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1 Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER ON A PROPOSED SECOND ADDITIONAL CREDIT IN THE AMOUNT OF SDR MILLION (US$19.60 MILLION EQUIVALENT) AND Report No: LR Public Disclosure Authorized A GRANT FROM THE LIBERIA RECONSTRUCTION TRUST FUND IN THE AMOUNT OF US$9.40 MILLION TO THE REPUBLIC OF LIBERIA FOR THE URBAN AND RURAL INFRASTRUCTURE REHABILITATION PROJECT Public Disclosure Authorized Africa Transport Country Department AFCW1 Africa Region December 26, 2013 This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank's policy on Access to Information.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective November 30, 2013) Currency Unit = Liberian Dollar (LRD) LRD 1.00 = US$80.01 US$1 = SDR FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AAA AIDP AF Aff BD CBL CE DBT DSA EIRR EITI EMP EPA ESMP FA FDI FM FUF GAC GoL GFS HIPC HSEMP IDA IFMIS IFR IMF INTOSAI ISA IBRD IIU IPSAS Analytic and Advisory Activities Agriculture Infrastructure Development Project Additional Financing Agenda for Transformation Bidding documents Central Bank of Liberia Contracting Entity Design, Build and Transfer Debt Sustainability Analysis Economic Internal Rate of Return Extractive Industries Transparency Initiative Environmental Management Plan Environmental Protection Agency Environmental Social Management Plan Financing Agreement Foreign Direct Investment Financial Management Fuel Unloading Facility General Audit Commission Government of Liberia Government Finance Statistics Heavily Indebted Poor Countries Health, Safety and Environmental Management Plan International Development Agency Integrated Financial Management Information System Interim un-audited Financial Reports International Monetary Fund International Standards for Supreme Audit Institutions International Standards on Auditing International Bank for Reconstruction and Development Infrastructure Implementation Unit International Public Sector Accounting Standards

3 IRR LRTF MC MOF MoT MPW NCB OC OPRC PAD PDO PEFA PFM PFMA PFMU PPCC PPP RAP RPF TA TSG URIRP US$ WB Internal Rate of Return Liberia Reconstruction Trust Fund Monitoring Consultants Ministry of Finance Ministry of Transport Ministry of Public Works National Competitive Bidding Oversight Committee Output and Performance-Based Road Contracts Project Appraisal Document Project Development Objectives Public Expenditure and Finance Accountability Assessment Public Financial Management Public Financial Management Act Project Financial Management Unit Public Procurement and Concessions Commission Public-Private Partnerships Resettlement Action Plan Resettlement Policy Framework Technical Assistance Transport Support Group Urban and Rural Infrastructure Development Project United States Dollar World Bank Vice President: Country Director: Country Manager Sector Director Sector Manager: Task Team Leader: Makhtar Diop Yusupha B. Crookes Inguna Dobraja Jamal Saghir Supee Teravaninthorn Kulwinder S. Rao

4 REPUBLIC OF LIBERIA URBAN AND RURAL INFRASTRUCTURE REHABILITATION PROJECT SECOND ADDITIONAL FINANCING CONTENTS Project Paper Data Sheet I. Introduction... 1 II. Background and Rationale for Additional Financing III. Proposed Changes... 7 IV. Appraisal Summary Annex 1: Revisions to Results Framework and Monitoring...14 Annex 2: Operational Risk Assessment Framework (ORAF) Annex 3: Financial Management, Disbursements and Procurement... 19

5 REPUBLIC OF LIBERIA URBAN AND RURAL INFRASTRUCTURE REHABILITATION PROJECT SECOND ADDITIONAL FINANCING DATA SHEET Basic Information - Additional Financing (AF) Country Director: Yusupha B. Crookes Sectors: Rural and Inter- Sector Director: Jamal Saghir Urban Roads and Sector Manager: Supee Teravaninthorn Highways (46%), Urban Team Leader: Kulwinder Singh Rao Transport (39%), Public Project ID: P Administration - Expected Effectiveness Date: May 30, 2014 Transportation (15%) Lending Instrument: IPF Environmental category: Additional Financing Type: Scale-up B- Partial Assessment Expected Closing Date: December 31, 2015 Joint IFC: Joint Level: Basic Information - Original Project Project ID: P Environmental category: B- Partial Assessment Project Name: Urban and Rural Infrastructure Rehabilitation Expected Closing Date: Project June 30, 2014 Lending Instrument: SIL Joint IFC: Joint Level: AF Project Financing Data [ ] Loan [X] Credit [X] Grant [ ] Guarantee [ ] Other: Proposed terms: Standard IDA Credit terms with a maturity of 40 years, including a grace period of 10 years. AF Financing Plan (US$m) Source Total Amount (US$m) Total Project Cost: Co-financing 9.40 (LRTF): 0.00 Borrower: Total Bank Financing: IBRD IDA New 0.00 Recommitted Client Information i

6 Recipient: Republic of Liberia Responsible Agency: Infrastructure Implementation Unit of the Ministry of Public Works Contact Person: Emmanuel Baker Telephone No.: / Fax No.: N/A office@iiu-mpw.org AF Estimated Disbursements (Bank FY/US$m) FY FY14 FY15 FY16 Annual Cumulative Project Development Objective and Description The objective of the Project is to support the Recipient's efforts to improve road access in the city of Monrovia and targeted rural areas, as well as to improve the institutional capacity for the management of the Recipient's roads sector. Revised project development objective: No change is proposed Project description: The project has two main components: Component 1- finances rehabilitation and maintenance of selected rural and urban roads (including Monrovia city streets), bridges, and a fuel unloading facility in Monrovia Freeport; and Component 2- finances institutional support and capacity building for program management. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [X]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [X] No Forests (OP/BP 4.36) [ ]Yes [X] No Pest Management (OP 4.09) [ ]Yes [X] No Physical Cultural Resources (OP/BP 4.11) [X]Yes [ ] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [X] No Involuntary Resettlement (OP/BP 4.12) [X]Yes [ ] No Safety of Dams (OP/BP 4.37) [ ]Yes [X] No Projects on International Waterways [ ]Yes [X] No (OP/BP 7.50) [ ]Yes [X] No Projects in Disputed Areas (OP/BP 7.60) Does the project require any waivers of [ ]Yes [X] No Bank policies? [ ]Yes [ ] No Have these been endorsed or approved by Bank management? Conditions and Legal Covenants: Financing Description of Covenant Date Due Agreement Reference ii

7 Schedule 2, Section III Grant Agreement Reference Schedule 2, Section II B 1 The Effectiveness Deadline for the Grant Agreement is the same as the IDA Financing Agreement. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be made for payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not to exceed three, million seven hundred and fifty thousand Dollars ($3,750,000) equivalent may be made for payments made prior to this date but on or after November 7, 2013, for Eligible Expenditures. Notwithstanding the provisions of Part A of this Section, no withdrawal shall be made for payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not to exceed one million, eight hundred Dollars ($1,800,000) may be made for payments made prior to this date but on or after November 7, 2013, for Eligible Expenditures. 90 days of signing of the Financing Agreement 111

