Rubles TOR Constat Rubles TOR Constant Rubles TOR Constant Ruibles TOR e

I,oca 890,000 6%A 915,677 10% 1,043,911 11% 2,233,361 19% 151% Fedend 13,885,000 94% 8,157,532 88% 8,626,685 88% 9,402,319 80% Ohuf(incl. Fed. Subs.) - 0/ 172,863 2% 95,618 1% 74,930 1% -57% Total Oblut Revenues(TOR) 14,775,000 9,246,071 9,766,214 11,710,610 -21%

Except for Other Revenueswhich is 1992- 1994

XI La i.

Table 2N NovouibirskOblast Revenues Analysis 1991-1994 CPI GosComStat 200 2,609 940 303 CumimulativeIndex 200 5,218 49,049 148,619 j

Revenues 1991 1992 1993 1994 % chg. Amount % of Amount % of Amount %of Amount % of 1991-94 Constant Ruibles TOR Constant Rubles TOR Constant Rubles TOR Constant Rubles TOR

LOcWRevenues 637,220 3%A 725,925 10% 465,043 4% 1,638,006 11% 157% Fedena 11,431,050 45% 4,730,904 62% 5,816,547 51% 7,640,594 51% -33% Otlhr(incL Fed. Subs.) 13,175,395 52% 2,158,242 28% 5,023,099 44% 5,659,287 38% -57% Total OblastRevenues (TOR) 25,243,665 7,615,071 11,304,690 14,937,887 -41%

Notice movements m the revenues by source. Localtaxes have increased and fedcal revemw and subsidies decrasedL "q

Table 3R Rostov Oblast ConsolidatedSocial ExpenditureAnalysis 1991-1994

1991 1992 1993 1994 %chg Constant % of %of Constant I%of| %of Constant j%of % of Constant % of % of 1991-94 .______Rubles_ I TSE TOE Rubles TE_ TOE Rubles I TSE| TOE Rubles ITSE TOE

Health Wage 1,683,000 46% 469,222 29% 590,448 30% 237,392 12% -86% Non-wage 1,695,500 46% 967,631 60% 1,200,652 61% 1,576,043 77% -7% Capital 310,000 8% 169,126 11% 179,452 9% 245,460 12% -21% TotalSectorExpenditure (TSE) 3,688,500 12% 1,605,979 15% 1,970,552 14% 2,058,895 11% -44%

Education Wage 1,626,515 49% 522,906 37% 660,419 33% 910,341 35% -44% Non-wage 1,217,665 37% 651,881 46% 949,394 48% 1,259,885 48% 3% Capital 484,470 15% 248,411 17% 388,426 19% 430,301 17% -11% Total SectorExpenditure(TSE) 3,328,650 11% 1,423,198 13% 1,998,239 15% 2,600,528 14% -22%

Water & Waste Water Wage - - 19,633 12% 18,480 4% -6% Non-wage - 98,749 59% 351,913 72% 256% Capital - 50,210 30% 119,953 24% 139% Total Setor Expediture (TSE) - - 168,592 1% 490,346 4%

Total Oblast Expenditures (TOE) Wage 4,716,905 15% 1,569,882 15% 2,027,046 15% 2,036,461 11% -57% Non-Wage 24,048,455 78% 7,215,758 68% 8,899,085 65% 12,801,035 71% 47% Capital 1,870,575 6% 1,824,280 17% 2,772,726 20% 3,100,107 17%o 66% Total OblastExpenditure (TOE) 30,635,935 10,609,920 13,698,857| | | 17,937,603 |41% m X

e1 Table 3N m Novosibink Oblast X ConsolidatedSocial Expenditure Analysis 1991-1994

1991 1992 1993 1994 %chg Constant ofI%of tant f%of %of Constant %of °K,of Constant % of /of 1991-94 Rubles TSE TOE Rubles [TSE I TOE Rubles ITSE TOE Rubles TSE TOESE

Health Wage 1,143,025 42% 326,181 31% 407,333 31% 538,300 28% -53% Non-wage 1,250,975 46% 602,076 570/ 742,366 57% 1,191,263 61% -5% Capital 298,290 11% 127,953 12% 154,431 12% 219,552 11% -26% TotalSectorExpenditure(TSE) 2,692,290 11% 1,056,209 14% 1,304,130 12% 1,949,114 13% -28%

E4ucalion Wage 1,379,595 46% 437,967 39%/o 580,871 39%/o 783,717 36% -43% Non-wage 1,233,555 41% 510,112 46% 708,058 48% 1,261,165 57Y. 2% Capital 383,815 13% 169,024 15% 199,229 13% 155,922 7% -59% TotalSector Expenditum(TSE) 2,996,965 12% 1,117,103 15% 1,488,158 14% 2,200,804 15% -27%

Water& WasteWater Wage - Non-wage - Capital TotalSector Exnditre (TSE) -

Total Oblast Expenditum (TOE) Wagel 2,903,580 12% 912,974 12% 1,209,092 11% 1,641,754 11% -43% Non-Wage 20,047,720 82% 5,457,491 75% 8,655,799 79%Yo 11,455,791 79% -43% Capitalj 1,362,755 6% 940,322 13% 1,046,276 10% 1,488,046 10% 9Y. TotalOblastEqaiitmre (TOE) 24,314,055 7,310,787 10,911,167 I 1 14,585,591|40%

Nae: Mhmrdobom nwage expmn. mad coapil .zm., how1vu,o miObi lehwcpial pmdiw.iom aed9% Nos-wapa edsic t ' by2 % Ovuml r.dN- expmu,Obbla-wido w40% Mh1oopuwid e 53% iou awrinl.fcr&Obiol Ob_wmldt coDm (% gmp 1991-1994.

U 80 ANNEX13

Table 4R RostovOblast Analysisof Loan Impact for CSEP

Rostov Oblast Debt Capacity

1 As of 12/31/94 Rubles U.& Dolar Oblast Revenues 2,053,241,000,000 931,301,764 OblastExpenditures 2,009,209,000,000 911,329,86 Local Taxes - 9/30/94 70,366,605,333 31,916,635 la Population 4,401,000 4,401,000 lb Expenditures/person/year 456,535 207

2 Loan Amount 72,500,000 2a Loan Amount after S yrs 93,688,494 3 Annual Payment 11,976,932

4 Loan Payment as a % of: Oblast Revenues 1.29% Oblast Expenditures 1.31% Oblast Local Taxes 37.53%

AverageExchange Rate assumed for 1994:Sl.00-R2204.70

Notes:

I Source is Oblast Dept of Finance - Report dafe - January 1, 1995 2 Loan amount, prelimiary etimate assumed for the Oblast 2& Loan mount with an equal cuh flow for four years with interest accruing at 7.5% p.A. 3 Annual Paymentcalculated on an Amortization bauis with the following asumptions: Term - 17 year Grace period - 5 years bteest Rate - 7.5% per annum even during grace period Payments - 2 per year after five (5) years 4 Calulaion of percentage of loan payment to the total budget ANNEX1.3 31

Table 4N Novosibirsk Oblast Analysis of Loan Impact for CSIP

Novosibirsk Oblast Debt Capacty

1 As of 12131/94 Rubis U.S Dol,u Oblast Revenues 1,689,639,000,000 766,3a0,460 Oblast Expenditures 1,645,243,000,000 746,243,480 Local Taxes - 12/31/94 20,699,136,000 9,383,641 la Population 2,792,000 2,792,000 lb Expenditures/person S89,270 267

2 Loan Amount 72,500,000 2a Loan Amount after 5 yrs 93,688,494 3 Annual Payment 11,976,932

4 Loan Payment as a % of: Oblast Revenues 1.56% Oblast Expenditures 1.60% Oblast Local Taxes 127.57%

AverageExchange Rate aumed for 1994:S1.00-R2204.70

Notes:

I Source is Oblat Dept of Finace - Reportdate - January1, 1995 2 Loan amount,preliminary etimate aumed forthe Oblat 2a Loan amountwith an equalcsh flowfor four yeas withinteres aocniingat 7.5%p.A 3 AnnualPayment calculated on an Amortizationbasis with the followingasumptions: Tewm- 17 yeas Graceperiod - 5 yeas InterestRate - 7.5% per annumeven duringgrace period Payments- 2 per year afterfive (5) year 4 Calculationof percentageof loanpayment to the toWalbudget ANNEX 3.1 SELECTION CRITERIA AND MODEL APPRAISAL FOR EDUCATION SUBPROJECTS

A. Selection Criteria

I . Each education facility subproject satisfies criteria that contribute to the achievement of accepted strategic objectives of the education sector as they affect school facilities. In addition, project proposals require the satisfaction of criteria that are more specific. While specific criteria appear commonsensical, they require close attention in the particular circumstances in which they are applied in this project. For example, all school subprojects should satisfy the following criteria:

a. The capacities and conditions of the utilities serving the school should be adequate.

Rationale: The supply of water, heat from central heating plants, sanitary and drainage sewers and of electricity is frequently problematic and subject to failures in the areas served by this project. For example, school facilities can be rendered relatively ineffective and investments in them unproductive, if the supply of hot water from the central heating plant is insufficient, if the supply of water is disrupted or polluted, if the sanitary sewers are broken or blocked or if the electricity supply is disrupted. Further, a common problem with utilities involving water is that failure, if uncorrected, leads to the destruction of the facility itself through the undermining of foundations.

b. Environmental considerations have been taken into account and the subproject is in compliance with Russian rules and regulations.

Rationale: Russia has stringent environmental regulations and compliance with them is particularly important given the often severe environmental problems that are confronted. With school buildings, this means that particular concern needs to be directed to the disposition of building materials, sanitation, the quality and control of water, safety, and the cleanliness of schools and school grounds.

c. The solution (rehabilitation, extension or the construction of a new school) proposed by the subproject should be cost-effective. Cost-effectiveness is defined in terms of the discounted per student costs of providing adequate teaching space. In practical terms, it becomes important to estimate the remaining life of the facility, before and after the project and operating cost, before and after the project. The cost of the project should also include the value of structures that would be destroyed to make room for new construction.

Rationale: Because of costs and measurement problems, it would not make sense to undertake a full-blown cost benefit analysis of subprojects. Rather, cost-effectiveness analysis should be performed that estimates the discounted per student costs of providing a school place. The stream of costs to be taken into account include operating costs as well as capital construction costs.

d. The school facility which is of unusually high quality in terms of design and construction and therefore high value should be given preference over schools of lower quality. This is an extension of criterion (c) above. 83 ANNEX3.1

Rationale: There are a number of older schools that fall into this category. Here the concern is the preservationof the more valuable facilitiesassets that may be threatened by failures in systems such as roofs, water, heating and sanitation systems, that have outlived their useful lives.

e. It shouldbe shown that there will be a demand for the services of the facility during the remainderof its useful life (after the project). In effectthis means that projectionsneed to be made of the school age population during this period and account is taken of the designationof school catchmentareas.

Rationale: This matter is of particular importance in the context of this project where fertility rates have declined to unusually low levels and where there has been large changes in the distributionof the populationdue to migration.

f. For school extensions:the existingstructure should be restorable to a quality consistent with the new construction, and plans for the extended school include a reconsideration of the allocationof all school space consistentwith effectivelyteaching the curriculum.

Rationale: It does not make muchpractical sense if the standardof finish of an extension is substantially superior to what already exists. Further, by considering education specificationsof the curriculum, it is likely that a pedagogicallymore effective school will result if existing space is reallocatedconcurrent with building the addition.

A Note on New Schools

2. Although the thrust of the project would be on rehabilitatingexisting facilities, it would also includethree new schools. Decisionsto invest in new schools in Novosibirskand Rostovoblasts were based upon analyses of the demand and supply of school places. The demand for school places has several components: the demand for additionalplaces; a replacementdemand; and demand associated with school consolidationsor geographic redistribution of the population. Analysis of the supply of school places includes considerationsnot only of numbers, but of the quality and distribution of the spaces. These analyses show that in spite of an decline in fertility, there is a very substantialpent up demand for replacementschools because of inadequate investmentsin the past and for new schools in some new catchment areas because of the redistributionof population into suburbs.

3. During project preparation, demographicsurveys of the two oblasts with particular attention given to the areas for which new schools were proposed. These survey results are available in project files. The findings for the two oblasts were similar. Both have experienced substantial declines in fertility during the last five years in particular. On the other hand, both are experiencingvery sizable increases in immigrationfrom other parts of the former Soviet Union. Immigrationdoes not entirely offset the decline with the consequencethat the total school age populationwill decline somewhat (by 5-8%) until 2005, when it is expectedto increaseagain. There is, however, a substantialredistribution of populationunderway in both oblasts, largely but not entirely associatedwith immigration. In Rostov oblast, immigrationis largely responsiblefor the growth of suburbs aroundthe main towns which are not well served by schools and other social services. In Novosibirskoblast, immigration,in the short term at least, is largely associatedwith a growing rural populationwith substantialstability in the population of Novosibirsk municipalityitself. ANNEX3.1 84

4. The supplyof schoolplaces is inadequateboth in terms of numbersof places and in their quality. In the first place, almost no new schools have been built during the last two decades and the schedule of school rehabilitationsis grossly inadequate. Exceptin some rural catchmentareas, all schoolsare double- shifted and many are triple-shifted. In Rostov oblast, suburbs are not served and students must travel substantial distances to schools. There is a need to build new spaces in the suburbs and to redefine catchment areas. (A report on the catchment areas for the proposed new schools is in Project Files.) Second, very few new schools have been built during the last two decades to replace schools that have little useful life remaining. Those that have been built since the mid-1960's are of very poor quality. Almost all school have inadequatemechanical systems, are not insulatedand are energy inefficient.The design of space is poor and the schools' physical appearanceis dismal, in spite of the considerableefforts of teachers, parents and students. Designsare pedagogicallyantiquated. Becauseof their designs, they are difficultto keep clean and to maintain. Whilevirtually all schools require major rehabilitation,many schools are not worth it because of major structural faults such as broken foundationsand load-bearing walls and generally poor initialconstruction and design. The new constructionproposed for Novosibirsk are for replacement facilities to accommodate students in facilities that would still be somewhat overcrowded. The new construction in Rostov is proposed for suburbs where schools for adjacent catchment areas are not only overcrowded,but are not worth rehabilitating.

B. Model Appraisal of a School Rehabilitation Subproject

I. General Information.

(a) Name of school - School 170 (b) Location Kirov Micro Raion, NovosibirskOblast (c) CatchmentArea Physical Area served (sq. km) - Entire Micro Raion, about 12 sq. km. (d) Population of area served - 12,000

(Some students in peripheral areas of the micro raion attend schools in adjacent raions because of overcrowding and the poor conditionof school 170.)

2. Descriptionof a School.

(a) Curriculum (grades taught and any specialization) - I to 11 Some senior grades in commerce and economics (b) Number of places - 600 (c) Total enrollments - 800 (d) Square meters (within walls) - 5730 (e) Number of floors - 3 (f) Constructionsystem and materials - Concrete slab: brick fill (g) Dates built; extended;renovated; major repairs - Built in 1963. Never renovated. Water system substantiallyrepaired in 1985, 1989 and 1992. Load bearing walls in main stairwell reinforced in 1989. 85 ANNEX3.1

3. Descriptionof School'sPhysical Condition (As reported by users: SchoolDirector, Teachers, Parents Association).

I. Exterior. Theschool was shoddilyconstructed in four monthsin 1963 as part of a large national construction program that introducedthe use of prefabricatedconcrete panels as a basic design feature. The most notablefeatures of the exterior of the building are rotten window frames and broken windows, disintegratingmasonry around windows and near the roof, missing or broken gutters and down spouts, exposed cracks in concrete roof panels, broken steps at entrances. There is a lack of provisionfor drainage of water away from the building.

(a) Foundationand load bearingwalls. The foundation on the south-west side of the buildinghas been graduallyundermined by water from the heating, water and sanitation systems. Currently, the loadbearingwall on that side of the building is not sufficiently stable and requires reinforcement.Substantial work has already been done to reinforce load bearing walls in the main stairwell. But recurring leakagesin the main water system continue to threaten the structure.

(b) Roof and Drainage. The roof of the buildingleaks, has no further useful life and should be replaced. At the same time, gaps betweenthe concretepanels that comprisethe roof s structure should be filled. The gaps are particularlyobvious and unsightly at the roof overhangs. All gutters and down spouts are either rusted out, broken or have fallen away from the building and have been removed. This causes water to flow down the side of the building. This problem contributes to undermining the foundation that was noted above. Water does not drain from the site.

(c) Facade (integrity with respect to protection from weather and appearance). The appearanceof the facadewas noted above in the discussionof the exterior. The facade, lacking any grouting or caulking does not provide adequate protection from weather. The conditionof the windowsleads to substantialheat loss.

(d) Grounds. The groundshave been used several times as a dump site. There is no control over vehicular and pedestriantraffic at the site. It is inadequatelydrained.

II. Interior.

(a) Heating. The system does not heat the building adequately.It has failed totally on three occasions during the last five years because of broken lines or major leaks. The system has been a major contributorto structural damageto floors, walls and foundations. The exposed radiators and pipes in halls and rooms are a threat to children when they get too hot.

(b) Electrical. The electrical system was substantiallyrenovated in 1992. But most rooms are still too dark for reading. Provisionhas never been made for exterior lighting, which is needed for security reasons. Being double-shifted,the school is open during evenings and lightingis neededduring this period. The school is also a communitymeeting place during evenings. ANNEX3.1 86

(c) Water. Of all systems, the water system is in greatest need of repair. There have been frequent and damagingleaks. Concretefloors have had to be torn up to effect repairs. Leaks have damagedthe foundation. The water itself is usually of minimallyacceptable standard, but on occasionbecomes unsafefor drinking. There are an inadequatenumber of water fountains. Similarly, there are an inadequatenumber of washbasinsin latrines and there is no sink availablefor custodial purposes.

(d) Sanitation. There are two latrines and eight toilets currentlyin operationin the building. One latrine was closed and convertedinto an inadequatecloak room. The sanitary pipes have been subjectto cracks and breaks, largelybecause of floor and foundationproblems.

(e) Floors. Wooden hallway floors and some classroom floors have rotted. While fresh coats of paint have been applied they are unsightly.

(f) Walls. Interior walls are cracked and dirty. The tiled walls at the entrance are unsightly.

(g) Windows, caulking, insulation, etc. Next to the water system, the building's most important problems relate to windows, caulking and insulation.The wooden casements and frames for windows have, in most cases, rotted to a point where they cannot be caulked. Some windows are broken. Masonry work is needed around many windows. Sincesystematic preventive maintenance is never performed, it is likelythat the windows have not been paintedor caulked since their original installation. There is no insulation in the building.

(h) Other (commentaryon schoolclosings and other constraintson teachingthe curriculum). During the last five years, the school has been closed on three occasionsdue to failures in water and heating pipes. The heating system cannot heat the school to an adequate level of comfort during cold weather.

In additionto the problems noted above, there is inadequatecloakroom space, inadequate space for storage of materials of all kinds and no space or provision for custodialwork (equipment, supplies, a sink, etc.). Furniture in some classes is unsuitablefor the age of the students. The doors throughout the building are unsightly and inadequate. The teaching staff do not have an adequatespace for a staff room; it badly needs renovation.

4. Governance.

(a) Headmaster; AssistantHeadmaster - AbrosimovaGalina Ivanovna (b) Head of Parents Association - Natasha Pentovsky (c) Head of Teachers Association - (Not identified) (d) Process for vetting of subproject with governing bodies above. The director of the school and the head of the teachers associationwere interviewedon site on two separate occasionsduring the March 1995preparation mission by Bankstaff, with a representative of the engineering firm, Elektron, and of the raion's chief building inspector. These meetingsfollowed the survey during December1994 by Elektron. The upgradesproposed here which augmentthe survey report are direct results of the interviews. 87 ANNEX3.1

5. Statements by School Director, Parents Associationand the Teachers Association on the impact of the school's conditionon their work and the performanceof their separate roles. Teachers and the School Director should include comments on the quality of education. (Exampleof school Director's statement is in AttachmentA.) These statements should be part of the school's and raion's applicationfor financial assistance for school rehabilitationor school extension.

Note: In future appraisals, Items I to 5 above, will be completed by school and raion officials prior to the conduct of an official survey. The terms of reference of the surveying firm will includeofficial interviews and consultationswith the director of the school, the heads of the teachers and parents associations.

6. Scope of Work. (The completed survey documentsshould be considered part of the appraisal. They are summarizedbelow.)

(a) Surveyor - Elektron (Engineering (al) Date surveyed - December 10, 1994 (a2) Locationof Survey Documents - MoscowCoordination Office, Novosibirsk Project Bureau, Elektron (b) Summary of scope of work and estimated costs.

Roof and drainage. The roof, gutters and down-spoutsare to be replaced. The slab-constructionof the roof has cracks that will be plastered filling. A culvert is to be built to drain water from the site.

ii. Facade. All exterior walls require pointingup. Masonry work is required near windowsand near the top of exterior walls. The exterior steps at the entrance are to be repaired.

iii. Grounds. A fence is to be installed around the entire perimeter to prevent vehicular and pedestriantrespassing and dumping on the site. The grounds will be cleaned up.

iv. Heating. The entire heatingsystem requires replacement,including the filtration system outside at the edge of the site. A double system is to be installed with adequate cut-offs.

v. Electrical.The entire electricalsystem is to be replacedand upgraded providing for a larger number of circuit breakers and more intense lighting in the classrooms. An exterior lighting system is to be installed as an upgrade.

vi. Water. Both water and sanitationsystems are to be entirely replaced. A total of four new water fountainsare to be installedas an upgrade. The cement floor at the entrance which covers the water pipes is to be breached and access provided for routine maintenance. ANNEX3.1 88

vii. Sanitation. The entire sanitation system is to be replaced and 16 new toilets installed. Four of these will be a result of restoring the cloakroomto its use as a latrine.

viii. Floors. Woodenfloors on the 2nd and 3rd floors are to be replacedin hallways. Floors in classrooms to be covered with sheet linoleum (imported to be of adequatequality).

ix. Interior walls. Cracks are to be filled and all interior walls are to be painted a double coat.

x. Windows, caulking, insulation. All windows are to be replaced. The entire structure is to be caulked where needed.

xi. Other. The foundation and exterior walls on the south side of the buildingare to be reinforced. A steel band is to be installedaround the entire structure at the foundation level.

(c) Notes on Upgrades(as opposed to repairs and replacements).

The new external culvert and fence (noted above). The new water fountains and toilets (noted above). The linoleum floors in classrooms(noted above). The exterior lighting system (noted above).

All doors in the building are to be replaced. A new cloakroom is to be built. Storage space is to be providedfor equipmentand materials, includingmaintenance and custodial materials. The space will include a sink. Some classroom furniture is to be replaced wheregrade school furniture is being used for secondaryschool students. The staff room is to be renovated. The tiles in the entrance are to be replaced and the floor repaired.

7. EnvirommentalAnalysis.

(a) Baseline Situation. The school grounds have been used as a dump site and is inadequatelydrained. There are safety problemswithin the schoolas one fire evacuation door has been blocked, and fire extinguishersneed servicing. Also, heating radiators pose a hazard for children. The school lacks insulation, windows are broken and the building is in need of caulking --it is very energy inefficient. Sanitary facilities are inadequateand the water supply to the school sometimesposes a health hazard.

(i) Heating system (central or individual; energy used, security aspects). The heating system is attached to a central heatingplant for the raion that burns oil. It is unknown how much energy is used by the school. It is known that the current system is inefficient because of a lack of means for regulating temperaturesand because it is a single-pipesystem. The situation is exacerbated by a lack of insulation,caulking and inadequatewindows on the building. The 89 ANNEX3.1

main pipe entering the building is insufficiently insulated. Pipes and radiators require covers to make them safe.

(ii) Watersupply (canalization of pipes; water quality). The water pipes have had major leaks that have undermined the foundation in one part. Nothing can be done within the project to improve the quality of the city's water.

(iii) Wastewater (canalization of pipes; discharges, etc.). Wastewater currently leaks from broken and cracked pipes which are to be repaired under the project.

(iv) Landscaping at end of rehabilitationwork. The school site has been used as a dump site. A fence is to be installed around the perimeter to prevent future dumping and all refuse is to be removed. The grounds are to be landscaped with trees and shrubs.

(v) FYresecurity arrangements. One of the school's fire exits has been barred. This is to be opened providing three fire exits at the bottom of three stairwells. The site did not have workable fire extinguishers and this situation is to be rectified.

(b) Regulatory and Institutional Considerations. Record of compliance with environmental and safety regulations.

(c) Environmental impact of proposal. Proposed rehabilitation works will have positive effects on the surrounding environment since many of the existing leaking pipes would be replaced, and the school building would be more insulated, resulting in lowering total heating required for its operation.

(d) Mitigation and/or enhancement measures.

(i) Disposalof Building and Insulation materials. The material is to be carried to an officially approved dump site.

(ii) How is wastematerial to be disposedof. Waste material is to be taken from the site to an officially approved dump.

(iii) How is solid wastefrom school disposed of? Solid waste from the school is burned in an incinerator. Landscaping at completion of work. ANNEX3.1 90

8. Costs by System;survey results; local and foreign exchange;assumptions made.

Roof, drainage $ 50,000 Grounds 22,000 Electrical 30,000 Heating 120,000 Water 85,000 Sanitation 83,000 Floors 65,000 Windows, Caulking 45,000 Exterior Walls 35,000 Interior Walls 25,000 Reinforcingfoundation and walls 35,000 Other largely upgrades 70,000

TOTAL (Base cost) $ 700,000

9. Estimate RemainingLife of School after the upgrades. In most circumstances, this school would be retired from service and demolishedbecause of its low standard of initial construction and because there is little that can be done to make it energy and pedagogicallyefficient. It lacks space for supplies, custodial services and staff. However inefficientin these respects, it can be maintained in service for another 10 years for a total of about $1,200 per student place. By comparison, a newly constructed school, with a life of about 25-30 years would cost a total of over $12,000 per place which the governmentcannot currently afford.

10. ImplementationSchedule and Responsibilities(see AttachmentB).

11. Basis for Establishingthe Priority for this Project.

(a) Strategicor policy basis. Kirov micro raion has a populationof 12,000 and a school age population, ages 7 through 18, of approximately1,900, 800 of whomattend school 170. Because of overcrowding, the remainder attend schools in adjacent raions or vocationalschools during grades 10 and 11. Currently, there is only a small increase in populationdue to immigrationbut this almost exactly offsets the decline attributableto historically low levels of fertility. The school age population of the micro raion is projected to remain relatively static during the next few years and then begin to grow rather graduallyas fertility rates partiallyrecover to earlier levels. Increasesin schoolage populationare not expecteduntil 2003-2005. Kirov School 170 shouldbe replacedwith a new and larger school at the end of this period.

(b) Economicevaluation. In its presentcondition, the schoolhas littleor no useful life. The alternativeto rehabilitatingor replacingthis school is to transport studentsto two schools at 8 and 12 kilometers away. Both of these schoolsare already overcrowdedoperating in two shifts.

Ideally, a new school should be built on the site that has a better allocation of space among uses and separates primary from secondary students. A new structure 91 ANNEX3.1

would result in substantialsaving in energy, recurrent repair and upkeep costs and be much more efficient pedagogically.It would provide for an enriched curriculum and the eventual acquisitionand efficient installationof computers and the use of television for distance education. It would be safer and more comfortable. The capital costs of such a structure would be about $7 million or about $12,000per student place and have a life of about 30 years.

The capital costs of the rehabilitationof school 170 in Kirov micro raion, would be about one-tenthof that at $1200 per student place and extend the life of the structure by about 10 years. The rehabilitatedschool and a new school are, of course, not directly comparablein terms of the servicesthat they would yield. The rehabilitatedschool would have higher recurrent costs for repairs and maintenance and would remain energy inefficient because of the lack of adequate insulation. However, a comparison of the discounted costs of operating a new school and a rehabilitated school 170 yields an overwhelmingadvantage to the rehabilitated school because of the high initial costs of a new building. A discount rate of 15% substantially diminishes the importance of differences in recurrent costs of operation between a new school and a rehabilitated school. Given the enormousdifference in the capital costs of these alternatives,a direct comparisonof the discountedoperating costs seemsunnecessary. The attachedtable (see AttachmentC) compares only the discountedcapital and recurrent costs of the project (a rehabilitated school) with the "without-project" alternative. The "without-project" alternativeassumes that the school would close and that new transportationcosts would be incurred.

School 170 ranks in the upper decile of all schools that are eligible for rehabilitationin terms of cost effectivenessratio. Most schools in the upper decile are those that have little or no remaining life and meet technical criteria in terms of soundnessof the basic structure. Other schools in the upper decile include structurally sound schools whose lives are threatened by failures in heating, water and sanitation systems.The cost-effectivenessratio is equal to the discountedcosts of the rehabilitated school divided by the number of students at risk. The former reflects the life of the school and a 15% discount rate. The latter is total enrollmentsrather than total student places.

(c) Social considerations.School 170 is an integral part of the Kirov sub-raioncommunity. Most residents, parents and many teachers are former students. The community contributes substantiallyto the school in terms of in-kind services. They attempt to remove debris that is dumpedon the site by outsiders,they help teachersto maintainand decorate classroomsand are involvedas much as possible in painting and winterizing. The teachers themselves,helped by parents, do virtually all of the custodial work.

The school providesspace for communitymeetings and communitysocial events within the limits of the spaces that are there. It is the social center of the community.

(d) Other considerations. This analysis should include a description regarding the importance of the school to local enterprises and its relationship to enterprises, and communityand extra curricular training activitiesthat may occur in the school. ANNEX3.1 92

ATTACHMENT A

STATEMENT BY SCHOOL DIRECTOR ON THE IMPACT OF THE SCHOOL'S CONDITION ON HER WORK

I was a student in this school, then later a teacher and, for the last five years, its director. The school's physical condition is a source of considerablepain and embarrassmentto me. It is unsightly and it is a difficult place to teach in. It is difficult to maintain and to keep clean. I and my teachersare embarrassedwhen parents visit this school. We spend a considerableamount of time cleaning and maintainingthe place so that it is suitable for students. The situation is aggravatedbecause the school is overcrowdedand operating in two shifts. The physical condition of school 170 is nothing less than desperate.

Walking around the outside of the building, you will notice that the grounds have been used as a dump site. It is not adequatelydrained particularly with respect to water coming from the roof. Lookingat the exterior, one can see that the building is clearly in need of major rehabilitation. Guttersand down spoutshave rotted away and water runs down the side of the building. In the winter, it freezes. The roof leaks. The mortar work around the top of the building is disintegrating. There are gaps between the concrete slabs that make up the roof. Most of the window framesare rotten and somewindows are broken. Windowsprovide inadequateprotection from cold Siberian weather. The concretesteps into the building entranceshave disintegratedand are a hazard. Also, you can see the makeshiftstructure that I have had to put up to store school supplies, including such items as paint. We have no storage space in the school except the cupboardsthat are installedin some classrooms.

Inside the building, you will note that there is no space for the building's custodialcare suppliesand equipmentand no sink for this purpose. There is inadequate provision for a cloakroom. The current cloakroom was made convertinga latrine that we also need desperately. We do have a staff room, but you will notice that it is in poor conditionand in need of renovation. We have only four drinkingfountains in the buildingand a total of 12 toilets. All of the doors in the building are make-shiftand very unsightly. I would like to have them replaced. The entranceto the buildinghas tiles on the walls that are not particularlypleasant to see. The entrancehall floor has been torn up several times to repair water pipes. The floor was restored by simply cementingover the hole made in the floor. Leaks in our water pipes are a recurring problem that we never seem to solve permanently. The system should be replaced.

Becausewe are double-shifted,we use the building after dark. The communityalso uses it for meetingand social eventsafter dark. Yet, there is no outside lightingfor the building and this createsa hazardouscondition for people who use the building. The school is often uncomfortablycold in the winter, because of the condition of the windows, lack of caulking and sometimes inadequateheat from the pipes and radiators. On the other hand, sometimesthe heat is so hot in the pipes and radiators that they are dangerousto the students. They do not have protective covers.

The school covers grades 1-11 and this means that we need different furniture and facilities for primary and secondarystudents. Currently, we have more primary school furniture than we need and insufficientfurniture for older students. Older students are crammed into seats and desks that make them most uncomfortable.

In closing, I want to say that I find this kind of internationalcooperation and assistanceto help our school to be most hearteningand encouragingfor the future.

AbrosimovaGalina Ivanova (Director, School 170, Kirov micro-raion) 93 AMEX3.1

CY. I 0.11

3C400

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ma a . 33 iU 4

024

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St Iii fell ATTACHMFNT C Page I of 3

REHABHHTATIONOF SCHOOL NO. 170 - NOVOSIBtSK

Recarmd F SIna Co_t Witout Pr e t US$ (194) l

YEAR STAFF TEACHING HEATING MAMNTIANCE TRANSPORTATION ELECTRICITY TOTAL l

MATERLIAS ______2 60 3 3 66

2 60 3 3 66 3 60 3 3 66

4 60 3 I 10 74

S 60 3 1 10 74

6 60 3 1 10 74 7 60 3 l 10 74 8 60 3 1 10 74

9 60 3 1 10 74 10 60 3 1 10 74

______~RmmernctEconomic Costs Without Project____

1 60 3 20 3 10 96

2 60 3 20 3 10 96

3 60 3 20 3 10 96

4 60 3 1 13 10 87

5 60 3 1 13 10 87

6 60 3 1 13 10 87

7 60 3 1 13 10 87 8 60 3 1 13 10 87

9 60 3 1 13 10 87

10 60 3 1 1 13 10 37 ArTACHMENT C Page 2 of 3

so

Fmwi9 Capitl costs with Project USS'000 (1994) YEAR TEACHINGMATERIALS LABOR ENERGY TAXES TOTAL

I 256 200 113 131 700

2 x Coaversion Factor 226

EconomicCaal Costs with Project

I 256 200 226 682

Economic Recurrent Costs Wbth Project US$ '000 (1994)

YEAR STAFF TEACHING HEATING MAINTENANCE TRANSPORTATION ELECTRICITY TOTAL MATERIALS

1 60 3 20 5 10 108

2 60 3 10 5 10 88

3 60 3 10 5 10 88

4 60 3 10 5 10 88

5 60 3 10 5 10 88

6 60 3 10 5 10 8S

7 60 3 10 5 10 88

9 60 3 10 5 10 8S

9 60 3 10 5 10 88

10 ~60 3 10 5 10 85

X U ATACHMINr C Page 3 of 3

U

SUMMARY: NCRE__ALECONOUC COM OF PROJECT OVER WITHOUT PROJECTSCENARIO (USS I)

WITH PROJECT _

CAPITAL COSMS RECURRET TOTAL TOTAL W MINUS DISCOUNT PRESr JT cosrS WITH WITHIOUT WO a 15% VALUE YEAR MATERIALS LABOR EhERGY TOTAL

1 256 200 226 6S2 108 790 96 694 .870 603.8

2 a8 88 96 -8 .756 -6.0

3 88 88 96_ -8 .658 -5.3

4 88 88 87 -I .572 40.6

5 88 88 87 -I .497 -0.5

6 88 88 87 -1 .432 -0.4

7 88 88 87 -1 .376 -0.4

8 88 88 87 -I .327 -0.3

9 U 8S 87 -1 .2S4 40.3

10 88 38 87 -1 .247 40.2 PresentValue of ProjectEconomic Cods (Prent valueper studentplace - $983; Perstudent enrolled - 797. 589.8

Notes:

I. All choobsin the projectare in desperateneed of eitherrehabilitation or replacement.It is ssumedhere that the 'without proje* scenariowill involve closingthe school after three yean andthe rasuig _meaof studentsand teachmer to adjacentschool districts that are already overcrowded. They will be double- nd oftentriple-shifted in thee schools.

