PROJECT PAPER DATA SHEET FOR

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Date: November 12,29 Country: Kingdom of Cambodia Project Name: Trade Facilitation and Competitiveness Project Project ID: PO PROJECT PAPER DATA SHEET FOR CAMBODIA: TRADE FACILITATION AND COMPETITIVENESS PROJECT Fiscal Year Annual 3.9 Cumulative 3.9 Board approved -E RVP approved - Task Team Leaders: Stephane Guimbert & Huot Chea Sector Director: Vikram Nehru Country Director: Annette Dixon Environmental category: C Does the restructured project require any exceptions to Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Revised project development objective/outcomes [If applicable] Project Development Objective remains unchanged. Source Local Foreign Recipient..33 IDA. 1. Others.. Total Yes El3 IZlYes -No - Modified Outcome Indicator: Focus on general investors to mean trading and trade-related companies and investors and perceptions to be centered on performance of customs. Does the restructured project trigger any new safeguard policies? NO Total

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3 Cambodia: Trade Facilitation and Competitiveness Project (TFCP) Project Paper Supporting the Restructuring of the Grant H165-KH I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to introduce the following changes in the Cambodia Trade Facilitation and Competitiveness Project: IDA Grant No.HI 65-KH, PO89196 and accompanying amendments to the project s legal documents. 2. The proposed restructuring would mainly reallocate resources from the subcomponent on the electronic Single Window (US$3.6 million) to (i) a further extension of the customs automated system; (ii) automation of Certificates of Origin (C/O) issuance; and (iii) creation of a Trade Information Website (TIN ). Early during project implementation, the Government indicated its decision not to proceed with the institutional model initially envisaged for the creation of a Single Window. However, it remained committed to offering much of the functionality initially envisaged under such a Single Window, building on the platform of the customs automated system supported by the TFCP (the Automated System for Customs Data, or ASYCUDA). The proposed restructuring supports this new approach through redeploying resources that will support further deployment of the customs automated system (US$2.5 million), the automation of C/O (one of the critical trade-related processes, especially for the garment industry, US$.2 million), and the dissemination of trade-related information on a new TIW (US$.7 million). Other resources are being redeployed to continue support to trade-related labor standards in the garment industries ( Better Factories Cambodia ) and additional training. 3. The proposed restructuring would not affect the Project Development Objective (PDO). The combination of the extended Customs automated system, the automation of C/O processes, and the TlW will create much of the practical functionality of the Single Window, hence assist in establishing the necessary foundations upon which the Single Window could ultimately be achieved, while at the same time delivering meaningful benefits for the trading community. Hence these activities contribute to achieve the original PDO, albeit at a different pace and with a different institutional setup than with the original concept of a Single Window. However, the reformulation (and more focused scope) of the main indicators used to measure the PDO, as well as several of the project indicators, is deemed necessary to better monitor project implementation and impact and to better align indicators with project outputs and activities. The reformulation will also require an extension of the closing date from December 1, 29 to June 1, 212 to allow for adequate time to successfully complete the activities covered by the restructuring. 11. Background and Reasons for Restructuring Project status and performance to date 4. The project was approved by the Board on June 2, 25, and became effective on December 12, 25. The total IDA Grant amounts to SDR 6.62 million (US$lO.O million), of which SDR 2.61 million has been disbursed to date (excluding the Designated Account Balance). The original project objective is to promote economic growth by reducing transaction costs associated with trade and investment, introducing transparency in investment processes, and facilitating access of enterprises to export markets. The project comprises four components: (i) trade facilitation; (ii) export market access hd; (iii) private participation in infrastructure and investment promotion; and (iv) legal transparency. 2

