Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: T7666

TECHNICAL ANNEX

FOR A PROPOSED CREDIT

Public Disclosure Authorized INTHE AMOUNT OF SDR 67.5 MILLION (US$102 MILLION EQUIVALENT)

TO THE

REPUBLIC OF

FOR AN

EMERGENCY MULTISECTOR RECOVERY PROGRAM-PHASE 2 Public Disclosure Authorized April 24,2007

Transport Group AFCS2 Africa Regional Office

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized CURRENCY EQUIVALENTS (As of March 3 1,2007)

SDR 1.00 = US$1.51 US$l.OO = Kwanza 79.77

FISCAL YEAR January 1 to December 31

ABBREVIATIONS AND ACRONYMS

ADB African Development Bank CQS Consultant Qualification Selection ECP Estratdgia de Combate a Pobreza (Poverty Reduction Strategy) EDEL Empresa de DistribuiGiio de Electricidade de (Power Supply Authority of Luanda) EMRP Emergency Multisector Recovery Program ENE Empresa Nacional de Electricidade (National Power Supply Authority) EPAL Empresa de Agua da Provincia de Luanda (Water Supply Authority of Luanda) FMR Financial Monitoring Report GDP Gross domestic product ICB International Competitive Bidding ICs Individual Consultant Selection IDA International Development Association IMF International Monetary Fund LCS Least Cost Selection LIB Limited International Bidding LICUS Low-Income Countries Under Stress NCB National Competitive Bidding NGO Nongovernmental organization PMIU Project management and implementation unit PPMRRP Priority Phase Multisector Rehabilitation and Reconstruction Program QCBS Quality and Cost Based Selection SENSE Sewiqo National de Sementes (National Service of Seeds) sss Single-Source Selection TSS Transitional support strategy UNCDF United Nations Capital Development Fund UNDP United Nations Development Program UNITA Uniiio Nacional para Independencia Total de Angola (National Union for Total Independence ofAngola) WHO World Health Organization

Vice President: Obiageli K. Ezekwesili Country Director: Michael Baxter Sector Manager: C. Sanjivi Rajasingham Task Team Leader: Abdelmoula Ghzala

11 FOR OFFICIAL USE ONLY REPUBLIC OF ANGOLA Emergency Multisector Recovery Program .Phase 2

TECHNICAL ANNEX

Table of Contents

PART 1: AFTERMATH OF THE CONFLICT ...... 1 A . The end ofthe conflict ...... 1 B. Economic and social impact ofthe conflict ...... 1 D. Governance ...... 3 E. Partnerships ...... 3 F. Sector issues...... 3 G. Government’s rehabilitation and reconstruction program ...... 4 PART 2: BANK RESPONSE AND STRATEGY ...... 5 A . Rationale for Bank involvement ...... 5 B. Lessons learned. reflected in the design of the overall program and IDA- financed projects ...... 7

PART 3: DETAILED PROGRAM AND PROJECT DESCRIPTION...... 7 A . Program and Project objectives ...... 7 B. Program phasing ...... 8 C . Progress of phase 1 ...... 8 D. Estimated costs and financing ...... 11 E. Program and Project components ...... 13 PART 4: IMPLEMENTATION ARRANGEMENTS ...... 18 A . Implementation period...... -18 B. Capacity of the government to execute the project ...... 19 C . Program and project implementation and management structure ...... 19 D. Procurement and disbursement arrangements ...... 19 E. Disbursement arrangements...... 24 F. Financial management arrangements and audits ...... 26 G. Supervision ...... 28 H. Monitoring and evaluation ...... 28 I. Coordination of donors ...... 29 J . Environmental aspects and compliance with the World Bank SafeguardPolicies ...... 29 PART 5: BENEFITS AND RISKS ...... 30

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not be otherwise disclosed without World Bank authorization .

... 111 ANNEXES Annex 1: Angola Emergency Multisector Recovery Project Results Framework ...... 33

TABLES Table 1: Progress of EMRP 1 implementation ...... 10 Table 2: PPMRRP costs and program costs by phase ...... 11 Table 3: EMRP costs, total and by phase ...... 12 Table 4: IDA contribution to the program by phase ...... 12 Table 5: Feeder roads targeted to be rehabilitated in and BiC provinces ...... 13 Table 6: Rural development cost summary (US$ millions) ...... 14 Table 7:Roads cost summary (US$ millions) ...... 14 Table 8: Electricity cost summary ...... 15 Table 9: Water and sanitation services cost summary (US$ millions) ...... 16 Table 10: Urban services cost summary ...... 17 Table 11 : Thresholds for procurement methods and prior review ...... 22 Table 12: Phase 2 project costs by procurement arrangements ...... 23 Table 13: Critical risks and possible controversial aspects ...... 31

MAP Targeted provinces...... 6

This document has a restricted distribution and may be used by recipients only in the performance of their official duties . Its contents may not otherwise be disclosed without World Bank authorization.

iv REPUBLIC OF ANGOLA Emergency Multisector Recovery Program - Phase 2

PART 1: AFTERMATH OF THE CONFLICT

A. The end of the conflict

1. The prospects for lasting peace in Angola are now strong. In April 2002 the representatives of the government and of UniZo Nacional para Independencia Total de Angola (UNITA) signed a ceasefire and peace agreement. In contrast to agreements signed in 1991 and 1994, this agreement has held, and UNITA has transformed itself into a political party. It is anticipated that presidential and parliamentary elections will be held in 2009.

2. The peace agreement created a unique opportunity to re-start development after almost four. decades of war, and to achieve a permanent reduction in poverty in Angola. To consolidate peace and national reconciliation, the government quickly began to implement programs aimed at restoring order and security, at addressing the needs of the most vulnerable groups, at revitalizing the economy, at restarting essential social services, and at rebuilding critical infrastructure, including roads, bridges, and railways. To both promote development, and to restore the confidence of development partners and investors, the government is undertaking economic reforms and tackling issues of governance. It is also improving oversight over government revenues and increasing control ofpublic expenditures.

B. Economic and social impact of the conflict

3. Angola ‘s almost 30 years of post-independence civil conflict have had devastating effects on the country’s economy, infrastructure, and citizens’ quality of life. It is estimated that over 1 million people were killed in the conflict and about 4 million people were displaced (including 100,000 unaccompanied children), about one-third of the country’s 16 million citizens. Most of the displaced fled to Luanda, , and other coastal cities. Many continue to live in squalid conditions in overcrowded urban and semi-urban areas without functioning health, water and sanitation infrastructure, and without adequate social services. The potential for epidemics in such conditions is high, as demonstrated by the 2006 cholera epidemic. It is also likely that the number of people infected by HIV/AIDS is rising rapidly due to the increased movement of people and a lack of HIV/AIDS awareness. The country’s health situation is becoming even more complex as millions of internally displaced people are returning to their provinces of origin. Many communities, already severely affected by the war, are struggling to cope with the influx of returnees.

4. Angola has one of the highest levels of income inequality in the world. Nearly one in four Angolans is extremely poor, surviving on less than US$0.75 a day, and about 70 percent of Angolans live on less than US$2 a day.1 The challenge for Angola now is to ensure that its growing oil and other revenues are used effectively to dramatically reduce poverty and the gap between rich and poor. Although gross national income per capita is US$1,980 (2006), income is highly unequally distributed (Angola has a Gini coefficient of 0.62). The richest 20 percent of the

1 World Bank. 2006. “Angola Country Economic Memorandum: Oil, Broad-Based Growth, and Equity.” Report 35362-AO. population controls 43 percent of household expenditure, while the poorest 20 percent enjoy just 4.4 percent.’

5. Angola’s social indicators are among the worst in the world. Life expectancy is just 47 years. Malnutrition is acute; about 45 percent of children under age 5 suffer from stunting (low height-for-age) and 31 percent are underweight. About one in four Angolan children die before their fifth birthday, 90 percent of whom perish due to malaria, diarrhea or respiratory tract infections. The maternal mortality rate (at 1,700 per 100,000 births) is one of the highest in Sub- Saharan Africa. Three in five people do not have access to safe water or sanitation. Primary school enrollment is among the lowest in Africa; in the regions most affected by the war, just 25 percent of children are enrolled in primary school. Only 27 percent of students who enter grade one complete grade four. The limited access to education has left 70 percent of adult men and 80 percent of adult women unable to read, write, or perform basic omputations. On average, women have less education, lower health status, and a heavier work load than men. Regional disparities in access to basic services are also substantial. For example, in the eastern provinces where the humanitarian needs are perhaps the most striking, distances to the nearest hospitals can sometime be more than 100 kilometers. Angola ranks 162 out of 177 countries on the 2006 Human Development Index.

6. Despite massive oil revenues, Angola has made little progress towards attaining most MDGs (although data limitations prevent sound assessment of Angola’s status with respect to the MDGs). Progress is evident only towards the goals of universal primary education and environmental sustainability. The proportion of people with access to safe drinking water has also increased since the 1990s. In addition, the number of children immunized against measles and the proportion of births attended by skilled birth attendants has risen, which should translate into better child and maternal health

C. Current economic conditions

7. Angola has prepared a draft PRSP (Estratkgia de Combate a Pobreza or ECP). Although the ECP was approved by the Council of Ministers in December 2003, it has not been formally released pending elaboration of a realistic and forward-looking macroeconomic framework consistent with sound public expenditure policies. The PRSP is being revised to address these weaknesses and to cover 2006-08. The draft ECP proposes a public expenditure program focusing on ten priority areas: (A) social reinsertion; (b) de-mining; (c) food security and rural development; (d) HIV/ATDS; (e) education; (f) health; (g) basic infrastructure; (h) employment and vocational training; (i)governance; and (j) macroeconomic management.

8. The government isjnancing its investment program from a variety of sources. Angola has taken out large lines of credit, mostly from non-OECD donors, to finance its reconstruction needs. The government has been attracted to credit lines from non-OECD donors for several reasons. Access to Chinese and other resources has enabled the government to predict that by 2008 it will have restored a skeleton infrastructure to the point where it should be possible to proceed with the long-delayed legislative and presidential elections. Still, the government recognizes the benefits of accessing funds from the traditional donors, especially the World Bank. Of great importance is the legitimacy that the government gains by engaging with the multilateral institutions, which enables it to attract funds from the private sector and other sources. Also of value is the expertise and global knowledge offered by the Bank.

Very little reliable data exist on incidence, nature, and geographical distribution of poverty in Angola. A high priority is to undertake a nationwide household survey to generate baseline data on poverty to underpin the development and implementation of a meaningful poverty reduction strategy.

