Armenia: Infrastructure Sustainability Support Program

Transcription

1 Technical Assistance Report Project Number: Policy and Advisory Technical Assistance (PATA) December 2012 Armenia: Infrastructure Sustainability Support Program The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

2 CURRENCY EQUIVALENTS (as of 26 November 2012) Currency unit dram (AMD) AMD1.00 = $ $1.00 = AMD406 ABBREVIATIONS ADB Asian Development Bank KPI key performance indicator MOF Ministry of Finance MOTC Ministry of Transport and Communication MTA Ministry of Territorial Administration MTEF medium-term expenditure framework RBM results-based management SCWS State Committee of Water System TA technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Type Policy and advisory technical assistance (PATA) Targeting classification General intervention Sector (subsectors) Multisector (public expenditure and fiscal management, road transport, water supply and sanitation) Themes (subthemes) Economic growth (promoting economic efficiency and enabling business environment), governance (public administration), capacity development (institutional development) Location (impact) National (high), regional (medium) NOTE In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General K. Gerhaeusser, Central and West Asia Department (CWRD) Director B. Wilkinson, Public Management, Financial Sector, and Trade Division, CWRD Team leader Team members Y. Elhan-Kayalar, Principal Public Management Specialist, CWRD R. Barreto, Financial Sector Specialist, CWRD P. Sood, Financial Sector Specialist, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 I. INTRODUCTION 1. The Government of Armenia requested assistance from the Asian Development Bank (ADB) to improve the financial and physical sustainability of its road and water sectors. In consultation with stakeholders in the public and private sectors, a policy and advisory technical assistance (TA) concept was developed in October Pursuant to concept clearance, a fact-finding mission visited Armenia from 12 to 15 November 2012 to discuss TA scope and implementation arrangements with the government. 2 Extensive consultations with public and private sector service providers, end users, and development partners 3 ensure that the TA builds on ongoing reform and capacity building in the road and water sectors. This TA report reflects agreement reached with the government on the impact, outcome, outputs, implementation arrangements, cost, financing arrangements, and terms of reference for the TA. The design and monitoring framework is provided in Appendix 1. II. ISSUES 2. Armenia s economy is still recovering from the 2009 global financial crisis. Structural reforms begun in 1999 and recent fiscal consolidation work support recovery. Tax policy reforms are moving forward. There have been modest improvements in tax administration, but raising revenues has been challenging. 4 The infrastructure bill is growing, as aging assets need operational maintenance or replacement and new large investments are planned. Recent stress tests signal fiscal fragility. The economy is expected to grow by 4.3% in 2012, 5 but the crisis and the countercyclical fiscal package have crowded out fiscal space. The ratio of government and government-guaranteed debt to gross domestic product soared from 16.1% in 2008 to 41.7% at the end of External debt for project finance and budget support accounted for 84.5% of total government debt as of 30 September Public debt service is projected to increase, with substantial debt repayments clustered in 2013 and A more proactive approach is needed to safeguard growth-sustaining public expenditure, enable continued investment in productive capacity, and ensure adequate, sustainable service delivery. Economic growth facilitated by improved infrastructure remains a key development challenge. 9 The physical and financial sustainability of infrastructure assets is at risk. The growing mismatch between financing needs and resources and the efficient public management of infrastructure demand closer attention from policy makers and practitioners. 1 The TA and subsequent policy-based loan for infrastructure sustainability support were included in ADB Country Operations Business Plan (Update): Armenia, Manila. 2 The TA first appeared in the business opportunities section of ADB s website on 13 November Development partners with public finance, transport, and water portfolios in Armenia include the International Monetary Fund, the World Bank, German development cooperation through GIZ and KfW, the European Bank for Reconstruction and Development, the European Investment Bank, the European Union Delegation, and the United States Agency for International Development. 4 A tax policy strategy for and a tax administration strategy for have been developed to improve tax buoyancy. Annual tax revenue increases by 0.4% of gross domestic product are targeted for International Monetary Fund Note, Republic of Armenia, October ADB Asian Development Outlook Manila. 6 Armenia s government and government-guaranteed debt rose from $1.9 billion in 2008 to $3.5 billion in 2009 and to $4.1 billion in The legislative debt ceiling stands at 50% of gross domestic product. 7 Ministry of Finance of Armenia. 8 Government of Armenia Medium Term Expenditure Framework Yerevan. 9 Government of Armenia Sustainable Development Program Yerevan; Government of Armenia. Forthcoming. Armenia Development Strategy Yerevan.

