ANNEX 1. DAC-code Sector General Budget Support

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1 ANNEX 1 IDENTIFICATION Title/Number Millennium Development Goals Contract (MDG-C) for Uganda Total cost EC contribution: EURO 175,000,000 Aid method / Management mode Direct General Budget support ( 175) Centralised management DAC-code Sector General Budget Support RATIONALE AND COUNTRY CONTEXT Despite rapid and sustained progress since the end of conflict three decades ago, Uganda remains a poor country, with about a third of its population still living in poverty. Given positive evaluations of past general budget support and a strong track record in macro-economic policies, poverty reducing interventions and PFM, Uganda is in a position to take full benefit of the long-term predictable budget support entailed by the MDG Contract approach Country Context and National Policy and Strategy Economic and social situation and poverty analysis Uganda has experienced strong economic growth for two decades, accelerating to 8% p.a. over the last five years. Poverty rates fell from 56% in 1992 to 38% in 2002 and 31% in GNI/ca is currently $320 (PPP$1,490$). Regional and other inequalities remain high the conflict affected North of the country still exhibiting a poverty rate of 61% but have also been declining as evidenced by the Gini coefficient falling from 0.43 to 0.41 over the period, now standing at about the average for Sub-Saharan Africa. Improvements in social sector outcomes have been pursued in the last years with the primary education NER reaching 92%, a secondary education of GER 30% and a gender ratio of 98% but stagnating completion rates (50%) pointing to the need to address quality and efficiency concerns more forcefully. Infant and maternal mortality have also decreased from 97/1000 and 506 in 1995 to 76/1000 and 435 in 2006 respectively but remain relatively high. Based on current trends, Uganda appears on course to meet the MDGs in Income poverty and Education but not in Health National Development/ Cooperation Policy and Strategy (1) National policy and strategy: National policies have been set out in a series of Poverty Eradication Action Plans since The third PEAP (2004) was structured around five pillars 8, and formed the basis of the Uganda Joint Assistance Strategy (UJAS, 2005) and the EC s subsequent Country Strategy Paper. The PEAP will be replaced in 2009 by a five year National Development Plan (NDP). The general orientation of the NDP is already clear from the June 2008 budget statement with its five year horizon. It is expected to retain the broad policy framework implemented under the PEAP, in particular a strong focus on macroeconomic stability, while emphasising investments in infrastructure to address the binding constraints to growth (informed by the World Bank s (2007) Country Economic Memorandum); measures to raise the impact and efficiency of service delivery interventions; and to accelerate the modernisation of agriculture production and marketing. (2) National Budget and medium term financial perspectives: GoU has operated an MTEF since 1993 and has a strong and transparent budget processes encompassing a legally binding timetable for budget preparation and broad consultations with stakeholders. Prudent fiscal management has been maintained by gradually improving revenue and restraining expansion in government expenditures, lowering the fiscal deficit (excluding grants) from its peak of 12.3% in 2001/2 to a projected 7.5% in 8 Economic management; enhancing competitiveness, production and incomes; security, conflict resolution and disaster management; governance; and human resources development EN 5 EN

2 2007/8. Strong domestic growth has contributed to aid flows falling from 11.9% to 8.5% of GDP (2003/4-2007/8), and from 53% to 40% of total expenditure, with the share of expenditure covered by budget support falling from 29% to 14%. Budget allocation and execution have generally reflected PEAP priorities, with the budget becoming increasingly pro-poor over the first half of this decade 9. The five year projections set out in the June 2008 budget statement project a further modest reduction in the deficit (to 6.6% in 2012/13), and further reductions in aid and in budget support (to 19% and 5% respectively of total expenditure). They also project a gradual shift in the composition of spending towards the productive sectors and capital spending, in line with recent analysis of needs, policy statements and the expected NDP. (3) Performance Measurement: PEAP implementation is monitored through a Results and Policy Matrix which measures annually achievement of and progress toward agreed PEAP outcomes and targets. Bi-annual Poverty Status Reports and an Annual PEAP Implementation Review (APIR) are used to structure the dialogue among GoU agencies and with Development Partners (DPs). The overall quality of performance measurement is greatly enhanced by the national survey program, which supplies good quality data, particularly regarding poverty and social outcomes. An annual panel survey collection system to be established by 2008/9 providing annual data on social outcomes into APIRs should strengthened further the annual monitoring of Government interventions outcomes. Performance assessment in the context of the MDG Contract will be based on a Joint Assessment Framework (JAF), whose design is currently being finalised with all budget support providers. The JAF, which will encompass about 25 indicators and policy actions extracted from the PEAP Policy Matrix and Sector Investment Plans, will be organised as a 3 years rolling framework and reviewed annually in the context of the APIR Eligibility for budget support Uganda meets the eligibility criteria for general budget support in the form of an MDG Contract, as detailed below National Development or Cooperation Policy and Strategy The current PEAP as well as the priorities emerging from the formulation of the NDP and the five year budget framework, and the mechanisms for performance review and donor coordination described above, demonstrate that the eligibility criterion regarding a well defined national policy is fulfilled, and that the EC should support the government s policy through an MDG Contract Macroeconomic performance and policy Uganda has an impressive macroeconomic record over the past two decades. Growth has averaged around 7% over this period and has proven resilient to several exogenous shocks 10. Growth is expected to continue unabated to an average 8% over the next three years, on account of continued strong performance in the service sector, agriculture output recovery and increased exports to the sub-region. Inflation has been successfully maintained close to the Government s 5% objective for most of the last 10 years. Although it has recently increased to around 10% on account of international oil and food price rises and Kenyan crisis in early 2008, the IMF s latest PSI review concludes that price anticipations remain well anchored and do not, therefore, warrant any specific intervention in the short term. The Government has successfully pursued a policy of fiscal consolidation since 2001/02. The current account deficit, now standing at 6.7% of GDP is easily funded by rapidly increasing capital inflows while BoU foreign exchange reserves equivalent to 6 months of imports would ensure a satisfactory cushion to a sudden reversal in capital flows. As a result of the MDRI, external debt to- 9 Allocations to the Poverty Action Fund, a virtual fund used to track poverty spending budget votes, increased to nearly 40% of the discretionary budget, and were successfully protected from budget cuts during implementation. 10 The shocks were of three sorts: prolonged drought conditions leading to depressed Agriculture and hydropower outputs; the Kenyan crisis in early 2008 and high international oil prices. EN 6 EN