8 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of SDR 12.8 million (US$19.60 million equivalent) to the Republic of Liberia for the Urban and Rural Infrastructure Rehabilitation Project ("Project" or "URIRP", P 13099, 4780-LR). This second additional IDA Credit will be part of a total second additional financing for the Project in the amount of US$29.0 million, including US$9.40 million cofinanced by the Liberia Reconstruction Trust Fund (LRTF). In order to allow the completion of the scaled up activities, it is proposed to extend the project's closing date by 18 months from June 30, 2014 to December 31, The cumulative extension of the closing date would be 18 months. 2. The proposed second Additional Financing (AF) will support additional required financing for various Project components, in particular: (a) the contractually obligated inflation linked contract price adjustment for the Bokay Town to Buchanan Port Road; (b) additional works for Monrovia City Streets; (c) updated estimated costs of the Caldwell Bridge; and (d) updated cost of New Fuel Unloading Facility in the Port of Monrovia. The AF will also finance the following new project activities: (a) preparation of conceptual designs and bidding documents for construction/rehabilitation of Ganta-Zwedru section (about 233 km) along the Ganta-Fishtown-Harper Road corridor; (b) carrying out a detailed feasibility study and transaction advisory services for the development of a dry inland port; and (c) technical assistance to the University of Liberia, the Stella Marie Polytechnic and Tubman University in support of the overall infrastructure sector institutional capacity building. An additional activity, to partly cover the costs of social and environmental mitigation measures, such as the Resettlement Action Plan (RAP) and similar, has been also included. This component will mitigate the delays caused by lack of timely and adequate financing from the Government of Liberia (GoL). There are no new safeguard policies triggered by this second additional financing and restructuring, nor any changes to the original development objectives of the Project. 3. The AF will also revise one core indicator and one intermediate indicator to the results matrix agreed during the first additional financing. In addition, the already completed indicators have been dropped from further monitoring, as not relevant anymore. 4. The LRTF is a multi-donor trust fund administered by the World Bank and financed by the European Commission (EU) and Governments of Germany, the United Kingdom, Sweden, Norway, and Ireland. The Oversight Committee (OC) for the LRTF approved additional funds for the proposed activities on February 7, Currently, an additional US$9.40 million is available from the LRTF. Adding this amount to the existing LRTF co-financing of US$36.2 million provided for the URIRP's Cotton Tree-Bokay Town road rehabilitation component (under the original financing and the first additional financing), the total LRTF contribution for the Project will be US$45.60 million. 1

9 II. A Background and Rationale for Additional Financing Implementation Status of URIRP 5. URIRP was approved in the amount of US$44.0 million by the Board on April 21, 2009 and became effective on July 21, LRTF also provided co-financing for the Project in an amount of US$9.2 million, bringing the initial Project cost to US$53.2 million ("Original Financing"). In June 2010, an Additional Financing ("First Additional Financing") in the amount of US$20.0 million was approved by IDA (6040-LR) to finance the cost associated with scale-up activities to cover the rehabilitation of critical infrastructure along the entire Monrovia-Buchanan corridor. This was complemented by the co-financing of US$27.0 million under the LRTF (TF98040). The total Project cost increased to US$100.2 million of which US$64.0 million was funded by IDA and US$36.2 million funded by the LRTF. The AF will increase the total Project cost to US$129.2 million. The share of IDA and the LRTF financing will increase to US$83.6 million and US$45.6, respectively. 6. The Project Development Objective is to support the Recipient's efforts to improve road access in the city of Monrovia and targeted rural areas, as well as to improve the institutional capacity for the management of the Recipient's roads sector. The Project, under the original financing combined with the First Additional Financing has two components: Component 1: Infrastructure Investment - There are seven sub-components: A: Rehabilitation of Monrovia City Streets B: Construction of Cotton Tree-Bokay Town Road Section C: Construction of Caldwell Bridge and approaches D: Rehabilitation of Pleebo-Barclayville Road E: Rural Road Maintenance F: Rehabilitation of the Vai Town Bridge and Tucker Bridge Convergence Road Intersection. G: New Fuel Unloading Facility in the Port of Monrovia Component 2: Program Management and Institutional Support: This component includes activities that enhance the program management function and strengthen institutional capacity, including technical assistance and operating expenditures, as well as Monitoring and Evaluation of Project Implementation. 7. The First Additional Financing provided funding for the scaled up works under subcomponent B of the original project, extending the construction of road from Bokay Town to Buchanan Town by an additional 66 kilometers. 8. All major works under the project have been completed with the exception of the new Caldwell Bridge, new Fuel Unloading Facility, and the works related to Rural Road maintenance. The Project implementation progress is rated as Moderately Satisfactory while the progress towards achieving the project development objectives is rated as Satisfactory. 9. All the legal covenants have been fully complied with. There are no unresolved fiduciary, environmental and social safeguard issues. There are no overdue financial reports. 2

10 B Rationale for the Proposed Second AF 10. The proposed second additional financing will: (i) supplement costs associated with the existing Project activities; and (ii) also finance additional activities for scaling up the development effectiveness of the Project. The AF related activities are described in the following pages. (a) Existing Project Activities 11. Sub-component A: Rehabilitation of Monrovia City Streets. All works were completed in November 2011 and are performing satisfactorily. There was a provision of US$17.6 million in the original project for this activity. During implementation, additional works' were added to the original scope of work, as being necessary for the city efficient traffic movement. An additional amount of US$3.2 million is required to cover the cost of these additional works and associated services. 12. Sub-component B: Construction of Cotton Tree-Bokay Town Road Section (15 Kms) and Bokay Town - Buchanan Port Road (66 km). LRTFs initial co-financing of US$9.2 million to URIRP supported rehabilitation of 15 km section of the Buchanan road (Cotton Tree - Bokay Town) at an overall cost of US$9.8 million. These works were completed in September The First Additional Financing supported rehabilitation of the remaining 66 kilometers of road from Bokay Town to Buchanan. These works were aimed at a seamless continuation of the rehabilitation of the Monrovia-Buchanan road, one of the most critical transport links in the country, connecting the capital to Buchanan town, the second most important center of the country's economic growth. The first 10 km were completed in May 2011, and the construction of the remaining 56.5 km was substantially completed on time and without any scope change in June Currently, the works are in the defects liability period. However, the allocation for Bokay Town - Buchanan Road Project was not sufficient to cover the actual price fluctuation of materials and labor, and the resultant contractually required price adjustment over three years. Consequently, an additional amount of US$2.84 million is required to cover the additional costs arising from the price fluctuations. 13. Sub-component C: Construction of Caldwell Bridge and its Approaches. The present Caldwell Bridge crossing Stockton Creek is about 120 meters in length and is in a severe state of disrepair. Consequently, the use of the bridge for heavy traffic has been restricted. The bridge connects the two major sections of Monrovia city and is a critical by-pass of Monrovia City for the traffic connecting the Red Light-Gbamga Road to the Freeport Area. The bridge provides an important primary access to strategic infrastructure such as White Plains Water Treatment Facility and Mount Coffee Hydroelectric Generating Plant. The construction of the new bridge is, therefore, an urgent priority for the Government of Liberia. 'The additional works related to unground and open drainage system, two additional culverts, additional concrete pavement (8,000 M 2 ), additional road length along Water Street, ELWA Intersection rehabilitation, and additional road signage and safety features. 3