2 D. Governance

9. Shortfalls in the effectiveness and transparency of public resource management continue to hinder governance. Angola is perceived to be one of the most poorly governed countries in the world, according to indicators compiled by the World Bank Institute. The governance plan for the country is laid out in the 2005 PEMFAR. Progress in implementing the recommendations of the review is considered moderate or unsatisfactory overall. Poor governance discourages private investment and limits the ability of a country to reduce poverty and inequality. Angola’s adminis- trative capacity is very low by international standards, limiting the ability of the state to deliver essential public services. Power is centralized in the presidential administration, roles and functions ofministries and other state agencies (including state-owned enterprises) are not clear, and the lines separating the state and private sectors are often blurred.

10. Nonetheless, some progress seems to have been made in improving governance since 2002. According to World Bank Institute indicators Angola’s political stability, government effectiveness, andvoice and accountability did likely improve between 2002 and 2005; control of corruption, regulatory quality, and rule of law may also have shown some improvement in the same period.

E. Partnerships

11. The Bank is leveraging its support by working in close partnership with other stakeholders in Angola’s future. Given the declining importance of finance from OECD partners in Angola, imaginative approaches to partnerships are needed to ensure that Bank and others’ resources are used as effectively as possible. This will mean closer collaboration with stakeholders in Angola’s future, including other donors, the private sector, civil society organizations, and Angolan universities and think tanks.

12. Development partners are focusing on building institutional capacity in their programs to foster good governance, and to ensure that finds are managed transparently and used effectively for their intended purposes. Partners’ investment funds are targeting social services, demining, and strengthening macroeconomic management and statistical systems. Some bilateral partners are promoting development of civil society organizations so that over the medium term they can more effectively act as institutions of accountability, strengthening the checks and balances in society and on government performance. Two particular challenges face development partners: the need to strengthen collaboration and alignment among themselves, even while leadership structures are weak; and working out how to engage effectively with non-OECD partners. The Bank and the UNDP are co-leaders ofdonor harmonization efforts.

F. Sector issues

13. Agriculture. Angola has immense potential to produce a diverse range of agricultural goods. However, lack of transportation infrastructure, displacement of farmers and loss of livestock, and the collapse of commercial agriculture and rural marketing have prevented this potential from being realized. The Bank is the government’s most important partner in revitalizing agricultural productivity and competitiveness. The first phase of EMRP has helped reestablish the institutional capacity of Angola’s two agriculture research centers, and of rural extension services in the provinces of Malanje and BiC. It is also supporting the revitalization of capacity to produce and multiply maize and other seeds and basic vegetative material of cassava and sweet potato adapted to the agro-climatic conditions of the country.

3 14. Health. Health conditions are dismal. Angola’s population is burdened by nutritional deficiencies and infectious and parasitic diseases. Malaria, respiratory infections, diarrhea diseases, measles, and cholera are the main causes of illness and death. Sleeping sickness has reemerged in the northwest. Reliable data on HIV/AIDS in Angola are lacking. However, proxy measures indicate that the epidemic is well established and that it has already reached the explosive phase in Luanda and some other areas. The government is particularly concerned with the high infant mortality and the rising maternal mortality rate.

15. Education. Angola spends a smaller percentage of public resources on education than any other country of Sub-Saharan Africa (only 7 percent of the total public budget compared to an average of 17 percent in Sub-Saharan Africa), although about 59 percent of the total population is below 25 years of age. Access to education at all levels of the system is severely constrained and educational quality is very poor. As a result, Angola has one of the lowest rates of literacy in Sub- Saharan Africa. Only 30 percent of the population and 20 percent of women can read and write.

16. Transportation infrastructure. The war and neglect have taken their toll on the road and rail network. It is estimated that some 80 percent of the road network is in very bad condition, and most of the rail network is closed apart from a few short-haul services near the ports. Peace opened the way for a large increase in road transport, and about 50 percent ofthe primary road network has been reopened to traffic since 2002 according to government estimates. Since 1975, air transport has provided the only reliable mode oflong-distance transport within Angola.

17. Electricity services. The electricity supply system in Angola has deteriorated during the last 30 years. The main hydroelectric plants and transmission lines of the system were built during the 197Os, and important parts of the system are out of service due to war damage and lack of investment and maintenance. In the areas that still have electricity, including Luanda, power failures and load shedding are frequent, and firms and households that can afford to rely heavily on small-scale diesel generators.

18. Water supply. Only about 38 percent of Angolans have access to safe water (compared to 55 percent for Sub-Saharan Africa), and 44 percent have access to adequate sanitation services. In Luanda, 70 percent of the population rely on untreated river water brought into the capital by tanker, paying prices 50 times the price paid by those connected to the piped network. Water and sanitation systems have totally collapsed in the areas most affected by the war, including Malanje, Kuito, and N’Dalatando.

19. Sanitation. About 61 percent of the urban population has access to some sanitation service, with 18 percent connected to a sewer and the remainder relying on septic tanks, latrines, and leaching pits. The first phase of EMRP has supported the rehabilitation of water and sanitation systems in urban areas in BiC, Malanje, Kwanza Norte, and in some rural areas of . It is also addressing some problems of sanitation and erosion in Luanda and Moxico.

20. Urban streets and drainage. Lack of maintenance and problems with drainage and erosion have undermined many urban streets, leaving many pavements in the main urban centers in a state of virtual collapse. Lack of proper drainage also contributes to landslides, which threaten life and damage property.

G. Government’s rehabilitation and reconstruction program

2 1. The government’s rehabilitation and reconstruction program comprises two overlapping phases. The first phase, called the priority phase (Priority Phase of the Multisector Rehabilitation

4 and Reconstruction Program, PPMRRP), was originally expected to be implemented during 2003- 08. The government subsequently expanded the scope of the PPMRRP to cover additional roads required to conduct credible elections, and extended its implementation period to 2011 or 2012. The proposed project will support implementation of the PPMRRP. The second phase of the PPMRRP will be prepared towards the end ofthe implementation period for the first phase.

22. The overall purpose of the PPMRRP is to consolidate peace and reestablish state administration throughout the country, and to initiate the medium and long-term process of reconstruction and economic rehabilitation. Specific objectives are to: (a) address the immediate needs of the poorest people and displaced population; (b) rapidly improve the quality of life of people living in both rural and urban areas by expanding access to vital public services; (c) reestablish critical transportation links throughout the country and, in particular, to reconnect the provinces most affected by the war-Bit, , Moxico, Lunda Norte and Lunda Sul, Uige, Cuando Cubango and Malanje; (d) enhance food security and start to revive the rural economy, especially in the provinces most affected by war; and (e) strengthen capacity of government at all levels to formulate, prepare, implement, and manage medium and long-term development programs.

PART 2: BANK RESPONSE AND STRATEGY

A. Rationale for Bank involvement

23. The objectives of Bank engagement in Angola laid out in the Interim Strategy Note for 2007-08 are: (a) strengthening public sector management and government institutional capacity, (b) supporting the rebuilding of critical infrastructure and the improvement of service delivery for poverty reduction, and (c) promoting growth of non-mineral sectors. The EMRP operations (phases 1 and 2) are helping the Bank achieve all three objectives. First, they are assisting in improving public sector management through establishment of sound systems ofproject management in all its aspects, from project selection to procurement planning and execution, internal controls, auditing (including physical and value-for-money auditing), monitoring and evaluation, and preparation and maintenance ofproject documentation and record keeping. Although the main beneficiary of these efforts will be the PMIU in the Ministry of Planning, participating line ministries and agencies will also benefit from capacity building support. The EMRP-specific capacity building support will complement the work of the Economic Management Technical Assistance to strengthen public sector more generally. The EMRP operations are also helping to build capacity of local administra- tions for decentralized service delivery. Second, they are contributing to the rehabilitation of critical infrastructure and delivery of public services through investments in roads, bridges, electric- ity, water, urban infrastructure, (under phase 1) health and education services. They will help in reducing poverty by targeting support to six of Angola’s most war-affected provinces: Bit, Moxico, Kwanza Norte, Luanda, Uige and Malanje (map 1). These provinces are home to about 58 percent of Angola’s population and are expected to receive some 30 percent of the internally displaced people returning home. Moreover, these provinces have also received much less public resources than others. Third, the EMRP operations are helping to promote growth of non-mineral sectors by improving the investment climate (through improved public sector management and governance and through enhanced infrastructure) and through revitalizing agriculture in particular (through support for building capacity ofextension services and seed multiplication and for feeder roads).

24. The Bank has unique knowledge and analytical capacity to help with the design and implementation of complex multisector projects that combine investments with institutional strengthening. Thus, although the resources from the Bank for rehabilitation of infrastructure in

5 Map 1: Targeted provinces

25. The EhfRP o ensure that all arc as le, EMRP I and 2 are laying thc loun

6 productivity and marketing of farm goods. Similarly, they are providing support to deliver clean water to people currently without adequate services, while a proposed water project aimed at strengthening water sector institutions will follow. They are coordinating closely with the Third Social Investment Fund to ensure that support for decentralization complements that of the social fund. They are also working in close coordination with the Economic Management Technical Assistance Project to broaden the impact of the support of both for improved public sector management.

26. The activities that comprise the proposed EMRP have been selected because they:

0 Are consistent with the strategies ofthe government and ofthe Bank. 0 Address the most urgent needs and priorities for social services and economic recovery. 0 Support good governance and effective decentralization. 0 Support activities that complement those ofother donors. 0 Are likely to mobilize additional donor support. 0 Are relatively simple and straightforward to implement.

B. Lessons learned, reflected in the design of the overall program and IDA-financed projects

27. Five key lessons are reflected in the design ofboth phase 1 and phase 2. In addition, phase 2 has been adapted to build on the lessons learned during the first year ofimplementation ofphase 1:

0 Given Angola’s limited administrative capacity and weak record on governance, the project will be implemented using the ring-fenced approach, while also incorporating specific measures to build capacity of government over time for sound project and fiduciary management.

0 Activities are being designed comprehensively and in an integrated manner to ensure coherence and synergy between sectors. In addition, work on roads, water supply systems, electricity, and the like will be closely coordinated to ensure that work is properly sequenced and that bottlenecks are minimized.

0 Government agencies are deeply involved in the preparation of the activities and will be involved in implementation. This will build ownership and capacity to undertake future projects.

0 Activities have been identified and designed with the participation of all key stakeholders, including civil society organizations, development partners, and the private sector, whenever feasible. This will help to ensure that resources are spent wisely and that benefits are widely shared.

0 Only the highest priority tasks have been selected for the EMRP given the limited absorptive capacity and the constraints to secure full financing for the program.