3 exports ratio has been reduced to 37.8% in 2006/07 and a recent WB/IMF DSA has assessed the Uganda s risk of debt distress as low. GoU has prepared a new Debt Strategy in 2007 to ensure prudent external and the prioritisation of domestic borrowing to productive sectors. Total aid flows into Uganda represent about 10% of GDP - higher relative to other African countries - but have been decreasing over the last three years. After a series of successfully implemented IMF ESAFs and PRGFs, the Government s macroeconomic program is now supported by a three-year PSI whose third review was successfully concluded in July A key foundation of the current PEAP was a macroeconomic model and Long Term Expenditure Framework with a ten year horizon running to 2013/14. This emphasis on long-term macroeconomic modelling remains a feature of Uganda s planning process. In summary, the macroeconomic eligibility criterion for general budget support in the form of an MDG Contract is considered met Public Financial Management Uganda performed comparatively well in initial IMF/WB assessments of public financial management, while more recent assessments using the PEFA framework suggest that improvements continue to be made, even if progress is uneven 11. Positive developments in recent years include: the increasing realism of domestic resource projections; the transparency of budget formulation; the control of expenditures in institutions covered by the IFMIS; the timely preparation of government accounts, and increased timeliness of audit reports; while remaining areas of concerns relate to arrears accumulation, internal audit, payroll controls, procurement and expenditure reporting at local levels. These are being addressed through the Government s FINMAP reform programme, and the Government is committed to repeating PEFA assessments at least every three years. A recent strategic review of PFM, undertaken in the context of the JBSF preparation, highlighted the need to pay more attention to the contribution of PFM to the efficiency of service delivery as well as the incentives and motivation structure of the various stakeholders of PFM. These recommendations have been taken on board by GoU and will be at the heart of the PFM agenda in the forthcoming JBSF. In the area of domestic accountability, the increased role played by the Parliamentary Accountability Committees following the adoption of the multi-party dispensation in 2006 and the recent finalisation of the legislative process granting constitutional and operational independence to the Auditor General, have raised the quality and reach of external oversight. This evolution, combined with an open and active media, will help to increase the pressure on GoU to uphold the enforcement of PFM legislations, an area which remains relatively weak. Looking forward, current changes in the presentation of the budget should also contribute to raising the influence of Legislature in the discussion surrounding budget formulation and execution. It is therefore concluded that there is a credible and relevant programme to improve PFM and commitment to improve domestic accountability that justifies the provision of budget support through an MDG Contract Sector Policies The main sector policies of GoU, to be supported by the MDG-C operation include the following: MDG related service delivery. Continuing to raise education, health, and water and sanitation services coverage, while at the same time improving quality and value of money. PFM and accountability. Enhancing accountability in public finance and public procurement through better reporting and auditing of public expenditures. Infrastructure and Investment Climate. Contributing to poverty reduction by investing in infrastructure (notably roads) and enhancing production, competitiveness, productivity and incomes. 11 HIPC AAP assessments 2001 and 2004; World Bank Country Integrated Fiduciary Assessment 2005; DfID Fiduciary Risk Assessment 2004, 2007; PEFA 2006; PEFA Lite EN 7 EN