4 5. The most recent supervision (October 29) concluded that progress was satisfactory along the four components. Key concerns have continued to be focused on achievement of the ambitions envisaged under the initial single window concept. Early in project implementation, the Government decided not to proceed with the original design of the Electronic Single Window. Initial project implementation was also slow given the project s complexity. However, the mid-term review (May 28) of the TFCP found overall encouraging progress on customs automation (component 1) and risk management (with support from the Japan International Cooperation Agency and Australian Aid), in particular with the launch of ASYCUDA at the Port of Sihanoukville on May 1, 28. The mid-term review concluded that the PDO and its outcomes remained relevant and a minor restructuring was agreed to lay the ground for this proposed restructuring. The minor restructuring, effective in August 28, consisted of a reallocation: (i) to conduct a Trade Information Website (TIW) / MoC automation masterplan plan study under Component 1; and (ii) to further support Better Factory Cambodia (BFC) under Component 2. After this minor restructuring, in March 29, and given concerns about the long term sustainability of the customs automated system as implemented, the General Department of Customs and Excise (GDCE) requested Bank support to undertake a detailed review of ASYCUDA implementation: concerns about implementation quality have since been largely addressed and a baseline evaluation has been conducted in October 29, the conclusions and lessons of which feed into the rationale for this restructuring. Rationale for restructuring 6. The rationale for the restructuring is to reflect lessons learned from initial implementation and to better reflect more realistic and achievable ambitions for the project. One of the major goals of the project was to reduce the time and transaction costs associated with complying with import and export regulations and controls. Among a number of activities identified toward this objective was to be the introduction of a single window facility to integrate and automate regulatory functions o f 6 ministries and agencies, as well as ports and financial institutions, through a shared electronic trade network. The expectation was that this would eliminate duplication, increase speed and accuracy of the clearance process and reduce opportunities for rent seeking. While the original implementation plan envisaged some phasing in of the single window, there was no explicit plan for immediately building stakeholder commitment at the agency, sub-agency and individual level, leaving the risk of poor adoption and undermining of the technology unaddressed. Initial implementation activities identified a number of institutional and environmental constraints that made the achievement of such an ambitious strategy unrealistic and it was agreed that a more gradual approach, building on upgrading existing and planned systems (computerizing them, simplifying them, making them more transparent), would have more chances of success and would be more sustainable in the medium term, while at the same time malung a meaningful contribution to the ultimate achievement of the full single window if and when the constraints could be overcome. 7. The restructuring builds on some initial success in ASYCUDA implementation. Indeed, Customs automation, through the implementation of the ASYCUDA system, is now operational at the Port of Sihanoukville (accounting for more than 4% of import declarations) and is expected to be implemented in the Phnom Penh International Airport and Phnom Penh dry ports by the end of 29 (accounting for a further 25% of import declarations). The system has also facilitated the initial implementation of the RGC s risk management strategy and has sharply reduced the number of containers physically inspected from almost 1 percent at the time of project inception to less than 2 percent now. Nevertheless ASYCUDA implementation falls short of the original design, since (i) the system will only be implemented in three of the five locations originally envisaged; (ii) the system has not been setup as a centralized system operating through a wide-area network (instead through separate local-area networks); (iii) key 3

5 functional modules such as manifest and transit are yet to be enabled and implemented (although the functional capability has been installed as part of the ASYCUDA application suite); and (iv) initial configuration of the system was based on a hybrid system. 8. Hence the proposed restructuring builds on insights learned from ASYCUDA implementation - and its challenges - about the management of such a complex Information and Communication Technology (ICT) project: (i) the lead agency (GDCE) needs strong support in project management (including setting up and managing a performance monitoring framework; developing quality control mechanisms); (ii) the sustainability of the system depends on the ICT capacity of the recipient (GDCE in the case of ASYCUDA, especially its latest version, which is deployed in Cambodia and employs a more advanced technology); (iii) technical design needs to factor in Cambodia s capacity constraints (e.g. the lack of a costeffective solution for a wide-area network until recently); (iv) procurement packaging requires careful design to allow for the emerging, but weak capacity of the local ICT industry and the risk of integrated software / hardware contracts to not deliver value for money; and (v) contract design requires attention to performance management given the risks of delays in such complex project. 9. The proposed restructuring also provides a vehicle for allowing exporters and importers to acquire information on and better comply with regulations on an incremental basis. First, the further roll-out of the customs automated system combined with the automation of C/O will contribute to the original goal, since the Royal Government Cambodia intends to build its single window around the customs automated system platform. Second, based on the review of ASYCUDA implementation to date, the proposed restructuring supports the development of a more sustainable IT function within the GDCE as well as supporting a stronger project management and quality assurance capacity, to strengthen the long term sustainability of the ambitions articulated in the PDO. Third, the RGC proposes to introduce a Trade Information Website which would provide in a user friendly and easily accessible way all of the key information necessary for importers and exporters to comply with regulatory requirements. The TJN would also assist Cambodia to comply with changes to GATT Article X currently being discussed as part of the WTO Trade Facilitation negotiations, which will likely require all WTO members to make all relevant import, export and transit information (including laws, regulations, procedures, penalties, fees and charges etc) available and easily accessible to the public via dedicated trade information websites. In addition, the RGC requested that the proposed restructuring supports continued to BFC, which is critical at a time of a severe downturn in the garment industry. 1. The new approach would achieve a similar development objective, at a slower pace but on a more sustainable basis. The expected result of this new approach remains a reduction in documents and time (and, as a corollary, private costs and rents) required to process trade transactions. Gains would be achieved at a more modest rate that originally proposed (as most of the progress would be linked to GDCE and the customs automated system plus one additional process - C/O issuance -, rather than a Single Window connecting all trade-related processes). An additional benefit, however, would be that changes that occurred in practices, approaches, and elimination of redundancies would have been internalized and would be more sustainable. Another benefit will be the significant experience gained by GDCE - and the government more generally - in implementing large-scale ITC projects, a precursor for the Single Window under the ASEAN framework. The National Single Window Steering Committee established in 28 will develop the vision for Cambodia s National Single Window, building among other things on the achievements and experience learned through the activities financed under this component. 4