4 2 4. Institutional reforms in public financial management, including program budgeting, have been initiated with the government s Strategy for Reforming the Public Financial Management System (October 2010). German development cooperation through GIZ has supported Ministry of Finance (MOF) implementation of program budgeting, including development of program passports on a pilot basis, 10 and curriculum development for MOF s public financial management training center. The European Union and the Organisation for Economic Cooperation and Development have been supporting Armenia s public internal financial control system, including internal audit and procurement, since October The World Bank has been supporting the modernization of the internal audit system in Armenia through the introduction of a new methodology and a unified information system. ADB has partnered with the World Bank in developing the audit capacity of MOF staff. 11 These reforms have not been fully applied at sector level, including in infrastructure sectors. 5. Among infrastructure sectors, road and water demand the closest attention. They feature prominently in the government s development agenda given their direct social, economic, and regional impact. They also account for a substantial portion of public expenditures on infrastructure and of ADB support to Armenia. A results-based management (RBM) framework has been introduced to these sectors, but its application to planning, budgeting, and monitoring processes still requires institutional mainstreaming and capacity development Demand in these two sectors continues to outpace service provision. Private sector participation in these sectors has been supported by the government, and it has yielded encouraging results in the water sector. 13 Public sector capacity to engage in and manage different partnership modalities with private service providers can be further developed. Private participation in public service delivery may be systematically integrated into sector development strategies. The institutional and regulatory framework in these sectors is unclear. Service delivery standards and the regulation of services reflecting delivery standards would contribute to end-user satisfaction. While various agencies are tasked with different aspects of sector regulation, there is no single sector regulator. A consolidated and coherent approach is needed. 7. Sound sector strategies based on Armenia s development goals, allocation of budgetary resources to achieve sector targets, efficient spending, systematic results monitoring, and prudent management of the overall resource envelope are important. Budget allocations for investment in fixed assets, and for their operation and maintenance, have been insufficient for sustainability. Linkages among sector development targets, annual work plans, and budget allocations are tenuous. Clear criteria for identifying and prioritizing sector capital and operational expenditures are needed. Systematic expenditure management with results monitoring would provide powerful management and planning tools. 10 Passports are public information documents prepared on budget programs for the use of policy makers, budget and implementation managers, and other stakeholders. They indicate each program s (i) objective; (ii) design, financing resources, and implementation arrangements; and (iii) output and outcome performance indicators and targets. 11 ADB Technical Assistance for Support for Implementation of the Second Governance and Anticorruption Plan. Manila (TA 6445-REG). The TA was approved on 18 February 2008 for $2,600, Results-based management is a management strategy focusing on performance and achievement of outputs, outcomes, and impact. (Organisation for Economic Co-operation and Development Glossary of Key Terms in Evaluation and Results Based Management. Paris.) 13 The Armenian Water Sewerage Company is under a management contract from 2004 to 2013 with Saur. The Lori, Shirak, and Nor Aqunk regional water companies are under a management contract until 2013 with the MVV Decon GmbH, MVV Energie AG, and AEG Service LLC consortium. Yerevan Djur is under a 10-year lease contract from 2006 to 2016 with Veolia. These utility companies service more than two-thirds of all users in Armenia.