4 1.4. Lessons learnt The Uganda case study in the 2006 OECD/DAC evaluation of General Budget Support concluded that GBS had been an effective means of supporting a relevant national poverty reduction strategy, enabling the GoU to expand the delivery of basic services to the poor quicker than would otherwise have been the case, and supporting gains in both allocative and operational efficiency. Budget support funds, combined with other inputs had helped build capacity, particularly in strengthening the planning and budgeting system, and had positive effects on the harmonisation and alignment of aid. It concluded: Our overall assessment is positive It is highly implausible that the same level and effectiveness of expenditures could have been achieved through other modalities alone. A recent evaluation of the last three PEAPs ( ) also confirmed the significant positive contribution of budget support funds and TA to the favourable outcomes of the plans in terms income and non-income poverty. The EC has provided adjustment financing to Uganda since The latest budget support operation was successfully completed with overall respect for the general conditions maintained leading to no undue delays in disbursement of funds, although there were some concerns over arrears accumulation. All variable tranches were disbursed in excess 70%. The choice of education indicators that differed from those being monitored in the context of the sector programme (SWAp) resulted in a relative lack of attention in their monitoring, and reinforces the case for harmonising around a joint assessment framework as proposed in this operation Complementary actions The programme will be underpinned by two economic management support programmes in the areas of PFM reform (where FINMAP will be supported to the tune of $2-3 million through a pool funding arrangement). In addition, some technical support will be provided to the implementation of the Joint Budget Support Operation targeting the financial and non-financial reporting. The support foreseen has been envisaged in the context of the JBSF in full coordination with other budget support DPs Donor coordination GoU and DPs regular dialogue is coordinated by the Local Government Partners Group (LGDP), the highest level of coordination in country, which is chaired by the World Bank. The LGDP oversees a series of Sector Working Groups, which provide a forum for more technical discussions. Dialogue on budget support issues has traditionally been occurring in the context of the Public Expenditure Review (PER) working group and, more recently at a higher institutional level, through the UJAS group. With the advent of the Joint Budget Support Framework (JBSF), these groups will be replaced by a Joint Budget Support Policy and a technical JBSF Task Force to be mirrored by an equivalent structure on GoU. 2. DESCRIPTION 2.1. Objectives The overall objective of the programme is to contribute to the reduction of poverty and to the achievement of significant progress towards the MDGs as set out in Uganda s PEAP and forthcoming National Development Plan. The expected results include contributing to macroeconomic stability, removing the constraints to growth, improved public financial management, and more effective and efficient service delivery particularly in the areas of health and education. The main activities include policy dialogue (supported by targeted technical assistance) to be deployed in the context of the JBSF, with a specific focus on the design of a set of reforms encompassing PFM, Public service and Sector specific policies to increase the effectiveness and impact of public resources; and the provision of long-term, predictable financial resources aligned with other budget support donors and the government s budgetary process. EN 8 EN

5 2.2. Stakeholders The PEAP was developed through a consultative process involving all main stakeholders, supported by an open and participatory budget process. The formulation of budget support and the JAF has primarily involved discussions with officials from the Ministry of Finance, Planning and Economic Development and key line Ministries. This MDG Contract will support government agencies responsible for planning and managing the budget and delivering services, and will ultimately benefit the rural and urban poor by contributing to a more efficient and equitable delivery of social services as well as supporting higher growth and the development of an enabling environment for income generation Risks and assumptions Risks to the budget support eligibility criteria during the operation are judged to be manageable. Long held macro-economic stability and the continued progress in the reach and efficiency of PFM systems seem set to be maintained during the operation s time period. The consensus around the policy priorities put forward in the context of the NDP formulation is also broadly shared, even if some differences may appear regarding its implementation modalities and some specific policies, e.g., industrial or land policies. It will be important to ensure that some of the concerns raised with respect to economic governance considerations are addressed to safeguard, inter alia, the integrity of the budget and the management of revenues from oil extraction. While the recent surge in exports to the sub-region has highlighted the opportunities it embodies, the economic impact of the recent crisis in Kenya was equally clear in terms of the potential risks associated with the increase reliability of Uganda on its regional partners for future growth Crosscutting issues The PEAP addresses gender issues under all pillars and was applauded (Joint Staff Advisory Note, 2005) for paying greater attention to cross-cutting issues overall. Specific guidelines have been issued by the Ministry of Finance to ensure that gender and AIDS issues are systematically addressed as part of the budget process. 3. IMPLEMENTATION ISSUES 3.1. Budget and calendar A maximum of 175 million of direct general untargeted budget support will be disbursed under this operation. The timetable of implementation of the budget support operation covers the six Ugandan fiscal years 12, or 72 months from signature of the Financing Agreement. Disbursements will be undertaken on annual basis according to the following schedule: Tranches 1 st 2 nd 3 rd 4 th 5 th 6 th Months Jan-Mar Jul-Sep Jul-Sep Jul-Sep Jul-Sep Jul-Sep Disbursement Q1 Y 1 Q3 Y 1 Q3 Y 2 Q3 Y 3 Q3 Y 4 Q3 Y 5 TOTAL TOTAL Base component % Annual Performance Tranche (APT) % MDG-based tranche % 12 Ugandan fiscal years run from July to June. EN 9 EN

