Argentina - Public Sector Strengthening Program - APL 1

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The World Bank FOR OFFICIAL USE ONLY

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Report No: 57773-AR

PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$30 MILLION

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TO THE ARGENTINE PROVINCE OF LA RIOJA WITH THE GUARANTEE OF THE ARGENTINE REPUBLIC FOR THE PUBLIC SECTOR STRENGTHENING PROGRAM - APL 1

Public Disclosure Authorized

January 20, 2011

Poverty Reduction and Economic Management Unit Country Management Unit for Argentina, Paraguay and Uruguay Latin America and the Caribbean Region

This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.

CURRENCY EQUIVALENTS (Exchange Rate Effective January 19, 2011) Currency Unit = AR$ 3.98 AR$ = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS APL BNA CPS DA DFA DGIP DLI EEP ESMF EMP FM FAO GDP GRP IBRD ICU IDA IFR IPDP IPPF LCR M&E MoF NPV ORAF PCU PDO PFMA

Adaptable Program Loan National Bank of Argentina (Banco de la Nacion Argentina) Country Partnership Strategy Designated Account Directorate of Financial Administration General Office of Provincial Taxes (Dirección General de Ingresos Provinciales) Disbursement-Linked Indicator Eligible Expenditure Program Environmental and Social Management Framework Environmental Management Plan Financial Management General Accounting Office Gross Domestic Product Gross Regional Product International Bank of Reconstruction and Development Internal Control Unit International Development Association Interim Financial Reports Integral Provincial Development Plan Indigenous Peoples Planning Framework Latin America & the Caribbean Region Monitoring & Evaluation Ministry of Finance Net Present Value Operational Risk Assessment Framework Project Coordination Unit Project Development Objective Public Financial Management Assessment ii

PGoLR Provincial Government of La Rioja PROINDER Small Farmer Development Project (Proyecto de Desarrollo de Peque単os Productores Agropecuarios) PROSAP Provincial Agricultural Service Program Sectoral Environmental Assessment SEA SIPAF Integrated Financial Information System SOE Statement of Expenditure Sector-Wide Approach SWAp TA Technical Assistance TORs Terms of Reference WUA Water User Association WRM Water Resource Management

Vice President: Country Director: Sector Director: Sector Manager: Task Team Leaders:

iii

Pamela Cox Penelope J. Brook Marcelo Giugale Veronica Lombardi Zavala Alexandre Arrobbio and Norbert Fiess

Table of Contents I.

Strategic Context ...............................................................................................................1 A.

Country Context ............................................................................................................1

B.

Sector and Institutional Context .....................................................................................1

C.

Higher Level Objectives to which the Project Contributes...............................................3 Project Development Objectives ........................................................................................3

II. A.

Program and Project Development Objectives ................................................................3

1.

Project Beneficiaries ......................................................................................................3

2.

PDO Level Results Indicators ........................................................................................4

III.

Project Description ........................................................................................................4

A.

Project Components .......................................................................................................4

B.

Project Financing ...........................................................................................................8

1.

Lending Instrument........................................................................................................8

2.

Project Cost and Financing........................................................................................... 10

C.

Lessons Learned .......................................................................................................... 10

IV.

Implementation............................................................................................................ 10

A.

Institutional and Implementation Arrangements............................................................ 10

B.

Results Monitoring and Evaluation............................................................................... 11

C.

Sustainability ............................................................................................................... 11

D.

Key Risks and Mitigation Measures ............................................................................. 12

V.

Appraisal Summary ......................................................................................................... 12 A.

Economic and Financial Analysis................................................................................. 12

B.

Financial Management ................................................................................................. 14

C.

Procurement ................................................................................................................ 14

D.

Social .......................................................................................................................... 15

E.

Environment ................................................................................................................ 15

Annex 1: Results Framework and Monitoring .......................................................................... 16 Annex 2: Detailed Project Description ..................................................................................... 19 Annex 3: Implementation Arrangements .................................................................................. 25 Annex 4: Operational Risk Assessment Framework (ORAF).................................................... 39 Annex 5: Implementation Support Plan ................................................................................... 41 Annex 6: Team Composition ................................................................................................... 44 Annex 7: Economic and Financial Analysis ............................................................................. 45