11 14. The construction of the new bridge and the approach access roads will allow access from Caldwell Junction to White Plains and will enhance the economic development of the hinterland by increased transportation, access to markets, educational institutions, hospitals etc. 15. The initial amount allocated in 2009 to the component covering civil works and associated consultancy services was US$7.0 million. This original allocation was exclusive of price and physical contingencies. A lump sum civil works contract was signed on May 23, 2013 in an amount of US$8.3 million. The cost of associated consultancy services is US$1.1 million. An additional amount of US$2.4 million is, therefore, required to cover the overall amount of the signed contracts. 16. Sub-component D: Rehabilitation of Pleebo-Barclayville Road. All works completed in November 2011 and are performing satisfactorily. An amount of US$0.8 million is required to cover the final cost of rehabilitation of this road. 17. Sub-component E: Rural Road Maintenance. These works are under implementation. However, no additional funding for this sub-component is required under the AF. 18. Sub-component F: Rehabilitation of the Vai Town Bridge and Tucker Bridge Convergence Road Intersection. These works were completed in December 2011 under AIDP. A signalized at-grade intersection was implemented and is performing satisfactorily. All works and services associated with this sub-component would be dropped under URIRP. 19. Sub-component G: The New Fuel Unloading Facility (FUF) in the Port of Monrovia. This infrastructure located in the National Port of Monrovia is the only facility for off-loading fuel supplies into Liberia and its poor condition has been the subject of discussions since The replacement of the existing FUF is a priority for the Government. In 2009, the allocation for FUF under the Urban Rural Infrastructure Rehabilitation Project (URIRP) was estimated in an amount of US$5.0 million, which, unlike the other components, was exclusive of price and physical contingencies. Subsequent detailed estimates and bid offers exceeded the original estimation allocated for the component. The contract for implementation was signed in October 2013 in an amount of US$10.81 million. An additional amount of US$5.81 million is, therefore, required to cover the actual cost of the component. 20. Balance of Costs for Monitoring Supervision Services for construction of Fuel Unloading Facility. The contract for supervision of of civil works of the new FUF is funded under the Agriculture and Infrastructure Development Project (AIDP) which will close on October 31, Since the civil works contract for the new FUF, funded under URIRP, is likely be completed later (currently estimated in January 2015), a provision has been made for the cost of Monitoring Supervision services estimated at US$0.2 million, which need to continue until the closure of the civil works contract. (b) New Project Activities 21. Conceptual Designs for construction/rehabilitation of Ganta-Zwedru Road section, (approximately 233 km, LRTF funded). The Government priority clearly set out in its Poverty 4

12 Reduction Strategy is to enable a cross country movement of people and goods, by developing the country's core road network. Ganta-Zwedru-Fishtown-Harper Highway provides that important factor in development and opening of the country in general and of the associated socio-economic activities in particular. This road is also of regional significance. It connects Liberia to the neighboring countries of Guinea and Sierra Leone, and fosters regional trade. Currently, the African Development Bank is focused on the development of Harper to Zwedru road section of the same link while LRTF has agreed to fund the conceptual design of Zwedru to Ganta road section, at an estimated cost of US$2.5 million. The Government of Liberia is currently seeking additional sources of funding for the civil works and associated consultancy services. 22. The Ganta-Zwedru road condition, in general over the entire length, is very poor. The existing road is a laterite road with several major structures/bridges. Traffic along the road is suppressed and light, with an average daily traffic of about 245 vehicles, as a result of the road's poor condition. Several technical alternatives will be considered for the road rehabilitation/construction of this section. In conformity with basic configuration of strategic National Roads in Liberia, these alternatives will involve a full rehabilitation/new construction of the road with two lanes travel way of 7.0 meters wide with 1.5 meters shoulders on both sides. The road structure will be defined by the soil, geotechnical conditions and current and expected (forecasted) traffic resulting of increased economic/trade activities after the road's rehabilitation. The road rehabilitation/construction will also involve replacement of several old bridges and construction of new bridges and required drainage network. 23. The mode of contracting of the civil works, for which the conceptual designs and the bidding documents will be prepared under this component, was carefully considered corresponding to the urgency of the works and the need to involve and enhance local trade and commerce. Several projects have been successfully implemented in Liberia under Design Build and Transfer methodology (DBT) using an adapted Output and Performance Road Contract (OPRC) format. The services for preparing required conceptual designs and bidding documents for the Ganta Zwedru road civil works will also use the OPRC format under DBT methodology. Based on the detailed field geotechnical survey, detailed designs and construction drawings will be prepared by the Contracting Entity (CE) during project mobilization period. The CE's designs will involve mandatory quality and quantity specifications and other guidance provided under the OPRC contract format. 24. Detailed Feasibility Study and Transaction Advisory Services for Development of Dry Port using Public-Private Partnership (PPP) approach. Port reforms have been implemented by the Government of Liberia with assistance from IDA leading to the transformation of the Monrovia Port from Service Port into Landlord Port. To further strengthen the trade logistics in Liberia, setting of an inland dry port is planned. The project will finance preparation of a detailed feasibility study and cost of transaction advisory services for setting up such a facility at an estimated cost of US$2.0 million. 2 Also known as the Agenda for Transformation 5