6 Total % Disbursement in calendar year (= EC FY); Q equates to Q1 of Ugandan 2009/10 FY. The first year s payment is higher (30m) to smooth the overall flow of projected EC budget support (sector budget support is planned to start the following financial year), and to reflect the financing needs and indicative EC commitments to GoU for that financial year. The disbursement profile provides for an increase in annual commitments in the second half of the programme should the mid contract review of performance against agreed MDG-related indicators be positive, while limiting the downside risk should that assessment be more negative. The APT represents about 12% of the total commitment in years 2-3, and 10% in years Budget support modalities The support delivered for this operation will be direct untargeted general budget support following the MDG Contract approach Procurement and grants award procedures Not applicable (no complementary support proposed under this agreement) Performance monitoring and criteria for disbursement Description of performance monitoring arrangements Performance monitoring will be undertaken as part of the JBSF, with the annual assessment of the JAF scheduled to take place each November, on the basis of which a decision regarding eligibility and the level of the APT will be made and confirmed to GoU by the following February, with disbursement (subject to there being no material changes in factors concerning eligibility) made in July at the start of the Ugandan fiscal year. The mid-contract review is scheduled to take place in November 2010 to determine the level of the MDG-based tranche in years 4-6 (2011/ /14). General conditions for disbursement of all tranches The disbursements of all tranches shall be subject to a positive assessment of the standard GBS eligibility criteria (National Development Strategy implementation, Macroeconomic stability, PFM), elements which are covered in Part I (pre-conditions) of the JAF. Areas in which specific conditions for disbursement of individual tranches will be defined. Specific conditions governing the APT will be drawn from Part II of the JAF and focus on performance in the PFM area. The MDG-based tranche will be based on outcome indicators in the health and education sectors drawn from Part III of the JAF Evaluation Evaluation will be undertaken in the context of joint assessments with budget support partners, and will be funded out of the Technical Cooperation Facility. An initial assessment of this MDG-C design will be undertaken in the third year to inform the mid contract review decision Communication and visibility Communication and visibility activities will, in principle be undertaken jointly by the Government and the Joint Budget Support Donors. Such activities may include the issuance of joint press releases, debates with civil society, parliament and the press. EN 10 EN

7 ANNEX 2 4. IDENTIFICATION Title EPA Related Support Programme Total cost 5,000,000 Aid method / Project approach Partially decentralized management Management mode DAC-code Sector Trade Policy & Administration Management 2. RATIONALE 2.1 Sector context The need to enable Uganda to develop sufficient capacity to exploit trade opportunities forms the basis of the proposed support programme. The Poverty Eradication Action Plan (PEAP) which provides Uganda's development planning framework for project interventions is due to expire mid The consecutive plan, the National Development Plan (NDP), is under preparation. The proposed outline highlights Government's increased attention to growth, competitiveness, private sector development and trade. The NDP is to be the basis for rolling five-year sector development plans. The recently developed National Trade Sector Development Plan (NTSDP) has anticipated this approach and is the first of its kind for the trade sector. The activities to be funded through this programme are directly derived from the above NTSDP. They are also consistent with the Integrated Framework's DTIS Action Matrix (2006) for Uganda, which was validated and approved by the Cabinet as a framework for promoting Uganda's integration into the multilateral trading system. Equally, the identified interventions are in line with the Competitiveness and Investment Climate Strategy for Uganda, and directly contribute to the attainment of Output 3, i.e. improved competitiveness in the global market. The support is to be seen in the context of the Economic Partnership Agreements. Uganda has played a critical role in assuring that an interim EPA was initialled in Kampala on 27 November The negotiations towards a full EPA with the EAC were resumed in March The successful implementation of the EPA will be dependent on complementary development support. The intervention logic is therefore to first further support capacity development of the Ministry of Tourism Trade and Industry (MTTI) together with its affiliated institutions like the Uganda National Bureau of Standards (UNBS), through institutional and regulatory reform, and strengthening as well as the provision of support towards policy developments and implementation. Given the predominance of animal and agricultural produce for the export market, the issue of quality and sanitary and phyto-sanitary standards continues to be a major impediment. A complementary project (to be submitted for approval AAP 2009) will also address these constraints through targeted support at enterprise and intermediary level. EN 11 EN