PART 3: DETAILED PROGRAM AND PROJECT DESCRIPTION

A. Program and Project objectives

28. The overall purpose of the program is to help to build the foundation for long-term reconstruction, economic rehabilitation, and the reestablishment of state administration throughout the country. The specific objectives of the EMRP 2 are to assist the government to: (a) facilitate

7 agricultural marketing in specific areas with high agricultural potential that have been affected by the conflict; (b) reconstruct and rehabilitate critical infrastructure; and (c) strengthen capacity of participating ministries and agencies for improved governance and transparency and of local governments for future decentralization. These objectives build on the objectives and activities of EMRP 1 and are consistent with the ECP the PPMRRP.

B. Program phasing

29. Although presented as a program, the EMRP is a single project split into two phases by necessity, rather than by design. It is not an Adaptable Program Credit. Due to less than expected financing under IDA 13, the Bank in 2005 could finance only a part of its intended contribution to the overall emergency program. It was therefore decided to split the operation into two phases, with the second phase to be financed under IDA 14. In response to feedback from the Bank’s Board during discussions of EMRP 1, the second phase has been simplified and the size of the credit reduced. Unlike phase 1, phase 2 will support only reconstruction or rehabilitation ofcritical infrastructure and of feeder roads. It will not support health, education, or agriculture (except for feeder roads), areas that were supported in EMRP 1. Measures to strengthen governance of both project management and ofgeneral government operations have been added to EMRP 2.

30. EMRP 1 is supporting activities that address the most urgent needs and can be implemented quickly. These include: (a) activities to restart agriculture (particularly production and multiplication of seeds and planting material); (b) provision of essential drugs, logistical support, and refresher courses for nurses and auxiliary nurses to improve health services; (c) provision of teaching and learning materials and assistance to initiate teachers’ training; and (d) support to restore water services in Luanda and in three provincial capitals. It is also supporting: (a) technical assistance and capacity building for sector ministries and agencies involved in implementing the project to build local capacity for decentralization; (b) initial training programs; and (c) preparation of the environmental and social impact assessment for the overall project, and the social and environmental management plan for phase 1 activities. Finally, it is financing the management, monitoring and evaluation of the implementation of phase 1 (including setting up the project management unit and strengthening it especially with regard to fiduciary and safeguards aspects) and engineering studies (detailed design, tender documents) and preparatory activities for phase 2 investments.

31. EMRP 2 will build on the activities of EMRP 1 and focus on upgrading infrastructure, supporting rehabilitation or construction of feeder roads, trunk roads (including bridges), electricity services, rural water supply, water supply in a provincial capital, and urban infrastructure. It will also support the preparation of the medium-tern sector strategies, capacity building, decentralization and local development, and continue support for program and project management.

C. Progress of phase 1

32. EMRP phase 1 was approved by the Board on February 17, 2005 and became effective on May 12, 2005. Phase 1 helped set up the project management and implementation unit (PMIU) within the Ministry of Planning. This institution was designed in consultation with the Bank’s financial management and procurement staff to ensure the project is implemented in accordance with the Bank’s fiduciary safeguards and that funds are used as intended, to undertake environment and social impact assessments for both phases, and to monitor and report on progress with project implementation and outcomes. The project coordinator is the Vice Minister ofPlanning, supported by a high level advisor (under French Development Cooperation funding).

8 33. Progress with implementation ofphase 1 is generally satisfactory, despite a delay of some twelve months in implementation compared to the original plan, due in large part to difficulties in recruiting suitable international staff required to ensure that the project funds are used as intended. The PMIU is now fully staffed and includes internationally recruited financial management and procurement specialists, and nationally recruited accountants, procurement officers, and administrative staff. The government has complied with all fiduciary-related dated covenants in the financing agreement. The internal auditor and the independent external auditing firm have been selected and recruited according to the Bank procedures and guidelines. Audit reports of project accounts have been produced and submitted in time to the Bank. Selection of the firm for the environmental and social impact assessment (safeguards) and for assistance in implementation of the environmental management plan is well advanced, following delays due to the changing activities of phase 2 and to delays in its approval. The government did not want to proceed with this activity until approval ofphase 2 was assured, since the most ofthe major investments that the environmental and social assessment will address will take place under phase 2 financing.

34. EMRP 1 disbursements are currently some twelve months behind schedule because preparation of the detailed design and tender documents for roads (including feeder roads) and electricity facilities was delayed (due to the delays in approval of phase 2 and the subsequent change in activities). Supervision missions have all rated the project marginally satisfactory or satisfactory and noted that the pace of implementation is accelerating, especially for the water, education, and agriculture components. A full-time health specialist is being recruited by the government to follow up on implementation the health component. This, with the quick assessment of the drugs needs being carried out, will help speed up implementation of the health component. The government has launched or is launching requests for proposals for the preparation of the detailed design and tender documents (for electricity, water, roads, and feeder roads), which are planned to be completed by July 2007 and will therefore enable speedy implementation of EMRP phase 2. The request for proposals for preparation of detailed design and tender documents for the trunk road has been delayed, due to uncertainties arising from the delays in Bank approval of EMRP 2. The contracts for procurement oftextbooks and teachers guides have been awarded. The Ministry of Education recruited an education project officer to assist in the implementation of the education component. The Ministry of Education has also requested funding to finance a number of studies related to teacher management, school inspection, and school management. Equipment, vehicles, and logistics support services needed to reestablish the institutional capacity of Angola’s two agriculture research centers and ofrural extension services in the provinces ofMalanje and BiC have been procured, and training was provided to extension workers, researchers, and producers’ organizations. Seeds for multiplication have been procured, and preparation ofdetailed design and tender documents for feeder roads has been launched. Procurement of drugs and logistic support services for the health component are being processed. Two out ofthree water contracts have been awarded. The third will be partly awarded by May 2007, and the remaining part will only be awarded once phase 2 is approved to cover an estimated US$14 million financing gap for the phase 1 water component. Selection and recruitment ofthe environmental and social firm for safeguards environmental action plan management is being finalized. The preparation ofa study laying out the options for decentralization has been completed, under UNDP financing, and comments were submitted by the Bank. Capacity of provincial and municipal officials, communities, and local contractors to plan, budget, implement and monitor small-scale rural infrastructure is now being built under UNDP financing and UNCDF technical support. The Bank will help support establishment of fiscal transfer mechanisms, based on the results of a pilot. UNDP, through UNCDF, is responsible for coordination of all decentralization efforts, including those under the Bank-financed Third Social Action Fund. Once the third contract for water infrastructure has been awarded, over 80 percent ofEMRP 1 funds will have been committed, and disbursements will pick up significantly. Progress is summarized in table 1.

9 Table 1: Progress- of EMRP 1 implementation EMRP Phase 1: Implementation Comments Expected Outcomes Progress PMIU fully staffed, including inter- Difficulties in recruiting Project is implemented in accordance with nationally iecruited financiacmanagement qualified international staff, the Bank’s fiduciary safeguards and funds and procurement specialists, and nation- delayed the full staffing ofthe are used for their intended purposes. Gov- ally recruited accountants, procurement PMIU, and therefore project ernment’s capacity to implement programs officers, and administrative staff implementation. The PMIU is is enhanced, in particular procurement and now operating as expected. public financial management. All fiduciary-related dated covenants Government capacity to manage projects complied with. Internal auditor and in accordance with international good independent external auditing fm practice enhanced. Achievements so far selected and recruited according to Bank will provide the basis for further procedures. Audit reports ofproject strengthening of government’s capacity. accounts produced and submitted on time to the Bank. Selection of firm for the environmental Phasing ofprogram and delay Environmental and social impacts ofthe and social impact assessment and for in approving phase 2 have program’s investments are adequately assistance in implementation of the delayed this activity, since minimized or mitigated. environmental management plan is being much of the work addresses finalized. social and environmental aspects ofinfrastructure to be created under EMRP 2. The contract is now expected to be awarded in April/May 2007. Water: two out ofthree water contracts Implementation ofthe Number ofpeople with access to clean awarded; the third will be partly awarded activities is expected to water rises in areas receiving project by May 2007. Contracts for the accelerate sharply. support. Foundation for phase 2 is laid. remaining work will only be awarded once phase 2 is approved to cover an estimated US$lO million financing gap for the water component ofphase 1. Roads: issuance of the requests for Foundation for phase 2 investments is proposals for preparation ofdetailed laid. design and tender documents for the trunk road has been delayed, due to uncertainties arising from the delays in Bank approval ofEMRP 2. [detailed design and tender documents expected to be completed by October 20071. Electricity: government has launched Process is expected to be Foundation for phase 2 investments is requests for proposals for preparation of completed by April 2007 laid. detailed design and tender documents. Education: contracts for procurement of Implementation ofthe Enrolment and quality ofeducation rises textbooks and teachers guides awarded. activities is expected to at schools supported by the project (due Ministry ofEducation recruited an accelerate sharply. to availability ofpedagogical materials education project officer to assist in and better trained teachers). implementation ofeducation component. Procurement of drugs and logistic support The contract is expected to be Utilization ofhealth services rises in services for the health component is in issued in by June 2007. Imple- areas receiving support from the project. advanced stages. mentation ofother activities is expected to accelerate sharply. Agriculture: Equipment, vehicles, and Implementation ofthe Farm families receive and cultivate logistics support services needed to activities is expected to improved seeds and vegetative materials.

10 reestablish the institutional capacity of accelerate sharply now that Foundation for the upgrading offeeder Angola’s two agriculture research centers equipment and supplies for roads is established. and ofrural extension services have been multiplication of seeds and procured. Seeds for multiplication have vegetative material have been been procured. Preparation of detailed procured and agriculture design and tender documents for feeder institutions strengthened. roads has been launched. Decentralization: preparation of a study The Bank has submitted Capacity ofprovincial and municipal laying out the options for decentralization comments on the study. The officials, communities, and local has been completed, under UNDP next steps are to select pilot contractors to plan, budget, implement financing. This will form the basis of provinces and initiate the and monitor small-scale rural support from the project for piloting of activities. Fiscal transfers will infrastructure is created. Local various models. take place on a pilot basis, governance and accountability are once capacity has been created established. and acceptable monitoring mechanisms put in place.

35. Counterpart funds are being provided on time through a project account that is being replenished satisfactorily. All identified risks (fiduciary, counterpart funds, safeguards, implementation, and the like) are being managed as planned.

D. Estimated costs and financing

36. The PPMRRP was estimated to cost about US$1,997 million inclusive of taxes and contin- gencies (table 2). The EMRP (phases 1 and 2) is estimated to cost about US$225 million (see table 2 and 3). IDA financing is estimated to be US$153 million equivalent (including contingencies) (table 4), about 68 percent of the costs of the project and some 8 percent of the cost of the PPMRRP. The government will finance about 27 percent of the project costs, including taxes and duties. Other donors (European Union, UNDP, and the French Development Cooperation) are committed to financing some 5 percent.