PAD DATA SHEET ARGENTINA PUBLIC SECTOR STRENGTHENING PROGRAM - APL 1 PROJECT APPRAISAL DOCUMENT Latin America and the Caribbean Region PREM - Public Sector Unit Date: January 20, 2011 Country Director: Penelope J. Brook Sector Director: Marcelo Giugale Sector Manager: Veronica Zavala Team Leaders: Alexandre Arrobbio & Norbert Fiess Project ID: P121836 Lending Instrument: APL

Sector(s): Sub-national Government Theme(s): Public Sector, Fiscal Management, Rural Development EA Category: B

Project Financing Data: Proposed terms: The proposed loan is a Flexible Loan with a fixed spread (IFL), payable in 25 years including a 5-year grace period. The repayment schedule is linked to disbursements, level repayment with all conversion options (currency, interest and caps/collars). Front end fee: 0.25% of loan amount to be paid with loan proceeds. [ X ] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other: Source Total Project Cost: Borrower: Total Bank Financing: IBRD New

Total Amount (US$M) US$30million US$30million

Borrower: Argentine Province of La Rioja Responsible Agency: Ministry of Finance of the Province of La Rioja: Contact Person: Mr. Ricardo Guerra, Minister of Finance Telephone/Fax No.: (54-38) 2245-3014 Email: rguerra@larioja.gov.ar Estimated Disbursements (Bank FY/US$ m) FY FY11

FY12

FY13

FY14

FY15

Annual

12.0

6.9

4.9

3.1

3.1

Cumulative

12.0

18.9

23.8

26.9

30.0 (*)

(*) This amount is related to phase 1only.

Project Implementation Period: Five Years Expected effectiveness date: March 1, 2011 v

Expected closing date: February 28, 2016 Does the Project depart from the CAS in content or other significant respects?

○ Yes X No

Does the Project require any exceptions from Bank policies?

Have these been approved/ endorsed (as appropriate by Bank management?

Is approval for any policy exception sought from the Board?

○ Yes X No ○ Yes X No ○ Yes X No

Does the Project meet the Regional criteria for readiness for implementation?

X Yes ○ No

Program and Project Development Objectives: • The Program Development Objective for the Public Sector Strengthening Adaptable Program (APL) is to strengthen the institutions of the public administration of the Province of La Rioja to promote effective and sustainable delivery of essential public services for human and productive development.

• The Project Development Objective of the Public Sector Strengthening APL1 is to increase tax collection and improve expenditure quality, and to pilot improvements in public service delivery in the area of rural water management.

Project Description: Component 1: Implementation of the Eligible Expenditure Programs (US$24 million).

This component disburses to the provincial treasury against three Eligible Expenditure Programs in the areas of (i) Tax Administration, (ii) Expenditure Quality, and (iii) Public Service Delivery in Rural Water Management. Those three Eligible Expenditure Programs form a Public Sector Reform Program aimed at strengthening the institutions and functions of the public administration to ensure effective and sustainable delivery of essential public services.

Component 2: Technical Assistance (US$5.25 million). A. Provide technical assistance in the Project Sectors in order to: (i) support the modernization of the Borrower’s tax administration function and related institutions, (ii) support the improvement of the Borrower’s quality and efficiency of expenditure programs, and (iii) support the development of a strategy to improve management of and access to water resources by dispersed rural population. B. Support overall Project coordination and supervision, and strengthen effectiveness and quality of Project operation.

Front-End Fee: US$0.75 million Safeguard policies triggered?

Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) Financing

Conditions and Legal Covenants: Description of Condition/Covenant vi

x Yes x Yes ○ Yes x Yes x Yes x Yes x Yes x Yes ○ Yes ○ Yes

○ No ○ No x No ○ No ○ No ○ No ○ No ○ No x No x No Date Due

Agreement Reference The Borrower shall create no later than six months after the Effective Date, and maintain thereafter at all times during Project implementation, an inter-governmental committee (the “Steering Committee”) with the objective of overseeing Schedule 2 Project management, provide strategic direction and guidance Section I.A3 to the PCU during Project implementation. Said Steering Committee shall be chaired by the Borrower’s Minister of Finance and shall have the structure, functions and responsibilities set forth in the Operational Manual.

The Borrower shall ensure that the EEPs shall comply with Schedule 2 Section I.A the eligibility criteria and procedures set forth in the Operational Manual.