2. In the 'without project scenario,it is sumutedthat: (a) Teacherand teaching materials costs will not changeafter the third yearand reasignment to otherschools. (b) Maintenacecosts in the schoolto which reasignmen aremade will increasemarginally. Note thatthese costs re alreadyextemeiy low reflecing theexisting situation. (c) After thethird year trunsportsioncosts will be incurred. Trmnqoctationcost am financed50% by sudent with abouta 50%subsidy from thesate. The highereconomic cos reflectthe continuing subsidy on energy.(d) Eletricity cots will notchanp. The schoolsto whichstuet srereassigned will be operatingpatlilUy at time thatwill requireillumirAtion.

Z s--*l~~~~~~~~~~~~~~~~~~ ANNEX 3.2

EDUCATIONFACILITIES MANAGEMENT AND SUPPORTINGMANAGEMENT INFORMATION SYSTEM NOVISIBIRSKMUNICIPALITY

1. THE SITUATION

A. Educational Context

1. Responsibilitiesfor educationalplanning and investmenthave been devolvedfrom centralto lower levels of governmentbut these have not yet developedthe necessary organizationand staffing. Indeed inadequate resources over an extended period of time has led to an erosion of capacity to manage educational facilities. Long-standingresponsibilities for routine maintenance, rehabilitation and the operation of facilities have suffered from a lack of finance. The need to develop new systems of organization and managementof school facilities, including the necessary management information systems, is made more difficultbecause currently, informationabout schools is scattered and incomplete, often existing at the level of the school itself. Novosibirskmunicipality has given a high priority to an initiativeto develop planning and managementsystems, includinga managementinformation system, for schools, but progress is very slow because of a lack of resources. Assistance for a management development and management information systems component has, therefore, been included in the project. Lessons learned in Novosibirsk municipality should prove applicable to later investments throughoutthe oblast and in other oblasts as well.

B. Organizationof the NovosibirskMunicipal Department of Education

2. The municipalityhas 188 daytime general schools and 182 pre-school institutionscontaining a total of 1.3 million square meters of space. The organization and managementof these schools and institutions is highly decentralized. The municipal Department of Education has management and oversight responsibilitiesfor 10 Raion District officesto whom the directors of individualschools report. In practice, each individual school director has extraordinary responsibilitiesfor the operation of the school, includinginstructional, administrative, maintenance, and custodialresponsibilities. The burden of these responsibilities is excessive and diminishes the ability of the school directors to provide educationalleadership.

3. The functions of a comprehensivefacilities planninUorganization include forecasting student enrollments, designingcatchment areas for schools, and developing a capital improvementprogram of at least five years' duration. These functions require sets of decisions that should be based upon systematically-gatheredinformation about demographic factors and the physical status of each school. In Novosibirskmunicipality, the planningfunction is carried out by two staff members--aneconomist and a statisticalassistant--but their role is limited. Studentenrolment data are kept only at individualschools and projectionsof enrollments are usually made only for the next year for each catchmentarea. These projections are, in fact, based upon canvassesof homes in school catchment areas carried out by the teachers themselves. These projectionsare used to estimate the materials and supplies required as well as to make decisionsabout double and triple shifting. Projectionsof space requirementsare made at the oblast and municipality levels and are based upon norms, such as the number of places per 1000 population. Populationprojections, if they are made, are done by local academicinstitutions, but there is no evidence that their findings are used in practice. 98 ANNEX3.2

4. In Novosibirsk municipality, school design. construction and rehabilitation are performed by a seven-person unit headed by a Deputy Chief for Technical Supervision. The unit is responsible for construction, repairs, supplies, site plans, and technical documentation. Subsidiary units are located at the raion level and are largely concerned with major repairs. Staffing levels at the raion level are based on norms. But, for budgetary reasons, all positions are not filled and the raion level units are considered to be seriously understaffed. The standards for school design and the materials and building systems used are governed by norms that are acknowledged to have been inappropriate in the first instance.

5. There is no organization at the municipal or raion school administrative offices to perform, manage, or monitor routine school maintenance activities. Routine maintenance is the responsibility of the school director and /or deputy director, and is performed by two maintenance workers assigned to each school. Maintenance materials and salaries are budgeted at the school. Requests for major repairs that cannot be handled by school maintenance staff are initiated by school directors and forwarded to the raion administration and the municipal Department of Education. Occasionally these requests are sent to the oblast department of education.

6. The custodial function in schools is also managed by school directors. Custodial staffing is governed by established 'norms' that are seldom met. Children help clean their classrooms. The buildings are intensively utilized since almost all of the schools are double shifted (8:30 am to 1:30 pm and 2:00 pm to 6:30 pm). Some schools are triple shifted. Because of their intensive utilization, schools ar. very difficult to keep clean. No formal custodial training and/or inspection is undertaken by the raion or city school administrative offices.

7. Information technology (computers) is a new responsibility of the city Education Department. There is only one specialist overseeing this effort. The inventory and location of computers in the city Department of Education is as follows:

Personnel 2 IBM 286s Economic Planning I IBM 286 Curriculum/Innovation I IBM 486 Accounting 8 IBM 486s w/File Server (LAN) Kindergarten I IBM 386 Director's Secretary I IBM 486

8. Except for accounting, computers are used for word processing and document preparation. Accounting is the only function which uses computers for information storage, retrieval, and manipulation for business systems applications.

C. Problems

9. There is no information base that would facilitate good system-wide decision-making. Instead there are many micro-information bases mostly centered on individual schools, raion administrations and the various offices in the municipal Department of Education. They are heterogeneous in form and content and not accessible to each other. Access to information held in other locations is difficult and time-consuming. There is no consolidated data base on historical or current year school enrollments. Multi-year projections are not being made. Information on school capacities and other facility attributes are not maintained. Most planning that now occur in the facilities area concerns finance. Methodologies ANNEX3.2 Be for assigningpriorities for rehabilitationand major repair work are being introducedunder the project. But a facilitiesdata base containingthe comprehensivephysical attributesof all schoolbuildings is needed for the effective use and refinementof these methodologies.

10. The designand constructionof new schools, either as additionalbuildings to relieveovercrowding or to replace inadequatefacilities, is not occurring due to a lack of planning and funding. Previously (underthe Sovietsystem), this responsibilitywas centralizedwith little local control or involvement.Poor designand qualityof constructionand years of under-investmentin schoolfacilities has lead to the current overcrowdingand poor conditionof schools. The model schoolcomponent (see Annex 3.4) will develop improved educationalspecifications and school designs. The use of cost-effectiveconstruction materials and methods will be demonstrated in the model school component.

11. It was reported that the quality of construction and repair work performed is often not satisfactory. Inspection and evaluation procedures must be developed and employed to assure an acceptablequality of work.

12. Maintenanceof a complex school facility requires a broad base of trade skills, e.g. electrical, plumbing, heating, carpentry, and masonry that are difficult, if not impossible,to find in one or two maintenancepersonnel assigned to each school. Additionally,records of routine maintenanceactivities and expenditures are not available at the city Department of Education. A preventive maintenance program does not exist and a training program is needed. The methodology and organization of maintenanceactivities needs to be examined. It appears that improvedefficiency and effectivenesscould be achievedwithin the resourcescurrently available.

13. Poor construction and choice of surface materials makes cleaning very difficult. The major problems observed in custodial/housekeepingactivities are:

e Inadequatecleaning equipment 3 Inadequatecleaning materials (chemicals) 3 Lack of training in proper cleaning methodologies * Lack of a creditablemethodology for determiningcustodial staffing ('norms' are not applicable to all schools)

14. Computertechnology does not exist to support the facilitiesplanning, design and construction, maintenance, and custodial activities at local schools, raions, or the city school administration. Informationis not availableto facilitate good program managementand/or decision making.

II. ASSISTANCE TO BE PROVIDED UNDER THE PROJECT

A. Objectivesof the Component

15. This componentof the project is designedto establish a managementinformation system for school facilities planning, investments, program and project implementation and school maintenance in Novosibirskmunicipality, as a pilot to be evaluated. Basedupon lessonslearned, this would be modified, and extendedthroughout the municipality. Sufficientresources are included in the componentto launch a municipality-wideimplementation of the systems designed and piloted under the project. When the 100 ANNEX3.2 component is completed, almost all schools, all 10 raion school administrationsand the municipal Department of Education should be linked in a network. However, the precise specificationsof these systems are to be determined by tasks undertaken by consultants at the initial stages of project implementation.

B. Tasks

Task 1 - Management System Study

16. Prior to any efforts to design a managementinformation system to support school facilities activities, a management study should be undertaken to examine current processes and make recommendationsregarding:

* Organization * Staffing * Funding * Economic analysis * Managementprocesses and decision making Information(availability, needs, generation,storage, retrieval, distribution,etc.) = Training

17. This task would require the efforts of two system managementanalysts, who should be familiar withthe best practicesin facilitiesmanagement methodologies and processes, for approximatelysix weeks to assist with the preparationof a multi-yeartransitional strategy. Proposals must reflect Russiansocial and organizationalculture, rather than directly transplantingforeign systems.

Task 2 - Management Information System Study

18. The recommendedsecond task of this sub-componentis a managementinformation system study. This task should overlap Task I by approximatelytwo weeks to facilitate informationtransfer and task coordination. This study effort should include and make recommendationsregarding:

e Technologyneeds in Facilitiesand its integration into a city-wide MIS * System configuration * Systems Software * ApplicationsSoftware * Hardware - existing/new * Data base configuration * Staffing/Personnel * TelecommunicationsIssues - WAN connectivity * Training * Costs/Economics * Implementationschedule ANNEX3.2 101

19. It should be noted that the city Departmentof Educationis currently consideringa letter of intent with Apple computer for cooperationin the area of technology.The terms, conditionsand intent of this "feasibility"study could not be ascertained.

20. A rough concept of a MIS configuration emerged in discussions with the city Department of Education.This conceptshould be considered during the Task 2 MIS Study effort. The concept included development of a MIS local area network within the City Department of Education Administrative Building, connected via data lines to 2 to 3 computers in the raion administrativeoffices to form a wide-areanetwork. A computerwould also be installed in the Administrativeoffice at each school with dial-up connectivityvia modem to the raion offices. The initialefforts in the utilizationof this conceptual data network would be to facilitatebetter availabilityof informationand managementof school facilities, particularlymaintenance and major repairs.

Task 3 - Study Tours

21. To assist in training and knowledgetransfer in the area of informationtechnology, study tours would be organizedfor selected individualsin the city Departmentof EducationAdministration. School districts in the United States, Canada, or Finland, that demonstrate good school facilities management organizationsand practices and the use of informationtechnology in school facilitiesmanagement would be visited.The study tour would involve5 to 6 city schooladministrators visiting 3 schooldistricts. Visits to private enterprises that provide technologyservices would be included. The duration of the study tour should be approximatelytwo weeks.

Task4 - Consultation and PlanningSystem Design of Pilot

22. Followingthe study tours, consultantswill work with municipalofficials on a plan that would, in the first instance, determine responsibilitiesfor various functions in school facilities planning and management. In a cooperativeand consultativeprocess, data needs for the performanceof these functions would be discussed and agreed. A plan would be agreed for gradual transitionto the new system. The plan would includesubstantial provision for training all of those responsiblefor using and maintaining the system.

Task 5 - Implementationof Pilot

23. A data base would be designed and local consultants hired to establish the base in the first instance and to create new software, or to modify existingsoftware that will provide access to the data base on a network and to permit routine statisticalanalysis and data manipulation. Hardwarewould be installed, tested, and evaluated for a small portion of the total network, perhaps two raions with 40 schools and the municipaladministration. Training would be provided for users of the MIS. Evaluation protocol would include the effectiveness of training and acceptance of the use of technology. Understandingand user acceptanceof installedapplications software should be evaluated.

24. The MIS componentwould finance as many as 85 high-end PCs with appropriate file servers, communicationdevices, and data lines that are to defined in the systems configuration portions of the Task 2 study effort. 102 ANNEX3.2

Task 6 - Developmentof SystemsImplementation Plan

25. Based on the experiences through Task 5, and particularly the test and evaluation data, modificationsto the managementinformation systems hardware and software configurationswould be made. Followingthis re-engineeringeffort, a sequencedimplementation plan for the city-widenetwork would be developed.

Task 7 - ProgressiveImplementation of CitywideProgram

26. Based on availabilityof resources, staff training, and organizationalreadiness, implementation of the city-wide networkshould proceed in accordancewith the implementationplan developedin Task 6.

m:\king\annex3.2 ANNEX 3.3

SELECTION CRITERIA AND MODEL APPRAISAL FOR HEALTH SUBPROJECTS

A. SELECTION CRITERIA

Hospitals must meet the followingcriteria in order to be considered for the project:

(a) City and central raion hospitalsmust qualify as "generalhospitals" as that term is understood in Western terminology.

Rationale:

(i) These hospitals are the mainstay of the system and deal with the majority of the population. Outsidethe main cities, these hospitals, usually configuredwith an adjacent polyclinic, are the only medical facilities availableto the population.

(ii) Accordingly, these facilities deal with the main causes of morbidity and preventable mortality: cardiovascularproblems and trauma.

(iii) Improved functioning of these hospitals should reduce hospitalization in upper-level facilities, such as oblast hospitals that, although often better equipped, do not use different care by approach and technologythan that found in lower level facilities.

(b) Hospitals must be centrally located and easily accessibleand must serve a populationof at least 50,000 (and must be expected to continue to serve such a population in the future).

Rationale: These criteria are intendedto assure that facilitiesselected are needed and can operate efficiently, the premises being that a populationof this size requires hospital facilities and that the minimal hospital size, from an efficiency perspective, is 250 to 300 acute beds.

(c) Hospitals must have high levels of utilization--i.ean occupancyrate of above 90%.

Rationale: This criterion is intendedto assure that the facilitiesselected are the ones most needed and used.

(d) Hospitals must be in need of rehabilitation and upgrading (as per the proposed functional specificationsdescribed in this Annex and other project documents)of their: (i) emergencycum admission units, including ambulances; (ii) intensive care units; (iii) operating theaters; (iv) laboratories; and (v) X-ray and imagingunits. 104 ANNEX3.3

Rationale:

(i) These components constitute the "core" of a general hospital and are necessary for proper management of patients, especially those in trauma and those suffering from cardiovascular problems. (ii) This core, the laboratories cum X-Ray and imaging services in particular, serves the entire hospital, as well as peripheral facilities in the community. (iii) A well-functioning core can provide more effective and efficient care, saving lives and reducing the need for hospitalization at all levels.

(e) Hospitals must have a number of emergency patients which is higher than the oblast average in need of intensive care (with priority to the highest number).

Rationale. Given Russian morbidity and mortality patterns, these facilities can contribute most to years of life saved.

(f) Hospitals must have access to, in order of priority: a water supply, heating, sewage, and electricity with priority given to facilities which have all the above.

Rationale. These elements of infrastructure are necessary for hospitals to function as hospitals rather than as poor hotels.

(g) Improved functioning of the hospital must result in reduction in beds both within the hospital itself and in existing, nearby facilities.

Rationale: The objective here is to support downsizing of Russian hospital beds, which are excessive by familiar standards.

(h) The hospital does not have fundamental structural problems that would classify it as dangerous by Russian building codes.

(i) The hospital facility should be most flexible in terms of layout and design and be amenable to rehabilitation and upgrading, e.g., horizontal, single or two-floor, spread-out. Facilities are given priority over narrow and high structures.

Rationale: For the same objective, the investment in spread-out facilities is smaller than that in narrow, vertical structures, as patients need to be moved to upper floors.

(j) Hospital management and staff must be amenable to adoption of new technology and functional reorganization.

2. For polyclinics, the following criteria were established:

(a) (Urban) Independent polyclinics must have the capacity, in terms of space and location, to serve as diagnostic centers for a network of existing polyclinics, all serving a population of approximately 300,000. ANNEX3.3 105

Rationale:

(i) Such polyclinics could substantially improve care in the community and reduce the need for hospitalization. (ii) Services in the community would be more efficient due to a more rational allocation and use of expensive equipment. (iii) The facilities could attract qualified personnel to care for the community and provider training.

(b) Rural polyclinics, which are usually adjacent to a raion hospital, must meet the general criterion set for hospitals.

Rationale.- Rural polyclinics, which depend upon their adjacent hospitals for nearly all services, cannot be looked upon as units separate from those hospitals and, therefore, need to be upgraded as diagnostic centers serving the entire population.

3. The above comprise a basic set of criteria; they will need to be refined, primarily in light of cost and other feasibility considerations. Criteria for the community participation will eventually be added.

4. It is noteworthy that, at this stage, no explicit effort is being made to establish criteria for selecting between hospitals and polyclinics. This approach is being taken because, at least in rural areas, hospitals and polyclinics are handled as a single entity providing a continuum of care. Essentially the same approach is adopted for cities as far as "first line" hospitals are concerned. If well organized and equipped, the city hospitals and polyclinics would be complementary rather than substitutes.

B. APPRAISAL OF PROPOSED HEALTH SUBPROJECT REHABILITATION OF CHEREPANOVO CENTRAL RAION HOSPITAL AND POLYCLINIC

Type of Facility: General Hospital Population Served: About 60,000

Present conditions of facilities:

I. Structure

(a) Without major structural repairs, part of the building will collapse. (b) Floors are not linked to structure of building, leading to their sinking. (c) Poor insulation of buildings in spite of harsh weather conditions. Most insulation is achieved through wide external walls without added, relatively inexpensive covers either on the internal or external walls. This is particularly notable in brick structures. (d) Wooden floors without appropriate drainage, leading to inability to keep them clean and sterile, and to rotting. 106 ANNEX3.3

2. Utilities

(a) Water. There are no water reservoirs; a breakdown in the municipal water systems leaves medical facilities without water supply. Water is not treated. There is no 'reverse osmosis' system for 'soft water' needed for babies, and instruments. No on-site chlorination is available; water is chlorinated to the extent that it goes through the central municipal system.

(b) Sewage. Central sewage systems are uncommon. There is a paucity of toilets and showers for both staff and patients.

(c) Air-conditioning and ventilation. Air-conditioning is inadequate for fresh air, especially during the cold winters. Air-conditioning, when available, is usually not situated for most effective operation. Most facilities lack centralized oxygen, compressed air, and suction systems. In operating rooms, no suction systems are available to remove anaesthetic gases that could affect physician performance.

(d) Heating. Heating systems depend on the municipal system which may be unreliable. Especially where patients undress, unsafeelectrical wall units were observed.

(e) Gases. Compressed air needed for resuscitation equipment is generated in Russia by compressors which are part of the equipment. This system is rather inefficient compared with centralized gas, including oxygen, lines, the standard in the West.

(f) Utility lines. There are virtually no utility lines (gases, power, and communication) reaching the patient's bed.

3. Electro-mechanicalSystems

(a) Electricalbackup. Numerouscare systemsdepend upon electricity for operation. These includemonitoring, operating, and resuscitation systems. Consequently,diesel generators are needed as a backup power supply, with critical added UPS element that responds instantly(0.5 second)to power failure and operateuntil the diesel generator supplytakes over. None of the hospitals visited had the necessary backup mechanism. Rather than common diesel backup, the common power supply to the hospital emanates from two differentelectrical sources or lines (each of which contains a voltage of 6kV). Each line can back up the other. In case of an electrical failure in one line, the second line replaces the first. Still both lines depend on city systems.

(b) Each main switch-board in each floor receives its power supply from the two city sources. The transfer from one line to the other is done by a manualswitch-over which takes time, precious in many instances for patients in intensivecare or being operated. There are some critical loads in which the transfer is done automatically. Some city hospitalshave generators that are below required capacity. ANNEX3.3 107

(c) The electrical system in special medical rooms, such as in intensive care, operating rooms, and in dialysis, are not built in accordancewith codes common in the West; the reliability of the electrical system is exceptionallylow.

(d) Groundingetc. Lackingin many instancesare: an anti-staticsystem on floors, grounding (up to 0.2 OMS) and circuit breakers to avoid electromagnetic disturbances which affect instruments,and explosions, especially in laboratories.

(e) Lighting. Lighting is usually very poor even in operating rooms.

4. Safety and Quality Assurance

(a) Safety and general quality encompass (i) safety of patients, (ii)safety of personnel processing tests, and (iii) safety of the public at-large in connection with disposal of materials. It was observed that these issues are highly disregarded. In general, structures are not divided so as to provide protection in case of fire, gas leaks, etc.; there are no fire zones with special regulations, and there are no special doors to seal areas in case of emergency. Electrical wiring is often exposed, endangering both patients and personnel.

(b) Electricity. Electrical switch-boards in the hospitals are in bad condition. The equipment used is old, and spare parts are not available. The switch-boards situation is particularly dangerous.

(c) Radiation, and biological and chemical waste. In the case of laboratories and imaging units, personnel, patients, and the general public are at risk, mainly because of the non- use of high quality disposables, ineffective control of radiation, protection from radiation, lack of electrical grounding, and inappropriate handling and disposal of biological materials.

(d) No facilities are available next to the laboratories for showering in case of contamination.

(e) Fire. Neither smoke and fire detection systems nor sprinkler systems were observed. Doors are not designedto open outward to facilitate escape in case of fire.

5. Situation Without Project. Part of the hospital is already closed for safety reasons, and the remainder would soon need to be closed.

6. Principlesof Redesignand Reconstruction

(a) Overview. The subproject will encompassthe following units:

(i) Emergencyand admissionroom (ii) Intensive care unit (iii) Operating room (iv) Central Laboratory (v) Central X-ray and imagingfacility 108 ANNEX3.3

(b) The subprojectwill includesome upgrading of wards, which will be accommodatedunder the project. This core unit is planned as a continuum on the floor to comply with managementof patients common in the West.

(c) All service units wouldbe supportedby appropriateinfrastructure pertaining to structure, water and sewage, electro-mechanicalsystems, and air-conditioning and ventilation. Systems would be designed in a way that would enable rehabilitationand upgradingof the same facilities in the future with more finance becomingavailable.

7. Further Details

(a) Emergency and Admission Room. This room comprises:

(i) Emergency station beds (3) (ii) Reception (iii) Casting room (iv) Resuscitationstation (v) Doctors' room (vi) Toilets (2), shower, baths (2) (vii) Room for discarding materials

(b) Intensive Care Unit. This unit comprises:

(i) Beds (4) (ii) Nursing and monitoringstation (iii) Storage for equipment (iv) Storage for disposables (v) Toilet for staff (vi) Toilet for patients

(c) Operating Theater. The theater comprises:

(i) Operating rooms (2) (ii) Pre-operatingroom (iii) Washing room (iv) Sterilization, autoclave, storage of sterile materials (v) Room for discarding materials (vi) Storage of equipment (X-ray and Respirators) (vii) Storage for non-sterileconsumables (viii) Dressing room for staff (ix) Post operative recovery room.

(d) "Ward". The specifications of the ward apply to any ward of a common general hospital. The quantitiesrefer to the standard surgical or internal medicine ward. This number need to be adjusted in other cases such as maternity, pediatrics, etc. This 'standard' ward comprises: ANNEX3.3 109

(i) Ward rooms including toilets (6) - 36 beds for regular patients (ii) Ward rooms (2) - 4 beds for acute patients (iii) Nursing station (iv) Physicians' lounge (v) Treatment room (vi) Room for linen (vii) Toilets for patients (outside rooms) (viii) Showers and bath tabs for patients (ix) Waste disposal room.

(e) Central Laboratory. The central laboratory will include the following:

(i) Biochemistry lab (ii) Hematology lab (iii) Microbiology lab (serology, virology, immunology) (iv) Reception and centrifugation (v) Cold room (vi) Storage for reagents (vii) Management office (viii) Toilets for staff (ix) Disposal of biological material (autoclave).

(f) X-ray and Imaging Department. This department comprises:

(i) Radiography (I room) (ii) Fluoroscopy (I room) (iii) Ultrasound (I room) (iv) Adjoining developing laboratory (v) Daylight viewing room (vi) Physicians' room (vii) Storage for chemicals (viii) Storage for films (ix) Admission and archives (x) Waiting room.

(g) Central Systems. These would include:

(i) Oxygen tank (ii) Vacuum and pressurized air pumps (iii) Water tank (iv) Diesel generator (250 KVA) (v) Reverse osmosis (water purification) 110 ANNEX3.3

I. ENVIRONMENTALANALYSIS

Baseline Situation

8. Medical waste in the hospital can be grouped into the following categories:

- medical waste which is burned without primary disinfection (plastics except syringes; bandages; rubber (gloves, catheter,etc.); others). They are burned in the hospital boiler. - medical waste which is sterilized and goes to the sewage system (blood, urine, etc.). - medical waste which goes to the sewage system without primary disinfection (reactives). - "reusable" medical waste - medical waste which is used after disinfection and washing (part of bandages used in the units (except bandages of surgery and infection units). This occurs because the facility does not have enough money for new supplies. - X-ray films and development solution are collected during the period of a year and once a year are taken to a special factory for processing and extracting silver.

9. Syringes are disinfected and chlorinated in the treatment room where there is a sterilization unit. They are removed from the hospital monthly. During the month they are stored in a special room (with strict accounting). There are special rooms for storage in all units.

10. The hazard level is identified according to the level of toxic chemicals (chrome, mercury, cadmium, plumbum, etc.) and the level of infectious substitutes (pathogenies bacteria, viruses, etc.). The following substances are regarded as most hazardous (those included in Classes I and II of the Russian classification of hazardous substances):

Chemicals : selen, dioxin, benzophuran, etc. Bacteria pollution : hepatitis, AIDS, TB, plague, etc.

11. It should be noted that toxic substances and hazardous bacteria can transform in any environment (water, air, soil) and thus, generate more toxic substances, and can also accumulate in soil, plants, etc.

12. In the case of laboratories and imaging units, personnel, patients and the general public are at risk, mainly because of the non-use of high quality disposables, ineffective control of radiation, protection from radiation, and lack of electrical grounding.

13. In all project hospitals, storage and utilization of medical waste are identical. It should be noted that the waste discussed above is handled in almost an identical manner in the West, in accordance with the strictest regulations.

Regulatory and Institutional Considerations

14. In the Russian Federation, the State Committee on the Epidemiological and Sanitary Surveillance is responsible for development, approval and monitoring of the state sanitary codes.1 ' This Committee

!' Before 1991,State Sanitary and EpidemiologicalSurveillance Service was institutionallyunder the Federal Ministry of Health of the USSR. ANNEX3.3 111 comprises oblast and rayon sanitary and epidemiologicalstations (SES) which are responsible for monitoring sanitary codes and environmentalaspects of the medical facilities' activities at the local (community)level. SES of the Cherepanovskyraion (Novosibirskoblast) is responsiblefor monitoring sanitary codes and environmentalaspects of the CherepanovoCentral Raion Hospital.

15. At the facility level, as a rule, staffing positions includepositions for professionalsresponsible for monitoring environmentaland safety aspects of the managementof care.

16. The environmental and safety issues can be divided according to the following functioning categories:construction, management of care, and waste control. While the first two concern mainly the 'one-time' constructionand equippingprocesses with follow-upperiodic maintenanceand adherenceto regulations, waste control is a daily activity requiring careful regulation and monitoring.

17. The different issues are stipulated in the following Russianregulatory documents':

(a) "Manualon the Design of MedicalFacilities", Ministryof Health of the USSR, approved by the Director of the Central Health Design Institute, 1989. (b) "Sanitary Regulationson the Establishment,Equipment and Maintenanceof Hospitals, Maternity Hospitals and Other Medical Facilities." ("SanPiN 5179-90"), Ministry of Health of the USSR, approvedby the Chief Sanitary Doctor of the USSR, 1990. (c) Order of the Ministry of Health of the USSR (N520), 1981. "SanitaryRegulations for Maintenanceof Settlements"(N4690-88), 1988.

18. In general, Russian "sanitarycodes" governing environmentalissues are strict and probably fall in line with those commonin the West for comparable technologies,as exemplifiedbelow with regard to practices in medical facilities. At the same time, the general impression is that compliance with regulations is low; in no facility could the person in charge of environmental and safety issues be identified.

19. Within the above general categories, medical waste managementis probably the main issue in Russianfacilities today. There is no unified technologicalsystem of storage and utilization of medical waste in Russia. The main problems in this area are as follows:

(a) there is no appropriatestandard equipmentfor waste management; (b) in many cases there are no special rooms in medical facilitiesfor waste storage; (c) medical waste is transported without any special packing and is taken to the general communitydump; (d) there is no system of processing medical waste in order to remove materials (plastic, metal, etc.) which can be reused.

20. Accordingto Russianregulations, after being sterilized, all specific medicalwaste must be burnt in special stoves. Disinfectionof sewagein hospitalsmust be done within the generalcommunity sewage

2 There are more regulations concerningspecial types of medical waste such as radiologicalwaste. These are not, however, relevant to the project. 112 ANNEX3.3 system by the regular city (rural rayon)sewage processingstations. None of these regulations(some of which may be unnecessary)appear to be followed.3'

EnvironmentalImpact of Proposals

21. The project would improve the environmentalaspects of medical facilities in Russia through the choice of construction materials, design of medical units, and choice of equipment. Under the rehabilitation,the plan is to build new rooms for discardingmaterials (emergencyand admissionroom); for storage of equipmentand disposables(intensive care unit); sterilization,autoclave, storage of sterile materials, for discarding materials, storage of equipment(X-ray and Respirators),storage of non-sterile consumables(operating theater); for wastedisposal (ward); storagefor reagents, for disposalof biological materials (autoclave, central laboratory),chemicals and films (X-ray and imaging department).

22. The project will use insulationmaterials, whichare almostnon-existent in mostRussian facilities, for the following:

(a) insulationagainst cold; (b) insulationof water and electrical supplies; and (c) insulationof walls and ceilings.

23. Hazards appear when the materials are: toxic; toxic only when on fire (combustible); and carcinogenic. For these reasons, materials used for constructionof any of the above would not contain substanceslike asbestos, MDF, nor polystyrene.

24. Fire hazards would be minimizedby the constructionof walls that span the height of the room to the ceiling, corridors which are not obstructed, heavy metal doors which limit each fire unit and enables the containmentof the fire. In each room doors would open to the exterior and safety switches for electricityand gas inlets would be present in special nichesoutside each room. These features would be enhancedby the presence of smoke alarms and sprinklers.

25. The air in project units would be heated, cooled and ventilatedwith external air circulated and vented. Care would be taken to filter out contaminantsin problematiclocations such as the Microbiology laboratory. Amountsof C02 and CO would be monitored in closed areas and gases like Halothaneand N02 would be monitored in operating theaters since the hazards of these gases to personnel is well documented. Measures are taken in the structure to secure that external air is not contaminated.

Mitigation and Enhancement

26. In general it shouldbe emphasizedthat specificpollution in medicalinstitutions is generatedeither by local power plants or waste spillage. Since in Russia, central city power plants deliver heating and hot water, environmentalcontrol shouldbe exercisedover them. The health componentrecommends the use of a diesel generator, of course complying with regulations, namely, its location, noise level produced, and automaticfire extinguishercapacities.

3' For example, no special treatment is necessary for hospital sewage since the same bacteria are present in the population at large. Specific contaminants are diluted by the total fluids generated at the sites and further diluted and handled by the sewage of a city/raion. This rather natural process complies with the most rigorous standards. ANNEX3.3 113

27. Buildingmaterials used during constructionwould be storedon site. However,upontheir disposal after constructionor after being torn down, they would be transferred to central city or raion dump sites. Old pipes and other metal objects would be transferred to smelting sites. Machinery of medical nature would first be dismantled, parts for secondary use would be recuperated, and metal parts would be transferred to smelting sites.

28. Radiation exists at three different sites: X-Ray department, laboratory, and at the site of radioisotope imaging and treatment. Of the three, the last is irrelevant to the project. Construction standards and specification of equipment under the project are governed by pertinent concerns. Recommendedmodern X-Ray equipment is designed to secure minimum radiationexposure to patients and personnel. At the radioisotopes work sites, care would be taken for safety of personnel during construction(lead shields).

29. The constructioncodes for X-ray departmentsspecify the amount of radiation generated by an X-ray machine and leakage of such radiation. Employees would be protected through the use of lead (plumbum)coverings in walls and partitions. Gowns containing lead and other devices would be used for the protectionof patients' reproductiveorgans, and finally, warningsigns for pregnant womenwould convey the danger of X-ray exposure.

30. The personnel working in these sites would be protected by the use of tunics and gloves, as well as specifically designed non absorbent surfaces on the furniture and floors. Monitoring of personnel would be mandatoryand achievedthrough the use of tags to detect X and Gamma radiationin conjunction with monthly and annual checkups.

