Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 53955-AF Public Disclosure Authorized

EMERGENCY PROJECT PAPER

ON A

Public Disclosure Authorized PROPOSED GRANT

IN THE AMOUNT OF SDR 33.3 MILLION (US$ 50.48 MILLION EQUIVALENT)

TO THE

ISLAMIC REPUBLIC OF AFGHANISTAN

FOR A

Public Disclosure Authorized SECOND CUSTOMS REFORM AND TRADE FACILITATION PROJECT

April 21, 2010

Sustainable Development Department Afghanistan Country Management Unit South Asia Region

Public Disclosure Authorized 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.

CURRENCY EQUIVALENTS

(Exchange Rate Effective March 31, 2010) Currency Unit = Afghani Afs 48.35 = US$1 US$ 1 = 1.51824 SDR

FISCAL YEAR March 21 – March 20

ABBREVIATIONS AND ACRONYMS ABP Afghan Border Police ESMP Environment and Social Management Plan ACD Afghanistan Customs Department ESSMF Environmental and Social Safeguard Management Framework ADB Asian Development Bank EUPOL European Union Police Mission ANDS Afghanistan National Development FBI Federal Bureau of Investigation Strategy AP ASYCUDA ++ FMA Financial Management Agent ARDS Afghanistan Reconstruction and FMR Financial Monitoring Reports Development Services ARTF Afghanistan Reconstruction Trust Fund FYP Five Year Plan ASYCUDA Automated System for Customs Data G2G Government to Government AW ASYCUDA World GAAP Governance Accountability Action Plan BMTF Border Management Task Force GAC Governance and Accountability C2C Customs-to-Customs GDP Gross Domestic product CAs Customs Authorities GOC Government of Canada COSO Committee of Sponsoring GOIRA Government of Islamic Republic of Organizations Afghanistan CP Customs Police GOJ Government of Japan CTA Chief Technical Advisor HOO High Office of Oversight CURE Customs Reform Unit HR Human Resources DA Designated Account IA Implementing Agency DC Direct Contracting IALA Inter Agency Letter of Agreement DCA Development Credit Agreement IBRD International Bank for Reconstruction & Development DFID Department for International ICB International Competitive Bidding Development DG Director General ICD Inland Clearance Depot DM Deputy Minister ICN Informal Customs Network DPD Deputy Project Director ICT Information and Communication Technology DPM Deputy Project Manager ISAF International Security Assistance Force DAB Da Afghanistan Bank IDA International Development Association DPS Declaration Processing System IERR Internal Economic Rate of Return EC European Commission IMF International Monetary Fund ECA Europe and Central Asia IOC Incremental Operating Cost ECMTFP Emergency Customs Modernization IP Implementing Partner and Trade Facilitation Project EIA Environment Impact Assessment IPCB International Police Coordination Board EIS Executive Information System IS International Shopping Procedures EPP Emergency Project Paper ISN Interim Strategy Note ERP Enterprise Resource Planning ISO International Organization for Standards

ISR Implementation Status and Results PPU Procurement Policy Unit ITIL Information Technology Infrastructure PRAL Pakistan Revenue Automation Ltd. Library IUFRs Interim Unaudited Financial Reports PRR Priority Reform and Restructuring JCIUs Joint Customs Intelligence Units PSC Project Steering Committee LICs Low Income Countries PWP Project Work Plan LMICs Low and Middle Income Countries RFP Request for Proposal MOCI Ministry of Commerce and Industries SAR South Asia Region MOC Ministry of Commerce SBDs Standard Bidding Documents MOF Ministry of Finance SCRTFP Second Customs Reform and Trade Facilitation Project MOI Ministry of Interior SIA Social Impact Assessment MOPH Ministry of Public Health SOE Statement Of Expenditure MOU Memorandum of Understanding SRFQ Standard Request for Quotations MSA Management Services Agreement SY Solar Year NCB National Competitive Bidding TA Technical Assistance NEPA National Environment Protection Agency TER Technical Evaluation Report NPV Net Present Value TL Team Leader NS National Shopping Procedures TOR Terms of Reference NTBs Non-Tariff Barriers TRSU Tariff, Research and Statistics Unit O&M Operations and Maintenance UMICs Upper and Middle Income Countries OFC Optical Fibre Cable UNAMA United Nations Assistance Mission in Afghanistan PACBP Public Administration Capacity Building UNComtrade United Nations Commodity Trade Project Statistics Database PC Policy Committee UNCTAD United Nations Conference on Trade and Development PCA Post-clearance Customs Audit UNCAC United Nations Convention Against Corruption PD Project Director UNIDO United Nations Industrial Development Organization PDO Project Development Objective UNODC United Nations Office on Drugs and Crime PFM Public Finance Management UNOPS United Nations Office for Project Services PIU Project Implementation Unit USAID United States Agency for International Development PFMRP Public Finance Management Reform VCAs Vulnerabilities to Corruption Project Assessments PL Procurement Law WCO World Customs Organization PM Project Manager WTO World Trade Organization

Vice President : Isabel M. Guerrero Country Director : Nicholas J. Krafft Sector Director : John Henry Stein Sector Manager : Michel Audigé Task Team Leader : Amer Z. Durrani

ISLAMIC REPUBLIC OF AFGHANISTAN Second Customs Reform and Trade Facilitation Project

TABLE OF CONTENTS A. INTRODUCTION ...... 2 B. EMERGENCY CHALLENGE: COUNTRY CONTEXT, SECTOR CONTEXT, RECOVERY STRATEGY AND RATIONALE FOR PROPOSED BANK EMERGENCY PROJECT ...... 2 Country Context ...... 2 Sector Context – The Afghanistan Customs Department: current, and desired, performance ...... 3 Government’s Recovery Strategy ...... 6 Donor Coordination and World Bank’s Role ...... 8 Rationale for proposed Emergency Project ...... 8 C. WORLD BANK RESPONSE: THE PROPOSED PROJECT ...... 9 D. APPRAISAL OF PROJECT ACTIVITIES ...... 11 Technical Evaluation ...... 11 Economic Analysis and expected impact of the project ...... 14 E. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS ...... 15 Institutional Arrangements ...... 15 Financial Management and Disbursement Arrangements ...... 18 Fund Flows and Disbursement ...... 19 Accounting and Reporting ...... 19 Disbursement Method ...... 19 Audit of Project Funds ...... 19 Procurement ...... 20 F. PROJECT RISKS AND MITIGATING MEASURES ...... 21 G. TERMS AND CONDITIONS FOR PROJECT FINANCING ...... 25 ANNEX 1: ECMTFP IMPLEMENTATION STATUS AND RESULTS (ISR) RATING ...... 26 ANNEX 2: CUSTOMS PERFORMANCE AND MACRO INDICATORS ...... 31 ANNEX 3: GOVERNANCE ACCOUNTABILITY ACTION PLAN (GAAP) ...... 32 ANNEX 4: RESULTS FRAMEWORK AND PROBLEM TREE ANALYSIS INCLUDING PROJECT PERFORMANCE INDICATORS ...... 42 ANNEX 5: DETAILED DESCRIPTION OF PROJECT COMPONENTS ...... 46 Appendix 5.1: Legislative Matrix ...... 54 Appendix 5.2: Preliminary HR Analysis for ACD ASYCUDA Unit ...... 56 ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS ...... 59 ANNEX 7: ENVIRONMENT AND SOCIAL SAFEGUARDS MANAGEMENT FRAMEWORK (ESSMF) ...... 74 Appendix 7.1: Negative List of Infrastructure Activities Attributes ...... 80 Appendix 7.2: Guidelines for Land and Asset Acquisition, Entitlements and Compensation ...... 81 Appendix 7.2(i): Land Acquisition Assessment Data Sheet ...... 83 Appendix 7.2(ii): Format to Document Contribution of Assets ...... 84 Appendix 7.3: Protection of Cultural Property ...... 86 Appendix 7.4: Procedures for Landmine Risk Management in World Bank-Funded Projects in Afghanistan ...... 88 Appendix 7.5: Applicable Codes of Practices for Prevention and Mitigation of Environmental & Social Impacts ...... 93 ANNEX 8: IMPLEMENTATION AND MONITORING ARRANGEMENTS ...... 97 Appendix 8.1: Afghan Customs Department Organizational Chart ...... 107

ANNEX 9: FINANCIAL MANAGEMENT ARRANGEMENTS ...... 110 Appendix 9.1: Emergency Customs Modernization and Trade Facilitation Project Interim Unaudited Financial Reports ...... 120 ANNEX 10: PROCUREMENT ARRANGEMENTS ...... 122 Appendix 10.1: Details of Procurement arrangements involving International Competition ...... 129 Appendix 10.2: Description of Services of UNOPS ...... 139 ANNEX 11: PROJECT PREPARATION AND APPRAISAL TEAM MEMBERS ...... 141 ANNEX 12: DOCUMENTS IN PROJECT FILES ...... 143 ANNEX 13: STATEMENT OF LOANS AND CREDITS ...... 144 ANNEX 14: COUNTRY AT A GLANCE ...... 146 MAP - IBRD 37817

ISLAMIC REPUBLIC OF AFGHANISTAN SECOND CUSTOMS REFORM AND TRADE FACILTATION PROJECT DATA SHEET, SOUTH ASIA REGION, SASSD Date: April 21, 2010 Task Team Leader: Amer Zafar Durrani Country Director: Nicholas J. Krafft Sectors: General transportation (50 percent); central Sector Manager: Michel Audigé government administration (25 percent); general Lending instrument: Emergency Recovery industry and trade (25 percent) Grant Themes: Other public sector governance; trade Project ID: P112872 facilitation and market access; technology diffusion; infrastructure services for private sector development; regional integration. Environmental category: B Recipient: Islamic Republic of Afghanistan Responsible Agency: Ministry of Finance, Government of Afghanistan Implementing Agency: Afghan Customs Department Type of Operation: New Operation [ X ] Additional Financing [ ] Existing Financing (restructuring) [ ] Financing type: Loan [ ] Credit [ ] IDA Grant [X] Other [ ] Total Amount: US$ 50.48 million Expected implementation period: 48 months Expected effectiveness date: June 30, 2010 Expected closing date: June 30, 2014

Development Objective: To improve the release of legitimate goods in a fair and efficient manner. Short Description: The proposed grant for the Second Customs Reforms and Trade Facilitation Project (SCRTFP) will help finance costs associated with: countrywide computerization of Customs Clearance operations; installation of executive information systems for Customs allowing real time monitoring of operations; development of possible options for cross border Customs-to-Customs (C2C) Cooperation; provision of selected Customs infrastructure to enable modernized operations; and technical assistance to support the development of an adequate regulatory, administrative and institutional framework for Customs. Through these initiatives the project will continue the Bank’s support as part of the overall donor effort to reform and modernize Afghan Customs and thus also facilitate improvements in Customs governance environment in line with the Governance Accountability Action Plan (GAAP) for the Afghan Customs. This project builds on the Bank’s existing Emergency Customs Modernization and Trade Facilitation Project (ECMTFP) which is closing satisfactorily in December 2010.

Financing Plan (US$ 50.48 million) Source Local Foreign Total IDA 0.00 50.48 50.48 Total 0.00 50.48 50.48 Estimated annual disbursements (Bank FY/US$ million) 2011 2012 2013 2014 Total IDA 15.00 17.50 12.50 5.48 50.48 Total Cumulative 15.00 32.50 45.00 50.48 50.48 Does the emergency operation require any exceptions from Bank policies? Yes [ ] No [X] Have these been approved by Bank management? Yes [ ] N/A [ X ] Are there any critical risks rated “substantial” or “high”? Yes [X] No [ ] What safeguard policies are triggered, if any? Environmental Assessment (OP/BP 4.01) Significant, non-standard conditions, if any? None

1

A. Introduction

1. This Emergency Project Paper (EPP) seeks the approval of the Executive Directors to provide a grant in an amount of SDR 33.3 million (US$ 50.48 million equivalents) to the Islamic Republic of Afghanistan for the Second Customs Reform and Trade Facilitation Project (SCRTFP).

2. The proposed grant for the SCRTFP will help finance costs associated with: (i) countrywide computerization of Customs Clearance operations; (ii) installation of executive information systems for Customs allowing real time monitoring of operations; (iii) development of possible options for cross border Customs-to-Customs (C2C) Cooperation; (iv) provision of selected Customs infrastructure to enable modernized operations; and (v) technical assistance to support the development of an adequate regulatory, administrative and institutional framework for Customs.

3. Through these initiatives the project will continue the World Bank’s support as part of the overall donor effort to reform and modernize Afghan Customs and thus also facilitate improvements in Customs governance environment in line with the Governance Accountability Action Plan (GAAP) for the Afghan Customs. This project builds on the World Bank’s existing Emergency Customs Modernization and Trade Facilitation Project (ECMTFP). The funds from ECMTFP are already fully committed and the actual project closing date is December 31, 2010. The outcomes of ECMTFP to-date have successfully contributed to its Project Development Objectives (PDO). The project ratings are satisfactory. The implementation status (along with the rating) and the key lessons learned from the ECMTFP are summarized in Annex 1.

4. Partnership arrangements: The SCRTFP is part of a multi-donor, concerted and coordinated effort under way to reform Afghan Customs and introduce collaborative border management1. Parallel and complementary support to Afghan Customs Department (ACD) by other donors for the Customs and Border Management Sector is coordinated through an Informal Customs Network (ICN)2. The ICN ensures partnerships in sector policy, reform program, financing, implementation and evaluation through non- binding mutual agreements reached at the quarterly ICN meetings. There are no other multi-or bi-lateral agencies co-financing this project. It is completely financed by IDA.

B. Emergency Challenge: Country Context, Sector Context, Recovery Strategy and Rationale for Proposed Bank Emergency Project

Country Context

5. Afghanistan is fragile – Afghanistan has a total population of approximately 30 million. Real Gross Domestic Product (GDP) growth in the fiscal year ending March 2010 is projected at 15 percent3, bolstered by a recovery in agricultural output and higher government spending and grants. This is up from 3.4 percent in 2008/09. Since its re-emergence onto the world stage after the fall of the Taliban in late 2001, the country has begun an enormous political, economic, and social transformation. However, despite the progress achieved over the past few years, Afghanistan remains poor4 and highly dependent on agriculture and foreign aid. Given the heavy dependence on foreign aid, institutional and staff capacity constraints, an extremely low

1 The term Collaborative Border Management [CBM] is gradually replacing the notion of “Integrated Border Management—IBM” as it is seen as going beyond mere coordination of effort between border agencies and is less threatening than IBM, which brings with it a strong connotation of organizational integration (such as the US Homeland Security Department.). The Collaborative Border Management concept is based on the premise that agencies and the trading community need to work together to achieve common aims that benefit all parties. Such a model suggests that border management agencies can increase the level of control while simultaneously providing a more efficient service to customers and can do so while retaining their own organizational integrity. (Gerard McLinden and Tom Doyle, in “Border Management Modernization: A Practical Guide for Reformers”, World Bank, International Trade Department) 2 Currently, the United States (US) Border Management Task Force (BMTF), USAID, EC, DFID, the Government of Canada (GOC), UNAMA, the Government of Japan (GOJ), IMF and the World Bank are active members of the ICN. 3 “Islamic Republic of Afghanistan: Sixth Review under the Arrangement under the Poverty Reduction and Growth Facility, Request for Waiver of No observance of a Performance Criterion, Modification of Performance Criteria, and Rephrasing and Extension of the Arrangement,” IMF Country Report No.10/22, January 2010. 4 Poverty headcount in 2007 was 36 percent 2 domestic revenue base, the threat of large illicit opium activity and poverty, the government is faced with daunting challenges in carrying forward the reforms it has committed to.

6. Insecurity, conflict and opium trade are adding to this fragility – These challenges are further compounded by the security situation which often obstructs and distorts reconstruction efforts and legitimate trade. In the past few years insurgency has spread, security has deteriorated, and the opium economy, which still represents almost half of the non-opium GDP, remains substantive despite recent declines in production and increase in the number of opium-free provinces. Afghanistan’s economy is dominated by the informal sector with opium production being the dominant activity. Total opium production in Afghanistan was estimated5 to be 7,700 metric tons (mt), which equated to over 90 percent of world’s opium supply.

7. Establishing good governance is proving to be extremely difficult – While there have been some encouraging developments such as the passing of the anti-corruption law, the ratification of the United Nations Convention Against Corruption (UNCAC) and the establishment of the High Office of Oversight (HOO) for Anti-Corruption, the overall progress in improving governance and fighting corruption has been limited. Corruption in Afghanistan has become more widespread and systemic over the course of the last few years. In 2005, Afghanistan ranked 117 out of 159 countries covered in Transparency International’s Corruption Perception Index; two years later it dropped to 172 out of 180 countries, and in 2009 it was ranked 179 out of 180 countries. Available survey evidence and other information show that a majority of Afghans view the payment of bribes to be a necessity in order to obtain services from the government6. The predominance of the opium economy with its powerful criminal networks and its nexus with the ongoing insurgency has made drug-related corruption one of the major challenges. Addressing governance issues is further complicated by the limited sphere of influence of the central government, lack of control over large parts of the country, and the persistence of the insurgency. The report referenced above further notes that the police, the justice system and the Customs Department are widely considered to be the most corrupt public institutions.

8. Afghanistan’s development and sustenance needs remain enormous – Although Afghanistan has sustained high GDP growth rates of 8 percent on average over the past three years, it has been marked by a great degree of volatility, which can be attributed largely to droughts as well as global food and energy price fluctuations. Some of the most pressing needs include the enhancement of the domestic revenue base, rehabilitation of key economic and social infrastructure, the establishment of functional state institutions, security, and the rule of law throughout the country.

9. At the core of establishing the State’s legitimacy is the requirement to expand the domestic revenue base – Enhanced revenue mobilization is a priority goal for the Government as outlined in the Afghanistan National Development Strategy (ANDS) and the Ministry of Finance Revenue Action Plan of May 2009. The country’s development budget is, to a large extent, externally financed, and is foreseen to remain so over the medium term. Domestic revenue collection (US$ 800 million, and 7 percent of GDP in Solar Year [SY] 1387 [2008/09]7) and (US$ 1.25 billion and 9 percent of GDP in SY 1388 [2009/10]8) in Afghanistan is one of the lowest in the world. In 2008/09, this revenue was estimated to finance only 55 percent of the total operating expenditures of the Government of Islamic Republic of Afghanistan (GOIRA), despite a manifold increase since 2002/03.

Sector Context – The Afghanistan Customs Department: current, and desired, performance

10. Revenues collected by the ACD have steadily increased and ACD is contributing a sizeable part of the domestic revenue – Customs revenues include Customs Duties, other taxes, fees, fines, and Red Cross contributions. Being a major source of domestic revenue and given its role in border management, the Afghan Customs Department (ACD) has received considerable donor support for infrastructure improvement and operational technical assistance. This has included the World Bank support for computerization of customs clearance operations under the ECMTFP. Through the assistance of the ECMTFP and other donor

5 United Nations Office on Drugs and Crime website [http://www.unodc.org/afghanistan/en/illicit-drugs.html], accessed on October 5,2009. 6 See “Fighting Corruption in Afghanistan – Summaries of Vulnerabilities to Corruption Assessment,” World Bank, June 2009 7 Estimates by IMF Country Report of April, 2009 8 Estimates by ACD, yet to reconciled 3 initiatives, the ACD has been able to increase the total Customs revenue from US$ 50 million in SY 1382 (2003/4) to over US$ 434 million9 in SY 1387 (2008/9) and to almost double that in the first 11 months of SY 1388 (over US$ 728 million)—this is more than a 1400 percent increase in six years. In the last one year, Customs revenues have increased by about 90 percent.

11. ACD, however, remains structurally weak and ineffective as a Customs Agency; at the same time, potential exists to further increase the revenue collected – The improvements in ACD’s collection performance notwithstanding, fundamental weaknesses remain with respects of ACD’s mandate, its internal administration, operational systems, processes and procedures, its governance structure, and human resources capacity. The growth in Customs Duties—distinct from Customs Revenues—has stagnated over the last two years despite growth in overall trade. The real-time transit declaration data available through Automated Systems for Customs Data (ASYCUDA)10 on the two major transit routes—Torkham-Jalalabad and Islam Qala-Herat—shows that there is potential to collect more taxes, as the real trade flows are under- estimated. Total commercial imports for 2008/09 were estimated at US$ 7.8711 billion as compared with the official declared value of nearly US$ 4.9 billion. Higher imports should translate into higher Customs collection; hence potential exists for the government to further increase tax collection.

12. ACD can be more effective and can further improve its revenue collection by increasing its border control over goods and people, and the vehicles carrying them –

(a) Customs procedures can be made less cumbersome, globally aligned and transparent – Different clearance procedures exist all over the country, which are neither internally nor regionally or globally aligned. While computerization is slowly resolving this, a coordinated effort to review, revise and audit these clearance procedures is lacking.

(b) Interference from other government entities in Customs matters can be reduced by introducing collaborative ‘borders’12 management –

(i) Roles and responsibilities at borders need clarification; Customs should have complete control on bringing about a fundamental shift in their fiscal, commercial and social business model – Measures necessary to meet governance objectives are, to a very large extent13, out of the direct control of the ACD. The overlap in responsibilities between ACD and other participants in Customs operations directly affects major Customs functions linked to control and enforcement. Basic activities, including arrival procedures for goods and cargo control, post-release verifications and investigations, or the management of transit or other suspense regime, all have a high impact on the efficiency of Customs and the level of duties paid. These are among the most difficult to implement in Afghanistan due to overlaps, interference, or institutional rivalries and as collaborative border

9 Source: ACD, yet to be reconciled. 10 ASYCUDA is a computerized Customs management system which covers most foreign trade procedures. The system handles manifests and Customs declarations, accounting procedures, transit, and suspense procedures. ASYCUDA generates trade data that can be used for statistical economic analysis. The ASYCUDA software is developed by UNCTAD. It operates in a client server environment under LINUX and Windows operating systems and utilizes RDBMS Software. ASYCUDA takes into account the international codes and standards developed by ISO (International Organization for Standardization), WCO (World Customs Organization) and the United Nations. The system has been installed or is being implemented in over 90 countries and regions. 11 Based on ASYCUDA and TRSU data and the export and transit data from countries trading with Afghanistan in the: “Rapid Logistics Review: Transit of Afghan Goods through Pakistan – Afghanistan Border Crossings and the Implication of Transit Trade on the Economies,” Draft Report, World Bank, December 2009. 12 The border is less geographical and more chronological, e.g., the sequence of Customs and other controls affecting goods leaving one country and entering the other country. The physical borders of a country are now extended to the duty free or ‘bonded’ areas inside its territory, such as airports, but also warehouses and generally wherever goods under a Customs suspense regime might be stored; which could also include private premises. Even a bilateral digital financial transaction has a ‘border’, which, in the case of electronic payment of duties and taxes, creates an electronic border. The model that equates Customs with borders is no longer entirely valid anywhere in the world, and Customs intervention is expected instead to take place anywhere where the status of goods is assessed or changed. 13 As shown by the GAAP matrix, see Annex 3. Only 23 percent can be implemented by Customs autonomously. Fifteen (15) percent are under the control of other institutions, and the remaining 62 percent require the close cooperation of another ministry, administration, or policy decision that is not within the scope of Customs. 4

management is essentially lacking. This interference is not limited to the central government agencies but also spills over into the provincial governments or other power holders (especially those in the border provinces) who consider it their traditional right to interfere in Customs.

(ii) Customs need enforcement powers – The ACD has yet to develop an enforcement “culture”; risk management14 has not been implemented; the intelligence function is barely operational; the organization of the enforcement program is not adequate to manage the customs police; limited enforcement training has been provided; and equipment shortages and a lack of infrastructure plague almost all areas of the department. While the revised Customs Act can be improved, it does include extensive enforcement provisions and addresses most of the critical issues required, providing a sound basis for an effective Customs enforcement program. The approach adopted so far in Afghanistan has consisted of centralising all the law enforcement mandates of the country in the hands of the Afghan police; but the police force does not have the capacity to deal with Customs matters.

(iii) The ACD and neighbouring countries’ Customs Agencies need to cooperate better – This absence of cross-border information linkages has clear fiscal, social and trade facilitation concerns. Of the total commercial imports estimated at US$ 7.87 billion in 2008, approximately US$7.71 billion moved over land routes from surrounding countries. The ACD needs to exploit this advantage to improve its governance and its control; and needs to further improve cooperation with the Customs agencies of the neighbouring countries.

(c) ACD administration, management oversight and governance structure should be improved –

(i) Singular focus on revenue targets dilutes commitment to structural reforms – The public mandate of the ACD is largely unclear to the government as well as to the public as it focuses almost exclusively on revenue objectives. Currently, under the revenue targets established by the government and other donors (sometimes arbitrarily), the main goal of Customs is to collect as much revenue as possible. As a consequence, Customs officials see themselves above all, as collectors of revenue15. The obsession of meeting revenue targets prevents the efficient deployment of resources in the broader context of a modern Customs administration.

(ii) Customs budget is limited – ACD is under-staffed and under-resourced. ACD has one of the lowest collection costs (dollar spent per dollar collected) when benchmarked against other countries. The overall Customs budget increased by 47 percent between 2005/06 and 2008/09 while the revenues collected increased by 78 percent (refer to Annex 2). The Customs cost increase simply reflects the donor contribution to developing Customs infrastructure and providing technical assistance; the recurrent budget of ACD has hardly changed in the last four years. This is leading to a larger systemic problem—ACD does not get enough recurrent

14 For Customs (and other border agencies) risk management implies (among others); (i) selectivity and targeting to determine the likelihood that declared goods, vehicles and persons fully comply with all governmental requirements, and based on that determination selecting shipments, vehicles or persons for Customs inspection and deciding upon the extent of the inspection; (ii) detecting suspect illegal activity (contraband smuggling, illegal immigrants); and (iii) identifying potential weaknesses in supply chain security. While risk management can operate in a manual environment, the use of Information Technology greatly enhances the effectiveness of risk management systems and should form a part of any enforcement strategy. Effective application of risk management techniques also supports trade facilitation by expediting compliant (low risk) shipments. 15 Besides revenue collection, Customs also plays an essential role in preventing the movement of hazardous goods, weapons, drug smuggling and smuggling of precursor chemicals, all essential for the stabilization of the country. Globally, Customs usually seizes the largest percentage of illicit drugs; however in Afghanistan, Customs does not even account for 5 percent of the total illicit drugs seizures. Although the scope of the project does not address drug issues, it is very difficult to envisage Customs reform without bearing in mind the core results of Customs activity, which is the detection of illicit goods (i.e., including drugs and precursors), as this has a direct effect on organisation of, and operations in, Customs. 5

budgets for operation and maintenance of the new facilities. Scanners without operators, offices without the right staff, warehouses without cranes and loaders, and power generators without fuel are commonly seen around the Afghan Customs territory.

(iii) Human resources management is poor, remuneration packages are inappropriate and employee morale is weak – The entire current stature of Customs prevents proper operations and sustainable reforms. The Customs cadre is not adequately managed by headquarters, and provincial and political interference prevents the emergence of a professional and dedicated corps of Customs officers. Pay scales are unrealistic, and do not recognize the specificity of Customs work, let alone allow performance rewards16. Bench-marking with other countries’ Customs remunerations at the various grades relative to their average public sector remuneration in comparable grades, ACD pay and benefits are low. Attractive pension schemes in terms of superannuation, which discourage rent seeking activities, do not exist. Poor job satisfaction, political pressures, life-threats and no recognition of the value of their work are all contributors to the absence of an “esprit de corps” thereby stunting the development of an ethical cadre in ACD.

(iv) Customs Management oversight is weak – Afghanistan’s geography and current environment (conflict, opium and weak governance) make it difficult for ACD to provide the required oversight over its operations across the Afghan Customs territory. Despite this, modern information and communication technologies, often part of the computerization or linked to automated information capturing equipment, can help improve and provide this supervision. However, in ACD even where information and modern technology is currently available, it is not always easily accessible to or effectively utilized by the management.

(d) Infrastructure, equipment, processes and skills are not yet appropriate for Customs control – Since 2002/03, ACD has, financed by many donors, made good progress in improving its basic physical infrastructure to support the reform and modernization effort. Much more needs to be done, and done better. A lot of infrastructure delivered does not conform to location requirements based on the traffic types, traffic volumes, processes and operations, or adequate maintenance. Basic inspection and patrolling equipment is absent in key Customs locations.

(e) Donors have not seen “eye-to-eye” on a Customs reform policy during the early years of Afghanistan’s reconstruction; but this has changed drastically over the last year and a half – From 2003 through till the middle of 2008, there was no real donor coordination mechanism in place; despite numerous attempts by ACD. This negatively impacted the reform process as Customs reforms are not modular17 in nature; primarily in that it delayed the implementation and deepening of reforms, despite the early revenue gains. For example, ASYCUDA roll-out was delayed by almost three years due to a lack of understanding amongst the various donors on the overall scope of ASYCUDA implementation. Donors eventually realized the cause of these poor results and in September 2008, the EC, US BMTF and the World Bank got together and convinced all Customs reform donors to commit to a coordination mechanism—the Informal Customs Network (ICN). This mechanism has since borne good results.

Government’s Recovery Strategy

13. Improving Customs is at the core of the Afghanistan National Development Strategy (ANDS) – Completed in April 2008 and presented to the international community at the Paris Conference in Support of Afghanistan, the ANDS was prepared as Afghanistan’s Poverty Reduction Strategy covering the five-year

16 While it is recognized that salary increases do not solve the corruption issues, there should be modes of remuneration that allow officers to receive at least the bare minimum wage necessary to feed their families. 17 The “selective” or “multi-modular” approach works well only when there is a very precise strategic framework designed for Customs reform (e.g., in former transition countries of Eastern and Central Europe where there was a comprehensive template for EU accession). 6 period from 2008 to 2013. The ANDS builds on a series of earlier strategy documents, and on the commitments made by Afghanistan in the context of the 2006 Afghanistan Compact. The ANDS is a comprehensive strategy whose national pillars and goals are Security, Governance, Rule of Law, Human Rights, and Economic and Social Development. In the ANDS, the Government emphasizes the need to (i) increase domestic revenue mobilization; (ii) improve transport services, customs administration, and logistics management to facilitate trade; (iii) remove trade impediments and lower trade barriers to enhance the flow of goods, services and investments; and (iv) improve border management and strengthen customs cooperation at the regional level so as to increase security and help to fight cross-border crimes such as drug smuggling.

14. ACD’s Second Five Year Plan (FYP) – The ACD’s Second FYP (2007-2012) was prepared with the assistance of the ECMTFP and laid down ACD’s priority activities to achieve its reform objectives of augmenting revenue mobilization, facilitating economic activities of the private sector, strengthening enforcement and legal compliance, promoting professionalism and integrity among Customs staff, and improving physical infrastructure. The FYP put special emphasis on continuing with the Customs automation process in support of improved governance and anti-corruption, by implementing ASYCUDA throughout Afghanistan. However, it did not address some major issues, including the necessary means to establish an efficient, credible, and professional administration, or the business environment in which it should operate. Overall, it was not sufficiently centered on the Afghan paradigm.

15. MOF’s Anti-Corruption Action Plan, 2009 – The MOF anti-corruption action plan provided an approach to the fight against corruption taking into account the priorities set forward in the National Anti- Corruption Strategy. The MOF anti-corruption action plan was also informed by the Vulnerability to Corruption Assessments under taken by the World Bank, as well as work conducted till then in preparation of the Governance Accountability Action Plan (GAAP) for ACD.

16. ACD’s Governance Accountability Action Plan, 2009 – At the London Conference on January 28, 2010, the Government announced that "all Government Ministries and Agencies will be required to prepare an anti-corruption plan and their performance at delivering the results of this plan will be monitored and reported by the HOO."18 With World Bank assistance and in extensive consultation with other Government agencies and development partners, ACD has prepared a detailed GAAP which was approved by the Minister for Finance in November 2009; and has been endorsed by donors working on Customs and border management. The GAAP prioritizes the areas where immediate reforms can bring about governance improvements in the ACD and reduce the opportunities for corruption.

17. Accountability for the GAAP: identifying timelines, milestones and lead donors and counterpart agencies for the various GAAP reforms – The GAAP will become a part of the ACD’s Third FYP, which will be under preparation as soon as the SCRTFP commences. The GAAP further maps (refer to Annex 3) the activities that SCRTFP will be supporting in addition to those that other donors will be undertaking, as well as how risks associated with these reforms are going to be spread and minimized. Capitalizing on the much improved donor coordination since the inception of the ICN, the process of identifying timelines, milestones and lead donors and responsible Government institutions has already started.

18. Memorandum of Understanding between MOI and MOF on managing border crossing points, 2009 – A MOU was signed between the respective Ministers of Interior and Finance to describe the respective roles, responsibilities and administration of Customs Authorities (CAs), Customs Police (CP) and the Afghan Border Police (ABP) at the border, and to provide the framework for the development of cooperative working arrangements between the Ministries. This is an excellent step towards better and more collaborative border management.

19. MOF, recently, has been providing more autonomy to ACD– There has been significant improvement in the ability of ACD to administer itself more autonomously over the last 10 months. This is reflected in the postings and transfers made by ACD during the end of calendar year 2009, and the reduced

18 "Presentation of the Afghan Delegation to the London International Conference on Afghanistan", The London Conference on Afghanistan, January 28, 2010, Pg. 5. 7 interference from the Provincial Administrations. However, this improvement is primarily due to the effort of the current administration and senior management in MOF, and needs to be institutionalized.

20. ACD coordinating with and supporting donor coordination to leverage assistance – ACD has established the Customs Reform Unit (CURE), funded by the World Bank under ECMTFP, to coordinate the overall reform program in ACD. The CURE is a good start but needs further capacity and effectiveness. The ACD also supports the Informal Customs Network (ICN) to effectively coordinate activities of various donors in the sector and to develop synergies and reduce overlap.

Donor Coordination and World Bank’s Role

21. The Informal Customs Network – Donor coordination, usually difficult until there is a real willingness to cooperate and share information, is now in place after many years of efforts under the ECMTFP. Afghanistan is still a tough environment for coordination, but the ICN mechanism is now well established and provides a means to unify policy approaches to Customs reforms. To sustain this accomplishment, there is a rotating responsibility for running and leading the ICN. The ICN meets on a bi- monthly basis; more frequent meetings are also called if specific issues require attention. Key members of the ICN are also part of a weekly coordination group on border management issues, which is more military led and organized by the US (Border Issues Working Group – BIWG). Since its inception the ICN has been meeting regularly to coordinate the various activities of donors and ensuring a coherent approach to donor assistance for the ACD and a rational division of labour among donors based on each donor’s comparative strength. Currently, the United States (US) Border Management Task Force (BMTF), USAID, EC, DFID, the Government of Canada (GOC), UNAMA, the Government of Japan (GOJ), United Nations Office on Drugs and Crime (UNODC), the International Monetary Fund (IMF) and the World Bank are active members of the ICN. The World Bank’s unique and most appreciated value added to donor coordination has been the task team’s ability to share the World Bank’s global experiences and knowledge in Customs and trade facilitation reforms with the ICN members. Since its establishment, donor coordination within the sector has improved significantly.

22. The ICN has been successful and can contribute a lot more – Examples are as follows: (i) Joint operations and consultations, such as the process and skills mapping, (ii) Avoiding overlaps (for example Border management program by EC in Central Asian Republics (BOMCA) presented to the ICN its plans for Badakhshan), (iii) joint contributions to development of Customs training, (iv) inputs to station design – thereby identifying and correcting occasionally misconceived policy options, and (v) a cautious approach to OSCE’s planned bottom-up approach at northern borders. Furthermore, the ICN is an outstanding way of gradually promoting common views on Customs reforms and collaborative border management.

23. Infrastructure and equipment requirements survey underway and a processes and skills survey being planned – ACD with assistance from USAID is undertaking a revised assessment of the infrastructure and equipment requirements in the Afghan Customs territory. Each point assessment will be preceded by a study under the SCRTFP to help in reengineering clearance processes; it will also facilitate matching of skills of key Customs personnel with their job requirements. Further, it will help understand the challenges in the implementation of ASYCUDA processes for further successful roll-out.

Rationale for proposed Emergency Project

24. Based on the World Bank’s role and value added, continued World Bank involvement in the Customs sector is critical at this particular juncture – There might be a greater reputational risk to the World Bank, should the support to important Customs reforms be discontinued or interrupted. The World Bank will continue to play a lead role in assisting the ACD in the roll-out of the program for computerization of Customs clearance and related operations, which is critical part of the ACD GAAP. Through provision of expert advisory services under the proposed follow-on operation, Afghanistan can benefit from international best practices in charting its reform road map. The proposed project is fully aligned with the World Bank’s Interim Strategy Note for Afghanistan.

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25. Assist with continuation and deepening of Customs reforms – The SCRTFP will continue19 to deepen support to the reforms successfully undertaken by ACD under the ECMTFP by capitalizing on the reform momentum (as explained later in this EPP) to: (a) reinforce what has already been accomplished (e.g., further rollout of the ASYCUDA system, additional infrastructure, support to new audit-based activities, and implementation of risk management); (b) contribute to improving governance and reducing opportunities for corruption; and (c) deploy Enterprise Resource Planning (ERP) and office automation systems to enhance organizational efficiency, transparency and productivity. While the SCRTFP will not directly address, for obvious reasons, issues of enforcement, it will help provide a framework of best practices for Customs operations, which other donors can then assist in implementing.

26. Support delivery of the World Bank’s ISN for Afghanistan – The SCRTFP is an important part of the World Bank’s overall emergency support to Afghanistan under its current assistance strategy. The project is closely aligned with two of the three pillars of the World Bank’s Interim Strategy Note (ISN), May 5, 2009, relating to building the capacity of the state to provide adequate quality services and fostering private sector growth. The project will contribute to improving the domestic revenue base, increasing financial transparency, implementing civil service and public administration reform, and improving governance. This will also help to improve the enabling environment for trade (infrastructure, regulation, rules and procedures) and improve conditions for private sector development.

27. World Bank has considerable global experience in Customs and Trade Facilitation Reforms – The World Bank has developed considerable expertise in assisting countries to streamline their Customs and transit regimes, and reducing trade costs—it is currently engaged in more than 60 projects related to Customs in countries across the world. During 1982-2002, the World Bank was involved in 117 projects alone with a Customs reform component, 38 of these were TA projects and 29 were Structural Adjustment Loans. The World Bank is also a key partner in the UN trade facilitation initiative on land-locked countries20.

28. World Bank is adding value in the sector – Given the unique role of the World Bank Group and the International Monetary Fund in overseeing the fiscal stability of countries, especially so in Afghanistan, the SCRTFP not only helps monitor but also deliver on these objectives. World Bank’s work on similar projects and its dialogue in the neighbouring countries will help create synergies between Afghanistan and its neighbours on Customs and trade facilitation issues. This has already been demonstrated by the ECMTFP. The complementary World Bank support to the public administration process and other governance initiatives, as well as its role in the ARTF can provide additional value added.

C. World Bank Response: The Proposed Project

29. The Project’s Development Objective (PDO) is to improve the release of legitimate goods in a fair and efficient manner. The achievement of the PDO will be measured through monitoring progress on the following outcome indicators.

30. The framework for results is based on the ACD Problem Tree analysis (refer to Annex 4). Effectiveness in terms of improved risk management and selectivity is taken as a proxy for “improving the release of legitimate goods.” The SCRTFP, combined with complimentary ICN donor interventions in Customs, will contribute to the resolution of ACD’s insufficient border control over movement of goods and people, and the vehicles carrying them.

19 The ACD GAAP identified that nearly 60 percent of the reform results hinge on increasing computer checks, management capacity, audits, e-linkages, inland checks, performance measurement, cross border coordination between neighbouring Customs, inter-agency coordination, legislation and risk management while improving the supporting Customs infrastructure. Under ECMTFP, the World Bank is one of the key donors engaged in these areas; however, the ECMTFP has now run out of funds to undertake new activities. To ensure that reforms under ECMTFP are continued and that the core activities and the teams responsible for them are not dispersed, the MOF has provided a bridge financing of US$ 2.86 million from its own scarce resources to transition into the new project; while requesting retroactive financing of this bridge finance from SCRTFP. 20 “Improving Trade and Transport for Landlocked Developing Countries” - A Report for the mid-term review of the on the implementation of the Almaty Program of Actions highlights World Bank’s contributions to implementing the Almaty Program of Action for Landlocked Developing Countries (LLDCs) was presented to the UN General Assembly in October 2008. (www.worldbank.org/trade) 9

Table 1: Indicators for project performance measurement Variable Effectiveness Efficiency Fairness Indicator Border Performance Productivity User satisfaction 1. Time for clearance 1. Effective rate (fiscal 1. Customs Component Indicators 2. Number of detections productivity of Customs) from the Logistics Performance 2. Economic cost per Index (LPI)21 declaration 2. Subjective user satisfaction surveys Source ASYCUDA Revenue, cost, staffing, LPI, Periodic Surveys Customs MIS declarations, trade volume Physical Observations ACD statistics (ASYCUDA and TRSU) Baseline Will be established by 1. 8.76 percent of value of 1. Customs LPI is 2.22 (Rank in 2009 September 2010 imports (EOP22 target is of 104) [EOP target is 2.40 for LPI; 9.34 percent). rank between 85 – 95] 2. US$ 8.20 per declaration 2. Will be established by December (EOP target is to stay at or 2010 below US$ 15 per declaration)

31. To support these outcomes, the SCRTFP will finance activities as detailed below. Detailed description of the project components is provided in Annex 5.

32. Countrywide computerization of Customs Clearance operation (US$ 16.39 million) – This component will sustain and build upon the accomplishments of the current computerization effort; and will continue nation- and Customs- wide rollout of ASYCUDA, ASYCUDA version upgrade and functional expansion of ASYCUDA. Proposed activities in this component will include the following. Continue ASYCUDA rollout to new locations based on agreed priorities (between World Bank and ACD and other donors) and in parallel, upgrade from ASYCUDA ++ (AP) to ASYCUDA World (AW). Introduce additional ASYCUDA functionalities to reduce revenue leakage (risk management, valuation, exemptions, and post clearance control audit) and to reduce human interaction (electronic payment, public information displays, Internet-based submission of declarations, Internet-based Tax Identification Number Registration Module, cargo tracking capability, electronic gates, smart cards, and biometrics). Automate support functions (ERP, Office Automation) in order to promote standardization, transparency, and productivity. Develop ASYCUDA Unit within ACD including getting ISO and ITIL certification in order to increase robustness and sustainability of ASYCUDA. Support expansion and provision of redundant satellite connectivity to accommodate ASYCUDA rollouts and upgrade while leveraging Optical Fibre Cable (OFC) where available and secure. Inter office communication within Kabul City should be enabled through terrestrial micro-wave which is under implementation.

33. Installation of executive information systems for Customs allowing real time monitoring of operations (US$ 2.19 million) – This component will target introducing a new functionality (management summary and statistical reporting and alerts) in order to further reduce revenue leakage. This component will cover the provision and nationwide implementation, under the modality of a “Turn Key” solution, a business analytics and reporting software for the Afghan Customs Department (ACD) and the Ministry of Finance (MOF), with a view to supervise Customs revenue, Customs office operations and dwell time through different sources including primarily from ASYCUDA which is currently under implementation in ACD. This will provide: real-time, user-friendly information on key Customs parameters extracted from ASYCUDA; a monitoring and supervision system that supervises operations of Customs offices, individuals and transactions; facilitate Customs investigation and optimize verification and supervision mechanisms through the use of risk indicators associated to stakeholders as well as profile and financial trends; and track non compliant trade transactions in real time with the use of user defined alert notices. This system will reside on top of and be based on the ASYCUDA being rolled out.