8 2.2 Lessons learnt The intervention strategy builds on extensive experience that the EC has gained for the past five years through the implementation of the Uganda Programme for Trade Opportunities and Policies (UPTOP) in the area of trade policy development, the assistance to the Competitiveness and Investment Climate Strategy Secretariat (CICS), some supports to strengthen the Private Sector Foundation Uganda (PSFU) in relation to UPTOP and CICS, the support scheme for Business Development Services (BUDS) and the support for tourism development namely the Uganda Sustainable Tourism Development Programme (UGSTDP). Several lessons have been learnt from reviews, assessments, ROM and evaluations of the above supports. These lessons learnt can summarise in two categories: (i) issues relating to the programmes content (e.g. ownership and on policy consistency, proper sequencing of activities, clear M&E framework in place); and (ii) issues relating to the implementation arrangements (e.g. management structure needs to be fully integrated within the recipient institutions, avoid the creation of new management structures, need to interact at both policy and industry levels for the best results the support to private sector will be implemented a separate project). 2.3 Complementary actions At EC level: In the European Consensus, the EU Africa strategy and other key policy documents, the EU has committed strong support for a rapid, ambitious and pro-poor completion of the Doha Development Round and EU-ACP Economic Partnership Agreements (EPAs). In this context, additional assistance is foreseen to assist developing countries building its trade capacity. It is further anticipated that the proposed support will be complemented with activities at all- ACP and regional level. In particular, BizClim and TradeCom (at policy level) and ProInvest and CDE (at industry level). Our proposed support should only intervene when comparative advantage has been identified. With reference to the 10 th EDF in general, the two focal areas (Infrastructure and Rural Development) go hand-in-hand with a support to Trade and PSD. Finally, the proposed institutional and capacity development support is also critical for the successful implementation of the General Budget Support and specifically the emphasis on competitiveness and growth. Government of Uganda level: The intervention largely builds on the DTIS recommendations, the recently adopted trade policy and the resulting National Trade Sector Development Plan (NTSDP) which it aims to partially implement. Government of Uganda and development partners will implement other components of the plan. 2.4 Donor coordination EN 12 EN

9 In terms of coordination, harmonisation and alignment, the intervention has been designed in close consultation with the GoU and other development partners (DPs) active in Trade related assistance and Private Sector Development. In the context of the Division of Labour exercise and following consultations within the Private Sector Development Partners Group, it was agreed that EC will lead the Trade support agenda due to its comparative advantage in the area. The intervention logic and the planned activities under the proposed programme are consonant with the Uganda Joint Assistance Strategy (UJAS) principles, the ongoing agreements with other Development Partners, and in particular with the premise to build on comparative advantage. 3. Description 3.1 Objectives The overall objective of the intervention is to assist the country to develop sufficient capacity to exploit the trade opportunities available under the EPA and the different regional trade agreements. The specific objective of this intervention is to bolster the capacity of MTTI to spearhead the development of the country s trade sector, and the creation of an enabling business environment for private sector development. 3.2 Expected results and main activities Component 1: Institutional Strengthening of MTTI. Expected results are to increase knowledge and capacities in trade policy, strategic management, PSD, trade promotion, quality and standards at MTTI. Activities include: Training needs assessment and training for staff in the Departments responsible for Trade and other affiliated public agencies; develop system for prioritized budget preparation including consultations among trade agencies under MTTI. Component 2: Improvement of the Regulatory Environment. Expected results are to update/strengthen the regulatory environment; improve the coordination and implementation of policies; as well as enhanced service delivery and increased compliance to regulations. Activities include: policy & related bills review; broad stakeholder consultation; draft relevant amendments & new bills, and facilitate passing of these; monitor best practices & adopt these where necessary. Component 3: Management of the Trade Negotiations Process. Expected results are to improve national participation in regional and international negotiations; improved dialogue and stakeholder participation in negotiation processes. Activities include: Preparation of position papers and response strategies; Initiate regular dialogue on negotiation positions and processes with academia, CSOs, private sector and politicians and within government. Component 4: Trade Information. Expected results are to increase access to market information by target beneficiaries; increase awareness and access to information; increase compliance to trade regulations. Activities include: Review of current export procedures and EN 13 EN