31. Chemicalsthat may be hazardousby being carcinogenicor combustible/explosivewould be used under a Laminar flow cabinet and used only by qualifiedand "hazard aware" personnel.Chemicals would be stored in a specially designed storage facility, keeping the former and latter separate. Storage and handlingwould be accordingto commonNFPA (NationalFire ProtectionAssociation-Boston, USA) and NCCLS (National CommitteeFor Clinical LaboratoryStandards, USA) standards.

32. The disposal of medical waste would be accomplishedas follows. Biologicalwaste would be disposed in two phases: (a) collectionin departmentsand laboratories;and (b) transfer to central disposal units after decontamination(usually performed by auto-clavizationsuggested as part of the project).

33. The collectionwould be in specialplastic containersmounted with heat resistant bags present in sufficient quantities in each ward, unit, laboratory. Needles would be collected separately in special plastic containers. Placementinto the container would be performed in a manner such that the pricking of personnelwould be avoided. At the end of the day, biologicalwaste would be collectedand transferred to a centrally located autoclave. Afterthe autoclave,waste would be ground and deliveredto a dump (the regular communitydump could be used as all materials are sterile, hence non-hazardous).

34. The lack of regard for environmentalconcerns in Russianmedical facilitiesvisited by consultants during project preparation has been apparent in structures, equipment, managementof care, and waste control. One of the most important potential contributions of the project would be in training professionalsto be aware of environmentalissues, and to follow pertinent regulations. Environmental safety issues would be included in the curricula of all training under the project, in additionto training 114 ANNEX3.3 given during installation of equipment and introduction of new technologies as part of the installation process. Special training courses on environmental issues are not required.

II. ECONOMIC ASSESSMENT

35. The economic evaluation of the project entails assessing the additional recurrent cost the project would impose on the system, vis-a-vis the project's social benefits comprising the financial gains from savings on cost of medical services, mainly hospitalization, plus improvement in length and quality of life. That is, the social value of the project depends on the valuation of additional years of life and improvement in their quality that ultimately cannot be reduced to any monetary equivalent except as a political judgment.4' Consequently, the economic evaluation constitutes estimating the net present value of the investment in the health component of the project, and contrasting this value with the project's potential non-monetary benefits. Thereby the evaluation provides the data for the political judgment.

36. The Central Raion Hospital, Cherepanovo, operates along with 8 other smaller facilities, all with a total of 595 beds, in a raion of 55,000 population. This population is also served by the oblast hospital in Novosibirsk. According to official data, the Central Raion Hospital is designed for 365 beds. It has been operating 315 beds as it has been under renovation for some time and one of the wings has been closed. It has been operating these beds with a length of stay of 12 days and 60% occupancy rate, and an annual budget of US$1.03 million (1994)1', reflecting an annual cost per available bed of US$3,175.

37. By the hospital management's own assessment (provided it is not budgeted by the number of beds), the hospital could operate well with 200 beds, two-thirds of its current size, with modern equipment. This is true, as discussed below, for the system at large. It is expected, therefore, that operating as a central rural facility with modern diagnostic and therapeutic facilities serving the entire raion, the hospital can reduce the number of beds serving the entire population of 55,000, estimated at 770 beds, by one-third or by 256 beds. This would amount to an annual savings of $812,800 (256 x

1' The impact on net health care costs is also difficult to measure since this requires a somewhatspeculative assessmentof what would have happenedwithout the project. Several of the building are in danger of collapse, and there is a prospectof a total loss of service. Such an assessment,however, is unnecessaryin view of the project's efforts to upgrade and modernizefacilities and not just to prevent further deterioration.

51 Becauseof the state of the hospital, it is hard to assess the accuracyof these statistics. Complicatedcases, requiring longerand more extensive examinationand treatment are transferred to oblast facilities in the city of Novosibirsk. No data are available on such transfers. Russian averagesare 14 beds per 1000 and an average length of stay of 17 days (1991-92). The relevant averagesof the European membersof the OECD are 9 beds per 1000 capita with an average length of stay of 12 (Schieber, G.J., Poullier, J.P. and Greenwald,L.M., "Health Performancein OECD Countries: 1980-1992). It is argued that contrary to these averages, the correspondingRussian data of 14 and 17, do not includebeds for long-termcare, mainly for the aged, that by-and-largedo not exist in Russia to the extend known in the West (Chemichovsky,D., Barnum,H. Potapchik, E., and Tulchinsky, T., "Health Sector Reform in Russia". Mimeo. World Bank, 1994). ANNEX3.3 115

$3,175).Y Part of this savings would be incurred through better outpatientservices and a lesser need to refer patient to treatment in oblast facilities outside the raion.

38. The following tables estimate the investmentand recurrent costs of this subproject.

Table 3.4.1: CherepanovoHospital - Cost of InvestmentBase Cost (in US$)

Unit Construction Equipment Total Cost Cost Cost ...... Planning and bidding 124,000

Emer. & Admis. room 324,000 57,000* 381,000 Operating Theater 574,800 99,200 674,000 Intensive Care Unit 240,000 131,700 371,700 Wards 325,600 60,000 385,600 Laboratories 705,600 205,000 910,600 X-Ray & Imaging 520,400 385,000 905,400 Central Systems 20,000 470,000 490,000 Russian Supervision 60,000 ...... Total 2,710,400 1,407,900 4,282,300

* Including ambulance.

Table 3.4.2: CherepanovoHospital - Annualrecurrent costs, materialsand supplies, and capital costs associatedwith the investment(in US$)

Unit Materials & Supplies ...... ER & Admission 1,700 Operating Theater 22,380 Intensive Care Unit 30,705 Wards 22,140 Laboratories 235,175 X-Ray & Imaging 61,275 ...... Total 373,375

6' Based on Russian national averages, this figure assumes that the raion is using the equivalent of additional 175 beds in oblast facilities. 116 ANNEX3.3

39. The net present value (NPV) of the investment in the hospitals is based on a discount rate of 15%, 10 years until the project comes to full fruition, and 5 years until the additional cost are fully realized. Given the benefits mentioned above, an investment of about $5 million plus additional annual running cost of $0.37 million, the NPV is $(- 3.94) million. This means the population will have an additional imputed recurrent cost of about $11 annually per capita (15% of $3.94 million for 55,000 capita) or about 18% increase over current spending. This would be the price of the non monetary benefits from improved health associated with this particular facility, the potential of which is discussed below.

40. Simulating on a system-wide basis, assume that each hospitalization day costs, as at Cherepanovo, about $11, based on an occupancy rate of 85%, and the Russian average of about 14 beds per 1,000 capita. Assume further that over a period of 5-10 years the modern technology implemented under the project can reduce the length of stay by 30%, from 17 days to 12, and the number of beds by 35%, from 14 to 9 per 1000 population. Taken together, these data also mean that 10% of patients currently treated in hospitals would be treated in the community, including treatment on an outpatient basis.2' On these assumptions the number of beds serving a catchment area of 300,000 could be reduced from 4,200 to 2,730 and the 90% of the population currently hospitalized would be served spend 12 days, on the average, in hospitalsY This saving of 1,470 beds, would lead to annual savings of $5.0 million. The present discounted values of these cost savings from the project for the system at large, by different periods of fruition, are as follows:

Dis. : Years to fruition Rate : 5 7.5 10

US$ millions 15% : 23.45 20.01 17.26

41. It is estimated that the additional running cost of supplies and materials for the project would be mainly those associated with the new and expensive laboratory and imaging equipment. They would amount to $3.6 million in hospitals (ten-fold over the Central Raion Hospital in Cherepanovo) and about

7 This last figure is based on the identity: admissions = beds*365*occupancyrate/average length of stay. Reduction in the numberof beds by 35% and in the average length of stay by 30%, suggestabout 9% fewer hospital admissions,assuming identicaloccupancy rates in westernEurope and in Russia.

s These are upper estimates for the potentialreduction in beds. Given that Russian data do not include long- term beds which are included in Europeandata, the reduction in beds and length of stay can be even greater than suggestedhere, up to 6 beds per thousandfor general acute beds that are comparableto Russian statistics. Further reductions,however, are not stipulatedhere becauseall reductionswould require training part of which is not includedin the project. ANNEX3.3 117

$730,000 per polyclinic, for a total of $4.3 million.9' In other words, once the full reforms have been achieved there is an annual recurrent cost saving. The higher running costs are likely to be incurred before the hospital savings are fully made. Here again, if the new cost levels are reached in full after 5 years, the present discountedvalue of this amount, at a 15% discount rate, is $20 million.

42. It can be seen that if the hospitalizationsavings were realized in 7.5 years there would be no net recurrent cost. If a lower discount rate--for example that used to repay the World Bank--therewould even less of a recurrent cost. Even in the worst case scenario, with full hospitalcost savings not achieved for ten years, the present value of the additionalrunning cost is only $2.9 million, or less than $10 per head. The cost of the improved services are principally the capital costs. On the basis of the Cherepanovoand Rostovdata, upgradingthe entire hospitaland polyclinicfacilities serving a population of 300,000, would be $60 to 70 million. Assumingthe higher figure and using an interest rate of 15%, this amounts to an annual cost of $35 per beneficiary. Using an interestrate of 7.5 %, roughlyequivalent to the rate on the World Bank loan, this amounts to an annual payment of about $18 per head of the beneficiary population,or about 30% above current expenditureper capita.

43. As demonstratedin Table 3.4.3, the potential for health improvementin the two project areas is dramatic. The differencein life expectancybetween Europe and both oblasts is dramatic, especially for males in Novosibirsk. This difference cannot, of course, be attributed solely to differencesin medical care, but much of it is related to trauma and cardiovasculardisease, on which project-financedfacilities can have a very marked effect, especially in age groups 15 to 60. (This can, in turn, raise productivity and the economic returns to education. Quality of life would improve as well. These very substantial benefits need to be valued against the annual project cost per capita inputtedabove.)

44. Sustainability. Recurrentor runningcosts are presentedabove. These costs should be covered substantially through savings in hospital cost and in the longer-term by gains in income and productivity. These are incremental cost to the operations of the polyclinics and hospitals.

45. Maintenance of Equipment and Supplies. As for equipment, the issues are affordability and availability of regular maintenance and supplies, especially in view of the harsh economic circumstances. Maintenance at the operator level at the local site would be achieved relatively easily with Russian know- how and skill. Maintenance beyond this level may be an issue and needs to be secured. It is suggested that under the project, suppliers of equipment (preferably a single one per oblast and beyond) would be contractually committed to (a) "down time," namely, the time during which the supplier must repair non operative equipment, (b) to a minimum quantity of spare parts it must maintain in Russia/Oblast, and (c) to train and retain a local maintenance capability. As for supplies, it is clear that because of the general economic conditions, and the need to establish new types and sources of supplies, it is essential that those are secured initially through the project. It is proposed that under their contracts, suppliers of equipment would be contracted for supplies for several years in a declining fashion, to allow the system to adjust.

2' This is an overstatementsince current laboratoryand imagingcost are disregarded. Depreciationand interestcosts are not consideredas added costs because althoughnot budgeted, they are equally present on the current building and on existing equipment.It should be stressed, however, that, as discussedelsewhere, these costs should be incorporatedin the budgetsor other compensationsystems of facilities, and be used to finance investments. -b

Table 3.4.3 Years of Potential Life Lost (YPLL)

"Europe, 1980" "Rostov, 1992" 'Novosibirsk, 1992" Life Expectancy Life Expectancy YPLL Life Expctancy YPLL Age Female Male Female Male Female Male Female Male Female Male

0 77.30 70.53 70.11 61.93 7.2 8.6 71.43 58.77 5.9 11.8 1 77.16 70.55 70.37 62.17 6.8 8.4 71.77 59.08 5.4 11.5 5 73.33 66.74 66.51 58.35 6.8 8.4 68.05 55.39 5.3 11.4 10 68.42 61.86 61.66 53.53 6.8 8.3 63.16 50.56 5.3 11.3 15 63.50 56.96 56.78 48.71 6.7 8.3 58.27 45.73 5.2 11.2 20 58.62 52.24 51.99 44.07 6.6 8.2 53.49 41.18 5.1 11.1 25 53.75 47.57 47.22 39.66 6.5 7.9 48.73 36.88 5.0 10.7 30 48.88 42.84 42.43 35.33 6.5 7.5 44.05 32.67 4.8 10.2 35 44.04 38.10 36.67 31.13 7.4 7.0 39.37 28.78 4.7 9.3 40 39.25 33.44 32.98 27.04 6.3 6.4 34.84 25.06 4.4 8.4 45 34.55 28.91 28.39 23.06 6.2 5.9 30.49 21.71 4.1 7.2 50 29.96 24.60 23.86 19.25 6.1 5.4 26.34 18.69 3.6 5.9 55 25.52 20.56 19.46 15.69 6.1 4.9 22.32 16.06 3.2 4.5 60 21.25 16.83 15.27 12.43 6.0 4.4 18.49 13.24 2.8 3.6 65 17.20 13.43 11.22 9.30 6.0 4.1 14.95 10.95 2.3 2.5

Source: 1. N. Keyfitz & W. Flieger, 1990, World PopulationGrowth and Aging, Chicago: ChicagoUniversity Press. 2. I. Zhitnikov, 1995, "Life Expectancyat differentage groups in Rostovskayaoblast, 1992-93",working materials. 3. S. Soboleva& V. Shteinberg, 1995, "Life Expectancyat differentage groups in Novosibirskayaoblast, 1992-93', working materials. X U ANNEX3.3 119

46. No maintenanceguidelines were found in the hospital. A general observation is that while engineers and techniciansare available in some facilities, they were not in others. Even when present, the mix of expertise is not consistent; in some instances it is a buildingengineer and in another it is an electrician, and so on. The general impression is that maintenanceis not routine, but done only when things breakdown. This situation must change under the project to sustain the renovatedand upgraded units. The solution to this issue may be easily found, given Russianexpertise in hiring and training the right people with the mix of skills needed in a hospital.

47. Sustainability is not simply a question of meeting recurrent costs and providing routine maintenance, but also of new skills and methodsof work. For example medical staff will need to work at a different pace and at different modalities;(b) acquire new technologiesand to maintain abreast new developments;and (c) overcomestructural and institutionalrelationships whereby lower level facilities depend now on upper level facilities, notably Oblast hospitals and special institutes. There is probably least problem with technology. In general, Russianpersonnel and professionalshave been aware of their lagging technology and need. As for the other issues, it is possible to find Russianmodels that come close to the rehabilitationconcept and program proposed here. Training is provided under the project to deal with these issues (see para. 3.34, Chapter III).

48. Implementation.!'- Functional, architecturaland engineeringdesigns will be developedas part of project preparation. The schedule is as follows for these pilot facilities:

(a) develop a general functional and engineering manual with specificationsof design and engineeringrequirements for general hospitals (by end of May 1995);

(b) develop an architectural and engineering designs according to common practice in the west (by end of May 1995);and

(c) adapt the designsto Russianspecifications while training Russianarchitects andengineers to develop designs which synthesize the common practice and specificationof the west with Russian (end of June 1995).

Contractingfor Equipment

49. In principlethe project shouldpromote competitionamong differentsuppliers as a way to enhance quality of product and service. Unfortunately,this may not be a realistic option in Russia at this stage. The project needs to secure continuedservice to the equipmentprocured under the project. Given the limited size of the project, it would not be reasonableto require of suppliers to retain on-site regional maintenancecapacity and stocks of spare parts (e.g. imaging, laboratories).

50. Therefore, the approach taken under the project is to contract all equipment in each region to single suppliers, but within general equipmentcategories and specifyingthe minimum contract size that would justify local service. For example, biochemicallab equipment will be tendered separately from chemicallab equipment. In each case an effort will be made to tender the minimum size for which it is reasonableto secure local service. This may bring in competitionafter all, as most often suppliers of one type of equipmentsupply the other type as well.

E This model appraisal anticipateda faster start to implementationthan proved feasible. 120 ANNEX3.3

51. Installation of Equipment. The installation of equipment, especially for laboratory, needs an on-site engineer for adjustment of infrastructure and exact location of equipment. For X-ray and imaging equipment this service is rendered by the suppliers. Budget and contracts for civil works needed for installation would also be secured (5% of construction cost), separately from the procurement of equipment. Suppliers usually supervise the installation of equipment.

52. Timetables and Sequencing. With work beginning in April 1995, a possible implementation schedule is given below. The purpose is to indicate the lengths of time required for each stage, rather than to provide a firm timetable.

Table 3.4.4 Construction Program, Hospital

No. Details Duration(days) Start Finish Cost

I Planning and Bidding 251 17/04/95 01/04/96 110,000 2 Preparing Tech and econ. approval 87 17/04/95 15/08/95 40,000 3 DetailedPlanning, for bidding 88 30/08/95 31/12/95 60,000 4 Bidding(Construction) 66 01/01/96 01/04/96 10,000 5 Construction 261 02/04/96 01/04/97 2,391,000 6 Works 66 02/04/96 02/07/96 478,000 7 SystemsPreparation 65 03/07/96 01/10/96 1,077,000 8 Equip Systems 65 02/10/96 31/12/96 478,000 9 Finishingjobs, Completesystems 65 01/01/97 01/04/97 358,000 10 Russian Supervision 400 01/01/96 11/07/97 60,000 11 MedicalEquipment 649 11/04/95 03/10/97 1,367,000 12 Prepare specifications 30 11/04/95 22/05/95 15,000 13 Processbidding and Orders 30 01/10/96 11/11/96 590,000 14 Arrival of Equipment 65 01/04/97 30/06/97 738,000 15 Erectionon site and commissioning 60 14/07/98 03/10/98 147,000 ANNEX3.3 121

APPENDIX

POTENT'IAL FOR COST SAVING THROUGH REDUCTION IN HOSPITAL STAYS

A. Medical Concepts and Practice in Facilities Visited by Mission

1. During the course of studying different medical facilities, efforts were made to differentiate between a lack of resources and the existenceof a non-westernapproach to care that, although possibly effective, mightbe interpretedas inappropriate. It is acknowledgedhere that approachto care implicates fundamentalissues that do not necessarilyrelate to availabilityof resources;nonetheless, the effectiveness of the Russianapproach observed is consideredhere. It is noted that the discussionis based upon visits to selected facilities and that the situationsstudied may not be representativeof the two oblasts or for Russia as a whole.

Primary Care: City and Other Community Polyclinics

2. Primary care in Russia is delivered in polyclinics, where individuals seek and encounter the primary physician. The populationapproaching the polyclinic often comes with the followingproblems: cardiovascular diseases, e.g., hypertension, coronary heart diseases; lung diseases, e.g., chronic bronchitis, asthma, pneumonia;minor trauma; and malignancies.

3. In the large cities, the administrative organization of polyclinics follows the administrative organizationof the city. The city is divided into "raions" with populationsof about 300,000 each. The polyclinics may be free-standingor part of a hospital. In rural areas the polyclinic is usually associated with the hospital.

4. In each city raion there are between 3 to 4 polyclinics for adults and at least one children's polyclinic. The adult and children polyclinicsform two identical and parallel systems differing mainly in size and some specialties. Above these polyclinics, hierarchically, in each rayon there is a dual purpose polyclinicwhich serves both as the primary care provider for the populationin its catchmentarea as well as the site for trauma treatment and specializedmedicine for the entire rayon.

5. This polyclinic, open 24 hours a day, is equipped with limited X-ray and imaging equipment, usually on the ground floor that enables imagesto be taken without transportationof patients to an upper floor, as most buildingdo not have elevators. Specialistsin these polyclinicsare assignedaccording to predefined standardsaccording to the size of different sub-populations. In PolyclinicNo. I in the city of Rostov, for example, the following specialists are available: urologist, surgeon/orthopedist, 122 ANNEX3.3 ophthalmologist,E.N.T. (eye, nose and throat) and a part time oncologist.11' The specialistsare usually hospital physicians who work part-time in the polyclinic.

6. When hospitalizationand/or further in-depth investigationis deemed necessary, the patient is referred to a city hospital where the final decision is made on whether or not to admit the patient.

7. The Russian primary care physician is not a specializedfamily practitioner, a conceptwhich, for most practical purposes, is absent in Russia. Practitionersin clinics usually begin to work in this setting with limited knowledgeand experience, and a priori, they must rely upon specialists.

8. The diagnosticand therapeutictools availableto the primary physicianfor dealing with the above- referenced health problems even in the main polyclinics observed, are: chest X-ray, manual complete bloodcount, and manualurine analysis. These tests are rather inadequate,by familiarWestern standards, to manage even the commonmedical issues facing the population.

9. The situation is compoundedwhen the physician, who may well be fully aware of the diagnostic options, lacks access to diagnosticfacilities due to the virtual nonexistenceof modern diagnosticsupport system for primary care that might otherwise allow a primary care physician to keep the patient in the community. As a result, many, if not all, "complicated"cases are not being diagnosed, let alone treated, in the polyclinic setting. At best, patients in need of specialistsand diagnosticservices--even those that could be provided in the community--arehospitalized. As intermediate level or first hospitals have limited capacity (see discussionbelow), patientshave access to limited, or even worse, ineffectivecare.

10. It is emphasized,however, that this state of affairs was addressedto some degree by the former USSR, and one can observe a different approachto care, at the oblast level. In the former USSR, there were "DiagnosticCenters," one of which was located in Novosibirsk,that served as a strategic support for polyclinics in rural areas. In the center of Novosibirsk,one may find sophisticatedlaboratory and radiographicequipment, as well as highly skilled medical personnel; however, the city polyclinicshave no access to this facility.

11. In summary, the problems faced by primary care medicine in Russiaare as follows: (a) lack of specializationof the primary care physician; (b) lack of diagnosticsupport (X-ray and laboratorywork- up); and (c) inadequate specialist support. Consequently, apart from the health consequences, hospitalizationburdens the system, resulting in the following:(i) at city hospitals, where there is limited accessto diagnosticsupport, a very long turn-aroundfor the patient (about 15 days in Russiaas opposed to 4 to 6 days in the West) and an immediateneed for more hospital beds; and (ii) limitedaccess by the patient to modern, qualified, and promptlydelivered medicine.

' Considerablemanpower and spaceis allocatedto what is calledin Russia"physiotherapy". This is a branch of internalmedicine rarely found the West. It includesvarious methods of treatmentwith physicalagents suchas applicationof heat, radiation,water-bath, etc. Thesemethods are not alternativesto other modalities but are key medicaltreatment. It is beyondthe scopeof this reportto evaluatescientifically the adequacyof thesetreatments. ANNEX3.3 123

Hospital Care - Selected Units

12. EmergencyCare and "HospitalAdmission" In spite of the common nomenclature("Priyomni Pokoi"), a western-type emergency room was not observed in the hospitals visited, except for some elements in the newest city hospital in Rostov. Selection and referral of patients are not done at point of admission;rather, patientsare sentto wards accordingto insufficientlysupported diagnoses by primary physicians(see discussionabove). The lack of diagnosticand therapeuticequipment and support at point of admission appears to be attributableto approach to care rather than to lack of resources.

13. The emergency room is not designed or equipped to deal with emergency care. Patients are transferred immediately, without a definite diagnosis (to be establishedin the emergencyroom), to an "appropriate" ward. Alternatively, if the case warrants, staff are called in from departments such as therapeutics, surgery, orthopedics, and anaesthesia. In any event, patients are not immediatelytreated and stabilized in the emergencyroom.

14. Even in major city and oblast-levelhospitals, the units consist of 3 to 5 small rooms (2 x 3 meters) served by narrow doors, at times with leading stairs that impede movementof stretchers and wheel chairs. In each room one can find a bed, a table, and a chair. The dimensionsof the room and lack of medicalequipment, e.g., syringesand other disposables,I.V. lines, electricalsupply lines, central gas systems, preclude immediate action in the case of a medical emergency involvingone or more patients.

15. The need for X-ray and/or imaging warrant, in most instances, the transportation of a patient across a hospitalwhich often lacks suitable passages. Laboratory examinationsare hampered since the laboratory is situated away from the so-called emergency room, and there is virtually no system for effectivetransfer of patients or specimens.

16. Intensive Care. The Russian "Reanimazia"unit is conceptuallyclose to the western intensive care unit, which supplies close monitoringand supervisionof critical patients and, when necessary, life support. The Russian unit in most instances lacks appropriate infrastructure and equipment. It is generally a converted hospital room with no special modificationsfor its proper functioning, e.g., a central monitoringstation, appropriatespacing between beds, central gas and electrical systems, arterial lines and central vein catheterization, and specialized modern equipment including respirators and monitors. To the extent equipmentcan be found, it is outdated. For example, in all hospitals visited, respirators are operated by electricity rather than pressurized air. A power failure in these institutions, which for the most part have no back-up electrical supplies, endangers critical patients in need of respirators.

17. OperatingTheaters. The operatingtheaters visited do not meet standardscommon in the west. The rooms are small and lack basic prerequisitesnecessary for their proper functioning. They have no gas system, no anti-static floor, no air-conditioningwith under pressure to support containment of infection. In some hospitals, even the use of anesthetic apparatus was not observed. In one case, anesthesiawas administeredby ether. Proper monitors for operationsare not available,nor is it possible to take X-rays or conduct laboratoryexamination during operations. 124 ANNEX3.3

18. Wards. In principle, wards in Russianhospitals serve the same purpose as do wards in the west, with the exception that infectiousconditions, such as streptococcalinfection of the throat, are separated either in the ward itself or are treated in a separate hospital. In the facilitiesvisited, the ward provides at best "hotel" services. Medically speaking, the general layout of the ward, usually along a narrow corridor, does not have a nursing stationthat enables effective monitoringof patients. Beds in the room are not maneuverableand do not allow for changing of position or height or even transportation of patients. Movement of equipment into the room is hampered because of the number of beds and their layout. Signallingdevices and central gas systemsare completelylacking. Hence, in case of need there is almost no mechanismto alert staff, and even when staff arrive, the opportunityfor prompt intervention is virtually non-existent.

19. Laboratory. The Western concept of a centralized laboratory does not exist in any of the facilitiesobserved, includingoblast-level hospitals. In Rayonhospitals visited, labs usuallyconsist of 2-3 smallunits with diagnosticfunctions limited to: manualdetermination of urine chemistry, namelyacetone, bilirubin, specific gravity, glucose; microscopicobservation of urinary sediment; manual hematology, namely complete blood count and differential;glucose analysisby the glucose oxidase method; manual, namely spectrophotometric,analysis of other analytes, such as Total Protein, AST, ALT, Creatinine, Calcium and Inorganic Phosphorus. Electrolytesare determinedmanually by chemicalmethods and not by-flame photometryor by Ion SelectiveElectrodes.

20. Critical "analytes"or tests are neitherperformed nor requestedby physicians. Such tests include: total CPK, Iron, Transferrin, Amylase, and Lipase. Acute and common problems in Russia, such as myocardial infarctionand alcoholism,cannot be supported by standard laboratorytechnology.

21. With regard to quality, critical Prothrombinand Partial Thromboplastin(PT, PTT), essentialfor operations, are performedmanually with no integratedquality control, renderingthese tests exceptionally unreliable.

22. Microbiology laboratories needed for isolation of bacteria and viruses and determination of susceptibilityto antibioticsare almost non-existentin the hospitals, due in part to the approach to care of infectiousdisease in Russia, i.e., microbiologyis part of a separateadministration. This limits access by medical facilities to relevant tests. For example, even in the Novosibirskoblast hospital, where the microbiology laboratory is on hospital grounds, its impact on patient care is negligible because the laboratory, which belongs to the State Committeefor Epidemiologicaland Sanitary Surveillance and Control, is not accessiblefor regular care.1W'

23. Furthermore, other cultures for significant bacteria, like mycobacteria(tuberculosis) or other communicablediseases, are not performed in this laboratorybut in a special laboratory for infectious diseases, which is located elsewhere.

24. The situation here described leads to prolonged turn-around time of laboratory requests. For example,for routine biochemistry,critically neededfor all patients, results are not availableto physicians for at least 24 hours, rendering some of the results ineffective, as in case of heart failure; different equipment and organization could enable effective results in 4 hours. Moreover, emergency tests take about 6 hours in the facilitiesvisited, while the standard is about 40 minutes.

'2 On pertinentinstitutional issues, see Chemichovsky, et al, Chapters3 and 7. ANNEX3.3 125

25. The low levelof use of the laboratoryappears to be attributablenot to lack of knowledge(at least in the hospitals), but to lack of equipment. In most instances,physicians were aware of the technological options, but required appropriatetraining.

26. X-ray and Imaging. Paralleling the lack of centralized laboratory facilities is the lack of centralized imaging facilities, in the communityand in Rayon and city hospitals. In most cases, X-ray and imaging services are scattered across facilities by wards, floors, or sections.

27. While layout issues mainly concern efficiency,the major issue is outdatedequipment leadingto both reduced effectivenessof diagnosisand major safety concerns. For example, fluoroscopy (needed for stomatologicalexams) is executedthrough direct viewing rather than through image intensifiersand TV monitors. This endangers both patients and operators and reduces the effectiveness of the examinations. In the case of pregnant women, for example, the levels of radiationobserved by the team (10-15R)would warrant an abortion by western standards.

28. Equipmentfor catheterizationand examinationof blood vessels, needed mainly for examination of cardiovascular and vascular problems in hospitals dealing with such problems, is non-existent. Similarly, equipmentfor diagnosis of tuberculosis should enable images of real size and, beyond that, permit correct diagnosis. In the facilities visited, however, the largest image was of l10 x l10 millimeters. Processing of films is manual rather than automated, thereby reducing the quality of the images and compromisingdiagnostic capabilities.

29. Mobile equipment could, in the absence of a stationary alternative, be used in a variety of locations, space and passages permitting, such as in operating and emergency rooms. The existing equipment is outdated and lacks the necessarypower for proper functioning.

30. In sum, non-centralizednature of laboratoryand imagingservices for diagnosisand treatment is conceptuallyinefficient in view of cost and capacity of equipmentand is deficient in quantityand quality. This undoubtedlycontributes significantly to the ineffectivenessof the Russianhealth care system and to its inefficiencyas marked by high levels of clinic utilization and hospitalization.

Practice in Selected Procedures

31. This section aims to show the differentmodalities in medical care delivered mainly at the raion hospitals, as well as to suggest the implied overall expendituresincurred due to the observed practices. The medical problems which are presented in this section are related to the major causes of morbidity and mortality in Russia.

32. Acute Myocardial Infarction. Myocardialinfarction may serve as the best example to show differencesin technologyand modusoperandi that influencemorbidity and mortalityrates as well as use of service. When examined, myocardial infarction is divided into two phases: the acute phase, and the complete recovery or chronic-diseasephase. In the West, direct mortality during or immediately foilowingmyocardial infarction (which is the acute stage) was reduced by 15 to 20 percent followingthe introductionof intensive care units. Further reduction of late onset mortality and morbidity (chronic stage) was recently achieved by minimizingthe extent of the heart muscle involved in the infarction process, and during the recovery stages by preventing the onset of chronic heart failure (dilative 126 ANNEX3.3 cardiomyopathy).This was achieved by the (essential)administration of streptokinaseor other drugs within 6 hours or other drugs, and the introductionof ACE inhibitors and beta blockers.

33. In the areas visited by the mission, after a call is received that a person is sufferingfrom acute chest pain, in the city an ambulancewill be called, while in the rural areas a physicianwill be summoned. In both instances, an E.K.G will be performed and the patient will be transported to the hospital. In the city the maximumtime lag between symptomsreported and arrival to the hospital is about 4 hours while in the rural areas one may find time intervalsup to 24 hours. These time period are exceptionallylong especially if the mobile team does not have the right medication. The patient, most likely with complicationsalready, will be transported in both cases directly to a cardiology or internal medicine department.

34. However, this does not fully explain the norm of prolongedhospitalization since not all cases of myocardial infarction end in complications. It is hypothesizedthat the problem is that the Russian medicineobserved by the mission, ignoreswestern statisticsthat show that major complicationsfrom the diseaseoccur within a week of its onset, and that other complicationsare not preventedby hospitalization beyond this period.

35. Currently, at raion hospitals (and even at some oblast hospitals) follow the only procedures as outlined (under "Russia") in Table 3.1, the '-' sign indicating 'no-performance' as compared with the West, a standard the project aims to achieve.

36. Trauma. In recentyears the numberof road accidentsand other causesof trauma have increased; it is now of the primary cause of morbidity and mortality in Russia. Dependingon place of accident, in Russia the patient is brought in the city to an Emergency Hospital or the Departmentof Surgery in raion hospitals, rather than to an emergency room and an intensivecare unit.

37. The main issue here is a rather fundamentallack of critical diagnosis as implied in Table 3.2. This leads to improper and often late treatment, and prolongedand unnecessaryhospitalization.

38. Infectiousdisease. Treatmentof infectiousdiseases in Russiaare in a way a peculiarity,namely the medical system seems to over emphasizein practice as well as in regulatorydecrees the conduct vis a vis infections. By law, infectionsof any kind must be hospitalizedno matter what the state of the patient, and he or she must be isolated in special departmentsor even hospitals, contrary to any such notion in the West. This leads to a dual hospitalizationsystem, redundant to a large part by Western norms.

39. This notwithstanding,the number of infectionsacquired in hospitals in Russia is far larger than in the West, 17% and 6%, respectively. Furthermore, no attempt has been made by the medical establishmentto switch to the use of sterile disposableequipment, or to encouragethe extensiveuse of the bacteriologylaboratory to establishthe exact identityof bacteria or their susceptibilityto antibiotics.

40. Physicians are almost always ignorant as to the bacteria present, and antibiotics are given according to the patients' response and not the establishedsusceptibility of the bacterium. Antibiotics administeredare usually inappropriate,the amount delivered is not monitoredby the minimalinhibitory concentration (MIC), nor are side effects prevented by establishingthe therapeutic level of the drug (antibiotic)in a particular patient. ANNEX3.3 127

41. On-site epidemiologyis preventedby the paucityof data generatedby the physiciansand lack of computerizedsystems. Indeed, in an oblast hospital of 1,600 beds, only 10 blood cultures are drawn a day, where it should be around 120. Furthermore, antibiotics tested for susceptibility are not standardized since they are prepared in-house; hence, sensitivity of bacteria is not always accurate and reproducible.