Table 2: PPMRRP costs and program costs by phase

Priority Phase Multisector Rehabilitation and Reconstruction Program (PPMRRP) Detailed costs with taxes and contingencies Components US%million] A. Subprogram Social sectors and agriculture 792 1. Rural Devebpment 2. Health senices 3. Education 4. Reinsertion, social protection, maldevelopment and community devebpment B. Subprogram Priority rehabilitation of critical infrastructure 1. Transport -I 2. Roads & Bridges 447 3. Electricity 255 4. Water supply 199 5. Urban infrastructure & services 102

C. Capacity building, institutional strengthening & sector development strategie 29

D. Management and monitoring ofprogram & preparation ofthe second phase 51

I Tntal PPMRRP rnctc

11 37. Phase 1 of the EMRP was estimated to cost about US$92 million, IDA financing is US$5 1 million equivalent including contingencies, about 55 percent of the costs of phase 1 (table 4). The government is financing about 35 percent, including taxes and duties. Other donors (European Union, UNDP and the French Development Cooperation) are committed to financing some 10 percent.

Table 3: EMRP costs, total and by phase Emergency Muitisector Recovery Program Summary costs with taxes and contingencies Phase 2 Project Project A. Rural development and delivery ofSocial Services 2 13 1. RuralDevelopment 13 2. Health services 0 3. Education services 0

B. Rehabilitation and reconstructionof critical infrastructure 5 106 1. Transport 0 2. Roads & Bridges 28 3. Electricity 36 4. Water supply 5 25 5. Urban infrastructure & senices 17

C. Sector development strategies and strengthening of human and institutional capac 8

D. Management, monitoring, evaluation 1 7

Total Project Costs 92 133 Note: Figures may not add to total due to rounding.

Table 4: IDA contribution to the program by phase Emergency Multisector Recovery Program

1. Rural Development 2. Health services 3. Education services

B. Rehabilitation and reconstruction ofcritical Infrastructure 1. Transport 2. Roads & Bridges 3. Electricity 4. Water supply 5. Urban infrastructure & services

C. Sector development strategies and strengthening of human and institutional capac

D. Management, monitoring, evaluation

Total IDA contribution

38. Phase 2 of the EMRP is estimated to cost about US$133 million. IDA financing is estimated to be about US$102 million equivalent including contingencies, about 76 percent of the costs of phase 2 (see table 4). The government is financing about 23 percent, including taxes and

12 duties. Other donors (UNDP and the French Cooperation) are committed to finance some 1 percent.

E. Program and Project components

39. The proposed phase 2 of the program comprises the same four components as phase 1, although with different activities: (a) rural development (which includes only feeder roads); (b) rehabilitation and reconstruction of critical infrastructure (roads and bridges, electricity, water supply, and urban infrastructure); (c) strengthening of human and institutional capacity, develop- ment of sector strategies, and decentralization; and (d) management and monitoring of the project.

Component A: Rural development and delivery of social services

40. Rural development (US13 million, of which IDA will contribute US$9 million). This component will support for rural development, by financing the rehabilitation of some 600 kilometers ofrural roads.

41. Objectives. The subcomponent aims to facilitate access of rural residents to markets and social services through the rehabilitation of select feeder roads. Activities will take place primarily in two provinces, Malanje and BiC, because these provinces are major producers of cassava and maize, basic staples for Angolans.

42. Activities. The project will support the rehabilitation of some 600 kilometers ofrural roads, 300 kilometers in each of Malanje and BiC provinces for an estimated total base cost of US$10 million over a period of 24 months. The final selection of roads among some 750 kilometers initially identified and being studied will depend on the financial costs to be determined by field surveys and engineering designs, which are underway. A tentative selection of the roads to be rehabilitated is presented in table 5.

Table 5: Feeder roads targeted to be rehabilitated in Malanje and Bib provinces Kilometers Malanje Kaculama-Kabundi 110 Malange-Massano 158 Kalamdula- 105 Subtotal 3 73 BiC Kuito--Kapolo 60 Chicala-Mutumbo 55 Kuito--Chionda 42 Kamacupa-Rigoma 50 Katabola- 18 -N’harea 67 N’harea-Andulo- 83 Subtotal 3 75 Total 748

13 43. Costs for rural development component. Activities are estimated to cost about US$13 million (see table 6). IDA will finance some US$9 million, about 70 percent of the total. Detailed locations are presented in appendix 2.

Phase 2 Rehabilitation of feeder roads 10.00 Supervision of works 0.48 Total base costs 10.48 Taxes (1 0 percent) 1.05 Contingencies (10 percent) 1.15 TOTAL COSTS 12.68

Component B: Rehabilitation and reconstruction of critical infrastructure

44. Rehabilitation and reconstruction of critical infrastructure (US$I 06 million, of which IDA is contributing US$83 million). This component comprises four subcomponents: roads, electricity, water supply, and urban services and infrastructure. Preparation of sector strategies and activities to strengthen institutions is covered under component C.

Roads subcomponent (US$28 million of which IDA will contribute US$20 million)

45. Objectives. The objectives of the roads subcomponent are to (a) reduce the high costs of transport and speed the movement ofpassengers and goods, and (b) help to reintegrate the country.

46. Activities. The project will support the rehabilitation of about 150 kilometers of high- traffic roads and bridges linking with . Activities support the government’s strategy for transportation, which is to link the two main ports (Luanda and Lobito) to the interior rail and road inner “strategic loop” connecting Luanda, Uige, Malanje, , Luena, Kuito, Huambo, , and Lobito, covering the provinces of Luanda, Kwanza Norte, Uige, Malanje, Moxito and Bid. Particular attention must be granted to measures to prevent the spread of HIV/AIDS, since the disease spreads along the main roads.

47. Costs. The roads subcomponent is estimated to cost about US$28 million. IDA will finance some US$20 million about 70 percent of the total, most of which will be used to rehabilitate the key links of the primary road network. Details of costs are provided in appendix 4.

cost (US$ millions) Phase 2 Road and bridge works 20.4 Supervision of works 1.3 Total base costs 21.7 Taxes (10 Dercent) 2.2 Contingencies (18 percent) 4.2 TOTAL 28.1

14 Electricity subcomponent (US$36 million of which IDA will contribute US$26 million).

48. Objectives. The objectives of the electricity subcomponent are to strengthen electricity services in Luanda, and in the capitals of the targeted provinces of Malanje, Kuanza Norte, Uige, BiC and Moxico.

49. Activities. The project will finance rehabilitation of medium and low-voltage distribution systems in the provincial capitals of N’Dalantando, Uige, Malanje, Luena, and Kuito. It will also support the extension of the distribution network in Luanda. The project under component C will support, through technical assistance, creation of capacity to undertake future public expenditure tracking studies ofbudgetary allocations for the electricity sector. The project will also finance the supervision of the implementation of physical investments. The project through component C will finance related activities to strengthen Empresa Nacional de Electricidade (ENE), Empresa de Distribuiqzo de Electricidade de Luanda (EDEL), and the ministry and assistance to the newly created regulator to enable it to fulfil its mandate.

50. Costs. The estimated cost is about US$35 million (see table 8). IDA will finance about US$24.5 million, about 63 percent of the total. Detailed cost estimates are provided in appendix 5.

Table 8: Electricity cost summary Cost (US$ millions) Phase 2 Urban distribution (CaDitals of Provinces) 21.9 Distribution network in Luanda 3.6 Engineering studies and operational capacity building 3.9 Institutional strengthening 1.o Total base costs 29.3 Taxes (10 Dercent) 2.9 Contingencies (10 percent) 3.2 TOTAL 35.4

Water and sanitation subcomponent (US$25 million of which IDA is contributing US$25 million)

5 1. Objectives. The objectives of the water and sanitation subcomponent are to increase access to supply of safe drinking water in the periurban areas ofLuanda and the three provincial capitals of Malanje, Kuito, and N’Dalatando.

52. Activities. The project will support water services in N’Dalatando and in rural areas of Moxico. All detailed design and tender documents have been completed under phase 1, tenders for works have been launched and contracts have been awarded. However, some US$14 million would need to be secured from phase 2 to be able to award the water contracts under phase 1, given the shortage of funds of phase 1 to fully finance the water component. The project will also provide technical assistance to strengthen the water utility. Specifically, the project will rehabilitate 35 kilometers of the water network, provide 3,500 house connections, and construct 50 community standpipes. In rural areas in the province of Moxico, the project will finance the construction of 70 boreholes with hand pumps, and rehabilitate five small systems and 50 water points. The new water points and small water systems will be managed by community organizations, which are expected to collect adequate revenues through water charges to cover costs of operations and maintenance. UNICEF will implement the activities in rural areas. The project under component C

15 will also provide technical assistance to the National Directorate of Water (DNA) and the Ministry of Energy and Water to reform policy and regulations for water services and to undertake future public expenditure tracking studies. In the three provincial capitals, the project will finance technical assistance to help the water utilities provide water services on a commercial basis, fully covering costs for operations and maintenance.

53. Costs. The estimated costs for the subcomponent total about US$28 million under component B and C (see table 9). IDA will finance about US$25 million or 100 percent of the total. Detailed costs are given in appendix 6.

Table 9: Water and sanitation services cost summary (US$ millions)

54. Urban services (US$ 17 million of which IDA will contribute US$I2 million). The project through phase 1 component D is financing part of studies and preparation of detailed designs for the works to be rehabilitated under EMPR 2.

55. Objectives. The objectives ofthe urban services subcomponent are to prevent overflows of sewage at critical points from the combined drainage and sewerage collection system in Luanda, and to control erosion in , which is at risk ofnatural disaster.

56. Activities. The subcomponent will finance a rapid assessment of the drainage and sewerage collection systems in Luanda and emergency repairs to prevent overflows of sewage, and studies, equipment, and civil works to control erosion in Moxico. The project will also assist the provincial Directorate of Public Works to prioritize interventions in marginal urban areas in Luanda, where risks of major disasters are high.

57. Costs. The estimated cost is about US$17 million (see table 10). IDA will finance about US$12 million, about 70 percent of the total. Details of costs are presented in appendix 7.

58. Sector development strategies and strengthening of human and institutional capacities (US$8 million, of which IDA is contributing US$7 million). This component will support the development of different strategies, decentralization pilot and capacity building.