6 111. Proposed Changes Proposed changes to main outcome indicator and component indicators 11. While the overall project development objective (PDO) remains unchanged, the main indicator has been slightly reformulated to focus on the perceptions of trading and traderelated companies (rather than general investors ) and to focus on the performance of customs (rather than the overall trade process which includes variables outside Customs control). During restructuring discussions with the RGC, it was also felt that some indicators needed improvements, either because they are not currently measured or no objective measurement methodology exists (e.g. response time to investors) or because adjustments in project design require some changes to better align with project inputs. The proposed revised and sharpened indicators of progress are summarized in the table attached in Annex 1. Proposed changes in project scope COMPONENT 1 : TRADE FACILITATION 12. The restructuring would shift resources from the original design of the electronic Single Window to further roll-out of ASYCUDA and automation of C/Os. The project originally provided for the implementation of ASYCUDA in the GDCE, as well as the implementation of a Single Window. With restructuring, the Single Window would be dropped. Component 1 would instead finance a wider and more sustainable rollout of the Customs automated system, its implementation in a number of additional sites, its networking via secure communications infrastructure, together with support for the implementation of the full suite of functional modules including, as a priority, the transit and manifest modules. In addition, and as identified during the mid-term review and strongly reinforced by the in-depth review of ASYCUDA implementation, additional resources will be directed to developing the ICT support function within the GDCE to ensure long term sustainability of the project s ICT-related deliverables. More attention will be paid to project management and quality assurance as well, including through a more output-based contract and through building GDCE s capacity to manage this ambitious project. The in-depth review also recommended to: (i) separate out the hardware and IT capacity development from the main contract of services for the implementation of the customs automated system; and (ii) strengthen the management capacity of the National Project Team under the direction of the National Project Director. This restructured component will also include the automation of certificates of origin in the Ministry of Commerce (MoC). 13. While the restructured project would devote significant resources to improving the sustainability of the ASYCUDA system as well as extending its deployment to new locations and increasing its technical functionality, the technical assistance contracts to provide this support would be open to international competitive tendering as opposed to the previous sole source arrangements. Such an approach will facilitate closer supervision of project deliverables by the client and will mitigate implementation risks significantly. At the same time additional technical assistance will be provided to the GDCE and the MoC via the complementary multi-donor financed Trade Development Support Facility to assist the GDCE to develop long term options for further deployment o f ICT to achieve the Government s trade facilitation objectives. COMPONENT 2: EXPORT MARKET ACCESS FUND 14. The Better Factory Cambodia (BFC) project continues to monitor compliance with labor standards in the garment industry. In September 27, the RGC requested an extension of the ILO support until 21. BFC, with support from the IFC, is now developing a transition 5

7 ... Expenses 1,25,266 strategy to (i) shift from its original compliance approach to a service (in part fee-based) approach of monitoring, training, and good practice sharing in the area of work conditions and (ii) shift to an independent Cambodian management (without ILO direct support). BFC has reported satisfactory progress on the use of its resource envelope (beyond the portion financed by TFCP). In this context, it was agreed to finance an additional $.5 million (beyond the $.6m in the original procurement plan and the $.2 million agreed during the minor restructuring and disbursed in early 29). COMPONENT 3 : PRIVATE PARTICIPATION INFRASTRUCTURE AND INVESTMENT (PPI) 15. No changes are proposed under the restructuring for Component 3. COMPONENT 4: LEGAL TRANSPARENCY 16. This component will include a new activity, the Trade Information Website (TIW). To respond to a consistent concern of the Cambodian Private sector - the lack of access to traderelated information covering, inter alia, regulations, procedures, fee schedules, penalties and necessary forms to be used - the TIW will be created, linlung a number of existing or to be created websites (and ensuring their updating) to create an exhaustive collection of regulations, processes, fees, etc for traders. Building on lessons learned during ASYCUDA implementation, the TIW will be part of the Ministry of Commerce ICT masterplan to ensure sustainability. Cost Comparison with Original Project 17. Overall project costs would remain unchanged (in SDR terms) as a result of the proposed modification. However, re-allocation of financing within component interventions and categories are warranted. The summary is shown hereafter (details are summarized in Annex 2). Proiect costs fus$i J PROJECT A CTI WTIES.. 1. Trade facilitation 2. EMAF 3. Investment 4. Legal... transparency Project Coordination PPF Original ~ Remaining Needs for New Total PAD 1 asof Balance existing proposed needs Sept 9 activities activities a. b c=a-b d e f=d+e 6,15, 2,324,592 3,825,48, 27,996 2,97,44 2,935,436 2,1, 1,95,494 1,4,56 ~ 5, 1,75,266 8, 126, ,25 28,293 66, 346,292 4, 134, , ,784 5, 648, ~ 58, 158, ,73 I 3, 1 171, ,74 ; 27,75 69, ,254, Proposed new allocation... I=b+f 5,26,28 2,845,76 473, , ,