13 25. Program Management, Institutional Support, Capacity Building and Technical Assistance. There is an additional requirement for the continued support to the Infrastructure Implementation Unit (IIU) for their management and capacity building due to the extension of the project. In addition, a significant portion of this component, amounting to US$2.5 million, is targeted to provide technical assistance to the University of Liberia, Stella Maris Polytechnic, and Tubman University for their institutional capacity building and basic teaching and training requirements (estimated at US$1.5 million). The funding will be used mainly to enhance technical training capacity in the field of civil engineering. After the civil war, the expected build-up of local capacity for planning and management of the sector has not significantly materialized, mainly as a result of failure to attract Liberian professionals from diaspora. Therefore, the focus has turned to local engineers trained in Liberia who are lacking in the requisite skills due to grossly inadequate training facilities, insufficiently trained staff, and lack of financial resources at the tertiary level. The project will provide the immediate support in terms of laboratory equipment, surveying equipment, technical books, information technology resources, engagement of visiting scholars, and short term training of technical staff of the institutions, and will contribute to a better prepared cadre of professionals to be absorbed in the public and private sector. The support to the universities will indirectly contribute to better realize the project outcomes and substantially enhance the overall sustainability of the post war infrastructure building investments. 26. Social and environmental activities. The original project included funding resettlement of the persons affected by the construction of the new Caldwell Bridge under the Program Management, Institutional Support, Capacity Building and Technical Assistance component. This sub-component will be supplemented, at an overall cost of US$8.0 million, to provide for timely and orderly financing of various mitigation measures including cash payments for resettlement of Project Affected Persons (PAP) in connection with the carrying out of the civil works on Caldwell Bridge and Red-light to Guinea Border road (US$0.2 million for URIRP and US$7.8 million for LIBRAMP). The recent experience clearly indicates that in the absence of a timely and orderly implementation of resettlement activities and associated RAP payments, civil works are being seriously delayed while the implementing entities will be legitimately allowed to claim for lost time and resources. Naturally, such delayed implementation also results in a loss of efficiency and significant loss in social and financial benefits to the country. 27. Physical and Price Contingencies. Given the prevailing volatile situation in the market and the construction industry, an additional provision of US$0.7 million is being provided for price and physical contingency that may arise in the course of execution of civil works components of the project. This will increase the total contingency amount to US$2.75 million, which is approximately equivalent to 15 percent of the cost of on-going works. 28. URIRP was prepared to address infrastructure rebuilding efforts in the post conflict fragile emergency environment. As Liberia returns to normalcy, a satisfactory project closure will advance a more focused and holistic approach to future engagement in the transport sector. 6

14 III. Proposed Changes 29. There is no change proposed to the original Project Development Objectives. The proposed AF will require an extension of the current closing date from June 30, 2014 to December 31, The Vai Town Bridge and Tucker Bridge Convergence Road Intersection (planned as Sub Component F of the Project) has been completed in December 2011 along with the New Vai Town Bridge under another project (AIDP). A signalized at-grade intersection was implemented and is performing satisfactorily. All works and services associated with this sub component of URRIP project shall be dropped. Costs of components with proposed changes 31. Table 1 below summarizes the additional financing needs of the project. Table 1: Additional Project Cost by Project Activity and Source of Financing Original Planned Additional Allocation Cost/ Additional Financing Eng. Fici per funding Source Component Estimate required IDA LRTF US$m US$m US$m Contrib Contri Total ution bution Component 1: INFRASTRUCTURE INVESTMENT Part A: Rehabilitation of Monrovia City Streets ( kilometers) Part B: Construction of Cotton Tree-Bokay Town Road Section Part C: Construction of Caldwell Bridge and approaches Part D: Rehabilitation of Pleebo-Barclayville Road Part E: Rural Road Maintenance Part F: Rehabilitation of the Vai Town Bridge and Tucker Bridge Convergence Road Intersection* Part G: New Fuel Unloading Facility in the Port of Monrovia 6.01 Component 2: PROGRAM MANAGEMENT AND 7

15 Original Planned Additional Cost/ Additional Financing Allocatio Eng. Fici per funding Source Component Estimate required IDA LRTF US$m US$m US$m Contrib Contri Total ution bution INSTITUTIONAL Part H: Program Management, Institutional Support, Capacity Building and TA Total Baseline Cost PhysicalandPrice contingencies*** Total Project Cost * Includes Original Project (IDA US$44 million and LRTF US$9.2 million) and First Additional Financing (IDA US$20 million and LRTF US$27 million) **Completed under Agricultural Infrastructure Development Project along with Vai Town Bridge. *** Approximately 15% of the cost of the new Caldwell bridge and the new FUF 32. The total project cost will increase to US$129.2 million, as shown in Table 2. Table 2: Updated Project Cost by Category and Source of Financing Original First Proposed Total Second Project Additional Project Source Category Allocation Financing Additional Cost Financing US$m US$m US$m US$m IDA LRTF Component 1: Infrastructure Investments Component 2: Program Management and Institutional Support Unallocated Total In order to facilitate project implementation, retroactive financing (up to 20 percent of project funding) has been agreed for the proposed AF activities procured in accordance with applicable Bank procurement guidelines and/or carried out on or after November 7, 2013 in accordance with relevant Bank Safeguard Policies. 8

16 Proposed additional indicators in the results monitoring framework 34. During the first additional financing, the results indicators were updated to include core indicators and to account for the scaled up activities. This results matrix remains valid. However, indicators where target has been achieved will be revised or dropped from further monitoring as appropriate. Proposed changes in procurement and financial management 35. There are no changes proposed in the financial arrangements for the project. 36. The major changes to the procurement implementation include the following: (a) Use of the most recent guidelines detailed as follows: (i) "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated January 2011; (ii) "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated January 2011; and (iii) "Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants" dated October 15, 2006, and revised in January However, the procurement process in respect of a good, work or service to be financed out of the proceeds of the Additional Financing initiated prior to the date of signing of the Financing Agreement shall be governed by the provisions of the original Financing Agreement; and (b) Exceptions to National Competitive Bidding (NCB) selection procedures, for which the provisions shall apply to the procurement of goods, works and non-consulting services as outlined in Annex 3 and the provisions stipulated in the Financing Agreement. For each contract to be financed, by the grant, the different procurement methods, or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame as agreed between the Government and the Bank project team is detailed in the Procurement Plan. A procurement plan for the first 18 months has been prepared and agreed with the Government which will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. Furthermore, post procurement reviews will be carried out annually. IV. Appraisal Summary Technical 37. The technical aspects of all additional components were subjected to an in-depth analysis. Several options for the design of Ganta-Zwedru road section were considered, These option varied from input-based to output-based contracting concepts. The OPRC contracting using DBT methodology was found as the most appropriate. As compared with input based contracting, the OPRC contracting is faster and transfers the necessary risks from the Government to the implementing parties, thus, providing for a stricter financial and technical control. The OPRC contracts implemented under DBT have already proven in Liberia and 9