21 www.worldbank.org/lpi 22 End Of Project 10

34. Development of possible options for cross border Customs-to-Customs (C2C) Cooperation (US$ 0.55 million) – This component will review the current available options to improve Customs to Customs cooperation between Afghanistan and its bordering countries. It will also help pilot the implementation of those options that are supported by Afghanistan and its neighbours.

35. Provision of selected Customs infrastructure to enable modernized operations (US$ 25.19 million) – This will include the following: improvement of Jalalabad Inland Clearance Depot (ICD); improvement of Kabul ICD; construction of Khost ICD; improvement of Nimroz ICD, Torkham Border Post, Andkhoi ICD and Aqina Border Post. The technical assistance under this component will also include the feasibility study for a multi modal container freight station near the Jalalabad Industrial Park.

36. Technical assistance to support the development of an adequate regulatory, administrative and institutional framework for Customs (US$ 6.18 million) – This component will provide technical assistance to ACD to addresses the major GAAP cross-cutting issues in the following areas: improvement of laws and procedures; inclusion of Customs value added activities; review of Customs Clearance Procedures; improvements to risk management and control requirements in the computerised framework; informing Customs role in Collaborative Border Management (CBM); organization and capacity development, and development of the reorganization plan for ACD; development of the integration and sustainability strategy for the ASYCUDA Unit; development of pay and pension reform package for ACD; assistance in coordination and partnerships with other government agencies; support for the Customs Reform and Modernization Unit (CURE), the International Customs Unit (ICU), the Post Clearance Audit Unit (PCAU) and the Tariff Research and Statistics Unit (TRSU); support for monitoring GAAP activities, milestones and benchmarks supported by ICN.

37. Project Costs – The total project cost is estimated to be US$ 50.48 million. The Table 2 provides the estimated breakdown of project costs by component. Further details description is provided in Annex 5.

Table 2: Project Costs Breakdown Summary Amount23 Component Description (US$, million) (i) Countrywide computerization of Customs Clearance operations 16.385 Installation of executive information systems for Customs allowing real time (ii) 2.186 monitoring of operations Development of possible options for cross border Customs-to-Customs (C2C) (iii) 0.546 Cooperation (iv) Provision of selected Customs infrastructure to enable modernized operations 25.186 Technical assistance to support the development of an adequate regulatory, (v) 6.179 administrative and institutional framework for Customs TOTAL 50.482

D. Appraisal of Project Activities

Technical Evaluation

38. SCRTFP is a part of the overall donor effort to reform Afghan Customs and has a nationwide and ‘Customs’ wide scope – Project design and scope is based on the World Bank’s comparative advantage and value added, and the lessons learned from the ECMTFP. The project coverage and scope was based on the lessons learnt, the GAAP, and a review of World Bank’s strengths and of the activities of the other donors in the sector. SCRTFP will finance a slice of the overall Customs reform effort over the next 3 to 4 years and compliment the other ICN donors (see Table 3). The World Bank has learnt over the years that Customs reform should not be multi-modular in its strategic approach. It is proposed to partner with other donors in the entire Customs sector but not lead or fully intervene in each subsector. Clearly, the one exception to this rule is the enforcement subsector; where the other donors like the US and Canada and other G8 countries

23 Including all contingencies. 11 supported by ISAF will take the lead. The ACD and MOF see the World Bank’s, and this SCRTFP’s, role as one of coordinating the overall donor effort in Afghan Customs Reform.

Table 3: ICN Planned and Under Implementation Assistance Summary (as of March 15, 2010) (All figure is US$ million) BMTF USAID EC Canada DFID British WB Japan JICA Total Customs Infrastructure 48.00 55.00 26.00 12.63 141.63 TA 22.50 25.60 17.48 1.00 66.58 Goods 7.00 7.00 Subtotal 70.50 25.60 55.00 50.48 12.63 1.00 215.21 General Infrastructure 13.25 7.16 20.41 Trade TA 38.40 50.16 44.60 9.90 143.06 Facilitation Goods 3.00 4.21 7.21 Subtotal 3.00 38.40 13.25 11.37 50.16 9.90 170.68 Total 73.50 64.00 68.25 11.37 50.16 44.60 50.48 22.53 1.00 385.89

39. SCRTFP activities are based on the lessons learned during the implementation of the ECMTFP (Annex 1) and on the recommendations of the ACD GAAP – The ECMTFP has demonstrated that Customs reforms are possible and are now taking root: substantial revenue gains accompanied by some key reforms leading to development of a better control environment have been delivered through deployment of ASYCUDA and improvements of infrastructure. In terms of project design, the following lessons were learned.

(a) Automation needs to be rolled out to further functions/steps as well as additional Customs offices to "dry-out" further opportunities for corruption and to ensure a consistent approach to clearance.

(b) Governance and accountability issues need to be addressed in a more strategic way looking also at improving the working conditions of Customs officers, improvements in the status of Customs and better rewards and incentives schemes.

(c) Collaborative border management has to be implemented within the framework of the ICN.

(d) Improved donor coordination presents an opportunity.

40. The ACD GAAP not only contextualizes these lessons but provides a global Customs governance context adapted to Afghan realities. The relationship of the project outputs (components) with the GAAP is clearly shown in Annex 3.

41. SCRTFP will leverage other initiatives for implementing the GAAP – This will be done by: (a) ensuring that the future budget support operations by the World Bank help implement the overall ACD GAAP actions, and especially those related to issues other than Customs; (b) continue incorporating some of the ACD GAAP actions as benchmarks in the ARTF incentive program; (c) coordinating with other donors through the Informal Customs Network (ICN) mechanism to advice the government to take action on the GAAP actions linked to border management, Customs and wider security apparatus (especially police); and (d) closely coordinating with other governance related assistance provided by the World Bank and development partners. Leverage through the ARTF incentive mechanism has proven to be effective in the past, as the previous ARTF Incentives Program review has demonstrated.

42. The SCRTFP does not address corruption "head on" but focuses on supporting the overall effort to improve Customs governance – SCRTFP activities intend to support the creation of a framework and to some extent have a culture/environment where corruption will not only be made more difficult, but also easier to detect. This is based on past experience of the World Bank and others, which has shown that corruption is more effectively addressed by reducing opportunities as a result of improved procedures while strengthening enforcement and audit. The project will thus contribute to the improvement in governance within ACD.

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(a) The SCRTFP is not an anti-smuggling project – Smuggling is internationally and historically defined as the act of deliberately avoiding Customs control. Curbing smuggling is not an activity per se; like corruption24, it is not addressed on its own but rather through improving the overall governance. The SCRTFP aims at improving the control on what goes through Customs (as smuggling is the result, not the cause, of weak Customs control) and on simultaneously improving collaborated border management (such as by Customs-to-Customs links, or better coordination between border agencies) to increase the likelihood of more goods going through Customs control; as the system improves, it will negatively impact smuggling activities.

(b) SCRTFP will support improvement of procedures that reduce the opportunities for mis- declaration of goods – The London Paper's25 focus on starting with the sector analysis of import regime, may not be the best point of entry of an anti-smuggling strategy. As explained by the World Bank to MOF and Customs, this focus essentially results in encouraging mis-declaration (i.e., declaring under the wrong description category to avoid adequate targeting). A more holistic approach is therefore necessary, and the ICN is working to support what Customs is doing already (e.g., improve the overall exemption regime, the valuation and risk management system to stop evasion of Customs Duties). Using the existing ASYCUDA deployment is the basis for this and is currently supported by the ECMTFP and will be picked up under the SCRTFP.

43. The majority of technical assistance focuses on procedures, institutional realignment, policy, infrastructure and equipment delivery rather than on plain traditional capacity building of human resources and supporting incremental operating costs – The GAAP analysis clearly shows that a majority of the overall governance improvements can be delivered through emphasis on improving the policy environment, clarifying the institutional mandate and strengthening the procedures that efficiently deliver on the clear mandate; focus on human and administrative capacity building will only bear results once the aforementioned is being done. For all these improvements to take root, concerted action of all stakeholders will be required.

44. Without supporting infrastructure and equipment no reform can be implemented; the project will support selected infrastructure improvements – The SCRTFP basic objective of improving control relies on appropriate infrastructure and adequate equipment backed by an adequate Customs budget. While the SCRTFP is national in scope, as far as automation and technical assistance is concerned it is very much targeted in delivering infrastructure. This is an area where other donors like US BMTF, ISAF, Canada, EC and GOJ are very active. The SCRTFP will thus only focus on either small investments in infrastructure to support ASYCUDA rollout or in those areas where other donors are not providing infrastructure especially if trade volumes and control parameters so require; Annex 5 provides an initial list of the key infrastructure being financed under the SCRTFP agreed with ACD and will be reassessed during project implementation.

45. The project does not propose to finance law-enforcement activities, but relies on US BMTF, ISAF and relevant ICN members to further the enforcement agenda – The project has raised awareness among other donors of this issue, and a general consensus on the subject has been reached. Within a framework designed to upgrade Afghan Customs to international best practice standards, currently being prepared by the ICN, it is likely that the other donors, led by the US Government, would deal with the operational enforcement aspect of Customs, and possibly link it to non revenue-related issues, such as general border security. The SCRTFP will pursue earlier efforts in drawing from experience in other regions and countries, and will assist the Government in drafting a “Collaborative Border Management” strategy.

46. The SCRTFP builds on World Bank’s global best practices – World Bank projects in Customs and trade facilitation area are typically designed to replace inefficient, costly and outdated manual systems and procedures with modern approaches based on the harmonization and simplification of procedures in line

24 The reason the GOIRA paper for the London Conference on Afghanistan highlights smuggling as one of the six drivers of corruption is from a different but related dimension; which is, the smuggling of illicit goods such as opiates, precursors, cash, and of anti-state people fuelling the entire opium and war economy of Afghanistan. 25 "Presentation of the Afghan Delegation to the London International Conference on Afghanistan", The London Conference on Afghanistan, January 28, 2010. 13 with international standards and good practice, the adoption of risk management to reduce inefficient and costly physical inspections, implementation of modern ICT systems, increasing the level of transparency of rules and regulations and minimizing opportunities for corruption. In recent years they have also focused on improving collaboration between the various government agencies operating at the border. The SCRTFP activities reflect this knowledge.

47. SCRTFP is being processed under World Bank’s Emergency Procedures – As noted in the Interim Strategy Note (ISN), time has demonstrated that despite the progress made, many critical elements of a post conflict situation are still applicable—capacity is uneven and weak overall, systems and procedures are weak, although improving, and many areas of the country are seriously affected by conflict. Given this situation, projects in Afghanistan, including the SCRTFP, continue to be prepared under the World Bank’s emergency procedures of OP/BP 8.0 (formerly OP/BP 8.5) and are consistent with the criteria for OP/BP 8.0.

Economic Analysis and expected impact of the project

48. Identification of Benefits and assumptions for analysis – The proposed project (as part of the overall ICN effort) is expected to yield significant economic benefits that will ultimately enhance Afghanistan’s overall competitiveness and facilitate trade. Improved procedures and a more efficient Customs service within Afghanistan could substantially reduce multiple cargo handling, truck waiting times and cargo delay times, transit costs and the overall trade costs, if accompanied by the streamlining transit procedures to allow a freer flow of vehicles and reduced restrictions on trade. In addition, improvements to ACD may reduce the variability in transit and clearance times and thereby introduce greater predictability into the system. These benefits, as well as the project’s costs, have been taken into consideration into the Cost-Benefit Analysis to determine the project’s net economic impact. Other benefits, however, are more difficult to quantify and, as a result, have not been included in the cost-benefit analysis despite their significance. These non-quantifiable benefits include reduced corruption, improved international image, enhanced transparency and accountability, and improved national security.

49. Overall Economic Benefits – The potential benefits from the project would be the improvement of the release of legitimate goods in a fair and efficient manner. These benefits are expected to be significant. It is expected that the project will extend the coverage of the formal trade sector, including at least part of the US$ 1.9 billion worth of trade which is currently not being documented in the formal trade channels, thus increasing the total trade volume (official and unofficial) to US$ 10.3 billion. The increase in official exports may also be due to the shifting of exports from unofficial to official channels. As a result, higher imports should translate into higher Customs collection; thereby not only increasing overall government revenue collection but also enhancing the competitiveness of the national economy.

50. Building on the success of the ECMTFP project, it is expected to continue to see significant savings in truck time, cargo time, handling cost, and cargo loss reduction. While these benefits may be underestimated, even if the project achieves 50 percent of its targets, the project will still generate a substantial economic rate of return, on the basis of these narrowly defined benefits. If the wider implications of increased Customs revenues to the foundations of the state are included, the overall economic and social returns would be much higher

51. Quantification of benefits – The results from the cost-benefit analysis indicate that the project is highly beneficial from an economic standpoint. Specifically, the relatively small investments corresponding to the project’s costs have a very significant economic impact. The project is expected to result into a Net Present Value (NPV) of US$ 1.44 billion over a 20 year period, a corresponding NPV of US$ 760 million over a 10 year period, and an internal economic rate of return (IERR) of roughly 146 percent. This NPV and IRR calculation is only based on the SCRTFP investments. Even if the overall ICN investments over the project period are factored into the calculation the returns are still very robust. Further details on the project’s economic analysis are given in Annex 6.

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Environmental and Social Safeguards

52. The project’s physical investment component involves improvement, upgrading and rehabilitation of ACD’s facilities which are largely of small scale. The project has no significant irreversible environmental and social impacts, and has a Category B environmental classification. An Environmental and Social Safeguards Management Framework (ESSMF) has been prepared (Annex 7); and will be followed to guide the assessment and mitigation of potential impacts for each specific physical investment under the project. No land acquisition is expected for the rehabilitation of existing ACD facilities, which all reportedly involve government land. The risk of involuntary resettlement is therefore considered to be extremely low. However, documentation is required that the land is free of encroachments, squatters or other encumbrances, and that the land has been transferred to the relevant authorities.

53. Most potential environmental impacts are related to locating of facilities (such as sub-stations), construction activities and the possible presence of landmines. Assessment and mitigation of potential impacts will be addressed through the application of appropriate environmental codes of practices, landmines risk and safety procedures detailed in the ESSMF.

54. Potential social issues include:

(a) Land ownership and land acquisition: No land acquisition is expected for the rehabilitation of existing ACD facilities, which all reportedly involve government land. The risk of involuntary resettlement or land acquisition is therefore considered to be extremely low. However, documentation is required that the land is free of encroachments, squatters or other encumbrances, and that the land has been transferred to the relevant authorities.

(b) Local employment: Employment benefits are expected from the ACD project works. Mechanisms to ensure that local populations are the beneficiaries are to be defined as much as possible and in a realistic way, within the social and ethnic context of each component of the project.

55. While field reviews have shown that no direct impacts on archaeological, burial or historical sites are to be expected, the project will institute “chance find” procedures to ensure protection of such sites if found when opening borrow pits and material sites.

E. Institutional and Implementation Arrangements

Institutional Arrangements

Implementing Agency

56. ACD is the Implementing Agency (IA) for this SCRTFP. The MOF is the responsible agency; being the parent ministry of ACD.

Implementation arrangements

57. The ACD (organization chart is shown in Appendix 8.1) will utilize the services of an Implementing Partner (IP) to execute SCRTFP financing. The IP will perform all functions related to the project (SCRTFP) under directions of the ACD. Given that the Director General (DG) Customs has to also manage the day-to- day Customs operations, the DG Customs as Project Director (PD) will be assisted by the Technical Director as the Deputy Project Director (DPD) and a Team Leader (TL)/Chief Technical Advisor (CTA) from United Nations Office for Project Services (UNOPS). A Management Services Agreement (MSA) will be signed between the IA (ACD) and the IP (UNOPS). The World Bank has agreed with ACD’s request to hire the services of UNOPS as the Implementing Partner following Single Source Selection procedures based on their past performance and the need to link with several UN agencies such as UNCTAD and UNIDO.

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58. The PDO of this project is to improve the release of legitimate goods in a fair and efficient manner. The project is also supporting the overall effort to improve the Customs governance environment in Afghanistan; thus the clear linkage of the SCRTFP components to the ACD GAAP. A large part of the reform process is underpinned by activities that require a one-time improvement, development and implementation followed and sustenance thereafter. Since ACD collects a major part of the domestic revenue which in turn enables the government to ‘govern’, it is important that sustainability of project interventions be viewed in that dimension. Thus, the agreement between the ACD and the World Bank is the use of an IP for supporting project implementation.

59. The GAAP clearly indicates that the priority is to complete the ‘control’ aspect of Customs such that revenue is secure, trade is facilitated and society is protected. Administrative capabilities are a part of the tools that will be required in order to deliver and sustain the reformed ACD; and are part of the overall reform. However Customs reform and achieving the aforementioned aim cannot be held hostage to first developing the administrative and project management capability of Customs. To make things worse, the overall state of institutions in Afghanistan is weak and does not lend itself easily to assign project implementation responsibilities to other public entities26. So it is important to work on both the reform implementation and on the capacity development, in parallel.

60. To ensure sustainability of the reform program, no specific “Project Implementation Unit” (PIU) has been set up in the ACD. The focus is on allowing the line functionaries in the ACD directly supervise and direct the IP, with the IP reporting to and requiring clearances on all activities from ACD (line offices/units/departments) through the DG. A clear achievement of the ECMTFP that continues to be supported by the SCRTFP is the focus on getting all project related staff (that are not already civil servants) to be absorbed in the MOF cadre. SCRTFP is specifically focusing on the development of the Customs cadre (distinct from the MOF and tax cadre)—this is also a key outcome of and recommendation from the ACD GAAP. That is why the three specific activities “Reorganization plan for ACD—including approval and implementation strategy and timelines,” “Integration and Sustainability Strategy for the ASYCUDA Unit— including piloting of strategy” and “Pay and pension reform package for ACD—including approval support and implementation assistance” are all being supported under the present project.

61. Project Oversight by the Project Steering Committee (PSC) - Oversight function will be performed by a Project Steering Committee led by the Finance Minister comprising of four Deputy Ministers of MOF, DG of ACD, Director Technical of ACD and Director Planning & Reforms of ACD. The key function of this PSC will be to: review project implementation focusing on achieving results; assist the ACD in resolving issues that are hindering the project and overall reform progress which are not just within ACD’s own domain; ensure that: the GOIRA policies are enabling the delivery of the results being sought through the project; and discuss any desired revisions to the project activities with the World Bank. Detailed TOR for the PSC will be agreed after declaration of project effectiveness.

62. The DG ACD as the PD will be supported by the Technical Director as the Deputy Project Director (DPD), the SCRTFP TL/CTA, and his relevant ACD and MOF Directors.

(a) Technical Oversight of ACD – On technical matters, the Director Technical ACD as DPD and the Director Reform and Planning will support the DG27. Specifically for matters related to ASYCUDA rollout, implementation of the EIS, and for C2C activities, Director Technical, IT and ASYCUDA Managers in ACD, together with the ASYCUDA Project Implementation Unit (PIU) will provide the required support to the PD in coordination with other Directors. National consultants will be hired through the SCRTFP to provide support and strengthen HR, procurement and finance functions at ACD.

(b) Financial Oversight of ACD – At present, the Director Finance and Administration (F&A) of MOF will support the DG. As mentioned earlier, one of the reforms sought that underpin the SCRTFP is to create “arms length” Human Resource (HR) and Administrative functionality

26 Such as the concept of assigning a relevant public ministry such as Public Works to deliver on the infrastructure and then maintain the same for ACD. 27 This may change once the ACD reorganization is underway. 16

within ACD. This functionality was previously found within ACD, but was centralized by MOF without clear consultations with all stakeholders supporting ACD reforms. Until a decision is reached between MOF and ACD on the reform process, the current project will follow the established process. For SCRTFP this will entail the IP preparing the project accounts and submitting them through the ACD to the MOF for onward transmittal for the Government’s annual audit process; and to the World Bank for complying with its fiduciary requirements.

(c) Procurement and related administrative matters – The arrangements will again involve ACD providing oversight of the entire process executed by the IP. Further details of this are provided in the Annex on Procurement Arrangements (Annex 10). Specifically for ASYCUDA PIU, hiring, appraisals and firing of PIU staff will be undertaken by a panel comprising a member of the Policy Committee28 (PC), a representative of MOF, and the following members of the ASYCUDA PIU: ASYCUDA Project Manager or ASYCUDA Deputy Project Manager, ASYCUDA Functional Expert and ASYCUDA Technical Expert.

The United Nations Office for Project Services (UNOPS) as the Implementing Partner (IP)

63. The soon to close World Bank funded ECMTFP was implemented by UNOPS on behalf of ACD. As the Implementing Partner (IP), UNOPS has delivered, under a nationwide environment of insecurity and despite the various constraints, in a relatively cost effective and efficient manner. However this was not possible without the usual issues when working in the present Afghan country environment. There has been a large staff turnover—a problem usually associated with public sector; but not altogether unforeseen given the fragile security environment. Overall, UNOPS has performed well as an IP and provided services in accordance with the terms and conditions set in the Management Services agreement (MSA) and agreements with United Nations Conference on Trade and Development (UNCTAD) and UNIDO. It has executed the overall financial management, audit and procurement responsibilities of the project in full compliance with the GOIRA requirements, IDA reporting obligations and internal requirements of UNOPS/UN System. The UNOPS project support team has been instrumental in the good performance of the ECMTFP and continuity of the team would be critical for continued good performance and success of this SCRTFP.

64. The overall TOR for the IP (i.e. UNOPS) arrangement is being prepared as part of Request for Proposal (RFP). This TOR has improved over the ones used in the ECMTFP. Lessons learned from the ECMTFP have been considered, and necessary modifications and adjustments in the project design and implementation arrangements have been made, especially those pertaining to strengthening procurement and financial management aspects of the project.

Implementation period

65. The project implementation period is 48 months.

Project Work Plan

66. Prior to the signing of any contractual agreements with UNOPS, ACD jointly with IDA, and in consultation with UNOPS, UNCTAD, and UNIDO, will prepare a detailed work plan for the first year, based on a four-year implementation horizon. This work plan will form a part of the UNOPS contract and of the agreements between UNOPS and UNCTAD and UNOPS and UNIDO.

67. Subsequently annual Project Work Plans (PWP) will be prepared for the remaining three years. Each annual work plan will be finalized and agreed between the parties at least three months prior to the completion of the period of the last work plan.

Project management structure

68. As mentioned earlier, the Director General of ACD has been designated as the PD; he will be supported by the Director Technical as the DPD. A small and efficient UNOPS team, already functioning

28 Described further in the following paragraphs 17 under the ongoing IDA funded ECMTFP, will be scaled up to cater for the new activities planned under this project. This team will be headed by the TL/CTA from UNOPS who will be responsible for management of the project. The TL/CTA will report directly to the Director General of ACD and Director Technical. The ACD with UNOPS shall be responsible for all fiduciary matters of the project. The financial management and procurement arrangements are described in Annex 9 and Annex 10.

69. UNOPS will report to ACD. On financial matters, since this function is currently centralized in MOF, UNOPS through ACD will work with MOF to satisfy all GOIRA and World Bank financial management requirements for SCRTFP. On all project activities, a communication strategy will be developed (such as the one already being prepared for further ASYCUDA implementation) and will be enforced to ensure that project timelines do not slip inadvertently. For all other contracts regarding works, goods and services UNOPS will be the ACD’s representative. Particularly for the sake of the delivery of works, UNOPS will be the designated “Engineer” for ACD. UNCTAD and UNIDO will have a reporting obligation to ACD and UNOPS.

70. The ASYCUDA Management Structure will comprise of two distinct tiers. The PC will comprise the PD, DT as DPD, IT Managers, Project Manager (PM) and Deputy Project Manager (DPM). The responsibility of the Policy Committee will be to define the rollout and upgrade plan, and functional expansion policies. Members of the PC will be ACD personnel (PD, DT as DPD, IT Managers), UNOPS TL/CTA and UNCTAD Consultants (PM and DPM). The Project Implementation Unit (PIU) will be headed by a Project Manager (PM) and DPM to whom the Functional head, Technical head, Regional team heads, and National Advisors will report. The PM and DPM will be responsible for preparing and providing monthly, quarterly and annual reports to ACD higher management. The PIU will have complete operational responsibility for execution of the ASYCUDA component of the project under guidance of ACD senior management. The PIU will also include technical specialists who will be hired from the market and functional specialists who will be ACD personnel on deputation. All PIU personnel will be UNCTAD consultants. The PC will guide the PIU, for example, on the sequence of rollouts as per the ARTF benchmarks or on the need for deploying additional functionality.

Financial Management and Disbursement Arrangements

71. A PFM performance rating system has been recently developed for Afghanistan by the Public Expenditure and Financial Accountability (PEFA) multi-agency partnership program, which includes the World Bank, IMF, EC, and other agencies. Afghanistan’s ratings against the PFM performance indicators portray a public sector where financial resources are, by and large, being used for their intended purposes as authorized by a budget that is processed with transparency and has contributed to aggregate fiscal discipline.

72. Financial management and audit functions for the proposed project will be undertaken through the agents contracted under the Public Administration Capacity Building project and the Public Financial Management Reform project. These are the primary instruments for continuing to strengthen the fiduciary measures put in place to ensure transparency and accountability of funds provided by the World Bank and other donors. The Financial Management Agent (FMA) is responsible for helping the MOF maintain the accounts for all public expenditures, including IDA-financed projects and for building capacity within the government offices for these functions.

73. At the project level, ACD will utilize the services of the Implementing Partner, UNOPS, to perform the key financial management functions. The financial management (FM) capacity of ACD will be strengthened from project inception, by the recruitment of relevant FM professionals, regular training and provision of required FM system. The IP will utilize a computerized accounting system, satisfactory to IDA, to maintain relevant accounting records and generate required periodic reports on the project activities.

74. Quarterly Interim Unaudited Financial Reports (IUFRs) will be prepared by the IP and used as the basis for making advances to the IP. Consolidated IUFRs will be prepared and submitted by ACD to the World Bank. Consolidated project reports will be prepared, reviewed, and approved by the MOF, supported by the FMA. The format of the IUFR’s is provided in Appendix 9.1.

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75. To facilitate payment of project related expenditures, advances will be made to a segregated ‘advance account’ to be opened by the IP, UNOPS, as per the terms of the MSA and in a manner and conditions acceptable to the Association. However, subsequent reimbursement of advance to the IP, will be made after due acquittal of previous advance amount or the equivalent of amount to be reimbursed. A single, segregated Designated Account (DA) in US$ at Da Afghanistan Bank (Central Bank) in the name of the project on terms and conditions satisfactory to IDA, will also be opened and maintained by the MOF to faciliate payment of ACD expenditures namely consultants’ salaries and incremental operating costs. Expenditure reporting will be submitted monthly. Financial management arrangements for the project are detailed in Annex 9.

Fund Flows and Disbursement

76. Fund management for the project will follow existing procedures which allow for advances to be made to the IP. The DA will be operated by the Special Disbursement Unit (SDU) in the Treasury Department of MOF. As with all public expenditures, all payments from the Grant will be routed through MOF. All project expenditures except consultants’ salaries and incremental operating cost of ACD will be made by the IP from the advances made to the IP. The DA will be used to meet ACD expenditures. In addition to payments from DA funds, ACD can also request the SDU to make direct payments to consultants or consulting firms, and request special commitments for contracts covered by letters of credit. All withdrawal applications to IDA, including advances, reimbursements and direct payments, will be prepared and submitted by MOF.

77. Retroactive Financing – The proposed grant will include retroactive financing up to an amount of US$ 2.86 million for payments made by the recipient out of its own resources from January 1, 2010 to the date of the signing of the Financing Agreement, for eligible project expenditures.

Accounting and Reporting

78. The IP will maintain essential project transaction records using computerized accounting system/ Excel spreadsheets and generate required monthly, quarterly, and annual reports. ACD will also maintain basic books of accounts in Excel spreadsheets to record its own expenditures.

79. The FM Manual, that will be prepared by the IP/ACD, will include: (i) roles and responsibilities of the IP and ACD FM staff, (ii) interface between the IP and ACD staff, (iii) documentation and approval procedures for payments including advances to the IP, (iv) project reporting requirements, and (v) quality assurance measures to help ensure that adequate internal controls and procedures are in place and are being followed. This manual will be submitted to the World Bank for its review, and approval, by May 30, 2010.

80. The FM Manual will also establish project financial management in accordance with standard Afghan government policies and procedures including use of the government Chart of Accounts to record project expenditures. The use of these procedures will enable adequate recording and reporting of project expenditures. Overall project accounts will be maintained centrally in SDU, which will be ultimately responsible for recording of all project expenditures and receipts in the Government’s accounting system. Reconciliation of project expenditure records with MOF records will be carried out monthly by IP/ACD.

Disbursement Method

81. Disbursements from the Grant will use advances, reimbursement, direct payment, and payments under special commitments including full documentation or against statements of expenditures, as appropriate.

Audit of Project Funds

82. The Auditor General, supported by the Audit Agent, is responsible for auditing the accounts of all IDA and ARTF-financed projects. Annual audited project financial statements will be submitted within six months of the close of GOA’s fiscal year.

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83. The World Bank-funded projects already closed or currently being implemented by MOF have no overdue audit reports. The key issues raised in these projects’ previous years audit reports up to Solar Year 1385 have been resolved satisfactorily. Responses to the SY1386 audit report observations are still due for PACBP, EPAP II and Recurrent Costs. The audit reports for Solar Year 1387 have been received and reviewed and comments have been forwarded to MOF for their response.

Procurement

84. Procurement for the project will be administrated in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised October 2006, “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, revised October 2006, and the provisions stipulated in the Financing Agreement. In addition, the World Bank’s “Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants” dated October 15, 2006 has been shared with the recipient. The World Bank’s Standard Bidding Documents, Requests for Proposals, and Forms of Consultant Contract will be used. Civil works and goods following National Competitive Bidding (NCB) procedures shall be procured using the agreed Standard Bidding Documents (SBDs) for Afghanistan. In case of conflict/contradiction between the World Bank’s procurement procedures and any national rules and regulations, the World Bank’s procurement procedures will take precedence as per the Article 4(3) of the Procurement Law of the Islamic Republic of Afghanistan dated October 2005. The general description of various procurements under different expenditure categories are described in Annex 10: Procurement Arrangements.

85. UNOPS as the IP will manage project procurement. UNOPS staff has experience in handling procurement under IDA financed projects, in particular civil works. Currently the IP is in the process of recruiting an international or a national qualified procurement specialist to handle procurement matters of the project according to IDA requirements and guidelines. Furthermore, the Afghan Customs Department also lacks the capacity in procurement for civil works. Training will be provided to concerned ACD staff in essential procurement procedures according to international best practice.

86. With donor assistance, Afghanistan has made considerable efforts to establish the Legal and Regulatory Framework for public procurement over the last five years. A new Procurement Law, reflecting international best practice in public procurement was enacted in November 2005 replacing the earlier procurement regulations. While it provides a very modern legal system for procurement, effective implementation of the law may encounter difficulties in the current weak institutional structure and capacity of the Government. A Procurement Policy Unit (PPU) has now been established under MOF to ensure the implementation through the creation of secondary legislation, standard bidding documents, provision of advice, and creation of the necessary information systems for advertising and data collection. “Rules of Procedure for Public Procurement” which details the better implementation of the Procurement Law has been issued by MOF as circular number PPU/C005/1386 dated April 12, 2007. The Procurement Appeal and Review mechanism is in place and the Manual of Procedures for “Procurement Appeal and Review” has been issued by MOF as circular number PPU/N001/1385 on March 18, 2007. The Procurement Law was revised in July 2008 and amended in January 2009, and issued as a new Law by the Ministry of Justice and published in the Official Gazette Number 957, 29.10.1387 (January 18, 2009). The revised “Rules of Procedures for Public Procurement” has been issued as circular PPU/C027/1387 of November 18, 2009.

87. The Special Procurement Commission, comprising of Ministry of Justice and Ministry of Economy, under the chairmanship of Minister of Finance approves high value contracts. The thresholds are being reviewed with consideration for an upward revision thus decentralizing the authority to MOF. The present thresholds are available on the web site of Ministry of Finance. (www.mof.gov.af).

88. In the absence of adequate capacity to manage procurement activities effectively, some interim arrangements have been put in place to improve the procurement management of the country. A central procurement facilitation service, ARDS PU has been established under the supervision of Ministry of Economy.

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F. Project Risks and Mitigating Measures

89. The ISN29 was approved by the Board on May 5, 2009, and provides a valid analysis of the current country risks. Country macro-economic, governance and overall World Bank portfolio risks are the same as those applicable to all projects currently being implemented, under preparation or being planned. This section defines the sector governance and project related risks.

90. The overall GAAP analysis of Afghan Customs was used to derive the overall risk rating. This risk analysis is also informed by a specific but preliminary analysis of the possible impacts of conflict and crime on the outcomes of the project interventions which was carried out for the first time for such projects in Afghanistan. A wide range of non-Customs related actions influence the reforms supported by the SCRTFP. To account for this and the realization that all reforms cannot be influenced by the SCRTFP alone, the risk identification and mitigation sheet includes mitigation measures that are both within the control of the project, as well as those that can be leveraged outside the project scope.

91. The major reputational risk is the perception of funding a highly corrupt organization. The nature of this risk is not that World Bank funds will be misappropriated, but rather a perceived risk that while World Bank project inputs would increase the overall Customs collections as a result of greater trade, the absolute size of revenue leakage could increase. However, there is strong evidence suggesting that the percentage of revenue leakage decreases with automation and other measures that the current project envisages30.

92. SCRTFP will help deepen Customs reforms especially within the institution and its processes; simply focusing on human resources and traditional capacity development through international advisors per se has not been able to yield the expected results over the last 6 years of Customs reforms in Afghanistan. The project’s focus on automation resulting in reduction of the Custom-Business interaction and in retraining and new hiring of the Customs is a key strategy to combat this factor.

93. Most World Bank projects, especially those dealing with policy and institutional reforms, have usually an overall positive impact albeit with some negative impacts in some specific cases. Most of these negative impacts turn into reactive issues mostly if they are not pre-empted through proper consultations with stakeholders. The SCRTFP (World Bank) team and the ACD have so far carried out wide spread consultations for the GAAP.

94. The SCRTFP team will also ensure that: there will be adequate consultation during the project implementation with the affected groups; due diligence will be done to assess the extent and nature of the potential harm, and clear mitigation measures will be taken to reduce the harm; and to ensure that policy or institutional reform are always driven by the Government's strategy and not by the World Bank Group. The parallel work on the impact of conflict and crime on SCRTFP’s anticipated results will also assist with managing the wider project risks by identifying potential winners and losers and helping identify strategies to deal with them. Last but not least, a clear external communication strategy31 will be developed and maintained during the project implementation.

95. The detailed risk management analysis for the project is as follows.

Table 4: Project Risk Identification and Management Matrix Risk Risk Mitigating Measure Residual Rating32 Risk Sector Governance Risks High level of High SCRTFP: Monitoring implementation of the MOU signed Substantial interference by central between MOI and MOF on managing border crossing points; and provincial clarifying the role and mandate of Customs; ICN support for authorities and other policy for border security and Customs and collaborative

29 Interim Strategy Note for Islamic Republic of Afghanistan, Report No: 47939-AF, May 2009 30 As shown when transit was computerized (Source: ASYCUDA Data). 31 This is a media based external communication strategy—and is distinct from the SCRTFP’s internal Communication Strategy mentioned elsewhere in this EPP. 32 Based on a four point scale: High, Substantial, Moderate and Low 21

Risk Risk Mitigating Measure Residual Rating32 Risk power holders in border management; provision of appropriate infrastructure, Customs affairs equipment and resources to Customs; process and skills continues survey to complete business process re-engineering for implementation of revised processes as part of SCRTFP; real time management information systems for Customs. Other: Overall coordination with governance, in particular public administration reforms, supported by the World Bank and other development partners, and with law enforcement and security sector reforms supported by other development partners. Customs are unable to High SCRTFP with support from ICN for assistance to: Substantial improve border and in- sufficiently enforce the Customs Act and clarify enforcement land checks; and do not authority of Customs based on a proposed multi-donor have adequate policy on ‘Developing Customs Enforcement’; and develop enforcement power the scope of Customs control; leverage ICN support for policy on border security and Customs and collaborative border management; especially those donors’ initiatives which are more focused on law enforcement issues; monitoring implementation of the MOU between signed MOI and MOF on managing border crossing points; clarifying the role and mandate of Customs; provision of appropriate infrastructure, equipment and resources to Customs; process and skills survey to complete business process re-engineering for implementation of revised processes as part of SCRTFP; real time management information systems for Customs. Political commitment to High The four levers for mitigating this risk are: (a) ensure that the Substantial reform, the overall future budget support operations and macro-economic GAAP slackens, and dialogue by the World Bank and the IMF help implement the complex policy and overall ACD GAAP actions especially those related to other legislative measures do than Customs; (b) continue incorporating some of the ACD not get approved GAAP actions as benchmarks in the ARTF incentive program; (c) coordinate with other donors through the Informal Customs Network (ICN) mechanism to jointly advice and assist the government to take action on the GAAP actions linked to border management, Customs and wider security apparatus; and (d) coordinate with other governance related assistance provided by the World Bank and development partners. Top level Project Steering Committee (PSC) headed by the Minister for Finance. Reform implementation Substantial Support those effective reform policies that stem from and Moderate is completed but are endorsed completely at all levels of government. Keep reversed due to: lack of record of government strategy documents and other written real ownership and buy- policies. Due diligence (including comprehensive in from the government consultations) on the potential impacts of administrative and at different levels; human resource and other wider reform measures. Clear reaction from ACD and communications strategy developed and implemented during related Agencies’ staff the project. Top level Project Steering Committee (PSC) headed by the Minister for Finance. Donor coordination on Substantial Since the inception of the ICN, donor coordination has Moderate Customs reform policy improved significantly with joint review missions, is not sustained agreement on the priorities outlined in the GAAP and on reform priorities. The World Bank will continue supporting the ICN process and to actively engage with ICN partners to ensure strategic focus and alignment with the GAAP priorities; the GAAP has been endorsed by the ICN as the central governance reform plan for Customs. The partnership between the Border Issues Working Group (BIWG) and the ICN will be further strengthened. Project Risks (see also GAAP Annex 3) 22

Risk Risk Mitigating Measure Residual Rating32 Risk Computerization is not Moderate Control and efficiency gains through computerization; Low supported; post process and skills survey to complete business process re- clearance audits not engineering for implementation of revised processes as part working; e-links not of SCRTFP; and real time management information systems working; risk for Customs. Fear of poor connectivity of remote sites has management techniques not materialized; almost 98 percent ‘up-time’ during not made part of ECMTFP. Proper service level agreements with connectivity Customs control service providers such as NEDA and development and processes switch-over to Customs own communication network; support the implementation and rollout of the post clearance audit unit and development and implementation of internal audits; support better integration of ASYCUDA unit into ACD as well as the nationwide rollout of complete ASYCUDA modules (with a priority to risk management and valuation); provision of appropriate infrastructure, equipment and resources to Customs; develop and implement ASYCUDA Unit Integration and Sustainability Plan. Management and High In close coordination with development partners, technical Substantial administrative assistance to support development of administrative improvements are not procedures and human resource plans for Customs in institutionalized collaboration with the Independent Administrative Reform and Civil Service Commission (IARCSC); support development of Customs Cadre with IARCSC; support development of Customs Training Academy (already started; driven by BMTF, Government of Canada, USAID and the World Bank); support work on development and implementation rewards and penalties mechanism in Customs service; support work on pension plan development for Customs; ICN to support MOF buy-in for arms-length administration of Customs; provision of appropriate infrastructure, equipment and resources to Customs; process and skills survey to complete business process re- engineering for implementation of revised processes as part of SCRTFP; real time management information systems for Customs develop and implement ASYCUDA Unit Integration and Sustainability Plan. Cross border Substantial A Government-to-Government (G2G) Customs-to-Customs Moderate coordination is not (C2C) data exchange framework for Afghanistan and possible due to Pakistan is already under preparation which can then be technical or political replicated for other border countries; primarily focus on impediments Uzbekistan, Iran and Pakistan as they are the primary transit countries for Afghanistan; provision of appropriate infrastructure, equipment and resources to Customs; process and skills survey to complete business process re- engineering for implementation of revised processes as part of SCRTFP; real time management information systems for Customs; leverage the Afghanistan Pakistan Transit Trade Agreement (APTTA) renegotiation process, the Government of Canada’s Afghanistan and Pakistan Prosperity Initiative, the Afghanistan ICN process, the UNAMA led Trade Corridor Working Group process and the World Bank’s under preparation North West Regional Program as well as initiatives under ECO and CAREC. Growing insecurity Substantial The risk has not materialized during the ECMTFP Moderate prevents project implementation except for one location. While projects have implementation such as been delayed due to insecurity, all construction activities construction of facilities have been completed successfully. However, new construction in east and south-east poses high risks. The project will mitigate this risk by prioritizing investments in 23

Risk Risk Mitigating Measure Residual Rating32 Risk more secure areas, implementation through local contractors and other innovative mechanisms as required on a case by case basis. Assets are destroyed, Moderate The risk has not materialized since the start of the current Low once provided. The ICT project but still exists. It will be mitigated by relying facilities, including the primarily on VSAT and VHF communications; as these VSAT and Microwave installations are more locally placed and can be better links, could become protected. potential targets, especially outside of Kabul. Infrastructure Substantial Provision of appropriate infrastructure, equipment and Moderate constructed but resources to Customs; process and skills survey to complete improved systems not business process re-engineering for implementation of introduced revised processes as part of SCRTFP; real time management information systems for Customs to monitor adequate implementation of reforms; dialogue on increasing budget allocation with MOF leveraged through the ICN and the IMF Reviews. ASYCUDA Substantial Support local implementation and rollout capacity Moderate implementation stops development within the ACD ASYCUDA Unit (the latest due to UN pullout deployment of ASYCUDA transit module under ECMTFP based on staff security at Sher Khan Bandar was done entirely by the local team); concerns support back up options for sustaining and developing ASYCUDA; develop and implement ASYCUDA Unit Integration and Sustainability Plan. Crime and conflict Increase in tensions Substantial Further analysis, the extent of impact, in parallel with project Substantial between the central implementation; support real time management information government and local system; coordinate the findings of the impact analysis with authorities other World Bank teams working on the issue of sub- national fiscal transfers and development of sub-national governance structures. Increase in competition Substantial Further analysis, the extent of impact, in parallel with project Moderate inside the central implementation; monitoring implementation of the MOU government between MOI and MOF on managing border crossing points signed; clarifying the role and mandate of Customs; ICN support for policy border security and Customs and collaborative border management; Increase in competition Substantial Further analysis, the extent of impact, in parallel with project Substantial for trading routes implementation; work with BMTF and other agencies bypassing legal border through the BIWG (Border Integration Working Group) on posts improving border security through better and collaborative border management; support development of Customs enforcement role; and garner appropriate donor support through ICN for development of Customs border patrols. Overall Risk Rating High Substantial

96. Extensive Implementation Support to ACD and using the innovative GAAP tool for Monitoring and Evaluation; supplemented by a Kabul based governance advisor – Project monitoring will be based on intensive project implementation support and quarterly progress reports from the implementing partner and ACD/MOF to the World Bank. The project implementation support mission frequency will be at least once every two months, with subject specialists visiting as and when required. In addition to monitoring the PDO indicators based on the SCRTFP results framework, the World Bank team will work closely with the ACD and the IP to periodically review the ACD GAAP. The methodology developed for preparing the ACD GAAP lends itself well to a quantitative review of the overall governance risks and hence will be utilized to assess governance improvements as well as to identify any new areas of reform that might become salient as other reforms are completed. The Kabul based Governance Advisor in the World Bank will be part of the team to enable adequate follow up on this particular issue. 24

97. Supervising projects in Afghanistan is a challenge – This challenge has increased progressively over the last 4 to 5 years. There has been a very detailed discussion on strategies by various World Bank project teams on how to tackle these challenges in supervising and providing implementation support to projects. We have taken into consideration the results of these discussions and complemented them with our experience on the ECMTFP.