8 FIDUCIARY 19. Financial Management. The overall financial management (FM) performance is considered to be satisfactory. The submissions of quarterly FMRs and annual audited reports have been timely. The auditor s opinion on the financial statements of the Project for FY 28 is unqualified (clean). The existing FM and disbursement arrangement for the Project will be continued to operate for the proposed restructure, including flow of funds, Designated Account and FM procedures, structure and controls. 2. Disbursement Status and Forward Projection. As of September 3, 29, the cumulative disbursements excluding the outstanding Designated Account advance amount to SDR2.61 million or 39.5 percent of total grant of SDR 6.62 million after almost 4 years of implementation. The slow disbursement rate in part reflects that 36 percent of the total grant (or SDR million equivalent) was allocated to the non-implementing activities on the Single Window. The proposed restructuring will result in a redistribution of funds between disbursement categories and components toward full utilization of the undisbursed balance within the next two years (see Annex 2 for details). 21. Procurement. The International Procurement Agent (PA) will continue to carry out all procurement under the restructured TFCP, with the exception of small value and simple procurement falling below the thresholds agreed between the Bank and Ministry of Economy and Finance, and also excluding any Direct Contracting, Procurement from UN Agencies, SingleBole Source Selection and selection of NGOs. To strengthen MoC s capacity to effectively carry out those procurement not requiring the PA under the restructured TFCP, it has been agreed that the services of the international procurement consultant who is currently being engaged by MoC under the multi-donor financed Trade Development Support Project, will also be used on a parttime/shared basis for the TFCP. Furthermore, the applicable procurement methods have been revised to meet the needs of the remaining procurement under the restructured project. This includes (i) the application of the Bank s latest Procurement and Consultant Guidelines (May 24, revised October 26), (ii) the addition of National Competitive Bidding (NCB) as a permissible method for procurement of goods accompanied with an NCB-Annex including reference to the Government s Procurement Sub-decreemanual for Externally financed projects and stipulating the further NCB improvements required thereto, (iii) harmonizing the thresholds for use of the various procurement methods consistent with the Government s Procurement Subdecreemanual, and (iv) updating IDA S review requirements. 22. The Good Governance Framework (GGF, Annex 4) had been reviewed as part of supervision missions and showed good progress on all dimensions, including strong leadership by the MoC. An updated version has been agreed in May 29 to reflect lessons learned with the TFCP and other projects and is effective since June 26,29. Proposed amendments to the Development Grant Agreement 23. It is proposed to extend the closing date by thirty months from December 1, 29 to June 1, 212. This would be the first extension. The extended closing date reflects a realistic timeframe to implement the TIW and the roll out of the customs automated system, with other activities proposed under the restructuring expected to be completed in a shorter time frame. 24. Other amendments include: (i) a revision of the results indicators (Annex 1); (ii) a revision of Schedule 1 to reflect the changes in category allocation (Annex 2); and (iii) a revision to the procurement arrangements (Annex 3). 7

9 IV. Analysis Economic and Financial 25. The proposed approach to trade facilitation will lead to benefits largely similar to the originally designed single window approach. The roll-out of the customs automated system will bring more benefits than originally planned in terms of customs automation. The automation of C/O will bring more limited benefits in terms of non-customs process automation than the original design. Finally, the TIW will bring the transparency in information as originally planned. In addition, the new approach, which builds on the Royal Government of Cambodia s own initial experience with customs automation, will be more sustainable, with stronger ownership and much better attention to ICT and project management capacity. Hence, overall the restructuring will not significantly alter the basic economic benefits accruing to the project. It is expected that that the measures to facilitate trade would still ultimately yield reduced smuggling, increased voluntary compliance with regulations and the tax regime (and reduce the opportunities for rent-talung), and improve Cambodian trade competiveness, anticipated from the original project design. Hence the ERR and FRR, originally calculated at 216% and 144% respectively, would be somewhat lower, but still very much significant. Technical, Social and Environmental 26. Modifications proposed do not alter the social or environmental impact of the project. 27. The proposed changes will not change the environmental category and will not trigger new safeguards policies. 28. The modifications proposed do not require changes in World Bank policies. V. Expected Outcomes 29. The PDO of the TFCP remains to promote economic growth by reducing transaction costs associated with trade and investment, introducing transparency in investment processes, and facilitate access of enterprises to export markets. The components outcome indicators have been somewhat adjusted to reflect changes in design or lessons learned during initial implementation about monitoring and evaluation (Annex 1). VI. Benefits and Risks 3. Benefits of the restructured project would broadly remain as those anticipated in the original project design, at a slower pace but on a more sustainable basis. These include a significant enhancement in the efficacy and efficiency of Cambodia s trade regime. This is a major contributory factor in the RGC s growth and poverty reduction strategies. The relevance of these benefits has become all the more apparent as Cambodia is facing the global economic crisis. A major transmission channel is through exports. In a dollarized economy, with little flexibility for adjustment, trade facilitation is a major instrument for the competitiveness of existing industries and for the gradual diversification of the economic base. 31. The project PDO would continue to face substantial risks following restructuring. The experience so far has confirmed the original risk assessment of substantial risks. The proposed restructuring would somewhat reduce the risks of weak political commitment and resistance to change, since it builds on a technical and institutional solution developed and owned by the RGC during the first phase. The risk of limited technical and project management capacity has 8