59. Activities. The project will support preparation of strategies in three key sectors: electricity, transport, and water. It will assist preparation of a national transport strategy to help the govem- ment to manage the transport sector. It will support the development and implementation of a private sector participation strategy. This subcomponent will also finance pilots to test mechanisms and policies on decentralization intended to strengthen local capacity for decentralization (all decentralization efforts and actions, including those of the Social Action Funds, are coordinated with the assistance ofUNDP). It will also finance the management of environmental aspects of the

16 investments in rehabilitation ofroads and bridges, water supply, electricity and urban infrastructure, and other phase 2 investments. Finally, it will support, through technical assistance, the develop- ment of capacity for future public expenditure tracking studies ofpublic expenditures for water and electricity services.

Table 10: Urban services cost summary

Component C: Sector development strategies and strengthening of human and institutional capacities

60. Infrastructure studies. In recognition of the need for substantial improvements in infrastructural services, the government started opening up infrastructure to private sector participation during the second half of the 1990s. While the experience to date of involving the private sector in infrastructure remains quite limited, the government has established a good track record ofreforming policy and ofimplementing projects.

6 1. To assist the government in deepening and accelerating infrastructure reforms, the Public Private Infrastructure Advisory Facility, jointly with the Bank, initiated in 2002 a strategic study entitled “Country Framework Report” on private participation in infrastructure. The study, completed in December 2003, included a framework for developing Angola’s infrastructure sectors during 2004-25 through greater private participation. It covered electricity, natural gas, water supply and sanitation, solid waste, telecommunications, airports, seaports, roads and bridges, and railways.

62. Support for implementation of the strategy under the project includes preparatory work to underpin future policy reforms. However, as agreed with the government, the implementation of such reforms would not be included in the project, but would be part ofthe next phase ofAngola’s development program.

63. In addition to some specific studies, this activity will provide some technical assistance and training for the ministries responsible for infrastructure, as well as for the provincial governments, and sector agencies. Appendix 8 provides a detailed description ofthe proposed activities.

64. Decentralization and support for local development. Decentralization has been and remains a central concern of the government of Angola. The Council adopted a strategic plan for

17 decentralization. This was followed by a study on decentralization and deconcentration supported by UNDP that developed a local governance approach with a clearly sequenced set of activities to implement the strategic plan.

65. Objectives. The main objective of the activity is to help build capacity of the municipal administration to plan and manage the delivery of sustainable public services in the longer term. Specifically, the activity aims to: (a) establish a model for financing the subnational administra- tions’ development budget; (b) create a mechanism and practical tools for regular auditing, monitoring and financial reporting requirements; (c) build capacity at local level to plan, budget, implement, and monitor small-scale rural infrastructure; (d) pilot mechanisms for investment programming, budgeting, implementation, assets’ management, and accounting. Activities will be focused on four municipalities, Kilamba Kiaxi (), Kamacupa (BiC), (Malange), and (Uige).

66. Activities. Once a fiscal transfer mechanism being piloted under UNDP finance with technical support of the UNCDF has proved satisfactory, the EMRP will support, on a broader basis, the establishment of fiscal transfer mechanisms and their corresponding management and operational procedures. It will assist both central and local government to: (a) establish the transfer mechanisms; (b) draft the management and operational procedures for disbursement of the transfers; (c) develop improved procedures for municipal-level strategic planning, programming, budgeting, implementation, auditing, monitoring and evaluation; (d) design a framework for monitoring local government revenue; (e) conduct a revenue generation feasibility study to investigate opportunities for municipalities to generate as well as mobilize income; and (0 assist municipalities in the implementation of selected actions.

67. Costs. The decentralization and support to local governance subcomponent is estimated to cost about US$2.4 million. IDA will finance about US$1.9 million. Details of the costs are provided in appendix 3,

Component D: Management, monitoring and evaluation ofproject implementation

68. Management, monitoring and evaluation ofproject implementation (US$7 million, of which IDA is contributing US$3 million). This component is financing project management and monitor- ing and evaluation of implementation. It is also financing preparation of detailed design and tender documents for investment activities. Specifically, this component will finance technical assistance, consultant services, operating costs, logistical support, and equipment to complement project management and monitoring and evaluation. This component will also help to build capacity of participating ministries and agencies for transparent project management, with a particular focus on procurement and financial management through on-the-job training, establishment of modem financial management systems, and other assistance. This is expected to strengthen governance of the participating ministries and agencies.

PART 4: IMPLEMENTATION ARRANGEMENTS

A. Implementation period

69. Project implementation period. The first phase of the program is being implemented from May 1, 2005 to December 31, 2007. Given the start up delays, phase 1 is likely to be extended by one year. The second phase is expected to be implemented from July 1,2007 to June 30,201 1.

18 B. Capacity of the government to execute the project

70. The capacity of the government of Angola to execute the EMRP (phases 1 and 2) in accordance with Bank procedures is weak. National regulations cannot be used for the project according to the country procurement assessment review carried out in 2002, because of major problems with transparency, enforcement and capacity. An action plan addressing the recommen- dations of the procurement review is being implemented through the ongoing Economic Manage- ment Technical Assistance Project (Cr. 3744-AO). Agreement has been reached with the government on the implementation arrangements for EMRP (phase 1 and phase 2) to mitigate risks, to compensate for government’s weaknesses, and to strengthen government capacity to implement future development projects. These arrangements (see below) are already in place and are fimctioning well.

C. Program and project implementation and management structure

71. Project oversight. An interministerial steering committee put into place under EMRP 1, chaired by the Ministry of Planning and comprising vice ministers (or their delegates) of finance and sectoral ministries involved in the project, will be responsible for overall project oversight.

72. Project management. Given the emergency nature of the project, the relatively large number of activities to be completed within a short time frame, and the limited capacity of the government, the following institutional arrangements have been agreed (and are being used to implement phase 1 activities) to ensure that funds disburse quickly, multisectoral objectives are reached, and absolute transparency is maintained.

73. A PMIU has been set up by ministerial decree (Despacho 0067/GMP/2004) within the Ministry of Planning to be responsible for overall management of EMRP 1 and 2. It is headed by the Vice Minister of Planning (who is also the secretary of the steering committee) as project coordinator supported by a high-level advisor (under French Cooperation funding). The PMIU works in coordination with relevant ministries and agencies. It has three main functions: (a) procurement; (b) financial management; and (c) monitoring and evaluation of project implementa- tion. It is also responsible for: (a) ensuring progress of procurement in accordance with an implementation schedule reviewed and approved by the World Bank; (b) ensuring that the international procurement experts transfer skills to the local staff, as specified in their contracts; and (c) ensuring high ethical standards and transparency. Finally, the PMIU is responsible for ensuring that project implementation complies with World Bank procurement, financial management, and disbursement rules. Despite some delays at the start ofthe implementation ofphase 1, the PMIU is performing satisfactorily and fulfilling its duties as expected.

74. The line ministries and participating entities are monitoring implementation and providing the PMIU with periodic monitoring reports ofprogress, in accordance with contracts that they have signed. The roles and responsibilities of the PMIU in relation to the line ministries and other entities participating in the project are specified in memoranda ofunderstanding signed between the PMIU and the ministries and national entities.

D. Procurement and disbursement arrangements

75. Procurement. Procurement ofworks, goods, and services under the EMRP will follow the World Bank Guidelines ofMay 2004. The thresholds for the use of different procurement methods are presented in the technical annex for the project and will be specified in the Financing Agree- ment. The thresholds for prior review by the Bank of the recipient’s procurement decisions are

19 specified in the procurement plan agreed during negotiations. The two kinds of thresholds have been set relatively low to permit greater scrutiny and reduce the procurement risk. About 95 per- cent of the total value of contracts (about 75 percent of the total of the financing amount) would be subject to prior review; regular post-reviews will be carried out during project supervision.

76. The PMIU handles the procurement for the entire project in collaboration with the participating sector ministries and agencies. The participating ministries and agencies are responsible for preparing the initial requirements for procurement, including the terms of reference, bills of quantities, specifications, and the like and providing them to the PMIU. The PMIU conducts the procurement process up to the award of contract. The ministries and agencies participate in the preparation of short lists and the evaluation of bids and proposals under the direction of PMIU. The ministers or heads of agencies concerned sign the contracts and are responsible for the management of the contracts. The PMIU monitors contract management and assists the ministries and agencies in this task as needed. Payments for contracts are made by the PMIU against certification received from the ministry or agency responsible for the particular contract. These arrangements were based on lessons learned in implementing post-conflict reconstruction operations in similar environments.

77. For phase 2, and based on the lessons learned from phase 1, the PMIU will maintain a procurement section, headed by an internationally recruited chief procurement officer and staffed with procurement officers, recruited nationally. If needed, other procurement officers, recruited nationally will join the PMIU. The project implementation plan, under preparation, contains a section on procurement, which will incorporate the procurement manuals that have already been prepared for phase 1, updated to take into account procurement specific to phase 2.

78. Procurement for the project will be carried out in accordance with the World Bank’s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 2004; and the provisions stipulated in the Financing Agreement for the project. The items in the different procurement categories are briefly described below. The Bank’s standard bidding documents, including those for evaluation reports, will be used for all procurement under International Competitive Bidding (ICB) and National Competitive Bidding (NCB) procedures.

79. Procurement plans. A procurement plan for project implementation, which will govern the choice of the procurement methods used for all the contracts, was prepared during post-appraisal of phase 2 and agreed at negotiations. This will be updated prior to project start. For every contract that would be financed out of the credit, the plan specifies the procurement method or consultant selection method to be used, whether there is a need for prequalification, the estimated cost, prior review requirements, and a timeframe. The plan agreed on between the recipient and the Bank at negotiations is presented in appendix 11. The procurement plan will be updated annually, or more frequently as required, to reflect the project implementation needs and improvements in the institutional capacity. Any proposed revisions to the agreed procurement plan will be submitted to the Bank for its prior approval.

80. Procurement of goods. Goods procured under the phase 2 would include vehicles, trucks, motorbikes, computer hardware and software, office equipment, pumps, and other water-related equipment, and the like. Each contract for goods estimated to cost the equivalent of US$200,000 or more would be procured under ICB procedures, except for meters for the electricity component which will be procured under NCB. Goods with a total estimated value per contract of less than US$200,000 may be procured on the basis of NCB. Goods estimated to cost less than US$30,000 per contract may be procured on the basis of Shopping.

20 8 1. Procurement of works. Works procured under this project would include the rehabilitation, reconstruction, or expansion of roads, electric power supply, water and sanitation, and urban works. Works with a total estimated total value per contract of US$l,OOO,OOO or more will be procured on the basis of ICB. Prequalification will be done for works contracts of US10 million or more. Works with an estimated value per contract of less than US$l,OOO,OOO may be procured on the basis of NCB. Works estimated to cost less than US$50,000 per contract may be procured on the basis of Shopping. Shopping procedures involve at least 3 quotations from suppliers or contractors in response to a written invitation. For electricity supply, the standard bidding documents for Supply and Installation of Plant and Equipment will be used. Where appropriate, Limited Interna- tional Bidding (LIB) for works may be used, as agreed in the procurement plans.