98. Supervision and Implementation Support during SCRTFP will be innovative but expensive – The automation rollout and the executive information system provide an excellent opportunity to rely on and verify information provided by the ACD systems; i.e., reliance on country systems. This has been successfully utilized during the ECMTFP. During the ECMTFP, the team also successfully conducted a joint mission with other donors and has relied on information from other donors, where World Bank team had been denied access. Remote sensing techniques will also be utilized as, when and where required to improve project supervision and implementation support. The IP, UNOPS, has the ability to organize specialized missions and get UNDSS clearances under special circumstance by ring-fencing World Bank mission itineraries; this has worked well during the ECMTFP, but has been quite expensive. Third party verification techniques will also be considered; but these are again quite expensive.

99. The team intends to request for a higher than average budget for supervision/implementation support given these supervision challenges and the high visibility of this SCRTFP.

G. Terms and Conditions for Project Financing

100. Project financing will be on standard IDA grant terms and will finance 100 percent of project expenditures, including taxes. There are no special conditions for effectiveness.

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ANNEX 1: ECMTFP IMPLEMENTATION STATUS AND RESULTS (ISR) RATING

1. The objective of the Project is to: (i) provide the Key Project Data and Ratings33 Recipient with emergency assistance in the establishment of a Board Approval Date December 23, 2003 more efficient Customs and transit regime; (ii) assist the Effectiveness Date March 22, 2004 Original Closing Date December 31, 2007 Recipient’s efforts to increase, in the short term, through the Revised Closing Date December 31, 2010 reduction of Customs irregularities and inefficiencies, the MTR Date (Actual) April 2006 collecting capacity of the ACD and the Recipient’s other Original Credit Amount USD 31.2M collection agencies; (iii) assist the Recipient’s efforts to Amount Disbursed USD 32.15M34 decrease, in the medium to long term, trade transaction costs Additional Financing USD 7.14 M2 through (a) improvements in key customs and related transit Amount AF-Effectiveness Date October 7, 2009 infrastructure and communications, and (b) improvements in UNOPS Start Date 11/28/2004 customs and transit administration; and (iv) assist the UNIDO Start Date 12/29/2004 Recipient in (a) laying the basis for a functioning Customs UNCTAD Start Date 12/14/2004 service, and (b) taking appropriate measures to facilitate its FM Rating MS international trade. Procurement Rating S Implementation Progress S 2. The Project is satisfactorily achieving its intended Table 1: Key Project Data and Rating outcomes based on the following outcome indicators which were updated by the Mission during September 2009. Table 2: Summary of Performance Indicators based on data available as of November 2009 World Bank Mission Progress Value* End of project Baseline Value Summary Performance Indicator 03/2009 (first 6 target value 09/2003 months of SY 1388) US$ 50-60 US$ 39935 (392.02) Customs revenue US$ 280 million million million Declarations per staff 91 202 (87.82) 200 Revenue/declaration US$ 500-600 US$ 1,149 (2,669) US$ 700 735,094 (302,878) T1s Measuring ACD’s One complete Transit Nil 70 % transit axis Performance at the National transit axis covered by value Level ASYCUDA 55,739 (79,065) Implementation declarations and 55% Electronic One DPS Nil (approx) by value Declarations implementation covered with 4 DPS implementations. US$ 8 billion/year USD 2.0 (WB estimate) US$ 5.0 Trade volume billion/year US$ 4.9 billion/year billion/year (ACD estimate)

Torkham Border: 91 % of trucks cleared in fewer than 90 minutes Kabul ICD: 1080 Kabul ICD 90 (including customs min (overall) min Measuring trade and transit time- Customs time not 428 min regime measured separately) Truck release time (customs)

Kabul airport: NA Overall customs Border Stations: Border Stations performance NA 40 min (customs) measurement not carried out nationally due to security issues.

Score = 1.21 Ranking Logistics Performance Index Na Rank = 150 improved to 130 *Figures in brackets are for first 6 months of SY1388 (21 March –September 20, 2009) Source: Tariff, Research and Statistics Unit (TRSU), Afghanistan Customs Department

33 Data and Ratings as of June 18, 2009. 34 Increase from original amount due to higher SDR to USD conversion 35 According to recent World Bank estimates, Afghanistan’s total trade volume has increased to US$ 8 billion per year with total revenues collected by Customs in excess of US$ 390 million. Out of the total revenues collected by Customs, US$ 271 million are Customs duty. 26

Summary Implementation Status

3. The project is nearing closure, and most of the targets set at the outset have been achieved.

ASYCUDA Implementation 4. The Declaration Processing System (DPS) of Automated System for Customs Data (ASYCUDA) is now also functioning at Herat Inland Clearance Depot (ICD) in addition to the other stations while preparation for rollout to Sher Khan Bandar is underway with the necessary equipment already delivered to the site and brokers training completed. The rollout of DPS at Mazar-e-Sharif has been delayed due to the shifting of the entire Balkh Customs to Hairatan where the European Commission has financed new Inland Clearance Facilities. The DPS rollout to this facility will be completed at the beginning of next year.

5. Since the start of the Solar Year (SY) 1388 (March 2009) a total of 146,830 Customs declarations were filed across Afghanistan out of which 79,065 (54 percent) were through ASYCUDA. During the same period, a total of 302,878 T1s (internal transit permits) were filed through ASYCUDA, collecting USD 6,057,560 as T1 fee.

Infrastructure for Afghan Customs

6. The contract for the construction of 1/3 of the remaining 2/3 truck parking area (13,500 sq. m) and 700 m access road, 967m drainage channel, electrical pole, turf and wiring etc in Jalalabad ICD in the amount of US $ 929,133 was awarded in July to “Mashal Construction and Production of Materials Company” (an Afghan Construction Firm). The civil works have begun, and are to be completed over the next 10 months with the contract end date of May 15, 2010. Additionally, fencing of the land allocated for the Khost ICD has been completed to secure the area, with the construction to begin as soon as more funds become available.

Trade Facilitation

7. The trade facilitation component of the project has completed most of its activities while the negotiations on the Afghanistan Pakistan Transit Trade Agreements (APTTA) are ongoing. More recently, with the assistance of the project the Afghan delegation participated in an intermediate round of negotiations on Customs and private sector in Pakistan which will now lead to the 6th round of the negotiations of the Joint Working Group on APTTA in the next two months.

8. With the project assistance, the Afghan National Standards Authority (ANSA) as the standards, metrology and quality control body of Afghanistan was established through a Presidential Decree with approved administrative and recurrent budget. More recently, in the Government ‘Tashkeel’ 342 positions were approved for ANSA out of which 92 are for support staff (on contract) and 40 for technical officers (govt. civil servants). In the initial recruitment phase, 170 positions have been filled with 45 support and 125 technical staff members on various Government schemes such as 110 on PRR (Priority Reform and Restructuring Program), 7 on MCP (Management Capacity Program), 1 on LEP (Lateral Entry Program) and 7 are on ordinary contracts not yet on any schemes.

9. The specific intermediate outcome indicators of the project showing achievement of target outputs are summarized in Table 3:

Table 3: Intermediate Outcome Indicators

Target Value Summary Indicator Progress Value (09/2009) (End of Project36)

Number of facilities Customs and related transit Target Achieved (All civil works repaired/constructed and 62 facilities infrastructure are improved completed). functionally improved

36 Project end date extended with the additional financing from June 30, 2009 to December 31, 2010 27

Target Value Summary Indicator Progress Value (09/2009) (End of Project36) The target stands achieved, Setting up of Trade AFFCO has been setup with the Afghan companies Reform and modernization of trucking Association for Afghan local training consultant issuing Through-bills-of- and freight forwarding industries freight forwarders completing training sessions in ladings (AFFCO) Kabul, Herat and Mazar-e- Sharif. Number of facilities Improved and reliable connected through 12 VSAT nodes and 20 Radio telecommunications network is communication and Rooms: Target has been established to support the VSAT/VPN and other surpassed with communication 14 locations modernization and reform of ACD and networks (of these, number equipment installed on more the support of trade facilitation of facilities where no than planned sites. mobile telephony exists) The target has been surpassed through operationalization of transit system on 4 axis: Torkham-Jalalabad-Kabul, Islam Level of ASYCUDA Qala-Herat- Kabul and Hairatan- ASYCUDA is functional and fully ASYCUDA covers 2 development and Mazar-e-Sharif-Kabul and used by the customs staff main trade axis implementation Towrghundi-Herat-Kabul.

Similarly, DPS is operational at Kabul ICD, Kabul Airport, Jalalabad and Herat ICD.

Quality and safety of Target achieved with ANSA Inspection mechanism in traded/imported/exported carrying out regular inspections. place goods

ANSA has been established and is now carrying out regular testing of POL products. More An effective mechanism for standards, than 400 tests performed till metrology and quality control is date. ANSA receiving core established administrative & recurrent ANSA supported by Establishment of ANSA budget from MOF. A total of 92 Afghan Standards and staff members have now become Metrology Law civil servants (40 technical) with 342 as the total strength of ‘Tashkeel for ANSA. Standards and Metrology Law under consideration by the Cabinet.

Target achieved with AFPRO Establishment of AFPRO now functional. (The public-private AFPRO functional national trade facilitation

committee)

More, recently, with the assistance of the project, the Trade Facilitation Initiative launched to Afghan delegation participated promote and facilitate regional and in an intermediate round of Number of international bilateral trade of goods and services negotiations on Customs and Pakistan – Afghanistan trade and transit treaties private sector in Pakistan which Transit Trade Agreement initiated negotiations will now lead to the 6th round of the negotiations of the Joint Working Group on APTTA in the next two months. Translation of the TIR Membership with TIR re- Membership with TIR re- Handbook is underway. activated activated

The Afghanistan WTO No further progress since the last Memorandum of Foreign Assistance towards accession to WTO reporting period in July. Trade Regime prepared and agreed by Cabinet

28

Strengths, Weaknesses and Lessons Learned

10. The key strengths have been: automated handling of 60% of trade volume and 75% of transit axes; improvement in efficiencies and productivity; reduction in revenue leakage in automated Customs offices— demonstrated by a 10 fold revenue gain in 5 years; and adequate ownership by ACD senior management. Customs collected have so far collected more than US$ 600 million in 2009/10 (SY 1388) and there was good reconciliation between deposits in DAB and customs declarations (the key being the ASYCUDA electronic link to the DAB and more frequent 'sweeps' by DAB on the local accounts).

11. In terms of weaknesses: lack of tools to utilize actionable intelligence available as a result of automation; lack of focus on building a proper Customs cadre; continuing interference from other agencies and provincial authorities; conflicting and misdirected donor advice and a primary focus on revenue collection; lack of understanding of the real roles of Customs in the government; insufficient reduction in the overall “corruption bill” (as opposed to the “fiscal gap”); and insufficient understanding of the impact of conflict and crime on reform processes37. However, the GAAP analysis points out that almost three quarters of the drivers of poor governance lie outside Customs (current applied jurisdiction). Furthermore Customs do not have a sufficient internal operating budget (approximately US$ 6-8 million per year) and their own internal administrative control functions are currently handled by MOF.

12. The following lessons were learnt in terms of project design:

(a) Automation needs to be rolled-out to further functions/steps as well as to additional Customs offices to “dry-out” further opportunities for corruption, and to ensure a consistent approach to clearance.

(b) Governance and accountability issues need to be addressed in a more strategic way, looking also at improvements in the status of Customs, better rewards and incentives schemes and improving the working conditions of Customs officers.

(c) Collaborative border management has to be implemented, particularly within the framework of ICN is important (although relatively well indentified under the ECMTFP, progress was limited).

(d) Improved donor coordination presents an opportunity.

(e) Further educate the Government and other stakeholders on the real roles of Customs and the necessity of its recognition and adequate support including sufficient budget resources.

(f) Mitigate impacts on stakeholders from reforms introduced through the project by first understanding these impacts through a conflict and crime assessment.

(g) Another important, more generic, lesson learnt was that Customs reform is more effective if addressed within an overall strategic framework. The Afghan environment reinforces this finding (which also results from World Bank experience in other regions).

37 These are not entirely due to the ECMTFP itself, but rather to the challenging environment in which the project had to operate. 29

Table 4: ISR Rating – Emergency Customs Modernization and Trade Facilitation Project

06/01/2005 03/13/2006 06/24/2006 12/22/2006 06/21/2009 12/26/2007 06/23/2008 12/23/2008 05/23/2009 11/24/2009

Overall Implementing S S S S S S S S S S Progress (IP) Project S S S S S S S S S S Management Financial S S S MS MS S MS MS MS MS* Management Counterpart S S S S S S S S S S Funding Procurement S S MS MS MS S S S S S Monitoring and MS MS MS MS MU S S S S S Evaluation Project Component MS MS MS MS S S S S S S Rating S – Satisfactory MS – Moderately Satisfactory MU – Moderately Unsatisfactory *This is a country issue applicable to all projects; and is not specific to this project only.

30

ANNEX 2: CUSTOMS PERFORMANCE AND MACRO INDICATORS

Islamic Republic of Afghanistan Second Customs Reform and Trade Facilitation Project Customs Performance Macro Indicators

(2002-2008)

Year Description 2002 2003 2004 2005* 2006 2007 2008 Total Customs revenue (US$ Million) 65 77 138 224 310 357 399 Total Customs cost (US$ Million) 1 2 2 2 3 Total Customs staff 1,379 1,100 1,174 1,876 1,876 1,876 1,876 Total Customs salaries (US$ Million) 2 2 2 2 Annual number of declarations 4,530 100,000 352,749 308,391 359,009 332,339 379,196 Import 4,512 352,749 298,335 344,648 309,567 347,549 Export 18 10,056 14,361 22,772 31,647

Imports (US$ Million) 1,271 2,508 3,786 3,803 3,972 4,188 4,560

Exports (US$ Million) 1,291 1,894 100 168 195 246

Total (US$ Million) 3,799 5,680 3,903 4,140 4,383 4,806

Revenue collected/Customs staff 47,128 70,145 117,198 119,291 165,197 190,251 212,868

Total Customs cost/Revenue collected 0 0 0 0 0 0 0

Salaries/Revenue collected 00 0 0 0 0 0 Trade volume/Staff (USD) 4,838,160 2,080,490 2,206,823 2,336,594 2,561,962 Declarations/Staff 3 91 300 164 191 177 202 Economic cost per declaration 124 0 0 7 6 7 8 Average monthly salary cost 0 0 0 73 73 73 78

Average revenue per declaration. 390 750 899 1,153 1,149 Average value per declaration 10,733 12,747 11,525 13,529 13,120 Ratio (effective rate) 3.63% 5.88% 7.80% 8.52% 8.76%

*All figures prior to 2005 may not be accurate.

31

ANNEX 3: GOVERNANCE ACCOUNTABILITY ACTION PLAN (GAAP)

A. Governance Context

1. Corruption in Afghanistan has become more widespread and systemic over the course of the last few years. In 2005, Afghanistan ranked 117 out of 159 countries covered in Transparency International’s Corruption Perception Index; two years later it dropped to 172 out of 180 countries, and in 2009 it was ranked 179 out of 180 countries. Available survey evidence and other information show that a majority of Afghans view the payment of bribes to be a necessity in order to obtain services from the government38. Much as the public may be willing to tolerate payment of ‘facilitation’ or ‘tea’ money, corruption is commonly perceived to have become more organized and entrenched, involving networks at all levels with those at the top reaping large rewards.

2. The predominance of the opium economy with its powerful criminal networks and its nexus with the ongoing insurgency has made drug-related corruption one of the major challenges. Addressing governance issues is further made more difficult by the central government’s limited sphere of influence, control over large parts of the country and the persistence of the insurgency. Corruption undermines the Government's legitimacy, while the lack of the rule of law, in turn, undermines the ability to fight corruption.

3. The discussions about the results of the recent elections and the debate over continued support for Afghanistan's stabilization and reconstructions efforts have further heightened the attention to the issue of governance and corruption. The London conference highlighted that governance issues can only be addressed through a broad based approach including a broad based institutional reform of Ministries and services to reduce their vulnerability to corruption.

4. To date, progress in improving governance and addressing corruption has been limited. Encouraging signs such as the passing of the anti-corruption law, the ratification of the United Nations Convention Against Corruption (UNCAC) and the establishment of the High Office of Oversight (HOO) early last year (2009), have not yielded any concrete results. A clear division of responsibilities, a prioritized, resourced and fully owned strategy to address corruption is lacking. In November of 2009 a 'major crime' unit or taskforce, supported by the Federal Bureau of Investigation (FBI), Scotland Yard and European Union Police Mission to Afghanistan (EUPOL) has been set up to investigate and prosecute major corruption, kidnapping and organized crime cases. It remains to be seen to what extent this new body can be effective as the division of labour between different agencies remains unclear. International experience shows that such bodies are only effective when they are inter-agency in nature and there is clear government leadership and ownership.39

B. Governance and Customs

5. Corruption impacts on, and undermines the three core functions of Customs: revenue collection, trade facilitation and societal protection through inter alia the prevention of movement of harmful goods, particularly drugs, weapons and precursor chemicals. With Customs revenues constituting the majority of domestic revenues, efforts to address governance and accountability in Customs are crucial to Afghanistan’s state building efforts.

6. A recent World Bank report notes that Customs is widely seen to be among the most corrupt institutions in Afghanistan.40 Concerns include interference from provincial and local power-holders resulting in considerable diversion of Customs revenues and lack of compliance with and enforcement of

38 See “Fighting Corruption in Afghanistan – Summaries of Vulnerabilities to Corruption Assessment,” World Bank, June 2009 39 The risk otherwise is that if there is only one ministry or agency in charge, actions may rapidly turn into a manhunt, specifically targeted at Customs officers (as they have discreet real time control over tangible wealth). A second risk is that anti-corruption bodies may not fully understand the constraints under which Customs operate. For instance, it is not corrupt practice not to examine every single shipment, especially when there is a risk management system in place, yet experience shows that, over and over again, anti-corruption bodies are unaware of Customs risk management, re-inspect shipments released by Customs, and if anything unreported is found, systematically arrest Customs officers on grounds of smuggling and corruption. Customs participation in the High office would therefore be highly desirable. 40 Fighting Corruption in Afghanistan – Summaries of Vulnerabilities to Corruption Assessment, the World Bank, July 2009 32

Customs procedures and systems of controls. There are widespread allegations of political appointments, rehiring of dismissed staff under pressure, giving preference to individuals with linkages to the political elite at central or local level and the ‘sale’ of lucrative posts. Rent-seeking, demanding ‘tea’ or ‘facilitation money’ is widespread amongst Customs officials as well as other agencies at the border.

7. Historically, Customs is usually associated with corruption as Customs officers, unlike other civil servants, have direct and discretionary control over tangible and significant wealth. They dispose over ‘administrative monopoly combined with broad discretionary powers’ facilitated by an environment ‘where risk-based systems of control and accountability are absent or easily breached’. This perception, however, is also partly due to the fact that Customs is often the most visible agency at the ‘border’41 and hence associated with corruption involving other agencies. The types of corruption prevalent in Customs include (Figure1):

(a) Rent-seeking is literally the recovered rent to cover the cost of acquiring or retaining a position and also includes petty or routine corruption also called ‘tea’ or ‘facilitation’ money; whereby the trader pays a bribe at various stages to get goods cleared. This is also sometimes referred to as ‘survival corruption’ on the part of poorly-paid government officials trying to make ends meet. Petty corruption is pervasive and, as the above mentioned World Bank report noted, almost accepted as a ‘necessary evil’ to get things done. The overall rent may almost be ‘fixed’ with the size and incidence of the individual bribe depending on the relative bargaining powers of both the payer and the recipient of bribe. This type of corruption is often reduced by limiting the interface between Customs officials and traders through the introduction of automation. However, anecdotal evidence from Afghanistan suggests that while the number of signatures and interactions between Customs officers and clients has decreased with the Figure 1: Types of Corruption and its Impacts introduction of automation, the actual bribe price at other points has increased, seemingly compensating for lost opportunities. The distributive consequences of corruption are poorly understood and would require further analysis as we proceed. Rent seeking primarily is associated with increasing the cost of doing business but can have substantial immediate fiscal impact when rents are considered too high and therefore encourage evasion.

(b) Patronage whereby appointments are made based on political or other interest groups requiring a system of reciprocal exchanges of favours. The persistence of patronage networks impedes the emergence of an efficient, modern bureaucracy. Patronage networks facilitate evasion through collusion and hence have a high fiscal impact as well as societal impacts. Patronage networks also often extend to law enforcement agencies leading to pervasive impunity. (c) Collusion whereby the trader or agent seeks to evade or reduce fiscal obligations and the Customs officer receives a share of the amounts involved. This practice leads to direct and often substantial revenue leakage.

41 What is a ‘border’? It is a dividing line or frontier between political or geographic regions. In today’s world a country has many borders—in trade and transit, and especially in Customs, the notion of border is now increasingly less geographical and more chronological, e.g., the sequence of Customs and other controls affecting goods leaving one country and entering the other country. So the physical borders of a country are now extended to the duty free or ‘bonded’ areas inside its territory, such as airports, but also warehouses and generally wherever goods under a Customs suspense regime might be stored; which could also include private premises. Even a bilateral digital financial transaction has a ‘border’, which, in the case of electronic payment of duties and taxes, creates an electronic border. Borders are also increasingly in the country of departure: Cargo shipped to the US in effect, under CSI procedures, is de facto under US jurisdiction long before it enters US territory. The border is therefore wherever Customs need to carry out a compliance or investigatory check, and covers the entire Customs territory. Customs in a modern environment should not be seen as solely operating along an imaginary wall securing the country. 33 (d) Grand or criminal corruption in which, criminal interests pay or otherwise exert pressure to conduct illegal operations such as drug trafficking. This often amounts to state capture by criminal networks. Assessing the impact of state capture, the intricately interwoven family or tribally based networks that collude to engage in corrupt practices allowing large scale revenue leakage as well as the passage of illicit and hazardous goods, in particular drugs, is difficult. The most severe costs of corruption to state and society are not the rent-seeking activities and bribes themselves but the underlying larger scale distortions, revenue leakages and criminal activities they reveal and facilitate. Not surprisingly, grand or criminal corruption in environments such as in Afghanistan does not lead to large fiscal leakages but rather threatens the writ of the state in more severe ways.

C. Assessing Governance and Corruption Issues in Customs – Efforts to Date

8. The World Bank and other international partners (Asian Development Bank (ADB), DFID and UNDP) have conducted Vulnerabilities to Corruption Assessments (VCAs) for a number of sectors, agencies, and key government functions.42 The VCAs looked at the forms, sources, implications, extent, and vulnerabilities to corruption and developed recommendations for prevention measures. The VCA for Customs was deferred due to the specific economic governance aspect in evaluating Customs and the preparations underway for the follow-on SCRTFP.

9. Several studies assessed governance and corruption issues in Customs. In 2007 ADB funded a World Customs Organization (WCO) Integrity Development Guide Self-Assessment and Evaluation.43 As part of the World Bank’s ongoing support to ACD the World Bank commissioned an IT transformation audit. The audit assessed progress Figure 2: Governance Controls made through the introduction of automation, looking at enterprise Assessment Framework automation capability and senior management perspectives and attitudes as the key determinants of transformation. The World Bank then commissioned a Governance Controls Assessment using the Committee of Sponsoring Organizations (COSO) framework. The framework covers internal controls (overall control environment, risk assessment, macro environment, monitoring and information and communication) employed by the ACD to operate and administer the department effectively (Figure 2). The assessment uncovered numerous deficiencies and weakness in the governance, management and administration of ACD.44

10. Based on the findings of these assessments, the experience gathered throughout the implementation of ECMTFP and drawing on the project team’s experience from other countries, the team developed a corruption risk mapping matrix for the sector, and jointly a draft Governance Accountability Action Plan (GAAP) in the ACD.

D. Mapping Vulnerabilities to Corruption

11. Vulnerabilities to corruption were mapped for each of the Customs process functions and steps. For each step a risk level was calculated by multiplying impact and probability ratings. The impact ratings take

42 Fighting Corruption in Afghanistan – Summaries of Vulnerabilities to Corruption Assessment, the World Bank, July 2009. Within the Ministry of Finance, UNDP/DFID commissioned a VCA for the budget department, DFID for the revenue department and the World Bank a VCA for public financial management and procurement. 43 TA 4879 Report Outcome of Afghan Customs World Customs Organization Integrity Development Guide Self-Assessment and Evaluation, September 2007, University of Canberra, Centre for Customs and Excise Studies. 44 The weaker the attribute, the closer it is to the center/nucleus of the radar as can be seen in the chart. However, the results of the governance controls assessment are not entirely surprising and would probably turn out with rather similar results if applied to other government departments in Afghanistan. With a very challenging overall governance and environment and rule of law situation, many controls envisaged under the COSO framework will take considerable time to take root. 34 into consideration the impact of corruption on the three primary functions of customs: societal protection through inter alia preventing the movement of hazardous goods, revenue collection and trade facilitation. Probability is the likelihood of a particular vulnerability to occur. Risk levels are grouped into three levels: high (red), medium (orange) and low (green).45 For both impact and probability a scale of 1 (low) to 3 (high) was used. The risk levels were determined drawing on various quantitative and qualitative analysis conducted throughout the implementation of ECMTFP and extensive experience and lessons from other countries.

12. Multiple agencies and representatives of provincial governors and local power-holders are present at the borders, interfering with the work of Customs and are often heavily involved in corrupt activities. The absence of effective coordination and efficient Figure 3: Control of Mitigation Measures border management procedures, unclear and conflicting roles and responsibilities of different agencies increases the risk of corruption and smuggling. The introduction and implementation of checks and balances becomes more difficult under such circumstances; this is what the GAAP analysis calls ‘interference’.

13. The matrix therefore identifies responsible agencies for each process step. Such mapping allows for a better distinction between those activities and responsibilities that fall within the purview of ACD and can also possibly be addressed through the proposed SCRTFP and those that need to be resolved through concerted action of all players involved. Figure 3 above shows that only 23 percent of the mitigation measures identified in the risk mapping are within the sole prerogative of ACD, 15 percent are under control of other agencies and 62 percent require concerted action of ACD and other agencies.

E. Monitoring Progress

14. The ratings for each process step will be assessed on a regular basis throughout the project implementation to evaluate to what extent the governance situation may or may not have improved. An interactive model has been developed that shows the inter linkages between the individual process steps. This model could for instance show the impact of improvements in one process step, e.g. Customs investigations, on other process steps. While this model will need to be tested further, it has the potential to emerge into a powerful monitoring tool.

F. From Mapping Corruption Risks to the GAAP

15. For each Customs process and step the team assessed whether a particular vulnerability is due to issues related to:

 policy: unclear policies and objectives and/ or inconsistent strategies

 institutions: weak institutions with overlapping roles and responsibilities

 procedures: outdated regulatory framework and overly bureaucratic procedures

45 High risk level means that impact x probability = 7 to 9; medium risk level means that impact x probability = 4 to 6; and low risk level means that impact x probability = 1 to 3. 35  human resources and administrative capacity: lack of knowledge, skills and human and administrative capacity to implement reforms.

16. Identifying the governance dimension involved allows for better designing and prioritizing of mitigating actions. Mitigating actions in the summary risk mapping matrix in Table 1 therefore clearly show whether addressing a particular risk would require policy, institutional, procedural or human resource and administrative capacity issues to be resolved. Recognising that most vulnerability to corruption relate to or are attributable to deficiencies in all four dimensions, only the most important dimensions were identified for each sub-step to allow for prioritization. Human capacity is an issue affecting all processes and is recognised as an important cross-cutting issue. Only when human resource and administrative issues have a particularly important impact on the ability to implement reforms, have they been included. It is of course recognised that any mitigation action plan would require strong capacity and institution building measures.

G. Setting Priorities

17. Ease of implementation, the expected level of difficulties anticipated to address a particular risk, has been calculated by multiplying a value assigned to each governance dimension with the sum of whether it is within the prerogative of ACD to change or whether it requires concerted action or action of other agencies.46 Based on the ease of implementation rating and the risk level, connoting the importance of addressing a particular risk, priorities for implementation were established using the following chart (Figure 4). High priorities are those process steps that are included in the top right corner with a high vulnerability to corruption risk and relative ease of implementation; medium priorities are those in the bottom right corner who have a relatively low vulnerability to corruption risk and are also expected to have a relatively low level of difficulty in implementing; and long-term priorities are those in the bottom left corner that will require substantial resources to overcome resistance and implementation challenges and also have a relatively low level of vulnerability to corruption risk.

Figure 4: Priorities for Implementation H. Who Owns the GAAP?

18. While the above risk mapping and priorities for implementation matrix has highlighted which mitigation activities are required at each process step and identifies the responsible agencies, the GAAP matrix below identifies some key cross-cutting governance challenges and mitigation measures emerging from the risk mapping as well as from a Customs problem tree analysis conducted by the team. The matrix distinguishes between 'circles of influence', i.e. actions that can be addressed by the project, ACD and actions that require concerted efforts and support from other government agencies, other World Bank teams, by leveraging policy actions in the World Bank's programmatic lending/grants as well as close dialogue with other development partners (Figure 5).

19. Many of the proposed mitigation measures are already integrated into various Government action plans such as the Ministry of Finance's anti-corruption strategy of 2009 and the Customs Revenue Action

46 The following rankings were used: Policy issues that require for instance changes in legislation = 4, i.e. most difficult to change; institutional issues = 3; procedural issues = 2 and human capacity issues = 1. 36 Plan. The Ministry of Finance's anti-corruption action plan identifies broad vulnerabilities to corruption and suggests key areas for short, medium- and long-term interventions at the macro-level. Proposed actions include the establishment of an ethics/ anti-corruption unit to coordinate initiatives and assistance aimed at preventing or deterring corruption in the Ministry of Finance. Suggestions include, for instance, the development of transparent and accountable procedures for disciplinary cases related to misconduct and corruption. It also notes the lack of understanding and awareness of staff on ethics and conflict of interest and the widespread acceptance of corruption. In terms of the ACD it highlights the lack of adequate systems and internal control frameworks and the high level of discretionary powers of customs officers. Some of the mitigation action it suggests are to establish and refine internal Customs procedures to ensure checks and balances, training, for the complaints hotline to be accessible at the border and the enhancement of enforcement legislation, the roll out of computerization and the revision of the policy of revenue targets. As will be seen below, many of these suggestions are also part of the GAAP.

The Ministry of Finance's Revenue Action Plan focuses on anti-corruption. The Customs Revenue Action Plan calls inter alia for a transparent, merit-based recruitment process, the publication of fees of Ministry of Finance's Customs Figure 5: Circles of Influence services, a rewards scheme to motivate officers and for strengthening the post-clearance audit function. The ACD's FYP also includes many of the proposed mitigation measures.

20. The GAAP includes all these elements but seeks to present it in an integrated, strategic and prioritized manner while identifying which areas can be assisted by the project, which areas can be supported by leveraging the broader World Bank portfolio and instruments such as the ARTF and policy dialogue. The matrix in Table 2 includes only broad, cross-cutting governance issues derived from the risk mapping above and the problem tree analysis. Under SCRTFP milestones, timelines and designated lead donors for each of the proposed actions will be developed.

21. The Government is committed that all Government ministries and agencies develop their own anti- corruption strategy. With the GAAP the ACD has already developed the foundations for an anti-corruption strategy. However, it is recognised, as also outlined during the London conference, that addressing corruption requires broad based reforms and coordinated action of the three branches of the government as well as the full support of development partners. Considering the political economy of Afghanistan, the entrenched corruption networks, the ongoing conflict and limited resources and capacities of the Government, individual projects and even concerted action of all donors to the sector can only make a contribution towards the overall effort by strategically reducing opportunities for corruption.

37 Table 1: GAAP – Afghan Customs Department (ACD) – Summary Risk Mapping Topic/ Type of Risk/ Vulnerability to Risk Mitigating Actions and Responsible Agencies Priorities Process Step Corruption Level Ease& (average) Importance Immediate  Manifest not available 46/9 Policy Level: HIGH/ Customs  Declarations are prepared 5.11 ACD and MOF, IARCSC, MOLSA: Introducing special IMMEDIATE Control improperly or are prepared by statute for Customs (see below) Customs Institutional and Procedural level: Ease 7  Customs may accept improper ACD: Import. 46 declaration in return for bribe or may  Introducing pre-notification refuse declaration  Introducing automatic link to transit document  Declaration may not be considered  Establishing e-link legally binding  Introducing helpdesk Human Resources level: ACD and clearing agents: Training of clearing agents Compliance  During document controls Customs 72/11 Policy level: HIGH/ Checks officers misuse their discretionary 6.55 ACD and MOF, MOA, MOPH, MOC, MOI, standards IMMEDIATE powers authorities:  Insufficient coordination between Other agencies delegate power to Customs to ensure Ease 8 various agencies present at the border compliance (e.g. MOA, MOPH) Import. 72 cause delay, opportunities for rent ACD and IARCSC, MOLSA, judicial agencies seeking Amending and clarifying rules of business and penal  Goods are undervalued legislation for Customs to have power to prosecute/ punish  Incorrect tariff regime is applied deliberate, repeated and serious violations in terms of  Importers are subject to an excessive declaring, describing and evaluating imports rate of control  Introducing special statute for Customs (see below)  Exemptions are issued by directive Institutional and Procedural level:  During physical control goods may ACD: be subject to pilferage, inadequately  Establishing and refining internal Customs procedures to or excessively examined or control ensure adequate checks and balances, proper reporting, affected in return for a bribe measurement and mechanisms for management feedback  Ensuring that clearance operations are well coordinated with other agencies Computerising valuation process/ introduce ASYCUDA valuation module Human Resource level: ACD: Training Customs officers in valuation Arrival/  Entering cargo remains unreported 82/15 Policy Level: MEDIUM Landing/ or misreported due to inter alia: 5.47 ACD, MOF, MOI, Judicial and Legislative bodies: Reporting - Lack of appropriate border line  Giving Customs powers of enforcement akin to police Ease: 24 control powers. This requires a change in interpretation of Import. 82 - Customs not being present at border Constitution relating to who can legitimately carry arms; 24/7 changes in penal legislation; adjustments to Customs - Lack of adequate data exchange with Code; and additional resources. neighbouring countries  Providing sufficient budget resources to ensure 24/7 - Interference from other agencies presence of Customs and border line control - Lack of enforcement powers of Institutional and Procedural level: Customs ACD and neighbouring countries’ Customs:  Additional checks from other  Ensuring adequate cross-border computerised data agencies cause delays and provide exchange and cross-border coordination opportunities for rent seeking  Introducing universal weight ticket and electronic  Practice of transhipment of goods weighbridge can lead to delays and diversion of ACD and MOI, MOC, MOF, MOA, MOPH, goods Road/Provincial Administration:  Weighing (mostly by road  Clarifying roles and responsibilities of agencies present administration or provincial at border and improving inter-agency coordination administration) can be unreliable, leading to delays and providing an opportunity for rent-seeking Assessment  Revenue targets set by MOF 3/1 Policy level: MEDIUM encourage arbitrary assessment of 3 ACD and MOF: Revising policy of revenue targets duties to maximise collections Procedural level: Ease 10 irrespective of the amounts actually ACD: Computerization Import. 3 due Exit  Issuance of release note and 21/3 Policy level: 7 ACD: Introducing default green channel release MEDIUM 38

Topic/ Type of Risk/ Vulnerability to Risk Mitigating Actions and Responsible Agencies Priorities Process Step Corruption Level Ease& (average) Importance therefore exit of goods is delayed in Procedural level: return for bribe ACD: Ease 8  Management reviews declaration,  Introducing electronic signature Import. 21 final signature can cost substantial  Introducing direct printing of release note on amounts importer/clearing agent systems Detection and  Levels of penalties are inadequate to 30/4 Policy level: LONG-TERM Reporting have deterrent effect 7.5  Enhancing legislation to increase penalties and strengthen  Irregularities are not reported enforcement capacity of Customs Ease 17  Distinction between minor and Introducing special statute for Customs (see below) Import. 30 severe irregularities is not made Institutional and Procedural level:  Customs abuses their discretionary  Introducing computerised reporting powers Processing and  Delays in judicial processes 9/2 Policy level: Adjudication of encourage impunity among offenders 4.5 Judicial system: LONG-TERM Violations  Introducing expedited judicial treatment  Introducing administrative penalty schemes Ease 21 Human Resource level: Import. 9 Judicial system: Providing adequate training of judges Payment of  Payment mechanisms are designed 24/3 Policy level: LONG-TERM Duty to capture traffic at Customs houses 8 ACD and MOF: Revising policy of revenue targets offering highest ‘discounts’ in Institutional or Procedural level: Ease 20 exchange of meeting revenue targets ACD and MOF, DAB: Introducing and encouraging Import. 24 (‘port-shopping’) electronic payment  Duty paid is not accounted for in treasury Transit Regime  Goods in transit are diverted/ 19/3 Policy level: LONG-TERM released for domestic consumption 6.33 ACD: Strengthening inland enforcement ACD and MOC, MOT, MOI: Ensuring adequate border Ease 17 control Import. 19 Institutional and Procedural level: ACD: Computerization Warehousing  Goods are pilfered 24/3 Policy level: LONG-TERM  Inadequate control over goods 8 ACD: Introduce licensing Ease 23 entering warehouse Procedural level: Import. 24 ACD  Strengthening inventory control  Introducing document linkage  Computerization Re-export  Inadequate transit systems generate 1/1 Policy level: LONG-TERM non-transparent substitution 1 ACD and MOF, MOC, MOT: Amending legislation Ease 21 procedures Import. 1 Post-Release  Soliciting or accepting payments to 28/4 Institutional and Procedural level: Verifications influence outcome of audit findings 7 ACD LONG-TERM  Importers are harassed  Establishing strong coordination  Introducing  Post Clearance Audit has limited between Customs and Tax approved importer Ease 20 access for on-site visits Authorities scheme Import. 28  Introducing and conducting  Encouraging management audits use of ASYCUDA data for post clearance audit purposes Customs  Importers are harassed 27/3 Procedural level: LONG TERM Investigations 9 ACD and Tax authorities: Ease 16  Introducing tight management  Improving inter- Import. 27 control agency  Improving intelligence coordination  Computerization

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Table 2: Summary Governance Accountability Action Plan (GAAP) Cross-Cutting Issues

Governance Issues Note: Detailed description Mitigating Actions Responsible Project Level Intervention (ACD/MOF) Other Actions and Actors Time-frame of issues see risk mapping Required Agencies incl. identification of project output of each process step Cumbersome, opaque  Computerization ACD, MOF  Automation of processes/ roll out of ASYCUDA  Support of legislative and judicial IMMEDIATE procedures leading to delays,  Awareness campaign on fees, legislative with supporting infrastructure improvements and agencies and close coordination with support already smuggling, rent seeking procedures agencies equipment provision (project output I and IV) other development partners in revision ongoing  Revision of Customs  Support to legislative and regulatory revisions and and implementation of laws (project through legislation with view to improvements in administrative and institutional output (I and V) ECMTFP streamline procedures framework (project output IV and V)  Supporting Infrastructure and  Process and skills survey and reform equipment Lack of Adequate Cross-  Data exchange between ACD, MOF, • Cross border links to capture reliable information  Support to regional cooperation IMMEDIATE Border Data Exchange and neighbouring countries neighbouring on shipments, establishment of transit tracking mechanisms (CAREC, SCO, ECO) and support already lack of coordination facilitates  Supporting infrastructure and countries' system with supporting infrastructure improvements bilateral discussions between ongoing that entering cargo goes equipment Customs and equipment provision (project output III and Afghanistan and its neighbours on trade through unreported or misreported IV) related issues ECMTFP  Facilitate dialogue and trade with neighbours

High level of Discretionary  Computerization and related ACD, MOF,  Clearance operations computerized countrywide  Within wider public administration IMMEDIATE Powers of Customs Officers change management process IARSCC with support infrastructure improvements and reform support development of support already  Supporting infrastructure and equipment provision (project output I and IV) disciplinary action and enforcement ongoing Frequent Interaction between equipment • Executive information systems allowing real time mechanisms through Customs Officer and Client  Enhancement of disciplinary monitoring of operations and greater accountability ECMTFP leading to opportunities for actions for corruption and (project output II) substantial illegal earnings misconduct  Support to post-clearance audit function combined with low probability  Support to post-clearance audit  Process and skills surveys and reforms (project of being caught function output I and IV) Limited Ownership of  Support of overall governance GOIRA,  Active participation in ICN  ICN supports implementation of IMMEDIATE Reform Process reform agenda, in particular development  Assist ACD in designing and organizing an Customs Five Year Plan and GAAP. and throughout public administration reform partners awareness campaign on Customs related  World Bank overall assistance portfolio project duration process governance issues, highlighting the negative and leverage  Revision and implementation impact of these issues on the economic growth, of Five Year Plan (FYP) state building and stabilization of Afghanistan. This campaign should, where feasible, use culturally appropriate messages to promote governance and accountability issues. (project output V)  Assist in FYP revision, implementation and M&E

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Governance Issues Note: Detailed description Mitigating Actions Responsible Project Level Intervention (ACD/MOF) Other Actions and Actors Time-frame of issues see risk mapping Required Agencies incl. identification of project output of each process step Unclear Mandate of Customs,  Review of revenue targets and ACD, MOF,  Policy dialogue with development partners to  IMF to assist MOF in review of IMMEDIATE focusing on revenue objectives, the way they are internalised IMF review revenue targets in the way in which they revenue target policy support already encourages port-shopping as operational targets have been internalised by the Government ongoing leading to fraud and evasion  Revision and implementation  Assist in FYP revision, implementation and M&E through of Five Year Plan (FYP) ECMTFP Statute of Customs, low salary  Improvement of status of ACD, MOF,  Within wider public administration reform process  World Bank support to public MEDIUM levels, lack of proper incentive Customs officers through e.g. IARCSC, MOI, prepare ground for new Statute of Customs administration reform TERM schemes lead to rent seeking offering clear career path, Judicial and (project output V)  Leverage through ARTF incentive incentives (adequate Legislative  Assist in revision of Code of Conduct (project mechanism, joint policy dialogue remuneration, Bodies output V) between development partners/ ICN pension/superannuation  Assist ACD in design and implementation of members and Government benefits) rewards and incentives schemes (project output V) Interference of Other  Improving inter-agency MOF, MOI,  Prepare realistic strategy and action plan for  Solicit support of relevant government MEDIUM Agencies at Borders resulting coordination MOA, MOPH, development of effective compliance, preventive agencies, ICN members and wider TERM in increased rent seeking,  Giving Customs powers of MOT and control function and capacities. This will take development partner community to the revenue leakage and smuggling enforcement akin to police account of legal and regulatory changes implementation of action plan powers. potentially required and relationships with other Interference from local power  Other agencies delegate law enforcement bodies and include a phased holders powers to Customs to ensure development strategy for capacity building, Compliance. training, organizational changes, equipment and  Supporting Infrastructure and other facilities. (project output IV) equipment  Processes and skills survey and reform (project output I and IV)