5 3 III. THE TECHNICAL ASSISTANCE 8. The TA will improve the sustainability of the road and water sectors through RBM. Starting with assessments of existing institutions, regulatory frameworks, and public financial management practices in the two sectors, the TA will identify gaps and recommend how they may be addressed. TA outputs and findings will be used to design a proposed policy-based loan for implementation starting in the second half of The TA will support the government s development agenda on sustainable infrastructure provision as articulated in the Draft Armenia Development Strategy ; Medium-Term Expenditure Framework ; 14 and the Republic of Armenia Government Program. 15 The TA closely aligns with ADB s Strategy 2020; 16 the Water Operational Plan, ; 17 the country development priorities identified in the Economic Report and Interim Operational Strategy ; 18 annual country operations business plans for , 19 for , 20 and the Update; 21 and Country Strategy Final Review The TA will pilot a hybrid approach, using public management tools to improve efficiency in infrastructure sectors. It will thus support and complement the Central and West Asia Department s ongoing interventions in Armenia s road and water sectors. A. Impact and Outcome 9. The impact will be the improved results-based management of the road and water sectors in Armenia by Achievement of the impact will be monitored through the effective use and application of sector performance targets for the medium-term expenditure framework (MTEF) and the budgeting, budget and outturn reporting, and audit processes. 10. The outcome will be budget and MTEF-linked RBM frameworks for the road and water sectors. These frameworks will be piloted starting with the 2014 budget cycle. Efficiency gains from better resource utilization and expenditure management in these sectors are expected to improve the quality, coverage, and delivery of public services. B. Methodology and Key Activities 11. The TA will support the government s results-based management of the road and water sectors. It will start by updating and completing assessments of institutional, legal, and regulatory frameworks, and public financial management practices, in the road and water sectors. Initial stocktaking will include a thorough review of the ongoing initiatives of the government, ADB, and other development partners, after which baselines for capacity development and future reform areas will be established. The government has been working toward applying RBM in budget and MTEF preparation since 2008, developing staff capacity and the necessary institutional framework. The TA will help develop a roadmap in 2013 to employ results-based budgeting and planning in the road and water sectors starting with the 2014 budget. 14 Government of Armenia Medium-Term Expenditure Framework Yerevan. 15 Government of Armenia Republic of Armenia Government Program. Yerevan. 16 ADB Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, Manila. 17 The ADB. views expressed Water Operational herein are Plan, those of the consultant Manila. and do not necessarily represent those of ADB s 18 members, ADB Board Economic of Directors, Report and Management, Interim Operational or staff, Strategy: and may Armenia, be preliminary Manila. in nature. 19 ADB Country Operations Business Plan: Armenia, Manila. 20 ADB Country Operations Business Plan: Armenia, Manila. 21 ADB Country Operations Business Plan: Armenia, (Update). Manila. 22 ADB Country Strategy Final Review: Armenia, Manila.

6 4 12. This approach will identify key performance indicators according to development targets rather than activities. This framework will then be used to plan sector investment priorities for capital and operational expenditures, reflecting these priorities in annual budgets and the MTEF. Progress will be monitored through passports at the project and program level in the road and water sectors. The capacity of internal audit units in these two sectors will be strengthened to audit programs at the sector level. A key constraint in both sectors is the government s limited resource envelope. Determining resource requirements for sector targets will help identify the financial instruments, modalities, and partners needed to achieve them. Innovative financing options and mechanisms will be explored, including partnerships with domestic and international private sector partners for public service delivery, will be explored. Staff capacity to effectively implement results-based management frameworks will be developed through on-the-job training and workshops. 13. The TA will pilot an integrated approach to public management and service delivery. It will link (i) typically discrete policy interventions in public sector management and project interventions in infrastructure sectors, and (ii) sector ministries with MOF through planning, budgeting, audit, and monitoring processes to improve sector management and infrastructure sustainability. Knowledge gained during TA implementation will be distilled in a case study to share this approach and its application to other sectors and countries. 14. Specific TA outputs will include (i) updating the assessments for road and water sectors prepared with baselines and gap analysis; (ii) developing road and water key performance indicators for sector and budget management; (iii) piloting results-based passports developed for roads and water and using them in budget formulation; (iv) developing financing options and strategies for public and private participation in the roads sector; and (v) strengthening the capacity of internal audit unit staff in the Ministry of Transport and Communication and the State Committee of Water System of the Ministry of Territorial Administration to audit programs. 15. Active and timely contributions from counterpart staff are important to effective TA implementation. It is assumed that budget and audit systems, processes, and staff will be in place and facilitate TA implementation as planned. Risks derive from the political economy context and capacity gaps. Presidential elections are scheduled for February 2013, early in TA implementation. Any substantial change in executing and implementing agency counterpart staff after the elections may delay implementation as ownership and support for TA deliverables are re-established. Human resource gaps and the challenges of changing current public management practices, especially in public financial management, will be managed through capacity development and continued dialogue with policy makers, practitioners, and stakeholders during TA implementation. C. Cost and Financing 16. The TA is estimated to cost $550,000, of which $500,000 will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF-other sources). The government will provide counterpart support in the form of counterpart staff, office accommodation, and facilitation of expert team s timely access to information and stakeholders, and other in-kind contributions. All disbursements under the TA will be made in accordance with the Technical Assistance Disbursement Handbook (2010, as amended from time to time). Detailed TA cost estimates are in Appendix 2.