82. Selection of consultants. Consultant services will be required for the design of most of the civil works included in the project, construction supervision, studies, and technical assistance for project implementation. Consultant services will be procured through a Quality-and-Cost-Based Selection (QCBS) or other appropriate methods as specified in the procurement plans. Consultant assignments estimated to cost US$200,000 or more would be advertised to invite expressions of interest. Small consulting assignments may be procured through Consultant Qualification Selection (CQS) or Least Cost Selection (LCS). Technical assistance to municipal health teams would be provided in four provinces through a QCBS procedure with a short list consisting only of qualified NGOs.

83. Single-Source Selection (SSS) may be used in exceptional cases, where the provisions of paragraphs 3.9 to 3.13 of the Consultants Guidelines are met. In phase 2, construction supervision assignments may be procured through SSS, provided that the original selection of consultants to prepare the design or studies (under phase 1) was carried out through competition and for the entire assignment covering both phases 1 and 2.

84. Specialized advisory services would be procured through Individual Consultants Selection (ICs), based on the qualifications of individual consultants for the assignment in accordance with the provisions ofparagraphs 5.1 through 5.3 of the Consultant Guidelines.

85. Procurement from UN agencies. Procurement from United Nations agencies for supplies and works carried out under their own procedures may include UNICEF, WHO, UNDP, UNCDF and the International Agency Procurement Services Organization. The standard form of contract with UN agencies will be used for such procurement. The items to be procured from UN agencies would be agreed on in the procurement plans and would originally include: (a) the construction of rural water supply systems with UNICEF for an estimated contract value of US$4.2 million; and (b) implementation of the studies and capacity building for the pilot decentralization activity through UNDP and UNCDF.

86. Training. Workshops and study tours will be conducted according to annual training programs that will be submitted to IDA for review prior to initiating the training. The programs will specify the type of training (courses, study tours, workshops, on the job, and others), subjects, number of trainees, duration of training, staff months, timing, estimated cost, and the like. The procurement of any training activities that involve the hiring of consultants will follow the Consultants Guidelines by using the QCBS, CQS or LCS for firms and ICs for individuals. The appropriate methods will be specified in the procurement plans.

87. Operating costs. Operating costs financed through the project would be procured using the PMIU’s administrative procedures, as laid in the manual of administrative and financial procedures which was reviewed and found acceptable to the Bank.

21 88. Grants. Grants may cover the cost of grants or other mitigation measures within the framework of the environmental and social impact assessment according to the World Bank safeguard guidelines. They will also cover decentralization support grants to be disbursed through the appropriate government budget line to benefit selected municipalities once the appropriate framework and mechanisms have been agreed on to the satisfaction of IDA. Disbursement for environmental and social mitigation grants will not be made until the environmental and social assessment (under phase 1) has been completed and the environmental and social mitigation system is in place.

89. Direct contracting. Direct contracting for works and goods may be used in exceptional cases, such as for the extension of an existing contract, standardization, proprietary items, spare parts for existing equipment, and urgent repairs and emergency situations, according to paragraphs 3.6 and 3.7 of the Guidelines. The items to be procured through direct contracting would be agreed on in the procurement plan.

90. Prior review of procurement by the World Bank. The thresholds for prior review by the Bank are specified in the procurement plans. Table 11 shows: (a) the thresholds for the different procurement methods, and (b) the initially-agreed thresholds for prior review by the Bank. The Bank will preview procurement arrangements proposed by the Recipient for the items specified in the procurement plans for their conformity with the Financing Agreement and the applicable Guidelines. Any procurement item not specified for prior review may be subjected to a post-review ofthe procurement process. The prior review thresholds may be revisited at mid-term review based on the performance of the PMIU.

Table 11: Thresholds fc ' procurement methods and Expenditure Contract Value Procurement Contracts Subject to Category Threshold (US$ Method Prior Review (US$ including taxes) including taxes) Works 1,000,000 or more ICB All 50,000 or more and less NCB First 3 contracts than 1,000,000 Less than 50,000 Shopping First 3 contracts Goods 200,000 or more ICB All 30,000 or more and less NCB First 3 contracts than 200,000 Less than 30,000 Shopping First 3 contracts Consultant Services - QCBS/CQS/LCS 100,000 or more: all Firms Less than 100,000: first 3 contracts Zonsultant Services - ICs 50,000 or more: all Individuals Less than 50,000: first 3 contracts

22 of 2002 d a wide range of ts, ~ncl~~d~n~:(a) the degree to h the ~o~~e~~e~~ pr~~~~esa culture of- acc#~~n~a~i~~ty: (b) the status uf pro~~re~~~~staff%~nc~ud~~~g salary ~~c~~re and capa~ili~~~s~(cl the degrec to whrch ~rocuremen~ts free from poI~~~ca1interference; (d) the existence of clearly written s~andardsand p~~cc~~ures;and (e) the degree of efficiency, ~anspar~ncy and ~aI~e-for-~Qne}r.In each of these' areas, the proc~~e~entassessn~en~ found that the An~~lan pro~uremen~system nccds major impro~~e~ents~and, ~onse~uentl~, is consider~d a high risk. The asse~s~entscanled out dmng ~~e-appra~~a~,appraisal, and pos~-appr~~~alniissions found that very little had chan~~dat the country level since the publ~cat~onofthe report,

92. Three major problems were ident~~e~:~ansparei~cy, ~n~or~c~~n~~ and lack of capacity. The report found the fo~lQwingspecific d~fici~r~c~esrclated to ~roe~rement:(a) weaknesses tn the Et and lack af enforce the existing pro~~~~~o~s~(h) ractfces, fc) weak pr t or~an~~a~i~~and pa^^^^ cha~~~~~~and (e) payment detays that result in higher con

93, In co~~~dera~jonQE the prescnt pr#c~r~~en~~~~at~on and the need f~ra rapid imple~en~at~onof the e~~r~~ric~project, it was agreed that all the ~roc~re~~~~fur the project will be carried out c~n~aIIy~hrou~h the PMIll in the ~~~~1s~of Plannin~.Other measurcs that were already taken or ~~ann~dduring phase. 1 to m~ni~~~ethe risks of pro~uremen~pr~~~em~ are: (a) pr~~isionof ~~a~ni~~ in pr#cw~e~en~to all local staff involved in the project, (b) prcpara~~onof a fall the refevant rninistrm and a ; (c) crestion of a r actions by the PMI'I;: id) up uE a pr~curen~ent naf and n~~~~na~procuremen s, (e) ~n~ur~n~that a review by Bank: if? pr~p~r~~~Q~and use of (8) carrying out of regular procur audits

23 Therefore, although the overall risk for procurement in the country is high, given the measures already in place for the project, and given that all procurement carried out to date under phase 1 is satisfactory, the overall project risk for procurement has been upgraded from high to average.

94. The thresholds for the methods ofprocurement for phase 2 and for the prior review by the Bank would be the same as for phase 1 in spite of the change in the project’s procurement risk rating. This is partly because the overall national risk remains high and partly to maintain continuity with the implementation procedures that are being followed for phase 1. The recom- mended frequency of procurement supervision is likewise unchanged from phase 1. Thus, the mitigating measures for phase 2 correspond more to the requirements of high project risk, rather than one ofaverage project risk.

95. Frequency of procurement supervision. The frequency of procurement supervision is proposed to be once every four months in the first year and once every six months in subsequent years. Every supervision mission should also include a post-review ofprocurement decisions.

96. Audits ofprocurement and disbursement of IDA and government funds will be undertaken at regular intervals by internal and external auditors. Appendix 9 presents the details of the procurement arrangements based on the assessments carried out by the World Bank.

E. Disbursement arrangements

97. Disbursement. All costs are inclusive of taxes and duties. The government will finance 100 percent of: (a) taxes and duties (estimated at a rate of 10 percent) except for the subcomponents related to water supply, and grants for mitigation of environmental and social risks, (b) expendi- tures for operation and maintenance services; (c) recurrent costs related to the investments made under IDA financing; and (d) salaries ofcivil servants and office space in the ministries for project purposes. In addition, the government will finance (a) 30 percent of counterpart funding for works and goods under component A and B (except for the subcomponent on water supply which will continue to be 100 percent IDA financed), and (b) 30 percent of counterpart funding for technical assistance and engineering and consultant services and training. The disbursement schedule is expected to be as follows: US$9 million (9 percent) is expected to be disbursed during IDA fiscal year fiscal 2008, US$29 million (28 percent) during fiscal 2009, US$35 million (34 percent) during fiscal 2010, US$25 million (25 percent) during fiscal 201 1, and US$4 million (4 percent) during fiscal 2012. Disbursement of grants to mitigate environmental and social risks will not be made until the environmental and social assessment (under phase 1) has been completed and the environmental and social mitigation system is in place.

98. Designated Account. The phase 2 project will have one Designated Account that will be opened in a commercial bank acceptable to IDA and will be operated in accordance with the Bank’s operational guidelines.

99. Disbursements from IDA would be initially made on the basis of details of eligible expenditures (transaction based disbursements). IDA would then make advance disbursements from the proceeds of the Credit by depositing into a recipient-operated Designated Account to expedite project implementation. The advance to the Designated Account would be used by the Recipient to finance IDA share ofproject expenditures. Another acceptable method ofwithdrawing funds from the Credit is the direct payment method, involving direct payments from the Credit to a third party for works, goods and services upon the recipient’s request. Payments may also be made to a commercial bank for expenditures against IDA special commitments covering a commercial

24 bank’s Letter of Credit. IDA’SDisbursement Letter stipulates a minimum application value for direct payment and special commitment procedures.

100. To facilitate disbursements for eligible expenditures for goods, works, and services a Designated Account with an authorized allocation of US$8.5 million will be provided, covering an estimated four months of eligible expenditures financed by IDA. Upon Credit effectiveness, the PMIU would submit a withdrawal application for an initial deposit to the Designated Account drawn fiom the IDA Credit, for implementation of phase 2, for an amount not to exceed US$4.25 million. The PMIU would submit a withdrawal application for the remaining balance of US$4.25 million when the aggregate amount ofwithdrawals fiom the credit account plus the total amount of all outstanding special commitments entered into by IDA shall be equal or exceed the equivalent of SDR6.2 million for phase 2. Replenishment of funds from IDA to the Designated Account will be made upon evidence of satisfactory utilization of the advance, reflected in statements of expendi- ture or on full documentation for payments above thresholds for statements of expenditure. The Designated Account would be used for all payments inferior to about 20 percent of the authorized allocation and replenishment applications would be required to be submitted regularly on a monthly basis. If ineligible expenditures are found to have been made fiom the Designated Account, the recipient will be obligated to refund the same. If the Designated Account remains inactive for more than six months, the recipient may be requested to refund to IDA amounts advanced to the Designated Account. IDA will have the right, as reflected in the Financing Agreement, to suspend disbursement ofthe funds, if reporting requirements are not complied with.