42. As for several critical examples, a patient with pneumonia by rule has to be hospitalized and confined to the infectious disease area. However, this is not always the case, and there are instances where patients are treated at home. The example reviewed here deals with an elderly patient who suffers from a mild Chronic lung disease and is in respiratory distress, as in this case the patient would also be hospitalized in the West so that comparisons can be drawn. As demonstrated in Table 3.3, here too some critical test are not performed, and hospitalization is considerably longer in the "Russian case".

43. Hepatitis is a major concern today in Russia. Although well recognized, few actions are taken at the level of daily care to contain this infection. Time and again emphasis is directed to the isolation of the patient and not to true prevention by detecting infected patients and eliminating contact with infected blood products. To date, at least 5 different hepatitis viruses are known. There are methods for easy detection and classification by type, that is hepatitis A, B and C (there is a variant of B which is called "delta"). Isolation is rarely needed.

44. In this example one has to recognize that the problem faced here is not only management and follow up of patients during the acute illness but the major impact is on morbidity and mortality of patients in years to come. Namely with hepatitis B and C, in a minority of cases they can become chronic diseases with persistent infection and may transform into chronic liver disease and ultimately cirrhosis and death.

45. Hepatitis C is particularly problematic in this case. The disease is relatively new (the virus was only isolated a decade ago) and extremely contagious through blood and blood products and many cirrhosis patients (previously known as cryptogenic cirrhosis) are infected with it. Diagnosis is easily performed, though as stated, is not performed at all in establishments visited, and the problem as a whole is not tackled by the medical establishment.

46. In the West, the only true remedy offered, before liver transplantation is warranted, is injections of interferon. This treatment is extremely costly and at present is not suggested to be a standard procedure in Russia. However, prevention and detection is most warranted, which by and large will decrease the future expenditure, prolong life expectancy and increase well being.

47. From these few rather incidental but most common examples, it is evident that the number of hospital beds in Russia is not only a consequence of secondary gains, following budgetary practices, but also of medical practice which no longer exists in the West. This practice is, in turn, partially due to medical technology in its broader sense, namely the availability of new technologies which influence the outcome of patients and the management of late onset morbidity. The project aims to promote Western standards. 128 ANNEX33

Table 3.2.4. Treatment of Acute Myorcardial Infarction

Procedure Equipment Drugs West Russia ...... Project Examine and Monitor Monitor + - + Arrhythmia

Correct Defibrillator + - + Arrhythmia Examine valve and Ultra sound + - + muscle function Measurement of pressure in Heart Arterial lines + - + and Arteries Correct External + - + block in Pacing electrical function of Heart Vasodilation i.v. of Arteries Nitrates + - + Anticoagulation Heparin + + + Vit K antagonists

Drug induced- Strepto- + - + revascularization kinase

Prevention of ACE, Beta - + + further cardiac Blockers damage

Support Full Partial Full of Procedures by Laboratory and Imaging

Hospitalization 7-10 25-30 7-10 Days ANNEX3.3 129

Table 3.2.5. Treatment of Trauma

Procedure Equipment Drugs West Russia Project ...... Examine and Monitor Monitor + - + Arrhythmia Correct Defibrillator Arrhythmia Measurement of pressure Arterial lines + - + in Heart and Arteries Mechanical Respiration Respirator + -+ +

Vasodilation i.v. Nitrates + - + of Arteries Drugs + Few + Support of Procedures Full Partial Full by Laboratory and Imaging Hospitalization Days 7 30 7

m:\king\annex3.3 ANNEX 3.4

PROPOSED PILOT REFORMS IN HEALTH FINANCING1 '

1. During the course of project preparation, proposals have been put forward regarding new financing mechanismsand reformed institutionalresponsibilities in health. These include:

(a) a capitationmechanism for the allocationof medical funds to raions and insurers; (b) a link between health financeprovided through the budget and the payroll tax earmarked for health financing; (c) a mechanismto establish the financial obligation of federal authorities to the overall oblast health budget; (d) reimbursementsystems for providers; (e) an investmentfund for health facilities.

2. Under (d)--i.e., reimbursementsystems for providers--Abt,Inc. (a consultingfirm financed by USAID) would provide training, informationand cost-accountingsystems. This would be a part of a joint effort by the World Bank, Abt and the local authorities of Novosibirsk, to turn the Cherepanovo raion, selected under the project for a model hospital, into a model raion of a comprehensivehealth care reform.

3. Under (e), a revolvingdevelopment fund (DF) underthe Territorial CompulsoryHealth Insurance Fund (TCHIF) would finance investmentsin medical facilities. TCHIFs were created at an oblast level by legislation, signed in April 1993, which amendedand complementedthe Health Insurance Law of 1991. The TCHIF is to receive the payroll tax of 3.4% and make payments to "insurers"--whichmay be insurance companies or types of Health MaintenanceOrganizations (HMOs)--or, in circumstances where these have not yet come into existence,directly to healthcare providersthrough "branches"of the TCHIF. In principle, the TCHIFs are supposed to receive comparable payments from oblast or raion health budgetsfor individualswho are not employed,which would implythat the TCHIF would channel all direct payments for health care. In many oblasts, this has not yet occurred, and oblast authorities continueto financehospitals and polyclinicsin much the same way as under the Soviet system. The role of the TCHIF with respect to capital expendituresin the health system has not yet been established. The objective of the proposed pilot is to try out a possible modality in order that health investmentshould respond more efficientlyto demand. Health investmentsfinanced by the World Bank loan would be administeredby TCHIF as thoughthey had been financedby the DF. This aspect of the financialreform is elaborated upon here.

4. The Russian 1993 health insurance legislation(HIL) assigns investmentsof different unspecified kinds to federal, oblast and municipalbudgets. Article 11 of the HIL assigns to the State and Municipal System (i.e., budgets)the responsibilityfor upgradingmedical facilities. Article 24 stipulates, however, that the price of medicalservices shouldinclude (a) depreciation(to maintain equipment)and (b) 'profit", a part of compensationfor service that can be used for purchasing equipment. Thus, while there is

1' The financial aspects of the Russian health care system that are of concern to the project and its environment are detailed in the paper, "Necessary Financial Mechanisms to Achieve Health System Reform Under the Russian Health Insurance Legislation" by Dov Chernichovsky and Elena Potapchik. This paper has been the basis for discussion with the regional health administrations and regional health insurance funds on the proposals put forward in this annex. 131 ANNEX3.4 recognition that some types of investments need to continue to be subsidized by the state, there is also an explicit provision in the HIL that would allow providers to invest and maintain capital on their own, and to receive compensation for this.

5. In Russia, neither capital markets nor compensation systems for medical services are at present developed enough to allow the financing of non-budgetary ("private") investments in medical facilities in any meaningful way. Second, given their public nature and deteriorated financial state, medical facilities have no access to whatever capital markets may be emerging. Third, there are also no regulations governing such access; medical facilities working under public contracts need to be regulated in this regard in order not to enter into "excessive" financial liabilities and "over-investment" that could be detrimental to the system's financial liability. Fourth, budgetary revenues are in fact being substituted or displaced by the revenues from the earmarked tax. There is, however, no link between these and investment responsibilities, and the declining budget remains the main investment source. This inhibits attempts to denationalize and privatize these facilities whenever warranted as a means to introduce decentralized management competition and thereby to improve service.

6. A possible solution to this problem may be as follows. As the TCHIF is responsible for compensation of routine capital costs of providers (depreciation and 'profits'), the TCHIF can also become an investment facility, responsible for a revolving development or investment fund which would operate alongside the budget, but with clearly delineated responsibilities between the two. In other words,

(a) a revolving Development Fund would be established under each TCHIF; (b) oblast and possibly federal administrations would retain the regulatory role concerning the need for facilities or equipment beyond a particular size and cost; (c) oblast and possibly federal administrations would remain responsible for subsidizing investment in facilities, to be agreed upon periodically; (d) a permanent development committee comprising of representatives of different levels from government, the TCHIF, and providers would be established. For funds for this Project, the Project Bureau or the CPIU would be represented.

7. Once established, the Development Fund would operate in the following manner:

(a) The committee would draw up (i) a list of investments by type and cost to be subsidized entirely or in part by the federal and oblast budgets, (ii) a list requiring the committee's approval ("certificate of need"), and (iii) a list not requiring any approval. These lists would be updated periodically according to need and changing circumstances. (b) The approval of the Federal Ministry of Health and the Medical Industry (FMOH) might be required for particular investments, depending on regulations which are to be developed. (c) At least while private financial institutions are developing, all providers, including private and other non-governmental free-standing entities, working under a public contract, would be allowed to apply for loans from the Development Fund for investments not requiring the committee's approval. (d) Development funds would be lent to medical providers on the basis of the agreed investment program and (financially) approved loans for free-standing providers. (e) Providers would, in turn, repay the loans from the TCHIF revenues. ANNEX34 132

(f) According to regulations to be developed, the TCHIF may borrow from financial institutions and/or budgetaryresources.

8. Part of TCHIF revenues, some of which have been accumulatingdue to lack of appropriate allocation mechanisms, can be used to initiate the Development Fund. In any event, shortages in the agreed investment budgets may be supplemented by borrowing from financial institutions using governmentguarantees. Borrowing from internationaland foreign institutionssuch as the World Bank should be made possible under this scheme.

Fgure 1: Proposed DevelopmentFund -- Flow of Moneys and InstitutionalRelations

Federal Government /Repayment Repayment Onlending 4 tI

LocalOblast Government

Project Health Bureau Authority

Regulation Approval OnlendinBg Onedn Trr. Health Inourance

9 ~~Dev./lnvestment Fund Repayment Compensationi Onlending Repayment for Capital

T Medpal Facilityg

The proposed set-up is outlined in Figure I above. 133 ANNEX3A

9. Specificallywith regard to the project, in addition to the regular agreements or contracts, the following agreementsare to be reached:

(a) Agreements between the oblast government and the TCHIF transferring the loan earmarked for health (excludingfunds for training) from the oblast governmentto the TCHIF, and establishingthe Fund's responsibilities in lieu of the loan, such as: (i) on-lendingto the medical beneficiaryfacilities per the Loan agreement, (ii) assuring that the beneficiary facilities are reimbursed for capital costs at least in lieu of the Project, (iii) collectingloan repaymentsfrom beneficiary facilities, and (iv) repaying the oblast government;

(b) Agreements between the oblast government--whichremains responsible for training (exceptfor those aspects which concern the DF)--andthe beneficiaryfacilities regarding training of medical personnel.

(c) Agreementsbetween the TCHIF and the beneficiary facilities, with the involvementof insurers, whereapplicable, establishing the procurementand disbursementprocedures for constructionand equipment.

10. Interaction with the Federal Health Insurance Fund, which was established for regional equalizationpurposes, is not proposed under the project. However, interactionwith this Fund shouldbe seriously considered in the future as a means to channel funds to areas in comparativeneed for medical infrastructureand for establishingfederal mechanismsto identifysuch areas. Such mechanismswere in place during the Soviet era but have not been in use since 1988. i1. The statutes of the DF and its mode of operations are currently being developed with the Novosibirskauthorities. Accordingly,under the project, the DF could develop capabilitiesto handle the following functions:

(a) procurement of moneysfrom different sources; (b) provision of training and technical assistance to medical facilities in the preparation of developmentand business plans, and of tender documents; (c) lending moneys for the developmentof medical facilities on the basis of the agreed investmentprograms; (d) supervising the appropriate use of loaned moneys, including the review of bidding documents; (e) collectionof repaymentof loans; (f) assurance of fee schedules for medical care under public contracts that secure a fair return on capital; (g) prudent financial managementof all moneys availableto the fund at any time.

12. Apart from consultingservices in developingthese capabilities,the DF would be assistedby the PB in the preparation of all project documents on behalf of the raions and facilities included in the project. Given its nature, this assistancewould provide guidanceand training to the DF especially with regard to points (a), (b), (d) and (g) listed above. ANNEX3.4 134

13. Specifically,the project tender documents would be prepared by TCHIF with the assistance of the Project Bureau/CPIU and under the latter's supervision. After their approval by the oblast administration,the Project Bureau/CPIUwould issue tender documents.

14. A specialcommittee would be establishedfor the healthcomponent to reviewbidding documents. This committeewould includerepresentatives of the oblast administration,the oblast health authority, the TCHIF, and the Project Bureau/CPIU. This committeewould select winning bids.

15. The DF shouldbe involved in all relevant(health) work of the Project Bureau/CPIUso that once the CPIU is abolished, the DF can assume all relevant functions. The flow of funds and operations of the DF in conjunctionwith the CPIU is depicted in Figure 1.

16. It is proposed under the project that the World Bank loan would initiate, at least in Novosibirsk, this Development Fund and that the loan would be administered through this Fund for at least some subprojects. In other words, the TCHIF would substitutefor the direct involvementof the raion health authority and of medical facilities. Eventually, as part of its responsibilityfor processing the loan, the TCHIF would be responsiblefor repayment of the loan from the revenuesearned by medical facilities.

m:\king\annex3.4 ANNEX 3.5

SELECTION CRITERIA AND MODEL APPRAISAL FOR WATER SUPPLY AND SANITATION SUBPROJECTS

A. RATIONALE FOR SUBPROJECT ACCEPTANCE CRITERIA-'

1. Subproject Capital Cost. The estimated capital cost of subprojects should be in the range $100,000 to $2.0 million.

Rationale. To ensure that the subproject is not so small that it could be financed directly by the oblast from its capital budget nor that the subproject is too large and would require a disproportionate amount of the total capital fund available for the water/sanitation component.

2. Affordability. The appraisal for each subproject is to include a financing plan giving details of:

(a) the estimated annual cost of loan repayment; (b) the estimated annual cost of operation and maintenance of the proposed installation; and (c) the source of revenue income to meet the loan repayment costs and the future operating and maintenance costs.

Rationale. To focus the attention of the oblast and the municipal (raion) authorities, at the subproject appraisal stage, on the future expenditure and budgeting implications arising from the implementation of subprojects and to direct the authorities towards initiating a program for improvement in cost recovery.

3. Sustainability. The appraisal for each subproject is to set out the proposals for effective future operation and maintenance of the installations to be provided.

Rationale. To ensure, at the appraisal stage, that the oblast and municipal (raion) authorities recognize the need for skilled operation and maintenance manpower and there is provision for appropriate training and for obtaining consumable items, spare parts, etc., to ensure that the efficient operation of the installation is sustained over its planned life span.

' It can be observed that these criteria, togetherwith the informationin the model appraisal, do not provide very sharp proceduresfor choosingpriorities among subprojects, all of which can be easilyjustified in terms of appraisal methodsnornally employedin World Bankprojects. Since there are practical limits to how fast these subprojectscan be undertaken, it is desirableto have other tools for ranking priorities. A U.K. water company, for example,employs a ranking procedure based on the numbers and types of consumersaffected, the age, condition and capacity of the existing installationand the number and seriousnessof past failures of the installation. During the preparationphase, the use of such rankings, adjustedto local conditions,and the process of developingthem, are being discussedwith Russian counterparts. The weighting given to each considerationis, to some degree, arbitrary--orrather, is determinedas much by politicalas technological factors--and,as such, must be a decision of the oblast administration. 136 ANNEX3.5

4. Institutional arrangements. The subproject appraisal is required to substantiate that the institutionalorganization of the water/sanitationutility will be competent to manage and operate the proposed installation.

Rationale. To direct the oblast and municipal (raion) authorities towards undertaking the necessary institutionalreforms in the provision of water and wastewaterservices to provide for future long-termefficiency in the delivery of service provision.

5. Subprojectloan beneficiary. In some municipalities(raions) some of the existing assets of the water or wastewater infrastructure (i.e. pipelines, water sources, treatment plants, etc.) are in the ownership of the major industrial enterprises in the municipality. In most, negotiations are being completed for transfer of the assets of the existing infrastructurefrom the industrial enterprises to the municipality. The subprojectappraisal is required to confirm that the water or wastewaterutility assets which are to be rehabilitated or improved will be in the beneficial ownership of the municipalityor vodokanal.

Rationale. To ensure that subproject loan finance is only providedfor the rehabilitationof oblast or municipalinfrastructure and is not directed to the assets of the industrialenterprises that may in future be privatized.

6. Environmentalassessment. Subproject appraisals are to include an environmental analysis prepared in accordancewith World BankOperational Directive No. 4.01 and RussianFederal guidelines, and the analysis is to be approved by the Project Bureau and by the Regional Committee for EnvironmentalProtection and Natural Resources.

Rationale. To ensure that the impact of the subprojecton the environmentis taken into account at its conception stage and that appropriate measures are taken to mitigate any adverse environmentalimpacts.

7. Subproject program. An implementationprogram is to be included with each subproject appraisal. The program is to set out the periods allowed for design, contractprocurement, construction, and commissioning. Subprojectswill be expectedto be completeand operationalwithin two years from the commencementof detail design.

Rationale. To direct the oblast and municipal (raion) authorities towards ensuring that in the implementationof subprojects, the disbursement of capital is undertakenin accordancewith a planned procedure and to provide for efficiency in the implementationand completion of subprojects.

8. Strategicplanning. Subproject proposals in the oblasts and municipalitiesare to form part of the long-termstrategy for the developmentof water and wastewaterservices, and the appraisal of each subproject is to show how this is to be achieved.

Rationale. To ensure that refurbishmentand rehabilitationof existing infrastructurecarried out under the subprojects will be sustainableas part of the long-termdevelopment strategy for the water and wastewaterservices. ANNEX3.5 137

9. Technical appraisal. Each proposed subproject will be required to have a technical appraisal which is to include an evaluation of options and an economic appraisal based on a cost-benefit analysis.

Rationale. To ensure, at the planning stage, that all feasible options are carefully considered on technical and economic merits before the subproject is included in the program for implementation.

B. IDENTIFIED SUBPROJECTS - WATER AND SANITATION COMPONENT

I. Rostov Oblast

No. Subproject I Aksai - Rehabilitationof water mains (Phase 1) 3 Aksai - Completionof central wastewaterpumping station 6 Novocerkassk- Rehabilitationof water mains (Phase 1) 7 Novocerkassk- Systemcontrols for water distribution 10 Novocerkassk- Renovationof wastewaterpumping stations 11 Rostov - Mixers for sedimentationtanks at water treatmentworks 12 Rostov - Improvementsto sand filters at water treatmentworks 13 Rostov - Installationof chemicaldosing plant at water treatmentworks 14 Rostov- Install valves in water distribution network 15 Rostov - Pipe cleaningand lining on the water distribution system (leakagedetection equipment) 18 Rostov - Provisionof balancing/overflowchamber on seweragesystem 19 Rostov - Provisionof sludge dewateringequipment at wastewatertreatment plant 20 Rostov - Renovationof wastewaterpumping stations 22 Rostov - Provisionof sewer cleaningequipment 24 Azov - Provision of chemicaldosing plant at water treatmentworks 25 Azov - Renovationof tertiary filers at wastewatertreatment plant 28 Azov - Provision of sewer cleaningequipment 29 Chaltyr - Refurbishmentof first stage water pumping station 31 Chaltyr - Renew water distributionmains (Phase 1) 32 Konstantinovsk- Refurbishmentof water intake pumpingstation 138 ANNEX3.5

No. Subproject 36 Konstantinovsk - Renovation of wastewater pumping stations and pumping mains

37 Jegorlyk - Refurbishment of water pumping station and chlorination plant 40 Jegorlyk - Renovation of wastewater pumping station 41 Jegorlyk - Replacement of I km. wastewater pumping main 44 Orlovski - Renewal of water chlorination installation 46 Orlovski - Rehabilitation of sewerage network and pumping stations 48 Donetsk - Provision of control system for water treatment plant 49 Donestk - Refurbishment of wastewater treatment plant 52 Taganrog - Rehablitation of water treatment plant on River Mius 53 Taganrog - Reconstruction of aeration plant at wastewater treatment plant 54 Taganrog - Renewal of pumps at Eastern wastewater pumping station

I. Novosibirsk Oblast

No. Subproject 2 Ordynsk - New service reservoir 3 Ordynsk - Install chorination system 4 Ordynsk - Extend sewerage system 5 Ordynsk - Improvements to cesspit emptying

6 Masljanino- Improve river abstraction 7 Masljanino - Improve potable water treatment 8 Masljanino - Rehabilitation of water distribution 12 Masljanino - Replacement screen at wastewater pumping station 13 Masljanino - Replacement cesspit tanker vehicles

14 Bolotnoe - Replacement of cesspit tankers 15 Bolotne - New reception chamber for cesspit liquors

17 Togucin - Chlorination installation for water supplies

18 Togucin - New water service reservoir 19 Togucin - New water pumping station |20 Togucin - Rehabilitate cesspits ANNEX3.5 139

No. Subproject 21 Togucin - Replace cesspit tanker vehicles

22 Togucin - Construct discharge reception point for cesspit tankers 23 Tatarsk - Rehabilitation of water distribution system 24 Tatarsk - E & M renewals at borehole pumping stations 25 Tatarsk - Rehabilitation of sewage pumping stations 26 Tatarsk - Sewer cleaning equipment

28 Kujbysev - Refurbish water chlorination installation 29 Kujbysev - New service reservoir 30 Kujbysev - Rehabilitation of sewage pumping stations 33 Kujbysev - Wastewater laboratory 35 Barabinsk - Rehabilitate pumping station at wastewater treatment plant 36 Barabinsk - Rehabilitate sewerage network

37 Novosibirsk - Refurbishment of chlorination installation 40 Novosibirsk - Instrumentation and control for water distribution system (leakage detection equipment) 41 Novosibirsk - Sludge dewatering plant 44 Novosibirsk - Sewer cleaning equipment

C. MODEL SUBPROJECT APPRAISAL DONETSK - RENOVATION OF EMSTING SEWAGE TREATMENT FACILITIES

1. Subproject: Renovation of Donetsk sewage treatment works!'.

2. Beneficiary Population: 56000

Description of Existing Situation

3. The mining town of Donetsk, population 56,000, has a gravity wastewater collection system and a sewage treatment works, sized for a flow of 18,000 m3/d. The system is operated by the vodokanal. In general, only domestic sewage is treated at the works.

2/ The informationused in the appraisalwas obtained during a single site visit on the November29, 1994. (Normally greater detail would be available.) 140 ANNEX3.5

4. Some of the sewers in the town are undersized and this prevents new areas, e.g., the miners' living estate being connectedto the system.

5. Areas not served by the system are connectedto cesspits, the contents of which are disposed of at the sewagetreatment works.

6. All flows arriving at the central sewagetreatment works are pumpedup into the inlet. The works providespreliminary, primary, secondaryand tertiary treatment.Treatment units includecoarse screens, grit chambers, four settlementtanks, three aerated percolating filters, five humus tanks and an aerated lagoon. Sludge is disposed of to six drying beds, used in rotation. The final use of the sludge was not identified.

7. At the time of the site visit only two of the three screens, three of the primary tanks, one of the filters and four of the humus tanks were operable. In addition, the floating aerators in the tertiary lagoon did not function.

8. The works BODconsent was given as 10 mg/l (average),but presently can only achieve20 mg/I.

9. In additionto the central treatmentfacility, there is also a smallundersized treatment works, sized for 700 m3/d, which serves an outlyingarea. The works, which was not visited, was stated to be in poor condition.The actual treatment capacity needed is 1200 m3/d.

Identificationof Need

10. There is a need to renovatethe existingtreatment units at the sewagetreatment works to provide, in effect, additional treatment capacity. This would either:

(a) allow the existing flows arriving at the works to be treated to a higher standard, as required by the discharge consent, or

(b) allow additionalflows to be passed to the treatment works while maintainingthe present performancelevel.

11. The secondapproach would allow some unseweredareas to be connectedto the system or would allow the outlying area treatment works to be abandonedand the flow transferred to the central works. Relaxationof the existing discharge consent would be a prerequisite.

12. For the purpose of this report, objective (a) will be assumed as the basis for the project.

Options Considered

13. The treatment units in need of urgent renovationinclude:

(a) inlet screens (replacementof one screen), (b) renovationof one primary settlementtank, and (c) renovationof percolating aerated filters. ANNEX3.5 141

14. Work would form the first phase of long-termproject to increase the capacity of the treatment capabilityby 9000 m3/d, to 27,000 m3/d.

15. Renovationwould permit the performanceof the existing facilitiesto be optimized before work can proceed on the design and constructionof any new capital works. The approach would allow the capacity of any extensionsto be sized correctly and their constructioncosts to be minimized.

16. No other technicallyappropriate options have been identified, other than not undertakea project.

Selection of PreferredSolution

17. The preferred scheme will involvethe renovationof existing sewagetreatment facilities, to serve as a self-containedfirst phase in increasingthe treatmentcapacity at the works. The aim of the subproject is to achievecompliance with the legal discharge standard and to improve the receiving water quality.

I. EnvironmentalAnalysis of Preferred Scheme Baseline Situation

18. The town, which has a populationof 56,000, is partly served by a seweragesystem. Wastewater discharges by gravity to a central treatment plant which has a capacity of 18,000 cu.m. per day. The sewerage system and the treatment plant, which are operated by the vodokanal, generally treat only domestic wastewater. Industrial wastewaterflow is of no significance.

19. Some of the existing sewers are overloadedand, in consequence,new areas of housing cannot be connectedto the system. Those properties in areas that are not served by sewers have cesspits and the municipalityprovides an emptying service to take cesspit contents by road tanker to the wastewater treatment plant.

20. The central wastewatertreatment plant provides mechanicaland biological treatmentby aerated percolating filters. Sludge is air dried on drying beds. At present many of the treatment units are not able to be used. For example, one of the screens, one of the primary settlementtanks and one of the humus tanks, are not in operating condition. In addition, the floating aerators in the tertiary lagoon cannot be used due to mechanicalfailure

21. Anothersmall wastewater treatment plant with a capacityof 700 cu.m. per day serves an outlying area. This works is in poor structural conditionand is also overloaded.The capacity required to provide an acceptablelevel of treatment is 1,200 cu.m. per day.

Regulatoryand InstitutionalConsiderations

22. The treatment works presently fail to comply with its consent of 10 mg/I BOD and as a consequence,the vodokanalis liable to be fined for non-compliance.One of the contributingcauses is undoubtedlythe loss of capacity becausetreatment units are out of service and are in need of renovation. Failure to meet with the discharge consent means that up to two times the acceptablepollution load is entering the receiving waters. 142 ANNEX3.5

23. The lack of treatmentcapacity at the works also prevents unseweredareas being connectedto the central sewerage system.

Environmental Impact of Proposals

24. The renovation of the existing treatment facilities will enable the efficiency of the works to be improved, allowing the works to treat the existingflow to a higher standard. The environmentalbenefits of the project would be:

(a) anticipatedcompliance with the discharge consent; (b) reduced pollution to the receiving waters linked to improved water quality; (c) avoidance of penalties for non-compliance, allowing the monies saved to be spent on more worthwhile activities, e.g. enhanced maintenance works; and (d) reduced production of secondary humus sludge.

25. No negative impacts are envisaged.

Mitigation and EnhancementMeasures

26. The impact directly associatedwith the renovationof existingfacilities which take place on the sewage treatment works site should not cause any environmentalproblems and no mitigationmeasures are considered necessary.

27. A relaxation of the consent could be pursued in anticipation of the improvements.

Capital and OperatingCosts

28. The estimated capital costs of the scheme are tabulated below:

IMPROVEMENT COST US$ ...... One replacement screen 50,000 Renovation of one primary 70,000 settlement tank Renovation of two aerated 175,000 percolating filters Other miscellaneousimprovements 50,000 ...... TOTAL 345,000

29. An approximate amount of US$40,000 (12% of the capital cost) is to be assigned for design and supervision. It is assumed that the capital and design work would be carried out in Year One, and the plant would be operational by Year 3. ANNEX3.5 143

30. As the project is based upon reintroducingexisting facilities, the increasein operatingcost would be expected to be low, although adequateprovision for maintenanceshould be allowed for. An increase of US$15,000per year for increasedelectricity and maintenance,over existingcosts, should be included in the operations budget.

Present Value Analysis

31. Present values of the flows of costs are provided for the following two cases:

(a) "Do-Nothing" (withouta project), and (b) Renovationof the sewage treatment works.

32. They are based over a 20-year period and assumea discount rate of 15%.

SCHEME PRESENTVALUE US$ ...... Do-Nothing(without a project) 477,000 Renovationof the sewagetreatment works 404,000

33. The analysis for the "Do-Nothing"option assumes that there will be a 5% yearly increase in additional operational and maintenancecosts, and in penalties for non-compliancefor twenty years, at which time the rehabilitationwould be carried out at a cost of $345,000.

34. The additional cost per person of doing nothing over twenty years would be in the order of US$7.20.

35. The benefits that would arise from the project if implementedwould be:

(a) improved water quality in the receiving waters; (b) improvementin the efficiency of all treatment stages; (c) the improvementin the qualityof the Donetsk sewagedischarged to the receivingwaters, sufficientto comply with the final effluent qualitystandards and to avoid the paymentof penalties; (d) reduction in the volume of secondary humus sludge produced; (e) potential for the sizing of any future extensions to be reduced from existing proposals; and (f) savings on penaltiesfor non-compliancewith the discharge standard .

Program for Implementation

36. A provisionalprogram for implementationis given below. 144 ANNEX3.5

ACTIVITY PERIOD ...... Design 2 months Contract Preparation and Tender 3 months Installation 6 months

Sustainability

37. The project is aimed at improving the performance of existing treatment facilities already operated by the vodokanal and, as such, should be readily sustainable. 7he Municipality will however be required to demonstratethat adequate allowancefor the maintenanceof the equipmentis made in future budget provisions. 7he provision of adequate spare parts, or easy access to them in Russia, will be required.

38. Some training in maintenance techniques for the new equipment will be needed.

H. Institutional and Economic Appraisal

Institutional Arrangements

39. Implementation of the project would be undertaken as an improvement to the treatment facilities already operated at the sewage treatment works. Based on observations and meetings during the site visit, it is considered that the vodokanal has in place the necessary arrangements for management, administration and operation of the facilities. Some additional training in budgetary control and maintenance planning would however be advised.

Loan Beneficiary

40. It is understood that the sewerage assets are owned by the Municipality. Confirmation in writing will be required.

Affordability

41. The annual cost of loan repayment based upon the estimated capital cost of the subproject and calculated on an interest rate of 7.5 % and a repayment period of 17 years with a five-year grace period, is in the order of US$53,000.

42. The source of revenue income for meeting the annual costs is understood to be the Oblast Authority. Confirmationwill be required. ANNEX3.5 145

Table 3.6.1 Capital and Maintenance Costs of Renovating Donetsk Sewage Treatment Facilities compared with Doing Nothing

Year Cost of Subproject Cost of Doing Nothing

1 385,000 54,200 2 0 56,910 3 15,000 59,756 4 15,000 62,743 5 15,000 65,880 6 15,000 69,174 7 15,000 72,633 8 15,000 76,265 9 15,000 80,078 10 15,000 84,082 11 15,000 88,286 12 15,000 92,700 13 15,000 97,335 14 15,000 102,202 15 15,000 107,312 16 15,000 112,678 17 15,000 118,312 18 15,000 124,227 19 15,000 130,439 20 15,000 512,961

Present Value using 404,287 477,656 15% Discount

m:\king\annex3.5 ANNEX 3.6

BUDGET AND EXPENDITtURE MANAGEMENT COMPONENT: Consultant Terms of Reference and Hardware Specirications

Public Finance Management Consulting Services

1. The consulting services, as suggested here, is based on discussions with the public officials of the oblast of Novosibirsk.

2. The consulting services will be categorized as follows:

- Budget management methods - Expenditure programming - Public finance training (overseas or in-country) - Long-term borrowing options and debt management

3. The assistance can be provided simultaneously using one expatriate consultant and four local consultants over a one-year period. Specialized expertise can be coordinated using the Bank staff or USAID assistance for Public Finance Training, underwriting issues related to long-term borrowing, etc.

AutomatedBudget ManagementSystem v

4. The oblast of Novosibirskhas specificallyrequested a review of the budget managementsystem and recommendationsfor its improvement. One major purpose of the assignmentwill be to develop a computerizedModel BudgetingSystem between the oblast and raion government. This shouldfacilitate broader reforms of oblast fiscal and social expenditure policies.

5. Intra-oblast fiscal relationships are currently a function of negotiated budgeting. The raion and oblast officials negotiate the budgets, primarily due to the manner in which the budgets are presented. The existing format does not lend itself to be a "stand-alone" transparent document. Sufficient detail is not requested, neither is it feasible to prepare the detail manually, without errors. This creates the appearanceof many gray areas in the budget which are not clearly justified and are, therefore, subject to arbitrary cuts by the oblast.

6. On the other hand, the raions spend money allocatedfor targeted programsby reallocatingfunds without requesting approval from the oblast on a timely basis. The timeliness of requesting approvals can be greatly reduced by an automatedprocess.

7. Other reformsare needed in expenditurepolicies themselves. These require an analysisof options for reducing--preferablyeliminating--subsidies of all types, and placinggreater reliance on user charges and/or privatizationof service provision, etc. For expendituresthat remain a budgetary responsibility, there need to be clear rules as to which level of government carries responsibility. Budget decisions should greatly reduce and preferably eliminate the use of traditional expenditure norms, and should find other ways to ensure that the implicationsof investmentfor future recurrent expendituresare considered before investments are approved. 147 ANNEX3.6

8. On the revenue side, it is necessary to analyze and present options for ways to increase local revenues, for example, land taxation, property taxes. More transparent transfer mechanisms to redistribute revenues to poorer raions, which would also provide a greater incentive to better budgetary management at the raion level, need to be developed. Mechanisms are required to protect the poorest raions against a collapse of services if revenues collapse. An appropriate borrowing policy needs to be established.

9. It is recommended that the Project Bureau hire four local staff who are experienced in public finance and information systems practices. The terms of reference for these individuals will be provided. It is also recommended that an expatriate consultant experienced in municipal management and public finance management be assigned to provide guidance for this effort.