7 5 D. Implementation Arrangements 17. MOF will be the TA executing agency, and the Foreign Financing Project Management Center in MOF the implementing agency. The TA will be implemented from January 2013 to April The TA will engage three international consultants for 7 person-months and five national consultants for 13 person-months to provide policy advice and technical and capacity development during TA implementation. In accordance with the hybrid, multisector approach of the TA, the consultant team will include an international public financial management and/or public sector management specialist (3 person-months) who will be team leader; a national public financial management specialist (5 person-months); a national public sector audit specialist (2 person-months); an international transport (roads) specialist (2 person-months); a national transport (roads) specialist (2 person-months); an international water supply and sanitation specialist (2 person-months); a national water supply and sanitation specialist (2 person-months); and a national legal expert (2 person-months). As the skills mix and qualifications required from consultants are diverse and difficult to source from a single firm, ADB will engage consultants individually in accordance with its Guidelines on the Use of Consultants (2010, as amended from time to time). The ADB TA team and the implementing agency will coordinate and supervise consultant outputs. Detailed terms of reference for consultants are in Appendix 3. The consultants will submit (i) inception reports 2 weeks after their services start, (ii) interim progress reports at appropriate stages of TA implementation, (iii) draft final reports before the conclusion of the contract, and (iv) final reports 2 weeks after incorporating feedback from the executing agency and ADB. 19. TA findings, frameworks and processes developed will be discussed with stakeholders in a series of workshops to inform, validate, build ownership for, and ensure functional understanding of TA deliverables and recommendations. Timeliness and the quality of TA outputs will be monitored by the executing and implementing agencies and ADB staff. Evaluations will be based on the effective implementation of the results-based management framework and processes introduced. A knowledge product will be developed at the end of the TA to share information on the hybrid approach used. The TA team will work closely with GIZ, KfW, World Bank and other development partners for greater value addition through synergies among our respective programs in Armenia. IV. THE PRESIDENT'S DECISION 20. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $500,000 on a grant basis to the Government of Armenia for the Infrastructure Sustainability Support Program, and hereby reports this action to the Board. The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

8 6 Appendix 1 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Improved results-based management implemented in the road and water sectors in Armenia Performance Targets and Indicators with Baselines Sector performance targets fully integrated in the MTEF and the budgeting, budget and outturn reporting, and audit processes by 2015 (Baseline: indicative framework in 2012) Data Sources and Reporting Mechanisms 2014 Annual Budget Message to Parliament (October 2013) MOTC s and SCWS s Internal Auditor Annual Plan for 2014 (December 2013) MOTC s and SCWS s MTEF Submission to MOF (March 2014) Assumptions and Risks Assumptions The new budget systems law, on program budgeting, is operational by May Internal audit units in relevant agencies are operational by mid Government support for program budgeting continues. MTEF (June 2014) Risk Differing capacity in agencies responsible for various budget cycle components may delay the adoption of full results-based management in the two sectors. Outcome Budget and MTEF-linked results-based management framework developed for the road and water sectors Results-based criteria for sector priorities agreed on by MOF, MOTC, and SCWS in 2014 budget and MTEF processes by July 2013 (Baseline: none in 2012) MOF letter on such agreement (June 2013) Annex on methodological instructions for budget and MTEF preparation (June 2013) MTEF drafted with results-based management anchors (June 2013) Assumption Effective coordination among MOF, MOTC, and SCWS. Risk Delays in application of results-based criteria in case of change in political leadership Outputs 1. Assessments for the road and water sectors prepared with baselines and gap analysis updated 2. Road and water KPIs for sector and budget management developed Succinct, high-quality reports delivered by April 2013 MOF, MOTC, and SWSC agreement on KPIs by July 2013 Implementing agency reports TA consultant reports 2014 Budget Message annex Assumptions Budget and audit systems and processes are in place. TA consultants have adequate and timely access to relevant data, information, and counterpart staff. Public financial data required for assessments are available. 3. Pilot results-based passports (public information documents) developed for roads and water, and used in budget Annual agency plans for the 2014 budget reflecting the indicators provided in the passports by August 2013 Published passports (MOF website: Annual agency plans for MOTC and SWSC submitted to the National Assembly as part of the 2014 budget