17 worldwide, as an efficient method for total and successful technical and financial controls of civil works projects. 38. The concession at Monrovia Port has been running successfully for the last two years. However, the import containers are unloaded only in the vicinity of Monrovia. The containers hardly travel inland due to the fact that the container owner, either a shipping line or a container leasing company, can hardly control the whereabouts of the box once it moves inland. They cannot make use of the box for other customers as it stays in the hinterland for a long time and, quite often, is lost altogether. In addition, in several areas, the roads are not really equipped or designed to take heavy loads. There is, thus, a justified need to develop a haven, an inland/dry port, at the end of the supply line in the hinterland. This will greatly help the movement of goods from Monrovia to the hinterland using newly rehabilitated or soon to be rehabilitated roads using bigger trucks thus lowering the transportation cost per tonne. In addition, such facility can cater to the adjacent area in the Guinea, across the border with Liberia. 39. The investment in enhancement of skills and abilities of Liberian University, Stella Maris Polytechnic, and Tubman University, becomes one of the important factors in securing necessary sustainability of the sector, in the medium and long term horizons. Several discussions with the representatives of various colleges and University departments were conducted, which eventually yielded a prioritized plan, which will enhance the skills and professionally expose the students to the developing challenges and provide for their further education necessary for the sector, in private and government environments. 40. Other components of this AF are related to the ongoing projects and, therefore, become instrumental in their timely and orderly completion. 41. The economic analysis was applied to investment options among technical solutions for the proposed/completed investments. The economic evaluation was undertaken using the Highway Development and Management Model (HDM-4) with project benefits evaluated in terms of reduction of road user costs and maintenance costs to be derived from the project. The evaluation adopted a discount rate of 12 percent, a 20 year evaluation period, and an annual traffic growth rate of 10.0 percent per year from and 5.0 percent per year thereafter for four wheeled vehicles. The final completed cost of Bokay Town to Buchanan Road was adopted for the analysis. Since the construction of Caldwell Bridge has been contracted on a Lump-Sum basis including all related price contingencies, the signed contract price was used as the final cost. 42. The economic analysis confirmed an economic rate of return of 30.3 percent and 18.2 percent for the new Caldwell Bridge and the Bokay Town to Buchanan road respectively. As in the original project, no economic analysis was undertaken for the new FUF which is a critical infrastructure requiring emergency intervention. The existing fuel unloading facility is the only such facility in Liberia. It has outlived its service life and is in a very poor condition. If the facility were to collapse, the effect on the Liberian economy would be significant. Among other things, it would disrupt the entire energy supply chain, limit transportation of people and goods, trigger price rise of essential commodities, and threaten fragile peace in the country. 10

18 Table 3: Results of the Economic Analysis Component EIRR Caldwell Bridge Construction 30.3 Bokay Town - Buchanan Road 18.3 Safeguards 43. The proposed AF does not trigger any new safeguard policies. The environmental category of the project will remain 'B'. The Resettlement Policy Framework (RPF) and the Environmental Management Plan (EMP) prepared for the initial project will be applicable for the AF. So far the GoL has been responsive on all safeguards requirements including preparation of all required RAPs/ESMPs and their implementation. Since the original project was approved, an Environmental Mitigation Plan (with an addendum) and three Resettlement Action Plans have been prepared, consulted upon and disclosed. Environmental impacts have been manageable, with the mitigation plans guiding construction, safety, waste management, noise, disturbance, etc. The project plans to augment the Government efforts to implement the RAPs in a more timely way. The capacity of the team has been strengthened. There is effective monitoring of safeguards implementation by GoL implementation team, the Internal Monitoring Committee and the World Bank, and this will be continued under the proposed AF. 44. Measures to ensure transparency and accountability have been built into the RAPs for the project to ensure that only eligible beneficiaries would be compensated. The monitoring and evaluation actions include the use of internal monitoring committee comprising of Non- Governmental Organization and governmental organizations, clearly outlined eligibility criteria for affected persons, and independent verifications of beneficiaries and proper documentation and reporting. The process for payments of compensations and any other assistance will also be outlined as part of the implementation strategy. Such monitoring indicators will be checked and reported on a monthly basis by IIU and also by the World Bank safeguards team. Furthermore, at the end of implementation of each RAP, the GoL through IIU will submit an independently prepared RAP implementation completion report detailing all accountabilities, processes, challenges and lessons learnt among others. The completion report will be reviewed and cleared by the World Bank. 45. There are no exceptions to Bank policies required and no waivers to Bank policies will be sought for the proposed AF. Financial Management 46. The financial management of the project has not been changed from the initial project. It has been provided by the Project Financial Management Unit (PFMU) in the Ministry of Finance (MOF). The URIRP Additional Financing will build on the strong financial management arrangements in place at the PFMU at the MOF. 11

19 47. The PFMU is currently responsible for the financial management of all transport projects in Liberia. It is adequately staffed, and the existing tested financial management arrangements will ensure that: (a) the funds are used only for the intended purposes in an efficient and economical way; (b) the preparation of accurate, reliable and timely periodic financial reports; (c) safeguard the entity's assets; and (d) adequate fiduciary assurances are provided through an independent audit of the project. The overall FM residual risk is, therefore, rated as Low. 48. The processing of eligible expenditure payments will be managed by the authorized signatories of the IIU and supporting documents transferred to PFMU for payment. The project will use report-based disbursements through the use of quarterly Interim Financial Report on the sources and uses of project funds. A forecast of the first six months expenditures will form the basis for the initial withdrawal of funds from the Credit, and subsequent withdrawals will equally be based on the net cash requirements for subsequent six months. Withdrawal applications shall be submitted to the Bank quarterly. Moreover, the project provides for Direct Payment, Special Commitment and Reimbursement methods of disbursement. Procurement 49. The changes to the procurement implementation of the project have been outlined in paragraph The overall risk (prior to mitigation measures) is considered "Substantial", which could be reduced to "Moderate" once the mitigation measures (as outlined in Annex 3) are fully implemented. Institutional Arrangement 51. Implementation is currently handled by two entities: (a) IIU in the Ministry of Public Works, which is responsible for technical matters and procurement; and (b) PFMU in the Ministry of Finance, which is responsible for overall financial control and payment for activities to various outsourced entities related to the implementation of projects. The division in implementation responsibilities was specifically designed to provide checks and balances in a weak governance environment, and this arrangement has functioned successfully to date. However, as IIU capacity grows, the financial aspects of projects will be transferred from PFMU to IIU. IIU, acting today as a nucleus of the future Road Authority, will eventually become fully responsible for all aspects of the sector, from planning, scheduling to implementation and monitoring. 52. IIU manages the implementation of all IDA-funded and administered infrastructure projects. Composed of a Deputy Program manager, engineers, contract management specialists, and procurement specialists. IIU currently manages about a total of US$200 million worth of project activities. IIU and other government institutions are subjected to various institutional reviews and agendas. The currently on-going institutional reform agenda, for which the Governance Commission will identify departments/agencies' responsibilities, overlaps and gaps, will advise the relevant line ministries and agencies, on how to strengthen their capacities to manage donor funded activities in their sector. Eventually, this review will allow IIU or the future Road Authority, to focus more on strategic planning, scheduling and financial and 12