10. Budget Preparation:

- Revenue database by source of revenues to be developed for revenue forecasting - Expenditure classifications - Consolidation of extra-budget funds into the general budget - Preparation of a consolidated budget with clearly segregated "fund" budgets, such as general, special revenue, capital, enterprise, etc. - Budget prepared by the sources and uses method by classifying the various "Funds" in order to clearly depict the inter-governmental transfers - Legislated budget preparation time-table and relations with State Council (Duma) - Capital budget preparation, setting priorities, cost estimating, cost-benefit analysis (impact analysis) - Multi-year capital planning (very important in the context of the project since the project is a multi-year project)

11. Budget Management & Reporting:

- Review expenditure management, spending approval process in the raions, cities and oblast - Approval process for transfers of allocations from budget to budget or line-item to line-item - Revenue collection, administration function, (tax bills, receivable aging, delinquents collection function, etc.) - Commitment (encumbrance) accounting - Monthly report format, adopted budget - modified budget - actual - variance (with explanations), and balance - Revenue report with collections, delinquencies, tax base changes, etc. '- Encumbrance (obligations) report - Account payable report

12. Continuous Budget Review:

Policy analysis to include accumulation of demographic, economic and financial data of the region and independently assess the efficiency/adequacy of the budget Continuous "cost-of-service" analysis and report generation with the use of a computerized model ANNEX3.6 148

13. Public Finance Training. A training work shop for one week, for governmentbudgeting and financial reporting is recommended. The course should be structured with practitioners and professors. Theory must be the first segmentof the course followedwith case studies developedand im- parted by practitioners.

14. Attendance:

Finance officials from municipalities/rations [Finance officials from oblast 3 Public/businesscouncil 3 TOTAL 12

15. Course Work. The course work should be structured to stress the linkages between expenditure decisions and revenue generation. The course should address how local governments can become more financiallyself sufficientand emphasizethe cost recovery from service users. Attention should be focused on determining which municipal services should carry user charges and how to set tariffs.

16. The course must also provide a set of analyticaltechniques for helping public officials get control of their own financial situations. These techniquesmust include:

budget preparationand budget management(including legislation) 8 revenue analysis and forecasting 8 expenditureanalysis and forecasting * cost control and cost of service analysis * fiscal impact analysis on householdand businesses

17. It is recommendedthat these courses be provided in Novosibirskand that two instructorsbe invited to participate, one a theoreticianand one a practitioner.

Oblast Finance System HardwareSpecifications

18. Mission. The oblast financesystem considered is to prepare an oblast budget basedupon the following information:

* territories' financial activities informationfor the previous years * statisticaldata presented as the performancemeasures for the previous years * territories' developmenttasks

19. Architecture.The system shouldconsist of a series of modules that provide such functions as the following:

* oblast budget preparation * annual budget report * revenues estimationaccording to the sources and territories * actual revenues accordingto the territories and sources * actual expenditures 149 ANNEX3.6

* revenues/expendituresaccounting of the non-budgetfunds * oblast budget loans granting and repayment * administrativepersonnel costs (salaries) * budget executionanalysis for a certain period of the fiscal year * personnel data maintenance * oblast finance department cost * reference/normativestatements information (statistical / performanceindicators)

20. Security. The security system should meet the below mentionedrequirements:

* Payment document coding. * Electronic signature of the documents being transferred to higher officials. The original documents are approved by the electronicsignatures when coming through the open channel of communicationsutilizing the algorithm RSA (ISO 8731) standard. * Password access to enter the system.

21. Systems telecommunicationcapacity. The system should provide several functions:

* direct call re-dial mode on non-synchronizedchannels based upon own communication protocol. e mail mode utilizationof the highly reliable telecommunicationnetwork SPRINT. 8 utilization of the NetWare Access Service, etc.

22. The system should have the followingspecific features:

3 possibilityof working in the local computer network 8 several variants of working the telecommunicationenvironment automatic re-dial mode prepare and fill in forms and standard documents - capabilityto access the external procedures without exiting the system security features passwordcontrol to execute the functions * guided export/import of payment documents for a connection with automated accounting system * adjustabilityto the hardware configuration * reference applicationwith the purpose of speeding documentprocessing and preventing the mistakes (edit processes) * broad range of (applications)accessories, help, calculator, calendar, etc. * Oblast finance system should meet the needs of the Finance and Tax Policy Departmentas well as the territories financedepartments

23. Hardware and Software:

* Local network NetWareNovell for 50 users * Telecommunicationsnetwork with the territories 50 users * Telecommunicationnetwork with the banks in which the oblast/territories' budget accounts and the budgeted enterprises' accounts are maintained ANNEX3.6 156

* Telecommunication network with the tax inspection service * Telecommunication network with the Federation Ministry of Finance * Telecommunication network using SPRINT with the oblast/territories' administrations * Distributed network linked with the local computer center

24. Implementation Criteria. Technical assistance should be on a pilot basis for two cities and two raions to be linked to the oblast finance management system. In selecting the cities and raions, it is suggested that the largest city and the largest rural raion be selected. The criteria for largest should be the following:

* size of budget * population * number of city raions * number of municipal departments * volume of transactions * any other special conditions

25. The other two govenments should be the smallest city(town) and smallest rural raion. This will provide a flexibility in designing the budget management system.

26. It is anticipated that one expatriate, four local staff, and three short-term expatriates be considered to complete the system. The three short-term specialists should be experts in:

(a) Municipal (local) tax policy and procedures (b) Expenditure management, policy and management (c) Information systems for public organizations

27. Budget:

Category Description Quantity Amount Personnel Expatriatelong-term I $ 240,000 Expatriate short-term 3 150,000 Local experts 4 96,000 Sub-total $ 486,000

Hardware Computers (10 per city/raion) 50 units 350,000 Software development Sub-total S 150,000

Training On-site (incuded in expatriate short-term costs) 0 Foreign study 15 persons 150,000

TOTAL $ 1,136,000

m:\king\annex3 .6 ANNEX 3.7

PERFORMANCE MONITORING INDICATORS

I. GENERAL PROJECT OBJECTIVES

INPUTS OUTPUTS OUTCOMES

Objectives: (1) Reduce the present deteriorationof social infrastructureby: a) financing the rehabilitation # of new schools that use building Better quality of construction and and limited replacement of high systems other than prefabricated materials priority facilities for providing concrete panels health care, education, and water supply and sanitation # of schools where space is reorganized On-line data base and its linkage with according to education specifications specialist hospitals developed in the model school component

# of hospitals and water supply assets Better water quality with completed upgradation and rehabilitation

(2) Improve the efficiency of managing public resourcesby: a) ensuring that selection of Beneficiaries interviewed during Phase I Appropriate facilities are chosen to subprojects is based on sound of the project to reassess selection benefit from the project. criteria criteria, in order to make modifications for future subproject selection. b) raising design standards and Training programs conducted on design Structurally stable facilities making improving the incentives to standards. Development of more optimum use of space. obaerve them efficient on-site superivsion. c) improving the quality and Participation of school and hospital Long-term sustainability of the sustainability of construction by boards, and vodokanal staff during rehabilitated facilities. improved site supervision, and discussions with and selection of by encouraging beneficiaries to contractors, and later during take a more active role as construction. Project Bureaus (PB) clients during the design and would ensure their participation. Their construction process participation would be evaluated by an independent agency on completion of the first set of subprojects. d) introducing competitive Workshops would be held periodically Transparent procedures and cost- procurement practices by PB for contractors. effective system. 152 ANNEX3.7

INPUTS OUTPUTS OUTCOMES e) introducing improved Consulting services provided to identify Streamlined budget and expenditure methods of expenditure ways to increase local revenues, management. programming and budgetary enhance budget formulation techniques, management by public devise means of controlling and authorities monitoring expenditure and revenues, and review social expenditure policy.

(3) Promoteprivate sector developmentthrough: a) encouraging the break-up and commercialization of existing design institutes and promoting competitive tendering by engineering and architectural firms b) providing training in Trained personnel. procurement processes for engineers, architects, construction firms and public bid evaluation committees c) providing an environment Pilot health financing reform scheme that can facilitate the established. emergence of private providers of medical care

(4) Contribute to the Government'spolicy of decentralizationby:

a) promoting broad Regular meetings of the Advisory Board Sustainable project with broad participation, including non- to vet and make recommendations on ownership. governmental participation, in subproject selections. On-site project decision-making supervision by school and hospital authorities. (5) Monitor the effectivenessof these new practices, and disseminate the results, so that these can be used in similar activities, elsewherein the Russian Federation

a) Monitoring and evaluation Monitoring functions established in the The second set of subprojects selected functions set-up. PB and the PIU to track the project, and according to recommendations made an evaluation function performed by an by the monitoring and evaluation independent agency to assess the bodies. Similar practices followed effectiveness of the new practices. elsewhere. ANNEX3.7 153

H. SECTORAL PROJECT OBJECTIVES

WFUTS OUTPUTS OUTCOMES

A. EducationPerformance Indicators

Objective: (1) Rehabilitaon of schools

# of schools selected through # of students affected in Better quality of construction and participation by raion authorities, rehabilitated schools materials school principals and representatives of teachers and # of new schools that use building parents. systems other than prefabricated concrete panels

# of schools where space is reorganized according to education specifications developed in the model school component

Objective: (2) Strengthen all aspects of schoolfacilities plannng and operationsby establishingprocesses for developingeducaional specificationsand physical designfeatures, and establishinga demonsfaltionfacility managementsystem in Novosibirslkmunicipality

# of workshops held in physical Total # of trainees and quality of Better facility maintenance design features and formulation of workshops No overcrowding of schools education specifications

Introduction of new appraisal New appraisal methodology Application of appraisal methodology functioning methodologies to all schools in the oblast

Pilot demonstration facility MIS set Functioning of the pilot Continuation of the pilot in the rest up in Novosibirsk municipality of Novosibirsk and replication # of schools with improved within Russia maintenance procedures and facilities and strengthened management organization 154 ANNEX3.7

INPUTS OUTPUTS OUTCOMES

Objective: (3) Contibute to developmentof private sectorfinns that are involved in schoolfacility construction and upgrading

Training in all aspects of # of contractor for schools who bid Greater improvement in the procurement for other internationally financed economic prospects of contractors construction jobs who participate in school Close supervision by international rehabilitation, than in comparable design firms firms that do not participate

Improvements in quality of work by these private firms

B. Health Perfornance Indicators 1. Infristructure Development

Objective: Rehabilitate and upgrade selectedgeneral hospitals in Novosibirskand Rostov oblasts, in order to ensure an improvedphysical infrastructuredesigned to support basic medical technology, equipment and patient conditions, access to equipment essentialfor proper and efficient diagnosis and treatment, ameliorationof patient accommodation,and mitigation of environmentalhazards

* Specification of equipment * # of hospitals with completed On-line data base and its linkage needs, equipment provided and upgradation and rehabilitation with specialist hospitals on: timing * Timeliness and accuracy of/ (a) patient records (when and * Specific engineering plans to implementation of systems for: where patient will be given mitigate environmental hazards (a) procurement, including appointment with health service including medical waste, water and commodity procurement scheduling, provider or whether patient can be sewage, radiation, storage and requisition, bidding and ordering, hospitalized); handling of pharmaceuticals, indoor and random sampling for buidling (b) warehouse stock levels; air quality, fire hazards and material, designs and drugs; (c) orders, account receivable, disposal of building materials and (b) distribution from the center to inventories and clients; and recuperated old machinery provinces/cities to municipalities; (d) progress of lab exams (c) storage and materials handling, including warehousing and inventory; (d) logistics information systems incldg. stock pricing, ordering status, inventory control demand analysis, supplier performance and distribution verification. * Civil works completed vs. timetable * Better waste management ANNEX3.7 155

rUTs OUTPUTS OUTCOMES

2. Service Delivery

Objective: Beuerpatientfllow within and acrossfacities so that the averagelength of stay of patient is shortened and the need to refer patients to higher-cost oblast hospitals would be reduced.

* # hospitals facilities by type e Outpatient Consultation % change from baseline data of: upgraded and equipped (change fromm baselinedata) * average days of hospitals stay by * Baseline data on patients # of patients by areas of type and severity of ailment collected consultations (general/cardiac, etc.) * ambulatory consultation Hospital Activity Indicators Reduction in mean waiting time * # of hospital discharges * Bed capacity * In-patient Consultation * media consts/hospital service * Cumulative in-patient days # of patients by areas of provided during past 6 months consultation * # people attending rehabilitated - Admissions during past 6 months % reduction in hospital beds polyclinics and hospitals vis-a-vis * Diagnostic Services: Imaging other non-rehabilitated services # of imaging and electro-medical * # of trauma cases and tests cardiovascular cases % of imaging and electro- * % of those admitted properly medical tests to admission treated images per person, by type of * Operating theater image # of specific procedures distribution of tests (vis-a-vis Re-admissions per procedure per baseline) specified period (weeks/months as levels of use of consumable of commencement of procedure) material Mortality by procedure per turnaround time of tests specified period (weeks/months as quality control (false positive of commencement of procedure) and false negative) quality assurance (conditions of storage, films lost, etc.) * Laboratory # of laboratory test Per imaging Proficiency control Reliability of tests * % of supervision visits relative to norm and provisions of MSPP * Reduction in staff, by type * Satisfaction levels (Scale 1-7) Staff satisfaction, by type of staff Patient satisfaction with doctors and other medical staff Patient satisfaction with services offered Hospital cleanliness rating 156 ANNEX3.7

INPUTS OUTPUTS OUTCOMES

3. Institudonal Development

Objective: Train Russian personnl in operatng and naintainng the iinprovedstruure

* Specificationof training needs * # of personnel trained * Effectiveand functioning * Developmentof guidelinesfor * trainee attendanceand hospitals maintainingrehabilitated facilities completionrates * Well-developedreferral system

4. Financial

Objectie: Establish beter finnial mechanims to support defunctoning of at least the rehabilitatedfacilities

BBudget raions on the basis of * On line databaseon: * Effectivefinancial mechanisms capitation with an intra-regional Financial reports by cost center for hospital management equalizationmechanism health statistics * Effectivecost recovery * Work out prospectivepayment Resourceusage and service mechanismssuch as diagnostic levels related groupings * % increasein those paying for * Design payment schemesby services beneficiariessuch as user charges, etc. * Develop investmentfacility with territorial health insurancefunds

C. Water Supply and Sanitation

Objective: Bring assets back to a satisfactoryoperating kvel. In water supply, rehabilation of water mains to reduce leakage levels; refurbishment of chlorination installationsto provide better security in drinking waterdisinfection and the renewal of electricaland mechanical pmping machinery that has outlived its useful operating life.

Resource # of assets rehabilitated Sufficiencyof supply for domestic Complete subprojectappraisals < in number of incidents and industrial needs Prepare tender documents > quantityof water supply, with including: 24 hour availability to meet engineeringdesigns, demand specifications,drawings, bill of quantities and conditionsof contract ANNEX3.7 157

INPUTS OUTPUTS OUTCOMES Construction of civil works Provide training in specific areas > efficiency of existing plant Better water quality (e.g. training) < use of electricity and chemicals < in operating costs * Installation of mechanical and such as chlorine < risk of contamination from electrical equipment Improved raw water quality ground water * Introduction of institutional < leakage from pipes, reducing Less demand on resource improvements amount to be treated

Treatment and Distribution Supervision of construction and installation Institutional review of water and sewerage utilities

Objective: In wastewater, the work requires rehabilitation of existng sewerage networks; the provision of new cesspit tanker vehices to improve cesspit emptying and the renewal of electrical and mechanical plant at key pumping stations

CoUection Complete subproject appraisal Lower infiltration into sewers Reduction in quantity of sewerage Prepare tender documents < leakage from septic tanks to be treated and disposed of * Purchase of goods and * < # of blockages in sewers Reduced maintenance costs construction of civil works * < use of electricity at pumping .Supervision of construction stations * Institutional review of water and < # of sewer collapses sewerage utilities * < # of incidents * Training provided in specific areas (e.g. safety) Improved efficiency of existing Improvements in quality of plant discharge to receiving waters, with Treatment Improved compliance with potential for environmental and discharge consents public health improvement

Objective: Consultancy services and training to develop the water companies into efficient and profitable public utilites.

* Training mannuals designed * #of water companies developed * Profitable water companies * Experts contracted * # of trainees * Selection process of water companies * Selection of trainees

m:\king\annex3 .7 ANNEX4.1 153 COMMUNITYSOCIAL INFRASTRUCTUREPROJECT IMPLEMENTATIONSCHEDULE ANNEX 4.1

ID Tak Name Duration Start Finish I Loan Processing 13.4w 4130196 7131196

2 Board Approval ld 4/30/98 4/30/96

3 Signing of the Loan ld 5/6/96 5/6/96

4 Project Launch Workshop 3w 8/4/96 6124/96

6 Loan Effectiveness ld 7/31/96 7/31/96 6

7 Selection of Consultantsand staff for CPIU and PBs 16w 411196 7/19/96

8 Consultant mobilization 4w 7/22/96 8116/96

9

10 Prequallflcatlon for works 23w 5/16/96 10/22196

11 General ProcurementNotice published 2w 5/15J96 5/28J96

12 Prequalificationdocuments prepared 4w 5/29/96 6/25/96

13 IBRD reviws prequalificationdocuments 2w 6/26/96 7/9/96

14 Prequalificatlondocuments issued 1w 7/10/96 7/16196

15 Qualificationsprepared and submitted 8w 7/17/96 9/10/96

16 Qualificationsevaluated 3w 9/11/96 10/1/96

17 IBRD reviews 2w 10/2/96 10/15/96

18 Applicants notified 1w 10/16/96 10/22/96 19

20 Education Component 242w 118196 8/25/00

21 Construction Program 242w 1/8/96 8/25/00

22 1. Bidding for Pilot Schools (#90, #170) 28w 1/8/96 7/19/96

23 Construction and fumishing 57w 7/22/96 8/22/97

24 2. Design and Bidding for Schools in Rostov and Novosibirskoblasts 40w 8/5/96 5/9/97

25 Constructionand fumishing 67w 5112/97 8/21/98

26 3. Design and Bidding for Schools with Extensionsin Rostov 66w 213/97 5/8/98

27 Construction and Fumishing 92w 5/11/98 2/11/00

28 4. DesIgn and Bldding for new schools 76w 1/6/97 6119/98

29 Constructionand furnishing 114w 6/22/98 8/25100

30 ProJect Management Training and Assistance 67w 8/5/9e 11114197

31 Selection of consultants 16w 8/5196 11/22/96

32 Consultantmobilization 4w 11/25/96 12/20/96

33 Review Inventory of schools and spechications 26w 12/23/96 6/20/97

Page 1 159 ANNEX4.1 COMMUNITYSOCIAL INFRASTRUCTUREPROJECT IMPLEMENTATIONSCHEDULE ANNEX 4.1

ID Task Name Duration Start Finish 34 Assist in outlining facilities plan for decade 12w 6/23/97 9112/97

35 Assist in the preparation of designs and tender docs 4w 1/6/97 1/31/97

36 Provide guidance on selection of un-identifiedsubprojects 6w 10/6/97 11/14/97

37 Management Information System Development and Implementation 174w 6/6/96 913199

38 Selection of consultants 16w 5/6/96 8/23/96

39 Consultantmobilization 4w 8126/96 9120196

40 Task 1 & 2 24w 9/23/96 3/7/97

41 Task 3 (study tour) 3w 3/10/97 3/28/97

42 Tasks 4,5, and 6 24w 3/31/97 9112/97

43 Get agreementon proposedsystem 3w 9115/97 10/3/97

44 Task 7 - implementationsystem-wide 100w 1016/97 9/3/99

46

46 Health Component 223w 2/1/96 5110/00

47 Construction Program 223w 211/96 5/10/00

48 1. Design and Bidding for Polyclinic No. 1 (Rostov) and Cherepanovo 70w 2/1/96 6/4/97

49 Constructionand delivery of equipment 88w 615/97 2/10199

50 2. Design and Bidding for Rostov and Novosibirskfacilities 70w 811/96 12/3/97

51 Constructionand delivery of equipment 88w 12V4/97 8/11/99

62 3. Design and Bidding for Hospitals (Iskitim,Chulimand Shakhty) 70w 5/1197 9/2/98

53 Construction and delivery of equipment 88w 9/3/98 5/10/00

54 Training - Study tours (25 people for 3 months) 42w 8/5/96 5/23/97

55 Designersand Engineers 12w 8/5/96 10/25196

S5 Physicians 12w 3/3/97 5123/97

67 LaboratoryTechnicians 12w 313197 5/23/97

58 ImagingTechnicians 12w 3/3/97 5/23/97

69 Maintenanceengineers and technicians 12w 3/3/97 5/23/97

60 Administratorsand managementstaff 12w 3/3/97 5/23/97

61 Assistance In Health Financing 48w 7/31/96 7/1197

62 Selection of consultants 16w 7/31/96 11/19/96

63 Consultantmobilization 4w 11/20/96 12/17/96

64 Compensationsystem 24w 12/18/96 613/97

66 RevolvingInvestment Fund 16w 3112/97 711/97

66 Macro ResourceAllocation 8w 11/20/96 1/14/97

Page 2 ANNEX4.1 1.0 COMMUNITYSOCIAL INFRASTRUCTUREPROJECT IMPLEMENTATIONSCHEDULE ANNEX 4.1

ID Task Name Duration Start Finish 67 FinancialManagement 16w 11/20/96 3/11/97

68 Basic Health Finance 12w 11/20/96 2/11/97

70 ConstrucUon program - Water Component 180w 2/U696 2/26U99

71 Rostov (1,16,28,29); Novosibirsk(8,14,28,40) Sow 2/598 8/1U/97

72 Design and Bidding 38w 2/5/96 10/5/96

73 Construction and equipment 42w 10128/96 8/15/97

74 Rostov (6,7,14,31); Novosbibsk (2,18,23,29) s0w 912196 3/13/91

75 Design and Bidding 38w 9/2/96 5/23/97

76 Construction and equipment 42w 5/26/97 3/13/98

n7 Rostov (11,12,13,24,32.37,44,48,62) 78w 11/4V96 Si1/9

78 Design and Bidding 38w 11/4/96 7/25/97

79 Construction and equipment 40w 7/28/97 5/1/98

80 Novoslbirsk (3,6,7,17,19,24,37) 78w 114/96 S11/98

81 Design and Bidding 38w 11/4/96 7/25/97

32 Construction and equipment 40w 7/28/97 5/1/98

83 Rostov (3,10,18,19,20,22,25,36,40,41,46,49,53,64) 78w 9/1/97 2/26199

U4 Design and Bidding 38w 9/1/97 5/22/98

a8 Construction and equipment 40w 5/25/98 2/26/99

B6 Novosibirsk (4,5,12,13,15,20,21,22,25,30,33,35,36,41) 78w 9/1197 2126199

87 Deslgn and Bidding 38w 9/1/97 5/22/98

Be Construction and equipment 40w 5/25/98 2/26/99

so Inditudonal Restructurlng Study 68w 11118/96 3/6S8

90 Selcdlon of Consulant 16w 11/18/96 3/7/97

91 Mobilizationof consultant 4w 3/10/97 4/4/97

92 Carry out study 48w 4/7/97 3/6/98

93 Training 19w 814/97 12112/97

94 Training Program 60w 8/S/96 9/26197

U Selection of Consultant 16w 8/5/96 11/22/96

96 Mobilizationof consubant 4w 11/25/96 12/20/96

97 Training In Design 18w 12/23/96 4111197

96 Training In OperationalManagement 4w 217/97 3/6/97

99 TrainIngIn Construction 4w 6/2/97 6/27/97

Page 3 161 ANNEX4.1 COMMUNITYSOCIAL INFRASTRUCTUREPROJECT IMPLEMENTATIONSCHEDULE ANNEX 4.1

ID Task Name Duraton Start Finish 100 Study tours 4w 9/1197 9/26/97

101

102 Expenditure Management Component 75w 912/98 2/6198

103 SelectIonof oonsultants low 9/96 12/20/96

104 Consutant mobilization 4w 12/23/96 1(17197

105 Provide assistance to Improve budgetary management 52w 1/20/97 1/16/98

106 Training and study tour 6w 2/3/97 3/14/97

107 Providecompletion report 1w 2/2/98 2/6/98

108

109 Monitoring and Evaluation component 328w 5/1/96 8/13/02

110 Selection of consultants 16w 5/1/96 8/20/96

111 Consultant mobiilzation 4w 8/21/96 9/17/96

112 Project evaluation activitIes 300w 9/18/96 6/18/02

113 Prepare summary evaluationreport 8w 6/19/02 8/13/02

114

115 Institutional Strengthening Program - Environmental (grant-financed) 120w 9/30/96 1/15/99

116 Selection of consultants 16w 9/30/96 1/17/97

117 Consultantrnobilkzation 4w 1/20/97 2/14/97

118 Carry out training workshopsand studies 100w 2/17/97 1/1599

119 Study tours 30w 1/20/97 8/15/97

120

121 Selecdon of new subproJecsb sow 1113/97 10/16/98

122 Projed Bureau provides guidance and requestsproposals from Departments 2w 11/3/97 11/14/97

123 Department submit proposals 4w 3/2/98 3/27/98

124 Project Bureau reviews and pre-aeecK subproJects 16w 3/3W98 7/17/98

125 Projed Bureau submits It to IBRD and Advisory Board for comment 3w 7/20/98 8/7/98

126 Meeting of Advisory Board 1w 8/10/98 8/14/98

127 Mid-term Review 2w 10/5/98 10/16/98

128

129 Construction Program: Un4dentied subprojects 184w 111/99 7111102

130 Projec Bureau hires experts to carry out appraisals 4w 1/1/99 1/28/99

131 Appralsal of subprojects 20w 1/29/99 6/17/99

132 Design and bidding for subprojects 70w 6/18/99 10/19/00

Page 4 ANNEX4.1 182 COMMUNITYSOCIAL INFRASTRUCTURE PROJECT IMPLEMENTATIONSCHEDULE ANNEX4.1

ID Tuk Name DuraUon Start Finish 133 Constructionand equipping 90w 10/20/00 7/11/02 134 135 Replicationof ProjectIn other oblasts 140w 9/1/97 5UU/00 136 ProjedBureau submits Operational Manual to CPIU ld 9/1/97 9/1/97 137 CPIUsubmits Project Manual for reviewto IBRD ld 9/1/98 9/1/98 138 IBRDapproves Projed Manual for useduring Mid-term review Id 10/1/98 10/1/98 139 Preparationof secondproject 70w 1/4199 510) 140 Selectionof consultants 16w 1/4/99 4/23/99 141 Mobilizationof consultants 4w 4/26/99 5/21/99 142 Identification,preparation and appraisal of project 50w 5/24/99 5/5/00 143

144 PrepareImplementation Completion Report (ICR) 6w 5/1/02 6/11/02 145 DiscussICR 1w 9/2/02 9/6/02 146 147 Closingdate: December 31, 2002 li 1231/02 12/31/02

Page5 ANNEX 4.2

PROJECT SUPERVISION PLAN

= Mission Dates Character of Mission Mission Staffing SWS FY1996 4th Qtr Project Launch Task Manager 3 Accounting/auditing Specialist 2 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Environmental Specialist 2 Operations Officer 2 TOTAL - FY1996 15

FY1997 Subs. Loan Review 7

1st Qtr 1st Supervision Mission Task Manager 3 (after effectiveness) Proc/Disbursement Officer 2 Financial Management Specialist 2 Operations Officer 2

3rd Qtr 2nd Supervision Mission Task Manager 3 Proc/Disbursement Specialist 2 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Operations Officer 2 TOTAL - FY1997 29

FY1998 Subs. Loan Review 7

1st Qtr 3rd Supervision Mission Task Manager 3 Proc/Disbursement Specialist 2 Accounting/auditing Specialist 2 Environmental Specialist 2 Operations Officer 2

4th Qtr 4th Supervision Mission Task Manager 3 and Mid-term Review Proc/Disbursement Specialist 2 Accounting/auditing Specialist 2 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Environmental Specialist 2 Operations Officer 2 TOTAL - FY1998 35 164 ANNEX4.2

Mission Dates Character of Mission Mission Staffing SWS FY1999

2nd Qtr 5th Supervision Mission Task Manager 3 Education Specialist 2 Environmental Specialsit 2 Health Specialist 2 Water/Sanitation Specialist 2 Environmental Specialist 2 Operations Officer 2

4th Qtr 6th Supervision Mission Task Manager 3 Proc/Disbursement Specialist 2 Financial Management Specialist 2 Operations Officer 2 TOTAL - FY1999 24

FY2000 Subs. Loan Review 7

2nd Qtr 7th Supervision Mission Task Manager 3 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Operations Officer 2

4th Qtr 8th Supervision Mission Task Manager 3 Proc/Disbursement Specialist 2 Financial Management Specialist 2 Operations Officer 2 TOTAL - FY2000 27

FY2001

2nd Qtr 9th Supervision Mission Task Manager 3 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Operations Officer 2

4th Qtr 10th Supervision Mission Task Manager 3 Proc/Disbursement Specialist 2 Financial Management Specialist 2 Operations Officer 2 TOTAL - FY2001 20 ANNEX4.2 115

Mission Dates Character of Mission Mission Staffing SWS FY2002

2nd Qtr 11th Supervision Mission Task Manager 3 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Operations Officer 2

4th Qtr ICR Mission Task Manager 3 (preparation of PCR) Proc/Disbursement Specialist 2 Education Specialist 2 Health Specialist 2 Water/Sanitation Specialist 2 Environmental Specialist 2 Operations Officer 2 TOTAL - FY2002 26

FY2003

Ist Qtr Discussion of ICR (PCR) Task Manager 3

GRAND TOTAL 179 m: \king\annex4. 5 ANNEX 5.1 PROJECT COST ESTIMATES

Table 1 : Expenditure Accounts by Rostov and Novosibirsk Oblasts and Moscow x Totals including Contingencies (US $ '000) _

Expenditure Categories Rostov Novosibirsk Moscow Total 1. InvestmentCosts A. Civil Works 66,340.9 65,288.2 69.0 131,698.1 B. Suppliesand Equipment 32,905.6 34,830.8 89.6 67,826.1 C. Foreign Consulting Services 4,288.8 5,025.8 1,914.8 11,229.4 D. Local consulting services 6,022.4 6,394.2 3,758.5 16,175.0 E. Training Foreign 1,812.7 2,045.4 147.0 4,005.1 Local 737.3 926.3 52.5 1,716.0 F. Operating costs (health component) 14,140.2 16,104.2 30,244.4 G. Incremental Operating Costs 624.0 624.0 754.0

Total Investrnent Costs

II. Govt in-kind (NBF) 11,896.0 11,346.0 23,242.0

TOTAL PROJECT COSTS (WBF & NBF) 138,767.9 142,584.8 6,785.4 288,138.1

Foreign Exchange 40,171.6 44,635.2 1,995.6 86,802.4

Figures include taxes.

m 167 ANNEX5.1

Table 2 Expenditure Accounts by Components - Base Costs (US$ '000)

ROSTOV OBLAST

Project Education Health Water Exp. Mgt. Bureau TOTAL WBF Civil Works 33,546 15,604 10,607 40 59,797

Supplies and Equipment 3,605 12,732.9 13,491 900 96 30,824.9

Health Sector Consumables 12,642.1 12,642.1 Consulting services - International 190 1,499 780 492 927 3,888 Consulting Services - Local 619.9 1,385 252 3,544.2 5,801.1 Training - International 300 959.3 43.2 135 188 1,625.5

Training - Local 125 390 92.1 45 50 702.1

Incremental Operating Costs 624 624 (project administration) TOTAL - WBF 37,766 44,447.2 26,398.3 1,824 5,469.2 115,904.7 Physical Contingencies 3,261.8 2,360.9 1,391.8 76.2 204.9 7,295.6 Price Contingencies 475.8 .2,486.7 592.1 56.9 60.2 3,671.7 TOTAL - WBF 41,503.6 49,294.8 28,382.2 1,957.1 5,734.3 126,872

NBF Gov't in-kind 2,700 4,846 4,350 11,896

TOTAL - WBF & NBF 44,203.6 54,140.8 32,732.2 1,957.1 5,734.3 138,768

Figures include taxes. ANNEX 5.1 18

Table 3 Expenditure Accounts by Components - Base Costs (US$ '000)

NOVOSIBIRSK OBLAST

Project Education Health Water Exp. Mgt. Bureau TOTAL WBF Civil Works 29,241 19,297 10,295 40 58,873 Supplies and Equipment 4,669 14,704.8 12,066 900 101 32,440.8 Health Sector Consumables 14,398.8 14,398.8 Consulting services - International 674 1,691 780 492 927 4,564

Consulting Services - Local 168.4 877.4 1,254 252 3,606.6 6,158.4 Training - International 320.5 1,151.1 43.2 135 188 1,837.8 Training - Local 245 450 92.1 45 50 882.1 Incremental Operating Costs 624 624 (project administration) TOTAL 35,317.9 52,570.1 24,530.3 1,824 5,536.6 119,778.9

Pbysical Contingencies 2,761.3 2,935.4 1,300.5 76.2 208.3 7,281.7 Price Contingencies 447.3 3,025.4 588.5 56.9 60.2 4,178.3 TOTAL - WBF 38,526.5 58,530.9 26,419.3 1,957.1 5,805.1 131,238.9

NBF

Gov't in-kind 2,700 4,846 3,800 11,346

TOTAL- WBF & NBF 41,226.5 63,376.9 30,219.3 1,957.1 5,805.1 142,584.9

Figures include taxes. 169 ANNEX5.1

Table 4 Expenditure Accounts by Components - Base Costs (US$ '000)

MOSCOW

CentralProject InplementationUnit

______(C Fl U WBF Civil Works 60 Supplies and Equipment 86 Consulting services - International 1,710.0

Consulting Services - Local 3,650.8 Training - International 133 Training - Local 50 Incremental Operating Costs 754 (project administration) TOTAL- WBF 6,444.4