10 materialized and will be mitigated in the proposed restructuring by additional support to GDCE to manage the customs automation project. An additional risk relates to the sustainability of the technical solution used for customs automation (in particular to ensure it can be employed as a component of the National Single Window) and the technical capacity to operate this system. Ongoing support through a Multi-Donor Trust Fund on Trade Related Assistance - financed by DANIDA, the EC, and UNIDO and administered by the Bank - will also help mitigate some of the risks through (i) support to institutional capacity development of the Ministry of Commerce; (ii) support to the Ministry of Commerce overall ICT infrastructure and capacity; and (iii) to assist the GDCE to explore long term options for ICT deployment in support of trade facilitation. 32. As originally planned, the restructured project will continue supporting GDCE s efforts to develop and implement its integrity strategy, in support to other projects including the Multi- Donor Trust Fund on Trade Related Assistance. The cost of unofficial fees indeed continues to threaten the achievements of the project objectives. In the context of its response to the economic crisis, the RGC has committed to further streamline these fees and processes to help private sector cope with the difficult external environment and, with resources from the Multi-Donor Trust Fund and building on synergies with the FC, the Bank team is supporting the dialog between the RGC and private sector business associations to diagnose these fees and processes and streamline them. 9

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15 Annex 2: Proposed reallocation Status of uses of Funds by Disbursement Category as at September 3,29 (in SDR) and Proposed reallocation No Category I I Disbursed as of Allocated (SW Sept 3,9 including advances to UN (SDK) Goods 3,58, Consultants' Services under Part A,B,C.2 and D of 1,3, 455,934 the Project under Part C. 1 of 4, the Project 25,8 Training, I I workshops and incremental operating costs Sub - grants Refunding of Project Preparation Advance Total 9, 1,15, 37, 37, , ,62, 2,612,789 New proposed allocation under restructured project (SDR) 2,834, 1,788, 1,47 1, 82,665 6,62, 94 of expenditures to be financed 1% 1% 125, 1% 319,335 I 1% 1% of subgrants amounts disbursed Amount due pursuant to Section 2.2 (C) of the Grant Agreement 14

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17 Annex 3: Procurement Arrangements CAMBODIA: TRADE FACILITATION AND COMPETITIVENESS PROJECT A. General 1. Procurement for the Restructured Trade Facilitation and Competiveness Project (TFCP) will be carried out in accordance with the World Bank s Guidelines: Procurement Under IBRD Loans and IDA Credits dated May 24, revised October 26 and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 24, revised October 26. The general description of various items under different expenditure categories is given below. For each contract to be financed by the Project, the procurement methods or consultant selection methods, the need for prequalification or post-qualification, estimated cost, prior review requirements and time frame have been agreed between the Recipient and the International Development Association (IDA) in the Procurement Plan for restructuring. The Procurement Plan will be updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. Procurement of Goods: Goods procured under this restructured project would primarily include IT equipment, printed materials, office furniture, and office equipment, as well as further requirements emerging from an information system that is currently under development. Goods estimated to cost the equivalent of US$lOO,OOO or more per contract shall be procured through the International Competitive Bidding (ICB) method; and the procedures set forth in the IDA S Procurement Guidelines and using the IDA S applicable Standard Bidding Documents (SBDs), and Domestic Preference will also be allowed to eligible national bidders. Goods estimated to cost less than US$lOO,OOO equivalent per contract may be procured through the National Competitive Bidding (NCB) method and the procedures set forth in the Sub-Decree 14 on Promulgating of the Standard Procedure for Implementing the World Bank and the Asian Development Bank Assisted Projects dated February 26, 27 and relevant provisions of the Royal Government of Cambodia Externally Assisted Project Procurement Manual for Goods, Works and Services, subject to the improvements listed in the Annex to the Grant Agreement. Goods estimated to cost less than US$2, equivalent per contract may be procured through the Shopping method and the procedures set forth in the aforesaid Sub-Decree and Procurement Manual. The methods of Direct Contracting and Procurement fi-om UN Agencies may be used subject to the circumstances described respectively in paragraphs 3.6 and 3.9 of the Procurement Guidelines. 3. Procurement of Works: No civil work contract is foreseen under this Restructured Project. 4. Selection of Consultants: Consultant services financed through this restructured project are expected in the following areas: Capacity building, Development of the CED IT Support Capacity and IT Strategic Plan, Pilot Private Participation in Infrastructure Projects etc. Services requiring hiring of firms would generally be procured through Quality-and Cost-based Selection (QCBS) method. However, when consultant firms and non-for-profit organizations are expected to be included in the same short-list, and if the value of the contract is estimated to cost US$5, or more, Quality-Based Selection (QBS) method shall be used. For assignments estimated to cost less than US$5, equivalent per contract the method Selection Based on Consultants Qualifications (CQS) may be used, and for external audit assignments the Least Cost Selection Method may be used. Services for tasks under circumstances which meet the requirements of paragraph 3.1 of the Consultant Guidelines may, with the IDA S prior 15