HR Practices incl. nepotism,  Public Administration Reform ACD, MOF,  Prepare action plan for HR policy (based on  World Bank assistance to public LONG TERM selection, transfer and  Transparent merit-based IARCSC earlier work within ACD) including rewards and administration reform promotion of Customs officers recruitment incentives schemes (project output V)  ARTF Incentive Mechanism based on existing relationships  Identification of gaps in ACD staff capacity and  Policy based grants or favours; award and/or 'sale' development of capacity building/ on-job training  IMF support of lucrative appointments. curriculum (project output V) Output I: Clearance operations computerized countrywide Output II: Executive information systems allowing real time monitoring of operations Output III: Cross border links to capture reliable information on shipments Output IV: Adequate infrastructure to enable modernized operations Output V: Adequate regulatory, administrative and institutional framework

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ANNEX 4: RESULTS FRAMEWORK AND PROBLEM TREE ANALYSIS INCLUDING PROJECT PERFORMANCE INDICATORS

1. The following is the results framework for the SCRTFP.

Table 1: Results Framework- Agreed Project Performance Indicators Project Project performance indicators Source of Baseline Use of project Development information performance Objective information To improve the Effectiveness47 ASYCUDA Will be established ACD/MOF and release of Border Performance Customs MIS by September 2010 World Bank to legitimate goods 1. Time for clearance Physical monitor in a fair and 2. Number of detections Observations achievement and efficient Efficiency Revenue, 1. 8.76 percent of analyse manner. Productivity cost, staffing, value of imports contributory 1. Effective rate (fiscal declarations, (EOP48 target is 9.34 factors; provide productivity of Customs) trade volume percent). course correction 2. Economic cost per ACD to SCRTFP 2. US$ 8.20 per declaration statistics components and declaration (EOP (ASYCUDA activities as and target is to stay at or and TRSU) when required in below US$ 15 per consultation with declaration) ACD and MOF Fairness LPI, Periodic 1. Customs LPI is to ensure User satisfaction Surveys 2.22 (Rank in 2009 achievement of 1. Customs Component Indicators of 104) [EOP target overall project from the Logistics Performance is 2.40 for LPI; rank 49 development Index (LPI) between 85 – 95] objectives. 2. Subjective user satisfaction 2. Will be surveys established by December 2010

Table 2: Project Intermediate Outcome Indicators Project intermediate Project intermediate outcome indicators Use of intermediate outcomes outcome indicators (i) countrywide Declaration and wider modules deployed at eleven regional ACD/MOF and World computerization of offices and border posts: Bank to monitor Customs Clearance Regional Offices: (i) Kandahar, (ii) Zaranj/Nimroz, (iii) achievement and analyse operations Andkhoi, (iv) Khost, (v) Kabul Parcel Post contributory factors; Border Posts: (v) Torkham, (vi) Islam Qala, (vii) Hairatan, provide course correction (viii) Sher Khan Bandar, , (ix) Vesh and (x) Towrghundi. to SCRTFP components Inland and international transit operational at and activities as and when (i) Spinboldak/Vesh-Kandahar-Kabul (Pakistan), (ii) required in consultation Zaranj/Nimroz-Kandahar-Kabul (Iran), (iii) Aqina-Andkhoi- with ACD and MOF to Mazar-Kabul (Turkmenistan), (iv) Takhar-Kunduz-Kabul ensure achievement of (Tajikistan), (v) Ghulam Khan/Babraktown-Khost-Kabul overall project outcomes (Pakistan), (vi) Millak-Herat/Kandahar-Kabul (Iran), (vii) and development Eshkashim-Mazar-Kabul (Tajikistan), (viii) Kabul Airport- objectives. Kabul Inland Customs. ACD/MOF and World Bank to monitor

47 Effectiveness in terms of improved risk management and selectivity is taken as a proxy for “improving the release of legitimate goods.” 48 End Of Project 49 www.worldbank.org/lpi

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Project intermediate Project intermediate outcome indicators Use of intermediate outcomes outcome indicators (ii) installation of MOF, ACD HQ and five regional offices achievement and analyse executive information contributory factors; systems for Customs provide course correction allowing real time to SCRTFP components monitoring of and activities as and when operations required in consultation (iii) development of Development of at least two border points with ACD and MOF. possible options for cross border Customs- to-Customs (C2C) Cooperation (iv) provision of a) Improvement of Jalalabad Inland Clearance Depot selected Customs b) Improvement of Kabul ICD infrastructure to enable c) Construction of Khost ICD modernized operations d) Nimroz ICD e) Torkham Border Post f) Andkhoi ICD g) Aqina Border Post h) Other alternate improvements as agreed between the World Bank and ACD in keeping with the overall results framework. (v) technical assistance Technical assistance for the following areas provided to support the a) Laws and procedures development of an i. Legislative Review adequate regulatory, ii. Customs value added activities administrative and iii. Review of Customs Clearance Procedures institutional b) Customs Control framework for c) Organization and capacity development Customs i. Reorganization plan for ACD ii. Integration and Sustainability Strategy for the ASYCUDA Unit iii. Pay and pension reform package for ACD d) Coordination and partnerships with other government agencies e) Customs Reform and Modernization Unit i. International Customs Unit ii. Monitoring GAAP activities, milestones and benchmarks supported by ICN f) Post Clearance Audit Unit g) Tariff and Statistics Unit (TRSU)

2. The above results framework is based on a problem tree analysis using the ACD GAAP, the lessons learnt from the ECMTFP and the preliminary analysis of the impact of conflict and crime on the Customs reforms in Afghanistan as its inputs

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Figure 1: Problem Tree Analysis

3. Monitoring project achievement implies three categories of indicators, all programmed into the project.

(a) Macro level performance indicators, already used under the ECMTFP have helped identify and understand gaps in management and the approach to Customs operations. These indicators are now being institutionalized under the ARTF Incentive Program, and will become permanent; to date these indicators are also systematically used by World Bank Customs missions to assess Customs activities in over 40 countries.

(b) Field performance indicators (the aggregate of which produce project development objective indicators) show statistical evidence of local performance (e.g., time for release, rates of inspection and detection, revenue re-assessments as a result of control) and these are then converted into ratios, the evolution of which is regularly (i.e. monthly) monitored. While the methodology was initially developed—under the TTFSE program—as a manual survey, the increasing level of computerization will allow generating them automatically, increasing the sampling base to obtain comprehensive data, and produce automated reports. The UNECE envisages adding a specific annex on performance indicators to the 1982 Geneva Convention. In ACD there is a dedicated unit for monitoring indicators—the CURE, which will be expanded under the SCRTFP.

(c) Operational indicators, which have three different functions.

(i) First, to produce risk management criteria, leading to risk profiles. This is part of the RMS activity, an important part of ASYCUDA deployment.

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(ii) Second, an “alert and response” system will be put in place under the SCRTFP, which will provide different levels of the decision-making hierarchy with responses to temporary or permanent queries and identify anomalies or opportunities for malpractice. The alerts are unlimited in their scope and are obviously an essential management tool.

(iii) Third, management has real time access to information about transactions as they are being processed and can query them and/or take immediate action (such as calling the local station chief to obtain explanations). In the context of revenue objectives, HQ can monitor day by day the performance of a Customs house, rather than rely on lengthy and often unclear ex-post explanations about revenue performance. This creates an on-line accountability mechanism, rendering it much more difficult for corrupt practices to go unnoticed.

4. Of course, one of the criteria in selecting the indicators was whether they could be easily captured and measured (explicitly, in the lifetime of the project, but in fact the project aims at internalizing them). This raises the question of monitoring indicators for the fifth component (v) of the SCRTFP. As experience in other countries has shown, these cannot be as objective and comprehensive. However, the fifth component drives the implementation and sustainability of the other four components, and will therefore affect the outcome indicators from components one (i) through four (iv). This was one of the key lessons learnt in the ECMTFP. Component (v) provides the capacity to undertake some key institutional reform and its success will be measured by results in tandem with the other outputs; thus it very much impacts the achievement of the PDO (this is factored in the results framework as well as in the problem tree analysis).

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ANNEX 5: DETAILED DESCRIPTION OF PROJECT COMPONENTS

I. Countrywide computerization of Customs Clearance operation (US$ 16.39 million)

1. Continuing nation- and Customs- wide rollout of ASYCUDA; ASYCUDA version upgrade; and functional expansion of ASYCUDA – This component will sustain and build upon the accomplishments of the current computerization effort. A discernible improvement has been seen in efficiency and reduced revenue leakages in custom offices where ASYCUDA is implemented. However illicit trade and smuggling is currently diverted to non-automated Customs offices. Remaining ACD offices need to be automated in order to “close the wall”. Also, the functionality of this computerization needs to be expanded in order to further reduce human interaction, strengthen controls and automate international transit processing.

2. Also, there are issues in ACD with file movement delays, inventory management, career management, and procurement. These issues should be addressed through Enterprise Resource Planning (ERP) and Office Automation systems. To increase sustainability and robustness ACD should obtain ISO 9000 certification and implement automation-related policies. Supporting communication and infrastructure would need to be provided. Box 1 – The migration from ASYCUDA ++ to ASYCUDA World – 3. Proposed activities in this component It is proposed that a migration be undertaken from the currently will include the following: deployed ASYCUDA ++ (AP) to the newer version ASYCUDA World (AW). AW requires less maintenance and is more user-friendly. Most importantly all further development is being undertaken by UNCTAD (a) Continue ASYCUDA rollout to new on the AW platform while further development on the AP platform has locations based on agreed priorities (between been discontinued since over a year and a half. In Afghanistan only World Bank and ACD and other donors) and Transit and DPS modules of AP are currently operating in certain in parallel, upgrade from ASYCUDA ++ locations; if AP is rolled out in its entirety to all key locations across the country, it will be a bigger challenge to switch to AW. It is also (AP) to ASYCUDA World (AW) (the proposed that for reporting and alerts a third party product be acquired enclosed Box 1 provides the justification and as both AP and AW continue to be weak in this area. The AP to AW approach for this migration) Migration Strategy is to gradually rollout over 39 months in three phases. These three overlapping phases will mimic the original AP (b) Introduce additional ASYCUDA deployment: a) Development of AW prototype, b) transit pilot switchover on the Torkham – Jalalabad – Kabul route followed by functionalities to reduce revenue leakage transit switchover rollout nationally; and c) national Declaration (risk management, valuation, exemptions, Processing System (DPS) switchover rollout. UNCTAD is at various and post clearance control audit) and to stages of undertaking a similar transition from AP to AW in 20 reduce human interaction (electronic countries, and has proposed a team to undertake the ACD transition. However, the local ASYCUDA team has also now absorbed payment, public information displays, considerable skills – particularly on the technical side. The local team, Internet-based submission of declarations, under the guidance of UNCTAD experts, can in fact undertake the Internet-based Tax Identification Number actual rollout of AW. AW expertise is also available with Iran Registration Module, cargo tracking Customs, which has shown willingness to make these resources capability, electronic gates, smart cards, and available, and in private sector companies. AW is more dependent than AP on a reliable national telecommunications infrastructure. To biometrics). Automate support functions address this requirement, a backup satellite connection will be obtained (ERP, Office Automation) in order to to augment the current satellite connection. There are five satellite promote standardization, transparency, and communication providers in Afghanistan. Last year the uptime of the productivity. existing link was 99.9%.

(c) Cargo-tracking is an option often discussed in relation to control over transit. It is based on a transponder or other transmitting device placed on a vehicle, and whose signals are picked up to locate the vehicle. Customs authorities therefore have the feeling they can control in real time movements of cargo across the territory, thus reducing opportunities for diversion of cargo in transit. While this is an expensive option, that raises numerous operational and organizational issues (tracking is only as good as the reactivity of Customs authorities when a vehicle goes astray, real time monitoring implies a large staff which an organization such as ACD can barely afford, transponders or other devices are expensive, and private

46 operators are seldom willing to pay for them – unless a significant facilitation trade-off is offered), they could serve a purpose in the longer term when Afghanistan becomes a major transit country. Software solutions should therefore be designed to accommodate cargo tracking in the Customs computerised clearance system.

(d) Develop ASYCUDA Unit within ACD in order to increase robustness and sustainability of ASYCUDA including ISO and ITIL certifications in order to increase robustness and sustainability of automated processes.

(e) In order to address human resource issues with retention, motivation, and merit, ASYCUDA personnel will be initially contracted through UNCTAD. This would entail increased compensation levels/bonuses, build esprit de corps, and help ensure transparency and fairness in hiring. However, to obtain a homogeneous and dedicated cadre of IT specialists, the Government and ACD should consider other methods for retaining skilled and experienced personnel. Different solutions have been tested successfully in other countries. One of them would consist in identifying, in the mainstream Customs cadre, qualified mid- ranking officials, and provide them, subject to a specific undertaking not to leave the Department for several years, with specialised IT and ASYCUDA training. To make the proposition more attractive, a special bonus scheme (integrated in the pension system) would provide candidates with: (i) A 20 percent mark-up for the first two years; (ii) a 30 percent mark-up for the third and fourth year, and a 50 percent mark-up for the fifth and sixth year. This would encourage staff to stay on for at least five to six years. The mark-up would then decline by 20 percent per year, to encourage rotation and hiring of new staff.

(f) Travel approval procedures and mobility restrictions were also considered while making the decision to initially contract through UNCTAD. To ensure ACD buy-in, the hiring panel would comprise ACD personnel and UNCTAD consultants in addition to the current Ministry of Finance (MOF) officials. Technical personnel will be phased into ACD itself over time as capacity grows within ACD to motivate and retain personnel, promote merit, and curb tendencies toward corrupt practices. Functional personnel will in any case be acquired from ACD on rotation basis; well-trained personnel who have graduated from the Customs Academy will be preferred. The ASYCUDA Unit will be reorganized and expanded in order to build project management capacity further and increase communication transparency and synergy with senior ACD management.

(g) Target Locations – Eventually ASYCUDA declaration and wider modules will be deployed at eleven regional offices and border posts: Regional Offices: (i) Kandahar, (ii) Zaranj/Nimroz, (iii) Andkhoi, (iv) Khost; Border Posts: (v) Torkham, (vi) Islam Qala, (vii) Hairatan, (viii) Sher Khan Bandar, (ix) Kabul Post Parcel, (x) Vesh and (xi) Towrghundi. Inland and international transit will be operational at (i) Spinboldak/Vesh-Kandahar-Kabul (Pakistan),(ii) Zaranj/Nimroz-Kandahar-Kabul(Iran), (iii) Aqina- Andkhoi-Mazar-Kabul (Turkmenistan), (iv) Takhar-Kunduz-Kabul (Tajikistan), (v) Ghulam Khan/Babraktown-Khost-Kabul (Pakistan), (vi) Millak-Herat/Kandahar-Kabul (Iran), (vii) Eshkashim- Mazar-Kabul (Tajikistan), (viii) Kabul Airport-Kabul Inland Customs.

(h) Currently 12 VSAT Satellite nodes and 20 Radio Rooms are operational. This component will support expansion and provision of redundant satellite connectivity to accommodate ASYCUDA rollouts and upgrade while leveraging Optical Fibre Cable (OFC) where available and secure. Inter office communication within Kabul City should be enabled through terrestrial micro-wave which is under implementation.

(i) The above description is based on the SCRTFP appraisal. Based on the lessons learnt from the ECMTFP implementation, in view of the security situation and the Afghan country environment, the decision on the final set of outputs under this component will be reviewed regularly. This review will involve the World Bank, the ACD and the IP (UNOPS supported by UNCTAD). Once agreed by the World Bank, adjustments will be made to location and extent as required during project implementation while keeping in view the agreed SCRTFP results framework.

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(j) This component is designed to include all infrastructure required to achieve final extent of the ASYCUDA rollout at the end of the SCRTFP. Therefore it includes: required provision of goods and equipment; technical assistance for engineering planning, design and implementation (including supervision and handing and taking over costs) and O&M planning; and any incremental operating costs50.

II. Installation of executive information systems for Customs allowing real time monitoring of operations (US$ 2.19 million)

4. There have been issues with the inadequate reporting and alert capability of ASYCUDA and also some responsiveness issues from UNCTAD. Therefore, it is proposed that periodic assessments of other custom management IT solutions also be undertaken for this particular application. A transition to another IT solution for a better executive information system may be warranted if other products provide better functionality and support. One such product is that offered by Webb Fontaine which has some powerful functionality particularly in the area of management reporting and alerts.

5. In summary, this component will target introducing a new functionality (management summary and statistical reporting and alerts) in order to further reduce revenue leakage. If the current product and supplier do not adequately address needs, then a transition to another supplier or platform may be warranted.

6. This component will cover the provision and nationwide implementation, under the modality of a “Turn Key” solution, a business analytics and reporting software for the Afghan Customs Department (ACD) and the Ministry of Finance (MOF), with a view to supervise Customs revenue, Customs office operations and dwell time through different sources including primarily from ASYCUDA which is currently under implementation in ACD.

7. This will provide: real-time, user-friendly information on key Customs parameters extracted from ASYCUDA; a monitoring and supervision system that supervises operations of Customs offices, individuals and transactions; facilitate Customs investigation and optimize verification and supervision mechanisms through the use of risk indicators associated to stakeholders as well as profile and financial trends; and track non compliant trade transactions in real time with the use of user defined alert notices. This system will reside on top of and be based on the ASYCUDA being rolled out.

8. This component is designed to include all infrastructure required to get the turn key solution fully operational based on the final extent of the ASYCUDA rollout at the end of the SCRTFP. Therefore it includes: required provision of goods and equipment; technical assistance for engineering planning, design and implementation (including supervision and handing and taking over costs) and O&M planning; and any incremental operating costs.

III. Development of possible options for cross border Customs-to-Customs (C2C) Cooperation (US$ 0.55 million)

9. Presently, all data at border crossings is handled manually. The unavailability of timely and accurate information hampers transparency and increases the time for border crossings. Huge influx of traffic and cargo at border crossings due to considerable difference in volume of imports and exports makes it all the more imperative for the Customs department of surrounding countries to have real time Customs data exchange facility.

50 For purposes of this paragraph, the term "Incremental Operating Costs" means incremental expenses incurred on account of Project implementation, support and management including the rental of office space, the operation, maintenance, rental and insurance of vehicles, fuel costs, communications supplies and charges, advertisement expenses, books and periodicals, office administration and maintenance costs, bank, transaction charges, utility charges, domestic international travel and per diem, Project allowances for officials and staff of the Recipient's civil service, but excluding salaries of officials and staff of the Recipient's civil service.

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10. Government of Canada has been facilitating technical discussions between Afghanistan and Pakistan under the aegis of the Dubai Process on Customs cooperation. One of the key outputs of the Dubai Process Action Plan has been the agreement on a project to suggesting a possible framework for the development of a system, which would achieve the technical objective of Customs data exchange between the governments of Afghanistan and Pakistan. As agreed during the Dubai Process this study is being undertaken by the World Bank51. The team is undertaking a comprehensive study of processes and Customs information systems presently in place in both countries to collect data on transit and non-transit trade. A detailed analysis of the best practices and lessons learned during systems development and implementation phases of similar initiatives elsewhere is being conducted. Technical, financial, environmental and social aspects of the program are being studied and a framework based on the requirements of the Customs departments of both countries and suitable for both governments shall be proposed.

11. Based on international experience (NCTS, CAREC and Raddex etc.) the study will recommend a holistic approach view of the whole system encompassing procedures, standards, technology, infrastructure, financial and personnel. Secondly, it will detail how to get the involvement of and buy in from all stakeholders. It will also provide a “phased” implementation plan of the system based on “thinking big, starting small” approach for the development and implementation of the Government-to- Government (G2G) Customs data exchange portal.

12. This component will implement the findings of this report and will be scaled up if the pilot is successful. This component will be reviewed during the SCRTFP implementation; and depending on the political buy in it will be amended as required.

IV. Provision of selected Customs infrastructure to enable modernized operations (US$ 25.19 million)

13. The improvements to ACD’s infrastructure under this component are explained below. This component is designed to include all infrastructure required to get the facility fully operational. Therefore it includes: required provision of goods and equipment; technical assistance for engineering planning, design and implementation (including supervision and handing and taking over costs) and O&M planning; and any incremental operating costs. The technical assistance under this component will also include the feasibility study for a multi modal container freight station near the Jalalabad Industrial Park.

14. Improvement of Jalalabad Inland Clearance Depot (ICD) (US$ 2.87 million) – This will include: completion of truck parking area (the remaining is being completed under the ECMTFP); construction of warehouses within the existing walled facility; provision of cargo handling equipment; and implementation of an operations and maintenance plan for the completed ICD. The design of the truck parking area has already been completed under the ECMTFP.

15. Improvement of Kabul ICD (US$ 6.16 million) – This will include: improvement of truck parking area; improvement of access roads and internal roads; electrification; water supply and drainage; provision and installation of weighbridge; improvement of outer security perimeter; repair and refurbishment of select existing warehouses; provision of cargo handling equipment; and implementation of an operations and maintenance plan for the completed ICD. Basic assessment for the warehouses and ICD layout was done under the ECMTFP and will require updating.

16. Construction of Khost ICD (US$ 10.28 million) – The Khost ICD area was fenced under the ECMTFP. The infrastructure provision will include: site clearance and levelling; replacement of the temporary wire fence with a proper security perimeter; construction of access roads and internal roads; electrification; water supply and drainage; provision and installation of weighbridge; construction of main ACD office block and all peripheral facilities such as generator room and toilets; construction of warehouses; provision of cargo handling

51Trust Fund (TF093211) for “Improving Transit Trade Regime in the North-west Sub Region: focus on Afghanistan and Pakistan”, executed by the World Bank.

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equipment; and implementation of an operations and maintenance plan for the completed ICD. Design for the Khost ICD was prepared under the ECMTFP and will require updating.

17. Nimroz ICD (US$ 2.74 million) – This will basically rehabilitate the existing facilities and improve the truck parking area and roads and other required facilities.

18. Torkham Border Post (US$ 1.37 million) – This will include: provision of additional truck parking and facilitation infrastructure; provision and installation of weighbridge; and provision of cargo handling equipment.

19. Andkhoi ICD (US$ 1.37 million) - This will basically improve the existing facilities by rehabilitating the existing infrastructure and add any essentially required facility.

20. Aqina Border Post (US$ 0.4 million) - This will include essential improvements to the existing facilities.

21. The above description is based on the SCRTFP appraisal. Based on the lessons learnt from the ECMTFP implementation, in view of the security situation and the Afghan country environment, the decision on the final set of outputs under this component will be reviewed regularly. This review will involve the World Bank, the ACD and the IP (UNOPS). Once agreed by the World Bank, adjustments will be made to location and extent as required during project implementation while keeping in view the agreed SCRTFP results framework.

V. Technical assistance to support the development of an adequate regulatory, administrative and institutional framework for Customs (US$ 6.18 million)

22. This component will provide technical assistance to ACD to addresses the major GAAP cross-cutting issues which were identified as: cumbersome and opaque procedures; lack of adequate cross-border data exchange; high level discretionary powers of Customs officers; limited operational-level ownership over the reform process; unclear mandate and poor status of Customs; interference of other agencies at the border and in general in Customs operations; and poor HR practices.

23. Following a more traditional approach, ACD had developed a Five Year Plan (FYP) for modernization based on (i) laws and procedures, (ii) enforcement and compliance, (iii) organization and capacity development, (iv) inter-departmental and Customs to business coordination and partnerships, and (v) infrastructure, which partly addressed the GAAP issues. The purpose of this component is to specifically support activities under the first four sections of the FYP, in line with the GAAP findings; with the one exception that the project will focus on improving the control environment of Customs without directly support any enforcement activities. Actions will be targeted on specialized areas, and will be carried out in close coordination with other donors, using in particular the Informal Customs Network structure. This will serve to (a) integrate activities in an overall strategic plan agreed between the Government and all donors, (b).assess the required synergies necessary to maximise input effectiveness and leverage other related inputs, and (c) evaluate effectiveness of inputs and lead to possible readjustments in donor activities.

24. Laws and procedures – Efforts have been made to streamline current clearance and other procedures, but have often stalled due to conflicts between different legislation and the mandate different (and sometimes competing) agencies derived from them. Only limited further progress can be achieved until the legislative framework for Customs and cross-border operations has been clarified. (The Customs administrations worldwide are in the fairly unique situation of having to implement a wide array of legislation provided by all ministries, which is also occasionally conflicting.)

(a) Legislative Review – To achieve this, the project will support a holistic legislative and regulatory review, resulting in a matrix of functions and responsible authorities, leading to proposals for legislative changes – or at least a consistent interpretation – and a strategy for overcoming institutional blockages. Initial draft of the legislative matrix for Customs, oil imports and logistics that has been under discussion with ACD is in Appendix 5.1 to this Annex. Besides clarification of

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objectives, this component will assist the Government and all the donors in preparing, whenever necessary, a consistent legislative and regulatory reform package.

(b) Customs value added activities – A second area covers value-added activities, which can be supported by Customs (such as transit, warehousing, and other services). Now that some of the control equipment and infrastructure is in place, it is important to develop these activities which generate significant revenue both for the private sector and the Government. This component will be delivered in close coordination with other economic development activities, such as the introduction of industrial zones, the establishment of an enabling environment for private sector operations, the development of transit, and the introduction of inward processing schemes, consistent with international best practice and in line with the provisions of the Revised Kyoto Convention.52

(c) Review of Customs Clearance Procedures – A third area will review the process of Customs reforms to help in reengineering clearance processes; it will also facilitate matching of skills of key Customs personnel with their job requirements. Further, it will help in understanding problems in the implementation of ASYCUDA process for suitably rectifying them in its further roll-out. This will be done in two stages: first stage will include a pilot study to establish study methodology and verify utility of results and a second stage where this will be replicated throughout the Afghan Customs territory. It will provide a roadmap for procedural changes and associated organizational reforms.

25. Customs control – While the concept of Customs enforcement is at times misunderstood as only referring to ensuring clerical fiscal compliance (and is thus limited to risk management and post release controls), it is now essential for the ACD to move towards an approach similar to that of most developed countries. The Afghan security context makes it particularly difficult to implement, not due to lack of resources, but because of the overwhelming prevalence of the Ministry of Interior and its border police in Customs-related matters. This results in loss of efficiency, severely eroded credibility for Customs who have limited, if any, means to detect and adequately punish violations, and a serious compliance gap simply because the other main law enforcement agencies have neither the resources not the skills to identify Customs fraud. Efficiency in developing Customs control implies (i) close coordination between donors, some of whom may have overlooked in the past the role of Customs in the overall border security paradigm, (ii) through widespread awareness- raising activities a better understanding of the need for Customs to carry out wide-ranging enforcement activities to ensure their credibility and efficiency in all domains related to ensuring that cross-border movement of goods comply – or have complied – with all relevant legislation (and not only revenue-related), (iii) a phased introduction of the corresponding enabling environment, (iv) adequate training.

(a) This component will support these activities through policy research and dissemination, inter- donor networking, dissemination of international best practice, and linkage to overall performance indicators of ACD.

(b) It may involve technical assistance to internalise risk management and control requirements in the computerised framework (such as the executive information system) developed under the project to ensure adequate reporting and accountability of enforcement units – a basic necessity which was severely overlooked when isolated initiatives in this domain were taken during the lifespan of the ECMTFP. It is expected this activity will have a significant impact on both departmental performance, Customs control and overall collaborative border management (CBM).

(c) The SCRTFP will also provide technical assistance on the options for Customs in the collaborated border management strategy (CBM).

52 The International Convention on the Simplification and Harmonisation of customs procedures, also known as the Revised Kyoto Convention, is an instrument developed by the World Customs Organisation (WCO) and provides a template for best practices in the control and clearance of goods.

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26. Organization and capacity development – The component will essentially focus on: (i) the tightening of the chain of reporting and command within ACD; (ii) develop systems and mechanisms to identify and alleviate external interference in Customs management; and (iii) combat corrupt or other unprofessional attitudes in ACD. A whole range of administrative and operational alerts derived from the computerized clearance data base will be used to that effect, and this component will support their internalization, through adequate organization, use for management purposes, and outreach. The objective is to give ACD the means to assess and document its performance, take remedial action when necessary, and provide the Government with reliable data for decision- making. Another output will be the establishment and monitoring of performance indicators at local and departmental levels. As a key part of this activity the following three key studies will be developed and completed by the ACD with support from the SCRTFP.

(a) Reorganization plan for ACD—including approval and implementation strategy and timelines

(b) Integration and Sustainability Strategy for the ASYCUDA Unit—including piloting of strategy

(c) Pay and pension reform package for ACD—including approval support and implementation assistance.

27. A background note providing the preliminary human resource and administration analysis for the current ACD ASYCUDA Unit is appended to this Annex (Appendix 5.2). This note will form the basis of the discussion between ACD and the World Bank to develop the TOR for the “Integration and Sustainability Strategy for the ASYCUDA Unit—including piloting of strategy.”

28. Coordination and partnerships with other government agencies – While the FYP essentially focuses on relations between ACD and the trade, it is relatively weak in dealing with other Government agencies, and even more in terms of international exchanges. A major effort is required to ensure proper coordination and cooperation between State administrations, sharing data and optimizing resources. Similarly, cross-border data is an essential aspect of Customs control. This component will support the development of computerized data exchanges between agencies and between ACD and neighbouring Customs administrations. It will require the identification and standardization of data, utilization protocols, and corresponding cooperation mechanisms. A second aspect is the integration of the business processes in an approach eventually leading to a single electronic window operation, but providing as a priority an entirely automatic clearance process for those transactions identified as low-risk (i.e., the green by default approach).

Box 2 – The Customs Advisory Unit from the 29. Customs Reform and Modernization Unit – This region (CARs) was established under ECMTFP component will strengthen CURE and possibly help it transition within the CURE to undertake the task staffed with into a super advisory body where all donor technical assistance Customs officers from the regional countries. will reside. The CURE was initially created to internalize the (Participating countries include Iran, Pakistan and entire reform effort within ACD and providing the counterpart India). This helped better leverage the available bilateral assistance from these countries and use capacity that was required for day-to-day management of expertise which is more knowledgeable about external assistance towards the reform and modernization of the regional Customs and trade issues. CAR was Afghanistan Customs. The CURE assisted the Director General initially primarily focusing on rapid implementation in all areas destined to achieve timely, consistent, and of the Customs Code through framing of sub- legislation and standard operating procedures synchronized inputs supporting the execution of the FYP, and (SOPs). Under SCRTFP the role of CARs will be other objectives set at ministerial or governmental levels. It, in transitioned away from handholding ACD on coordination with other partners, updated the FYP, and routine day to day operational matters, and monitored results in terms of performance and institutional expanded towards hosting and thus providing development. It is now felt that different donor assistance in policy, institutional, procedural and administrative advice for ACD reforms by merging it fully into the ACD tends to work in silos and there is a need to coordinate all CURE. this assistance and make the overall support and technical assistance coming to ACD more effective and efficient—this component will help CURE achieve this goal and try and create a more permanent partnership of donors with assistance of the ICN; such as channelling all assistance to ACD through single trust fund or a similar mechanism. Another role of CURE will be to monitor

52 and process all performance measurement data (both at macro and field level), and ensure follow-up of alert data provided by the EIS and to monitor the various reform projects being undertaken in ACD. Subsequently CURE could evolve into a distinct policy and planning unit.

(a) Monitoring GAAP activities, milestones and benchmarks supported by ICN – To ensure that the responsibility for the implementation of the GAAP is fully owned by the ACD/GOIRA and supported by the ICN, the ICN is in the process of agreeing on the milestones and benchmarks along with associated timelines for achieving them. Once this framework is in place the project will support CURE to monitor this using the GAAP tool.

(b) International Customs Unit – The project will assist ACD in setting up a small International Customs Unit (ICU). The main responsibility of this unit will be coordination and interaction with external organizations on Customs related matters e.g. World Customs Organization (WCO) and other international organizations. The ICU will also be responsible for preparing the Government and ACD’s participation in, and negotiation of, bilateral and international trade and transit treaties and agreements, including by coordinating with other government ministries and departments (e.g. Ministry of Foreign Affairs, Ministry of Commerce) on matters pertaining to Customs and Trade Facilitation. It will maintain contacts across borders with other Customs agencies. The unit will be headed by a senior customs officer from ACD with requisite background and goods communications skill. Additional training in identifying and managing international instruments and internalizing them in the ACD context will be provided through technical assistance funded by the project.

30. Post Clearance Audit Unit – While automation and trade facilitation has been the over-riding theme of the Customs modernization strategy world over, an important element of new strategy is to have an effective system of Post-clearance Customs Audit (PCA) offering a “safety net” for immediate green channel release of goods, so that there is an optimum balance between the trade facilitation and Customs controls. Once in place, the PCA is expected to result in greater compliance and help in shoring up revenue collection. The need to develop a PCA structure in the ACD was accordingly given due emphasis in the 2007/12 ACD FYP. PCA is also one of the top priorities areas identified in the Ministry of Finance's Revenue Action Plan (2009). PCA units have already been set up in all the major Custom Houses in the country and have been in operation for a while. Based on the experience gathered, the PCA function is being further strengthened for covering other Custom houses and Border Custom Stations. As part of the Ministry’s Revenue Action Plan, it is also proposed to make the PCA Unit more independent and introduce risk management system in its operation for optimal utilization of resources. This component will support the development of the PCA Unit in ACD. The project will also support a very senior and competent advisor to lead and manage this process.

31. Tariff Research and Statistics Unit (TRSU) – This component will aim to strengthen the Tariff and Statistics Unit (TRSU) set up under the earlier USAID funded project. Currently the trade-related data produced by various departments of ACD is not fully utilized. While TRSU has been operational since 2005, the unit only collects and consolidates trade data, without the level of analysis required in a modern Customs administration. The results of Customs control and the collection and analysis of foreign trade statistics provides relevant information to the management to take informed decisions helping in risk management, revenue collection, and detection of fraud and corrupt practices. This data also provides information to the administration responsible for setting up tariff structures. The support to TRSU under this component will strengthen ACD’s ability to analyze trade data, performance indicators, and customized alerts and data exchanges with other administrations. The project will support a competent Customs consultant/advisor to train TRSU staff in analyzing trade data using modern statistical methods.

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Appendix 5.1: Legislative Matrix

Agency Activity Customs Finance Commerce Transport Interior Industry Health Justice of Chamber Commerce Foreign Affairs Private sector International agreement CUSTOMS Organization Headquarters P, I P Regions P, I P Offices P, I P Personnel Recruitment I P P Management P, I P Discipline P, I P P Salaries P, I P Overtime P, I P P, I Rewards P, I P Clearance Documents P, I P P P, I I P Cargo reporting P,I Payments P, I P P I Compliance P, I I Warehouses P, I P I Inward processing P, I P I Temporary import P,I P I Valuation P, I P P Origin P, I P Licensing P, I I P I Operations P, I Cars I P P Import licenses I P P Brokers Licensing P, I P P I Standards of accreditation I P P, I Documentation and practices P I Training I I Transit Control P, I P P Guarantees I P I I P TIR P, I I P Discharge P, I IT Statistics I P I I Data protection I P P Policy P, I P P PETROLEUM IMPORTS I P P P Control Standards I P P Quality I P Health I P Veterinary I P Phyto-sanitary I P Artifacts I I P

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Agency Activity Customs Finance Commerce Transport Interior Industry Health Justice of Chamber Commerce Foreign Affairs Private sector International agreement Counterfeits I P P P P Preventive Border management P, I P, I P P Border stations P, I P P, I P Enforcement P, I P P, I Inland I P P, I Border line (delineation) I I P P Border line (patrolling) I P, I Security I P, I P Smuggling P, I P I P Narcotics I P, I P Passenger control P, I P I P Prosecution Fines I I P Court I P Other I P P Procedure I I P LOGISTICS Transport Regulating/Licensing I P P I P I Organization I P P I Documentation I P P I P, I I Technical standards I P I P Enforcement I P I Containers I P P Rail P, I P Insurance National freight I P Transit I P P Bonds I P P, I P Financial practice L/C P P P I

P – Policy I – Implementation Outline box demotes Lead Institution(s) if any.

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Appendix 5.2: Preliminary HR Analysis for ACD ASYCUDA Unit

In order to analyze the HR problems currently being faced by the ACD ASYCUDA Unit, both within and in its interaction with the rest of ACD, it is necessary to first analyze the HR culture and practices within ACD and also in the Ministry of Finance as the Ministry oversees HR and Administration in ACD.

In the following, the ideal situation is described, next current issues are enumerated, and finally recommendations are made to improve the situation and help evolved it toward the ideal situation.

Customs Vision:

Leading customs organizations worldwide have high autonomy and a broad mandate. Customs officers have a high esprit de corps that arises from their status as an “elite” service with specialized skills, high discipline and dedication. Customs has a broad mandate that includes border control, weighing, and quality control. Owing to the availability of a rich and deep data set on trade flows, it becomes a think tank to the Government providing analysis and recommendations on trade, customs, transport and security.

In order to countervail and balance Customs high level of autonomy and breath of mandate, the Ministry of Finance exercises rigorous Governance and oversight through the establishment of policies, monitoring of their compliance, and transparent, real time access to data on clearance and revenue statistics, audit results, external intelligence reports and internal Customs information on human resource status, finance, budgeting, inventory, and procurement.

Internally, Customs is a policy driven; IT enabled organization utilizing best practices in Human Capital Management.

Existing Situation in ACD:

Currently in Afghan Customs Department (ACD) the following issues exist:

 Ministry of Finance (MOF) currently has an operational role within ACD, particularly in the areas of HR, Administration and IT. This role, which runs contrary to international best practice as applied to the Afghan paradigm, is motivated by a belief that ACD needs to be closely monitored lest it become too corrupt. Direct reports to the DG such as Regional Directors oftentimes contact the Minister or Deputy Ministry directly thereby eroding the mandate of the Director General (DG).

 Furthermore, such intervention by the Ministry can oftentimes bypass the DG thereby eroding the chain of command and principles of good governance.

 Such micromanagement is practiced within ACD as well, where the DG for example may circumvent his direct reports and issues instructions directly to line officers. This again undermines principles of good governance, may violate policy and procedures, and also result in de-motivation and morale issues.

 Owing to the deep interaction of multi-lateral agencies with the ASYCUDA team, the DG ACD has observed that he exercises weakened control and oversight over the ASYCUDA Unit which appears to take direction from these external agencies directly rather than from the DG.

 The ASYCUDA Unit’s responsiveness and communication with the DG and other departments that need ASYCUDA data is perceived to be unsatisfactory. The Unit has been unable to adequately transfer technology from foreign consultants primarily due to high attrition levels.

 Continuing high attrition levels in the ASYCUDA Unit threaten the sustainability, expansion and up- gradation of ASYCUDA based automation in ACD.

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Way Forward

It is recommended that the following measures be adopted:

High level Objective Setting

ACD management must utilize high-level objective setting and results tracking rather than micro-management when dealing with ASYCUDA Unit as this unit performs a highly specialized activity, which general managers cannot be expected to understand or perform. For example, currently despite the contrary recommendations of the ASYCUDA Unit, users can be created and passwords issued by regional customs administration. This is contrary to international best practice, undermines system security, and reduces the control and authority of the center.

Similarly, MOF must give as much autonomy to ACD as possible particularly in the area of HR including hiring, firing, transfers, compensations, promotion, and travel. Direct interventions by MOF officials with ACD officials that bypass the DG, create a culture where the chain of command is diminished and political intrigues can flourish. This culture then pervades the ACD itself.

Of course high level objective setting and autonomy cannot operate in a vacuum. Rather, they are complemented by a strong policy and compliance-measuring system that strengthens governance, manages risks, and helps prevent misuse of authority and corruption. The policy mechanism within the ASYCUDA Unit is strong and all parties – the MOF, DG, Director and officials – must strive to comply with it and support it.

The GRC (Governance, Risk, and Compliance) capability within MOF, with respect to ACD needs strengthening. IT, including ASYCUDA and in the future ERP systems, will be key to enabling this GRC capability by providing real time, user-friendly data to MOF officials on clearance statistics, individual clearance cases, specific traders, post clearance audit, external intelligence, HR, procurement, and finance.

Finally, it has been stressed to the ASYCUDA Unit by relevant multi-lateral agencies that the DG ACD, as the head of the executing agency, is responsible for project execution and thereby exercises final authority over the project. As recommended later in this paper, policy mechanisms need to set into place, which clarify and secure the DG’s role as the final authority in project execution.

Transparency and Wide access to Information

Wide transparent access to ASYCUDA and other information is not only essential for governance purposes but is also required by stakeholders outside ASYCUDA for delivering on their mandates. These stakeholders include the Customs Reform Unit (CURE), Post Clearance Audit (PCA), and others. Stakeholders outside ASYCUDA can include tax and revenue administrations, vehicle administrations, security and police.

These stakeholders need to be provided real-time, user-friendly, configurable, read only access to ASYCUDA information. The ASYCUDA Unit is working on a prototype that is expected to enable such access; third party products are also available.

In any case, transparency in information sharing is a foundation of best international practice and is quite applicable to the Afghan paradigm. The ASYCUDA Unit agrees to this principle and has undertaken to provide such access, when authorized, in an expeditious fashion going forward.

Creation of an Enabling Environment

MOF and ACD management must strive for the creation of an enabling environment within ACD in which the ASYCUDA Unit can excel. Such an enabling environment includes the development and implementation of clear and reasonable HR policies and procedures.

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Currently the primarily mechanism for describing job descriptions and roles are TOR that are utilized by the HR department for hiring. These TOR are obviously too high level and vague to be able to administer day to day operational interaction between different positions.

More precise demarcation of authority between the DG and Director ASYCUDA Unit in the following areas is required:

 HR (hiring, firing, training including overseas training, compensation levels, transfers, promotion, travel)

 Procurement

 Operations (provision of information to entities outside the ASYCUDA Unit, cancellation/replacement of T1)

The DG, as the final authority for project execution, should provide guidance, oversight and final approval on strategic decisions. The Director ASYCUDA must direct the ASYCUDA Unit in the implementation of the mandate established for it by the DG.

It is recommended that a committee be formulated with the mandate to define the policies and ensure their compliance. This committee should include: Director ASYCUDA, UNCTAD Functional Advisor, UNCTAD Technical Advisor, and a representative from either the ACD HR Department representative or the ACD Procurement Department or a Regional Customs office. The committee may draw upon the services of an external consultant to help define the policies (who can be provided by the World Bank.)

Feedback from World Bank and UNOPS must be sought in order to ensure regulatory compliance and harmony with UNOPS procedures and capacity. The DG would finally approve the policies.