20 technical management of their activities. Eventually, they would even be able to attract private investment in implementing the infrastructure projects in general and roads in particular. 53. Meanwhile, a strong commitment, capacity improvement, and specialization of IIU are the key success factors for implementation of the Project, as well as a prerequisite for its eventual transition to a Road Authority. IIU, with support of the Bank and other donors, has made some progress in institutional capacity building. Particularly, IIU is currently going through a re-hiring process for the three managing positions: Program Manager, Heads of Engineering, Administration and Finance. 54. Regarding the project implementation, the current IIU professional and management staff will be supported for a period of two years, by a specialized Transport Support Group (TSG) composed of contract management, contract administration, and procurement specialists as contracted staff providing on-line input in daily activities of IIU and also providing on-the-job training for recently recruited 12 young engineers. In addition, TSG will provide, from time to time, any required specialist on a short term basis, such as pavement specialist, geotechnical material specialist, structural engineering specialists, etc. This will enable IIU to function efficiently and provide all required operations support (technical, financial and overall quality control) to its outsourced projects. The selection of a TSG consultant is ongoing, and the contract will be awarded shortly. 13

21 Annex 1: Revisions to Results Framework and Monitoring LIBERIA: Urban & Rural Infrastructure Rehabilitation Project - Second Additional Financing PDO Table 1: Revisions to the result framework (as compared to first additional financing) Current (PAD) Improved road access in Monrovia and targeted rural areas. Improved institutional structure for technical management of the road sector PDO indicators Revisions to the Results Framework Proposed Continued Comments! Rationale for Change Current (PAD) Proposed change* Revised - target has been revised Target has been revised upwards which female (%) upwards based on actual progress and planned activities. Share of rural population with Continued access to an all-season road (%) City streets in good and fair Continued condition (%) - Monrovia Average travel time between Cotton Continued Tree - Buchanan Town Road (min) Average travel time between Pleebo Continued - Barclayville (min) Legal and administrative framework Continued for the establishment of road Authority (Yes/No) Intermediate Results indicators Current (PAD) I Proposed change* Component 1: Infrastructure Investment Roads rehabilitated, non-rural (km) Dropped. Target has been achieved. Roads rehabilitated, rural Dropped Target has been achieved. Maintain 641 km of previously Revised - 'Maintain km of Indicator has been revised with a repaired rural roads for 2 years previously repaired rural roads for 2 lower target for maintenance given (Yes/No) years' the revised scope for this activity New fuel unloading facility Continued construction (Yes/No) Construction of new Caldwell Continued bridge Component 2: Project Management and Institutional Support IIU has organization structure and Continued mandate as per agreed framework (Yes/No) Action plan agreed, approved and Continued implemented for sustainable financing of road sector (Yes/No) * Indicate if the indicator is Dropped, Continued, New, Revised, or if there is a change in the end of project target value 14

22 Table 2: Revised Results Framework Target Values Data Collection and Reporting Project Outcome Indicators UoM Baseline Current Frequency Data Collection Responsibility Description, (2009) (September and Reports Instruments for Data remarks 2013) Collect Base National Census 2008: Quarterly! Monrovia, Direct beneficiaries, Number 726, , , , , ,980 al Grand Bassa (of which female) (%) 0 (49.1) (49.1) (49.1) (49.1) (49.1) (49.1) Annual JJU County, Pleebo reporting and Barclay population Project records % Sampling and This indicator Share of rural Quarterly/ spatial is tracked at population with access Annual IIU estimation along IIU corridor level. Cotton Tree to an all-season road reporting Buchanan Corridor City streets in good % Quarterly/ and fair condition Annual IIU Visual IIU Monrovia 155ortAnu inspection reporting Average travel time Minutes Quarterly/ between Cotton Tree Annual JJU ITIUing and Buchanan count/timing reporting Average travel time Minutes Quarterly/ Traffic between Pleebo and Annual JJU counttimingiu Barclayville reporting Legal and Yes/No administrative Quarterly/ Review of Legal framework for the Act establishing establishment of road No No No No Yes Annual JJU the road authority reporting authority 15

23 Intermediate Outcome Indicators Target Values Data Collection and Reporting UoM Baseline Current Frequency Data Collection Responsibility Description, (2009) (September and Reports Instruments for Data remarks 2013) Collect Component I: Infrastructure Investment Roads rehabilitated, km Quarterly/ Supervision Completed non rural -Monrovia Annual IIU completion IIU Construction of new Yes/No Quarterly/ Supervision Caldwell bridge No No Yes Annual IIU completion IIU reporting report Roads rehabilitated, km 148.5k 148.5k Completed rural (disaggregated: km 45 km 97 km 122 km m m Quarterly/ Supervision Pleebo-Barclayville 0 67 km 30 km 67 km 67 km 67 km 67 km Annual IIU completion IIU - Cotton Tree km 15 km 30 km 55 km reporting report Buchanan) km km Maintain Yes/No Quarterly/ Supervision previously repaired No N No No No Yes Yes Annual IIU completion IIU rural roads for 2 years reporting report New fuel unloading Yes/No Quarterly/ Supervision facility No No Yes Annual IIU completion IIU/NPA reporting construction reporting report Component II: Project Management and Institutional Support IIU has organization Yes/No Quarterly/ structure and mandate No Yes Yes Yes Yes Yes Yes Annual IIU IDA Assessment IIU as per agreed framework reporting Action plan agreed, Yes/No Review and approved and Quarterly/ approval of implemented for No No - Yes Yes Annual IIU action plan, IIU sustainable financing reporting direct of road sector observation' report 16

24 Annex 2: Operational Risk Assessment Framework (ORAF) LIBERIA: Urban & Rural Infrastructure Rehabilitation Project - Second Additional Financing Stage: Board 1. Project Stakeholder Risks Rating Low Description: The main risk is a potential lack of collaboration Risk Management: The Bank, Borrower, and Donors have kept a longstanding collaborative relationship among the donors of the LRTF. in the infrastructure sector; with the proven effectiveness of the Bank's role as a facilitator. General public perception of the Bank and other donor's involvement in recovery is generally very positive. The team has constantly updated the Donors through LRTF Quarterly meeting Resp: Client and the Stage: Preparation Due Date: 01/01/ 2014 Status: ongoing Bank 2. Implementing Agency Risks (including fiduciary) 2.1. Capacity Rating: High Description: The main risk is still lacking capacity of IIU in contract management and performance monitoring. Risk Management: Despite shortcomings under the ongoing projects, IIU has been making progress in its technical and managerial capacity to implement the proposed project. The TAs financed under previous and on-going projects have helped the IIU in improving staff skills and instituting key fiduciary requirements and procedures. A New Transport Support group (TSG) is being procured to train continuously and improve contract management and contract administration capacity of IIU. Resp: Client Stage: IMP Due Date: 06/30/2014 Status: In Progress 2.2. Governance Rating: Substantial Description: While the overall accountability of the government and various involved entities is reasonably high, the current transitional-status of the IIU may pose a risk on the Risk Management: The capacity building TA will indirectly help mitigate such risks. Also, the Bank stability of its leadership, hence, undermine its decision- will support the III in building FM capacity within the III in order to transfer gradually the PFMU making and management capacity. In addition, the current function. arrangement of separate FM function under the PFMU may increase transaction cost and inefficiency during the implementation of OPRC. The likelihood of this risk will be substantially lowered, if the on-going capacity building efforts Resp: Client and Bank Stage: IMP Due Date: 12/31/2014 Status: In Progress lead to tangible progress. 3. Project Risks 3.1. Design Rating: Low Description: The proposed design of new activities does NOT Risk Management: 17