18 agreement, be procured through the Single Source Selection method. Services requiring hiring of individual consultants may be procured in accordance with the provisions of Section V of the Consultant Guidelines, whereas Sole Source Selection of individual consultants may be done only with the IDA S prior agreement and under the circumstances described in paragraph 5.4 of the Consultant Guidelines. Shortlists of consultants for consulting services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely of national consultants. 5. EMAF Matching Grant Sub-Grant: Matching Grant i s expected to finance 5 percent of cost of provision of technical assistance to exporters. Some procurement of goods and consulting services have been included in the proposals of some sub-grantees of EMAF. The IDA and the implementing agency agreed that all procurement using the funds from the EMAF s subgrants are required to follow the IDA S Procurement and Consultant Guidelines as stipulated in the Project s Grant Agreement and also in the EMAF Manual. Since the maximum sub-grant amount is only USD25,, there are no large value procurement packages foreseen under the sub-grants, and it is expected that the procurement of goods would comprise of packages less than USD5,OOO per contract which may be procured through Shopping method in accordance with paragraph 3.5 of the Procurement Guidelines, and consultant services are expected to comprise of mainly individual consultants, which may be procured through the individual consultant selection procedures under Section V of the Consultant Guidelines. All the procurement packages under the sub-grants shall be subject to IDA S post review. The IDA informed the implementing agency, Ministry of Commerce (MoC), to keep all relevant procurement documents for the Bank s post review. The procurement arrangement for the sub grant will also be specified in each sub grant agreement. B. Assessment of the agency s capacity to implement procurement 6. The procurement capacity of the implementing agency MOC was assessed by IDA during the original project preparation and procurement risk was determined to be high and it was agreed that a national procurement consultant would be engaged to strengthen the capacity of MoC for carrying out the procurement under the original Project, and the national procurement consultant was subsequently engaged. For the purpose of restructuring, the procurement capacity of MoC was reviewed again to verify its adequacy for carrying out the remaining procurements under the restructured project that fall below the threshold requiring international procurement agent. Currently, there is one government procurement staff assigned to this Project and one national individual procurement consultant was also engaged as the procurement coordinator and they are responsible for assisting MoC in carrying out the procurement and serving as the focal point for coordination and follow-up of procurement activities between MoC s line agencies which have activities financed by the TFCP, and the International Procurement Agent (PA), MEF, and the IDA. Procurement expertise is still very much under-developed in Cambodia and there is a shortage of qualified procurement professionals in the country, including in the private sector where national procurement consultants with adequate slulls and experience in procurement in general and in WE3 procurement procedures in particular, are not readily available. IDA is engaged at a broader level with the Government to encourage the development and implementation of a procurement capacity building program in the country for both the public and private sector, but this is a medium term objective. In the meantime, procurement capacity of project implementing agencies in many cases continues to rely on external support of procurement consultants along with some periodic training of project staff. Some project procurement staff as well as national procurement consultants have moved from one project and organization to another for better prospects and this has adversely affected the implementation and procurement knowledge-transfer of some projects. TFCP also experienced the loss of a national procurement consultant for a period of time before the current national procurement consultant was engaged. The present procurement skills, knowledge and experience of the current 16

19 government staff and also the national procurement consultant under the Project in the application of the IDA S procurement procedures were assessed to be limited and not sufficient for effectively carrying out the remaining procurement under the restructured Project and the procurement capacity of the Project still remains weak. The quality and timeliness of procurement processing can be improved through hrther capacity strengthening to build the procurement knowledge and skills of MOC staff for effectively carrying out the remaining procurement under the restructured procurement in accordance with IDA S procurement procedures, as well as to strengthen procurement management systems as a whole within MOC. 7. The assessment has also taken into consideration of a substantial fiduciary risk associated with the overall weak governance environment in Cambodia which impacts procurement. Specific issues are the general risk of collusion during the bidding process, biased bid evaluations, and supplier/contractor offering informal payments as incentives for favorable treatment. Three IDA-financed projects were suspended and misprocurement declared in 26 after allegations of corruption led to investigations in Cambodia by the IDA Department of Institutional Integrity. However, TFCP was not included in or affected by the fiduciary review and investigation of Following the aforesaid misprocurement, the Borrower proposed and agreed by the IDA to use the International Procurement Agent (PA) for all the IDA-financed projects including this restructuring project and the P A was engaged by the Borrower in December 27. In December 28, the Government and the IDA also agreed to exclude specified small value and simple competitive procurement packages from the PA requirement and to allow these to be procured by the project implementing agencies themselves as it was not practically and economically feasible for these to be procured through the PA. 9. Based on the result of the assessment, the procurement risk under the project was determined to remain High. However, this risk will be mitigated through the wide range of strengthening measures that are being incorporated in the restructure of the Project and Grant Agreements. With the incorporation of the capacity strengthening measures and the extensive requirements for improving governance, including transparency and accountability in the procurement process, as listed in Section F and detailed in the Good Governance Framework (GGF) provided in Annex 4, the residual procurement risk under the Restructured Project is determined to be substantial. C. Procurement Plan 1. The procurement plan, which forms the basis for the procurement methods, has been agreed between the Borrower and IDA and will be available in.the database of the IA. It will also be available in the World Bank s external website. The Procurement Plan will be updated in agreement with the project team at least annually or as required to reflect the actual project implementation needs. The procurement plan for the restructured project is included in this Project Paper-Annex. D. Frequency of Procurement Supervision 11. In addition to the prior review supervision to be carried out by IDA, the procurement capacity assessment of the IA recommends that procurement supervision missions, including expost review, be conducted bi-annually. Furthermore, procurement and financial management staff are expected to conduct joint ex-post procurement reviews and Statement of Expenditure (SOE) reviews in order to broaden the perspective, including checking for compliance with agreed 17