Keeping in mind that ASYCUDA staff is highly specialized and is in high demand in the marketplace, which offers relatively high salaries leading to high attrition in the ASYCUDA Unit, the proposed committee may consider the following specific measures:

 Performance based annual salary increase of up to 12% as per UN rules.

 Travel Per Diem of US$ 30 per day as per UN rules

 A robust training program including overseas training so staff can keep abreast of international best practice

 As ASYCUDA staff often needs to come early to prepare computer systems and also leave late, it is recommend that transportation to and from office be provided to them.

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ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS

A. Economic Evaluation

1. Given the development objective is to improve the release of legitimate goods in a fair and efficient manner, it is expected that improvements brought about through this assistance will enable the ACD to reinforce its functions of revenue collection and more effectively contribute to supporting and enhancing the competitiveness of the national economy; combat smuggling and movement of dangerous goods therefore protecting local society from hazardous materials, arms and ammunition; provide better control over passengers and goods movements and transportation crossing borders as well as better control of commercial activities to prohibit illegal business, while facilitating trade exchanges.

2. The viability of the project has been appraised on the basis of both economic costs and benefits and in terms of its contribution to priority goals for the Government as outlined in the Afghanistan National Development Strategy (ANDS)53.

B. Enhanced Trade and Economic Activity

3. An estimated 80 to 90 percent of economic activities are concentrated in the informal sector and the quality of officially reported Afghanistan trade data remains very poor. Data on the volume of trade varies both in volume and value across sources. There are major differences in import and export values reported by the Central Statistics Office and Customs and reporting on Afghan export and import data varies extensively by the source used. Also, key export data such as goods sent under preferential agreements is not yet available.

4. Afghanistan has a highly unusual trade structure. The total commercial Afghan trade in 2008 has been estimated at US$ 8.4 billion. Of this amount, total commercial imports for 2008 are estimated at US$ 7.9 billion54 of which approximately US$ 7.7 billion moves over land routes. The official exports from Afghanistan are a fraction of the total Afghan trade scenario. Export valuations range from US$ 0.2 billion by ACD TRSU to US$ 0.6 billion in the UNComtrade database.

Table 1: Afghanistan Imports & Exports – Border Crossings & Value of Trade Declared (2008) US$ m Value of Trade Value of Trade Declared Percentage Transit Border Crossing/ Declared Countries Customs Post Imp1 Exp2 Total Imp Exp2 Exp3 Total Imp Exp Total All Countries Airport 160 13 173 160 13 29 189 2% 5% 2% Kabul 90 90 Torkham –Jalalabad 2,604 11 2,614 Pakistan Chaman –Kandahar 253 34 287 Chaman- Spin Boldak 91 91

53 In the ANDS for 2008-13, the Government of Afghanistan emphasizes the need for investments in Customs and logistics management services to improve trade and transport related services, in collaboration with regional economic organizations and initiatives such as the Economic Cooperation Organization (ECO) and the Central Asian Region Economic Cooperation (CAREC). It stresses the need for effective border management and narcotics control by strengthening state institutions to combat drug smuggling, improvements in key Customs infrastructure, capacity, transit trade, expanding Afghan export base and reducing Non-Tariff Barriers to trade, ultimately contributing towards achieving the larger objective of a secure, credible and financially viable state. Successes of the previous project have been commended by the Government in reducing transit times, encouraging the promotion of trade and the tracking of Customs revenue collection in its future development strategy. 54 Source TRSU, ACD, Exports from Afghanistan

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Value of Trade Value of Trade Declared Percentage Transit Border Crossing/ Declared Countries Customs Post Imp1 Exp2 Total Imp Exp2 Exp3 Total Imp Exp Total Ghulam Khan – Khost 24 1.2 25 Gardez 0.5 1.5 2 2,972.8 138 300 3,273 38% 52% 39% Islam Qala- Herat 1,687 39 1,726 Iran Zaranj-Nimroz 9 0.1 9 1,695.8 39 85 1,781 22% 15% 21% Towrghondi 508 508 Turkmenistan Aqina-Andkhoi 113 6 119 621 6 13 634 8% 2% 8% Uzbekistan Hairatan-Mazar 2,388 10 2,398 2,388 10 22 2,410 30% 4% 29% Sher Khan Bandar- Tajikistan Kunduz 29.3 58 88 Takhar 0.4 1.7 2 29.72 60 131 160 0% 23% 2% TOTAL 7,867 266 8,133 7,867 266 580 8,447 100% 100% 100% Note: 2008 Afg Exports UNComtrade: US$ m 580.27

1. Refer Imports by Afghanistan through Neighbouring Countries, data from T1, TRSU 2. Source TRSU, ACD, Exports From Afghanistan 3. Export through countries based on UNComtrade data US$580m and TRSU country wise export data of US$266m

5. IMF estimates for official imports and exports are US$ 8.3 billion and US$ 0.6 billion respectively.

Table 2: IMF Trade Balance Estimates Afghanistan Trade US$ m Proj 05/06 06/07 07/08 08/09 09/10 Trade balance -4,335 -4,933 -6,002 -6 608 -6,681 Exports of goods (f.o.b.) 1/ 1,795 1,811 1,835 2,181 2,012 Official exports 386 416 482 603 658 Unofficial exports (smuggling and transit trade) 1,409 1,394 1,352 1,542 1,354 Imports of goods (f.o.b.) -6,130 -6,744 -7,837 -8,788 -8,694 Official imports -5,482 -6,049 -7,246 -8,250 -8,093 Of which: Duty free -3,258 -3,579 -4,685 -5,374 -4,897 Smuggling -648 -694 -590 -539 -601 Official Imports as % of total Imports 90% 91% 93% 94% 94% Smuggling as % of Official Imports 11.8% 11.4% 8.14% 6.53% 7.43% Official Exports as % of Total Exports 22% 23% 26% 28% 33% Unofficial Exp (smuggling /transit) as % of Ttl Exp 78% 77% 74% 72% 67%

Source: IMF Country Report 2009 Afghan fiscal Year: March 21-March 20 Note: IMF estimates, actual imports are higher than official reported figures by 6~8% and actual exports are 3 to 3.6 times the official reported figures

6. The IMF Afghan country report 2009 estimates that actual imports are being under reported by 6~8 percent and the actual exports may be 3~3.6 times the official reported export figures. If we take these estimates to be reasonable, then around US$ 1.9 billion worth of trade is not being documented. The project is expected to extend the coverage of the formal trade sector which may negatively impact those traders presently working through the informal system. Accordingly the 2008 total trade (official and unofficial) can be estimated to be US$ 10.3 billion.

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Table 3: Afghanistan Direction of Trade Analysis 2008 (US$ m)

Transit Value of Trade Declared % Value Countries Through Port Import1 Export2 Total Import Export Total All Countries Airport 160 29 189 2.0% 5.0% 2.2% Kabul, Kandahar, Jalalabad, Khost, Pakistan Gardez 2,973 300 3,273 37.8% 51.8% 38.7% Iran Herat, Nimroz 1,696 85 1,781 21.6% 14.7% 21.1% Turkmenistan Aqina-Andkhoi 621 13 634 7.9% 2.2% 7.5% Uzbekistan Mazar 2,388 22 2,410 30.4% 3.8% 28.5% Tajikistan Sher Khan Bandar-Kunduz, Tahkar 30 131 160 0.4% 22.5% 1.9% Total 7,867 580 8,447 100% 100% 100% Trade including unofficial estimates 3: 8,418 1,915 10,332 Source: Afghan Customs Department, Trade Statistics Section 1. Imports by Afghanistan through Neighbouring Countries [data from T1, TRSU and other official sources] 2. UNComtrade data and TRSU, ACD, Exports From Afghanistan, Hamal-Hoot 1387 (Mar' 2008-Mar' 2009) 3. IMF estimates, actual imports to be higher than official reported figures by 6~8% and actual exports to be 3 to 3.6 times the official reported figures

7. There are about 32 border crossing points for Afghanistan with its neighbouring countries. Figure 1 shows the official and non-official border crossings, the main established custom locations, and the Customs inland clearance depots for all routes connecting Afghanistan with neighbouring countries.

8. Pakistan is seen to be a key player for Afghanistan trade. 47 percent of cross border commercial truck traffic, 58 percent by weight of cargo and 39 percent by value moves across Pakistan-Afghanistan border.

9. The share of the opium sector in the overall Afghan economy has declined steadily over the last few years. This largely reflects sustained growth in the illicit economy rather than a decline in exports of illegal drugs, as these Figure 1: Afghanistan Border Crossings exports have remained largely unchanged. A recent UNODC's Afghan Opium Survey estimates that in 2007, opium accounted for more than half of

Table 4: Afghanistan Imports through Neighbouring Countries Imports into Afghanistan Wt Value Traffic Pakistan 57.9% 38.6% 47.1% Iran 8.1% 22.0% 17.8% Turkmenistan 7.2% 8.1% 7.2% Uzbekistan 26.3% 31.0% 27.2% Tajikistan 0.4% 0.4% 0.8% Afghanistan's GDP (at 53 percent). Other illegal activities include the smuggling of arms and ammunitions and re-exporting goods to its neighbouring countries through unofficial channels. While the potential export value of opium attracts most attention, it is only one among many factors defining the macroeconomic impact of the

61 opium market on the Afghan economy as a whole. The impact on the real sector will, in particular, depend on which share of this export value actually enters the economy, how this share is divided between the different actors, and how these different actors allocate their income between consumption, investment, and savings. The drug economy, which is excluded from reported GDP, adds to the demand for domestic products through the demand it generates. Although not recorded in official balance of payments data, it also has a net positive impact on the balance of payments. The potential export value of the 2008 opium production was estimated by the United Nations Office on Drugs and Crime (UNODC) at $3.4 billion.

C. Enhanced Transit Facilitation Figure 2: Regional Trade estimates for imports to 10. Improved procedures and a more efficient Afghanistan: Value, Customs services within Afghanistan could Transit Trade, Weight substantially reduce multiple cargo handling, transit costs and the overall trade costs, if accompanied by the streamlining transit procedures which allow a freer flow of vehicles and reduced restrictions on trade. Afghanistan is potentially a key link in transit routes from Central Asia to the Gulf and Arabian Sea. The development of such routes could generate transit earnings for Afghanistan but their real value may be the leverage that they will provide in negotiating the terms and conditions for Afghanistan’s own international transit.

Evaluation of Afghanistan’s Transit and Trade Facilitation Systems

11. Afghanistan has a substantial number of transit alternatives and is thus not dependent on any single route. It is, however, faced with substantial problems and high transit-related trade costs:

(a) Cargo Transhipment - With limited exception of some direct road transport from Karachi to Kabul, all of Afghanistan's foreign trade is transhipped often more than once. Transhipment is time- consuming and costly both in terms of direct (handling charges) and indirect costs (loss and damage).

(b) Container Restriction - The benefits of containerization are lost to Afghanistan because shipping companies do not permit their containers into the country. They have to be purchased from the shipping line, un-loaded at either the port or at/near the border. Subject to multiple handling, most of the cargo is thus break bulk cargo, and most vulnerable to handling loss and damage.

(c) Restriction to transit for private trucking sector - Moreover, the other-country tractor-trailers carrying the containers are not allowed into Afghanistan. Largely because of the lack of appropriate transit systems and the vested interests of the Afghan trucking industry, a large part of which are owned by the warlords and the opium-trade mafia. This poor market structure for the private trucking sector is reducing the benefits to the project, thus having a major implication to computing the benefits.

(d) Lack of Insurance - It is impossible to obtain insurance for cargo moved within Afghanistan. There are essentially three levels of insurance: first, there is no recognition of vehicle insurance between countries, second, cargo cannot be insured and third, transit bonds are absent. Insurance coverage can be obtained up to the border but thereafter the cargo moves under either owners' risk or carriers' liability, at much higher freight rates. The absence of either an insurance sector or functioning formal banking sector also prevents the development of a bonding or monetary

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guarantee system for either vehicles or cargo in transit, thereby restricting the opportunities for streamlined transit systems to allow clearance at final destination rather than at the nearest regional center.

(e) Limited Afghan Participation - Except for participation on the Kabul - Torkham - Peshawar route, Afghan participation in the transit system outside of Afghanistan is confined to limited activity into Turkmenistan and Uzbekistan; there is no international participation by the Afghan trucking industry. Reciprocal access would result in a substantial improvement to the overall transit system.

(f) High Transit Costs within Afghanistan - Transit -transport costs within Afghanistan are high but within Afghan power to control/reduce. These costs are a result of:

(i) extremely poor conditions of the internal road network and lack of ancillary facilities;

(ii) short internal hauls on most internal routes;

(iii) insecurity in parts of the country;

(iv) numerous checkpoints along the routes levying a multiplicity of fees and taxes, and unnecessarily lengthening transit times and increasing uncertainty in the journey imposed by these checkpoints.

(g) Poor Communication Systems - This results from trans-shipment, border formalities, Customs clearance at provincial capitals, and numerous check-posts en route; coordination between transporters and between shippers and Customs officials which is caused by the lack of professional transit agents and poor communications.

12. Overall, despite the low transport costs on the routes of some of its transit partners, Afghanistan faces a transit system which, unless improved, will impose major constraints on the development of its foreign trade and thus economic and social development. Some of these constraints can be relaxed by actions within the control of the Government of Afghanistan while others will require joint action with its partner states.

13. This project addresses only aspects of improving the internal transit system. While assisting the Government to resolve some of the major internal issues, it is expected that it will also fund assistance to help Afghanistan prepare proposals which will both improve the transit system and benefit its transit partners.

Developing Afghanistan’s Internal Transit System - A Needs Assessment

14. This section provides an outline needs assessment for improving Afghanistan’s internal transit system. It is important to note however, that not all constraints in the development of a more effective internal transit system, as identified below, can be addressed by this project or by any single project.

15. By addressing improvements in the internal transit system, this project is expected to reduce the following times:

(a) border clearance time required to initiate transit at the borders (e.g. once the truck from Peshawar is taken under ACD control, the time taken from crossing the border to departing the border post at designated site)

(b) import clearance time of goods at destination (e.g. the time taken from the entry of a truck into the import clearance terminal to the release of goods from Customs control)

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(c) transit time to the inland destination

16. Among the critical constraints which can be achieved in the short- to medium-term are:

(a) Streamline Border Procedures - Reduce the number of documentation to a single document conforming to international conventions with multi language instructions in regional languages. This would also facilitate Afghanistan's potential role as a transit link for Central Asia.

(b) Re-establish Formal Financial and Insurance Systems - Without the ability to provide transit bonds and insurances, Afghanistan will be restricted to rudimentary transit systems such as convoys or duty deposits. The re-establishment of financial institutions should have very high priority. Insurance for goods and containers would allow significant transport cost savings.

(c) Implement a National Customs and Transit System - Government should introduce a uniform national system, accompanied by the provision of the legal framework for the freight forwarding and Customs clearing, which allows the shipper to select whether to clear cargo at the nearest provincial capital or at the final destination.

(d) Provide for Direct Transit - Reciprocal open access should be sought.

(e) Reduce Checkpoints and En-route Inspections - Fuel tankers are stopped 16 or 17 times on a round trip between either Herat or Hairatan and Kabul and have to pay at least that number of taxes and fees. Trucks are stopped 4 or 5 times on the road from Torkham to Kabul. The individual fees may be small but they delay the vehicles, provide the opportunity for informal payments and introduce uncertainty. Interviews with truckers reveal that this could range between US$ 150 to US$ 200 per trip as gratuity for staff at these check-points. These checking-posts should be removed and a single transit fee charged at the border.

(f) Simplify the Transport Commission - Presently, a transport commission is charged according to distance, route, weight and commodity, which generally amounts to roughly 2-3 percent of the cargo value. Thus the Transport Ministry has the power to inspect cargo, which should be the sole prerogative of the ACD. The tax should be based simply on weight and distance, which would allow monitoring at a border weighbridge, and collection at a toll plaza.

Box 1 – Bonded Transit Operations - The Present Situation

Bonded transit operations as such do not exist in Afghanistan but transit in the Torkham-Jalalabad corridor, as an example, is authorized under special procedural conditions “in lieu of bond” which provide adequate security to Customs. These procedures involve the surrender of the vehicle and driver documentation to the Customs Authorities at the border and release of the same upon completion of Customs procedures. These conditions cannot, however, be considered as standard practice, and may change without notice and are specific to that border. The reasons for this lack of consistency include the weak applicability of laws and administrative norms, which depend on political authorities and provincial uses. It is also a consequence of lack of a proper financial mechanism for bonding.

Although the current Afghan system for transit including bonding securities in documents or in kind (30% of goods), may seem weak, confusing and poorly organized, the current administrative reality is different. In Afghan perception, the present surrogate for a bonded transit system is in line with other aspects of current Afghan transit logistics-in certain cases, standards do not seem either necessary or applicable to scenarios where Afghan cultural factors are predominant and locally understood.

Estimates of Afghan Transit Trade

17. Statistics on value of transit goods is not readily available and has been estimated from documented direct imports of commercial goods into Afghanistan from neighbouring countries and the total imports. It is estimated that approximately US$6.1 billion (80 percent) of the total imports of Afghanistan are transit imports

64 through neighbouring countries. The total ATT (Afghanistan Transit Trade) commercial and non-commercial cargo movement imported through Pakistan is estimated at US$2.1 billion. PRAL (Pakistan Revenue Automation) however reports Afghanistan transit trade through Pakistan at US$1.1 billion only.

Table 5: Estimates of Afghanistan Imports and Transit Trade (2008)

Direct Transit Total Import1 Trade3 Imports2 Imports From Direct Import (Afs)1 (US$ m) (US$ m) (US$ m) Pakistan 45,648,981,226 913 2,060 2,973 Uzbekistan 19,863,775,468 397 1,991 2,388 Iran 8,509,715,207 170 1,526 1,696 Turkmenistan 2,487,144,078 50 571 621 Tajikistan 1,672,182,475 33 (4) 30 Total Neighbouring Countries 78,181,798,454 1,564 6,144 7,707 Other Regional Trade Other Countries – Air 7,982,248,670 160 0 160 Kazakhstan 8,899,555,914 178 0 178 Russian Federation 4,276,385,397 86 0 86 Kyrgyzstan 49,670,875 1 0 1 Total Other regional 13,225,612,187 424 - 424 Totals 91,407,410,641 1,988 6,144 8,131 1. TRSU Data 1st Jadi 1386 to 30th Jadi 1387 [22nd Dec, 07 to 19th Jan, 09 - 13 month data annualized] 2. Refer: Imports Table by Country 3. Derived from total imports and direct import

Table 6: Afghan-Pakistan Import Transit Trade 2008/2009 AFGHAN - PAKISTAN IMPORT TRANSIT TRADE 2008/09 Chaman & Ghulam Khan Torkham Total Commercial Non-Comm Total Commercial Non-Comm Total Commercial Non-Comm Total MMTon 0.59 - 0.59 2.71 1.08 3.79 3.30 1.08 4.38 US$ m 255 - 255 1,804 - 2,059 - 2,059

18. While projections for exports and transit trade have been lowered in line with the deteriorating global outlook, the actual real-time transit declaration data (now available through ASYCUDA) on the two major transit routes, Torkham-Jalalabad and Islam Qala-Herat, shows that there is potential to collect more taxes as the real trade flows are under-estimated. Thus, the increase in official exports may be due to shifting of exports from unofficial to official channels, with unofficial re‐exports of illicit narcotics into neighbouring countries. Higher imports should translate into higher Customs collection and hence potential exists for the government to further increase tax collection.

The New Afghanistan Pakistan Transit Trade Agreement (APTTA)

19. As the transit trade flowing through Pakistan constitutes a major portion of Afghan total trade (38 percent of imports and 52 percent of exports), the need to have an entirely new transit trade agreement in place to meet the changed logistics scenario under the multimodal system and considering the importance of fostering regional and inter-regional trade has been keenly felt for a number of years. In 2008 a draft agreement was prepared and submitted by the Government of Afghanistan to the Government of Pakistan. The process of finalizing a revised agreement to meet present needs and to cover the movement of all modes of transportation

65 especially multimodal traffic is presently in progress. An MOU signed on 6th May 2009 at Washington by the two governments aimed at finalizing a complete APTTA before 31st December, 200955.

20. In the context of the Pakistan-Afghanistan transit trade, the benefits, and in some instances the costs also, from switching over to a more holistic treatment of the issue with built-in efficiencies not only in handling, but also in transporting the merchandise would accrue to both countries in the form of both direct and indirect benefits and costs.

D. Reinforce ACD functions of Revenue Collection while Facilitating Trade Exchanges

21. Ultimately, the overall result of the project should be substantially increased and sustainable government revenue, enabling ACD to reinforce its functions of revenue collection and more effectively contribute to supporting and enhancing the competitiveness of the national economy; combat smuggling and movement of dangerous goods therefore protecting local society from hazardous materials, arms and ammunition; provide better control over passengers and goods movements and transportation crossing borders as well as better control of commercial activities to prohibit illegal business, while facilitating trade exchanges.

22. Implementation of ASYCUDA on major border crossing points and Inland Clearance Depots (ICD) has been a major highlight of the ongoing Customs project. The proposed project will sustain and build upon the accomplishments of the current project. A discernible improvement has been seen in efficiency and control on revenue leakages in Customs offices where ASYCUDA is implemented. However gaps still exist, allowing illicit trade and smuggling to be diverted to non-automated Customs stations. The remaining non ASYCUDA Customs stations need to be automated in order to close the loop. In addition, to the rollout of ASYCUDA to un- automated Customs stations in Afghanistan, functionality will also be expanded by adding more transit and declaration processing modules to the system in order to further reduce human interaction, strengthen controls, automate international transit processing and provide statistical reporting for higher management of the Afghan Customs Department.

Implications for Revenue Collection

23. As the project will provide support for the development of the Customs service and infrastructure, as well as overall policy development within the Ministries of Finance and Commerce, improved revenue collection by central administration remains an important immediate and medium term objective. To maximize duty collection in the medium term, it will also be essential to convert unofficial trade into official trade through improved compliance. Much of this depends upon building capacities within the MOF/ACD and MOC. According to the GOIRA’s Supplementary Memorandum of Economic and Financial Policies for 2009/2010, to ensure better Customs control at the border, it is planned that by end-January 2010, the business model of border controls clarifying the role of each ministry at the border will be adopted and implemented in line with international best practice and in consultation with other stakeholders (Ministry of Commerce and Industry, and Ministry of the Interior).

E. Economic Analysis and Expected Impact of the Project

Identification of Benefits and Assumptions for Analysis

24. The proposed project is expected to yield significant economic benefits that will ultimately enhance Afghanistan’s overall competitiveness and facilitate trade. Improved procedures and a more efficient Customs service within Afghanistan could substantially reduce multiple cargo handling, truck waiting times and cargo delay times, transit costs and the overall trade costs, if accompanied by the streamlining transit procedures to

55 At present, all commercial goods representing both imports and exports are moving under the traditional Afghan Transit Trade Agreement (ATTA) of 1965.

66 allow a freer flow of vehicles and reduced restrictions on trade. In addition, improvements to ACD may reduce the variability in transit and clearance times and thereby introduce greater predictability into the system. These benefits, as well as the project’s costs, have been taken into consideration into the Cost-Benefit Analysis to determine the project’s net economic impact. Other benefits, however, are more difficult to quantify and, as a result, have not been included in the cost-benefit analysis despite their significance. These non-quantifiable benefits include reduced corruption, improved international image, enhanced transparency and accountability, and improved national security.

25. Transport operators estimate that it takes three to four days to move between Peshawar and Kabul, a distance of under 300 km56. Most truckers estimate that they need one or two days to undertake all the border crossing formalities - one operator said that though clearance should take one day, it sometimes takes three days and usually takes two days. This delay is reflected in the road freight rates: movement from Karachi to Peshawar (1730kms), for bagged freight, is less than US¢ 0.95/ton-km, while for the movement from Peshawar to Kabul, it is US¢ 4.5/ton-km.

26. By addressing improvements in the internal transit system, this project is expected to reduce the following times:

(a) border clearance time required to initiate transit at the borders (e.g. once the truck from Peshawar is taken under ACD control, the time taken from crossing the border to departing the border post at designated site)

(b) import clearance time of goods at destination (e.g. the time taken from the entry of a truck into the import clearance terminal to the release of goods from Customs control)

(c) transit time to the inland destination

27. With streamlined procedures, it is expected to reduce the processing time for the various processes in the logistics chain from 5-6 days to 1-2 days.

28. Using the ASYCUDA data base, a different picture emerges about transit times, measured as the time taken from entry into Afghanistan to the exit from the ICD. Data has been analyzed for the most frequented routes and is presented in the table below:

Table 7: Transit times on Most Frequented Routes

Torkham - Jalalabad Hairatan - Mazar Transit Time Trucks % Trucks % Half a day to a day 65,874 57.60% 34,002 43.40% 1 to 2 days 27,317 23.90% 20,522 26.20% 2 to 3 days 8,504 7.40% 10,044 12.80% 3 to 4 days 2,558 2.20% 5,359 6.80% 4 to 5 days 1,900 1.70% 2,294 2.90% More than 5 days 6,762 5.90% 6,083 7.80% Missing Trucks 1,403 1.20% 104 0.10% Total Trucks 114,318 78,408 Average Time (days) 1.54 1.95

56 See Table 1 for a distance matrix between major cities.

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29. Three major facts emerge:

(a) the turn-around time for foreign trucks including unloading or de-stuffing at the border posts (Torkham and Hairatan) are less than 2 days, contrary to general perception;

(b) transit between the border towns and Kabul are substantially higher indicating either there is a break-down in the trans-shipment of cargos, or that the systems and procedures authorizing onward carriage are cumbersome and time consuming; and

(c) the numbers of trucks actually clearing their cargo in Kabul are only a fraction of the total volumes transiting the border towns, indicating explicitly that there is a substantial element of smuggling and implicitly that there is a high level of collusion between the traders and the ACD officials. The latter was stated by the representatives of the Afghan Chamber of Commerce and Industry in a meeting with Mission members where they had indicated that the level of corruption has increased over the last few years.

30. If the lag time could be reduced to only a few days, then the immediate downstream benefits of this would result in: one, the reduction of inventory levels from several months in some instances to only a few weeks and thereby costs; two, an increase in business activity resulting in the expansion of the job market and thereby a reduction in unemployment and a consequential reduction in poverty; and three, a reduction in prices of goods, particularly of foodstuff, thereby lowering inflation.

31. On the Chaman route, most trucks57 are unloaded at the border and the goods are reloaded onto Afghan trucks. The trucks are then driven a relatively short distance (<130 km) and the goods are again unloaded. Under this system, additional unloading/loading time is incurred. Also, likelihood of loss or damage to the cargo is increased.

32. Most cargoes are also transhipped at least once on the routes between ports and destinations in Afghanistan. Transhipment between rail and road is inevitable, but much of the cargo is also transhipped at the border from a foreign truck to Afghan truck, both for imports and exports. Goods are usually off-loaded again for Customs clearance and may be moved within the warehouses during the clearance procedure. Cargo is almost never placed in containers, which means that the sacks, cartons, packages, etc. have to be handled individually. Each handling operation increases costs by US$1.5 to US$4.5 per ton, depending on the location and type of cargo. These handling operations are usually carried out manually by untrained labour58. Reducing the number of transhipments and handling operations will reduce the percentage of loss and damage.

33. Simplification of transit and Customs clearance procedures will also reduce the administrative and management costs to importers, though it is difficult to place numerical values on such savings.

34. It is not possible to provide a precise estimate of reduction in overall transit time that the project may achieve, but savings of, at least, one day for trucks and possibly more for cargo, would certainly be achieved. Provision of adequate cargo handling and storage facilities at the major clearance depots will also increase efficiency and provide more secure storage, with less chance of loss or damage.

Quantification of Benefits

35. The results from the cost-benefit analysis indicate that the project is highly beneficial from an economic standpoint. Specifically, the relatively small investments corresponding to the project’s costs have an enormous economic impact. Specifically, the project is expected to render a Net Present Value (NPV) of US$1,443 million

57 There is evidence to suggest that some Pakistani trucks can make it into Afghan territory upon the payment of a certain (variable) fee, contingent upon their reaching an agreement with the local and regional authorities. 58 Evidence obtained by interviews with various stakeholders by the mission.

68 over a 20 year period and a corresponding NPV of US$ 760 million over a 10 year period and an internal economic rate of return (IERR) of roughly 146 percent (see Table 10).

36. Savings in Transit Times: From the data presented in Table 7, it would appear that on the Torkham to Kabul journey border clearing formalities consume less than 2 days on the average while on the Hairatan to Kabul journey about 2 days are required for border clearing formalities. These two routes alone account for 69 percent of the total truck traffic which is captured by the ASYCUDA data base.

37. The savings generated by the reduction in transit times will contribute directly to the reduction of trade costs. Using the “Costs of being landlocked” methodology59, the savings in the national transit times can be quantified to approximately USD$130 million representing about 1.6 percent of the total import trade value. The methodology for assessing the impact of the reduction in transit times consists in accounting for the reduction in transit times for the worse 5 percent if shipments (e.g. with 3 days in transit and additional days for clearance) and apply a rate of 0.1 percent per day which takes into account the cost improvement on both reduction of time as well as the uncertainty on economic activities.

38. Savings in Truck Idling Costs: Based on the Pakistan Trucking Sector study in 2003, the World Bank estimated that the daily standing cost of a 2-Axle Rigid Truck was US$ 13 per day, of a 3-Axle Rigid Truck was US$ 40 and for a 3+ Axle Articulated Tractor-Trailer Truck the daily cost was of the order of US$ 70. The composition of trucks is shown in Table 8. Thus for a 10 tons truck carrying on average 6000 USD per day and using 2 days of idling time saved on average, the reduction in truck idling time at borders and in transit is estimated at 0.22 percent of the value. The total value of savings accruing to the economy for a one-day reduction in transit times is estimated to be of the order of US$ 13 per ton per day. If half of this benefit were to be transferred to the consumer in the form of lower prices, the overall cost to the economy will be in the order of US$ 18 million.

Table 8: Composition of Trucks Rigid Trucks Articulated Trucks 2-Axle 3-Axle 4-Axle 5-Axle 6-Axle

32.2% 23.3% 18.0% 11.0% 15.4%

39. Reduction in Damage to Cargo: A fairly large part of Afghanistan’s trade is subject to trans-shipment from/to other country registered trucks because of a lack of reciprocal access, and in some instances there are a number of times cargo is handled manually by untrained labour during the process of border security clearance and customs clearance. In the process it is estimated that slightly more than the average (2 percent to 3 percent) for other countries is either damaged or lost. If procedures were to be streamlined, the use of containers facilitated the number of handling operations reduced, a switchover to mechanical means was initiated, the handlers were trained, and both handling and storage facilities were improved, there would be a substantial reduction in losses and damage. A 1% reduction would result in savings of over US$ 81 million.

40. Savings in Cargo Handling Costs: In 2003 the World Bank had estimated the cargo handling cost to be US$ 2.50 per ton every time the cargo is handled. At today’s prices60 this translates into over US$ 5 per ton per time. The total volume of cargo in 2008 was estimated to have been of the order of 7.16 million tons and even if half of this were to be handled at least one time less than is currently the case the potential savings would be of the order of over US$ 20 million.

59 Arvis, Jean-François, Gaël Raballand, and Jean-François Marteau. 2007. “The Cost of Being Landlocked: Logistics Costs and Supply Chain Reliability.” Policy Research Working Paper No. 4258, World Bank, Washington, D.C. 60 Computed by P09=P05*(CPI09/CPI05) where P is the price and CPI is the Consumer Price Index

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41. The quantifiable benefits are:

Savings in Transit Times US$ 130 million Savings in Truck Idling Costs US$ 18 million Reduction in Damage to Cargo US$ 81 million Savings in Cargo Handling Costs US$ 20 million Total Benefits annually US$ 249 million

F. Overall Economic Benefits

42. The potential benefits from the project, if it is successful in streamlining customs and transit procedures and systems, thus improving the release of legitimate goods in a fair and efficient manner, are expected to be significant. It is expected that the project will extend the coverage of the formal trade sector, including at least part of the US$1.9 billion worth of trade which is currently not being documented in the formal trade channels, thus increasing the total trade volume (official and unofficial) to US$10.3 billion. The increase in official exports may also be due to shifting of exports from unofficial to official channels. As a result, higher imports should translate into higher customs collection and hence potential exists for the government to further increase revenue collection and more effectively contribute to supporting and enhancing the competitiveness of the national economy.

43. Ultimately, a more efficient and effective customs service, with greater institutional capacity and by ensuring better customs control at the border, could become an important frontline organization in the government’s efforts to control the flow of restricted or prohibited goods, combat smuggling and movement of dangerous goods therefore protecting local society from hazardous materials, arms and ammunition; provide better control over passengers and goods movements and transportation crossing borders as well as better control of commercial activities to prohibit illegal business, while facilitating trade exchanges.

44. Building on the success of the previous project, it is expected to continue to see significant savings in truck time, cargo time and handling cost reduction, and cargo loss reduction. While these benefits may be underestimated, even if the project achieves 50 percent of its targets, the project will still generate a substantial economic rate of return, on the basis of these narrowly defined benefits. If the wider implications of increased customs revenues to the foundations of the state are included, the overall economic and social returns would be much higher.

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Table 9. Major Cities - Distance Matrix

Sher Ghulam Islam Khan Banderabass Chaman Chabahar Khan Gwadar Hairatan Qala Kabul Karachi Bandar Towrghondi Torkham Banderabass 0 1980 600 2638 850 2250 1500 2600 1550 2470 1770 3029 Chaman 1980 0 1400 917 1070 979 775 569 813 929 785 1049 Chabahar 600 1400 0 2058 250 2100 1350 2450 900 2320 1620 2191 Ghulam Khan 2638 917 2058 0 1728 755 1345 245 1324 605 1345 361 Gwadar 850 1070 250 1728 0 2049 1945 1639 650 1999 1855 1859 Hairatan 2250 979 2100 755 2049 0 800 510 1892 380 710 740 Islam Qala 1500 775 1350 1105 1945 800 0 1100 1588 970 270 1330 Kabul 2640 569 2110 245 1639 510 1100 0 1382 430 1130 230 Karachi 1550 813 900 1324 650 1892 1588 1382 0 1911 1598 1481 Sher Khan Bandar 2850 929 2320 605 1999 380 970 430 1911 0 880 590 Towrghondi 2150 785 1620 1345 1855 710 270 1130 1598 880 0 1360 Torkham 3029 1049 2191 361 1859 740 1330 230 1481 590 1360 0 Sources: 1. National Highway Authority, GOP 2. Web site http://mapsof.net/distance calculator/Afghanistan 3. Web site http://www.ahago.com

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Table 10: Cost Benefit Analysis and Project’s Net Economic Impact

% of Projected Year value cost 2010 2011 2012 … … 2018 2019 Projected Imports of goods (FOB) w/o project (US$ million) 7,867 8,339 8,839 9,932 10,528 12,539 13,291 Projected Exports of goods (FOB) w/o project (US$ million) 266 282 299 336 356 424 449

Benefits (US$ million) 3.07% 249 264 280 315 334 398 421 % of benefit applicable for the year 0% 0% 20% 60% 80% 100% 100% 1 Reduction of time in transit and in processing at destination 1.60% 130 a) average days current 6 included transit 2 projected 2 b) worst 5 % of shipments current (estimate) 24 included transit 6 multiplier for worst 5 % (estimated from transit) 4 projected 8 value of time saved according to ARM model is 0.1 % of improvement in time for worst % shipments 16 2 Reduction in truck idling time at borders and in transit 0.22% 18 2 days of idling time saved on average 2 USD per day for a 10 tons truck carrying on average 6000 (USD) 13 50 % of saving passed to traders 3 Reduction of losses by 1% 1.00% 81 4 Cargo handling, trans loading and processing savings 0.25% 20 Total reduction in costs 3.07% .5 Costs (US$ million) 15 17.5 12.5 Net Benefits (US$ million) Future values (i.e. undiscounted) ($15.00) ($17.50) $43.55 $133.82 $267.02 $397.52 $421.38 Present values (i.e. discounted) ($13.04) ($13.23) $28.63 $115.44 $115.44 $113.00 $104.16 NPV (US$ million) 20 years 1,443 NPV (US$ million) 10 years 760 IRR (%) 10 years 146%

Parameters 2010 2009 imports of goods - FOB (US$ million) 7,867 0

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2009 exports of goods - FOB (US$ million) 266 Growth in imports (%) 6.0% Growth in exports (%) 6.0% Cargo handling cost ($ per ton) 2.5 Standing cost of a 2-axle truck ($ per day) 13.0 Standing cost of a 3-axle truck ($ per day) 40.0 Standing cost of a 3+-axle truck ($ per day) 70.0 Percent of damaged cargo (%) 3% Discount rate (%) 15%

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ANNEX 7: ENVIRONMENT AND SOCIAL SAFEGUARDS MANAGEMENT FRAMEWORK (ESSMF)

A. Background

1. Afghanistan has a total population of approximately 30 million. Real Gross Domestic Product (GDP) growth in the fiscal year ending March 2010 is projected at 15 percent61, bolstered by a recovery in agricultural output and higher government spending and grants. This is up from 3.4 percent in 2008/09. Since its re- emergence onto the world stage after the fall of the Taliban in late 2001, the country has begun an enormous political, economic, and social transformation. However, despite the progress achieved over the past few years, Afghanistan remains poor62 and highly dependent on agriculture and foreign aid. Given the heavy dependence on foreign aid, institutional and staff capacity constraints, an extremely low domestic revenue base, the threat of large illicit opium activity and poverty, the government is faced with daunting challenges in carrying forward the reforms it has committed to.

B. Project Objectives

2. The project’s development objective is to improve the release of legitimate goods in a fair and efficient manner.

C. Project Description

3. To support these outcomes, the SCRTFP will finance activities in the following components: finance costs associated with: (i) countrywide computerization of Customs Clearance operations; (ii) installation of executive information systems for Customs allowing real time monitoring of operations; (iii) development of possible options for cross border Customs-to-Customs (C2C) Cooperation; (iv) provision of selected Customs infrastructure to enable modernized operations; and (v) technical assistance to support the development of an adequate regulatory, administrative and institutional framework for Customs including updating and monitoring progress on the Customs Five Year Plan. Through these initiatives the project will continue to support the Customs reform momentum supported by the Emergency Customs Modernization and Trade Facilitation Project (ECMTFP) started in 2004.

D. Potential Environmental and Social Impacts

4. The majority of environmental and social impacts of SCRTFP are generally related to construction/ rehabilitation of ACD’s Facilities. Because the project will mostly finance the rehabilitation and expansion of an existing scheme, implementation of the project components is not expected to involve any significant adverse environmental or social impacts.

Specifically:

(a) The rehabilitation and expansion of the project relates to construction/rehabilitation of physical infrastructure and purchase of equipment for customs and transit. While some disruptions in day-to-

61 “Islamic Republic of Afghanistan: Sixth Review under the Arrangement under the Poverty Reduction and Growth Facility, Request for Waiver of No observance of a Performance Criterion, Modification of Performance Criteria, and Rephrasing and Extension of the Arrangement,” IMF Country Report No.10/22, January 2010. 62 poverty headcount in 2007 was 36 percent

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day activities during construction may be inevitable, these impacts will be temporary. Furthermore, no new land or other similar assets are expected to be required.

(b) The rehabilitation of the existing facilities will involve procurement and installation of necessary ICT equipment including design, supervision, and project management; and, provide continued technical assistance for the ongoing ACD restructuring, automation in the mentioned site. This is not expected to have any impact on environmental and social aspects.

5. Most potential environmental impacts are related to locating of facilities (such as sub-stations), construction activities and the possible presence of landmines. Assessment and mitigation of potential impacts will be addressed through the application of appropriate environmental codes of practices, landmine risk and safety procedures detailed in the ESSMF.

6. Potential social issues include:

(a) Land ownership and land acquisition: No land acquisition is expected for the rehabilitation of existing ACD facilities, which all reportedly involve government land. The risk of involuntary resettlement or land acquisition is therefore considered to be extremely low. However, documentation is required that the land is free of encroachments, squatters or other encumbrances, and that the land has been transferred to the relevant authorities.

(b) Local employment: Employment benefits are expected from the ACD project works. Mechanisms to ensure that local populations are the beneficiaries are to be defined as much as possible and in a realistic way, within the social and ethnic context of each component of the project.

7. While field reviews have shown that no direct impacts on archaeological, burial or historical sites are to be expected, the project will institute “chance find” procedures to ensure protection of such sites if found when opening borrow pits and material sites.

E. Purpose of the ESSMF

8. This Environmental and Social Safeguards Management Framework (ESSMF) provides general policies, guidelines, codes of practice and procedures to be integrated into the implementation of the proposed World Bank funded Second Customs Reform and Trade Facilitation Project (SCRTFP). Consistent with existing national legislation, the objective of this Framework is to help ensure that activities under the proposed reconstruction operation will:

(a) Protect human health;

(b) Prevent or compensate any loss of livelihood;

(c) Prevent environmental degradation as a result of either individual infrastructure activities63 or their cumulative effects;

(d) Enhance positive environmental and social outcomes; and,

(e) Ensure compliance with World Bank safeguard policies.

63 This implies a civil works project.

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F. General Principles

9. Recognizing the emergency nature of the SCRTFP project, and the related need for providing assistance, while at the same time ensuring due diligence in managing potential environmental and social risks, this Framework is based on the following principles:

(a) The proposed project will support multiple components – the detailed designs of which may not be known at appraisal. To ensure the effective application of the World Bank’s safeguard policies, the Framework provides guidance on the approach to be adopted during implementation.

(b) All proposed components will be screened to ensure that the environmental and social risks can be adequately addressed through the application of standardized guidelines.

(c) Project design will aim to maintain regional balance, considering variations in population density. Employment opportunities within the projects will be available on an equal basis to all, on the basis of professional competence, irrespective of gender, or ethnic or religious group.

(d) Consultation and disclosure requirements will be simplified to meet the special needs of this project. Prior to approval by the World Bank Board, this Environmental and Social Safeguards Framework will be disclosed in Afghanistan in Dari and Pashto, and in the World Bank InfoShop.

G. Safeguard Screening

10. The selection, design, contracting, monitoring and evaluation of infrastructure activity will be consistent with the following guidelines:

(a) A negative list of characteristics that would make a proposed infrastructure activity ineligible for support, as indicated in Appendix 7.1;

(b) Guidelines for land and asset acquisition, entitlements and compensation, presented in Appendix 7.2;

(c) Procedures for the protection of cultural property, including the chance discovery of archaeological artifacts, and unrecorded graveyards and burial sites, provided in Appendix 7.3;

(d) The requirement that confirmations are received through the Regional Mine Action Center that areas to be accessed during reconstruction and rehabilitation activities have been demined (see guidelines in Appendix 7.4)

(e) Generic codes of practices for environmental management at design, construction and operation stages, provided in Appendix 7.5.

H. Mitigation Measures – Design Phase

11. Environmental: Sound design will, if not eliminate, at least diminish to the extent possible, most of the potential adverse impacts of project activities. Good engineering design will, in most cases, have a positive impact on the environmental conditions in the project area. A concern is adverse impacts on local ecology, especially where the current situation (improper/non-operation) has led to the creation of habitat for important flora/fauna species in the project area. These situations will have to be considered on a case-by-case basis. A pre-design walk-through of the design team, with specialist environmental input, through the project area will be a highly desirable exercise. Otherwise, local knowledge from other stakeholders and local residents may be

76 tapped to ascertain that the project does not cause significant damage to any important species. One aspect which deserves attention is the drafting of the contract documents where environmental protection can be built into the project agreements.