Physical Contingencies 189.3 Price Contingencies 151.6 TOTAL- WBF 6,785.3

Figures include taxes. m

RUSSIA COMMUNITYSOCIAL INFRASTRUCTURE ComponentsProject Cost Summary

% % Total (Local '000) (US$'000) Foreign Base Local Foreign Total Local Foreign Total Exchange Costs 1. Education- Rostov 36,667.0 3,799.0 40,466.0 36,667.0 3,799.0 40,466.0 9 15 2. Education- Novosibirsk 33,787.9 4,230.0 38,017.9 33,787.9 4,230.0 38,017.9 11 14 3. Halth - Rostov 28,519.7 20,773.4 49,293.2 28,519.7 20,773.4 49,293.2 42 19 4. Health- Novosibirsk 32,850.6 24,565.5 57,416.1 32,850.6 24,565.5 57,416.1 43 22 5. Waterand Sanitaion - Rostov 23,662.6 7,085.7 30,748.3 23,662.6 7,085.7 30,748.3 23 12 6. Waterand Sanitabon- Novosibirsk 21,717.1 6,613.2 28,330.3 21,717.1 6,613.2 28,330.3 23 11 7. ExpenditureManagement - Rostov 597.0 1,227.0 1,824.0 597.0 1,227.0 1,824.0 67 1 8. ExpenditureManagement - Novosibirsk 597.0 1,227.0 1,824.0 597.0 1,227.0 1,824.0 67 1 9. Proect ImpementationUnit - Moscow 4,664.4 1,780.0 6,444.4 4,664.4 1,780.0 6,444.4 28 2 10. ProjectBureau - Rostov 4,428.2 1,041.0 5,469.2 4,428.2 1,041.0 5,469.2 19 2 11. ProjectBureau - Novosibirsk 4,495.6 1,041.0 5,536.6 4,495.6 1,041.0 5,536.6 19 2 Total BASEUNECOSTS 191,987.2 73,382.8 265,370.0 191,987.2 73,382.8 265,370.0 28 100 PhysicalContingencies 9,348.5 5,418.1 14,766.5 9,348.5 5,418.1 14,766.5 37 6 Price Contingencies - 8,001.6 8,001.6 - 8,001.6 8,001.6 100 3 Total PROJECTCOSTS 201,335.6 86,802.4 288,138.1 201,335.6 86,802.4 288,138.1 30 109

ANNEX 5.1 TABLE 5 171 ANNEX5.1

Table 6 Summary of Project Cost By Expenditure Category

(in USS million) Foreign % of Costs as % Base Expenditure Category Local Foreign Total of total Costs

1. Civil Works: 97.6 21.13 118.73 18 49

2. Goods: (a) Equipment, Vehicles and Supplies- 38.66 24.70 63.36 39 26 (b) Health Sector Consumables- 12.91 14.13 27.04 52 11

Sub-total-Goods: 51.57 38.83 90.4 43 37

3. Consulting Services: (a) International- 0.05 10.11 10.16 99 4 (b) Local- 15.61 15.61 7

Sub-total Consulting Services: 15.66 10.11 25.77 39 11

4. Training: (a) International- 0.28 3.32 3.60 92 1.5 (b) Local- 1.63 1.63 0.7

Sub-total Training: 1.91 3.32 5.23 63 2.2

5. Operating Expenses 2.0 2.0 0.8

TOTAL BASE COST (WBF) 1/ 163.74 73.39 241.13 30 100

Physical Contingencies 9.35 5.42 14.77 37 6

Price Contingencies 8.00 8.00 100 3

Sub-total (WBF) Contingencies 9.35 13.42 22.77 59 9

TOTAL (WBF) 2/ 178.09 86.81 264.so 33

TOTAL (NBF) 23.24 23_24

TOTAL PROJECT COST (WBF+NBF) 201.33 86.81 282.14 30

1/ Base cost date-March 1996. 2/ Includes duties and taxes of US$40.69 million equivalent. U

pm

RUSSIA COMMAUNITYSOCIAL INFRASTRUCTURE Proe Component by Year- Tols Including Contingencies (USS 000)

Totals Including ContIngenciet 1997 1998 1m 2000 2001 2002 2003 Total 1. Education- Rostov 570.2 2,325.9 11,286.4 10,580.6 9,107.4 8,780.6 1,552.5 44,203.6 2. Education- Novosbirsk 778.5 5,182.1 11,640.6 7,552.6 6,172.9 7,972.5 1,927.5 41,226.5 3. Health- Rostov 1,357.7 1,671.9 8,126.1 17,156.4 12,415.4 10,413.3 3,000.0 54,140.8 4. Healh - Novosibirsk 1,613.7 2,663.1 8,340.2 16,383.1 19,568.8 11,808.1 3,000.0 63,377.0 5. Waterand Sanittion - Rostov 1,552.5 6,540.4 8,869.5 7,678.5 2,841.4 3,750.0 1,500.0 32,732.2 6. Watr andSanitation - Novosbirsk 1,263.8 5,911.1 9,491.2 3,991.3 4,312.0 3,750.0 1,500.0 30,219.3 7. Exenditure Management- Rostov 405.7 1,398.5 109.2 43.7 - - - 1,957.0 8. ExpenditureManagement - Novosibirsk 405.7 1,398.5 109.2 43.7 - - - 1,957.0 9. ProjectImplementation Unit - Moscow 1,192.2 1,021.4 947.4 643.1 1,468.3 1,181.2 331.8 6,785.3 10. ProjectBureau - Rostov 1,249.0 1,079.8 988.5 753.5 734.6 627.0 301.8 5,734.3 11. ProjectBureau - Novosibirsk 1,264.4 1,089.9 998.6 763.6 744.7 637.1 306.8 5,805.0 Total PROJECTCOSTS 11,653.4 30,282.6 60,906.6 65,590.0 57,365.5 48,919.6 13,420.2 288,138.1

ANNEX 5.1 TABLE 7 RUSSIA COMMUNITYSOCIAL INFRASTRUCTURE ExpenditureAccounts by Years - Totals Including Contingencis (USS '°°°)

Totals Including ContUngencb 1997 1998 199l 2000 2001 2002 2003 Total 1.Invesment Costs A. Chiworks 2,119.5 14,345.0 43,341.2 35,063.5 31,261.9 26,033.9 2,775.0 154,940.1 B. Suppiesand Equqpment 983.9 5,882.9 11,144.4 27,252.6 7,747.4 5,110.0 9,704.9 67,826.1 C. ConsultantServkes 1. LocalConsultant Services 3,041.8 4,327.4 2,153.3 1,934.6 2,169.2 1,762.4 786.3 16,175.0 2. ForeignConsultant Services 3,984.2 4,147.5 1,412.6 672.5 600.5 412.0 - 11,229.3 Subtotal Consultant Serices 7,026.0 8,474.9 3,565.8 2,607.1 2,769.7 2,174.4 786.3 27,404.3 D. Training ForeignTraining 863.2 802.1 1,881.4 241.3 161.7 55.5 - 4,005.2 LocalTraining 352.8 469.6 665.7 117.6 89.3 21.0 - 1,715.9 SubtotalTraining 1,216.0 1,271.7 2,547.1 358.9 250.9 76.5 - 5,721.1 E. Healh sector consumabls - - - - 15,027.6 15,216.8 - 30,244.4 F. ProjectAdministration -Operating expense 308.0 308.0 308.0 308.0 308.0 308.0 154.0 2,002.0 Total PROJECTCOSTS 11,653.4 30,282.6 60,906.6 65,590.0 57,365.5 48,919.6 13,420.2 288,138.1

X

ANNEX5.1 TABLE 8 RUSSIA COMMUNITYSOCIAL INFRASTRUCTURE Componentsby Financlers (US$ '000) The Govemrnment Gov't in-kind Gov't -dutiesltaxes IBRD Total Amount % Amount % Amount % Amount % Amount % For. Exch. 1. Education- Rostov 3,245.9 7.3 2,700.0 6.1 5,026.0 11.4 33,231.6 2. Education- Novosibirsk 75.2 44,203.6 15.3 4,757.4 2,793.8 6.8 2,700.0 6.5 4,837.0 11.7 30,895.7 3. Heath - Rostov 74.9 41,226.5 14.3 5,142.7 7,511.8 13.9 4,846.2 9.0 8,709.5 16.1 33,073.2 4. Health- Novosibirsk 61.1 54,140.8 18.8 24,611.5 8,671.5 13.7 4,846.2 7.6 10,770.0 17.0 5. 39,089.2 61.7 63,377.0 22.0 29,240.4 Waterand Sanitation- Rostov 1,001.7 3.1 4,350.0 13.3 4,382.0 13.4 22,998.5 70.3 32,732.2 11.4 8,304.3 6. Waterand Sanitation- Novosibirsk 977.9 3.2 3,800.0 12.6 3,940.0 13.0 21,501.5 71.2 30,219.3 10.5 7,753.6 7. Expenditure Management- Rostov - - - - 300.4 15.3 1,656.6 84.7 8. Expenditure 1,957.0 0.7 1,345.2 Management - Novosibirsk - - - - 300.4 15.3 1,656.6 84.7 1,957.0 0.7 1,345.2 9. Project Implementation Unit - Moscow - - - - 773.6 11.4 6,011.7 88.6 6,785.3 10. Project Bureau - Rostov 2.4 1,995.6 - - - 827.0 14.4 4,907.3 85.6 5,734.3 11. Project Bureau - 2.0 1,153.2 Novosibirsk - - - - 827.0 14.2 4,978.0 85.8 5,805.0 2.0 1,153.2 Total Disbursement 24,202.7 8.4 23,242.4 8.1 40,692.9 14.1 200,000.0 69.4 288,138.1 100.0 86,802.4

ANNEX 5.1 TABLE 9 RUSSIA COMMUNITYSOCiAL INFRASTRUCTURE Expenditure Accounts by FInancIers (USS '°°)

The Govemment Govt In-kind Gov't -dutes/taxes IBRD Total Amount % Amount % Amount % Amount % Amount % For. Exch. 1. Investnent Costs A. Civ works 11,335.8 7.3 23,242.4 15.0 18,179.0 11.7 102,182.9 65.9 154,940.1 53.8 26,314.6 B. Supplies and Equipment 0.0 - - 12,098.0 17.8 55,728.1 82.2 67,826.1 23.5 28,566.6 C. Consultant Sorvices 1. Local Consulant Servicos - - - - 3,565.9 22.0 12,609.1 78.0 16,175.0 5.6 - 2. Foreign Consutant Services - - 11,229.3 100.0 11,229.3 3.9 11,174.7 Subtotal Consultant Services - 3,565.9 13.0 23,838.4 87.0 27,404.3 9.5 11,174.7 D. Training Foreign Training ------4,005.2 100.0 4,005.2 1.4 3,712.3 LocalTraining ------1,715.9 100.0 1,715.9 0.6 Subtotal Training ------5,721.1 100.0 5,721.1 2.0 3,712.3 E. Healthsedor consumabes 12,866.9 42.5 - - 6,850.0 22.6 10,527.5 34.8 30,244.4 10.5 17,034.3 F. Project Administration - Operating expense ------2,002.0 100.0 2,002.0 0.7 Total Disbursement - 24,202.7 8.4 23,242.4 8.1 40,692.9 14.1 200,000.0 69.4 288,138.1 100.0 86,802.4

ANNEX6.1 TAMLE10 I mX

RUSSIA COMMUNITY SOCiAL INFRASTRUCTURE Local/ForeignlTaxes by Financiers (USS '000)

The Government Govt in-kind Govt -dutideltaxes IBRD Total Amount % Amount % Amount % Amount % Amount % 1. Foreign 6,655.7 7.7 2,440.4 2.8 - - 77,706.3 89.5 86,802.4 30.1 It. Local (Excl. Taxes) 17,547.0 8.7 20,802.0 10.3 40,692.9 20.2 122,293.7 60.7 201,335.6 69.9 Ill. Taxes ------Total Project 24,202.7 8.4 23,242.4 8.1 40,692.9 14.1 200,000.0 69.4 288,138.1 100.0

T TWDLEI11 RUSSIA COMMUNITYSOCIAL INFRASTRUCTURE Dmbumemontsby Soetm ad GovernmentCash Flow (USS 000)

FinancingAvaIlable Cosbt to be Gov't Gov't FInanced * Govemment InJdnd -dutesfaxe IBRD Project CumulatIve Amount Amount Amount Total Costa Cash Flow CashFlow 1 - - - - 5,826.7 -5,826.7 -5,826.7 2 - 643.2 5,103.0 5,746.2 5,826.7 -80.5 -5,907.2 3 - 643.2 5,103.0 5,746.2 15,141.3 -9,395.1 -15,302.3 4 1,225.0 2,361.2 11,075.6 14,661.8 15,141.3 -479.5 -15,781.8 5 1,225.0 2,361.2 11,075.6 14,661.8 30,453.3 -15,791.5 -31,573.3 6 1,180.0 4,958.0 22,625.4 28,763.3 30,453.3 -1,690.0 -33,263.2 7 1,180.0 4,958.0 22,625.4 28,763.3 32,795.0 -4,031.7 -37,294.9 8 2,242.4 6,144.6 23,148.0 31,535.0 32,795.0 -1,260.0 -38,554.9 9 2,242.4 6,144.6 23,148.0 31,535.0 28,682.7 2,852.2 -35,702.7 10 4,185.4 3,787.2 16,477.6 24,450.2 28,682.7 4,232.5 -39,935.2 11 4,185.4 3,787.2 16,477.6 24,450.2 24,459.8 -9.6 -39,944.8 12 2,600.9 2,348.2 15,271.9 20,221.0 24,459.8 4,238.9 -44,183.7 13 2,600.9 2,348.2 15,271.9 20,221.0 6,710.1 13,510.8 -30,672.8 14 187.5 104.1 6,298.5 6,590.1 6,710.1 -120.0 -30,792.8 15 187.5 104.1 6,298.5 6,590.1 - 6,590.1 -24,202.7 Total 23,242.4 40,692.9 200,000.0 263,935.4 288,138.1 -24,202.7 -24,202.7

ANNEX 5.1 TABLE 12 Dr

RUSSIA COMMUNITYSOCIAL INFRASTRUCTURE DisbursomentAccounts by Financiers (USS'000) The Govemrnment Gov't In-kind Gov't -dutiLesitaxes IBRD Total Amount % Amount % Amount % Amount % Amount % A. Civil Works For. Exch. 11,335.8 10.0 B. Supplies - 102,182.9 90.0 113,518.6 and Equipment 0.0 - 39.4 23,874.1 - - - - 55,728.1 100.0 C. Health sector consumables 12,866.9 55,728.1 19.3 28,566.6 55.0 - - - D. Consultant services 10,527.5 45.0 23,394.4 .8.1 17,034.3 1. Local Consultant Services - - - - 2. Foreign Consultant Services 12,609.1 100.0 12,609.1 4.4 - - - - - Subtotal Consultant services - 11,229.3 100.0 11,229.3 3.9 11,174.7 - - - - - E. Training - 23,838.4 100.0 23,838.4 8.3 11,174.7 Foreign Training - - - - - Local Training - 4,887.2 100.0 4,887.2 1.7 3,712.3 - - - Subtotal Training - - 833.9 100.0 833.9 - 0.3 ------F. Prject Administration - Operating expense 5,721.1 100.0 5,721.1 2.0 3,712.3 - - - - G. Taxes/Duties - - 2,002.0 100.0 2,002.0 0.7 - - - - 40,692.9 H. Govt in-kind 100.0 - - 40,692.9 14.1 0.0 - 23,242.4 100.0 - . Total - - 23,242.4 8.1 2,440.4 24,202.7 8.4 23,242.4 8.1 40,692.9 14.1 200,000.0 69.4 288,138.1 100.0 86,802.4

_ ANNEX5.1 TABLE 13 ANNEX5.2 FLOW OF FUNDS FOR IMPLEMENTATIONOF THE RUSSIACOMMUNITY SOCIAL INFRASTRUCTUREPROJECT x

I Mnity of Nadinalitiesand I RegionalPolicy Prcjet I Implemnation Unit (CPIU) l.AI World 1 RussianBak Bank _al S A t

I NovosibirskOblast ProjectBureau Proj Bureau

I : | ~~BranhBank : I1111_, Branch Bank|

ContractorBank F1~~~~~~~~~~~~~~~~ccun

|Conb Banlc || Conr Bank || ContractorBank Co3tractorBank | Account Acoowmt Account

Feukdslbwr Accountinh InfonnationFlow:

I Fundsflow to SpecialAccoumt at the MINNAT. L.A WithdrawalApplication to WorldBank Disbursement Department 2 Fundsare advancedto Region'sProject Bureau's bankaccount 2.A FinancialStatement and Invoicesto MINNAT. _ 3 Funds are paid to Contractor'saccount for work done. 3.A Contractorinvoices Region's project bureau. ProjectBureau approvespayment c

rxm:gVWidfiow.ppt ANNEX 5.3

DETAILEDPROCUREMENT PLAN AND SCHEDULEOF IDENDIFID PROCREMENT PACKAGES (Physical and Price Contingencies Incuded)u

Mlor Actiwiu Schebdue U m

Categwr Of Packge Estiuatd Proc. Ise of Start Datd w Proc.r..int No. Natre of Package Cot (SXOOO) Method Docs. Beg.

Cii Weorks HEALTHCOMPONENT _ Rastoy Obbst) I Polyclinic # I Novoaibirsk 2,223.1 ICB I/l/97 6/5/97

2 Central RMionHospital Mardtovsk 3,2403 ICB 6(25/97 12/4/917

3 Cental Raion Hospital Novocherkauak 3,2403 ICB 6/25/97 12/4/97

4 Polyclinic Corntinotvk 2,243.2 ICB 6t25/97 12/4/97

WATER SUPPLY AND SANITATION COMPONENT

5 1J - Aksai -Rehabilitation of water mains 370.1 ICB 6/10/96 10/28/96 Pipes 700.0 #15 - Rostov - Pipe cleaning nd lining on the water distribution ystem 1,488.5 #29 - Cialtyr - Refurbishamet of first stage water pumping #Ation 690

______2,627.6A_ _ _

6 #6 - Novocherkasak - Rehabiktation of water mins 323.4 NCB 12/97 5/26/97 Pipes 500.0 #7 - Novocherkauak - Systern controls for water distribution 51.8 #14 - Rostov - Instan valves in water distribution network 218.5 A31 - Chaltyr - Renew water distribution mniins 16.5 Pipes 350.0 Pipe__ 1,630.2

7 #32 - Konstantinovsk - Refiafbishmentof water intake pumnpingstation 57.5 NCB 3/4/97 7/28/97 #37 - Jegorlyk - Refurbishment of water punping sation and chlorination plant 51.8 #52 - Taganrog - Rebabiritationof water tretmnent plant on River Mius 258.8 368.1

8 #3 - Aksai - Conpletion of central wastewater pumping station 402.5 NCB 113/98 5/25/9S #20 - Rostov - Renovation of wastewater punping stations 322.0 25 - Azov - Renovation of tertiary filters at wastewater treatment plant 161.0

9 #10 - Novocherkasak - Renovation of 3 wastewaterpumping stations 92.0 NCB 1/3/98 5/25/98 #36 - Konrantinovsk - Renovation of wastewater pumping sations and 115.0 pumping mains #40 - legorlyk - Renovation of wastewater pumping sation 23.0 _ $41 - Jegorlyk - Replacemert of I km. wastewater pumping nuin 38.0 Ca Pipes 85.7 #49 - Donetak - Refurbishment of wastewater treatment plant 172.5 526.2 ANNEX5.3 -- Page 2 of 13

Major A ativiieSchesule

Category of Package Estmated Po. lw of Sat Dael Procur.emt No. Nture of Package Cost (SX000) Meto Does. Belin Derivery

10 18 - Rostov - Provisionof balancing/overflowchamber on seweragesystem 920.0 NCB 1/319S 5/25/98 #46 - Orlovski - Rehabilitation of ewerage network and pumping stations 59.7 '9".7 _____

EDUCATION COMPONENT

11 School #90 (Pilot) - Rostov 807.9 NCB 4/11/96 7/22/96

12 School n3- Bataisk 799.7 NCB 1/9/97 5/12/97

13 School f1 - Akai 1,469.2 NCB 1/9/97 5/12/9740

14 School 121 - Shakhty 1,399.5 NCB 1/9/97 S/12/97

15 Schools - Rostov: #65 243.4 NCB 1/9/97 5/1297 #7 1,529.8 S7______1,773.2

16 School - Rostov: #103 191.2 NCB 1/9197 5/12/97 035 1,101.0 #110 162.3 ______1,454.5 ______

17 School #109 - Routov 1,738A NCB 1/9/97 5/12/91

18 School #5 - Rostov (reconstuction and extension) 2,224.1 ICB 1/3191 5/11/91

19 School 134 - Rostov (reconsuction andextension) 2,357.7 ICB 1/3/9S 5/11/91

20 School #2 - Novocherkssk (recontuction and extension) 15".9 NCB 1/3/98 5/11/91

21 School 014 - Novocherkauk (reconstruction end extension) 1,80.2 NCB 1/3/9S 5/11/91

22 Vororhilovakais (Rostov) - new school 7,124.9 ICB 2/14/98 6(22/98

23 Project Bureau (office renovation) 46.0 NCB 6/1/96 8/1/96

Civi Works ICB 25,281.6 (Ro,s Ovubast) NCB 17,188.2 TOTAL 42,469.8 ______n = m PI CA ANNEX 5.3 --- Page 3 of 13

Major Activiti Schedl _____ ~~~~Dato) K rm Categor of Package Efm Pro* Isse of Start Datel Procuem t No. Nature of Packlge Cost (SX000) Method Docs. Begin Deiver' y

Civil Works HEALTH COlMPONENT (Novosili&sk Oblas) Nvr bI Polyclinic I I 2,25.1 ICB 1/1/97 6/1597

2 Hospital Cherepenovo 3,212.A ICB 6/25/97 12/4/97

3 Polyclnic J30 2,245.1 ICB 6125/97 12/4/97

4 Hospital #1 3,240.9 ICB 6125/97 12/4/97

5 Hospital (Iskitim) 3,273.1 ICB 3/25/98 9/3/98

EDUCATION COMPONENT

6 School J170 (Pilot) 692.5 NCB 4/11/96 7/22/96

7 Chernorechenshia School (laitim) 811.3 NCB 1/9/97 5/12/97 Boarding School J7 (Berdak) 359.3 ______1,170. _A__

S School J103 - Kargat 707.0 NCB 1/9/97 5/12/97 Boarding School (Barabinsk) 620.0 ______1,327.0 _ _ __

9 Boarding Schools: Moahkovo 927.2 NCB 1/9/97 5/12/97 Kolivan 562.1 Toguchin 394.0

10 School #1 (Ordynak) 569.2 NCB 1/9/97 5/12/97 Boarding School (Suzun) 672.2

11 Schools - Novouibirk: #13 956.1 NCB 1/9/97 5/12/97 #12 463.6 ______1 _ _419_ __7 ______1,4 9.7 ______

12 Schools - Novosibirk: Aaonsuticc School 678.0 NCB 1/9/97 5/12/97 #139 394.0 #152 707.0 ______1,779 .0 ______

13 Schools- Novosibirsk: #138 370.9 NCB 119/97 5/12/97 #71 579.5 #161 793.9 ______1,744.3 ANNEX 5.3-Page 4 of 13

I -* __ _ __ )ho _ a C_qsiy of Packae j aci J 'roc. Sbtt Dit proc|En _ No. Nabre OfPacke Ced (IXIW1) Mehed | Dc. Be

14 Schoolt144 - Novotibirek 556.3 NCB 119/97 5/12/97 BoardingSchool t181 707.0 ______1,26 .3 ______

IS KLibyshevBoarding School 3,558.7 ICB 2/14/91S 6 t22 ChumakovskaieSchool 3,558.7 7,117A4 ______

WATER SUPPLY AND SANITATION COHPONENT

16 P8 - Masljanino - Rehabilitation of water distribution system 379.0 NCB 6/10t96 10/28/96 Pipes 100.0 t40 - Novosibirsk - Instrunentation andcontrol for water distribution system 103.5

17 02 - Ordynak - New water pumping station 310.5 NCB I12t97 526/97 013- Toguchin - New water service renrvoir 632;5

943.,0______IS t23 - Tatarnk - Rehabilitation of water distribution system 453.8 NCB I1N97 5/26/97 Pipes 700.0 J29 - Kuibyshev - New service resevoir 724.5

19 06 - Msaljnino - Improve river abstrction 258.8 NCB 3/4/97 7/2M/97 #7 - Maaljanino - Improve postable water treatment 57.5 t19 - Toguchin - New water pumping sation 172.5 438.8

20 04 - Ordynak - Extend ewerge sytem 441.0 NCB 1/3/98 5/25/91 015- Bolotnoe - New reception chamber for ceupit liquors 126.5 #20 - Toguchin - Rehabilitate ceaspits 207.0 t22 - Toguchin - Construct discharge receptionpoint for cesapit tankers 126.5

21 125- Tatarsk - Rehabilitation of sewagepumping sutions 46.0 NCB 1/3/98 5/25/91 #30 - Kuiby.hev - Rehabilitation of ewagepumping sations 149.5 035 - Barabinak - Rehabilitate pumping saion at wastewater treatwnt plant 17.3 #36- Barabinak - Rehabilitate sewerge nstwork 472.4 Z Pipes 700.0

22 Project Bureau (office renovation) 46.0 NCB 6/1191 U11/96 I

Civi werbk ICB 21,334.0 (Novsibisk OMest) NCB 19,459 TOTAL 40,97_3 ANNEX5.3-Page S of 13

Major AcOijyji Sdseha3s

Cateory of Packqe Eatia Prot. e of SltasDat X Prcurmet NO. Natre of Package Cost (SKIN) Medkod Decs. Be in

Goods(Rostov oblst) HEALTHCOMPONEN I MedicalEquipment 7,877.1 ICB 5/1191 12/1/9S

2 5 Conputen, Printers andSoftware(Heth l Finncing) 71.9 NCR 9/l/96 1/1/97

3 Ambulancs for Hospitals 139.7 ICB 2Vl/99 S/1/99

4 Health Sector Consunables 10,940.2 ICB 12/15/99 6/15/00

WATER SUPPLYAND SANITATION COMPONENT

5 f15 - Rostov - Pipecleaning and lining on the water distributionsystem 121.4 ICB 6/10/96 1012S196 f29 - ChAltyr- Refurbishmentof first stge water pumpingstation 273.0 401.4A_ _ _ _ _

6 #7 - Novocherkahsk- Systemcontrols for water distribution 201.6 ICB 1/2I97 5126197 #14 - Rostov - Install valveain water distributionnetwork 866.2 1,067.1

7 f32 - Konstantinovsk- Refurbishmentof water intakepumping station 231.0 ICB 3/4/97 7/2S197 #37- Jegorlyk - Refurbishmentof water punmpingsation andchlorination 199.5 plant #52 - Taganrog - Rehabilitationof water treatmentplant on RiverMius 236.3 666.8 _ _ _ _

8 #11 - Rostov - Mixersfor sedimentationtanks at water treatmentworks 199.5 ICB 3/4/97 7n28/97 #12- Rostov - Improvementsto uandfilters at water treatmentworks 533.8 #13 - Rostov - InsUllationof chemicaldosing plant at water treatment 147.0 works #24 - Azov - Provisionof chemicaldosing plant atwater treatmentworks 323.9 #44 - Orlovski- Renewalof waterchlorination insallation 130.7 #48 - Donetsk- Provisionof control sysemfor water treatmentplant 101.0 ______1,442.9

9 #19 - Rostov - Provisionof sludgedewatering equipment at wastewater 1,201.2 ICB 1/3/91 5/25/9S treatmentplant #53 - Taganrog - Reconatructionof aerationplant at wastewatertreatment 275.4 plant #54- Taganrog - Renewalof pumpsat Eastern wastewaterpumping dation 17851

______1,655.1

10 #3 - Aksi - Compistionof Centralwastewater pumping station 330.1 ICB 1/3/98 512519S f20 - Rostov - Renovationof wastewaterpumping ations 1,176.0 f25 - Azov - Renovationof tertiary filters at wastewatertreatment plant 1,85 ANNEX 5.3 - Page 6 of 13

Major Adiin Shedu

Catqtu of Prck.ge Etimated rProc. ise of Strt DeW Procurmet No. Natu of Paage Co (sxoo) M od Dos. Begi

11 540 - Jegorlyk - Renovation of wastowator pumpnsgstation 94.5 ICB 1/3/98 5/25/98 510 - Novocherkaak - Renovation of 3 waglewaterpunping sations 336.0 n36- Konantinovak- Renovation of wuatwater pumping stationsand 283.5 pumping mains /49 - Donetak - Refurbishment of wastewatertreatment plant 157.5 8715

12 t22 - Rostov - Provision of sewer cleaning equipment 259.0 [CB 113/9S 5/25/93 #46 - Orlovaki - Rehabilitstion of ewerg e ndwork Andpumping stations 420.0 128 - Azov - Provision of sewer cleaning equipment 251.5 30.5

EDUCATION COMPONENT

13 Furniture for Schools 1,2600 ICB 2/1/98 7/1/98

14 Laboratory Equipment for Schools 315.0 ICB 2V/98 7/1/98

15 Cotnputen for Schools 3S3.4 ICB 2/1/98 7/1198

16 Compute, Printers Network, Software for ExpenditureManagerent 663.7 ICB 8115196 1/15/97 Comvonent

17 Office Equipment for Exenditure Management Component S2.5 NS 8/15196 1/15/97

18 Project Bureau - Office Equipment 61.9 NS 5/15/96 7/15/96

19 Cars - Project Bureau 15.8 ICB 5/15/96 1015/96

Goods (Rostov Oblat) ICB 30,454.2 NCB 71.9 NS 144.4 TOTAL 30,640.S

m _ PI ANNEX 5.3 - Page 7 of 13

MajorActivifis Schede

m Cegory of Paae Pof 1sile ScartDat/ X Proc "urft No. Nature of Package Cost (SX000) Methd Does. B3 v F

Goods I Computers,Pritea, Network,Software for Expendire Management 663.7 ICB 8/15/96 1/15/97 (Novsoosk Oblot) Componeat 2 OfficeEquipment for Expendiue Magement Component 52.5 NS S/15/96 1/15/97 3 ProjectBureau - OfficeEquipment 62.0 NS 5/15/96 7/15/96 4 ProjectBureau - Cars 21.0 ICB 5/15/96 10/15/96 EDUCATIONCOMPONENT

5 Furniturefor Schools 97.5 ICB 2/1/9S 7/1/98 6 LabEquipment for Schools 315.0 ICE 2/l/98 7/1/98 7 Computersfor Schools 175.6 NCB 2/1/98 7/1/9S 8 MIS- Equipmenot(Education componeot) 1,349.7 ICB 1/l/97 5/1/97 HEALTHCOMPONENT 9 MedicalEquipment 9,S45.7 ICB 5/1/98 12/1/98 10 5 Computers,Printers (Health Financing) 71.9 NCB 9/1196 1/1/97 11 Ambulances(4) 187.4 ICB 2/l/99 8/1/99

12 HealthSector Consunables 12,454.2 ICB 12/15/99 6/15/00 WATERSUPPLY AND SANITATION COMPONENT

13 028- Kuibyshev- Refurbishwater insallation chlorination 123.6 ICB 6/10/96 10Q2/96 #40 - Novosibirsk- Insrumentationand control for water distribution 530.0 system

______653.6

14 Ceuspit Emptying Vehicles: I 5 (Ordynak) 110.3 NS 1/3/98 5/25/98 #13 (Masljanino) 178.5 #14 (Bolotnoe) 178.5 021 (roguchin) 168.0

______1 ______635.3 ANNEX 5.3-- Page 8 of 13

Major Acivti Schele

|C _ of r ,tO. lae of stu DeW Procurmeat No. Natre of Package Cost (x00) Method Docs. Dveq ______~~~~~~~~~~~~~~~~~~IDelivery

15 n3 - Ordynsk - Insull chlorination estem 213.2 ICB 3/4/97 71/97 J6 - Masejanino- Improve river abstraction 236.3 #7 - Masijanino - Improve potable water treament 105.1 t17 - Toguchin - Chlonnrtion intallation for watersupplies 158.2 J19 - Toguchin - New water pumping sation 157.5 A37 - Novosibiruk- Rafurbishment of chloriration instaliation 426.5 ______1,2 96.8

16 J24 - Tatarsk - E&M renewals at borehole pumping stations 1,795.5 ICB 3/4/97 7/28/97

17 033 - Kuibyshev - Wastewater laboratory 207.7 NCB 1J3/9S 5/25/91 #35 - Barabinak - Rehabilitate pumping sation at wastewater treatment plan 59.9 267.6

IS t12 - Mal1janino - Repacament creen at wastewater pumping station 68.3 ICB 1/3/9S 5/25/91 t41 - Novosibirsk - Sludge dewatering plant 2209 1 I 2,277A

19 125 - Tatruk - Rehabilitationof wage pumping stations 168.0 ICB 1/3M1 5/25/91 10o - Kuibyshev - Rehabilitationof wwage pumping tions 220.5 1U4 - Novouibirsk- Sewer cleaning equipment 343.4 026 - Tatarsk - Sewer cleaningequipment 50.7 ______~~~~~~~~~~~~~~~~~~~782.6_ _ _ _

Goods ICB 32,340.1 (Novodrdk ObbWst) NS 749.8 NCR 515.1 TOTAL 33,605.0

Otier I Project Bureu, Rostov - Operating Expenses 624.0 Other

2 Project Bureau, Novosibirk - Operating Expes 624.0 Other >

3 CPIU, Moscow - Opeating Expenses 754.0 Other X

Other TOTAL 2,002.0 Ca, ANNEX5.3 -- Page9 of 13

Major Activ i Schedul ______(D~~~~~~~ ~~~~~ates)

Catory of Pk E[imaed Prc. le Of Sbrt DW52 Preaerleint No. Natre of Package Cost ISXDOO) Mothod Does. BeD i S ______~~~~~~~~~~~~~~Dehverye

Civi Works 1 Office Equipment for CPIU 46.8 NS 4/15/96 6/15/96 Goods d Servic (Morcow- CPMU)