20 procedures, capacity issues, adequacy of documentation and record keeping arrangements, indicators of collusion, and verification of deliverables and end-usage. E. IDA Review Requirement 12. The following contracts will be subject to prior review by IDA: (i) each contract for goods estimated to cost the equivalent of US$lOO,OOO or more; (ii) each contract for goods procured under Direct Contracting and under Procurement from UN Agencies; (iii) each contract for consultants services for employment of a firm estimated to cost the equivalent of US$lOO,OOO or more; (iv) each contract for the employment of individual consultants estimated to cost the equivalent of US$5, or more; (v) each contract involving Single-Source Selection of firms or Sole-Source Selection of individual consultants, irrespective of value; and (vi) the contract for external financial audit provided by a firm procured through Least Cost Selection, irrespective of value. All other contracts shall be subject to ex-post review by IDA. The percentage to apply for contracts subject to ex-post review is 2 percent. F. Agreed Actions to strengthen procurement capacity and mitigate procurement risks Capacity-related Strengthening Measures: 13. The IPA will continue to carry out all procurements under the restructured project, except for procurement through the methods of direct contracting, procurement from UN agencies, single source for consulting firm, selection of individual consultants (regardless of value), hiring of NGOs, and procurement of goods estimated to cost less than $5, per contract. 14. A qualified international procurement consultant experienced in IDA procurement procedures and terms of reference satisfactory to IDA, has been agreed to be engaged by MOC under the Trade Development Support Project (TDSP) and the selection process is at an advance stage and the consultant is expected to be appointed by November 29. This international procurement consultant, who is expected to be hired and contracted with MOC, will also provide part-time procurement support for the restructured TFCP. The services of the international procurement consultant will be used on a part-timehhared basis for the restructured TFCP. The consultant will be responsible for supporting and enabling MOC procurement staff to effectively carry out in accordance with IDA procedures all procurement packages for goods and consulting services falling below the IPA requirement under the restructured Project, from preparation of bidding documents up to signing of contract,. The consultant will also assess and propose measures for strengthening the procurement management system of MOC, including roles, responsibilities and accountabilities of staff involved in procurement, formation of bid evaluation committees, review and approval requirements and associated accountabilities, complaints and disclosure mechanisms, procurement audits and record keeping arrangements, with a view to streamline and strengthen the integrity of the procurement management system. To build capacity of MOC staff, the international procurement consultant will develop and conduct a program for structured and hands-on training, which would also build linkages to the broader procurement capacity building program being initiated under the public financial management program at the country level. 15. It has been agreed that MOC would support capacity building efforts to strengthen the procurement capacity of its staff. These capacity building efforts will be coordinated with the Government-wide Public Finance Management Reform Program (PFMRP). 16. Furthermore, IDA will provide procurement training at least once a year. 18