12. In addition, the design must ensure provision of adequate attention to minimize dust and noise pollution as well as emphasize on proper waste management during construction.

13. Co-ordination with the line departments, other stakeholders such as NGOs must begin in the design phase itself. This will ensure that the project is ready for mitigating of various impacts such as resettlement and health service support, if required. UNOPS as the Implementing Partner (IP) will ensure that the measures envisaged as part of this framework are implemented from a very early stage of planning and design of the relevant project component.

14. Social: No land acquisition is anticipated since the project involves rehabilitation of existing buildings or construction of new buildings within the compound of custom departments in selected provinces. In the event that any land would be needed for rehabilitation of an existing scheme, such land could only be obtained from available government land or acquired from private land owners in accordance with the provisions of Afghanistan’s Expropriation Land Law, enacted in 2000, the Land Policy (2007) and Law on Managing Land Affairs (2008) and compliant with the World Bank OP/BP 4.12 on Involuntary Resettlement. All land acquisition issue would be documented as required by this Framework (Appendix 7.2 (ii)), as would compensation payments made by the community (Appendix 7.2 (i)). For Government land, documentation would be needed that the land is free of encroachments, squatters or other encumbrances, and has been transferred for the project by legal authorities.

15. For all custom project buildings necessary facilities for handicaps will be provided as per international accepted standards, such as the ramp and toilet facilities as well as the fire safety management should also be considered to ensure possible safety from accidental fire incidences.

I. Mitigation Measures during Construction Phase

16. The emphasis of this ESSMF during construction stage impacts since the operation stage impacts, as has already been stated before, can be minimized, mitigated or compensated by managing the rehabilitated infrastructure in line with project design parameters. In order to minimize the potential adverse impacts of construction, standard bidding documents would have the following environmental precautionary clauses:

(a) The natural landscape should be preserved to the extent possible by conducting operations in a manner that will prevent unnecessary destruction or scarring of natural surroundings. Except where required for permanent works, quarries, borrow pits, staging and processing areas, dumps, and camps, all trees, saplings, and shrubbery should be protected from unnecessary damage by project related activities. After unavoidable damage, to restore quasi-original conditions where appropriate;

(b) Contractor's operations should be so performed as to prevent accidental spillage of contaminants, debris, or other pollutants, especially into streams or underground water resources. Such pollutants include untreated sewage and sanitary waste, tailings, petroleum products, chemical, and thermal pollution;

(c) Wastewater, including those from aggregate processing and concrete batching, must not enter streams without settling ponds or other process, so as not to impair water quality or harm aquatic life;

(d) The contractor should ensure proper disposal of waste materials and rubbish. If disposal by burial or fire, it should not cause negative impact to either the air, soil or ground water supplies;

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(e) The contractor should minimize air and water pollution emissions. Dust from the handling or transporting of aggregates, cement, etc., should be minimized by sprinkling or other methods. Materials, bushes or trees should only be burned when the owner permits, under favourable weather conditions;

(f) The contractor's facilities, such as warehouse, labour camps, and storage areas, should be planned in advance to decide what the area will look like upon completion of construction. These facilities should be located so as to preserve the natural environment (such as trees and other vegetation) to the maximum extent possible;

(g) After project construction, camps and building should either serve as permanent residences and form future communities, if such use can be foreseen and approved, or be torn down and the area restore to its quasi-original condition in order to avoid deterioration into shanty towns; and

(h) Borrow pits should be landscaped and planted accordingly to an ecological design to provide some substitute area for lost natural landscapes and habitats.

J. Responsibilities for Safeguard Screening and Mitigation

17. The MOF is the implementing ministry, the ACD is the implementing agency (IA) and the UNOPS is the implementing partner (IP). A Safeguards Focal Officer should be identified within the IP with responsibility for overseeing the implementation of the Environmental and Social Safeguards Management Framework. The safeguards framework will be included in all works contracts and its proper implementation will be the responsibility of the Contractor(s) with oversight from the IP (UNOPS).

K. Capacity Building

18. The capacity building activity will be implemented under a separate Technical Assistance program for Social and Environmental management. As part of the social and environmental capacity building that will be provided for implementation of IDA-financed operations in Afghanistan, the Safeguards Focal Officer and relevant staff of ACD and implementing agencies/Consultants will receive training in the application of the Safeguard Framework. During supervision of the project, the World Bank will assess the implementation of the Framework, and if required, will recommend additional strengthening.

L. Consultation and Disclosure

19. This Environmental and Social Safeguards Management Framework was developed on the basis of an overall Framework for World Bank-funded reconstruction operations which was prepared in consultation with the principal NGOs and development partners participating in reconstruction activities in Afghanistan. Prior to approval of the project by the World Bank Board, it will be disclosed in Dari and Pashto, as well as English, and it will also be made available at the World Bank’s InfoShop.

20. In summary, the ESSMF which is a generic guideline at appraisal stage which will guide the assessment and mitigation of potential impacts for each specific investment. The environment impacts of each investment will be addressed through the application of environmental codes of practices, landmine risk and safety procedures as detailed in the ESSMF. For each construction activity, the ACD and the IP will prepare specific Environmental and Social Management Plan (ESMP) for each project, to meet the World Bank’s Safeguard Operational Policy (OP).4.01 as well as the National Environment Protection Agency’s (NEPA) - EIA/SIA regulation. No land acquisition is expected for the rehabilitation of existing ACD facilities; all construction

78 works will be done on existing government land. However, documentation will be required that the land is free of encroachments, squatters or other encumbrances, and that the land has been transferred to the relevant authorities. A Safeguards Focal Officer will be identified within the implementing agency with the responsibility to monitor and supervise the implementation of the ESSMF.

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Appendix 7.1: Negative List of Infrastructure Activities Attributes

1. Infrastructure Activities with any of the attributes listed below will be ineligible for support under the proposed emergency reconstruction operations.

Table 1 - Attributes of Ineligible Infrastructure Activities Attributes of Ineligible Infrastructure Activities

A. Involves the significant conversion or degradation of critical natural habitats. Including, but not limited to, any activity within:

1. Ab-i-Estada Waterfowl Sanctuary; 2. Ajar Valley (Proposed) Wildlife Reserve; 3. Dashte-Nawar Waterfowl Sanctuary; 4. Pamir-Buzurg (Proposed) Wildlife Sanctuary; 5. Bande Amir National Park; 6. Kole Hashmat Khan (Proposed) Waterfowl Sanctuary.

B. Will significantly damage non-replicable cultural property, including but not limited to any activities that affect the following sites:

1. Monuments of Herat (including the Friday Mosque, ceramic tile workshop, Musallah complex, Fifth Minaret, Gawhar Shah mausoleum, mausoleum of Ali Sher Navaii, and the Shah Zadehah mausoleum complex); 2. Monuments of Bamiyan Valley (including Fuladi, Kakrak, Shar-I Ghulghular and Shahr-i Zuhak); 3. Archaeological site of Ai Khanum; 4. Site and monuments of Ghazni; 5. Minaret of Jam; 6. Mosque of Haji Piyada/Nu Gunbad, Balkh province; 7. Stupa and monastery of Guldarra; 8. Site and monuments of Lashkar-i Bazar, Bost; 9. Archaeological site of Surkh Kotal.

C. Requires pesticides that fall in WHO classes IA, IB, or II.

D. Requires involuntary acquisition of land, or the resettlement or compensation of more than 200 people.

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Appendix 7.2: Guidelines for Land and Asset Acquisition, Entitlements and Compensation

I. Objectives

Land acquisition and involuntary resettlement is not anticipated under this proposed emergency project since it mainly involves rehabilitation of existing facilities which are located on governmental owned land already available and in-use for similar activities (tax offices, truck parks, customs house, check-post, warehouse, transit facilities. Proposals that require more than:

Minor expansion, along rights of way, should be reviewed carefully. No land or asset acquisition may take place outside of these guidelines. A format for Land Acquisition Assessment is attached as Appendix 7.2(i)

These guidelines provide principles and instructions to compensate affected persons to ensure that all such persons negatively affected, regardless of their land tenure/tenancy status, will be assisted to improve, or at least to restore, their living standards, income earning or production capacity to pre-project levels.

II. Eligibility

Project Affected Persons (PAPs) are identified as persons whose livelihood is directly or indirectly affected by the project. PAPs deemed eligible for compensation are:

Those who have formal legal rights to land, water resources or structures/buildings, including recognized customary and traditional rights;

Those who do not have such formal legal rights but have a claim to usufruct rights rooted in customary law;

Those whose claim to land and water resources or building/structures do not fall within (i) and (ii) above, are eligible to assistance to restore their livelihood;

III. Compensation Principles

The project implementing agencies shall ensure that any of the following means of compensation are provided in a timely manner to affected persons:

1. Project affected persons losing access to a portion of their land or other productive assets with the remaining assets being economically viable are entitled to compensation at replacement cost for that portion of land or assets lost to them. Compensation for the lost assets will be according to following principles:

(a) Replacement land with an equally productive plot, cash or other equivalent productive assets;

(b) materials and assistance to fully replace solid structures that will be demolished;

(c) replacement of damaged or lost crops and trees, at market value;

(d) other acceptable in-kind compensation;

(e) in case of cash compensation, the delivery of compensation should be made in public, i.e. at the Community Meeting.

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2. Project affected persons losing access to a portion of their land or other economic assets rendering the remainder economically non-viable, will have the options of compensation for the entire asset by provision of alternative land, cash or equivalent productive asset, according to the principles in (1) a-d above.

Consultation Process

The implementing partner will ensure that all occupants of land and owners of assets located in a proposed infrastructure activity area are consulted. There will be gender-separate community meetings for each affected area or village (other projects) to inform the local population about their rights to compensation and options available in accordance with these Guidelines. The Minutes of the community meetings shall reflect the discussions held; agreements reached, and include details of the agreement, based on the format provided in Attachment 2(ii).

The implementing agency shall provide a copy of the Minutes to affected persons and confirm in discussions with each of them their requests and preferences for compensation, agreements reached, and any eventual complaint. Copies will be recorded in the posted project documentation and be available for inspection during supervision.

Infrastructure Activity Approval

In the event that an infrastructure activity involves land acquisition, the implementing agency shall:

1. Not approve the infrastructure activity unless a satisfactory compensation has been agreed between the affected person and the local community;

2. Not allow works to start until the compensation has been delivered in a satisfactory manner to the affected persons;

3. If more than 200 persons are affected and require compensation, the infrastructure activity shall be deemed ineligible for support under the emergency reconstruction operations.

Complaints and Grievances

All complaints should first be negotiated to reach an agreement at the local community/village level. If this fails, complaints and grievances about these Guidelines, implementation of the agreements recorded in the Community Meeting Minutes or any alleged irregularity in carrying out the project can also be addressed by the affected persons or their representative at the municipal or district level. If this also fails, the complaint may be submitted to the relevant implementing agency for a decision.

Verification

The Community Meeting Minutes, including agreements of compensation and evidence of compensation having been made shall be provided to the Municipality/district, to the supervising engineers, who will maintain a record hereof, and to auditors and socio-economic monitors when they undertake reviews and post-project assessment. This process shall be specified in all relevant project documents, including details of the relevant authority for complaints at municipal/district or implementing agency level.

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Appendix 7.2(i): Land Acquisition Assessment Data Sheet

(To be used to record information on all land to be acquired)

1. Quantities of land/structures/other assets required:

2. Date to be acquired:

3. Locations:

4. Owners:

5. Current uses:

6. Users:

Number of Customary claimants: Number of Squatters: Number of Encroacher: Number of Owners: Number of Tenants: Others (specify): Number:

7. How land/structures/other assets will be acquired (identify one):

Donation Purchase

8. Transfer of title:

Ensure these lands/structures/other assets free of claims or encumbrances. Written proof must be obtained (notarized or witnessed statements) of the voluntary donation, or acceptance of the prices paid, from those affected, together with proof of title being vested in the community, or guarantee of public access, by the title-holder.

9. Describe grievance mechanisms available:

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Appendix 7.2(ii): Format to Document Contribution of Assets

The following agreement has been made on...... day of...... ………., between...... resident of ...... (the Owner) and ……………………………………………….(the Recipient).

1. That the Owner holds the transferable right of ...... …………………jerib of land/structure/asset in...... …………………………………………………………………

2. That the Owner testifies that the land/structure is free of squatters or encroachers and not subject to other claims.

3. That the Owner hereby grants to the Recipient this asset for the construction and development of ...... for the benefit of the villagers and the public at large.

(Either, in case of donation :)

4. That the Owner will not claim any compensation against the grant of this asset.

(Or, in case of compensation :)

4. That the Owner will receive compensation against the grant of this asset as per the attached Schedule.

5. That the Recipient agrees to accept this grant of asset for the purposes mentioned.

6. That the Recipient shall construct and develop the……………………and take all possible precautions to avoid damage to adjacent land/structure/other assets.

7. That both the parties agree that the………………………so constructed/developed shall be public premises.

8. That the provisions of this agreement will come into force from the date of signing of this deed.

______Signature of the Owner: Signature of the Recipient:

Witnesses: 1.______

2.______(Signature, name and address)

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Schedule of Compensation of Asset Requisition

Summary of Units to be Compensated Agreed Compensation Affected unit/item a. Urban/agricultural land (m2): ______b. Houses/structures to be demolished (units/m2): ______c. Type of structure to be demolished (e.g. mud, brick, etc.) ______Not Applicable. d. Trees or crops affected: ______e. Water sources affected: ______

Signatures of local community representatives, shura head:

Include record of any complaints raised by affected persons:

Map attached (showing affected areas and replacement areas):

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Appendix 7.3: Protection of Cultural Property

Physical culture includes monuments, structures, works of art, or sites of "outstanding universal value" from the historical, aesthetic, scientific, ethnological, or anthropological point of view, including unrecorded graveyards and burial sites. Within this broader definition, cultural property is defined as sites and structures having archaeological, paleontological, historical, architectural, or religious significance, and natural sites with cultural values.

The proposed project is unlikely to pose a risk of damaging cultural property, as the Infrastructure Activities will consist of small investments for rehabilitating existing ACD’s facilities. Further, the negative list of attributes, which would make an Infrastructure activity ineligible for support Appendix 7.1, includes any activity that would significantly damage non-replicable cultural property. Nevertheless, the following procedures for identification, protection from theft, and treatment of chance finds should be followed and included in standard bid documents.

Chance Find Procedures

Chance find procedures are defined in the law on Maintenance of Historical and Cultural Monuments (Official Gazette, December 21, 1980), specifying the authorities and responsibilities of cultural heritage agencies if sites or materials are discovered in the course of project implementation. This law establishes that all moveable and immovable historical and cultural artifacts are state property, and further:

The responsibility for preservation, maintenance and assessment of historical and cultural monuments rests with the Archaeological Committee under the Ministry of Information and Culture, which has representation at provincial level.

Whenever chance finds of cultural or historical artifacts (moveable and immovable) are made, the Archaeological Committee should be informed. Should the continuation of work endanger the historical and cultural artifacts, the project work should be suspended until a solution is found for the preservation of these artifacts.

If a moveable or immovable historical or cultural artifact is found in the countryside of a province, the provincial governor (wali) or district-in-charge (woluswal) should be informed within two weeks, and they should inform the Archaeological Committee. In case the immovable historical or cultural artifact is found in a city, the provincial branch of the Department of Maintenance of Historical Values of the Ministry of Information and Culture should be informed within two weeks (art. 18). If the finding is made within the center, the Archaeological Committee must be informed directly within one week (art. 25).

Failure to report a chance finding within the stipulated time limit will be punished with a fine or imprisonment for a period of one week or up to one month (art. 72).

If someone intentionally damages a historical or cultural artifact, the culprit shall pay compensation in accordance with the value of the artifact plus be imprisoned for a period of one month to ten years depending on the gravity of the crime (art. 71).

In case of a chance finding of moveable or immovable historical or cultural artifact, the implementing agency is responsible for securing the artifact from theft, pilferage and damage until the responsibility has been taken over by the relevant authorities as specified above.

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These procedures must be referred to as standard provisions in construction contracts, when applicable. During project supervision, the Site Engineer shall monitor that the above regulations relating to the treatment of any chance findings encountered are observed.

Relevant findings will be recorded in World Bank Aide Memoirs and Implementation Completion Reports (ICRs) will assess the overall effectiveness of the project’s cultural resources mitigation, management, and capacity building activities, as appropriate.

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Appendix 7.4: Procedures for Landmine Risk Management in World Bank-Funded Projects in Afghanistan

Background:

The following procedures are designed to respond to the risks caused by the presence of landmines in Afghanistan, in the context of:

Community rehabilitation/construction works to be identified and implemented by the communities themselves (for small projects of up to $100,000 each);

Small and medium-size works to be identified by local authorities and implemented by local contractors (for projects up to $5m each);

Works to be implemented directly by Government departments/agencies, without use of contractors;

Large works to be implemented by contractors (for projects above $5m);

General comments applying to all following procedures: All risk assessment and clearance tasks shall be implemented in coordination with the Mine Action Center for Afghanistan (MACA). These procedures may need to be amended in the future depending on evolving circumstances.

Procedure for Community-Managed Works

Applicability: This procedure applies to community rehabilitation / construction works to be identified and implemented by the communities themselves (for small projects of up to $100,000 each).

Overall approach: The communities should be responsible for making sure that the projects they propose are not in landmine-contaminated areas, or have been cleared by MACA (or a landmine action organization accredited by MACA).

Rationale: Communities are best placed to know about mined areas in their vicinity, and have a strong incentive to report them accurately as they will carry out the works themselves.

Procedure:

1. Communities are required to submit a reply to a questionnaire regarding the suspected presence of landmines in the area where Bank-funded community-managed projects will be implemented. This questionnaire should be formally endorsed by the Mine Action Program for Afghanistan (MAPA). It will be a mandatory attachment to the project submission by the communities and should be signed by community representatives and the external project facilitator. External project facilitators will receive training from MAPA. Financing agreements with the communities should make clear that communities are solely liable in case of a mine-related accident.

2. If the community certifies that there is no known mine contamination in the area, the ministry responsible for the selection of projects should check with MACA whether any different observation is reported on MACA’s data base.

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If MACA’s information is the same, the project can go ahead for selection. The community takes the full responsibility for the assessment, and external organizations cannot be made liable in case of an accident.

If MACA’s information is different, the project should not go ahead for selection as long as MACA’s and community’s statements have not been reconciled.

3. If the community suspects landmine contamination in the area;

If the community has included an assessment / clearance task in the project agreed to be implemented by MACA (or by a mine action organization accredited by MACA), the project can go ahead for selection.

If the community has not included an assessment / clearance task in the project, the project should not go ahead for selection as long as this has not been corrected.

Landmine clearance tasks must be implemented by MACA or by a landmine action organization accredited by MACA. Communities will be penalized (subsequent funding by World-Bank funded projects shall be reduced or cancelled) if they elect to clear landmines on their own.

Procedure for Small and Medium-size Works Contracted Out

Applicability: This procedure applies to small- and medium-size works to be identified by local authorities and implemented by local contractors (for projects up to $5m each).

Overall approach: MACA (or a mine action organization accredited by MACA) should provide detailed information on the mine-related risks (either based on previously done and updated general survey or on a new general survey) before projects are considered for selection. Only project sites assessed to have a nil-to-low risk would be eligible for selection, unless they have been de-mined by MACA or by a mine action organization accredited by MACA.

Rationale: Neither local authorities nor local contractors have the capacity to assess the mine-related risks in a systematic way, while they may have incentives to underestimate them.

Procedure:

1. Prior to putting up a project for selection, a general survey should be carried out by MACA (or a mine action organization accredited by MACA) to assess mine-related risks in the area of the project (this should include checking information available in the MACA data base).

2. If MACA provides information suggesting a nil-to-low risk in the proposed project area, the project can go ahead for selection.

3. The contract between the responsible ministry and the contractor will include a clause stating that in case of an accident, legal liability would be fully and solely borne by the contractor.

4. If MACA assesses a potentially high risk in the area (whether due to the presence of landmines or uncertainty),

5. If the project includes an assessment/clearance task agreed to be implemented by MACA (or by a mine action organization accredited by MACA), it can go ahead for selection based on agreed funding modalities (clearance may be funded either under a contract with a World Bank-funded project or under existing donor agreements with the mine action organization);

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6. If the project does not include an assessment/clearance task, it should not go ahead for selection as long as this has not been corrected.

Procedure for Works to be implemented directly by Government Departments/Agencies, without use of contractors

Applicability: This procedure applies to works to be implemented directly by Government departments/agencies, without use of contractors.

Overall approach: MACA (or a mine action organization accredited by MACA) should provide detailed information on the mine-related risks (either based on previously done and updated general survey or on a new general survey) before works or installation of goods/materials are carried out in any given area. Work would only be allowed to proceed in areas assessed to have a nil-to-low risk, unless they have been de-mined by a mine action organization accredited by MACA .

Rationale: Government departments and agencies responsible for providing services currently do not have the capacity to assess the mine-related risks in a systematic way, and currently follow a process of consulting with MACA prior to carrying out activities.

Procedure:

1. Prior to carrying out work, the Government department/agency will consult with MACA to assess mine- related risks in the area (this should include checking information available in the MACA data base). If not already done, a general survey should be carried out by MACA (or by a mine action organization accredited by MACA) to assess mine-related risks in the area.

2. If MACA provides detailed information on mine-related risks which suggest a nil-to-low risk in the proposed area, the work can proceed. The Government would be solely liable in case of a mine-related accident.

3. If information provided by MACA cannot support the assessment of a nil-to-low risk in the proposed area (whether due to the presence of landmines or uncertainty), works should not go ahead before MACA (or a mine action organization accredited by MACA) carries out the necessary further assessment and/or clearance for risks to be downgraded to nil-to-low, based on agreed funding modalities (clearance may be funded either under a contract with a World Bank-funded project or under existing donor agreements with the mine action organization).

Procedure for Large Works Using Contractors

Applicability: This procedure applies to large works to be implemented by large contractors (projects above $5m).

Overall approach: The main contractor should be responsible for dealing with mine-related risks, in coordination with the UN Mine Action Center.

Procedure:

1. As part of the preparation of the bidding documents, a general survey should be carried out by MACA (or a mine action organization accredited by MACA) on all the areas where contractors may have to work (broadly defined). This survey should provide detailed information on mine-related risks in the various areas allowing for an un-ambiguous identification of areas that have a nil-to-low risk of

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mine/UXO contamination and areas where the risk is either higher or unknown. The survey should be financed out of the preparation costs of the bidding documents.

2. All survey information should be communicated to the bidders (with sufficient legal caveats so that it does not entail any liability), as information for the planning of their activities (e.g., location of campsites, access roads to quarries).

3. Depending on the nature and location of the project and on the available risk assessment, two different options can be used.

Option 1 – Mine-clearance activities are part of the general contract

a) Based on the general survey results, a specific budget provision for mine action during construction is set aside as a separate provisional sum in the tender documents for the general contract.

b) As a separately identified item in their bid, the bidders include a provision for a further detailed mine assessment and clearance during construction.

c) On the instruction of the Supervision Engineer and drawing on the specific provisional sum for mine action in the contract, the contractor uses one of several nominated sub-contractors (or a mine action organization accredited by MACA) to be rapidly available on call, to carry out assessment prior to initiation of physical works in potentially contaminated areas, and to conduct clearance tasks as he finds may be needed. The Contractor may also hire an international specialist to assist him in preparing and supervising these tasks. The Contractor is free to choose which of the accredited sub-contractors to use, and he is fully responsible for the quality of the works and is solely liable in case of accident after an area has been demined.

d) To avoid an “over-use” of the budget provision, the Contractor is required to inform the Supervision Engineer in writing (with a clear justification of the works to be carried out) well in advance of mobilizing the mine-clearing team. The Supervision Engineer has the capacity to object to such works.

Option 2 – Mine-clearance activities are carried out under a separate contract

a) Specific, separately-awarded contracts are issued for further surveying and/or clearing of areas with a not-nil-to-low risk (under the supervision of the Engineer) by specialized contractors (or a mine action organization accredited by MACA). The definition of the areas to be further surveyed / cleared should be limited to those areas where any contractor would have to work, and should not include areas such as camp sites and quarries/material sites which are to be identified by the Contractor during and after bidding of the works. As a result of these further surveys and possibly clearance works, mine-related risk in the entire contract area is downgraded to nil-to-low.

b) The contract with the general Contractor specifies the extent of the portion of the construction site of which the Contractor is to be given possession from time to time, clearly indicating restrictions of access to areas where the mine risk is not nil-to-low. It also indicates the target dates at which these areas will be accessible. Following receipt of the notice to commence works from the Engineer, the Contractor can start work in all other areas.

c) The general Contractor is invited to include in its bid an amount for mine-security, to cover any additional survey / clearance he may feel necessary to undertake the works.

d) In case of an accident, a Board of Inquiry is assembled by MACA to investigate on the causes of the accident and determine liabilities. Large penalties should be applied on the Contractor if the Board determines that the accident resulted from a breach of safety rules.

91 e) All parties involved in this process are required to closely coordinate with MACA and to provide the Government, local communities, MACA, as well as any interested party the full available information on mine-related risks that may reasonably be required (e.g., maps of identified minefields, assessments for specific areas).

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Appendix 7.5: Applicable Codes of Practices for Prevention and Mitigation of Environmental & Social Impacts

Potential Impacts Prevention and Mitigation Measures Pollution of Water bodies

Impact on water quality:  Proper construction management including, training of operators and other workers to avoid pollution of water  Contamination due to seepage bodies by the operation of construction machinery and from the septic tanks if it not equipment. sealed properly.  Storage of lubricants, fuels and other hydrocarbons in self  Creation of stagnant pools of contained enclosures; water.  Disposal of water and waste products arising from the site  Disposal/ Reaching of construction via a suitably designed temporary drainage system in a waste and domestic effluent from manner that will not cause pollution problems or other work camps may also contaminate nuisance; the surroundings and also ground water.  Proper disposal of solid waste from construction activities and labours camps;

 Cover the construction material and spoil stockpiles with a suitable material to reduce material loss and sedimentation;

 Temporary construction facilities including structures and materials stockpiles shall be located at least 50m away from water bodies;

 Avoid disposal of wash water, solid waste as discussed packing etc. waste from concrete agitator cleaning operations and excavated materials on water bodies and wetlands adjacent to or in the vicinity of the sites;

 Vehicles and equipment shall be maintained in good operable condition, ensuring no leakage of oil or fuel

 Hazardous materials such as oil and cement should be covered and protected from potential run-off

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Potential Impacts Prevention and Mitigation Measures Air quality/dust

Increase air borne particulate matter  All heavy equipment and machinery shall be fitted in full released to the atmosphere and subsequent compliance with the national and municipal regulations; health risk:  Stockpiled soil and sand shall be slightly wetted before  Emission from plants due to dust loading, particularly in windy dry conditions; generation as result of movement of construction equipment,  Stockpiles of sand and aggregate greater than 20 m3 in transportation, loading and volume shall be enclosed in walls extending above the pile unloading of earth material, earth and beyond its front face. work etc.  All vehicles, while parked on the site shall have their engines turned off;

 Using efficient equipment, machinery and vehicles with regular checking to affect necessary corrections or repairs to ensure compliance with safety and air pollution requirements.

 Soil, sand and other construction materials in storage and in transit shall be covered;

 Effective water sprays shall be used during the delivery and handling of all sand and aggregate and other similar material when dust is likely to be created and to dampen them during dry, windy weather.

 Spraying of bore areas and roads used for haulage of material with water.

 Washing of tires and lower body of vehicles when moving out form the contraction site;

 Selection of sites for material extraction away from residential area to reduce impact of dust.

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Potential Impacts Prevention and Mitigation Measures Construction Camps

Pollution and nuisance to the community  Identify location of work camps in consultation with the from: local governmental agencies and local communities/Business association; where possible camps  lack of latrines, bathrooms, shall not be located near settlement or near water supply potable water and medical intakes; equipment  Cutting of tress shall be avoided and removal of vegetation  Noise and vibration generation; shall be minimized;

 Damage to community  Water and sanitary facilities shall be provided for infrastructure/ buildings and forest; employees including other appropriate facilities;

 Increased risk of damage to built  Solid waste and sewage shall be managed according to the environment; national and municipal regulation. As a rule solid waste must not be dumped, buried or burned at or near the project  uncontrolled dust generated from site, but shall be disposed of at the nearest sanitary landfill operation of Contractor camp or site having and complying with the necessary permits.

 The contractor shall ensure that all liquid and solid hazardous and non -hazardous waste are separated, collected and disposed of according to NEPA and local municipality requirement and regulations;

 At conclusion of the project, all debris and waste shall be removed. All temporary structure, including office building, shelter and toilets, shall also be removed off-site as rapidly as possible by the contractor, particularly for the safety of the public and of workers.

 Exposed areas shall be planted with suitable vegetation;

 The engineer shall inspect and report that the camp has been vacated in restored to pre-project conditions.

 Where pit latrines are used for labours they should be located more than 10m from any water source. The base should be sealed and separated vertically by not less than 2m of sand or loamy soil from the ground water table.

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Potential Impacts Prevention and Mitigation Measures Occupational health and safety

 Providing adequate warning signs; Increased risk of injuries for the project labours and increase public risk from  Providing workers with PPEs;

 Failure to conduct adequate safety  The contractor shall instruct his workers in health and and precaution for the workers; safety matters, and require the workers to use the provided safety equipment.

 Establish all relevant safety measures as required by law and good engineering practices;

 Training and briefing of workers on safety precaution, their responsibility for their safety and the safety of other;

 Ensuring that vehicle and equipment operators are properly licensed and trained;

 Arranging for provision of first aid facilities, rapid availability of trained paramedical personnel, and emergency transport to nearest hospital with accident and emergency facilities;

 Allocation of responsibilities to ensure that these arrangements are in place;

 Arranging for regular safety checks of vehicles and material, and allocation of responsibility for checking;

 Ensuring that material extraction operations are supervised and carried out by trained and experienced staff;

 All workers will be allowed public and important religious holidays and will be allowed time for daily religious observance (prayers).

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ANNEX 8: IMPLEMENTATION AND MONITORING ARRANGEMENTS

A. Institutional Arrangements

Implementing Agency

1. The ACD is the Implementing Agency (IA) for this SCRTFP. The MOF is the responsible agency; being the parent ministry of ACD.

Implementation arrangements

2. The ACD (organization chart is shown in Appendix 8.1) will utilize the services of an Implementing Partner (IP) to execute SCRTFP financing. The IP will perform all functions related to the project (SCRTFP) under directions of the ACD. Given that the Director General (DG) Customs has to also manage the day-to-day Customs operations, the DG Customs as Project Director (PD) will be assisted by the Technical Director as the Deputy Project Director (DPD) and a Team Leader (TL)/Chief Technical Advisor (CTA) from United Nations Office for Project Services (UNOPS). A Management Services Agreement (MSA) will be signed between the IA (ACD) and the IP (UNOPS). The World Bank has agreed with ACD’s request to hire the services of UNOPS as the Implementing Partner following Single Source Selection procedures based on their past performance and the need to link with several UN agencies such as UNCTAD and UNIDO.

3. The PDO of this project is to improve the release of legitimate goods in a fair and efficient manner. The project is also supporting the overall effort to improve the Customs governance environment in Afghanistan; thus the clear linkage of the SCRTFP components to the ACD GAAP. A large part of the reform process is underpinned by activities that require a one-time improvement, development and implementation followed and sustenance thereafter. Since ACD collects a major part of the domestic revenue which in turn enables the government to ‘govern’, it is important that sustainability of project interventions be viewed in that dimension. Thus, the agreement between the ACD and the World Bank is the use of an IP for supporting project implementation.

4. The GAAP clearly indicates that the priority is to complete the ‘control’ aspect of Customs such that revenue is secure, trade is facilitated and society is protected. Administrative capabilities are a part of the tools that will be required in order to deliver and sustain the reformed ACD; and are part of the overall reform. However Customs reform and achieving the aforementioned aim cannot be held hostage to first developing the administrative and project management capability of Customs. To make things worse, the overall state of institutions in Afghanistan is weak and does not lend itself easily to assign project implementation responsibilities to other public entities64. So it is important to work on both the reform implementation and on the capacity development, in parallel. Given the central role of Customs in the overall fiscal picture of Afghanistan, more revenue, facilitation and control from Customs will only enable and provide the space for the GOIRA to deliver stronger institutions and accountability systems for the overall public good. This is the realization that underpinned the need to continue with an IP Arrangement for ACD to implement the SCRTFP.

5. To ensure sustainability of the reform program, no specific “Project Implementation Unit” (PIU) has been set up in the ACD. The focus is on allowing the line functionaries in the ACD to directly supervise and direct the IP, with the IP reporting to and requiring clearances on all activities from ACD (line offices/units/departments) through the DG. A clear achievement of the ECMTFP that continues to be supported by the SCRTFP is the focus on getting all project related staff (that are not already civil servants) to be absorbed in the MOF cadre. SCRTFP is specifically focusing on the development of the Customs cadre (distinct from the MOF and tax cadre)—this is also a key outcome of and recommendation from the ACD GAAP. That is why the

64 Such as the concept of assigning a relevant public ministry such as Public Works to deliver on the infrastructure and then maintain the same for ACD.

97 three specific activities “Reorganization plan for ACD—including approval and implementation strategy and timelines,” “Integration and Sustainability Strategy for the ASYCUDA Unit—including piloting of strategy” and “Pay and pension reform package for ACD—including approval support and implementation assistance” are all being supported under the present project.

6. Project Oversight by the Project Steering Committee (PSC) - Oversight function will be performed by a Project Steering Committee led by the Finance Minister comprising of four DM’s, DG of ACD, Director Technical of ACD and Director Planning & Reforms of ACD. The key function of this PSC will be to: review project implementation focusing on achieving results; assist the ACD in resolving issues that are hindering the project and overall reform progress which are not just within ACD’s own domain; ensure that: the GOIRA policies are enabling the delivery of the results being sought through the project; and discuss any desired revisions to the project activities with the World Bank. Detailed TOR for the PSC will be agreed after declaration of project effectiveness.

7. The DG ACD as the PD will be supported by the Technical Director as the Deputy Project Director (DPD), the SCRTFP TL/CTA, and his relevant ACD and MOF Directors.

(a) Technical Oversight of ACD – On technical matters, the Director Technical ACD as DPD and the Director Reform and Planning will support the DG65. Specifically for matters related to ASYCUDA rollout, implementation of the EIS, and for C2C activities, Director Technical, IT and ASYCUDA Managers in ACD, together with the ASYCUDA Project Implementation Unit (PIU) will provide the required support to the PD in coordination with other Directors. National consultants will be hired through the SCRTFP to provide support and strengthen HR, procurement and finance functions at ACD.

(b) Financial Oversight of ACD – At present, the Director Finance and Administration (F&A) of MOF will support the DG. As mentioned earlier, one of the reforms sought that underpin the SCRTFP is to create “arms length” Human Resource (HR) and Administrative functionality within ACD. This functionality was previously found within ACD, but was centralized by MOF without clear consultations with all stakeholders supporting ACD reforms. Unfortunately, amongst the major donors to Customs Reforms and hence to ACD, all are financing the reforms outside the Government’s budget; with the exception of the World Bank. This is why the centralization was not discussed in the wider donor support ambit (such as at the ICN) before the preparation of the SCRTFP. Now, however, this is very much a central theme of the governance reforms which is mapped in the ACD GAAP. Until a decision is reached between MOF and ACD on the reform process, the current project will follow the established process. For SCRTFP this will entail the IP preparing the project accounts and submitting them through the ACD to the MOF for onward transmittal for the Government’s annual audit process; and to the World Bank for complying with its fiduciary requirements.

(c) Procurement and related administrative matters – The arrangements will again involve ACD providing oversight of the entire process executed by the IP. Further details of this are provided in the Annex on Procurement Arrangements (Annex 10). Specifically for ASYCUDA PIU, hiring, appraisals and firing of PIU staff will be undertaken by a panel comprising a member of the Policy Committee66 (PC), a representative of MOF, and the following members of the ASYCUDA PIU: ASYCUDA Project Manager or ASYCUDA Deputy Project Manager, ASYCUDA Functional Expert and ASYCUDA Technical Expert.

65 This may change once the ACD reorganization is underway. 66 Described further in the following paragraphs

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The United Nations Office for Project Services (UNOPS) as the Implementing Partner

8. The soon to close World Bank funded ECMTFP was implemented by UNOPS on behalf of ACD. As the Implementing Partner (IP), UNOPS has delivered, under a nationwide environment of insecurity and despite the various constraints, in a relatively cost effective and efficient manner. However this was not possible without the usual issues when working in the present Afghan country environment. There has been a large staff turnover—a problem usually associated with public sector; but not altogether unforeseen given the fragile security environment. It was also noted that hiring of competent staff, whether international or national became increasingly difficult. There is a shortage of appropriately skilled national human resources in Afghanistan— especially those with good management skills. A substantially increased pay scale demanded by the available national human resource is unsustainable in the medium to long term. Overall, UNOPS has performed well as an IP and provided services in accordance with the terms and conditions set in the Management Services agreement (MSA) and agreements with United Nations Conference on Trade and Development (UNCTAD) and UNIDO. It has executed the overall financial management, audit and procurement responsibilities of the project in full compliance with the GOIRA requirements, IDA reporting obligations and internal requirements of UNOPS/UN System. The UNOPS project support team has been instrumental in the good performance of the ECMTFP and continuity of the team would be critical for continued good performance and success of this SCRTFP.

9. The overall TOR for the IP (i.e. UNOPS) arrangement is being prepared as part of Request for Proposal (RFP). This TOR has improved over the ones used in the ECMTFP. Lessons learned from the ECMTFP have been considered, and necessary modifications and adjustments in the project design and implementation arrangements have been made, especially those pertaining to strengthening procurement and financial management aspects of the project.

(a) Inter-agency Agreements by UNOPS for implementing ASYCUDA and Standards, Metrology, Testing and Quality development arrangements – ACD through UNOPS will continue to engage the services of the UNCTAD/ASYCUDA for ASYCUDA deployment and operation as part of the SCRTFP components (i) through (iii) (as under the ECMTFP). The ACD will also continue to engage the services of United Nations Industrial Development Organization (UNIDO) for assistance in the further development ANSA to support the overall Customs reforms (as under the ECMTFP). Agreements between ACD and both UNCTAD/ASYCUDA and UNIDO will be made on the basis of Inter Agency Letters of Agreement (IALA). The IALA will be signed between UNOPS and these other UN Agencies with the agreement of the ACD and the World Bank.

Implementation period and project duration

10. The project implementation period is 48 months.

B. Project Work Plan

11. Prior to the signing of any contractual agreements with UNOPS, ACD jointly with IDA, and in consultation with UNOPS, UNCTAD, and UNIDO, will prepare a detailed work plan for the first year, based on a four years implementation horizon. This work plan will form a part of the UNOPS contract and of the agreements between UNOPS and UNCTAD and UNOPS and UNIDO.

12. Subsequently annual project work plans (PWP) will be prepared for the remaining three years. Each annual work plan will be finalized and agreed between the parties at least three months prior to the completion of the period of the last work plan.

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C. Project management structure

13. As mentioned earlier, the Director General of ACD has been designated as the PD; he will be supported by the Director Technical as the DPD. A small and efficient UNOPS team, already functioning under the ongoing IDA funded ECMTFP, will be scaled up to cater for the new activities planned under this project. This team will be headed by the TL/CTA from UNOPS who will be responsible for management of the project. The TL/CTA will report directly to the Director General of ACD and Director Technical. The ACD with UNOPS shall be responsible for all fiduciary matters of the project. The financial management and procurement arrangements are described in Annex 9 and Annex 10.

14. UNOPS will report to ACD. On financial matters, since this function is currently centralized in MOF, UNOPS through ACD will work with MOF to satisfy all GOIRA and World Bank financial management requirements for SCRTFP. On all project activities, a communication strategy will be developed (such as the one already being prepared for further ASYCUDA implementation) and will be enforced to ensure that project timelines do not slip inadvertently. For all other contracts regarding works, goods and services UNOPS will be the ACD’s representative. Particularly for the sake of the delivery of works, UNOPS will be the designated “Engineer” for ACD. UNCTAD and UNIDO will have a reporting obligation to ACD and UNOPS.

15. The ASYCUDA Management Structure will comprise of two distinct tiers. The policy committee (PC) will comprise the Project Director (PD), Deputy Project Director (DPD), Director IT, Project Manager (PM) and Deputy Project Manager (DPM). The responsibility of the Policy Committee will be to define rollout, upgrade, and functional expansion policies. Members of the policy committee (PC) will be ACD personnel (PD, DPD, Director IT), UNOPS TL/CTA and UNCTAD Consultants (PM and DPM). The Project Implementation Unit (PIU) will be headed by a Project Manager (PM) and Deputy Project Manager (DPM) into whom will report the Functional head, Technical head, Regional team heads, and National Advisors. The PIU will have complete operational responsibility for execution of the ASYCUDA component of the project. The PIU will also include technical specialists who will be hired from the market and functional specialists who will be ACD personnel on deputation. All PIU personnel will be UNCTAD consultants. The PC will guide the PIU, for example, on the sequence of rollouts as per the ARTF benchmarks or on the need for deploying additional functionality.

D. Infrastructure Development

16. The Table 1 summarizes the distribution of responsibilities between the IP and ACD for the works implementation of the project. Table 1: Distribution of responsibilities for Works Responsibilities ACD IP

Day-to-day management of SCRTFP (X) X Coordinate and supervise the implementation of the infrastructure works (X) X Infrastructure Activity identification, prioritization and selection X (X) Reviewing and/or preparing designs, cost-estimates and Bills of Quantities X Review and/or reparation of tender documents X Approval of tender documents X Issuing of tender documents X Evaluation of bids X Recommendation for awards X X Pre-award review X X Award X (X) Signature of contract X Implementation and supervision of infrastructure activities, including quality and quantity X control and contract administration Payment to contractors X Certification of Completion of Work X Overall management of the ongoing works. X

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Responsibilities ACD IP

Technical and financial monitoring of the contracts X Monitoring of the environmental and social aspects by the sub-contractor X IP Staff Management and counterparts coordination (X) X Operations (X) X Contract and Project Financial Management X Reporting to the World Bank X (X) Note: X - Primary Responsibility, (X) - Secondary Responsibility

17. The scope of services of the IP is determined by the above-mentioned implementation mechanisms for works and includes all tasks necessary for the implementation of works foreseen under the project per Table below, from the engineering studies to the certification of completion of the works.

E. Procurement, contract management and work supervision

18. The following specific activities will be carried out by the IP for each infrastructure activity in full compliance with the procurement and project management procedures agreed upon during the project preparation, with procedures defined in the Financing Grant Agreement and with IDA guidelines. The main activities include:

(a) Survey of the works

(b) Preparing designs, cost-estimates and Bills of Quantities

(c) Preparation and approval of tender documents on the basis of sample biding documents agreed upon during the project evaluation

(d) Publication of Specific Procurement Notice in the newspaper and website

(e) Issuing of tender documents

(f) Evaluation of bids

(g) Recommendation for awards

(h) Award of contract

(i) Implementation and supervision of infrastructure activities, including quality and quantity control and contract administration

(j) Payment to contractors

(k) Technical and financial monitoring of the contracts

(l) Monitoring of the environment and social safeguards requirements as agreed during project preparation

(m) Certification of Completion of Work

(n) Overall management of the ongoing works.