9 Appendix 1 7 Design Summary formulation by MOF, MOTC, and SCWS Performance Targets and Indicators with Baselines Data Sources and Reporting Mechanisms message Assumptions and Risks 4. Financing options developed and strategy drafted for public and private participation in the road sector Relevant, high-quality strategy prepared (February 2013) and discussed by MOTC, MTA (SCWS), and MOF by June 2013 TA consultant reports 5. Capacity of MOTC and MTA (SCWS) internal audit unit staff strengthened Activities with Milestones MOTC and MTA (SCWS) internal auditors qualified to conduct audits by August 2013 Test results of internal auditors for MOF s advanced proficiency test. Consultant recruitment by January Existing sector assessments and analytical data reviewed by February Draft sector assessments developed and submitted to government counterparts for review by March Final report, incorporating government feedback, submitted to ADB by April Data collection completed for sector KPI preparation by the end of February Sector KPIs lists prepared for infrastructure programs by mid-march Government bodies capacity to collect and report on the recommended set of indicators verified by the end of March Workshop on proposed indicators held with key stakeholders by mid-may KPIs for sector and budget management approved by MOF, MOTC, and SCWS by the end of June Current financing mechanisms in road and water sectors reviewed by March Draft reports developed and submitted to government counterparts for their review by April Final report, incorporating government feedback, submitted to ADB by May Current program structure in the sectors based on the MOF s program classification verified by mid-march Collection of inputs from counterparts on legislative and institutional arrangements, sector strategies, and planning assumptions used by mid-april Draft passports prepared for selected infrastructure programs in collaboration with government stakeholders by April Workshop on draft passports held with stakeholders by mid-may Training needs assessment completed and trainees internal auditors, budget planning specialists, and relevant MOF staff identified by February Training scope, outline, and modules submitted to ADB by mid-march MOTC and MTA (SWSC) staff trained on program auditing by June 2013 Inputs ADB: $500,000 Item Amount($ 000) Consultants 340 Training 100 Administrative 10 Contingencies 50 Note: The Government of Armenia will make in-kind contributions, whose value is estimated to account for 10% of the total TA cost. ADB = Asian Development Bank, KPI = key performance indicator, MOF = Ministry of Finance, MOTC = Ministry of Transport The views and expressed Communications, herein are MTA those = Ministry of the consultant of Territorial and Administration, do not necessarily MTEF = represent medium-term those expenditure of ADB s framework, members, SCWS Board = of State Directors, Committee Management, of Water System, or staff, TA and = technical may be assistance. preliminary in nature. Source: Asian Development Bank estimates.

10 8 Appendix 2 COST ESTIMATES AND FINANCING PLAN ($'000) Item Amount Asian Development Bank a 1. Consultants a. Remuneration and per diem i. International consultants 214 ii. National consultants 92 b. International and local travel 24 c. Reports and communications Training, seminars, and conferences Miscellaneous administration and support costs Contingencies 50 Total 500 Note: The technical assistance is estimated to cost $550,000, of which contributions from the Asian Development Bank are presented in the table above. The government will provide counterpart support in the form of counterpart staff, office accommodation, and other in-kind contributions. The value of government contribution is estimated to account for 10% of the total technical assistance cost. a Financed by the Asian Development Bank s Technical Assistance Special Fund (TASF-other sources). Source: Asian Development Bank estimates.