101. Use of statements of expenditure. All applications for the withdrawal ofproceeds from the Credit will be fully documented, except for (a) contracts with an estimated value of less than US$l,OOO,OOO for works packages; (b) contracts with an estimated value of less than US$200,000 for goods; (c) contracts with an estimated value of less than US$lOO,OOO for consulting firms and less than US$50,000 for individual consultants; (d) grants; (e) operating costs; and (0 training. Documentation supporting all expenditures claimed against statements of expenditure will be retained by PMKJ, and will be available for review when requested by IDA supervision missions and auditors. All disbursements are subject to the condition of the Financing Agreement and the procedures defined in the Disbursement Letter.

102. When project implementation begins, the quarterly financial monitoring reports (FMRs) produced by the project will be reviewed. Strengthening its accounting and financial management capacity is enabling PMIU to establish effective financial management and accounting systems, which allow it to produce the FMRs. Where the reports are adequate and produced on a timely basis, and the recipient requests conversion to report-based disbursements, a review will be undertaken by the task team leader to determine if the project is eligible. The adoption of report- based disbursements by the project will enable it to move away from time-consuming voucher by voucher.

103. Government project account. This account will be opened in a commercial bank acceptable to IDA. Counterpart funds will be deposited regularly in this account in accordance with project needs. To facilitate disbursements for eligible expenditures for goods, works and services, upon project effectiveness, the government would be required to make an initial deposit to the project account of US$2 million equivalent for EMRP 2 covering an estimated four months of eligible expenditures cofinanced by the government.

25 F. Financial management arrangements and audits

104. The public expenditure management and financial accountability review carried out by IDA in collaboration with the government in March 2004 revealed that the measures taken so far are not yet adequate to ensure that Bank-financed projects are managed transparently and in accordance with the Bank fiduciary safeguards. The many existing off-budget accounts, a not yet fully implemented financial management information system, inadequate systems of internal control and financial reporting, and inadequate external auditing, raise concerns. Despite some recent progress, caution is required. Overall project financial management risk is rated substantial, a slight improvement on the high risk rating for phase 1 (see appendix 10). The improvement arises from the experience gained from running the first phase, and the success in filling key fiduciary positions. Under these circumstances, the ring-fenced financial management approach, with dedicated bank accounts, qualified project staff, and a project financial management manual, will continue to be used.

105. To establish an acceptable control environment and to mitigate risks, measures have been specified in the project’s Financial Management Action Plan for phase 1. Implementation of these measures is satisfactory as detailed below:

Action required Status Appointment ofan international financial The key positions of international financial management advisor, management advisor and procurement advisor have been filled by professionals from Portugal. Appointment of a project accountant for the A graduate accountant has been appointed PMIU. and been in place since June 2005.

Control procedures are documented in a Adoption ofa fully documented financial financial procedures manual which was management manual, which covers financial approved by the Bank. policies and procedures, accounting and internal control systems, financial reporting, flow of funds The PMIUhas established clear procedures and auditing arrangements. for funds transfer that meet the necessary requirements. Installation of integrated accounting software, Project has installed Concept Accounting including data testing. software. This is proven software in Angola; staff has been trained on it, and has additional mentoring from FAS accounts department which uses the same software. Appointment of an external auditor under terms of AUREN, a Portuguese firm of accountants, reference and experience satisfactory to the Bank. was selected external auditor of the project following a competitive selection process acceptable to the Bank. Appointment ofan internal auditor under terms of Glocom Inc. (USA) was selected internal reference and experience satisfactory to the Bank. auditor ofthe project following a competitive selection process acceptable to the Bank.

106. The PMIU is required to submit a quarterly FMR to the Bank, in accordance with Bank guidelines. An FMR includes: (a) a statement of sources and uses of funds, (b) an up-to-date

26 description of physical progress, and (c) status of main procurement actions. The PMIU has submitted all required FMRs for EMRP 1 on time.

107. Internal controls and financial management manual. EMRP internal controls and procedures are documented in a financial management manual that has been reviewed by the Bank and is considered satisfactory. This is a document which is updated as appropriate with any changes when they occur. This one document will be used for EMRP 1 and 2.

108. The financial management manual describes (for the accounting system) the major transaction cycles of the project; funds flow processes; the accounting records, the supporting documents and the chart of accounts. It also summarizes authorization procedures, financial reporting process, project’s accounting policies, budgeting procedures, financial forecasting procedures, procurement and contract administration monitoring procedures, procedures for the replenishment ofthe Special Account, and auditing arrangements.

109. Planning and budgeting. Cash budget preparation follows government procedures. Detailed procedures for planning and budgeting are documented in the financial management manual. Financial projections or forecasts are prepared and regularly revised. The project accountants will prepare annually the cash budget for the coming period based on the work program. The cash budget includes the figures for the year, analyzed by quarter. The cash budget for each quarter reflects the detailed specifications for project activities, schedules (including procurement plan), and expenditure on project activities scheduled for the quarter. The annual cash budget is sent to the task team leader at least two months before the beginning ofthe project fiscal year. These arrangements established under EMRP 1 will continue for and include EMRP 2.

110. Accounting policies. IDA and counterpart funds for EMRP 2 will be accounted for on a cash basis. This will be augmented with appropriate records and procedures to track commitments and to safeguard assets. The accounting records will be maintained in dual currencies on a computerized system. The books of accounts will include a cash book, ledgers, journal vouchers, a fixed asset register, and a contracts register. Annual financial statements will be prepared in accordance with International Accounting Standards. All accounting and control procedures are documented in the financial management manual, and will be regularly updated by the PMIU. 11 1. Financial monitoring reports. Quarterly financial monitoring reports produced by the project will be reviewed by the Bank. Adequate accounting and financial management capacity (an international financial management specialist and a national accountant already operational at the PMIU) will enable the PMIU to establish effective financial management and accounting systems, which should facilitate the production ofthe financial monitoring report.

112. Internal audit. Considering the overall risk environment in Angola, there is a need to put in place a strong internal control mechanism and quality assurance system at all levels. This is the reason for the engagement of a qualified internal auditor (a firm) with relevant experience with donor-financed projects. Selection of the internal auditor has been finalized according to the Bank’s procurement guidelines and procedures. The internal audit reports are accessible to the Bank’s project supervision missions.

113. External audits. The government external auditors recruited for EMRP 1 have been engaged on a renewable contract, subject to satisfactory performance. The contract of these auditors will be extended to include EMRP 2 (this is feasible from procurement perspective).

114. As presently done under EMRP 1, the external audit will cover all Bank and counterpart funds with EMRP 2. Consolidated audited project accounts will be produced, taking into

27 consideration the current audit policy guidelines of the World Bank. The format to be adopted is documented in the financial management manual. Besides expressing a primary opinion on the audited financial statements in compliance with international accounting standards, the audit report will be submitted to IDA within six months after the end ofeach financial year. The auditor will be required to prepare a separate management letter giving observations and comments, and providing recommendations for improvements of accounting records, systems, controls and compliance with financial covenants in the Financing Agreement. If necessary during implementation, technical audits could also be carried out.

115. Financial covenants. The financial covenants for phase 1 have been complied with and will be maintained for phase 2. The financial covenants are the standard ones as stated in Article IV ofthe Financing Agreement.

G. Supervision

116. Due to its status as a high-risk project, the Bank will devote about three missions per year, or an average of 85 staff weeks per year in total to supervise EMRP 1 and 2. This is more than for the ordinary projects, as recommended in the Bank’s Governance and Anti-Corruption Strategy. During the first year of EMRP 2, supervision will focus on performance ofthe executing entities in managing contracts, procurement, and financial matters, as well as in completing the agreed implementation plans. Supervision will pay special attention to indicators of corruption in procurement that may signal that procurement involves bribes or kickbacks, bid collusion, or fraud. During the following years, in addition to attention to procurement and financial management, supervision will focus on progress in executing works, developing the sector strategies, and strengthening capacity of government to implement future development projects, in addition to reviewing regularly compliance with fiduciary, procurement and environmental safeguards.

H. Monitoring and evaluation

117. The project is based on the results-based approach. Key performance indicators are specified in the results framework in annex 1, building on experience in the Democratic Republic of Congo with a similar multisector emergency reconstruction project.

118. Reviews. In addition to regular supervision by Bank staff, reviews to assess progress in implementing the agreed activities will be carried out every six months by the Bank, together with the government and the other involved parties. This will be part of the government donor coordination process. The interministerial steering committee through the PMIU will be responsible for preparing the necessary documentation for the reviews and for planning the review meetings. During the first reviews, special attention will be paid to assessing the distribution of donors’ support to the PPMRRP, with a view to reorienting the IDA support if necessary to ensure the equitable distribution ofresources overall.

119. A midterm review of EMRP 1 is planned to be carried out by December 30, 2007. Similarly, a comprehensive midterm review of EMRP 2 will take place 24 months after its effectiveness. The EMRP 2 midterm review will assess implementation progress, coherence in the implementation of both phases, achievement of overall objectives, and the roles of different partners. Government will contract a consultant to review and assess progress in implementing the program and to assist in preparing the necessary documentation for the midterm review. The interministerial steering committee through the PMIU will be responsible for preparing documentation for the review and for planning the midterm review meeting. The midterm review will identify measures to improve performance if needed.

28 I. Coordination of donors

120. Several partners, including the UN system, the European Union, and French Development Cooperation are providing parallel finance for the project. In addition, French Development Cooperation is financing a high level advisor to assist the PMIU in implementing the project. All partners supporting the project recognize the importance of coordinating their efforts to direct assistance to priority needs in a timely manner, to prevent gaps or overlaps, to ensure sustainable budget expenditure planning, and to reinforce their contribution to the policy dialogue. They have agreed to coordinate assistance to the extent possible through regular meetings coordinated by the Ministry of Planning. This coordinated approach is expected to improve effectiveness of the project and to reduce the reputational risk to the Bank of its engagement.

J. Environmental aspects and compliance with the World Bank Safeguard Policies

121. As the second phase of a project processed under Operation Policy (OP) 8.50, and originally constrained by lower than expected IDA 13 finance, EMRP is being processed under OP 8.50. As such, it is not required to have project safeguard instruments approved and disclosed in- country and at the InfoShop prior to appraisal. Like EMRP 1, EMRP 2 is classified environmental assessment category B. It will focus on rehabilitation and reconstruction of existing infrastructure and on delivery of basic services. The appropriate actions that will be taken during implementation with regard to compliance with national and Bank guidelines for environmental and social impact assessment and mitigation are presented in the appendixes to the project technical annex.