19. For Works supervision, the tasks involved shall include but are not limited to:

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(a) Issuing the order to commence the works;

(b) Approving Contractor’s work program, method statements, material sources, etc;

(c) Preparing and /or approving working drawings, approving the setting out of the works, and instructing the contractors;

(d) Comprehensive supervision of project implementation activities carried out by the contractor to ensure complete compliance with the drawings, technical specifications and various stipulations contained in the Contract Document;

(e) Approving the Contractor’s detailed work program, the plant and machinery deployment schedule, contractor’s superintendence, personnel etc;

(f) Approving the Construction Methods proposed by the Contractor for carrying out the works to ensure that these are in conformity with the infrastructure activities technical requirements, implementation schedule, Environmental and Social Safeguard Management Framework (ESSMF), as well as safety of works, personnel and the general public;

(g) Taking measurement and keep measurement records;

(h) Maintaining records, correspondence and diaries;

(i) Preparing and issuing reports as defined subsequently;

(j) Certifying work volume and recommending interim certificates for progress payments;

(k) Processing the contractor’s claims;

(l) Maintaining consolidated project accounts, and preparing financial statements;

(m) Certifying completion of part or all of the works;

(n) Ensuring timely completion of all works;

(o) Identification of specific events that may impact negatively on the works (quality, contract price, delays, etc.), evaluation of these impacts and propose any course of action to mitigate these impacts;

(p) Associating himself with the tests being carried out by staff of the Contractor and, undertaking additional tests as necessary to ensure the quality of works;

(q) Reviewing the test results/certificates of all construction material and or sources of material and undertaking additional tests as necessary to assess the quality of works;

(r) Preparing updated and additional drawings as required during the contract period and their timely issue to the contractor;

(s) Carrying out detailed checking and verification of the setting out data for the work including lines, levels and layout to ensure conformity with the working drawings;

(t) Ensuring taking requisite samples during execution and promptly advising the contractor about the result;

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(u) Carrying out regular inspection of the Contractor’s Plant, Machinery, installation, etc and ensuring they are adequate and are in accordance with the terms and conditions of the contract;

(v) Evolving and implementing a system for the quality assurance of the works. The system of control of quality of material and completed works shall also include sampling method and criterion and acceptance criteria;

(w) Ensuring that road safety issues identified at the design stage are properly addressed during construction, and conducting a road safety audit at every stage;

(x) Preparation of complete records and reports on tests performed by him and checking the Contractor’s as built drawings for the works;

(y) Provide the employer with complete records and reports for defending Contractor’s Claims before Adjudicator/Arbitrator

20. UNOPS as IP is also required to perform regularly (at least on a quarterly basis) the consolidation of works and non works for ACD and to present the project for reporting purposes. The IP will also be required to take the responsibilities for the regular production of the FMR (Financial Monitoring Reports) as per World Bank requirements and guidelines.

F. Procurement of goods and equipment

21. The IP will be responsible for the procurement of goods and equipment under the project. The method of procurement for specific goods and equipment will be in accordance with those laid down in the procurement plan attached in Annex 10.

22. All goods procured from the proceeds of the project shall remain the property of the Client.

23. The table below summarize the distribution of responsibilities between the IP and the ACD for the procurement of goods and equipment: Table 2: Distribution of responsibilities for Goods Responsibilities ACD IP

Determination of requirement X (X) Coordinate and supervise the procurement & installation of goods (X) X Obtaining necessary approvals and NOLs from IDA X (X) Reviewing and/or preparing specifications, cost-estimates and Bills of Quantities X Review and/or reparation of bid documents X Approval of bid documents (X) X Issuing of bid documents X Evaluation of bids X Recommendation for awards X X Pre-award review X X Award X (X) Signature of contract X Customs Clearance X Delivery of goods X Payment to suppliers X Delivery to end users X (X) Installation of equipment (X) X Reporting to the World Bank X (X) Note: X - Primary Responsibility, (X) - Secondary Responsibility; Selection of Consultant Services

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24. The IP will be responsible for the selection of consultants (firms as well as individuals) under the project. The method of selection for specific consultancies will be in accordance with those laid down in the procurement plan attached in Annex 10.

Table 3: Distribution of responsibilities for selection/hiring of consultants

Responsibilities ACD IP

Determination of requirement X (X) Preparation of TORs/RFPs (X) X Approval of TORs/RFPs X Obtaining necessary approvals and NOLs from IDA X (X) RFP/Advertisement X Review and/or reparation of shortlist (X) X Approval of shortlist (X) X Interviews (for individual consultants) (X) X Evaluation of interview/proposals X Recommendation X (X) Contract award X X Signature of contract X X Performance Evaluation X (X) Reporting to the World Bank X (X) Note: X - Primary Responsibility, (X) - Secondary Responsibility

G. Other responsibilities

25. In all construction activities funded under this project, the Implementing Partner (UNOPS), for the Afghanistan Customs Department (ACD), will ensure that the overall Environmental and Social Safeguards Management Framework (ESSMF)-which provides general policies, guidelines, codes of practice and procedures to be integrated into the implementation-for IDA supported emergency reconstruction operations in Afghanistan, along with the agreed procedures for mine risk management in IDA funded projects in Afghanistan, is followed.

H. Reporting:

26. The Implementing Partner will submit the following reports to ACD, with copy to the World Bank, according to formats to be agreed upon one month after the signature of the contract:

(a) Monthly progress reports, giving an overview of the physical and financial progress of all activities;

(b) Quarterly progress reports, giving an overview of the total project budget and expenditure, the overall progress compared to the agreed indicators, milestones achieved during the quarter, the main problems and constraints and a concise work plan for the next quarter;

(c) Annual Work Plans;

(d) Financial Monitoring Report (FMR) or Interim Un-audited Financial Reports (IUFRs)

(e) Updating of Procurement Plan;

(f) Completion Report, at the end of the project;

(g) Ad hoc reports, as from time to time requested by ACD.

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Infrastructure Activity Works Progress Monitoring and infrastructure activity Completion Report

27. The Implementing Partner (IP) will prepare the following reports:

(a) Monthly Progress Report with tables standardized to be submitted by the tenth day of the following month,

(b) Ad hoc and special reports to be submitted within reasonable delays on working incidents, technical issues, etc. arising during progress of works;

(c) Quarterly report shall be submitted by the 15th day of the following quarter, with copy to World Bank. This report shall include:

(i) Physical and financial progress achieved and the projected progress for the forthcoming period,

(ii) Problems encountered and corrective measures taken or recommended.

(iii) Staff assigned by the IP, type of inputs and duration and the proposed input of key personnel for the next quarter,

(iv) The Contractor’s personnel and Plant and Machinery used, a list of Equipment and materials not in use during the previous period and their comparison with original planning;

(v) Records of the meetings regarding contract administration and decisions taken, Mobilization of resources (both IP’s and Contractor’s) for the forthcoming period,

(vi) Approval/ changes in Works program if any, delays anticipated, and action proposed.

(d) Works Completion Report after the provisional acceptance of works. This shall include the observations and recommendations of the supervision team, the actual works carried out, detailed costs of the works and actual quantities compared to planned works, approved variations, and recommendations on any unsettled Contractor’s Claims. The report shall also include a detailed breakdown on the Contractor’s final Contract sum (cost of wages, cost materials used, cost of plant and machinery, depreciation costs, taxes, etc.).

(e) The Provisional Final Report to be submitted not later than one (1) month after the provisional acceptance of work. The ACD and World Bank will provide comments and observations within a period of one month after receipt of the report and the IP shall finalize the report within one month after receipt of any comments.

(f) The Infrastructure Activity Completion Report shall be submitted after final handing over of the works.

28. The ACD will provide the following inputs:

(a) Free access to all land for which access is required for the performance of the services;

(b) Office space needed for the IP’s Customs unit, both at Kabul HQ and other regional offices as required, and equipment procured under the earlier IDA funded ECMTFP;

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(c) Counterpart personnel: These counterpart staff will take part in all activities agreed during project preparation, and as mentioned above. The IP will give on-the-job training to these counterpart staff if required.

(d) Access to all data and documents requested by the IP, unless these documents are confidential in nature.

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Appendix 8.1: Afghan Customs Department Organizational Chart

Director General, ACD

Relation Unit Secretariat

Regional Customs Offices

Director Enforcement Director (Amir) Post Department Clearance Audit Grade-3 Grade-3 Position-1 Position-1

Manager, Manager, Manager, Manager MVT Intelligence Unit, Administration Manager (Mudir) Manager, Post Manager, Risk Investigation Unit, Communication, Grade-4 Grade-4 officer, grade-4 Audit Clearance Audit Management Grade-4, positions- Grade-4, positions- Position-1 Positions-2 , Grade-4 Grade-4 Grade-4 Positions-1 1 1 Position Positions-1 Positions-1 Positions-1

Assistant/technical Assistant /technical Assistant /technical Assistant /technical Officers Officers Officers Officers Assistant/technical Assistant/technical Assistant/technical Grade-5 Grade-5 Grade-5 Grade-5 Officers Officers Officers Positions-5 Positions-4 Positions-3 Positions-3 Grade-5 Grade-5 Grade-5 Positions-7 Positions-4 Positions-1

Director Technical Director Planning & Reforms Affairs *find further details on page * find further details on page 113 107 114

Director Technical Affairs

Director Customs Director Customs Director ASYCUDA Director Transit Director Tariff & laboratories Regime & Exemptions Department Department Valuation Department Department Grade-3 Grade-3 Grade-3 Grade-3 Grade-3 Position-1 Position-1 Position-1 Position-1 Position-1

Manager Goods Manager, Manager Manager, Manager Internal Manager, Manager, ACCD Classification TASNEEF Temporary Exemptions Transit International réconciliation Grade-4 Good, Grade-4 Admission Grade-4 Grade-4 Transit ,Grade-4 Unit Position-1 Positions-1 Grade-4 Positions-1 Position-1 Positions-1 Grade-4, Position Position-1 positions-1

Assistant Assistant Assistant/technic Assistant/technic Assistant/technic /technical /technical al Officers al Officers al Officers Assistant/technic Data entry Officer for Govt. Officers Officers Officer for Officer for NGO Grade-5 Grade-5 Grade-5 al Officers Officers Sector international Grade-5 Grade-5 Grade-5 Positions-3 Positions-2 Positions-10 Grade-5 Grade-6 Grade-5 organizations Positions-2 Positions-2 Position-1 Positions-2 Positions-4 Positions-1 and embassies, Grade-5 Positions-1

Manager Manager, ASYCUDA Manager Manager, tariff Manager, Tariff technical section Manager, Tarifs Functional Unit Specialist/Expert, valuation section analysis Unit, Classification Grade-4 section, Grade-4 Grade-4 grade-4 Grade-4 Grade-4, Grade-4, Data Entry Position-1 Positions-1 Positions-1 Positions-2 Position-1 positions-1 positions-1 officer, grade-5 Assistant/technic Positions-2 al Officers Grade-5

Assistant/technic Assistant/technic Assistant/technic Assistant/technic al Officers al Officers al Officers al Officers Assistant/technic Assistant/technic Assistant/technic Grade-5 Grade-5 Grade-5 Grade-5 al Officers for IT al Officers al Officers Positions-4 Positions-5 Positions-2 Positions-2 Grade-5 Grade-5 Grade-5 Positions-6 Positions-4 Positions-6

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Director Planning & Reforms

Director Coordination Director (Amir ) Director Legislation Director Appeals Department Planning & Reforms Department Department Grade-3 Department Grade-3 Grade-3 Position-1 Grade-3 Position-1 Position-1 Position-1

Manager Manager, In Manager Manager, Manager, Manager Statistic Technical Manager, Manager Manager, Manager, Help International terrnal relation Reforms Planning Unit, Reforms Unit Officers Brokers Complaint Unit Investigation/rese disk Grade-4, relations Grade-4 Grade-4 Grade-4 Implementation Grade-4, Grade-4 Licensing Grade-4 arch Unit Grade- positions-1 Grade-4 Positions-1 Position-1 Positions-1 Unit, Grade-4, positions-1 Position-8 Unit,Grade-5 Position-1 5 Position-1 positions-1 Positions-1 Positions-1

Assistant Assistant/technic Assistant Assistant/technic Assistant Assistant/technic Assistant/technic Assistant Assistant/technic Assistant Data Entry /technical al Officers /technical al Officers /technical al Officers al Officers Officers al Officers /technical Grade-6 Officers Grade-5 Officers Grade-5 Officers Grade-5 Grade-5 Grade-6 Grade-5 Officers Positions-4 Grade-5 Positions-2 Grade-5 Positions-1 Grade-5 Positions-1 Positions-2 Positions-4 Positions-2 Grade-6 Positions-2 Positions-2 Positions-1 Positions-2

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ANNEX 9: FINANCIAL MANAGEMENT ARRANGEMENTS

A. Country Issues

1. The World Bank has gained substantial experience and understanding of the financial management environment in Afghanistan through the large number of projects under implementation over the past years. The Public Administration Capacity Building Project (PACBP) and the Public Financial Management Reform Project (PFMRP) are the primary instruments to continue and enhance the fiduciary measures put in place during the past years to help ensure transparency and accountability for the funding provided by the World Bank and other donors.

2. A PFM performance rating system using 28 high-level indicators that was developed by the Public Expenditure and Financial Accountability (PEFA) multi-agency partnership program was applied in Afghanistan in June 2005. PEFA is comprised of the World Bank, IMF, EC, and several other agencies. The system is structured around six core dimensions of PFM performance: i) budget credibility, ii) comprehensiveness and transparency, iii) policy-based budgeting, iv) predictability and control in budget execution, v) accounting, recording, and reporting, and vi) external scrutiny and audit. Afghanistan’s ratings against the PFM performance indicators generally portray a public sector where financial resources are, by and large, being used for their intended purposes. This has been accomplished with very high levels of support from international firms; this assistance will continue to be needed over the medium term if these ratings are to be maintained. There is also much room for improvement.

3. In spite of undeniable gains made in reconstruction since the end of 2001, the challenges facing Afghanistan remain immense; not least because of the tenuous security situation in the region and continued prevalence of a large illegal and illicit economy. The policy framework benchmarks have not yet been fully accessed for cost so various priorities are funded through the annual budgeting process. The rising costs of the security sector constitute the major constraint on attainment of fiscal sustainability. With regard to executive oversight, the national assembly will play an increasingly active role. All in all, the new national strategy has created high expectations of the executive which could prove to be quite difficult to meet.

4. The public sector, in spite of considerable efforts to reform its core functions, remains extremely weak outside of Kabul. The lack of qualified staff in the civil service and the absence of qualified counterparts in the government after 30 years of war and conflicts is a binding constraint. Delays in reforming the pay structure and grading of civil servants have severely crippled the public administration of the country. Domestic revenues lag behind expenditures by a factor of ten to one. Large-scale corruption could emerge to undermine the government’s efforts to enhance aid flows through national accounts. Capacities to track expenditures and monitor expenditure outcomes have improved, but they need rapid and substantial strengthening if progress toward the attainment of national development targets is to be monitored. Currently, 75% of external revenues bypass government appropriation systems.

5. The World Bank is financing a Financial Management Advisor to assist the Ministry of Finance, an Audit Advisor to assist the Control and Audit Office, and a Procurement Advisor to assist in Procurement- related activities. Also an Internal Audit function is being developed within the Ministry of Finance with World Bank financing. USAID, and earlier the Indian Aid Assistance Program, is financing a team of consultants and advisors to assist the DA Afghanistan Bank in local as well as foreign currency operations. The activities carried out under the existing Public Administration projects have helped the Government to ensure that appropriate fiduciary standards are maintained for public expenditures, including those supported by the World Bank and the donor community.

6. Progress has been slower than expected in shifting from operations support provided by the three Advisors to capacity development and knowledge transfer to the civil servants. Given that, is expected that the

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Advisors will continue to be required for the medium term. Challenges still remain in attaining the agreed upon fiduciary standards and also to further enhance them. And to make matters more complex, the regulatory environment in Afghanistan has advanced significantly in the past three years. Unfortunately, even mastery of basic skills in the early environment does not fully qualify the civil servants to work effectively in the new emerging environment.

B. Risk Assessment and Mitigation

7. The table below identifies the key risks that the project may face and indicates how these risks are to be addressed. The overall FM risk rating is high but the residual risk rating after application of the mitigating measures is substantial.

Table 1 – Key Risks

Risk Risk Risk Mitigation Measures Residual Condition of Rating Risk negotiations, Board or Effectiveness (Y/N) Inherent Risk 1. Country Inherent Risk M Source - PFM study M N 2. Project Financial H Ensure regular acceptable expenditure reporting is S N Management Risk received and reviewed within the World Bank; key FM functions to be performed by the Implementing Partner - UNOPS 3. Perceived Corruption H Government commitment, internal controls and S N internal audit will help to reduce the high level of perceived corruption. The MOF anti-corruption action plan and ACD’s Governance Accountability Action Plan are also expected to effectively address this risk Overall Inherent Risk H S

Control Risk 1. Weak Implementing S Utilization of the services of an Implementing M N Entity Partner (IP). The IP will be staffed with international and national FM staff.

Recruitment of FM staff in ACD, who will be supported by the PSU (Project Support Office) FM staff of the IP.

Oversight function will be performed by a Project Steering Committee led by Finance Minister comprising MOF DM’s and DG ACD. TOR for the Committee will be agreed after declaration of project effectiveness. 2. Funds Flow S M N Advances will be given to the IP based on the terms of the MSA to meet project expenditures.

ACD expenditures (namely consultants’ salaries and incremental operating expenditures) will be paid from the Designated Account (DA) by SDU- MOF. In addition to payments out of DA funds,

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Risk Risk Risk Mitigation Measures Residual Condition of Rating Risk negotiations, Board or Effectiveness (Y/N) ACD can also request the SDU to make i) direct payments from the Credit Account to consultants or consulting firms, and ii) special commitments for contracts covered by letters of credit. These payments would only be made by SDU after due processes and proper authorization from ACD and Finance & Administration Unit of MOF 3. Budgeting S There will be a Budget Committee comprised of M N representatives from ACD, other relevant units of MOF and the IP, which will coordinate the budget process. This Committee will be chaired by the Director General of ACD (Project Director) and will report to the Project Steering Committee. The composition of the Budget Committee will be detailed in the FM Manual. 4. Accounting Policies and S Will follow international standards. Project M N Procedures accounting procedures and details of the FM arrangements will be documented in an FM Manual to be prepared by the IP/ACD, and approved by the World Bank 5. Internal Audit H Internal audit department of MOF will review S N project internal control systems. Internal audit TOR will be included in the project’s FM manual. 6. External Audit H Will be audited by CAO with support from Audit S N Advisor 7. Reporting and H Strengthening the SDU is a priority under the FM S N Monitoring Advisor contract, to provide information that will comply with agreed format of financial reports. This will be facilitated by the computerized accounting system that will be utilized by the IP to maintain records and generate required reports. This will also be supported by the accounting system maintained by ACD to record its expenditures. Overall Control Risk H S Detection Risk Detection Risk S Adequate accounting, recording, and oversight will M N be provided in project procedures. Accounting/Recording/oversight by SDU – MOF of all advances/M-16 supported by Financial Management Advisor. Risk rating: H=high risk; S=substantial risk; M=modest risk; L-low risk

C. Strengths and Weaknesses

Strengths

8. The Government provides assurance to the World Bank and other donors that the measures in place to ensure appropriate utilization of funds will not be circumvented. The Government support for PACBP and PFMRP is strength in itself to enhance financial management in Treasury operations, public procurement, internal audit in the public sector, and external audit by the Auditor General. The implementing line ministry,

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MOF has implemented and is implementing World Bank funded projects, so the agency has experience in implementing World Bank projects and following World Bank procedures.

9. A specific strength of the project is that this is a follow-up project, and that it already has a number of mechanisms in place which will significantly reduce the financial risks associated with this kind of a project.

Weaknesses and Action Plan

10. The main weakness in this project, as in many others in Afghanistan, is the ability to attract suitably qualified and experienced counterpart staff especially for Financial Management. The utilization of an Implementing Partner, recruitment of FM staff for ACD to be funded by the project, together with capacity building of ACD FM staff by the IP’s FM staff, is expected to strengthen the fiduciary arrangements.

Table 2: Action Plan – To be reviewed at Supervision Significant Action Responsable Agent Completion Date Weaknesses Project internal controls and Financial Management Manual Implementing Partner May 30, 2010 procedures need to be developed defined Lack of qualified and Appointment of an Implementing ACD June 30, 2010 experienced finance staff at Partner the project level Recruitment of FM staff in ACD ACD August 15, 2010 Interim reports need to Un-audited interim financial IDA/MOF/ACD Before negotiations include required information report formats confirmed PSC TOR not agreed Provide TOR (including meeting MOF/ ACD July 30, 2010 frequency)

D. Implementing Agency

11. The Afghanistan Customs Department (ACD) of the Ministry of Finance will utilize the services of an Implementing Partner (IP) to execute this project. The IP will perform all functions related to the project under directions of the ACD. The Director General (DG) of ACD will be the Project Director (PD) for this project and the IP will report to the DG on all aspects relating to the project. The line functionaries in the ACD will be directly supervising and directing the IP, with the IP reporting to and requiring clearances on all activities from ACD (line offices/units/departments) through the DG.

12. The IP will carry out the key financial management functions for the project. FM staff will also be engaged in ACD to maintain relevant books of records for their expenditures. The ACD will be supported by the Finance and Administration (F&A) department of MOF and the Project Support Office (PSU) of the IP in this respect. Detailed working relationships between the IP and ACD FM staff, IP’s and ACD’s FM reporting requirements, staffing, systems and other FM arrangements will be included in the Financial Management Manual.

13. Project oversight - Oversight function will be performed by a Project Steering Committee (PSC) led by Finance Minister comprising four Deputy Ministers of MOF, DG of ACD, Director Technical of ACD and Director Planning & Reforms of ACD. A TOR for the Committee will be drafted by MOF and ACD and agreed by the World Bank by July 30, 2010; and will include the frequency with which this committee will meet.

14. Project coordination and monitoring - The ACD has responsibility for the overall project implementation, coordination and monitoring supported by the services of the IP. The IP will report to the ACD on the consolidated progress of the project. It is also responsible for (a) assuring steady progress of execution in accordance to an implementation schedule reviewed and approved by the World Bank, (b) regular reporting to

113 the DG, (c) ensuring adequate and smooth transfer of skills to the national staff, and (d) ensuring maintenance of high ethical standard and transparency throughout the process.

E. Budgeting

15. A budget committee will be set up in ACD to coordinate the preparation of annual work plan and the derivation of annual budget for the project. This committee will also include members from the Central Budget Unit of MOF and the IP. The Committee which will be chaired by the Director General, ACD, will report to the Project Steering Committee. The budget committee will coordinate quarterly budget reviews to ensure adequate budget discipline and control. The committee will be responsible for ensuring that project expenditures for each fiscal year are captured in the Governmental Development budget of that fiscal year. The composition of the Budget Committee, budgeting process and the key role of periodic budget reviews will be detailed in the FM Manual. The annual work plans and the annual budgets will be submitted to the World Bank for review and approval, not later than three months before the end of the fiscal year (i.e. December 20th)

F. Funds Flow

16. The standard funds flow mechanism in Afghanistan will be followed in this project. Existing procedures will be followed which allow for advances to be made to the IP as per terms of the MSA, however, subsequent reimbursement of advance to the IP, will be made after due acquittal of previous advance amount or the equivalent of amount to be reimbursed . As with all public expenditure, all payments from the Grant will be routed through MOF. All project expenditures except consultants’ salaries and incremental operating expenditures of ACD will be made by the IP from the advances received from the Grant. A single, segregated Designated Account (DA) will be opened at DA Afghanistan Bank (DAB, Central Bank) in the name of the project to facilitate payment of ACD expenditures (consultants’ salaries and incremental operating costs). The DA, in keeping with current practices for other projects in Afghanistan, will be operated by the Special Disbursement Unit (SDU) in the Treasury Department of MOF. Requests for payments from the DA will be made to the SDU by ACD through the Finance and Administration (F&A) department of MOF when needed.

17. In addition to payments out of DA funds, the ACD can also request the SDU to make i) direct payments from the Grant Account to consultants, consulting firms or suppliers, and ii) special commitments for contracts covered by letters of credit. These payments will follow World Bank procedures. All project payments will be made to either international firms or local firms that have bank accounts in DAB, a local commercial bank, or an overseas bank. All payments will be made either through bank transfers into the account of such firms or by check. The payment and approval mechanisms will be detailed in the FM Manual.

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World Bank / IDA

Advance Payments to Provides SOEs IDA IP as per with supporting documentation, Replenishes MSA reconciliations, Designated & requests replenishment transfers to Account Designated Account, OR requests Funds FlowDirect Chart Payments

SDU (MOF) Designated Implementing Account Partner - UNOPS

Payments

Invoices Pays

Invoices ACD Consultants, Suppliers, Only for ACD consultants salaries and incremental etc operating costs

Figure 1: Fund Flow Diagram

G. Legal requirements for authorized signature

18. Ministry of Finance has authorization to disburse funds from the Grant. Specimen signatures of authorized signatories in MOF are already on file with the World Bank.

H. Accounting

19. The SDU will maintain a proper accounting system of all payments made from the Grant along with supporting documents to enable IDA to verify these expenditures. At the project level, the IP will handle the key financial management functions and will maintain a computerized system to record project expenditures. The IP will maintain all relevant supporting documents for those project expenditures paid by the IP. ACD FM staff with support from the Project Support Office of the IP will maintain books of accounts in Excel spreadsheets and maintain supporting documents for project expenditures relating to ACD (consultants’ salaries and incremental operating cost).

20. For ACD expenditures, the FM staff of the ACD will: i) supervise preparation of supporting documents for expenditures, ii) prepare payment orders (Form M16), iii) obtain approval for M-16s from the relevant authority depending on the payment amount, and iv) submit them to the Treasury Department in MOF for

115 verification and payment. Whilst original copies of required supporting documents are attached to the Form M16, ACD is required to make and keep photocopies of these documents for records retention purposes.

21. The FM Advisor in the MOF/SDU will use the government's computerized accounting system, AFMIS, for reporting, generating relevant financial statements, and exercising controls. The IP and ACD will also generate required monthly, quarterly, and annual reports.

22. The FM Manual, to be prepared by the IP by May 30, 2010, and to be approved by the World Bank, will include: (i) roles and responsibilities for the IP and ACD FM staff, (ii) linkages between the IP and ACD staff; (iii) documentation and approval procedures for payments, (iv) project reporting requirements, and (v) quality assurance measures to help ensure that adequate internal controls and procedures are in place and are being followed.

23. The FM Manual will also establish project financial management in accordance with standard Afghan government policies and procedures including use of the government Chart of Accounts to record project expenditures. The use of these procedures will enable adequate recording and reporting of project expenditures. Overall project accounts will be maintained centrally in SDU, which will be ultimately responsible for recording of all project expenditures and receipts in the Government’s accounting system. Reconciliation of project expenditure records with MOF records will be carried out monthly by IP/ACD.

I. Internal Control & Internal Auditing

24. Project–specific internal control procedures for requests and approval of funds will be described in the FM Manual including segregation of duties, documentation reviews, physical asset control, and cash handling and management.

25. The IP will be responsible for the key FM activities for the project and will report to the DG of ACD. ACD FM staff will be responsible for coordinating FM activities of the project with SDU.

26. Annual project financial statements will be prepared by SDU/MOF detailing activities pertaining to the project as separate line items with adequate details to reflect the details of expenditures within each component. As advances are made to the Implementing Partner, the IP/ACD has the responsibility, when requesting for a subsequent advance, to provide SDU/MOF the details of expenditures for the previous advance and cumulative to date, to facilitate the preparation of the annual project financial statements.

27. The project financial management systems (which include the IP’s FM arrangements for the project) will be subject to review by the internal audit department of MOF, according to programs to be determined by the Director General of Internal Audit using a risk-based approach. Internal audit TOR will be included in the project’s FM manual, required to be reviewed and approved by the World Bank. Such internal audit will cover all project expenditures and will be conducted and a report submitted at least every six months. A copy of such report will be provided to the World Bank. The internal Audit department of MOF, is also responsible for the internal auditing of other World Bank funded projects implemented by MOF, it has been assessed and found adequate to meet the needs of these projects, including SCRTFP, however, it will still require further strengthening, through additional staffing and capacity building.

J. External Audit

28. The project accounts will be audited by the Auditor General, with the support of the Audit Advisor, with terms of reference satisfactory to the Association. The audit of the project accounts will include an assessment of the: (a) adequacy of the accounting and internal control systems; (b) ability to maintain adequate documentation for transactions; and (c) eligibility of incurred expenditures for Association financing. The

116 audited annual project financial statements will be submitted within six months of the close of fiscal year. All agencies involved in implementation and maintaining records of expenditures would need to retain these as per the IDA records retention policy.

29. The following audit reports will be monitored each year in the Audit Reports Compliance System (ARCS):

Table 3: Audit Reports

Responsible Agency Audit Auditors Date

MOF, supported by Special SOE, Project Accounts and Auditor General Sep 22 Disbursement Unit Designated Account

30. The World Bank-funded projects already or currently being implemented by MOF (PACBP, PFMRP, Recurrent Costs, EPAP II, SFCP and ECMTFP) have no overdue audit reports. The key issues raised in these projects’ previous years audit reports up to Solar Year 1385 have been resolved satisfactorily. Responses to the SY1386 audit report observations are still due for PACBP, EPAP II and Recurrent Costs. The audit reports for Solar Year 1387 have been received and reviewed and comments have been forwarded to MOF for their response.

K. Financial Reporting

31. Financial Statements and Project Reports will be used for project monitoring and supervision. Based upon the FM arrangements of this project Financial Statements and Project Reports will be prepared monthly, quarterly, and annually by the IP and ACD. These reports will be produced by the IP/ACD based on the books of records maintained by it after due reconciliation to expenditure statements from SDU (as recorded in AFMIS) and bank statements from DAB.

32. The quarterly Project Interim Unaudited Financial Reports will show: (i) sources and uses of funds by project component, and (ii) expenditures consolidated and compared to governmental budget heads of accounts, the project will forward the relevant details to SDU/DBER with a copy to IDA within 45 days of the end of each quarter. The government and IDA have agreed on a pro forma report format for all World Bank projects; a final customized format for SCRTFP will be provided before project negotiation.

33. The annual project accounts to be prepared by SDU from AFMIS after due reconciliation to records maintained at the project, will form part of the consolidated Afghanistan Government Accounts for all development projects. This is done centrally in the Ministry of Finance Treasury Department, supported by the Financial Management Advisor.

34. A final implementation completion report will be prepared by the ACD-MOF and submitted to the World Bank not later than 4 months following the closing date of the project.

L. Disbursement Arrangements

35. Disbursements procedures will follow the World Bank procedures described in the World Bank Disbursement Guidelines and the Disbursement Handbook for World Bank Clients (May 2006).

36. Table 4 shows the allocation of IDA proceeds in a single, simplified expenditure category. The single category for “goods, works, consultancy services, training, and operating costs” is defined in the financing agreement to facilitate preparation of withdrawal applications and record-keeping. A final disbursement deadline

117 six months after the closing date will be granted. IDA will finance 100% of eligible expenditures of the project, including taxes.

37. During this additional 6-month grace period, project-related expenditures incurred prior to the closing date are eligible for disbursement.

Table 4: IDA Financing by Category of Expenditure (US$ million)

Amount of the Grant Financing Expenditure Category Allocations Percentage (1) Goods, works, consultants’ services, training, and Incremental 50.48 100 % Operating Costs67

Total 50.48 100%

38. Summary Reports. Summary reports in the form of Statements of Expenditure will be used for expenditures on goods, works and consultants contracts below US$ 20,000; all training programs and operating costs regardless of whether World Bank procurement prior review is required or not.

39. Designated Account. A single designated account will be opened at DAB or in a local commercial bank in US dollars for a maximum amount of US$ 25,000 representing 3 months of estimated expenditures of ACD. The SDU in MOF will manage payments from and new advances to and reporting on this account. Cash advances may be taken from the Designated Account, and held and managed by ACD for small day to day operating expenditures. This agency’s controls, holding, accounting, and preparation of Statement s of Expenses (SOEs) have been satisfactorily assessed. New cash advances will only be made when all other prior cash advances have been justified through submission of SOEs to the SDU. Expenditure reporting will be submitted on a monthly basis. Requests for advances can be submitted as often as needed.

40. Advance to IP and Advance Account. As stated before, to facilitate payments for project related expenditures, advance payments based on forecast for 4 quarters’ funding needs, as provided in the quarterly interim unaudited financial reports, will be made from the Grant account to a segregated advance account in USD to be opened by the IP at a commercial bank or financial institution as per the terms of the MSA and in a manner and condition acceptable to IDA. However, subsequent reimbursement of advance to the IP will be made after due acquittal of previous advance amount or the equivalent of amount to be reimbursed. All project expenditures (other than ACD expenditures) will be paid by the IP from this advance. Original documents supporting payments made out this advance account will be kept in the office of the IP, but will be made available for the Bank's review or upon request, to ensure eligibility of expenditures incurred. Conditions for the advance and the reporting requirements will be spelt out in the MSA, FM Manual as well as the disbursement letter.

41. Direct Payments. Third-party payments (direct) and Special Commitments will be permitted for amounts exceeding 20 percent of the advance in the Designated Account (US$ 25,000). All such payments require supporting documentation in the form of records (copies of invoices, bills, purchase orders, etc).

67 For purposes of this paragraph, the term “Incremental Operating Costs” means incremental expenses incurred on account of Project implementation, support and management including the rental of office space, the operation, maintenance, rental and insurance of vehicles, fuel costs, communications supplies and charges, advertisement expenses, books and periodicals, office administration and maintenance costs, bank transaction charges, utility charges, domestic travel, per diem and project allowances of Recipient’s civil servants, but excluding salaries of officials and staff of the Recipient’s civil service.

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42. Preparation of Withdrawal Applications. ACD will prepare Summary Reports and forward those reports to the SDU for further processing as a reimbursement application. The SDU will review withdrawal applications for quality and conformity to Treasury procedures, and then obtain signature. Selected ACD and SDU finance staff will be registered as users of the World Bank Web-based Client Connection system, and take an active hand in managing the flow of disbursements.

M. Financial Management Covenants

43. MOF shall submit audited financial statements for the project within six months of the end of each fiscal year. The Project’s audit report will cover the financial statements, the Designated Account, and SOEs, in accordance with terms of reference agreed with the Association.

44. Un-audited project interim financial reports will be submitted by ACD on a quarterly basis to the World Bank and a copy to SDU-MOF within 45 days after the end of each quarter.

45. MOF will ensure that key FM staffs of ACD are retained throughout the duration of the project in order to ensure sustainability.

N. Regular Supervision Plan

46. During project implementation, the World Bank will supervise the project’s financial management arrangements. The team will:

(a) Review the project’s quarterly un-audited interim financial reports as well as the project’s annual audited financial statements and auditor’s management letter.

(b) Review the project’s financial management and disbursement arrangements (including a review of a sample of SOEs, payments made by the IP, movements on the Designated Account, bank reconciliations and reporting requirements) to ensure compliance with the World Bank's minimum requirements.

(c) Review agency’ performance in managing project funds to ensure that it is timely, accurate, and accountable. Particular supervision emphasis will be placed on asset management and supplies.

(d) Review of financial management risk rating and compliance with all covenants.

O. Conclusion

47. The FM arrangements, including the systems, processes, procedures, and staffing are adequate to support this project - subject to implementation of the items listed in the action plan.

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Appendix 9.1: Emergency Customs Modernization and Trade Facilitation Project Interim Unaudited Financial Reports

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ANNEX 10: PROCUREMENT ARRANGEMENTS

A. Country Context

1. The World Bank has gained substantial experience and understanding of the procurement environment in Afghanistan. This has been through its involvement in the interim procurement arrangements put in place under the Emergency Public Administration Project. In addition experience gained working with the institutions with current responsibility for procurement functions including Afghanistan Reconstruction and Development Services. As part of the broader review of Afghanistan’s Public Finance Management (PFM) system, the World Bank carried out two assessments of the procurement environment in the country based on the baseline and performance indicators developed by a group of institutions led by the World Bank and OECD/DAC in June 2005 and September 2007.

2. The first key issue identified through the procurement assessment is lack of ownership and a procurement champion in the Government. This is a serious impediment to reform and to inter-Ministerial dialogue. A second, related issue is the lack of capacity in the line Ministries, as evidenced by their inability to define and communicate effectively their desired functional specifications in their procurements. The lack of capacity is also evident in the local private sector: while the number of bids is reasonably high, there is a lack of understanding on application of public procurement rules.

3. A new Procurement Law (PL) has been adopted in November 2005, which radically transforms the legal and regulatory framework. As per the Law a Procurement Policy Unit (PPU) was established under the Ministry of Finance to provide oversight for implementation of the Law. PPU has issued several circulars regarding implementation of the Procurement Law including issuance of “Rules of Procedures for Public Procurement” (Circular: PPU/C005/1386 of April 12, 2007) and Procurement Appeal and Review Mechanism (Circular: PPU/N001/1385 of March 18, 2007). PPU/MOF has currently developed several SBDs/SRFPs/RFQs for national and international procurement of goods/works and consulting services following national procedures as per the PL. MOF has now mandated the use of: (i) SBDs for Goods and Works (Circular PPU/C024/1388 of June 10, 2009); (ii) Standard Request for Quotations (SRFQ) (Circular PP/C026/1388); and (iii) Standard Request for Proposal (SRFP) (Circular PPU/C029/1388 of January 13, 2010)Procurement Information Management System (PIMS)has been developed and being piloted in three ministries. In addition PPU web site will facilitate publication of procurement notices and contract awards in addition to similar action being done under the ARDS-website and web sites of the line ministries as applicable.

4. In the absence of adequate capacity to manage procurement activities effectively, a central procurement facilitation unit (ARDS–PU) has been established under Ministry of Economy to support line ministries and project implementing agencies. The World Bank and the Government has agreed on a program for country wide procurement reform and capacity building, leading to the transition from centralized to decentralized procurement services. The above is implemented by an international consultant under the supervision of PPU/MOF and financed under Public Administration Capacity Building project (PACBP)/ Public Finance Management Reform Project (PFMRP). There have been several training programs conducted by the consultant at Basic, Intermediate and Advance level. The implementation of the procurement reform component of the PACBP should be considered with due priority to ensure that fiduciary standards are further enhanced and that capacity is developed in the Government to maintain these standards.

5. The Procurement Law has been revised in July 2008 and amended in January 2009 and issued as a new Law by the Ministry of Justice and was published in the Official Gazette Number 957, 29.10.1387 (18 January 2009). The revised “Rules of Procedures for Public Procurement” has been issued as circular PPU/C027/1387 of November 18, 2009.

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General

6. P Procurement for the project will be administrated in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised October 2006, “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, revised October 2006, and the provisions stipulated in the Financing Agreement. In addition, the World Bank’s “Guidelines on Preventing and Combating Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants” dated October 15, 2006 has been shared with the recipient. The World Bank’s Standard Bidding Documents, Requests for Proposals, and Forms of Consultant Contract will be used. Civil works and goods following National Competitive Bidding (NCB) procedures shall be procured using the agreed Standard Bidding Documents (SBDs) for Afghanistan. In case of conflict/contradiction between the World Bank’s procurement procedures and any national rules and regulations, the World Bank’s procurement procedures will take precedence as per the Article 4(3) of the Procurement Law of the Islamic Republic of Afghanistan dated October 2005..

7. It has been agreed by both parties that in the event of a conflict between IDA Procurement/Consultant Guidelines, as per Article 4 (2) of the Procurement Law July 2008 (Amendments in January 2009 incorporated) of the GoA, the IDA Procurement/Consultant Guidelines shall prevail.

Procurement of Works

8. The proposed grant would finance physical infrastructure consisting of new works for customs warehouses, truck parking areas, new complex in Khost ICD, addition to Nimroz ICD and rehabilitation of around 12 ware houses, expansion work where the initial inputs were provided by the early project to improve the efficiency of the operation. The procurement will be done using the World Bank’s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with (or satisfactory to) the World Bank. Threshold for ICB civil works will be equivalent or more than US$ 5,000,000 equivalent per contract; threshold for NCB works will be less than US$5,000,000 or equivalent. All civil works contract estimated to cost USD 100,000 equivalent or less per contract can be procured through shopping procedure of paragraph 3.5 of the procurement guidelines.

Procurement of Goods

9. Goods to be procured under this project shall include Office furniture, Office equipment, IT equipment, communication equipment, generators, forklifts and container stackers etc. Procurement of the goods will be done using World Bank’s SBD for Goods for all contracts following International Competitive Bidding (ICB) procedures. National SBDs agreed with IDA or satisfactory to IDA will be used for procurement of Goods following National Competitive Bidding (NCB) procedures. Shopping shall be in accordance with paragraph 3.5 of World Bank’s Guidelines. All contracts estimated to cost more than US$ 200,000 per contract shall be procured following ICB procedures. Contracts estimated to cost more than US$ 50,000 equivalent per contract and less than US$200,000 per contract shall be procured following NCB procedures. All contracts estimated to cost less than US$50,000 equivalent per contract shall be procured following Shopping procedures. Goods which meet the requirements of paragraph 3.6 may be procured following direct contracting procedures. Following a review, IDA may agree to allow UNOPS to follow their own procedures for procurement of goods below the shopping threshold

Selection of Consultants:

10. The proposed grant would finance several consultancy assignments. IDA has agreed with the request of the client to hire the services of UNOPS as the Implementing Partner following Single Source Selection procedures based on their past performance and need to network with several UN agencies such as UNCTAD and UNIDO. UNOPS will also manage the procurement and financial management on behalf of the client.

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11. Individual Consultants: The Grant shall finance several individual assignments to advice on ACD restructuring, Customs Policy and strategy development, Customs legislation, ACD budget management, inland and border controls, audit etc. UNOPS may follow their own competitive procedures for hiring the services of individual consultants. However World Bank’s prior review thresholds shall be applicable.

12. Short lists of consultants for services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. The selection methods applicable for consultants are QCBS, QBS, CQS, LCS, FBS and SSS for firms and Section V of the World Bank’s Guidelines for Individuals. Threshold for CQS will be less than US$ 200,000 per contract.

13. Operating Costs: UNOPS will coordinate the incremental expenses incurred on account of project implementation and management, including the installation, operation and maintenance of vehicles, computers and office equipment, communication and insurance costs, temporary office structures, office administration cost, banking charges, utility charges, domestic and international travel and per diem and project allowances of Recipient’s civil servants, but excluding salaries of the officials of the recipient’s civil service, will be covered under the project.

B. Assessment of the agency’s capacity to implement procurement

14. The Afghan Customs Department (ACD) of the Ministry of Finance (MOF) will have overall responsibility for all procurement under the project with the assistance of the Implementing Partner UNOPS. ACD was already assisted by UNOPS. The Procurement activities under this project will be carried out through the Implementing Partner.