21 Governance-related Strengthening Measures: 17. In addition to IPA requirement for carrying out the procurement above the specified thresholds and also an international procurement consultant to assist, on a shared basis with TDSP, in carrying out the procurement under TFCP below the IPA thresholds and to build procurement systems and capacity of MOC, a Good Governance Framework (GGF) has been adopted by MOC (Annex 4). The GGF includes various elements for improving transparency and accountability through strengthened procurement arrangements, strengthened financial management, enhanced public disclosure, involvement of civil society, a complaints mechanism, a code of ethnic conduct, sanctions, and by addressing project-specific implementation risks. 18. The Government s Standard Procurement Manual for Externally Financed Projects, including standard bidding documents, which has been agreed by IDA for use in NCB and Shopping procurement under IDA-financed projects in Cambodia will also be applicable under the restructured TFCP. This Manual includes numerous measures for further enhancing competition, transparency and accountability in the procurement process, including defined roles of government staff, integrity pledges, and additional provisions for wider publicity of bidding opportunities and procurement information including contract awards, involvement of beneficiaries, complaints handling and de-briefing requirements, etc. 19. It has been agreed to rationalized thresholds for use of ICB, NCB and Shopping methods. Under the original TFCP, there was no provision for NCB, and as a result ICB was required for procurement of goods exceeding the specified Shopping threshold of US$5, per contract, which was unrealistic for attracting international bidders. This has now been corrected with the revision of the thresholds to also allow use of the NCB method for procurement of goods ranging between US$2,-$1, per contract, and making all the thresholds consistent with the Government s Procurement Manual for Externally Financed Projects and in-line with other Bankfinanced projects in Cambodia. 2. It has also been agreed to expand the scope of ex-post procurement reviews by the Bank to include checks for indicators of collusion and end-use deliveries in addition to verifying procedural compliance, as well as integrated procurement and FM/SOE reviews IDA will carry out at least two supervision missions per year, including ex-post reviews. IDA will also conduct workshop for project agencies staff as well as for private sector suppliers and contractors to disseminate the IDA S procurement procedures with specific attention to the provisions against fraud and corruption. G. Details of the Procurement Arrangements for the Implementation of the Restructured Project 22. Goods and Non Consulting Services (a) List of contract packages to be procured following ICB and direct contracting: 19

22 1 - Ref. No. 2 Contract (Description) Estimated Cost (USD) Procure ment Method 1 Customs Automation Expansion (hardware & software may be split) 1,6, ICB P-Q - No Computers Equipments for CO Automation 2 345, ICB No Processing & TIW (hardware + Maintenance) - IT System 3 Development (Investor 115, ICB Tracking system) 4 Telecommunicati on firm to provide WAN connection for 18 mths & all connections fiber cable No h Review Expected by Contract Bank Signing (Prior I Date Post) Domestic Preferen ce (yesfno) Yes Prior June 1 Yes Yes Prior June 1 Prior Nov. 9 4, ICB No Yes Prior June 1 Comments to be confirmed after completion of preparation of technical specificatio ns Invitation for Bid has been is sued. The bid submission deadline is Oct. 13, Consulting Services (a) List of consulting assignments with short-list of international firms and SSS Review Ref. Description of Estimate Selection by Bank No. Assignment d Method (Prior f cost Post) Design and implement 3 Automation of Certificate of Origin Processing Trade Information 15, 2, QCBS QCBS Prior Prior 6 7 Expected --t--- Contract Comments Signing June 1 I Nov 1 I

23 - 1 2 Ref. No. 4 Description of Assignment Website & Couc hing/training Annual Financial audit for the whole project period Review Expected Estimate d Selection by Bank Contract Comments Method (Prior I Signing cost Post) Date Part of Bundled Audit 33,99 LCS Prior April 1 procured by MEF (TDSP) 21

24 National Competitive Bidding Procedures The procedure to be followed for National Competitive Bidding shall be those set forth in the Sub-decree 14 on Promulgating of the Standard Procedure for Implementing the World Bank and the Asian Development Bank Assisted Programs dated February 26, 27 and relevant provisions of the Royal Government of Cambodia Externally Assisted Program Procurement Manual for Goods, Works and Services with modifications set forth below in order to ensure economy, efficiency and transparency and broad consistency with the provisions of Section I of the Guidelines for Procurement under IBRD Loans and IDA Credits published by the BanWAssociation in May 24 and revised in October 26 (the Guidelines) as required by paragraph 3.3 and 3.4 of the Guidelines. 1. Eligibility The eligibility of bidders shall be as defined under Section I of the Guidelines; accordingly, no bidder or potential bidder shall be declared ineligible for contracts financed by the Association for reasons other than those provided in Section I of the Guidelines. Foreign bidders shall not be asked or required to form joint ventures with national bidders in order to submit a bid. Bidders located in the same province or city as the procuring entity shall not be given preference over bidders located outside that city or province. 2. Qualification Criteria The assessment of the qualification of a bidder shall be conducted separately from the technical and commercial evaluation of the bid and in strict adherence to the qualification criteria that shall be clearly specified in the bidding documents. Such assessment shall only take into account a bidder s capacity and resources to perform the contract, specifically its experience and past performance on similar contracts, capabilities with respect to personnel, equipment and construction and manufacturing facilities, and financial capacity. 3. Bid Submission; Bid Opening and Bid Evaluation The evaluation of a bid shall be made in strict adherence to the criteria that shall, be clearly specified in the bidding documents and quantified in monetary terms for evaluation criteria other than price; merit points shall not be used in bid evaluation. No bidder shall be rejected on the basis of a comparison with the Recipient s estimate and budget ceiling without the Association s prior concurrence. A copy of the minutes of the public bid opening shall be promptly provided to all bidders and to the Association with respect to contracts subject to prior review. Neither shall all bids be rejected nor shall new bids invited without the Association s prior written concurrence. 4. Complaints by Bidders and Handling of Complaints The Recipient shall implement the complaint handling mechanism in accordance with Section 7 of the above mentioned Procurement Manual. 22