11 Appendix 3 9 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. The technical assistance (TA) will support the government s results-based management of the road and water sectors. Using assessments of institutional, legal, and regulatory frameworks and of public financial management practices, baselines for capacity development and future reform areas will be established. In line with sector development targets, key performance indicators (KPIs) will be designed to inform results-based planning, budgeting, and management of the sectors. Financing options and mechanisms will be explored to support service delivery in the two sectors. Staff capacity to effectively implement results-based management frameworks will be developed through on-the-job training and workshops. TA will mobilize eight specialists to provide policy, advisory and technical support. Specialists and their indicative terms of reference are as follows: 2. Public financial management and/or public sector management specialist, and team leader (international, 3 person-months).the specialist will advise the Government of Armenia on policy actions to be implemented in to improve strategic planning for the roads and water sectors that clearly define investment priorities, integrate the sector strategy with the medium-term expenditure framework (MTEF), improve project implementation and monitoring arrangements, and develop public sector capacity to effectively manage its private sector partners. Policy advice will be based on an independent assessment of the government s strategic planning, budgeting, financing, and management systems for the two sectors, including institutional arrangements for procurement, risk mitigation, and financial oversight. The specialist will have a postgraduate degree in economics, public policy, or a related field and at least 10 years of relevant sector experience. The specialist will work closely with the roads, water, audit, and legal experts to ensure the timely delivery of high-quality inputs from the team. 3. The specialist will do the following: (i) Assess how the national development strategy and the road transport and water sector strategies are aligned, including institutional arrangements for planning, budgeting, financing, and managing the sectors at the central, regional, and local level of government; public procurement procedures; the operation and maintenance of capital assets; and fixed asset management. (ii) Assess the regulatory and legal framework for the sectors, including entities functional and geographical mandates. (iii) Assess the processes for budgeting and approval of capital and operational expenditures on roads and water, including under various public private partnerships, and how funds are allocated. (iv) Assess the adequacy and effectiveness of current financing mechanisms for capital investment in road infrastructure and its maintenance, and recommend suitable alternatives. (v) Assess the current asset valuation systems used in road and water sectors and funding required to maintain adequate condition over the medium to long term. (vi) Work with the sector specialists, Ministry of Finance, Ministry of Transport and Communication, and Ministry of Territorial Administration to develop KPIs for roads and water to guide budget and MTEF formulation. KPIs will capture the impact of sector interventions in financial, economic, social, and environmental terms and incorporate international good practices. (vii) Design and conduct two training sessions and workshops for counterpart staff on the topics discussed above.

12 10 Appendix 3 4. The specialist will contribute to (i) identifying performance indicators for improved service delivery in the road and water sectors and their incorporation in the MTEF, ; (ii) designing a results-based monitoring framework for state noncommercial organizations and state-owned enterprises in the road and water sectors; (iii) identifying, in consultation with the legal expert, policy actions and any legal and regulatory changes necessary to strengthen funding and results-based management of the road and water sectors; (iv) identifying any legislative and regulatory changes for financing and results-based management of the two sectors; and (v) developing an action plan to strengthen the capacity of internal auditors in the Ministry of Transport and Communication and the State Committee of Water System. 5. Public financial management specialist (national, 5 person-months).the specialist will work with the international public financial management specialist to assess the planning, budgeting, financing, and management systems for the road and water sectors, including institutional arrangements for procurement, risk mitigation, and financial oversight. Based on national experience, and working closely sector specialists, legal and audit experts, he will ensure that key recommendations for the sector are appropriate for Armenia. The specialist will have a postgraduate degree in economics and at least 10 years of relevant sector experience. 6. The specialist will do the following: (i) Provide in-depth analyses of the current public financial management framework, the planning and budget processes and capacity in the road and water sectors, and their management. (ii) Assess how effectively current data-collection processes and results-oriented management systems support decision making. (iii) Review documents and research; collect data and information; undertake quantitative and qualitative research and analysis; prepare notes and briefs; and facilitate consultations with government agencies, development partners, and other stakeholders on public financial management. (iv) Help develop KPIs and results-based passports for the road and water sectors to be used during budget formulation. (v) Assist in designing and implementing policy actions to facilitate the results-based allocation of resources in the road and water sectors and appropriate institutional arrangements. (vi) Assess relevant work of other development agencies and incorporate lessons in recommendations for future ADB support. (vii) Assist international public financial management specialist in other related tasks. 7. Public sector audit specialist (national, 2 person-months).the specialist will have a degree in accounting, finance, or a related field. The specialist will preferably be either a chartered accountant or a certified public accountant and have 10 years of experience working with audit institutions. The specialist will have knowledge of international accounting and auditing standards, especially public sector standards, and experience in designing and assessing audit systems and business processes, working with risk-management cycles, conducting internal audits, assessing auditor competence, developing audit methodologies, and conducting training. 8. The specialist will do the following:

13 Appendix 3 11 (i) Review and assess the range and effectiveness, of internal audit practices in the road and water sectors. (ii) Identify the organizational, institutional, and capacity constraints on external and internal audit in the road and water sectors in Armenia. (iii) Work with the legal expert to identify legislative changes that may be warranted to improve the existing internal and external audit systems pertaining to the transport (roads) and water sectors. (iv) Review audit policies and procedures and internal systems of the Chamber of Control that affect the road and water sectors. (v) Based on the assessments, conduct a gap analysis and identify priority areas for developing the capacity of internal audit unit staff in the road and water sectors. (vi) Work closely with public financial management specialists to develop a capacity development plan for internal auditors in the Ministry of Transport and Communication and the State Committee of Water System. (vii) Work closely with the Central Harmonization Unit of the Ministry of Finance and with TA public financial management, legal, sector specialists to develop training modules and curricula on modern audit techniques and practices. (viii) Train transport (roads) and water sector internal audit units in consultation with the Central Harmonization Unit and ensure complementarity with the broader audit and training program conducted by training center of the Ministry of Finance. (ix) Provide expert guidance to internal audit unit staff during the piloting of these techniques and practices in the road and water sectors. 9. Transport (roads) specialist (international, 2 person-months).the specialist will advise the government on policy actions to implement in to strengthen strategic planning, budgeting, financing, and management systems for the road sector, including institutional arrangements for procurement, risk mitigation, and financial oversight. The specialist will recommend institutional and financial strategies for capital investments and maintenance. The specialist will have a postgraduate degree in civil engineering or a related field and at least 10 years of relevant sector experience. The specialist will work closely with the public financial management specialists and the legal expert. 10. The specialist will do the following: (i) Assess the government s strategic framework and development planning process for the sector, including sector priority setting, institutional arrangements, financing options, procurement, operation and maintenance, asset valuation systems and fixed asset management. (ii) Assess whether roles, responsibilities, and institutional arrangements for roads and transport under the Ministry of Transport and Communication, Armenian Roads Directorate, project implementing units, state noncommercial organizations, and Division of Urban Development in regional government units are aligned. (iii) Review in collaboration with the legal expert the legal and regulatory frameworks for the road sector and gaps that need to be addressed. (iv) Review the sector, summarizing available data on road length and condition, estimates of routine and periodic maintenance expenditures required, actual allocations, and new investment projects in the pipeline with resource requirements. (v) Identify the main constraints on providing high-quality road networks and efficient services for all types of roads, including the capacity of national contractors and alternatives to supplement this capacity as needed.