10 document gaps; train business community on export procedures and the relevant agencies; review current market information delivery and support implementation of necessary reforms. Component 5: Improvement of Quality Standards and Compliance with SPS Requirements. Expected results are to revise laws on standards, and development of standards and SPS Policy, Better implementation of policy and enforcement of standards and SPS measures. Activities include: Review laws on standards, formulate a national standards Policy and prepare the SPS Policy through consultative processes; design inter-institutional mechanism for policy coordination & implementation; design and implement a communication strategy to promote standards and compliance. 3.3 Risks and assumptions 1) EPA negotiations are concluded successfully and on time. 2) Public/ private sector consultation and partnerships continue to be strengthened. 3) MTTI comprehensively implements the Functional Analysis report recommendations and additional support is generated for the implementation of the DTIS action matrix, 4) Mainstreaming of trade in national development programmes and policies continues. 5) The Government continues to embrace the export-led growth strategy and includes the competitiveness agenda in the development priorities. 6) The project can identify strong task managers for Project Components, and the leadership of MTTI remains committed to the implementation of the programme. 7) The intervention is not undermined by competing interventions by other government bodies 3.4 Crosscutting Issues The project activities shall promote the integration of good governance, gender equity and environmental sustainability. The programme monitoring and evaluation system shall explicitly include these crosscutting issues. 3.5 Stakeholders The main stakeholder is MTTI and its affiliated institutions. The second category of stakeholders is agro-businesses, their associations and private sector apex bodies. The beneficiaries of the interventions are categorized into primary and secondary. Primary beneficiaries are those who will directly participate in the programme (e;g. MTTI and affiliated agencies), while secondary beneficiaries will be associated with any of the components of the programme (Ministry of Agriculture, Ministry of Justice, etc). EN 14 EN

11 4. IMPLEMENTATION ISSUES 4.1 Implementation method The implementation method selected is partially decentralised Management through the signature of a financing agreement with Uganda. Programme Estimates Direct Decentralised Operations The Commission controls ex ante all the procurement contracts except for procurement contracts under Programme Estimates where the Commission controls ex ante procurement contracts > EUR and ex post for procurement contracts EUR. All grant contracts whether under Programme Estimates or not, are subject to ex ante controls.. Through the Programme estimates, payments are decentralised for operating costs and contracts up to the ceilings indicated in the table below. The Authorising Officer ensures that, by using the model of financing agreement for decentralised management, the segregation of duties between the authorising officer and the accounting officer or of the equivalent functions within the delegated entity will be effective, so that the decentralisation of the payments can be carried out for contracts up to the ceilings specified below. Works Supplies Services Grants < EUR EUR (EDF) < EUR EUR The contracting authority for the project shall be the relevant representative of Uganda s National Authorising Officer. The project supervisor shall be the Ministry of Tourism, Trade & Industry (MTTI) and implementation will be by the respective departments of MTTI. A steering committee shall be set up to oversee and validate the overall direction and policy of the programme. An imprest administrator and an imprest accounting officer shall be assigned to the management and implementation of the project. A Technical Assistance Team (TAT) will assist the MTTI in the implementation of the programme. It will include two long term experts for 36 months each. This will be accompanied by 10 months of unspecified short-term technical assistance each for three areas namely strengthening institutional capacity MTTI, improvement of regulatory environment and management of trade negotiations, as well as 5 and 4 months of unspecified short-term technical assistance for the trade information and standards areas respectively. The programme implementation has been discussed and agreed together with the NAO, MTTI and EC. Below is a summary of the programme implementation arrangement: The programme components will be managed by the Programme Manager, a senor officer of MTTI. He/she will report to the permanent secretary of MTTI and the Steering Committee of the programme; offer overall leadership and day to day management of the programme; EN 15 EN

12 coordinate and manager the PE preparation process; supervise project component managers; and manage communication between the project with NAO and EC Delegation in Uganda. The programme components activities will be implemented by the Component Managers, officers of MTTI. They will prepare inputs to the draft PEs and implement the activities of their assigned component. The TAT will provide long-term technical assistance with two experts; one with general economics knowledge and expertise in International trade, while the second with expertise in International trade law. These TA will be based within MTTI and assist the Programme Manager with the preparation of PEs, work plans and monitor that deadlines are being respected. They will also offer technical backstopping/quality assurance of all technical expertise (short and long-term) to the project; and manage, in conjunction with MTTI, the recruitment of short-term technical experts as and when demanded by the project supervising authority. The TAT will not manage any funds other than those for the experts themselves. 4.2 Procurement and grant award procedures 1) Contracts All contracts implementing the action must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question. Participation in the award of contracts for the present action shall be open to all natural and legal persons covered by 10 th EDF. Further extensions of this participation to other natural or legal persons by the concerned authorising officer shall be subject to the conditions provided for in article 20 of Annex IV of the Cotonou Agreement. 2) Specific rules of grants The essential selection and award criteria for the award of grants are laid down in the Practical Guide to contract procedures for EC external actions. They are established in accordance with the principles set out in 'Grants' of the Financial Regulation applicable to the 10th European Development Fund. When derogations to these principles are applied, they shall be justified, in particular in the following cases: - Financing in full (derogation to the principle of co-financing): the maximum possible rate of co-financing for grants is 80%. Full financing may only be applied in the cases provided for in Article 253 of the Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of the Financial Regulation applicable to the general budget of the European Communities and in Article 109 of the Council Regulation on the Financial Regulation applicable to the 10th European Development Fund. - derogation to the principle of non-retroactivity: a grant may be awarded for an action which has already begun only if the applicant can demonstrate the need to start the action before the grant is awarded, in accordance with Article 108 of the Financial Regulation applicable to the 10th EDF. EN 16 EN

