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Documentof The World Bank Report No: 19855 LT Public Disclosure Authorized PROJECTAPPRAISAL DOCUMENT ONA Public Disclosure Authorized PROPOSEDLOAN IN THE AMOUNTOF US$ 21.2 MILLION EQUIVALENT TO THE REPUBLICOF LITHUANIA FORA HEALTH PROJECT Public Disclosure Authorized November 5, 1999 lHum-anDevelopment Sector Unit Country Unit for Poland and Baltic States Europe and Central Asia Region Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective October 5, 1999) Currency Unit = Lithuanian Litas (LTL) LTL 1 = US$ 0.25 US$ 1 = LTL 4 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS ALOS Average Length of Stay MD Medical Doctor apskritis Administrative Unit (County) MIS Management Information System in Lithuania CAS Country Assistance Strategy MOF Ministry of Finance CEE Central and Eastern Europe MOH Ministry of Health CVD Cardio-Vascular Diseases NHB National Health Board DPH Department of Public Health PAD Project Appraisal Document DRG Diagnosis Related Group PHC Primary Health Care DSU Day Surgery Unit PHRD Population and Human Resources ECA Europe and Central Asia Development (Japanese Grant) EOP End of Program PIP Project Implementation Plan EU European Union PMR Project Management Report FSU Former Soviet Union PMU Project Management Unit GDP Gross Domestic Product SAL Structural Adjustment Loan GP General Practitioner SIDA Swedish International Development HCE Health Care Expenditures Agency HCI Health Care Institution SODRA Social Insurance Agency HIC Health Information Center SOE Statement of Expenditures HIS Health Information System SPF State Patient Fund ICB International Competitive Bidding TPF Territorial Patient Fund IFC International Finance Corporation TOR Terms of Reference IT Information Technology WHO World Health Organization Vice President: Johannes Linn Country Director: Basil Kavalsky Sector Leader: Annette Dixon Program Team Leader: Toomas Palu LITHUANIA HEALTH PROJECT CONTENTS A. Project Development Objective ........................................................ 2 1. Project development objective and key performance indicators ............ 2 B. Strategic Context ............................................................ 2 1. Sector-related CAS goal supported by the project .......... .................. 2 2. Main sector issues and Government strategy ............ ...................... 2 3. Sector issues to be addressed by the project and strategic choices .......... 12 C. Project Description Summary .......................................................... 15 1. Project components ............................... ............................. 15 2. Key policy and institutional reforms supported by the project ....... ....... 15 3. Benefits and target population .............................. ..................... 17 4. Institutional and implementationarrangements ........... ..................... 17 D. Project Rationale ....................... ..................................... 17 1. Project alternatives considered and reasons for rejection ........ ............. 17 2. Major related projects financed by Bank and/or other development agencies 18 3. Lessons learned and reflected in the proposed project design ....... ........ 18 4. Indications of borrower commitment and ownership ......... ................. 19 5. Value added of Bank support in this project ............. ....................... 19 E. Summary Project Analyses ............................................................ 20 1. Economic ..................... ....................................... 20 2. Financial ..................... ....................................... 21 3. Technical ..................... ....................................... 21 4. Institutional ......................... ................................... 22 5. Social ............................................................ 23 6. Environmental assessment ......................................................... 23 7. Participatory approach ............................................................ 23 F. Sustainability and Risks ............................................................. 24 1. Sustainability ............................ ................................ 24 2. Critical risks .......................... .................................. 25 3. Possible controversial aspects ................................. ................... 26 G. Main Loan Conditions ..................................................................... 26 1. Effectiveness conditions ....................................................... 26 2. Other ....................................................... 26 H. Readiness for Implementation .. ...................... 