14 12 Appendix 3 (vi) (vii) (viii) (ix) Develop, in collaboration with public sector management specialist and the Ministry of Transport and Communication, KPIs for the sector that will guide budget and MTEF formulation. Recommend alternative mechanisms for financing road infrastructure, such as land value capture, tolling, fuel levies, and vehicle excise duties and evaluate their appropriateness in Armenia. Develop a framework for managing road infrastructure assets as a dedicated practice involving planning, appropriate institutional arrangements, financial support, suitable systems, and tools and skills development. Design and conduct two training sessions and workshops for counterpart staff. 11. Transport (roads) specialist (national, 2 person-months). The specialist will work with the international transport specialist to assess the road sector and recommend policy reforms. Based on national experience, and working closely with international and national sector specialists and legal and audit experts, the specialist will ensure that key recommendations for the sector are appropriate for Armenia. The specialist will have a degree in civil engineering or a related field and at least 5 years of relevant sector experience. 12. The specialist will do the following: (i) Provide in-depth analysis of the public financial management framework, the planning and budget processes, and the capacity of agencies for strategic and investment planning in the road sector and its management. (ii) Help review relevant documents, research and analyze data and information, prepare notes and briefs, and coordinate and facilitate consultations with government agencies, development partners, and other stakeholders on road sector in Armenia. (iii) Assess the work of other development agencies and incorporate lessons in recommendations for future ADB support. (iv) Help review the institutional, legal, and regulatory framework for the sector. (v) Help design policy actions to facilitate the results-based allocation of resources and the adoption of a results-based monitoring framework for state noncommercial organizations and state-owned enterprises in the road sector. (vi) Assist international transport (roads) specialist in other related tasks. 13. Water supply and sanitation specialist (international, 2 person-months).the specialist will advise the government on policy, legal, and regulatory interventions to be implemented in to strengthen the planning, budgeting, and financial management system for water and sanitation. The specialist will have a postgraduate degree in water supply and sanitation engineering, public management, or a related field and at least 10 years of relevant sector experience, preferably in managing a water network. The specialist will work closely with the public financial management specialists and the legal expert. 14. The specialist will do the following: (i) Assess the government s strategic framework for the water sector, including processes and institutional arrangements, programming, and prioritizing capital and operational expenditures within the public financial management framework. (ii) Assess the roles and responsibilities for financing, managing, and delivering water infrastructure and services at the national and municipal level, including under the public private partnerships. (iii) Assess institutional arrangements and realignment that could make the financing and management of the water sector more efficient.

15 Appendix 3 13 (iv) (v) (vi) (vii) Work with the public financial management specialist and the State Committee of Water System of the Ministry of Territorial Administration to develop KPIs for the water sector that will guide budget and MTEF formulation. Collaborate with the legal expert to develop recommendations on how the legal and regulatory framework for the water sector may be improved. Develop a framework for managing state-owned water infrastructure assets. Design and conduct two training workshops for counterpart staff. 15. Water supply and sanitation specialist (national, 2 person-months).the specialist will work with the international water and sanitation specialist to assess the water sector and recommend policy reforms. Based on national experience, and working closely with international and national sector specialists and legal and audit experts, the specialist will ensure that key recommendations for the sector are appropriate for Armenia. The specialist will have a degree in economics, business administration, water supply and sanitation engineering, or a related field and at least 5 years of relevant sector experience. 16. The specialist will do the following: (i) Provide in-depth analysis of the public financial management framework, planning and budget processes, and capacity of agencies for strategic and investment planning in the water sector and management. (ii) Help review relevant documents, research and analyze data and information, prepare notes and briefs, and coordinate and facilitate consultations with government agencies, development partners, and other stakeholders on water supply and sanitation. (iii) Assess relevant work of other development agencies and incorporate lessons in recommendations for future ADB support. (iv) Help review the institutional, legal, and regulatory framework for the sector. (v) Help design policy actions to facilitate the results-based allocation of resources and the adoption of a results-based monitoring framework for state noncommercial organizations and state-owned enterprises in the water sector. (vi) Assist international water supply and sanitation specialist in other related tasks. 17. Legal expert (national, 2 person-months).the expert will provide technical support to implement policy actions under the proposed policy-based loan to strengthen the results-based financing and management of the road and water sectors and, working closely with international and national sector specialists, ensure that key recommendations for the sector are appropriate for Armenia. The expert will have a law degree and at least 5 years of experience with legal and regulatory frameworks for infrastructure, preferably in the road and water sectors, in Armenia. 18. The expert will do the following: (i) Assist the public financial management specialists and sector specialists in reviewing the existing legal and regulatory framework for the road and water sectors. (ii) Assist in identifying any legislative and regulatory amendments required for the financing and results-based management of the two sectors, including internal and external audit functions. (iii) In collaboration with sector specialists, recommend how to improve the regulatory framework to ensure that contractual responsibilities under public private partnerships are delivered effectively. (iv) Assist the team leader in other related tasks and ensure key recommendations for the sector are appropriate for the Armenia context.