15. An assessment of the capacity of ACD, the Implementing Agency to implement procurement actions for the project, has been carried out by Deepal Fernando, Senior Procurement Specialist in May 7, 2009. The assessment reviewed the organizational structure for implementing the project and interactions.

16. ACD does not have a procurement department or a focal point. All the procurement needs are carried out by Ministry of Finance.

17. As stated above if ACD is responsible for procurement they have no experience and the procurement risk is “High”.

18. Based on the above UNOPS shall take the lead in carrying out procurement actions under the project. Therefore the project risk could be rated as “medium”. However UNOPS has to ensure that competent staff is made available throughout the project period. Also the CVs of the proposed staff have to be cleared with IDA prior to commencement of services. On the long term it is recommended to recruit staff to establish capacity within ACD to carryout limited procurement.

19. ACD/UNOPS will ensure that all invitations for bid, EOIs are given wide publicity using its own website or the website of ACD/UNOPS, Afghanistan Reconstruction and Development Services (ARDS), United Nations Development Business (UNDB)/DG market and national newspapers. Further for individual consultants the REOI/vacancy notice will be published on the following websites www.acbar.org, www.devnetjobs.org and www.reliefweb.int

20. With regard to procurement complaints, ACD/UNOPS will be guided by Article 71-72 of Procurement Law -2008 (revised January 2009) and World Bank Guidelines. ACD/UNOPS will inform IDA as soon as the procurement complaint is received and the final outcome subsequently. ACD/UNOPS should have system to register and monitor the receipt and resolving of complainants. The progress of such action will be reviewed by IDA during supervision missions.

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21. ACD/UNOPS will prepare a Procurement Monitoring/Activity Schedule for Procurement of goods/works and Selection Monitoring Activity Schedule for consultants and update the schedules on a monthly basis. The above schedules will facilitate to monitor the time taken for procurement/selection activities and take remedial actions for delays. It has been agreed that all bid/proposal evaluations will be completed within: (i) 5-7 working days following shopping procedure; (ii) 21 and 35 working days following NCB and ICB procedures respectively; (iii) 10 working days for individual consultants; and (iv) 15 working days for firms for REOI evaluation, 21 working days for Technical Evaluation Report (TER) and 20 working days to conclude the contract negotiations.

22. The framework of the procurement risk mitigation monitoring plan as given below has been agreed with the ACD/UNOPS. This will be updated during implementation support/supervision missions (ISM) (at least once in six months) and will be part of each mission’s aide memoire.

Table 1: Procurement Risk Mitigation Framework S Process Indicator Sources of Information and Use of Performance No Procurement means of verification information target to be Process/step for risk achieved. mitigation GPN Published Documentary evidence filled in To ensure 100% UNOPS GPN is widely General published to 1 Procurement increase Notice transparency Number of responses Existence of updated responses To increase 100% received against GPN registration file in UNOPS competition. REO/IFB Published Copy to be available in the file. To ensure 100% 10% of the procurement files SPN/REOI will be verified is widely published to increase transparency Minimum bidding time Deviations to be collected from To ensure 100% provided [4 weeks in NCB procurement files competition and RFP and 6 weeks in ICB and RFP with REOI/Invita complex assignments] tion for Bids Attention of the Copy to be available in the file. To ensure 100% 2 and Bidding firms/individuals who 10% of the procurement files competition process expressed interest against will be verified GPN while issuing REOI/SPN was called Number of Bid Documents Sale of bid documents register To ensure 100% sold and Number of firms and confirmation from competition confirmed participation consultants about receipt of against RFP issued RFP. 10% procurement files will be verified Clarifications/addendums Copy to be available in the file. To ensure 100 % issued 10% of the procurement files transparency will be verified 3 Cleared by IDA without Number of cases to be Capacity Continued Preparation seeking collected from procurement building progress of Bid clarifications/comments files measures Documents/ initiated by RFPs international procurement

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S Process Indicator Sources of Information and Use of Performance No Procurement means of verification information target to be Process/step for risk achieved. mitigation specialist Bid opening minutes sent Timeliness to be verified from To ensure 100% to all bidders procurement files transparency Bid 4 Submission 10% of the procurement files will be verified Formation of bid Deviations to be collected from To expedite 100% evaluation committee procurement files finalizing of before bid closing. bids/proposa l evaluation. Timeliness of Evaluation: Deviations to be collected from Finalizing Compliance (a) 5-7 working days Procurement Activity Schedule of and continuous following shopping bids/proposa improvement procedure; (b) 21 and 35 l evaluation for reduction in working days following in timely timelines for all NCB and ICB procedures manner. activities respectively; (c) 10 Bid working days for Evaluation/R individual consultants; and 5 EOI and (d) 15 working days for proposal firms for REOI evaluation, evaluation 21 working days for TER and 20 working days to conclude the contract negotiations after commencement of contract negotiations. Number of Re-bids Procurement files continuous improvement for reduction in number of re- biddings Bid Cleared by IDA without Data to be collected from To improve Evaluation seeking procurement files procurement Report and clarifications/comments process. 6 Technical Evaluation Report Contract award within the Deviations to be collected from To improve 100% original bid validity Procurement Activity Schedule procurement process. (a) Contract award Data to be collected from To ensure 100% Contract published within 14 days procurement files transparency 7 Award of NOA (b) Average time taken for publication of award (c) Number of cases award not published Delivery time: Percentage Data to be collected from To improve of Contracts completed/ procurement files procurement Delivery/ delivered within the process. 8 Completion original schedule as mentioned in Contract Liquidated damage: Data to be collected from To improve 60%

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S Process Indicator Sources of Information and Use of Performance No Procurement means of verification information target to be Process/step for risk achieved. mitigation Percentage of Contracts procurement files procurement having liquidated damage process. imposed for delayed delivery/completion Completion rate: Data to be collected from To improve 90% Percentage of Contracts procurement files procurement fully completed and process. accepted Average number of days Data to be collected from To improve 15 days taken to release payment procurement files procurement process. 9 Payment Late payment: Percentage Data to be collected from To improve 20% of cases (considering each procurement files procurement instalment as a case) with process. delayed payment Procurement complaints Complaint register To ensure 90% pending over 60 days transparency Resolution of complaints Complaint register and To ensure 0% resulted in modification of Procurement files transparency contract award 10 Complaints Resolution of complaints Complaint register To ensure 70% within 15 working days transparency Complaints forwarded to Complaint register To ensure 100% MOF for independent transparency review 11 Contract Unresolved Disputes over Procurement files To ensure 10% dispute 60 days transparency resolution Number of procurement To improve 80% staff to be staff trained in Civil procurement trained during Service Institute process. first year and Procurement 100% by 12 Capacity Procurement training plan second year. Building Number of staff trained To improve One staff outside Afghanistan procurement during first 18 process.

23. Governance and Accountability (GAC) agenda All the contract opportunities and contract awards will be widely published in the internet, ARDS website, UNOPS website and when required in DG Market/UNDB. UNOPS will set up a system to ensure that the staff/consultants who handled the procurement process/contract management/contract execution do not join the consultants/contractors. This will be reviewed during supervision missions.

C. Procurement Plan

24. The Borrower, at appraisal, developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on and is available at the ACD/UNOPS offices. It will also be available in the Project’s database and in the World Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

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D. Frequency of Procurement Supervision

25. In addition to the prior review supervision to be carried out from World Bank offices, the capacity assessment of the Implementing Agency has recommended two supervision missions.

26. Procurement Audit: In addition to prior review, World staff or World Bank appointed consultant shall carryout post procurement audit.

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Appendix 10.1: Details of Procurement68 arrangements involving International Competition

1. Goods and Non Consulting Services

a) List of contract packages which will be procured following ICB and Direct Contracting procedures: b) Procurement Packages with Methods and Time Schedule:

Table 1: Goods and Non Consulting Services 1 2 3 4 5 6 7 8 9 10 Ref. No/ Description Quantity Estimated Procurement PQ Domestic Review by Expected Comments Package cost US$ method yes/no Preference Bank(Prior/ Bid No. post) Opening

1 IT Equipment 4,430,000.00 1.1 ASYCUDA A 3,000,000 ICB No N/A Prior TBD In phases

Prior 1.2 ACD A 1,300,000 ICB No N/A TBD In phases In phases as Post per 1.3 UNOPS A 130,000 NS No N/A TBD requirement Office Furniture 2 Total 350,000 Various furniture Post 2.1 for ASYCUDA A 200,000 NS No N/A TBD Various furniture for ACD's Post new/rehabilitated 2.2 facilities A 1500,000 NS No N/A TBD Vehicles and Cargo Handling 3 Equipment 1,649,000 3.1 Armoured Vehicles 6 1,050,000 DC No N/A Prior TBD UNOPS Long Term Soft skinned Post Agreement 3.2 vehicles 3 99,000 DC No N/A N/A (LTA) 3.3 Fork lifts TBD 500,000 ICB No N/A Prior TBD 4 Generators 200,000 4.1 Various capacity TBD 200,000 NS No N/A Post TBD Audio Visual & Misc office 5 equipment 100,000 Audio Visual & Misc office Post equipment for 5.1 training academy TBD 100,000 NS No N/A TBD GRAND TOTAL 6,779,000 IS= International Shopping NS= National Shopping DC=Direct Contracting ICB=International Competitive Bidding NCB = National Competitive Bidding A – Assorted

68 These reflect the appraisal estimates and can be revised as the project progresses based on project implementation assessment and agreement with ACD. However, no procurements shall be done unless included in the procurement plan (original and revised) and approved by the World Bank.

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All ICB contracts for goods and works and all Direct Contracting regardless of value shall be subject to prior review by IDA.

2. List of consulting Assignments with shortlist of international firms or individuals

Table 2: List of consulting Assignments with shortlist of International firms and individuals Sr# (US$) Period method Type of Amount Selection (months) Contract Remarks Start date Estimated Rate (US$) Description Consultancy

FIRMS Mostly pass through transactions. Actual implementation support inclusive of agency overheads and UN support personnel costs is estimated Agency as at US$ 5.0 mil for four years. Draft Implemen RFP under finalization, and expected Implementing ting to be sent to World Bank for NOL by 1 Partner for ACD Partner SS 48 5,000,000 Apr-10 March 31, 2010 UNCTAD Technical Assistance for UN 2 ASYCUDA Agency SS 36 7,772,000 TBD UNCTAD Technical UN 3 Assistance for TF Agency SS 6 150,000 TBD UNIDO Technical UN 4 Assistance Agency SS 15 250,000 TBD Consultancy for Executive Dashboard/Mana 5 gement Alerts Firm TBD 36 2,000,000 TBD INDIVIDUAL Chief Technical Advisor/Team Internatio 1 Leader nal IC 48 20,000 960,000 TBD Key staff Engineering Internatio 2 Coordinator nal IC 30 18,000 540,000 TBD Key staff Key staff. Only required till major works and goods procurement Procurement Internatio complete, and capacity built in 3 Specialist nal IC 18 15,000 270,000 TBD national staff Internatio 4 IT Specialist nal IC 36 10,000 360,000 TBD Key staff. Only required till major works and goods procurement Project Support Internatio complete, and capacity built in 5 Officer nal IC 12 10,000 120,000 TBD national staff Specific expertise, mostly will be Customs Regional Internatio hired under bilateral agreement with 6 Advisor (CURE) nal IC 42 11,000 462,000 TBD neighbouring Customs Agencies Customs Regional Specific expertise, mostly will be Advisor (Post Internatio hired under bilateral agreement with 7 Clearance Audit) nal IC 42 12,000 504,000 TBD neighbouring Customs Agencies

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Sr# (US$) Period method Type of Amount Selection (months) Contract Remarks Start date Estimated Rate (US$) Description Consultancy

Customs Regional Specific expertise, mostly will be Advisor Internatio hired under bilateral agreement with 8 (Tariff/Valuation) nal IC 12 15,000 180,000 TBD neighbouring Customs Agencies Customs Regional Advisor Specific expertise, mostly will be (Governance/Poli Internatio hired under bilateral agreement with 9 cy) nal IC 24 15,000 360,000 TBD neighbouring Customs Agencies Deputy Team 10 Leader National IC 40 3,000 120,000 TBD Key staff Procurement 11 Officer National IC 40 3,000 120,000 TBD

12 Logistics Officer National IC 40 2,000 80,000 TBD

13 HR Officer National IC 40 2,000 80,000 TBD Admin/Finance 14 Officer National IC 40 2,000 80,000 TBD Numbers required will vary between 5 to 8 depending on the construction 15 Site Engineers National IC 20 2,800 56,000 TBD requirements ACD Consultants/ Finance and Account Officer 16 for ACD National IC 36 1,200 43,200 TBD Various consultants working in ACD Functional and Technical experts working in ASYCUDA unit. Numbers depending on the Customs ASYCUDA locations where ASYCUDA is 17 Consultants National IC 36 1,200 43,200 TBD functional Note: Other ad-hoc consultancies as required SS – Single Source IC – Individual Consultant

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Procurement Plan69

A. General

1. Project Information:

Country/Borrower: Islamic Republic of Afghanistan Project Name: Second Customs Reform and Trade Facilitation Project Implementing Agency: Ministry of Finance/ Afghanistan Customs Department Grant No: XXXX

2. Bank’s approval Date of the Procurement Plan [Original: ; Revision 1: TBD]

3. Date of General Procurement Notice: February 1, 2010

4. Period covered by this procurement plan: 18 months

B. Goods and Works and non-consulting services (a) List of contract Packages that will be procured following ICB, NCB and direct contracting:

1. Procurement Method and Threshold

Procurement Method Threshold for Methods Comment 1. ICB (Works) 5,000,000 Equivalent or more 2. ICB (Goods) 200,000 Equivalent or more 3. NCB (Works) 5,000,000 Equivalent or less 4. NCB (Goods) 200,000 Equivalent or less 5. Shopping (Goods ) 50,000 Equivalent or less 6. Shopping (Works) 100,000 Equivalent or less 7. ICB (Non-Consultant Services) 200,000 Equivalent or more

2. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement:

Procurement Method Prior Review Threshold Comments 1. ICB (Goods & Works) and ICB (non All Contracts Equivalent or more consultant services) 2. NCB (Goods & Works) 200,000 Equivalent or more 3 Direct Contracting (Goods) All regardless of value

3. Prequalification. NIL

4. Procurement Packages with Methods and Time Schedule

5. Goods, Works and Non Consulting Services:

69 This is the first procurement plan and covers the first 18 months of the project. As the other TOR and tender documents are prepared, the UNOPS will update the procurement plan. The procurement plan will also include procurements to be done by UNCTAD and UNIDO. No procurement will be done unless included in the procurement plan (original and revised) and approved by the Bank. The procurement plan will be updated by the UNOPS annually or as required to reflect the actual project implementation needs.

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Sl. No. Bid doc. Contract Estimate/ Estimate/ Estimated Estimated Engineer's Method of on Yes/No Cost (US$) Preparation Preparation Description Description Procurement Procurement Bid Opening Bid Opening Prior Review Prequalificati

1 Jalalabad Inland Clearance Depot 1a Truck Parking Area 1,100,000 NCB No 23-Feb-10 Yes 13-Apr-10 1b Warehouses (In 2 lots) 1,000,000 NCB No 10-Mar-10 Yes 28-Apr-10 2 Kabul Custom House

Kabul ICD complete truck parking, access 2a roads, electrification, water supply and drainage and weigh bridge 2,350,000 NCB No 15-Jun-10 Yes 3-Aug-10 2b Weigh bridge 150,000 ICB No 20-Nov-10 Yes 8-Jan-11 2c Existing Warehouse Repairs (4 lots) 2,000,000 NCB No 25-Jul-10 Yes 12-Sep-10 3 Khost Inland Clearance Depot

3a Construction of boundary wall, site clearance and levelling 600,000 NCB No 1-Jul-10 No 5-Aug-10

Construction of Main Office Building, other 3b services such as Toilet Block, Ablution Building and Generator and its Fuel Tank Room 2,000,000 NCB No 25-Oct-10 Yes 13-Dec-10 3c Construction of two warehouses 1,300,000 NCB No 25-Oct-10 Yes 13-Dec-10

3d Infrastructure i.e. truck parking, electricity, water supply 3,500,000 NCB No 25-Oct-10 Yes 13-Dec-10 3e Weigh bridge 100,000 ICB No 20-Apr-11 Yes 8-Jun-11 4 Nimroz Inland Clearance Depot

Rehabilitation of existing facilities and 4a construction of new buildings, truck parking etc. 2,000,000 NCB No 1-Dec-10 Yes 19-Jan-11

5 Torkham Border Facilities 5a Truck Parking 900,000 NCB No 1-Mar-11 Yes 19-Apr-11 5b Weigh bridge 100,000 ICB No 20-Aug-11 Yes 8-Oct-11 6 Andkhoi Inland Clearance Depot 6a Upgradation and repair of existing facilities 1,000,000 NCB No 22-Jul-11 Yes 22-Sep-11 7 Akina Border Facilities 7a Upgradation and repair of existing facilities 300,000 NCB No 22-Jul-11 No 22-Sep-11 TOTAL 18,400,000

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1 2 3 4 5 6 7 8 9 10 Bid Ref. e No. e No. /post) Opening cost US$ US$ cost Quantity Domestic Expected Estimated nt method Review by Preference Preference Comments No/Packag Procureme Bank(Prior Description PQ (yes/no) PQ (yes/no)

1 IT Equipment 4,430,000.00 1.1 ASYCUDA assorted 3,000,000 ICB No N/A Prior TBD In phases

Prior 1.2 ACD assorted 1,300,000 ICB No N/A TBD In phases

Post In phases as per 1.3 UNOPS assorted 130,000 NS No N/A TBD requirement 2 Office Furniture Total 300,000 Various furniture for Post 2.1 ASYCUDA assorted 200,000 NS No N/A TBD

Various furniture for ACD's Post 2.2 new/rehabilitated facilities assorted 150,000 NS No N/A TBD Vehicles and Cargo 3 Handling Equipment 1,649,000 3.1 Armoured Vehicles 6 1,050,000 DC No N/A Prior TBD 3.2 Soft skinned vehicles 3 99,000 DC No N/A Post N/A UNOPS LTA 3.3 Fork lifts TBD 500,000 ICB No N/A Prior TBD 4 Generators 200,000 4.1 Various capacity TBD 200,000 NS No N/A Post TBD Audio Visual & Misc 5 office equipment 100,000 Audio Visual & Misc office equipment for training Post 5.1 academy TBD 100,000 NS No N/A TBD TOTAL 6,779,000 IS= International Shopping NS= National Shopping DC=Direct Contracting ICB=International Competitive Bidding NCB = National Competitive Bidding

C. Selection of Consultants

1. Selection Methods and Thresholds

Selection Method Threshold Comments 1. CQS for Firms US$ 200,000 equivalent or less 2. QCBS,QBS, FBS, LCS depending on the nature and complexity of assignment

2. Prior Review Threshold: Selection decisions subject to Prior Review by World Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants:

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Selection Method Prior Review Threshold Comments 1. Competitive Methods (Firms) $100,000 or more 2. Competitive methods (individuals) $50,000 or more 3 Single Source (Firms)/Individuals All regardless of value

a) Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than US$100,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

b) Selection of Consultants:

Estimated Contract Descriptio Type of Selection Period Rate Amount Start Sr# n Consultancy method (months) (US$) (US$) date Remarks FIRMS Mostly pass through transactions. Actual implementation support inclusive of agency overheads and support personnel costs is estimated at US$ 5.0 mil for four years. UN Agency Draft RFP under finalization, Implementin as and expected to be sent to g Partner for Implementing Apr- Bank for NOL by March 31, 1 ACD Partner SS 48 5,000,000 10 2010 UNCTAD Technical Assistance for 2 ASYCUDA UN Agency SS 36 7,722,000 TBD UNCTAD Technical Assistance 3 for TF UN Agency SS 6 150,000 TBD UNIDO Technical 4 Assistance UN Agency SS 15 250,000 TBD Consultancy for Executive Dashboard/ Management 5 Alerts Firm TBD 36 2,000,000 TBD INDIVIDUAL Chief Technical Advisor/Tea 1 m Leader International IC 48 20,000 960,000 TBD Key staff Engineering 2 Coordinator International IC 30 18,000 540,000 TBD Key staff Key staff. Only required till major works and goods procurement complete, and Procurement capacity built in national 3 Specialist International IC 18 15,000 270,000 TBD staff

4 IT Specialist International IC 36 10,000 360,000 TBD

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Estimated Contract Descriptio Type of Selection Period Rate Amount Start Sr# n Consultancy method (months) (US$) (US$) date Remarks Key staff. Only required till major works and goods Project procurement complete, and Support capacity built in national 5 Officer International IC 12 10,000 120,000 TBD staff Customs Specific expertise, mostly Regional will be hired under bilateral Advisor agreement with neighbouring 6 (CURE) International IC 42 11,000 462,000 TBD Customs Agencies Customs Specific expertise, mostly Regional will be hired under bilateral Advisor agreement with neighbouring 7 (PCA) International IC 42 12,000 504,000 TBD Customs Agencies Customs Regional Specific expertise, mostly Advisor will be hired under bilateral (Tariff/Valu agreement with neighbouring 8 ation) International IC 12 15,000 180,000 TBD Customs Agencies Customs Regional Specific expertise, mostly Advisor will be hired under bilateral (Governance agreement with neighbouring 9 /Policy) International IC 24 15,000 360,000 TBD Customs Agencies Deputy IC Team 10 Leader National 40 3,000 120,000 TBD Key staff Procurement IC 11 Officer National 40 3,000 120,000 TBD Logistics IC 12 Officer National 40 2,000 80,000 TBD IC 13 HR Officer National 40 2,000 80,000 TBD Admin/Fina IC 14 nce Officer National 40 2,000 80,000 TBD IC Numbers required will vary between 5 to 8 depending on Site the construction 15 Engineers National 20 2,800 56,000 TBD requirements ACD IC Various consultants working 16 Consultants National 36 1,200 43,200 TBD in ACD IC Functional and Technical experts working in ASYCUDA unit. Numbers depending on the Customs ASYCUDA locations where ASYCUDA 17 Consultants National 36 1,200 43,200 TBD is functional

TOTAL 19,500,400 SS – Single Source C – Competitive LC – Limited Competition

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3. Consultancy Assignments with Selection Methods and Time Schedule Capacity Building

The following programs are proposed to enhance the knowledge of the staff of ACD.

Expected outcome/Activity Estimated Cost Estimated Start date Comments Description Duration Familiarity of ACD staff in Bank Budget 4 days Bank staff attached Kabul procurement of goods following office will conduct in shopping procedures/selection of English/Dari consultants Familiarity of staff with As per TBD Procurement under Bank standard of Financed Projects PPU/MOF Familiarity of staff with US$ 10,000 Two weeks TBD Procurement under Bank Financed Projects

4. Agreed Procedures for National Competitive Bidding

(a) Standard bidding documents approved by the Association shall be used.

(b) Invitations to bid shall be advertised in at least one (1) widely circulated national daily newspaper and bidding documents shall be made available to prospective bidders, at least twenty eight (28) days prior to the deadline for the submission of bids.

(c) Bids shall not be invited on the basis of percentage premium or discount over the estimated cost.

(d) Bidding documents shall be made available, by mail or in person, to all who are willing to pay the required fee.

(e) Foreign bidders shall not be precluded from bidding.

(f) Qualification criteria (in case pre-qualifications were not carried out) shall be stated on the bidding documents, and if a registration process is required, a foreign firm determined to be the lowest evaluated bidder shall be given reasonable opportunity of registering, without any hindrance.

(g) Bidders may deliver bids, at their option, either in person or by courier service or by mail.

(h) All bidders shall provide bid security or a bid security declaration form as indicated in the bidding documents. A bidder’s bid security or the declaration form shall apply only to a specific bid.

(i) Bids shall be opened in public in one place preferably immediately, but no later than one hour, after the deadline for submission of bids.

(j) Evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format, and within the specified period, agreed with the Association.

(k) Bids shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association.

(l) Split award or lottery in award of contracts shall not be carried out. When two (2) or more bidders quote the same price, an investigation shall be made to determine any evidence of collusion, following which: (A) if collusion is determined, the parties involved shall be disqualified and the

137 award shall then be made to the next lowest evaluated and qualified bidder; and (B) if no evidence of collusion can be confirmed, then fresh bids shall be invited after receiving the concurrence of the Association;

(m) Contracts shall be awarded to the lowest evaluated bidders within the initial period of bid validity so that extensions are not necessary. Extension of bid validity may be sought only under exceptional circumstances.

(n) Extension of bid validity shall not be allowed without the prior concurrence of the Association (A) for the first request for extension if it is longer than four (4) weeks, and (B) for all subsequent requests for extensions irrespective of the period.

(o) Negotiations shall not be allowed with the lowest evaluated or any other bidders.

(p) Re-bidding shall not be carried out without the Association’s prior concurrence; and

(q) All contractors or suppliers shall provide performance security as indicated in the contract documents. A contractor’s or a supplier’s performance security shall apply to a specific contract under which it was furnished.

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Appendix 10.2: Description of Services of UNOPS

Objective: Partner with Afghan Customs Department (ACD) to implement the Second Customs Reform & Trade Facilitation Project (SCRTFP) Detailed Services being provided by United Nations Office for Project Services (UNOPS) . GOA Audit support to ACD . General project procurement support to ACD . Country wide communications management . Country wide security management . Development of standardized bid documents for ACD . Office facilities (related to project) whenever required, for ACD . General FM and Disbursement support to ACD I. Countrywide computerization of Customs Clearance operations Provision of logistic support in Kabul and Provinces Provision of administrative support Provision of HR support for hiring of consultants ICT support if required Procurement of Goods including ICT, power, furniture etc. Disbursements and all accompanying financial management Communications support Counterpart new ACD staff on contract Counterpart capacity building Counterpart support services Progress reporting II. Installation of executive information systems for Customs allowing real time monitoring of operations Undertake selection of qualified firm Provision of logistic support in Kabul and Provinces Provision of administrative support Provision of HR support for hiring of consultants ICT support if required Procurement of Goods including ICT, power, furniture etc. Disbursements and all accompanying financial management Communications support Counterpart new ACD staff on contract Counterpart capacity building Counterpart support services Progress reporting III. Development of possible options for cross border Customs-to-Customs (C2C) Cooperation Undertake selection of qualified firms and consultants Provision of logistic support in Kabul and Provinces Provision of administrative support Provision of HR support for hiring of consultants ICT support if required Procurement of Goods including ICT, power, furniture etc. Disbursements and all accompanying financial management Communications support Counterpart new ACD staff on contract Counterpart capacity building Counterpart support services Progress reporting IV. Provision of selected Customs infrastructure to enable modernized operations Provision of logistic support in Kabul and Provinces Provision of administrative support

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Provision of HR support for hiring of consultants ICT support if required Disbursements and all accompanying financial management Communications support Civil Works . Survey and design . Bid documents preparation . Bid invitation . Bid Evaluation . Assessments of bidders . Required pre-award clearances . Award and signing . Award risk management70 . Works supervision . Project & contract Management . Payments to contractors . Certification for completion and taking over of works . Handing over to ACD Procurement of Equipment . Preparation of specification for machinery &equipment . Bid documents preparation . Bid invitation . Bid evaluation . Assessments of bidders . Required pre-award clearances . Award . Receipt and inspection . Inventory control and warehousing . Delivery to ACD V. Technical assistance to support the development of an adequate regulatory, administrative and institutional framework for Customs Undertake selection of qualified firms and consultants Provision of logistic support in Kabul and Provinces Provision of administrative support Provision of HR support for hiring of consultants ICT support if required Procurement of Goods including ICT, power, furniture etc. Disbursements and all accompanying financial management Communications support Counterpart new ACD staff on contract Counterpart capacity building Counterpart support services Progress reporting

70 On behalf of the ACD. The contract is between UNOPS and the winning bidder and the bidder has no recourse to the ACD.

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ANNEX 11: PROJECT PREPARATION AND APPRAISAL TEAM MEMBERS

1. Project schedules:

Project Schedule Date Project Concept Note Review May 15, 2008 Decision Meeting December 17, 2009 Project Appraisal February 28 , 2010 ROC February 8, 2010 Negotiations April 13 , 2010 Board Approval May 25, 2010 Planned date of effectiveness June 30, 2010 Planned closing date June 30, 2014

2. World Bank/IFC staff and consultants who worked on the project:

Name Unit Title Amer Zafar Durrani SASDT Task Team Leader Hasan Afzal Zaidi SASDT Co-Task Team Leader Michel Zarnowiecki Consultant Customs Yusuf Hussain Consultant Information and Communication Tech Michaela Prokop Consultant Governance Monica Alina Mustra PRMTR Trade Specialist Richard Spencer Hogg SASGP Governance Advisor Aized Hasan Mir Consultant Lead Trade Analyst Deepal Fernando SARPS Senior Procurement Specialist Arun Kumar Kolsur SARPS Procurement Specialist Kenneth O. Okpara SARFM Senior Financial Management Specialist Asha Narayan SARFM Financial Management Analyst Paul Edwin Sisk SARFM Lead Financial Management Specialist Sheila Braka Musiime LEGES Senior Counsel Per Egil Wam AFTSP Senior Social Scientist Michelle P. Rebosio Calderon SDV ET Consultant Mohammad Arif Rasuli SASDI Senior Environmental Specialist Abdul Mohammad Durani SASDI E T Consultant Rajesh B.S. Dongol SASDO Program Assistant Birgit Hansl SASEP Senior Economist David C. Freese CTRFC Senior Finance Officer Zafar Hameed Ismail Consultant Economist Satyendra Prasad SASGP Senior Governance Specialist Chau-Ching Shen CTRFC Senior Finance Officer Waseem Khan Consultant COSO Methodology Martin M. Serrano LEGES Counsel Sehr Ali Khan SASDT Junior Analyst Abid Hussain Chaudhry SASSD Program Assistant Ghulam Farid SASSD Program Assistant Mariam Haidary SASDT Program Assistant

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3. Project Peer Reviewers:

Name Unit Title Marc H. Juhel ETWTR Sector Manager Henry Kerali ECSSD Sector Manager Borja Garcia - IMF William LeDrew - Canadian Customs and IMF Jean Francois Arvis PRMTR Sr. Transport Economist Gerard McLinden PRMTR Sr. Trade Facilitation Specialist Eva Molnar - Director, UNECE

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ANNEX 12: DOCUMENTS IN PROJECT FILES

A. Project Preparation

1. Islamic Republic of Afghanistan: Sixth Review under the Arrangement under the Poverty Reduction and Growth Facility, Request for Waiver of No observance of a Performance Criterion, Modification of Performance Criteria, and Rephrasing and Extension of the Arrangement,” IMF Country Report No.10/22, January 2010 2. United Nations Office on Drugs and Crime website [http://www.unodc.org/afghanistan/en/illicit- drugs.html], accessed on October 5,2009 3. IMF Country Report, IMF, April 2009 4. Tariff, Research and Statistics Unit (TRSU), ACD 5. "Presentation of the Afghan Delegation to the London International Conference on Afghanistan", The London Conference on Afghanistan, January 28, 2010 6. Afghanistan’s Drug Industry: Structure, functioning, Dynamics, and implications for counter narcotics Policy 7. Improving Trade and Transport for Landlocked Developing Countries, Almaty Program of Action for Landlocked Developing Countries. October 20 8. Fighting Corruption in Afghanistan – Summaries of Vulnerabilities to Corruption Assessment, World Bank, July 2009 9. Police Perception Survey 2009 - The Afghan Perspective, UNDP Afghanistan Country Office, 2009 10. The Challenge of Combating Corruption in Customs Administrations in The Many Faces of Corruption - Tracking Vulnerabilities at the Sector Level, Carlos Ferreira, Michael Engelschalk and William Mayville, World Bank, April 2007 11. TA 4879 Report: Outcome of Afghan Customs World Customs Organization Integrity Development Guide Self-Assessment and Evaluation, University of Canberra, Centre for Customs and Excise Studies, September 2007 12. Rapid Logistics Review: Transit of Afghan Good through Pakistan-Afghanistan Border Crossing and the Implication of Transit Trade on the Economies, Draft Report, World Bank, December 2009 13. Interim Strategy Note for Islamic Republic of Afghanistan, Report No: 47939-AF, May 2009 14. Note on Role of Customs, World Bank, 2009 15. Note on Border Security and Customs, World Bank, 2009 16. Note on Strategy for Developing Customs Enforcement, World Bank, 2009

B. World Bank Staff Assessment

1. World Bank, Aide-Memoire, First ECMTFP Supervision Mission April – August 2004. 2. World Bank, Aide-Memoire, ECMTFP Supervision Mission February 4 – 9, 2005. 3. World Bank, Aide-Memoire, ECMTFP Supervision Mission April 10 – 19, 2005. 4. World Bank, Aide-Memoire, ECMTFP Supervision Mission December 2006. 5. World Bank, Aide-Memoire, ECMTFP Supervision Mission January – June 2007. 6. World Bank, Aide-Memoire, ECMTFP Supervision Mission August 28 – September 12 2007. 7. World Bank, Aide-Memoire, ECMTFP Supervision Mission January – May 2008 8. World Bank, Aide-Memoire, ECMTFP Supervision Mission/ ECMTFP Additional Financing Preparation Mission June 2008 – June 2009 9. World Bank, Aide-Memoire, ECMTFP Supervision Mission July – November 2009

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ANNEX 13: STATEMENT OF LOANS AND CREDITS

Difference Between Active Projects Expected and Actual IDA Undisb. Disbursements Project ID FY Project Name Orig. Frm Rev’d P110644 2009 AF Financial Sector Strengthening Project 8.00 8.47 0.50 P104301 2008 AF Microfinance Project 30.00 12.27 -1.62 P090928 2007 AF PSD Support Project 25.00 18.58 9.23 P078936 2004 AF: Emergency Irrigation Rehab 126.50 59.86 -31.12 13.88 P098256 2006 AF: Hort. & Livestock Project 20.00 6.83 5.12 P099980 2007 AF: Public Financial Management Reform 33.40 22.24 -0.25 P101502 2008 Afghanistan HIV/AIDS Prevention Project 10.00 6.19 2.56 P113421 2010 Afghanistan Pension Admin and Safety Net 7.50 7.84 P102573 2008 Afghanistan Skills Development Project 20.00 15.66 4.88 P098118 2006 Afghanistan: Natural Resources Development 40.00 30.36 14.05 P100935 2007 Avian Flu 8.00 5.93 4.19 P097030 2007 Civil Service Reform Project 20.40 15.64 7.55 P106259 2008 Education Quality Improvement Program II 30.00 15.81 -6.33 P083906 2004 Emergency Customs and Trade Facilitation 37.81 0.21 -8.30 P083908 2004 Emergency Power Rehabilitation Project 105.00 33.58 26.68 10.49 P088719 2005 Investment Guarantee Facility 5.00 2.84 2.59 P083919 2005 Kabul Urban Reconstruction Project 25.00 11.04 9.46 P102288 2007 NSP II 195.00 6.50 -77.72 -22.72 P103343 2008 National Emergency Rural Access Project 112.00 52.52 26.13 P089040 2005 Strengthening Higher Education Program 40.00 13.29 7.63 P112446 2009 Strengthening Health Activities’ for Rural Poor 30.00 13.44 -13.82 P087860 2006 Urban Water Sector 40.00 42.16 39.14 Overall Results 968.61 401.25 20.56 1.66

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Afghanistan Committed and Disbursed Outstanding Investment Portfolio As of 11/30/2009 (In USD Millions)

Committed Disbursed Outstanding

**Quasi **Quasi FY Approval Company Loan Equity Equity *GT/RM Participant Loan Equity Equity *GT/RM Participant

2009 ACOMET 0 0 4.5 0 0 0 0 3 0 0 2009 AREEBA Afg. Ltd, 65 10 0 0 0 0 0 0 0 0 2007/08 BRAC Bank Inc 0 0.73 0 0 0 0 0.6 0 0 0 2003 FMBA 0 0.82 0 0 0 0 0.82 0 0 0 2004 TPS (a) 0 0 7 0 0 0 0 7 0 0

Total Portfolio: 65 11.55 11.5 0 0 0 1.42 10 0 0

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ANNEX 14: COUNTRY AT A GLANCE

Afghanistan at a glance 9/24/08

POVERTY and SOCIAL South Low- Afghanistan Asia income 2007 Population, mid-year (millions) 27.1 1,520 1,296 Life expectancy GNI per capita (Atlas method, US$) 370 880 578 GNI (Atlas method, US$ billions) 10.1 1,339 749

Average annual growth, 2001-07 Population (%) 3.9 1.6 2.2 Labor force (%) .. 2.1 2.7 GNI Gross per primary M ost recent estimate (latest year available, 2001-07) capita enrollment Poverty (% of population below national poverty line) ...... Urban population (% of total population) 24 29 32 Life expectancy at birth (years) 43 64 57 Infant mortality (per 1,000 live births) 16 5 6 2 8 5 Child malnutrition (% of children under 5) 33 41 29 Access to improved water source Access to an improved water source (% of population) 22 87 68 Literacy (% of population age 15+) .. 58 61 Gross primary enrollment (% of school-age population) 10 1 10 8 9 4 Afghanistan M a l e 12 6 111 10 0 Low-income group Female 75 104 89

KEY ECONOM IC RATIOS and LONG-TERM TRENDS 1987 1997 2006 2007 GDP (US$ billions) .. .. 9.4 11.6 Gross capital formation/GDP ...... Exports of goods and services/GDP ...... Trade Gross domestic savings/GDP ...... Gross national savings/GDP ...... Current account balance/GDP ...... Interest payments/GDP .. .. 0.1 .. Domestic Capital savings formation Total debt/GDP .. .. 18.9 .. Total debt service/exports ...... Present value of debt/GDP .. .. 14.1 .. Present value of debt/exports ...... Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annual growth) GDP .. 11.5 6.1 13.5 .. Afghanistan GDP per capita .. 7.1 2.0 9.2 .. Low-income group Exports of goods and services ......

STRUCTURE of the ECONOM Y 1987 1997 2006 2007 (% of GDP) 60 A griculture ...... 40 Industry ...... 20 0 M anufacturing ...... -20 Services ...... -40 02 03 04 05 06 07

Household final consumption expenditure ...... General gov't final consumption expenditure ...... Imports of goods and services ...... GCF GDP

1987-97 1997-07 2006 2007 (average annual growth) A griculture ...... 60 Industry ...... 40 M anufacturing ...... 20 Services ...... 0 -20 02 03 04 05 06 07 Household final consumption expenditure ...... -40 General gov't final consumption expenditure ...... -60 Gross capital formation ...... Exports Imports Imports of goods and services ......

Note: 2007 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

146

Afghanistan

PRICES and GOVERNMENT FINANCE 1987 1997 2006 2007 Domestic prices (% change) 40 Co nsumer prices ...... 20 Implicit GDP deflator .. .. 3.0 9.4 0

Government finance 02 03 04 05 06 07 (% of GDP, includes current grants) -20 Current revenue ...... -40 Current budget balance ...... GDP deflator CPI Overall surplus/deficit ......

TRADE 1987 1997 2006 2007 (US$ millions)

Total exports (fob) .. 159 .. .. 4,000 n.a...... n.a...... 3,000 M anufactures ...... Total imports (cif) .. 462 .. .. 2,000 Fo o d .. 1 .. .. 1,000 Fuel and energy .. 1 .. .. Capital goods .. 6 .. .. 0 Export price index (2000=100) ...... 01 02 03 04 05 06 07

Import price index (2000=100) ...... Exports Imports Terms of trade (2000=100) ......

BALANCE of PAYMENTS 1987 1997 2006 2007 (US$ millions) Exports of goods and services 574 ...... 6 Imports of goods and services 1,061 ...... 4 Resource balance -487 ...... 2 Net income 8 ...... Net current transfers ...... 0 01 02 03 04 05 06 07 Current account balance ...... -2

Financing items (net) ...... -4

Changes in net reserves -11 ...... -6 Memo: Reserves including gold (US$ millions) 747 ...... Conversion rate (DEC, local/US$) 50.6 .. 37.5 37.6

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 (US$ millions) Total debt outstanding and disbursed .. .. 1,771 .. IB RD .. .. 0 0 11 IDA .. .. 358 411 358 Total debt service .. .. 9 .. IB RD .. .. 0 0 IDA .. .. 5 7 Composition of net resource flows Official grants .. .. 0 .. 995 Official creditors .. .. 143 .. P rivate credito rs .. .. 0 .. 407 Fo reign direct investment (net inflo ws) ...... P o rtfo lio equity (net inflo ws) .. .. 0 ..

World Bank program Commitments .. .. 0 0 Disbursements .. .. 39 56 Principal repayments .. .. 3 3 Net flows .. .. 37 54 Interest payments .. .. 3 5 Net transfers .. .. 34 49

Note: This table was produced from the Development Economics LDB database. 9/24/08

147 IBRD 37817

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such TAJIKISTAN AFGHANISTAN boundaries. DUSHANBE UZBEKISTAN SECOND CUSTOMS Darwaz REFORM AND TRADE FACILITATION PROJECT TURKMENISTAN Shighnan (SCRTFP)

Aqina Aikhanum Khorough

Badakhshan Hairatan Sher Khan ECMTFP: Bandar Andkhoi JAWZJAN TAKHAR BALKH KUNDUZ EQUIPEMENT Taloqan Kunduz Ishkashim TA Shiberghan Mazar-e-Sharif BADAKHSHAN INFRASTRUCTURE Sar-e-Pul FARYAB Aybak ASYCUDA Dahan-e-Ghory SCRTFP: SAMANGAN Maymana BAGHLAN ASYCUDA SARI Kabul Custom PANJSHER INFRASTRUCTURE PUL Poruns Rukha NURISTAN Barikot TA Kabul Airport PARWAN BADGHIS Mahmud-e-Raki EQUIPMENT Towraghondi BAMYAN Charikar KUNAR Nawapass Qala-e-Naw KAPISA Asad Abad C2C Kabul HQ LAGHMAN Bamyan Shigel Islam Qala KABUL Mehtarlam EIS Chaghcharan KABUL WARDAK Nerkh Jalalabad NANGARHAR Herat GHOR REGIONAL CUSTOMS’ Torkham HOUSES Qalate Nazar LOGAR HIRAT Pul-e- Joji Arub Alam Gusha Lalpur (2 sites) FORMAL BORDER CROSSING Patan POINTS Nili PAKTYA Shellman Borbaba (2 sites) ISLAMABAD Gardez Ghazni Jawid Check Point INFORMAL BORDER CROSSING DAYKUNDI POINTS GHAZNI Ghulam Khan Khost Mile 73 KHOST Sharan PROVINCE CAPITALS Mile 75 FARAH URUZGAN NATIONAL CAPITAL Tirin Kot NATIONAL HIGHWAYS Mile 76 Farah ZABUL PAKTIKA REGIONAL HIGHWAYS PROVINCIAL ROADS Abu Naser Rarahi Zabul PROVINCE BOUNDARIES INTERNATIONAL BOUNDARIES Lashkar Gah Kandahar PAKISTAN

NIMROZ ISLAMIC Nimroz HILMAND Spin Boldak REPUBLIC Zaranj Vesh OF IRAN KANDAHAR Crooki AFGHANISTAN

Shand

0 75 150 Kilometers

0 75 150 Miles

APRIL 2010