27 I. Compliance with Bank Policies ........................................................... 27 Annexes Annex 1. Project Design Summary ........................................... 28 Annex 2. Detailed Project Description ........................................ 34 Annex 3. Estimated Project Costs ............................................. 49 Table 1. Components Project Cost Summary .............. ................ 50 Table 2. Expenditure Accounts By Components ............ ............... 51 Table 3. Components by Financiers .......................................... 52 Annex 4. Economic Analysis Summary ...................................... 53 Annex 5. Financial Summary .............................................. 58 Annex 6. Procurement and Disbursement Arrangements ......... .......... 59 Table A. Project Costs by Procurement Arrangements.60 Table B. Schedule of Procurement Arrangements.61 Table C. Summary of Procurement Arrangements.66 Table D. Allocation of Loan Proceeds........................................ 68 Table E. Schedule of Loan Disbursements.69 Annex 7. Development of Project Financial Management System 70 Annex 8. Project Processing Budget and Schedule .72 Annex 9. DocumentsDocuments in ProjectFile .73 Annex 10. Statement of Loans and Credits .74 Annex 11. Country at a Glance .75 Chart Project Organizational Chart Map IBRD 30122 Lithuania Health Project Project Appraisal Document Europe and Central Asia Region Poland and Baltics Country Unit (ECC09) Date: NOVEMBER 5, 1999 Program Team Leader: Toomas Palu CountryDirector: Basil Kavalsky Sector Director: Annette Dixon Project ID: LT-PE-35780 Sector: Health Program Objective Category: Financial Lending Instrument: Program of Targeted Yes X N SPECIFIC INVESTMENT LOAN Intervention: Project Financing Data [X] Loan [] Credit [] Guarantee [] Other ISpecify] For Loans/Credits/Others: Amount: US$ 21.2 Million Proposed terms: [] Multicurrency [] Single Currency Grace period (years): 5 [] Standard Variable [X] Fixed Spread [X] LIBOR-based Years to maturity: 17 Commitment fee: 0.85% on undisbursed loan balances, beginning 90 days after signing, for the first 4 years, 0.75% thereafter, less any waiver Service charge: 1% of loan amount Financing plan (US$m): Source Local Foreign Total Government 8.4 0.8 9.2 IBRD 7.1 14.1 21.2 EU Phare - 0.9 0.9 SIDA 0.6 1.8 2.4 Other International Donors 0.1 0.3 0.5 Total 16.2 17.9 34.2 Borrower: Government of Lithuania Guarantor: N/A Responsible agency: Ministry of Health Estimated disbursements (Bank FY/US$M): 2000 2001 2002 2003 2004 Annual 1.7 3.4 3.7 4.8 7.6 Cumulative 1.7 5.1 8.8 13.6 21.2 Project implementation period: 4.5 years; Expected effectiveness date: January 2000 Expected loan closing date: 09/30/04 Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The project development objective is to improve the efficiency, equity and access of the Lithuania health care system. Key performance indicators measure: (i) improved equity of resource allocation among health regions (apskritis), (ii) cost-containment through effective contracting between the State Patient Funds and health care providers; (iii) efficiency gains through hospital services consolidation and restructuring in four pilot regions; and (iv) improved access to General Practitioner services in four pilot regions. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1): CAS document number: 13677-LT Date of latest CAS discussion: May 11, 1999 The project supports the Bank's objectives to design cost-effective, financially viable social safety net and human development program and to help reorient public services and infrastructure in order to provide adequate and cost-effective social services. In the health sector it translates into orientation of medical services towards a general practice-based primary health care system, optimization and improvement in quality of hospital services, and introduction of appropriate financial incentives and efficient management into the health financing system. 2. Main sector issues and Government strategy: Lithuania is a small, urbanized (68 percent) Baltic state with a population of 3.7 million (1997) bordered by Latvia, Belarus, Poland, Russia and the Baltic Sea. Ethnic Lithuanians make up about 82 percent of the population, Russians 8 percent and others 10 percent. Major towns include the capital, Vilnius (580,000), Kaunas (419,000), Klaipeda (203,000), Siauliai (147,000) and Panevezys (133,000). After high inflation and sharp declines in income and social indicators during the initial years of independence (1991), the economy has stabilized and growth has resumed. GDP per capita in 1997 was US$2,128 (based on exchange rate) or US$4,245 (based on purchasing