25 entail excessive complexity in its technical, scope/size, geographical dispersion, and implementation aspects that Resp: Client and Bank Stage: IMP Due Date: 06/30/2013 Status: Completed would pose a serious risk on the project implementation 3.2. Social & Environmental Rating: Substantial Description: Weak compliance of social and environmental Risk Management: The GoL has been consistently committed to addressing social and environmental safeguards policies is a continuing risk. The compliance on the issues in previous and on-going projects. The proposed Project safeguards arrangements will allow proper part of contractors could show slack. checks and balances to address potential risks: the IIU has already prepared a Resettlement Policy The RAP implementation is a risk: (a) payments may be made Framework (RPF) and is applying an Environmental Management Plan for roads (EMP) prepared for EIP. to ineligible beneficiaries and (b) payments delays may as well as RAPs for road works and a bridge. The contracting entity will be responsible for developing occurred due to financial constraints on the part of the and implementing a project-specific Health, Environment and Safety Plan and any additional EMPs and Government.. RAPs, which will be closely monitored by the supervising consultant. The project plans to augment the Government efforts to implement the RAPs in a more timely way. Measures to ensure transparency and accountability have been built into the RAPs for the project to ensure that only eligible beneficiaries would be compensated. The capacity of the team has been strengthened. There is effective monitoring of safeguards implementation by GoL implementation team, the Internal Monitoring Committee and the World Bank, and this will be continued under the proposed AF. Resp: Client Stage: IMP Due Date: 06/30/2014 Status: In Progress 3.3. Program & Donor Rating: Low Description: The interdependency of the Project on other Risk Management: As assessed under Risk 1.1, multiple donors contributing to the LRTF have already programs/projects is limited. formally committed to funding as decided at the Oversight Committee meeting. Resp: Client and Bank Stage: IMP Due Date: 05/30/2014 Status: In Progress 3.4. Delivery Monitoring & Sustainability Rating: Substantial Description: Risk Management: The Project sets out clearly defined and measurable criteria to evaluate output and The DBT methodology introduces use of higher level performance of the contracting entities. Under the proposed arrangement that devises independent acceptance parameters, than the traditional ad measurement monitoring by the project manager, contract management by the IIU, and TA to support the IIU functions, methodology, that are more indicative of how the finished the likelihood of such risks will be kept low. Also, the scale-up activities are fairly straightforward and road will perform over time. This shifts the performance risk traditional; hence do not require substantial technical/managerial capacity beyond what is already over time to the contractor. The overall delivery and presented. sustainability of the project is, thus, linked to contractor Resp: Client Stage: IMP Due Date: 06/30/2014 Status: I Progress performance. 4. Overall Risk 4.1. Overall Implementation Risk Rating: Moderate Description: Overall Implementation riskis ratedas "Moderatesu Most of the project activities are sufficiently advanced or completed satisfactorily. 18

26 Annex 3: Financial Management, Disbursements and Procurement LIBERIA: Urban & Rural Infrastructure Rehabilitation Project - Second Additional Financing Financial Management Arrangements 1. Financial Management. The URIRP Additional Financing will build on the strong financial management arrangements in place at the Project Financial Management Unit (PFMU) at the Ministry of Finance. 2. The PFMU is currently responsible for the financial management of all transport projects in Liberia. It has strong technical staffing capacity and adequate financial management arrangements in place that will ensure that: (a) the funds are used only for the intended purposes in an efficient and economical way; (b) the preparation of accurate, reliable and timely periodic financial reports; (c) safeguard the entity's assets; and (d) adequate fiduciary assurances are provided through an independent audit of the project. The overall FM residual risk is, therefore, rated as Low. 3. Country and Sector Issues. A Public Expenditure and Finance Accountability Assessment (PEFA) was conducted in 2012 that included an analysis of Liberia's Public Financial Management (PFM) strengths and weaknesses. The findings from the PEFA showed that the government has taken considerable actions to improve public financial management since In partnership with multilateral and bilateral development partners, the government has implemented a wide range of public financial management reforms covering aspects of policy, legislation and institutional arrangements and systems. These reforms have sought to restore working conditions of PFM systems and to modernize them to enable Government respond better to implementing its poverty reduction and Agenda for Transformation (Aff) strategies. The most critical of these reforms has been the passing of the PFM Act in August 2009 which has also provided the foundation of other PFM reforms. 5. Several institutional reforms have also been implemented; a macro fiscal analysis unit has been created; the former Bureau of the Budget has been merged into the Ministry of Finance (MOF), as a department; the Debt Management unit has been strengthened and the accounting function has been unified by merging two departments and bringing them under the control of the Comptroller General. Moreover, the Cabinet approved the Internal Audit strategy in June 2008 that has led to the establishment of an internal audit cadre and a charter clarifying the roles and responsibilities for internal controls. The government has also adopted Cash Basis International Public Sector Accounting Standards (IPSAS) as the standard for government accounting. The implementation of the Integrated Financial Management Information System (IFMIS) has automated government accounting and preparation of budget and fiscal outturn reports in the MOF. In addition, the government has adopted and operationalized the 2001 Government Finance Statistics -Compliant chart of accounts in IFMIS. 6. Government revenues have increased several folds since 2002/03, and expenditure controls have been strengthened through the establishment of the cash management committee 19