13 3) Specific rules on Programme estimate - Direct Decentralised Operations - Direct Decentralised Operations All Programme estimate - Direct Decentralised Operations - Direct Decentralised Operations must respect the procedures and standard documents laid down by the Commission, in force at the time of the adoption of the Programme estimate - Direct Decentralised Operations - Direct Decentralised Operations in question. 4.3 Budget and calendar Budget Item Amount in Euros strengthening institutional capacity MTTI 520,000 improvement of regulatory environment 240,000 Management of trade negotiations 480,000 Trade information 150,000 Quality standards 720,000 Technical Assistance (Service Contract) 1,860,000 Communication/Visibility 240,000 Operating costs 505,600 Others Contingencies 104,400 Midterm Review and Final Evaluation 130,000 Audit 50,000 TOTAL 5,000,000 Foreseen operational duration is 48 months as from signature of Financing Agreement 4.4 Performance monitoring The monitoring and evaluation methodology will be developed during the formulation phase in line with the National Trade Development Plan from which the intervention is derived. The mix of quantitative and qualitative indicators will be identified. EN 17 EN

14 4.5 Evaluation and audit A Mid-Term Review and Final Evaluation will be conducted following standard methodologies by independent consultants recruited directly by the Commission in accordance with EC rules and procedures on specifically established terms of reference. Financial audits will be conducted at the end of each PE. 4.6 Communication and visibility Budget provision has been made for communication and visibility to raise awareness of the Programme activities to key stakeholders, direct and indirect beneficiaries. Activities will include launch of events, press releases, brochures, newsletters. These activities will follow the Visibility Guidelines for External Assistance. ANNEX 3 1. IDENTIFICATION Title/Number Ugandan Road Sector Policy Support Programme (SPSP) Capacity Development Component (CDC) Total cost Aid method / Method of implementation EUR 10,000,000 EC contribution Project approach partially decentralised management DAC-code Sector Transport Policy & Administrative Management 2. RATIONALE 2.1. Sector context As an inland country road transportation is extremely important in Uganda. It also offers regional connectivity to the Great Lakes region and provides a transport corridor to South Sudan. Poor road infrastructure is a major constraint to economic growth and access to social services. The deteriorating road network is largely due to inadequate maintenance caused by insufficient funding and poor management of available funds. High accident rates and poorly enforced traffic regulations constitute an additional constraint. In response and in the framework of the Road Sector Development Programme (RSDP), the GoU initiated institutional reforms in the road sector, which mainly include: i) establishing the Uganda National Roads Authority (UNRA); ii) establishing a Road Fund and iii) reforming the Ministry of Works and Transport (MoWT). EN 18 EN

15 UNRA will become a results-focused implementation authority, held to account through performance contracts. The Road Fund will protect and manage resources for road maintenance, and the MoWT will oversee the sector and will have responsibility for policy, regulatory functions and setting of standards. The road construction industry is less well developed in Uganda than elsewhere in the region. Capacity constraints in the industry contribute to high unit costs and limited performance in terms of output. The industry needs to improve its capacity to cope with the envisaged increased workload induced by the sector reform processes Lessons learnt Past and ongoing EDF support to the road transport sector focuses on rehabilitating key road links, some road maintenance support, as well as providing institutional support. The general lesson learnt is that in order to protect the heavy investments in roads, a change in the management of the road network is necessary. More efficient institutions and reliable funding for maintenance are needed. In light of the ongoing institutional reform in the road sector, increased institutional support is required to establish and improve efficiency of the concerned institutions, both in the public and private sector. This reflects the experience gained through institutional support to the Road Agency Formation Unit (RAFU), confirmed by Mid Term Review of TA to RAFU (2006) and the ROM exercise (2007). Comprehensive need for institutional support was highlighted in the Identification Study: Support for Uganda Road Sector Reform & Strengthening (2007) and the recently concluded formulation study for the Uganda Road Sector Policy Support Programme (2008) Complementary actions The most significant complementary action is the far reaching road sector institutional reform implemented by the GoU. This proposed Capacity Development Component (CDC) is in direct support of these GoU reforms and is of utmost importance to level the path for the envisaged Sector Budget Support under the overarching Ugandan Road Sector Policy Support Programme (SPSP). EDF support will be complemented by institutional support provided by primarily the World Bank as well as some by Danida. The development partners and GoU have agreed to a division of labour by institution e.g. EC supports the Road Agency while the World Bank supports the MoWT. This division of labour followed an analysis of the comparative advantage of the respective donors. The institutional support offered by development partners is complemented by funding of improvements to the road infrastructure. The EC has committed a total of 216 million under the 8th and 9th EDF to three large road rehabilitation/construction projects. Under the 10 th EDF, these results will be consolidated through interventions in the following strategic areas: 1) Ugandan Road Sector Policy Support Programme (SPSP): Component 1: Capacity development to the sector under this Action Fiche ( 10 million) in preparation of Component 2; Component 2: Support to Road Maintenance through Sector Budget Support (SBS) ( 40 million, once the necessary conditions are in place); 2) Rehabilitation of sections of Northern Corridor Route ( 122 million, project modalities). EN 19 EN