2 Office Renovation 69.0 NCB 5/1/96 7/1/96

3 Cars IS.8 ICB 7/1/96 9/1/96

4 Foreign Consulting Services 1,34.8 Short LUt 4/15/96 7/15/96

5 LocalConsulting Servicem 2,2613 Short Ust 4/15/96 7/15/96

6 Study Tours 1463 DC 10/15/96 1215/96

7 Local Traning 52.6 DC 10/15/96 12/15/96

U Prepastion/Follow-up Project Foreign Corrns 573.9 Short List 2/1O01 5/22/01 Local ConWultans 750.0

Civil Works Gooedad Sese TOTAL 5,257.7 Ila-cnu ANNEX S.3-Page 10of 13

MaOrAidyiu SebsO

Cateusqof Package Kidhmat Proc. INNEof StartDate Procarmt No. Natre of Puage Cost ($SU) Mehod D . Bell

C-mtin Sevca md IEALTH COMPONENT Training (astw Obkst) I Detailed design and prepartion of bidding documents (hospitals andchnics) 1,353.0 Short List 3/1/96 6/15/96

2 Health care financing studies(local and foreign consultants) 287.9 Short Lst 7/12/96 10/18/96

3 Engineering supervisionfor 5 health facilities 251.1 Short List 3/15/97 6/15/97

4 Training instructors 225.5 Short list 8/30/96 11/15/96

5 Study tours for 150 health care providern 1,397A0 DC 9/15/96 11/15196 6 Training(loc) 94.5 DC 9/15/96 11/15/96 WATER SUPPLY AND SANITATION COMONENT

7 Workshops on design an contract preparation 11.0 DC 12/1/96 V//97

8 Workshops and studytours on opeational management 37.6 DC 2V15/97 4/15/97

9 Workshops on constructiontechniques 6.0 DC 5/15/97 7/15/97

10 Workshops and udy tours on institutional trengthening 89.9 DC 6/1/97 8/1/97

11 Design of water, wastewater and sewage facilities (local) 1,077.3 Short List 6/15/96 9/15/96

12 Supervision of constructionworks (itntional) 411.5 Short List 5/15/97 8/15/97

13 Study on Institutional Restructuring 146.0 Short List 12/18/96 4/4/97

14 Training Intructors: Design, operational manalement, construction and 314.5 Short List 8/5/96 12/20/96 insitutionalstrnhening I

'a' £d ANNEX 5.3 - Page 11 of 13

Mkj.r Atdvim Schse 3

. __ _ . ______._ I__ m Cajagoyof Packg Etmaed Proc. lame of SukrtDw x PrAo rmet No. Natu Of Palcge Con ($100) Med Docs. Be&

EDUCATION COMPONENr

15 Study tours and training for teacher andschool administrators 461.3 DC 4/1/97 6/1/97

16 Project rngenmnt training instructor 221.0 Short List 10/15/96 2/15/97

EXPENDITURE MANAGENEINT COMPONENT

17 Expenditure managementassidance (foreign consulting services) 537.0 Short List 10t2/96 1/17/97

18 Local consulting services 211.7 Short List 10/2/96 1/17/97

19 Trsining andstudy tours 191.7 DC 123/96 2/3/97

PROJECT BUREAU

20 Technical assistanceto Projet Bureau 1,022.5 Short List 4/15/96 7/15/96

21 Local consulting services 2,S76.2 Short List 4/15/96 7/15/96

22 Study Tours andTraining 261.0 DC 10/15/96 12/15/96

Costing Senices d TOTAL 11,485.2 Trana_gtRostov Oblat) ANNEX 5.3 - Page 12 of 13

Major Activit Sekffieh

Categs orOf pacIng Estinaw Pr. kiie Of Start Data Prinm No. Natre of P wkae Cos ($100) Mesod Doa. B

Come_iag Sevimc d HEALTHCOMONENT Trin. (Novelr TOhra vs) I Detailed design nd preapration of bidding documents (hospitals andclinicr) 1,706.6 Short List 3/1/96 6/15/96

2 Health care finuncing studies(local and foreign consultants) 287.9 Short List 7/1296 10/18/96

3 Engineering supervisionfor 6 health facilities 306.3 Short List 3/15/97 6/15/97

4 Traininginsructors 225.5 Short Lia S/30/96 11/15/96

5 Study tours for 180 healthcare providert 1,664.1 DC 9/15/96 11/15/96

6 Training (local) 94.5 DC 9/15196 11/15/96

WATER SUPPLY AND SANITATION COMPONENT

7 Workshops on design nd contret preparation 11.0 DC 12/1/96 2/1/97

8 Workshops and tudy tours on opertional maagement 37.6 DC 2V15/97 4/15/97

9 Workbhops on con*uction techniques 6.0 DC 5/15/97 7/15/97

10 Workshops andstudy tours on institutional strengthening 89.9 DC 6/1/97 8/1/97

11 Design of water, wastewater andsewage facilities (local) 975.4 Short list 6/15/96 9/15/96

12 Supervision of construction works (international) 411.5 Short List 5/15/97 8/15/97

13 Study on institutionalrstmcturing 146.0 Short List 12/18/96 4/4/97

14 Training instructors: design, operational management,construction and 314.5 Short List 8/5/96 I2/20/96 institutionaltrengthening

52 U ANNEX 5.3 Page 13 of 13

Major AtiivYimSchMee

|C_vgor of Package IAtmat PI. Isse of StaIt Date/ Procurenmt No. Natre of Pakage Cost (SX000) Method Dc. Begiu

EDUCATION COMPONENT

15 Study tours andtraining of education ofticials 459.6 DC 4/l/97 6/1/97

16 Project maagemnt training insructor 221.0 Short L st 10/15/96 2115/97

17 Training andstudy tours (IS progrm) 156.4 DC 2/1/97 4/1/97

18 Foreign consulting service (MIS program) 527.7 Short List 6/11/96 9/17/97

19 Local Consulting Services (MIS progrm) 141.1 Short List 6/11/96 9/17/97

_EDPENDMTURE MANAGEMENTCOMPONENT

20 Expenditure managemnot technical asistnce (foreign consulting services) 537.0 Short List 10/2/96 1/17/97

21 Local consulting services 211.7 Short List lo/96 1/17/97

22 Training nd study tours 191.7 DC 12/3/96 2/3/97

PROJECT BUREAU

23 Technical asistanceto Project Bureau (several contracts) 1,022.5 Short List 4/15/96 7/15/96

24 Local conslting services 2,941.7 Short Lis 4/15/96 7115196

25 Study Tour andTraining 261.0 DC 10/15/96 12/15/96

Ce_ong Ser,-k d TOTAL 12,9482 Trmiag (Novoslhirsk

m:Ukngvannax.3 ANNEX 5.4

TECHICAL ASSISTANCEAND TRAINING- TERMS OF REFERENCE

A. EDUCATION COMPONENT

I. Project ManagementTraining for Schools Facilities Managersand Planners

1. Consultantsto assist in on-the-job training of Education Department staff in identificationand preparationof subprojects.

2. MinimumRequirements:

Consultant1 should be an education facilities planner. He/she should have at least 5 years of experience in using demographicprojections in the design of school cathcment areas. The consultant should have substantial experience in establishing and implementing programs for the maintenance, rehabilitation, consolidationand constructionof new schools. In addition, the consultantshould have a solid grasp of the major elementsthat contributeto the capital and recurrent costs of school facilitiesand of the means employedto improvethe cost effectivenessof expenditures. The consultantwould probably be currently employed by a very large school district or authority.

Consultant2 should be an education architect, with a substantial experience (10 years) in the design of schools and the managementof school constructionprograms. The areas in which expertise is required are the processes for the formulationof educationspecifications, school design and all aspects of procurement, includingthe handing over of new schools.

3. Scope.Working with about 40 governmentstaff from Rostovand Novosibirskoblasts to identify and prepare a total of US$15 million in school facilitiessubprojects.

4. Description. This project element follows up on four days of classroom training in school facilitiesplanning provided by Bankstaff during the preparationof the educationcomponent of the project in June 1995. Training will involvethe practical applicationof methodologiesfor facilities planning, investmentdecision making, school design and project management.

(a) Review inventory of schools in each oblast with respect to their physical condition, existing and projected enrollments, design of catchment areas. Refine the costs of operatingschools, includingthe costs of energy.

(b) Provide assistance in outlining a school facilities plan for the next decade. Determine which schools should be rehabilitated, school closings and consolidations,new schools as replacementsfor existing facilities and new schoolsfor areas that are not adequately served. Provide guidance in the initial selection of projects to be financed under the Community Social Infrastructure Project. Examination of environmental issues and securing of environmentalclearances.

(c) Review educationspecifications for all schools with parents, teachers, school directors, 194 ANNEX5A

school administrators, oblast departments of education and community officials. The specificationsare to be modifiedaccording to each school's special circumstances.

(d) The formulationof conceptualdesigns and the specificationof design features, including mechanicalsystems, energy conservation.

(e) Formulationof design tender documents.

(f) Formulationof constructiontender documents.

(g) Evaluation of bids and the awardingof contracts.

(h) Quality assurance.

(i) Routinepreventive maintenance.

4. 7Iming: 1996-2001.

5. Approximatelyone to two visits to both Rostov and Novosibirsk oblasts in 1996 and 1997 for a total of 30 staffweeksin each oblast. Total: 60 staffweeks. ANNEX5.4 195

Project Managementand Training: InternationalTechnical Assistance; 1996-1997.

Area Terms of Reference SW Year (a) Review inventory of schools in each oblast with 6 1996 respect to their physical condition, existing and projected enrollments, design of catchment areas. Refine the costs of operating schools, including the costs of energy.

(b) Provide assistance in outlining a school facilities plan 6 1996 for the next decade. Determine which schools should be rehabilitated, school closings and consolidations, new schools as replacements for existing facilities and new schools for areas that are not adequately served. Provide guidance in the initial selection of projects to be financed under the CSIP. Examination of environmental issues and securing of environmental clearances.

(c) Review education specifications for all schools with 6 1996 parents, teachers, school directors, school administrators, oblast departments of education and community officials. The specifications are to be modified according to each school's special circumstances.

(d) The formulation of conceptual designs and the 6 1996 specification of design features, including mechanical systems, energy conservation.

(e) Formulation of design tender documents. 1 1997

(f) Formulation of construction tender documents. 1 1997

(g) Evaluation of bids and the awarding of contracts. 1 1997

(h) Quality assurance. 2 1997

(i) Routine preventive maintenance. 1 1997 196 ANNEX5.4

II. EducationFacilities Managementand SupportingManagement Information System; NovosibirskMunicipality

1. Ninety staffweeks of consulting services to examine and make recommendations on the management of school facilities in Novosibirsk and then to implement a supporting management informationsystem.

2. Scope: Facilitiesmanagement and supportingmanagement and managementinformation system for 200 schools in 10 districts in Novosibirskmunicipality.

3. Description: The program consists of 7 tasks, including two initial studies, study tours, consultants for the design of a pilot, the implementationof the pilot, development of a plan for the implementationof the program system-wideand, finally, the actual implementationof the plan system- wide.

Task 1 Managementsystem study. Approximately12 staffweeksof work by two management information system specialists to review the organization, staffing and functions of facilities managementin Novosibirskmunicipality.

2 Managementinformation systems study. Approximately12 staffweeksof work to review the technologyneeds for the facilities managementsystem and to make recommendations for the implementationof an agreed program.

3 Studytour. Aboutsix staffweeksof consultingservices are needed to organizetours for 4-6 school administratorsto observe the organizationand managementof schoolfacilities in large school districts.

4 Design of a pilot information system. About 12 staffweeksof consulting services to identify data needs and develop a plan for the transition to a new system.

5 Pilot Implementation. The establishmentof a data base and the installationof equipment in the city administrationand, perhaps, two raions.

6 Development of a plan for the replication of the pilot system-wide. Following the evaluationof the pilot, a plan will be developedto replicatethe pilot system-wide. About 12 staffweeks.

7 About 20 staffweeksto begin the implementationof a system-wideprogram.

4. 7Tming: 1996 and 1997.

A total of 78 staffweeksis required for these tasks. ANNEX5.4 197

Education FacilitiesManagement and Supporting Management InformnationSystem; NovosibirskMunicipality; TechnicalAssistance Requiremnents

Area Terms of Reference SW Year

Task 1 Management system study. 12 1996 Approximately 12 staffweeks of work by 2 management information system specialists to review the organization, staffing and functions of facilities management in Novosibirsk municipality.

2 Management information systems study. 12 1996 Approximately 12 staffweeks of work to review the technology needs for the facilities management system and to make recommendations for the implementation of an agreed program.

3 Study tour. 6 1996 About 6 staffweeks of consulting services are needed to organize tours for 4-6 school administrators to observe the organization and management of school facilities in large school districts.

4 Design of a pilot information system. 12 1996 About 12 staffweeks of consulting services to identify data needs and develop a plan for the transition to a new system.

5 8 1997 Pilot Implementation. The establishment of a data base and the installation of equipment in the city administration and, perhaps, two raions. 6 4 1997 Development of a Plan for the replication of the pilot system-wide. FoUlowingthe evaluation of the pilot, a plan will be developed to replicate the pilot system-wide. 7 20 1997 About 20 staffweeks to begin the implementation of a system-wide program. 198 ANNEX5.

B. HEALTH COMPONENT

1. Rehabilitation of medical facilities: Design and Implementation

Design

1. Local (Russian)design firms would be selected independentlyaccording to normal WorldBank procedures, to prepare designs and contract documents for eleven medical facilities--Polyclinicsand General Hospitals. To ensure that this work takes full advantage of internationalexperience, in each oblast an internationalfirm with substantialexperience in the design and implementationof similar work would provide training and guidanceto these firms, would monitor progress, and would provide advice as needed to the authorities and design firms at each stage of the work through to the supervisionof construction. The authorities, in consultationwith the internationalfirm would approve all designs at each stage.

2. The firm should be prepared to supply expertise in the following specialisations:

- architecture (A); - civil engineering (CE); - electromechanical engineering, including expertise with heating, air-conditioning sanitation and electrical systems (EM) - medical (M);

Work Program

1. Backgroundwork--intial surveys, reviewingexisting (computerized) construction layouts etc. (40 person-weeks. Time required: 1.5 months. Will include: A, M, CE.)

2. Preparation of preliminary designs and layouts for each project including preliminary electromechanicaldesigns and equipment. (20 person-weeks.Time required: 2.5 months. Will include: A, D, CE, EM.)

3. Preparation of final layouts, including layout and specificationof equipment, and securing approval from the local medical authorities and the local buildingauthorities. (86 person-weeks.Time required: 1.5 months. Will include: A, D, CE, EM. )

4. Revision of designs and preparationof detailed architecturaldesigns. (70 person-weeks.Time required: 1.5 months. Will include: A, CE, EM.)

5. Preparationof designs for the constructionelements of the structure, and detailed designs of the electromechanicalfacilities in each structure; (110 person weeks. Time required: 1.5 months. Will include: A, CE, EM.)

6. Preparation of section details, and designs of carpentry, aluminum, acoustic ceilings, etc, and preparationof tender documentsand specifications. (130 person-weeks.Time required: 1.5 months. Will include: A, CE, EM.) ANNEX5.4 199

7. Coordinationof designs betweenvarious designers and cmpletionof designs. (130 person-weeks. Time required: 1.5 months. Will include: A, CE, EM.)

8. Preparation of bills of quantity, tendering of legal documents, tendering of technical specifications,and documentapproval. (40 person-weeks. Time required: 1.0 month. Will include: A, CE, EM.)

9. Totals: 626 person-weeks. (Time required: 12.5 months.)

Construction

10. Supervisor on site for each of the stages. (78 person weeks (Time required: 1.5 yrs).

2. Health Finance

11. A firm would be selected to provide experts to assist each oblast Administrationand Territorial CompulsoryHealth Insurance Fund (TCHIF) with the following activities. (Estimatedtime is in man- months--Iis internationalconsultant, L is local consultant.)

12. Establishmentof a revolving investmentfund under the TCHIF. (I = 1, L= 1.5)

(a) development of oblast development plan and establishment of investment priorities; in-tandem with health priorities (based on cost-effectiveness and cost-benefit considerations); (b) developmentof criteria and guidelinesfor identificationof investmentsrequiring approval of local and federal authorities; (c) developmentof guidelinesfor investmentsqualifying for subsidies; (d) designand development a systemfor soliciting/receivingrequests for investments/projects from providers and approving loans; (e) designand developmentof financialand accountingsystems for borrowing, disbursement, and collectionof moneys;

13. Compensationsystems ( 1=3, L=6)

(a) health system analysis: identificationof medical care units - insurers, providers, and clients - and functional and financial relationshipsamong them; (b) identificationof potential reimbursementarrangements between any two units; (c) identificationof possiblepatient copayment arrangements; (d) choice of optimal compensationsystem; (e) design of system development; and, (f) system developmentand implementation. 200 ANNEX5A

14. Macro resource-allocation systems (1= 1, L=2.5)

(a) design and development of a health management information system for the identification of health priorities, pertinent demographic and socio-economic data, and use and supply of services; (b) development of a local capitation system for allocation of resources to raions and insurers; and, (c) establishment of the guidelines and procedures for contribution to the local health budget of different levels of Government;

15. Macro Financial management systems (1= 1.5, L=6)

(a) design and establishment of financing and accounting systems with the oblast health administration, and the health administrations of the raions where there are project facilities; (b) design and establishment of financing and accounting system with the TCHIF, and branches of the TCHIF and insurers operating in the raions where there are project facilities.

16. Finance and management systems in project facilities (1=1.5, L=6.)

(a) design and development of a management information system in each facility with an orientation toward cost-centers within facilities; (b) design of an accounting system with an identical orientation and which is consistent with the prevailing compensation/reimbursement mechanisms for services provided by facilities.

3. Training

I. Designers and Engineers

Area Terms of Reference SW Year Training Continue to develop guidelines for Designers and Rostov: 175 1996 Engineers that includes functional relationships Novosibirsk: 210 1996 between units as well as the specifications of structural needs and consultant guidelines, possibly including study tours

I1. Descripion: The process is already under way as part of project preparation and appraisal to develop engineering guidelines for the units to be financed under the project. These would include: ANNEX5.4 201

(a) guidelines concerning general layout of units in the general hospital in Cherepanovo, Novosibirsk and Polyclinic No. I in the city of Rostov; (b) functional relationships among units; minimal size of units; (c) specifications of architectural, construction, and electro-mechanical needs such as heating, electricity, air conditioning, and general characteristics of units; and (d) guidelines for consultants.

In addition to the training in the use of the guidelines, the Russian designers and engineers may have study tours that should enable them to appreciate the concepts with which they will be dealing.

II. Imaging Technicians

Area Terms of Reference SW Year Training Imaging Technicianswill have basic training in Rostov: 175 1997 anatomy, physiology,pharmacology, radiation, genetics, Novosibirsk:210 1997 radiation hazards, and more extensivetraining in radiography, sonography,mammography, imaging equipment, developmentequipment and patient preparation: emphasizing;medicine quality, screening, automation, and computerization.

Description: Imaging Technicians need to be trained in the following aspects:

(a) basics in Anatomy, Physiology, Pathology and Pharmacology; (b) basics in Radiation, Genetics and radiation hazards; (c) Radiography; (d) Sonography; (e) Mammography; (f) Imaging Equipment and techniques; (g) Development equipment and techniques; and (h) patient preparation;

Training would emphasize the following:

(a) Quality Assurance in laboratory medicine; (b) Screening procedures of analyses; (c) Automation and robotics in the laboratory; and (d) Computerization and the computerized laboratory. 202 ANNEX5.4

III. Laboratory Technicians

Area Terms of Reference SW Year Training Laboratory Technicianstrain in: Rostov: 175 1997 biochemistry,hematology, microbiology, Novosibirsk:210 1997 endrocrinology and therapeutic drug monitoring

Description: Laboratory Technicians need to be trained in the following aspects:

(a) Biochemistry (Electrophoresis, HPLC, TLC); (b) Hematology (complete blood counts by microscopy and mainly by automatic equipment, automatic coagulation techniques, HB electrophoresis); (c) Microbiology (inclusive serology novel and automatic screening of samples and identification of micro-organisms); (d) Endrocrinology; and (e) Therapeutic drug monitoring.

IV. Maintenance Engineers and Technicians

Area Terms of Reference SW Year Training Maintenance Engineers and Technicianswill develop Rostov: 175 1997 operational, maintenance, and preparation skills Novosibirsk:210 1997

1. Description: The skills involved here are for electricians, electro-mechanical technicians, and water and sanitation technicians. The program would include the following major aspects:

(a) knowledge of structures, equipment and materials; (b) reading of technical charts; (c) knowledge of operation and maintenance of specific systems; (d) preparation of routine maintenance programs; (e) development and usage of logs and forms; (f) development of periodical routines; (g) maintenance of safety standards; and (h) use of computers in maintenance. ANNEX5.4 203

V. Clerks

Area Terms of Reference SW Year Training Lower/mid-level Clerks will acquire management, Rostov: 175 1997 organizational and documentationskills Novosibirsk:210 1997

1. Description: Training in this area is intended for lower and middle-level Clerks who will help operate the different laboratory and imaging units. These personnel should acquire knowledge in:

(a) organization and management of particular services; (b) management of patients; (c) international codes of various tests/exams; (d) maintenance of records; (e) office computerization; and (f) recording and informing of results.

VI. Physicians

Area Terms of Reference SW Year Training Physicianswill train under supervisionand will acquire Rostov: 300 1997 new capabilities in emergency medicine. Specialists will Novosibirsk: 360 1997 sub-specialize with emphasis on: quality assurance, screening procedures, automation and computerization.

Description: This training program for physicians would be in the following specialties:

(a) Internal Medicine; (b) Surgery; (c) Intensive care Medicine; (d) Cardiology; (e) Laboratory Medicine; and (f) Radiology;

2. The following is a detailed description of required training:

(a) Physicians will go through a crack immersion course (3-4 days) to acquaint themselves with the concepts of emergency medicine as manifested in the proposal of the World 204 ANNEX5A

Bank. The concept relies heavily on laboratories and imaging. During the course, emphasis on proper managementof patients will be reviewed in accordance with the proper use of these technologies.

(b) Physicianswill be divided accordingto specialtiesand will spend 2 weeks on location, namely: EmergencyRoom, IntensiveCardiac Care Unit, Respiratoryand Surgical Care Units.

(c) Trainees will joint residents in each location and function under supervisionof a Senior Physician or Chief Resident. Trainees will acquire:

(i) Diagnostic capabilitiespresent in each location such as Laboratory Radiology, Electrocardiography; (ii) Invasive and non-invasivetechniques such as insertion of arterial and central lines, and cardiac pacemaker; (iii) Pulmonarycardiac resuscitation;and (iv) Therapeuticdecisions and admissionpolicies.

(d) Physicians with specialties in laboratory and radiology will spend time in each sub- specialty and emphasis will be directed to the following:

(i) Quality assurance; (ii) Screening procedures; (iii) Automationand robotics; and (iv) Computerizationand managementin the environmentsaturated with computers.

In the laboratories, trainees will rotate in:

(i) Biochemistry(will include electrophoresis,HPLC, TLC); (ii) Hematology(will includeComplete Blood Countsby Microscopyand mainly by automatic equipment, Automatic Coagulation Techniques, and Hb electrophoresis); (iii) Microbiology (includes serology and automatic screening of samples and identificationof micro-organisms; (iv) Endocrinology;and (v) TherapeuticDrug Monitoring.

In Radiology,trainees will rotate in:

(i) Radiology; (ii) Mammography; (iii) Ultrasound; and (iv) ComputerizedTomography. ANNEX5.4 205

SUMMARY OF TRAINING (STUDY TOURS):

Rostov Novosibirsk Study Tours:

Physicians 25 staff/12 weeks 30 staff/12 weeks Designers/Engineers 25 staff/7 weeks 30 staff/7 weeks Laboratory Technicians 25 staff/7 weeks 30 staff/7 weeks Imaging Technicians 25 staff/7 weeks 30 staff/7 weeks MaintenanceEngineers and Technicians 25 staff/7 weeks 30 staff/7 weeks Administrationand Management 25 staff/7 weeks 30 staff/7 weeks Learning Materials 25 staff/7 weeks 30 staff/7 weeks

Sub-TotalStudy Tours (weeks) 1,175 weeks 1,410 weeks 206 ANNEX5A

C. WATER SUPPLYAND SANITATIONCOMPONENT

I. Workshopsfor the Design of Water and SewerageSystems

1. Consultantsfor Training Workshops (2 in each oblast during year 1).

2. Objective: To assistestablished local civil engineeringdesign enterprisesand institutesto become familiar with the design of water supply and wastewater collection (sewerage) networks to western civil engineering standards.

3. Inputs: Two consultants(one water supplyspecialist; one seweragespecialist) for one weekeach in each oblast to conduct training workshopsfor approximately15 to 25 engineers in each oblast.

4. Output: Experiencedlocal civil engineeringdesigners from design enterprises and institutes in each oblast trained in western design practice pertaining to the design and constructionof water distributionnetworks and wastewatercollection systems. Trained designerswill then be enabled to train other design engineers in the enterprises and institutes.

I. Workshopson Water and SewerageOperational Management

5. Consultantsfor Training Workshops(2 in each oblast during year 1).

6. Objective: To provide training at managementand middle managementlevel in the vodokanals and municipalitiesin:

(a) the demand managementof water (leakage strategies and control; waste water control strategies - bylaws, pressure zoning, etc.);

(b) sewerage surveys; maintenanceand renewal;

(c) operational organizationand manpowerresources.

7. Input: Two consultants (one operational water supply specialist and one operational sewerage specialist)for one weekeach in each oblast to providetraining workshopsto approximately20-30 managers and middle management staff from vodokanals and municipal water/sewerage enterprises in each oblast.

8. Output: Managers and middle managers responsiblefor water supply and sewerageoperations in each oblast able to plan and commence their own initiatives for improving operational performance by raising levels of service and starting to reduce costs including reductions in manpower. Trained operational managerswill be enabledto pass on training to lower levels of managementin the operational water/seweragedepartments. ANNEX5.4 207

m. Workshopson TechnicalDrafting and ConstructionTechniques

9. Consultantsfor Training Workshops(2 in each oblast during year 1).

10. Objectives: To raise the standard of civil engineering construction for water and sewerage projects by providing training to design engineers and constructionsupervisors. The training is to include:

(a) the preparation and drafting of specifications; (b) constructionplanning, programmingand scheduling;and (c) the constructionof structural buried pipelines for water and sewage.

11. Input: Two consultants (one specialist in specification drafting and construction project programming: one specialist in concrete and pipeline construction)for one week each in each oblast to provide training workshopsto designengineers responsiblefor preparing specifications; construction supervisors (resident engineers); contractors, site managers and site engineering staff. Approximately30-40 participants in each workshop.

12. Output: Better standards of civil engineering construction with a particular emphasis on improvementin the quality of reinforcedconcrete structures and the lying of pipelines for water distribution and sewerage networks. The maintenanceinvestment requirements in future years applicableto the new constructionshould be substantiallyless than the requirementsfor present constructionand new works should have a considerablylonger operating lifelessly.

IV. Study Tours on OperationalManagement and InstitutionalStrengthening of Water and SewerageInstitutions

13. Out of the country study tours in year 1 for up to 6 managers from vodokanals, oblasts and municipalitiesof each oblast to study operationalwater and wastewatermanagement in a western country.

14. Objectives: To provide an insightto water/wastewatermanagement and administratorsto assist the undertakings in carrying out a review and subsequent reorganization of the present institutionalstructures.

15. Input: A combinedstudy tour for both oblasts of approximately2 weeks duration to look at the practices in western water and wastewatermanagement with particular emphasison:

(a) organizationalstructure; (b) manpowermanagement; (c) asset managementplanning and renewal; (d) financial management;cost control and budgeting; (e) cost recovery for the service provided; (f) corporatizationand regulatorycontrol of the undertaking; and (g) standards of service; water quality and control of environmentalpollution 208 ANNEX5.4

16. Output: Practical assistanceto the administrationand managementin the oblasts, vodokanalsand municipalities in the planning of the institutional reorganization of the water supply and wastewater services to provide a better organized and more cost effective service in the future.

V. Design of Water and Sewage Facilities

17. Contractor: International civil engineering consultant organization specializing in water/wastewaterproject design.

18. Objectives: To assist in the detailed design and preparation of specifications and bidding documentsfor water and wastewatersubprojects and to providethe transfer of westerntechnology through joint venture with local counterpart design institutesor enterprises.

19. Input: The international consultant will provide long-term assistance in the detail design of subprojects. The technicalassistance will be undertakenin years I and 2 and will be focusedon the following areas of subproject design:

(a) Network analysis and computer modelling of existing water distribution and sewerage networks; (b) Planning and programmingfor water main/seweragerenewal nd rehabilitation; (c) Design of improvementsto water treatmentplant and wastewatertreatment plant; (d) Design of replacementelectrical and mechanicalinstallations at water supply and wastewaterpumping stations; and (e) Design of replacementinstallations for chemicaldisinfection of drinking water supplies

The consultantwill provide training and transfer of technologythrough the secondmentof local staff to the consultant's design offices for periods between 3 and 6 months.

20. Output: Subproject detail designs including specifications and bidding documents prepared according to World Bank standardsto meet local requirements.

Local staff trained on the job and able to pass on training to other staff in the design offices of the design institutesand enterprises. This will facilitate subprojectpreparation for future project works required to meet standardssuitable for internationalshopping.

VI. Supervisionof ConstructionWorks (Waterand Sewage)

21. Contractor: Internationalcivil engineeringconsultant organization specializing in the design and constructionof water and wastewaterprojects.

22. Objectives:To effect improvementin the constructionmanagement of subprojects,both from the client and the contractors side. To bring about an appreciationof the need for improvementin the quality of construction; the planning of construction to meet contract delivery dates; the contractualrole of the client's supervisorsin checkingon constructionand the quality of materials and workmanship. ANNEX5.4 209

23. Input: The international consultant will provide long-term assistance in the supervision of subproject constructioncontractors and the associatedconstruction works including:

(a) testing of materials; (b) checkingof workmanship; (c) monitoringprogress accordingto contractualconstruction programs; (d) measurementsfor agreeingand making interim contractualpayments according to work done; (e) tests on completion;and (f) commissioningof works and hand over to client.

For the purposes of training and transfer of technology,the consultantwill be required to enter into joint venture with local counterpart design institutes or enterprises to provide local staff to assist in-site supervisory duties.

24. Output: Improvementson behalf of the employingclient in the quality of constructionhanded over; completionaccording to agreed contractualdates and the availabilityof trained staff whoa re enabled to pass on training to other staff both in the contractorsorganization and the design institutesor enterprises.

VII. Studyon InstitutionalRestructuring

25. Contractor: Internationalconsulting organization or out-of-countryoperational undertaking with specialists in institutional organization and planning in water and wastewater collection and treatment.

26. Objectives: Through a study and report, to provide expert advice and guidanceto the vodokanal and municipal authorities in the cities of Rostov and Novosibirsk on the future status and organization of the vodokanals as corporate bodies to undertake the provision of water and wastewaterservices in the municipalities. The study will focus particularlyon the need to:

(a) raise levels of service; (b) provide a managementand operatingstructure that is cost effectiveand efficient; (c) control and reduce operatingcosts - particularlyenergy consumptioncosts; (d) provide for regulatory control of the operations of the vodokanal; (e) provide for cost recovery to sustain the future operations and financial requirementsof the vodokanalsleading eventuallyto operationalautonomy; and (f) improve the aquatic environment.

27. Inputs: The consultantor out-of-countryoperational undertakingto provide specialists for a 6- month study to investigate and advise on organizationalstructure; operational management; strategic planning for water supply and wastewater management;finance, budgeting and cost control; administration;personnel structures and manpowerprofiles; options for cost recovery. The inputs are to be provided during years I and 2. 210 ANNEX5.4

28. Outputs: The study will produce a report with recommendationson options that are availableto the municipal authorities of Rostov and Novosibirsk for the reorganizationof the water and wastewaterutilities to meet the study objectives. The report of the study will be required to set out, in particular, the options for:

(a) cost recoveryto sustainthe future operatingorganization as an autonomousbody; (b) regulatory requirements for controlling the use of assets; minimum acceptable levels of service and approvedcharging policies; and (c) periodic review of the performanceof the water/wastewaterundertaking to meet regulatory requirements.

VIII. Training in Design and Operational Management of Water and Sewage Assets

29. Contractor: Internationalconsulting organization or out-of-countryoperational undertaking with specialists in asset managementplanning in water treatment and distribution and wastewatercollection and treatment.

30. Objectives: To provide training in the concept of asset management planning for the water/wastewaterutilities in the municipalitiesof Rostovand Novosibirskso that future capital expendituresand operatingcosts can be planned to meet the demand for services and to provide levels of service accordingto the finance availableform user charges.

31. Input: The consultant or out-of-countryoperational undertakingto provide specialists for 12 months training in each oblast in years I and 2. The training to include study tours to western countries for up to 6 management/middlemanagement staff from each of the vodokanals and municipalitiesof Rostov and Novosibirsk. The training and study tours will focus on the following aspects of asset managementplanning:

(a) a water supply/wastewater treatment strategy for the municipal undertaking/vodokanal; (b) estimating future demands for water supply and wastewater collection and treatment services; (c) making an evaluation of existing installationsand resources; (d) classifying the requirementsfor future new works; and (e) preparing an asset managementplan in the form of a review documentsuitable for annual reassessment.

32. Output: Managementand middle managementstaff trained in asset managementplanning as a means of determining future capital investmentplans and programs. At the completion of the training asset managementplans in the form of reviewdocuments will be availableto providethe basis for all future capital investmentproposals. ANNEX5.4 211

D. EXPENDITUREMANAGEMENT COMPONENT

I. Budget/FinanceManagement Long-Tern Adviser [ Expenditure ManagementLTA; 10 months (1996), 3 months (1997)] [ Budget Management/AnalysisSTA: 3 months (1997)1

1. Minimum Requirements

- Must have a minimumof 10 years experience in the municipal/stategovernment finance field; - Must have knowledgeof preparation, control and executionof governmentbudgets; - Must have worked in a computerizedfinance environment; - Must have knowledge of budget legislation and have prepared and passed necessary budget legislationin other sub-nationalgovernments; - Must have worked in a policy position for a minimum of 4 years, in order to have experience in preparing and adopting budgetsthrough local councils; - Must have internationalexperience, a minimum of one year prior experience in Russia or the former Soviet republics; - Must be a professional with membership to professional government finance organizations; - Must be aware of tax policies, expenditureallocation and management,policy analysis, new policy developmentand implementation;and - Previous experienceas a financedirector (not city or county manager)or budget director of a state or county government.