27 and commitment controls aided by IFMIS. The budget cycle is coordinated by an interministerial Budget Committee, and spending ministries are consulted early in the budgeting process. All revenues are by law deposited into a revenue bank account at the Central Bank and expenditure from this account and is strictly in accordance with annual cash plans and allotments. 7. Notwithstanding these improvements, many challenges remain. There is the need to expand and deepen the implementation of the PFM law and to have its full effect on all aspects of Government PFM systems. Improving budget credibility will be key particularly as Government implements its second generation Poverty Reduction Strategy (PRS) over 2012/13-15/16; it will be critical to strengthen alignment of the budget during its formulation and execution with its policy commitments and extend its coverage to more aspects of aid resources and other areas that have hitherto not been well captured. Efforts to strengthen fiscal transparency and accountability mechanisms are beginning to yield some dividends as the Public Accounts Audit Committee has started holding public hearings on the General Audit Commission's (GAC) audit reports. 8. Budgeting. Based upon the agreed program to be financed, the PFMU and IIU will work together to prepare an annual budget for the project. Most of the activities of the key components are already known, and these will be included in the project annual budgets. The annual project budget will be reviewed and agreed with the World Bank, and No objections will be issued by the World Bank task lead for activities agreed upon in the budget. 9. Internal Controls. PFMU has laid down internal control procedures and processes that ensure that transactions are approved by appropriate personnel and ensure segregation of duties between approval, execution, accounting and reporting functions. These procedures and processes that are documented in a Financial Management Manual (FM Manual) were assessed as adequate and meet IDA requirements. The Internal Audit unit of PFMU is manned by two qualified staff who perform periodic reviews and report on their findings. The presence of these internal audit functions in PFMU has strengthened its internal managements. Currently, the focus of the internal audit functions is split between pre-audit and systemic audits. This greater focus on systemic checks and controls have added greater value to their control functions and engendered greater impact on project implementation. 10. Accounting. Accounting for the use of the project funds, using a cash basis of accounting, will be carried out by the PFMU using a robust accounting system (SUN Accounting system) that provides for adequate segregation of function, accurate recording of all accounting transactions of the project. The system is also capable of producing accurate periodic financial reports including Interim un-audited Financial Reports (IFR) and annual project financial statements that are considered acceptable to the Bank. At all times, a project Fixed Assets register will be maintained to correctly reflect assets acquired or created under the project. 11. Disbursements. Funds will be disbursed directly into a Designated Account set up and managed by PFMU. This account will be established in US Dollars at the Central Bank of Liberia (CBL). PFMU will submit withdrawal applications for the initial deposit and subsequent replenishment as per the Disbursement Letter. Banking and payment processing will be managed centrally by the PFMU in order to ensure adequate control and financial monitoring. All 20

28 expenditure approvals and initiation of processing of payments will be done at IIU and supporting documents transferred to the PFMU for effecting the payments to third parties. The report-based disbursement method (Interim Financial Reports) will be used as a basis for the withdrawal of credit proceeds. The project provides for the use of 'advances, reimbursements, special commitments and direct payments as applicable disbursement methods, and these will be specified in the disbursement letter. An initial advance will be provided for the implementing entity, based on a forecast of eligible expenditures against each component, linked to the appropriate disbursement category. These forecasts will be premised on the annual work plans that will be provided to IDA and cleared by the task team leader. Replenishments, through fresh withdrawal applications to the Bank, into the designated accounts will be made subsequently, at quarterly intervals, but such withdrawals will equally be based on the net cash requirements that are linked to approved work plans. Supporting documentation will be retained by the implementing agencies for review by the IDA missions and external auditors. Any advances made for contracts will be secured by a bank guarantee or performance-based bonds and a retention amount withheld. Moreover, the project provides for Direct Payment, Special Commitment and Reimbursement methods of disbursement. 12. Financial Reporting and Monitoring. The PFMU will be responsible for preparing the quarterly interim unaudited financial reports. The financial reports will be submitted to the Bank within 45 days of each fiscal quarter after prior review by IIU. The constituents of the quarterly project IFRs, to be submitted to IDA within 45 days of each calendar quarter, shall be as follows: (a) Actual and Forecast of Sources and Uses by Components, Sub-components and Activities; (b) Summary Statement of Expenditures according to Disbursement Categories; and (c) Designated Account Reconciliation Statement. 13. The project will also prepare annual financial statements at the end of each GoL fiscal year in accordance with International Public Sector Accounting Standards (IPSAS) - cash basis. The audited financial statements should be submitted to the Bank within 6 months of the end of the fiscal year. The financial statements will comprise, at a minimum, of (a) Sources and uses of funds (summary of Expenditures shown under the main program headings and by main categories of expenditures for the period); and (b) Notes to the financial statements, including background information on the project, the accounting policies, detailed analysis and relevant explanation of the main accounts/major balances, etc. In addition, the project shall provide, as an annex to the financial statements, an inventory of fixed assets acquired according to asset classes, dates of purchase, location, and cost. 14. External Auditing Arrangements. The independent General Audit Commission (GAC) will carry out the annual financial statement audit of the project. The TOR of the auditors will be cleared by the Bank. The project financial statements including movements in the designated accounts will be audited in accordance with International Standards on Auditing (ISA) and INTOSAI standards and a single opinion will be issued to cover the project financial statements in accordance with the Bank's audit policy. The auditors' report and opinion in respect of the financial statements, including the management letter, would be furnished to the World Bank within six months of the close of each GoL fiscal year. 15. The assessment of the overall FM risk, therefore, remains at 'Moderate'. This is particularly as a result of a series of PFM reforms that are on-going, but gains on which are 21

29 tempered by the apparent complexity of this first performance-based operation. Nevertheless, the FM arrangements under the project satisfy the Bank's minimum requirements under OP/BP FM Supervision. The FM supervision missions' objectives will include that of ensuring that strong financial management systems are maintained for the project at the PFMU, and there is adequate FM implementation guidance provided to IIU by the PFMU throughout the project life. Equally, annual field visits to PFMU and IIU will be conducted to ensure that their internal control procedures remain robust. The supervision will include desk reviews of IFRs, testing of expenditures, review of audit reports, and evaluation of the efficiency of the payment processing, internal control processes, and funds flow arrangements. A major focus of supervision will be to review the implementation progress in the setting up and strengthening of the financial management wing of IIU as a key project component. Procurement Arrangements have been described in the main text. 17. The Bank carried out a procurement capacity assessment of the IIU in 2009 under the initial financing. The IIU as an agency of MPW is subject to the national laws and, therefore, respects the Public Procurement and Concessions Act of Liberia, which was enacted in 2005; amended and restated in September 2010, and provides a good legal framework for the conduct of transparent and comprehensive procurement. Its procurement rules respond, to a large extent, to donor-funded requirements and the associated procurement and consultants' guidelines, like those of the World Bank. 18. The procurement staff of the IIU is currently made up nominally of one national procurement officer assisted by recently recruited junior engineers who are undergoing training. Upon completion of training, some of the engineers will be placed in the procurement unit. The existing procurement officer in IIU is engaged as a consultant. The officer has experience in handling projects financed by the IDA and other donors and is reasonably familiar with Bank guidelines and procedures. The officer has also benefited from relevant courses and Bank funded training programs. There is a general improvement, but there are still some weaknesses and challenges in the delivery capacities of the current procurement staff, particularly in the quality of bidding documents, other reports and contract management. This has required significant guidance and assistance from the Bank team. 19. The overall risk for procurement (prior to mitigation measures) is considered "Substantial" due to: (a) delays in procurement processing; (b) instances of lack of adherence to Bank procurement guidelines; (c) poor contract management and (d) extensive supervision by the Bank team on procurement activities3. A number of actions to mitigate the procurement risks are recommended, which include: (a) strengthening of capacity building technical assistance through a re-designed supporting consultancy firm that will include a contracts manager and ' As part of the URIRP supervision, a procurement and financial management review recently identified potential ineligible expenditures of US$0.60 million for civil works because the procurement process used on two such contracts did not follow the requirements of the Financing Agreement. The Government has since refunded the amount of ineligible expenditure identified. The mitigation measures proposed now are considered adequate to help address IU's limited capacity. 22