122. Due to the multisector nature of EMRP 2, and because the environmental and social impact characteristics of the project activities are not known in sufficient detail at this time, a programmatic or strategic approach for environmental and social assessment (including screening and categorization, preparation, public consultation, disclosure, review, approval and monitoring) will be put in place and implemented over the life of both EMRP 1 and 2. A resettlement policy framework, to be reviewed and approved by IDA, will be prepared (prior to the start of the major works under EMRP 2), addressing the policy, principles, institutional arrangements and procedures that the government will follow in each subproject involving resettlement or loss of economic activities, and disclosed separately. Landmine issues will be addressed according to the government landmines strategy, which is supported by UNDP and other donors. Given uncertainties regarding the location of some of the activities and the complexity of Angola’s environmental and social situation, this approach is designed to ensure that the site selection, design and implementation of all activities comply with World Bank safeguard policies.

123. All individual environmental and social impact assessments, environmental management plans, pest management plans, and resettlement action plans for the various activities of EMRP 1 and 2 were expected to be completed within one year following effectiveness of EMRP 1. However, given uncertainties regarding activities to be supported under EMRP 2, the environmental and social impact assessments have been delayed. The request for proposals for these services has been sent to the short-listed firms, and proposals have been received. The selection of the firm will be finalized as quickly as possible following Board approval of EMRP 2.

124. An environmental consulting firm will be engaged for an initial period of three years to manage and oversee the environmental and social aspects of overall EMRP (1 and 2). The vast majority of environmental and social issues will arise in the context of EMRP 2, as EMRP 1 has focused on improving delivery of education, health, and agriculture services, and on preparations for the infrastructure investments to be implemented under EMRP 2. The firm will also provide institutional strengthening and on-the-job training services to the various ministries and national

29 entities involved. The firm will help to build the capacity of the Secretary of Environment Estate, of the line ministries, and of the other entities participating in the project to manage environmental issues relating to project activities. The firm will also work with the government to screen all infrastructure investments of both phases of EMRP for environmental and social impacts and ensure that measures are identified to prevent or mitigate potential adverse affects.

PART 5: BENEFITS AND RISKS

A. Benefits

125. The EMRP operations will provide several important benefits. EMRP 1 will help prevent the further deterioration of health and loss of life of people who are living in extreme poverty by contributing to food security and delivery of health care and other basic services, including restoring water supply in the provincial capitals. EMRP 2 will help restore electricity supply in provincial capitals and improve public health conditions in urban and rural areas. It will help revive the economy by bringing down the costs of transportation, which will increase the competitiveness of goods. It will help to reintegrate the country by reestablishing transportation links between the country’s provinces. It will help to reduce poverty among both agricultural producers and consumers by stimulating agricultural production and reducing costs and time of transporting food from producers to markets. Over the medium and longer term, through capacity building, the program will benefit the Angolan people by helping to create an improved legal and regulatory framework and more stable and effective institutions-critical conditions for better governance. Finally, it will help lay the groundwork for future policy and institutional reforms and a future investment program for the country’s development.

B. Risks

126. When EMRP 1 was submitted to the Board on February 17,2005, its size and complexity, coupled with the macroeconomic constraints of Angola, made the development, safeguard, financial, and fiduciary risks high. During preparation of EMRP 1, the Bank worked closely with government and development partners to ensure the risks were identified and mitigation measures planned. The risk mitigation system that was agreed included a fully staffed and operational PMIU, technical assistance financed by other partners, ring-fencing of procurement and financial management, and a comprehensive financial management system, including internal and external audits. The establishment of the risk mitigation system was fully supported by government, and is operational (the first FMR and the first reports of the internal and external auditors have been produced, all of which have been found satisfactory). The financial and administrative management system which has been established and working for EMRP 1 will be extended to cover EMRP 2.

127. Despite the country risk still being high, the risk mitigation measures described above provide a reasonable safeguard for effective implementation of EMRP 2. Recent EMRP 1 review missions by procurement and financial management specialists noted that the risk mitigation measures are being satisfactorily implemented and the procurement risk for the project has been upgraded to average instead of high.

128. Major risks and mitigation measures are presented in table 13:

30 Table 13: Critical risks and possible controversial aspects Risks Risk Mitigation Measures Risk rating with mitiga- tion To Little progress is made 0 Capacity is being built at the Ministry ofPlanning, S project in establishing Ministry of Finance, and the central bank to carry out develop- effective and poverty analysis, formulate a sound public investment ment transparent program, and establish a more transparent and efficient objective government, public finance framework (through the IDA-financed jeopardizing Economic Management Technical Assistance Project) development Control ofpublic expenditures is being strengthened objectives and sound through the creation of a fiscal programming unit in the fiduciary management. Ministry ofFinance and the steady implementation of its integrated financial management information system. A model is being established at the Ministry of Finance to forecast oil revenues aimed at improving the oversight by the government over oil revenues. Project finds are S 0 Financial management and accounting are being misused or handled by qualified and experienced staff ofthe PMIU mismanaged. and international advisors have been recruited to support project implementation. The PMIU and other implementing agencies are required to follow detailed procurement and financial guidelines and meticulously account for all project finds.

0 Thresholds for the methods ofprocurement for phase 2 and for the prior review by the Bank will be the same as for phase 1, despite the change in the project’s procurement risk rating from high to average. The recommended frequency ofprocurement supervision is likewise unchanged from phase 1.

0 Internal and external audits will be conducted regularly. To provide overall project oversight, an interministerial steering committee chaired by the Ministry ofPlanning is overseeing the entire EMRP operation (phases 1 and 2). IDA supervision efforts will be in line with the size and inherent risks ofthe proposed operation. Project The government is required to continuously replenish the S implementation is not project accounts, which Bank supervision missions will satisfactory due to lack regularly monitor (government has complied with this ofcounterpart hnds or condition during phase 1). Change in the staffing of the changes in staffing of PMIU, especially ofinternational staff, could also the PMIU. jeopardize the implementation ofthe project. To reduce this risk, the requirement to maintain the staffing ofthe PMIU as agreed throughout the project life is a legal covenant of the project’s first phase and will be a legal covenant of the second phase. Rising disability and The government is committed to raising awareness ofthe M mortality due to threat ofthe pandemic through a variety ofinterventions, HIV/AIDS hinder including those supported by the IDA-supported progress toward HIV/AIDS, Malaria, Sexually Transmitted Diseases, and project objectives. Tuberculosis Project. Project staff will undergo training to

31 Risk Mitigation Measures Risk rating with mitiga- tion raise their awareness ofthe risks. To Lack ofcapacity Activities to rehabilitate and reconstruct infrastructure compon- impedes timely project will be packaged in large contracts to be awarded to pre- ent implementation. qualified international contractors. The preparatory work results is being completed through technical assistance provided under phase 1 project which is already in place to ensure that contracts are awarded as soon as possible after phase 2 becomes effective. UN agencies are being contracted under the project to implement activities in support ofagriculture and the social services, rural water, and decentralization. These agencies have considerable experience working in Angola. Little start-up time will be needed to expand these activities. The Bank country office is providing day-to-day support for project implementation. Finally, phase 1 includes resources for training, technical assistance, and institutional support, which will help build lasting capacity ofgovernment and NGOs. Similar resources are also planned under phase 2 to build on and consolidate the institutional support and capacity building under phase 1. Procurement delays The procurement team within the PMIU is led by an disrupt the project internationally recruited procurement specialist. The team timetable. has also benefited from Bank procurement training. The same team (strengthened if needed) will also be handling all procurement matters for phase 2. The tem has handled procurement during phase 1 effectively and efficiently. Overall risk rating Risk Rating - H (High Risk), S (Sub .ntial Risk), M (Modest Risk), N (Negligible or Low Risk)

C. Exit Strategy

129. If progress in implementation of EMRP 2 is seriously unsatisfactory, particularly with respect to its fiduciary aspects, and remedial measures are not effective, IDA, in close consultation with government, other development partners and civil society, will review its activities and consider restructuring, scaling back, or suspending the project.

32 Annex 1: Angola Emergency Multisector Recovery Project Results Framework

1. Improve rural access to markets Kilometers in good condition for YR1-YR5: A lack ofprogress in achieving in specific areas with high targeted roads in selected provinces. these results indicates a lack of government agricultural potential that have been commitment to reform, or a lack of capacity to affected by the conflict. implement a very ambitious program. Outcome 2. Reconstruct and rehabilitate High traffic road roads linking information will be used to identify progress, critical infrastructure. Lucala with Negage rehabilitated obstacles to progress, and reasons for a lack of and in good condition. progress where progress is lacking. Action to Medium and low-voltage improve the likelihood of the project achieving distribution systems in its objectives will be taken as soon as the N’Dalantando, Uige, Malanje, reasons for lack ofprogress are understood. Luena, Kuito and Luanda rehabilitated and operating continuously (reduction in power losses TBD). Number ofpeople in Malange with access to improved water services delivered through house connections and rehabilitated standpipes rises. *Number ofpeople in N’Dalantando with access to improved water services delivered through house connections and rehabilitated standpipes rises. 3. Strengthen capacity of Systems ofprocurement and participating ministries and agencies financial management in the for improved governance and ministries and agencies involved in transparency and oflocal the project improved, according to governments for future World Bank assessment. decentralization. Fiscal transfer mechanisms for decentralization being implemented

A. Feeder roads rehabilitated. Kilometers oftargeted feeder roads YR 1-4: Information will be used to assess rehabilitated in selected provinces. progress, identify obstacles, and implement solutions to challenges. B1. Trunk roads rehabilitated. Kilometers oftrunk roads Years 1-4: Information will be used to assess rehabilitated. progress, identify obstacles, and implement solutions to challenges. B.2. Access to water in periurban Water network serving the periurban Years 1-4: Information will be used to assess areas of Luanda increased. areas of Luanda rehabilitated. progress, identify obstacles, and implement solutions to challenges. B.3. Access to water in the three Kilometers ofthe water network in Years 1-4: Information will be used to assess provincial capitals ofMalanje, Kuito, Malanje, Kuito, and N’Dalatando progress, identify obstacles, and implement and N’Dalatando increased. rehabilitated. solutions to challenges. C. Sector strategies provide the Sector strategies for electricity, roads, Years 1-4: Information will be used to assess basis for new investments. and water prepared and approved. progress, identify obstacles, and implement solutions to challenges.

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