16 2.4. Donor coordination Government led donor coordination takes place in the context of the Road Sector Development Programme (RSDP). More specifically, the RSDP is monitored and coordinated by the RSDP Steering Committee comprising Government officials and donor representatives. However, the work of this group will be taken over by the Transport Sector Working Group under the chairmanship of the PS MoWT. The working modalities and composition of this group and how it should relate to other main fora for coordination are likely to be reviewed once the reforms are complete. Further coordination takes place in the context of the Annual Joint Transport Sector Review Meetings first held in These facilitate the monitoring of targets agreed between the Government, the development partners, and other stakeholders in an open process of dialogue and consultation. The donors active in the sector - EC, World Bank, ADB, DANIDA and Japan - are committed to implementing the Rome and Paris Declarations in terms of harmonisation & aid effectiveness and meet regularly in the framework of the Uganda Transport Sector Development Partner s Group. The EC currently chairs this group. 3. DESCRIPTION 3.1. Objectives The overall objective is to improve road sector management to promote economic and social development and facilitate international and transit trade, thereby promoting regional integration. This also entails building infrastructure that reduces the cost of doing business and linking isolated areas of the country to the broader economy. A side effect is that road works generate additional employment opportunities and income, which in turn alleviates poverty. In this context, EC will support the transport sector through a Road Sector Policy Support Programme. Under this Action Fiche, the CDC of the SPSP will support the GoU to improve the management of the road network in a safe and sustainable manner. More specifically, the objective is to increase the institutional capacity in UNRA and Road Fund as well as strengthen the private sector to cope with an increased workload to efficiently make use of funds provided through SBS (second Component under SPSP) Expected results and main activities The expected result of the CDC is the improved management of the road sector, more specifically: Project 1: Increased capacity, including management systems and expertise, in UNRA. This will be achieved by the following support-activities: IT-systems for human resource/financial management, network planning, contract management & quality assurance; training needs assessments & training programmes, on-the-job training of staff; roads condition surveys/traffic counts & inventories; streamlining cross cutting issues including road safety; annual works programmes; data EN 20 EN

17 collection & analysis, monitoring and reporting; review of study reports, materials, design & engineering reports; Project 2: Increased capacity for the management of road maintenance funds in the Road Fund. This will be achieved by the following support-activities: Recruitment, human resource management, systems development & operational processes; financial systems containing necessary checks & balances; streamlining cross cutting issues; annual works programmes; data collection & analysis, monitoring & reporting on key performance indicators for planning, budgeting and the management of road maintenance funds; Project 3: Increased capacity in the local road construction industry for road design, site supervision and works execution. This will be achieved by the following support-activities: Training consultants in study, design, management & supervision; training contractors in contract & business management; technical skills, vocational training; strengthening of consultants and contractor associations; standards for consultant and contractors registration with national bodies Risks and assumptions The main risk to this programme is a radical change in policy regarding the institutional reform process. Further risks include delays in establishing the Road Fund. At operational level, the risks include inadequate staffing levels in the beneficiary institutions which risk drawing the long term TA into operational tasks. This would undermine the capacity development efforts. The main mitigation measures include continued policy dialogue at the highest levels as well as a flexibly designed CDC to cater for changed conditions. Furthermore, the use of long term TA will be kept at a minimum and they will be assigned counterpart staff in the respective institutions responsible for operational tasks Crosscutting Issues The MoWT, with support from DANIDA, has developed sector specific policy statements and guidelines for mainstreaming cross cutting issues including modalities for implementation. Issues that have been covered include environmental protection, gender equality, HIV/AIDS and occupational health and safety (OHS). The CDC will support the drafting of Road Fund and UNRA policies that mainstream crosscutting issues in their corporate structure and introducing general works specifications which will oblige service providers to comply with the same policies. Emphasis will also be placed on raising awareness of crosscutting issues in the private sector, particularly consultants and contractors Stakeholders The principal stakeholders in the sector are: Road users (transport operators, private vehicle operators, cyclists and pedestrians); Government Ministries and agencies responsible for the management of the road network (MoFPED, MoWT, UNRA, Road Fund and local authorities); EN 21 EN