2. Scope of work

The LTA will be required to prepare a more detailed scope of work for each of the sub-componentsof the expendituremanagement program. This is to include, but not be limited to, financialanalysis, policy analysis,developing financial controls, developingfiscal control policies,drafting andadopting legislation for fiscal control.

The main area of work will be in expendituremanagement and proposing proper fiscal control policies. The LTA will be required to work with the local representativebodies and the executive branches to develop and adopt legislationfor fiscal control.

3. The areas of work to focus will be:

a) Expenditureapproval processes and procedures; b) Expenditureapproval limits (expendituresamounts that require legislativeapproval and expendituresthat require executiveapproval); c) Expenditureapproval categories (expenditures categories that require legislativeapproval and expendituresthat require executive approval); d) Develop budget preparation methods, budget forecastingmethods, budget management 212 ANNEX5.4

methods; e) Manage the creation of a Revenue Base, by creating a computerized database of taxable property; f) Manage the creation of a computerized financial management system, the system must be able to:

(i) record the budget and actual financial data and provide variance reports; (ii) record the revenues and expenditures and transfers; (iii) ability to prepare a consolidated budget; (iv) be a single entry-multiple processing system; and (v) ability to record commitments for commitment accounting.

g) Prepare and adopt financial control legislation and effectively implement the adopted legislation; and h) Assist in reorganization to include an Office of Management and Budget (OMB).

H. Municipal (sub-national) Tax Policy and Procedures Short-Tern Advisor [ STA 3 months (1997)]

1. Minimum requirements

- Must have a minimum of 10 years experience in the municipal/state government tax assessment; - Must be knowledgeable of tax collection activities, including delinquent tax collections, maintaining suspense records, maintaining the levy register, collection mechanisms (lock box, bank, counter, etc.); - Must be knowledgeable of effect of taxes on budgets; - Must have worked in a computerized tax asseSsment and collection environment; - Must have knowledge of tax legislation and have prepared and passed necessary tax legislation in sub-national governments; - Must have worked as a Tax Assessor for a minimum of 4 years, in order to have experience in calculating the Grand List, and adopting tax rates; and - Must be a professional with membership to professional government tax assessors association.

2. Scope of work

The STA will be required to provide assistance in identifying and recommending sub-national taxes. The STA should be knowledgeable on regressive and progressive taxes, methods of taxation, tax abatement policies and procedures, linkages between taxation and the city's debt policy, etc.

The main area of work will be in creating a computerized tax base with the ability to categorize taxes to do rapid analysis and "what-if' scenarios, make changes in the tax base with "certificate of changes", etc., to assess the revenue impact during budget preparation. The STA should evaluate the links between ANNEX5.4 213

Building Department, Business RegistrationDepartment, and the tax department for proper fiscal and administrationcontrol. The STA will be required to work with the local representativebodies and the executive branches to develop and adopt legislationfor sub-nationaltaxation.

The areas of work to focus on will be:

(a) Existing tax base analysis by federal tax base, oblast tax base and local tax base; (b) Advise on tax assessmentmethods, income method, historical value method, marketvalue method, etc.; (c) Advise on creating a tax register and maintaininga tax register; (d) Create a computerizedstate-of-the-art tax assessmentand collectionsystem with links to the relevant operational and financial agenciesof the cities; (e) Advise on a periodic revaluation process of the tax base, advise on the process of revaluation, creation of a board of revaluation and tax appeals, prepare legislationfor a revaluation process; and (f) Coordinatea training workshopon sub-nationaltaxation, the training workshop should contain internationalsub-national taxation methodologiesand policies.

MII. ComputerInformation Systems Short-Term Adviser [ STA 3 months (1997)1

1. Minimum requirements

- Must have a minimum of 7 years experience in the municipal/state government informationsystems department; - Must have held a positionof systemsmanager or deputysystems manager for a minimum of three years; - Must have assisted in computerizinga financedepartment and its sub-departments,such as purchasingdepartment, tax departments,treasury department, etc.; - Must have knowledgeof drafting and successfully implementinginformation systems policies and procedures in a sub-nationalgovernment; - Must have worked closely with policy setters for a minimumof 2 years, in order to have experience in designing efficient and practical computerfinance informationsystems; - Must have internationalexperience, a minimum of one year prior experience in Russia or the former Soviet republics; - Must be a professional with membership to professional computer managers organizations; and - Must have experience in computer systems that are used for taxation, budget and financial management,revenue forecastingand policy analysis.

2. Scope of work

The STA will be required to provide assistance in selecting the appropriate hardware for the oblast finance department and the municipal finance departments. The STA should also assist in selecting appropriate softwarefor the financialmanagement and tax base developmentfunctions. The STA should 214 ANNEX5A be knowledgeableof the communicationssystems in Russia to efficientlyplan for local area networks (LANs) and wide area networks (WANs). The STA should be a specialist in selecting appropriate distributed databases software, assist in creating user database systems and assist in developing maintenanceprocedures for these systems.

The main area of work will be in creating a computerizedbudget and financial managementsoftware system and a tax accounting system. The appropriate environment software and the platform for applicationsoftware must be selectedwith the cooperationof local personnel. The STA must be able to form user committeesand facilitate developmentfrom within the departmentsso as to create a sense of ownership among the users.

The areas of work to focus will be:

(a) Preparing computer hardware specificationsfor competitivebidding documents; (b) Preparing computer software specifications for application software (budget/financial managementand tax accounting/revenueforecasting); (c) Locating local internationalprogramming talent; (d) Assist in forming a joint venture with internationalsoftware houses if required; (e) Develop informationsystems department policies and proceduresto ensure uninterrupted operation; and (f) Coordinatea training workshop betweenusers and informationsystems professionals to bridge an understandingof capabilitiesand limitations. EXPENDITURE MANAGEMENT COST SHEET PER OBLASI

Quantities Unit Base Cods (000 USS) -IBRD Fiscal Years- Total Cost -IBRD Fiscal Years- Total

Unit 1997 11998 199 12000D30USS) 1997 1998 1999 12000 m A. Foreigx

Technical Asistance

Expenditure Management Advisor man-months 10.0 3.0 - - 13.0 20.0 200.0 60.0 - - 260.0

Budget Management/Analysis Advisor man-months - 3.0 - - 3.0 - - 60.0 - 60.0

Tax Policy Advisor - 3.0 - - 3.0 - - 60.0 - - 60.0

Municipal Computer Sydms Advisor 3.0 - - - 3.0 - 60.0 - - - 60.0

Technical Assistace Travel IRIT 5.0 2.0 - - 7.0 4.0 20.0 8.0 - - 28.0 2.0 4.0 - - 6.0 4.0 8.0 16.0 - 24.0

Sub-total TechnicalAssistance 288.0 204.0 - - 492.0

Training

Travel-Airfae perons - 15.0 - - 15.0 3.0 - 45.0 - - 45.0

Travel - Subsistence & Hotel peorns - 15.0 -. - 15.0 4.0 - 60.0 - - 60.0

Study Tour / Workshop Facilities persons - 15.0 - - 15.0 5.0 - 75.0 - - 75.0

Sub-totalThzig - 180.0 - - 180.0

B. Locl

Technical Assistance

Local Experus man-months 40.0 40.0 16.0 96.0 1.5 - 60.0 60.0 24.0 144.0

Sub-total Technical Asistmwce - 60.0 60.0 24.0 144.0

Eauipment

Computers & Printers number 50.0 - - - - 7.0 350.0 - - - 350.0

Network Equipment/Modems, etc. number 50.0 - - - - 2.0 100.0 - - 100.0

Other Office Equipment number 50.0 - - - - 1.0 50.0 - - 50.0

Budget/Finance Software Development lumpaum 112.5 37.5 - - 150.0

Sub-total Equipment 612.5 37.5 - 650.0

Grad Total Per Oblast 1,466.0

Total Cost for 2 Oblasta 2,932.0 216 ANNEX5.4

E. MONITORING

I. Local Consultants in Novosibirsk and Rostov Oblasts (2)

1. Objective:To assist the Project Bureaus in the two oblasts in the day-to-day monitoringof the project.

2. Duranon: 6 months in FY96 and FY2003 and full time between 1997-2002.

3. Outcome: An adequatelymonitored project whose findings would feed into the evaluationof the project and enhance its effective replication.

II. Evaluation: Terms of Reference for Local Consultants

4. Consultants/researchinstitutions for data collection in Rostov and Novosibirsk oblasts on the stakeholders includingthe borrower, beneficiariesof the project such as users of education and health services, and others with vested interestssuch as non-governmentalorganizations (NGOs), private sector firms, etc.

5. Objective: To gather information about stakeholders in order to evaluate the impact of the project. Questions asked would include: Who are the stakeholders? What social and cultural factors affecttheir ability to participatein the operations? Are project objectivesconsistent with their needs, interests and capacities? What is the impact of the project on team? Were they consulted on the project? The above data will give a baseline picture of the nature and type of stakeholdersand issuesto be overcomeby the project. The data could be collectedthrough a mix of methodologicaltools: sample surveys, participatory field work, and workshops. The consultantswould also conduct comprehensivesurveys of the stakeholdersto assess the validity of the objectivesof the project, the expectationsof the stakeholderswith regard to the project, and how far the project has achieved the objectives and met the expectations. Through this exercise, several alternativeways of designing Phase II of the project could be discovered.

There are essentiallytwo types of stakeholdersin the project: policymakersand implementors such as the mayor, deputy governors, financialofficers in the oblast, raion and city governments; and project specific stakeholderssuch as governmentofficials in charge of health, educationand water supply, and stakeholders in specificsubprojects.

The stakeholdersin the first categorywould be asked questionssuch as: How were decisionsfor subprojectsmade? Is there evidencethat the sectoralmix of subprojectswas very differentfrom what might have prevailed if there had been no constraints? Is there evidence that similar projects in the future should offer a wider menu to communities? Are there any continuing constraints to wider community participation in project design? Is there an inherent bias in selection procedurestowards urban areas? What was their evaluationof the preparationperiod (too long/short, use of grants and portfolio loan, involvementof administration)and financial management? ANNEX5.4 217

6. Stakeholdersof the secondcategory could be askedcomponent specific questions outlined below:

EducationComponent:

(a) Goal: (i) rehabilitateold schools; (ii) strengthen all aspects of school facilitiesplanning through training; (iii) establish a demonstrationfacilities management information system in Novosibirsk municipality;and (iv) establish processes for developing educationspecifications and physical design features for both new schools and schoolsto be rehabilitated.

(b) Collection of baseline data: The users of the facilities could be asked questions regarding frequency of use, facilitiesused, commonlyoccurring problems, and satisfaction levels.

(c) ProjectImplementation: The following questionscould be addressed: Was the selection criteria, training component, skill upgradation adequate and effective? What is the best way of transferring expertise to local personnel? Examine the nature and effectiveness of the participatory process followed. Is there an urban bias? What is the level of stakeholder satisfaction with the institutionalprocess followed in selecting and approving the subprojects? What is the opinion of the school administrationon the priorities chosen: rehabilitationof old facilities as compared to constructionof new ones.

The consultants would work closely with the Moscow-basedconsultant and the foreign advisor. They would present an evaluation report at the end of the second year to the CPIU.

Duration: 12 months.

Outcome: A participatory evaluationexercise that successfullyinterprets and incorporatesthe needs and issues faced by stakeholdersinto project design.

Health component:

(a) Goal: To improve quality, efficiency and equity of medical care in Russia. Specifically,the project seeks to improve access to modern care technologyin selected facilities.

(b) Objectives: To rehabilitate and upgrade selectedmedical facilities in the oblasts of Novosibirsk and Rostov; to improve methodologyand institutional capacity in Russia for further similar efforts in the country as a whole.

(c) Collectionof baseline data on users of selected hospitals and polyclinics: The impact on the users of the newly introducedfacilities under the project would be assessed. The users of the facilities could be asked questions regarding frequency of use, facilities used, commonly occurring problems, satisfactionlevels regarding performanceof hospital/polyclinicstaff.

(d) ProjectImplementation: Discussions with representativesfrom selectedhospitals and polyclinics 218 ANNEX5.4

including hospital administrators, hospital staff, patients, private companies and NGOs working on health could discuss the major objectives could be facilitated on the following questions: What kind of a communication policy/initiative would be appropriate? How effective has the training component been and what are the shortcomings and successes? Are they satisfied with the work of the advisory committee?

Water supply and Sanitation:

(a) Goal: To bring existing assets back to a satisfactory operating level.

(b) Objectives: (i) In water supply, the water mains will be rehabilitated to reduce leakage levels; chlorination installations will be refurbished to provide better security in drinking water disinfection and the renewal of electrical and mechanical pumping machinery; (ii) In wastewater the work includes the rehabilitation of existing sewerage networks; the provision of new cesspit tanker vehicles to improve cesspit emptying and the renewal of electrical and mechanical plant at key pumping stations; (iii) consultancy services and training to develop the water companies into efficient and profitable public utilities.

(c) Collection of baseline data on water users: The users of the facilities could be asked questions regarding frequency of use, facilities used, commonly occurring problems, and satisfaction levels.

(d) Project Implementalion: In the water supply and sanitation sector, the following questions could be addressed: Has the cost recovery system in the water and sanitation sector worked? Has the water supply and sanitation improved? What has been the impact of the training component? What is the effect of the increased utility prices on people's incomes and the willingness and ability to pay? Assess user satisfaction with project (by monitoring complaints received by oblast).

III. Evaluation: Terms of Reference for Local Consultant

(a) Moscow-based local consultant/research institute for evaluation

Objective: Coordinate, with the assistance of the foreign advisor, the efforts o the evaluation research undertaken in the two oblasts. The consultant will work closely with the CPIU and the foreign advisor.

Duration: 57 months.

Outcome: Develop several findings and recommendations relevant both to the project and for application to future projects in the three sectors. ANNEX5.4 219

IV. Evaluation: Termisof Referencefor Foreign Consultant

(a) Objective: Foreign advisorwould providetechnical expertise to local consultantsin Moscowand in the two oblasts in designing and conductingthe evaluationexercise outlined above.

Duration: 13 months.

Outcome: A set of relevant and applicablerecommendations for successfulproject progress and replication.

V. Evaluation: Terms of Referencefor ParticipatoryEvaluation Workshop for Stakeholders

(a) Workshop with the stakeholderscould be held at the end of the first year.

Objectives:

- Identify the most importantsuccesses in the project - List the most importantthings that made the success possible - Identify major problems or constraints experienced in the project - Identify major reasons for the problems and constraints - Classify problems in terms of: - those for which there is now sufficient informationto act - those about which more informationis needed - those we cannot solve - formulate evaluation objectivesfor problems where additional information is needed.

Duration: 3 days.

Outcome: A learning exercise that will support successfulproject replication. 220 ANNEX5.4

F. CENTRAL PROJECT IMPLEMENTATION UNIT (CPIU) Terms of Reference for Main Positions

1. Director

The Director should be a senior professional in the field of management, economics, accounting, or business administration and should be respected in his/her professional field. It is anticipated that he/she would be a Russian national and it is highly desirable that he/she would have a good command of both spoken and written English language. As with all staff of the CPIU, he/she would be employed as a consultant, and preference would be given to dynamic professionals with experience in international business practices. Since it is essential that the relations between the CPIU and the Project Bureaus (PBs) be one of partnership among organizations of equal status, he/she should have a collegial and diplomatic approach to resolving issues.

The Director would report to MINNAT. He/she would manage a staff of 5 to 6 professionals. His/her first task would be to complete the establishment of the CPIU as an independent legal entity.

The Director would be responsible for the following main CPIU activities: (a) oversight of all financial aspects of the project, ensuring that administrative tasks for procurement and disbursement are undertaken in a timely fashion; (b) responsibility for signing and/or delegating the signing of withdrawal applications and ensuring that the Senior Disbursement Officer manages the project's Special Account in accordance with World Bank guidelines; (c) monitoring and evaluation of project implementation, including the preparation of regular project implementation reports to the Federal Government and to the World Bank; (d) organizing the mid-term progress review as well as the execution of special evaluation studies; (e) providing guidance to PBs on specialized technical assistance and training in various aspects of project preparation, implementation and management, and arranging study-tours and training in special project areas; (f) coordination of inter-ministerial activities (regular progress reports to the Interministerial Committee, and recommendations for revised national standards and policies); (g) representing MINNAT and the Russian Federation on the Advisory Boards in -each oblast; and (h) replication of the project elsewhere in Russia, including identification of oblasts, promotion of project objectives, organization of seminars, advice on establishing local project preparation units and use of the Project Manual.

The Director would be in constant liaison with oblast PBs and Administrations. A key responsibility would be to ensure that implementation of the project keeps pace with the agreed timetable. As necessary, he/she would organize meetings with PB directors and other staff to discuss implementation issues. He/she would also be responsible for disseminating information about the project in Russia, with a view to attracting and evaluating applications from other oblasts whose needs are consistent with project objectives.

The Director would be assisted by a foreign advisor familiar with World Bank procedures and project administration for a minimum period of 12 months. This is detailed below (see TOR for Foreign Technical Assistance). ANNEX5.4 221

2. SeniorDisbursement Officer

A Senior Disbursement Officer would be responsible for managing the Special Account, and topping up branch Project Accounts in each oblast. He/she should have about 10 years of practical experience in both Russian and internationalaccounting practices, and would attend training courses to improvehis/her knowledgeof World Bankreporting/accounting procedures. He/sheshould have working knowledgeof the English languageand shouldhave experienceof working in a cooperativeteam situation and of supervisingthe work of 1 to 2 assistants. Principal activities would include:

- set-up and maintenanceof computerizedaccounts, in a manner acceptableto the World Bank; - supervision of the Special Account and ensuring timely transfers into oblast Project Accounts,and that both RussianFederation and World Bank guidelinesare followedwith respect to payments from the Special Account; - preparing withdrawalapplications for the CPIU Director's signatureand authorizationof payments to contracts from the Special Account; - ensuring that payments to contractors and providers of services are made in a timely fashion; - preparing regular financial summary reports for the CPIU director and the World Bank; and, - administeringthe financialaffairs of the CPIU, includingpayments of salaries, operating expenses, and other invoices.

3. Senior ProjectPreparation/Procurement Expert

This expert (who may be either Russianor foreign) would monitorproject implementationin all sectors at the local level. He/she would be required to travel frequentlyto the oblasts and give technical advice on a wide range of construction and procurement issues. He/she should be an architect or engineer with at least 10 years of practicalexperience in both design and construction, and should have worked previouslywith at least one major foreign constructionproject in Russia. He/she would ensure that bidding documentsand proceduresare consistent with World Bank guidelines. He/she will monitor the rate of progress and qualitycontrol at constructionsites and verify completioncertificates along with the PBs Senior Engineer. He/she shouldpromote wherever possiblethe adoption of improvedstandards of construction,preparation of cost estimates, final designs and bidding documents. He/she would need to be thoroughly familiar with Bank procurementguidelines.

4. TechnicalAssistance/Training Organizer

This specialist would coordinatethe introductionof specializedtechnical assistance and training to the oblasts. He/she would coordinate closely with the oblast PBs on their needs and would have a good working knowledge of aid and grant programs, as well as establishinga roster of Russian and internationalexperts/firms with experience in various aspects of education, health, water and sanitation and general constructionactivities. He/she would work closely with the ministries related to the CSIP 222 ANNEX5.4 and arrange for PB staff to attend training sessions within Russia and abroad. He/she should have a working knowledge of the English language and be familiar with the logistics of arranging travel schedules, venues for seminars and contracting for consultants.

5. Offce Manager

He/she would report directly to the CPIU Director and would be responsible for hiring and managing support staff, such as interpreters, translators, secretaries, driver(s), etc. This person should be either a senior level interpreter with basic secretarial skills, or a senior secretary with reasonably fluent English. His/her responsibilities would include: (a) interviewing candidates, advising the Director on salary structures, and regular payment of salaries in coordination with the Senior Accountant; (b) assignment 3f secretarial, interpreting and other tasks, in coordination with senior professionals; (c) procurement of office equipment and other materials in daily use, and arranging for maintenance of equipment, as necessary; (d) management of all aspects of registration, taxation, permits, rental payments, and other requirements for operating the CPIU as a legal entity.

6. Foreign Technical Advisor

The CPIU would be supported by a Senior Advisor familiar with all aspects of project preparation and implementation for a complex construction project. He/she should have 5 to 10 years experience of World Bank or other foreign investment programs, 10 to 20 years of practical professional work as an architect, civil engineer, urban planner, or city administrator, including a good working knowledge of international construction and design standards. A familiarity with health, education, water and sanitation and infrastructure facilities and policies would be an advantage. He/she should have basic skills in spoken and written Russian. He/she should have experience of work in Russia and/or Eastern Europe with senior government officials in policy-making roles, and be capable of identifying and articulating potential future policy changes at the national level as a result of the CSIP pilot experience.

The advisor's role would be to assist the Director in setting up the CPIU, hiring higher level staff, purchasing office equipmenLand establishing systems and channels of communication with PBs, the World Bank and other ministries. He/she would advise the Director and senior CPIU staff on aspects of monitoring and reporting on progress in the oblasts. He/she would also be available to advise the oblasts in the early stages of project implementation, on such matters as hiring staff and procuring local and foreign advisors. He/she would also accompany the CPIU Director in visits to potential future participating oblasts, assist in establishing new local project preparation units, advise the relevant Ministries and local officials on the scope, potentials and responsibilities of preparing projects for possible future investment. ANNEX5.4 223

G. LOCAL PROJECTBUREAUS

1. Director

The Director should be a senior professionalin the field of engineering,economics, accounting, or business administration.He/she shouldbe respectedin his/her professionalfield, and influentialwithin the oblast administration,experienced in managingcomplex projects and administeringa staff of 10-20 persons. It is anticipatedthat he/she would be a Russian national, and it is highly desirable that he/she would have a good commandof both spoken and written English language.As with all staff of the Project Bureau, he would be employedas a consultant, and preferencewould be given to dynamicprofessionals with experienceof internationalbusiness practices.

The Director would report to the oblast Governor or his First Deputy. He/she would work closely with an internationalconsultant for at least the first year of the Project Bureau's operation. The Director would be responsible for three main areas of the Project Bureau's activities:

(a) Project Implementationincluding oversight of all procurementand disbursementaspects of the project, the administrationof competitivecontracts for civil works, equipmentand consulting,as well as ensuringadequate supervision of the constructionprogram with the aid of both internationaland Russiantechnical experts; (b) Training and TechnicalAssistance programs for various aspects of project preparation, implementation,management; and, (c) Preparation of the unidentified portion of the proiect (identification, evaluation, and design);

The Director would be responsiblefor managinga contract with a foreign consultingfirm that would provide experts in importantareas of implementationfor a minimumperiod of 18 months. These are detailed below (see terms of referencefor Foreign TechnicalAssistance).

The Director would be in constant liaison with oblast DepartmentalHeads in the three principal sectors (Health, Education and Water Supply/Sanitation). He/she would also be responsible for disseminating informationabout the CSIP program to municipalitiesand raions throughout the oblast, with a view to attracting and evaluatingapplications from a broad geographicspectrum of communities whose needs are consistent with project objectives. A key responsibility would be to ensure that a program of locally-sponsoredsub-projects which comprise the 'governmentin-kind contribution' to the project keeps pace with the program of World Bank-financedsubprojects.

2. Local SeniorCivil Engineer

The local Senior Civil Engineer would be a counterpart to the Civil Engineer to be provided under the Foreign Technical Assistance. He/she should be a well-respected member of his/her professionalcommunity, with 10 years of practical experiencein design and supervisionof civil works constructionprojects. He/sheshould have a working knowledgeof the English language. He/she should 224 ANNEX5.4 be particularly well-qualified to handle issues arising with the water/sanitation component, but should be broad enough to advise on engineering questions in the other components, especially in health. He/she should have experience of managing a small team of junior engineers, and of working in a cooperative team situation. He/she would initially report to the foreign civil engineer, and would eventually assume greater responsibility, so that at the end of the foreign expert's assignment the work would continue uninterrupted. He/she would be responsible for a small team of site supervisors for all subprojects (particularly water and sanitation subprojects) under implementation around the oblast.

3. Local Senior Architect

This position would be a counterpart to the Foreign Architect to be provided under the Foreign Technical Assistance. He/she should be a well-respected member of his professional community, with 10 years practical experience in the design and supervision of schools and/or health facilities. He should have a working knowledge of the English language. He/she would work primarily in the education component, but would also assist with the health component. He/she should have experience of managing a small team of junior architects, and of working in a cooperative team situation. He/she would report directly to the foreign architect, and would eventually assume greater responsibility so that at the end of the foreign expert's assignment the work would continue uninterrupted. He/she would oversee a small team of site supervisors, dividing this responsibility with the local civil engineer.

4. Local Senior Project Preparation / Procurement Expert

This expert would report directly to the Project Bureau Director and should be an architect or engineer with appropriate experience of both design and construction, preferably with respect to health facilities, and would initially report to the foreign architect and foreign civil engineer. He/she would coordinate the process of disseminating information about the project, attracting subproject proposals from raions and municipalities, liaison with oblast line departments, appraising subprojects and presenting them to the local Advisory Board, hiring and overseeing design institutes and other specialists, as necessary, who would prepare cost-estimates, final designs and bidding documents. He/she would need to be thoroughly familiar with Bank procurement guidelines, and would be given intensive training in this area. As part of his/her regular duties, he/she would ensure that bidding documents and procedures are consistent with World Bank guidelines; he/she would participate in the evaluation of bids and the selection of contractors as well as the preparation of contracts.

5. Local Senior Disbursement Specialist

This local expert would report directly to the Project Bureau Director. He/she should be an accountant with a minimum of five years of practical experience, preferably in the field of design or construction. This expert would need to be thoroughly familiar with World Bank disbursement guidelines, and would be given intensive training in this area. He/she would be responsible for the bookkeeper and other junior finance staff as necessary. His/her primary responsibilities would include:

(a) set-up and management of the Project Bureau finances and ensuring a clear distinction ANNEX5.4 225

between loan moneys and grant moneys (if any); (b) set-up and management of the Project Account in a local bank, in close cooperation with the CPIU; (c) set-up and management of the Project Bureau account for local contributions for sub-project financing, in close cooperation with the oblast Finance Department; (d) preparing withdrawal applications for the PB Director's signature and authorization of payments to contracts from the Project Account and other local account(s); (e) ensuring that payments to contractors and providers of services are made in a timely fashion; and, (f) preparation of financial reports and arranging for audits as required by the World Bank and the CPIU.

6. Office Manager

He/she would report directly to the Project Bureau Director, and would be responsible for hiring and managing all support staff, such as interpreters, translators, secretaries, driver(s), etc. This person should be either a senior level interpreter with basic secretarial skills, or a senior secretary with reasonably fluent English. His/her responsibilities would include:

(a) interviewing candidates, advising the Project Bureau Director on salary structures, and regular payment of salaries in coordination with the Senior Disbursement Officer; (b) assignment of secretarial, interpreting and other tasks, in coordination with senior professionals; (c) procurement of office equipment and other materials in daily use, and arranging for maintenance of equipment as necessary; and (d) management of all aspects of registration, taxation, permits, rental payments, and other requirements for operating the Project Bureau as a legal entity.

7. Foreign Technical Assistance

The Project Bureau in each oblast would obtain the services of a foreign firm to provide technical assistance in the following areas:

- architectural design; - civil engineering design; - civil works procurement; - construction site supervision; and - contract management.

(Note: An additional expert would be required to advise in the area of health facility design and the procurement of health equipment. Because of the specialized nature of this field, an expert would be contracted by the CPIU, and would work part-time with the PB in each oblast.) 225 ANNEX5.4

The foreign consulting firm would provide the services of two full-time experts, an architect and an engineer, who between them would cover main areas of technical assistance listed above, for all three components. These experts would be resident in each oblast for a minimum of 18 months, during which time they would train local counterpart experts in World Bank guidelines, and accepted international practices. The foreign consulting firm would be capable of providing additional part-time specialists as necessary, for example in the areas of:

- school design; - sanitary engineering; and - electro-mechnical engineering, including heating, ventilation and air-condtioning.

The foreign firm, through its resident staff, would be responsible for:

(a) preparation of initial quarterly progress reports to the CPIU and to the World Bank. This function would be gradually turned over to local staff during the first 12 months; (b) administering procurement through NCB and ICB procedures for designers, construction firms and suppliers, involving public officials in aspects of bid-opening, contract-signing, etc.; (c) supervising the work of design institutes and other specialists in the selection, design and the costing of the unidentified subprojects; (d) assisting in negotiation and management of contracts; (e) supervising and training the local senior counterpart architect, civil engineer and procurement specialist, and gradually turning over responsibility to them after 12 months; and, (f) coordination with the CPIU for the services of specialists in health design and equipment procurement. m:\king\annexS.4 ANNEX 6.1

ENVIRONMENTALINSTITUTIONAL STRENGTHENING PROGRAM

I. The project environmentalinstitutional strengthening program will be closely coordinated with both the Black Sea EnvironmentalProgram (BSEP) and the forthcoming Water Sector Project. The objective of the identifiedprogram is to support the project process of subprojectsscreening, evaluation, selection, implementation, and managementby strengthening institutional capacities in subprojects environment-related activities. This will be achieved primarily through technical training and complementarystudies. The following activities are limited to those which will be undertakenduring project implementationonly and hence, do not include those which were launched during project preparation. Some of the training activitiestook place during project preparation partially financed by the Black Sea EnvironmentalProgram (BSEP). Support from this source is expected to continue and grant financing is being sought.

EnvironmentalStrengthening: Studiesand Training

2. The following is a preliminarylist of identifiedstudies, which will benefit specificcommunities or agencies.

(i) Evaluation of the environmentalimpact of the Toguchin Cesspits (Novosibirskoblast) system.

(ii) Standards Reviewand MonitoringProgram:

* NovosibirskWastewater Discharge StandardsMonitoring System - Rostov WastewaterDischarge Standards MonitoringSystem

(iii) Managementstudy and audit of vodokanal s withemphasis on managementstructure and technical capacity in the areas of water quality and wastewatermanagement

3. The following is a list of proposed training programs, which will benefit decision-makers, institutes,environmental and sanitarycommittees, utility companies (vodokanals), and designinstitutes. These will either be held in both oblasts, or in a central location with inviteesfrom both oblasts.

(i) Workshopson environmentalassessment (principles, policies, procedures, methodologies and practices) (ii) Workshopson environmentalaudits (principles, methodologiesand practices) (iii) Workshopson medical waste management (iv) Workshopson water quality management (v) Workshopson wastewatermanagement (vi) Study tour on medical waste managementand technologies (vii) Study tour on wastewatertreatment managementand technologies ANNEX 7.1

SELECTEDLIST OF DOCUMENTS AVAILABLEIN THE PROJECT ILE

PreparationReports

1. Preparation mission report, December 1994. 2. Pre-appraisalmission report, March 1995. 3. Appraisal mission report, July 1995. 4. Post-appraisalmission report, October 1995.

GeneralProject Documents

5. Japanese Grant Agreements: rF-025243: November2, 1994 and TF-029234: July 24, 1995. 6. Project Preparation Facility applicationand agreement. 7. Detailed Cost Estimates, November 1995. 8. Detailed implementationschedules: Education, Health, and Water and Sanitationcomponents. 9. Project Operational Manual, June 1995. 10. Organizationalcharts of Novosibirskand Rostov administrations,August 1995.

EducationComponent Reports

11. Detailed surveys and cost estimatesof identifiedschools, March 1995. 12. Data on school closings, maintenance,rehabilitations, student enrollment, investments,etc. 13. Education in Russian Federation, Goskomstat,Moscow: 1995. 14. School Building:How it should be? Scientific-MethodicalEnterprise Publication, Moscow:1992. 15. David Davies: Methodologyfor cost-effectivenessanalysis of schoolfacilities projects, November 1995. 16. Mission report: FacilitiesManagement Information component, June 30, 1995. 17. David Davies: Missionreport: Educationfacilities seminarin Rostov and Novosibirsk,June 1995. 18. Maria Gracheva:School LicencingProcedures, January 1995. 19. Education facilitiesseminar documents, June 1995. 20. Russia: Educationin Transition,World Bank, September 1995.

Health componentreports

21. Dov Chernichovsky:Working paper: Project conceptand identification,April 1995. 22. Russia: Reform of the Health System, World Bank: October 1994. 23. Chernichovsky,D. & Potapchik E.: Needed FinancialMechanisms for Implementationof the Russianhealth insuranceand health sector reform, February 1995.

Water Supplyand Sanitationreports

24. Halcrow & Partners Ltd: mission reports, 1995. 229 ANNEX7.1

Other reports

25. Population Prognosis until 2005, Center for Economic Prognosis, Moscow: 1994. 26. Migration data and Population projections in Rostov and Novosibirsk oblast, June 1995. (Life Expectancy at different age groups, 1992-1993, 1. Zhitnikov & S. Soboleva). 27. Demographic Yearbook of the Russian Federation, Goskomstat, Moscow: 1994. 28. Hugues Castaing: Survey of Construction enterprises in Rostov and Novosibirsk oblast, January 1995. 29. Capital Construction in the Russian Federation, Goskomstat, Moscow: 1992. 30. Enterprises and organizations in Don, Business Catalogue, Rostov-on-Don: 1993. 31. Mahesh Reddy: Social Sector Expenditures Report for Rostov, Novosibirsk oblasts and city of Vladivostok,October 15, 1995. 32. Defining a New Investment Policy in Russia, World Bank Report No. 13438-RU, August 1994. 33. Fiscal Management in the Russian Federation, World Bank Report No. 14862-RU, November 1995.

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Report No: 14977 RU Type: SAR