5 (a) Without limitation to the provisions of paragraph (a) above and Section IV.B of this Schedule, the eligibility criteria for the financing of EEPs with Loan proceeds shall include the following:

During Project implementation

(i)

Schedule 2 Section I.A 5 (b)

Schedule 2 Section I.A 6 (a) –(c)

for EEPs implemented during the twelve months prior to the Signature Date (up to a 20% of the amount of the Loan) and for which the first Loan withdrawal is requested in 2011, the requirement that at least 50% of the amounts allocated for the financing of EEPs (Arg$ 35.1 million, as identified in MOF’s Resolution No. 1030 dated October 6, 2010) has been spent during said period; and for EEPs implemented in calendar years 2011 and (ii) thereafter and for which the first Loan withdrawal is requested in calendar year 2011 or in the subsequent years, the requirement that at least 70% of the amounts allocated for the financing of EEPs as set forth in the table in Schedule 4 of this Agreement, has been spent during the preceding semester. For purposes of this paragraph, the amount corresponding to the second calendar semester of calendar year 2010 shall be Arg$ 24.6 million. (a) Prior to the carrying out of any transfer of Loan proceeds or counterpart funds from the Borrower to any WUA, the Borrower shall ensure that it has entered into an agreement with each WUA (the WUA Agreement), under terms and conditions acceptable to the Bank setting forth, inter alia, the pertinent technical, financial, administrative, safeguard and fiduciary provisions set forth in this Agreement.

Six months after the Effective Date

(c) The Borrower shall: (i) exercise its rights and carry out its obligations under each WUA Agreement in such a vii

During Project implementation

During Project implementation

Schedule 2, Section I.E.1

Schedule 2 Section II.B4

Schedule 2 Section II.B5

Schedule 2, Section V

manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan; and (ii) except as the Bank shall otherwise agree, not assign, amend, abrogate, repeal, terminate, waive or fail to enforce any WUA Agreement or any provision thereof.

The Borrower, through MOF and MOI, shall ensure that the terms of reference for any consultancy in respect of any Project activity under Part 2.A of the Project shall be satisfactory to the Bank following its review thereof and, to that end, such terms of reference shall duly incorporate the requirements of the Bank Safeguards Policies then in force, as applied to the advice conveyed through such technical assistance.

No later than forty five days after the end of each calendar semester (starting with the second calendar semester of 2011), the Borrower shall submit to the Bank, an opinion rendered by the Project independent auditors referred to in Section 5.09 (b) of the General Conditions in form and substance acceptable to the Bank, setting forth whether the EEPs implemented in calendar years 2011 and thereafter have complied: (a) with the spending requirement set forth in paragraph 5 (b) (ii) of Section I.A of this Schedule; and (b) with the eligibility requirements for EEPs set forth in the Operational Manual.

The Borrower, through MOF, shall, prior to the commencement of each calendar year during Project implementation, create, and thereafter maintain throughout each said calendar year of Project implementation, a specific budget line entry in the provincial annual budget (starting in calendar year 2011) in order to keep track of the corresponding expenditures incurred during Project implementation.

The Borrower shall, through the PCU: (i) no later than three months after the Effective Date, hire the independent auditors referred to in Section II. B.3 and B.4 of this Schedule all under terms of reference and with qualifications and experience satisfactory to the Bank.

viii

During Project implementation

Forty five days after the end of each calendar semester (starting with the second calendar semester of 2011).

Recurrent (starting in calendar year 2011).

No later than three months after Effective Date.

I.

Str ategic Context A. Country Context 1.

La Rioja is an arid province with 335,350 inhabitants, rural poverty is relatively high and public sector and agriculture are economically important. La Rioja is located in the Northwestern territory of Argentina and covers 89,680 km 2 of arid to semi arid climate. The province, which contributes about 0.4 percent to the Gross Domestic Product (GDP) of Argentina, has made significant progress in reducing poverty and unemployment since 2003 and is similar to the national average for most socio-economic indicators. Although poverty in urban areas (14.2 percent) is above the national average (13.2 percent), per capita Gross Regional Product represents less than half of the national average, implying a significant degree of rural poverty. The province registered an average real annual growth rate of 7.0 percent during the period 2003-2009, slightly below the national average of 7.4 percent. While business services and public administration account for 48 percent of economic activity, agriculture and agroprocessing are increasingly turning into an important source for growth, exports and employment. In 2010, the provincial budget was US$995.9 million.

2.

Political stability and a solid fiscal position provide the necessary perspective to address development challenges and undertake public sector reforms. The Provincial Government is supported by a solid political majority. Low public debt and prudent fiscal management mark La Rioja as a strong performer in terms of debt sustainability. At present, a stable economic outlook for the national economy further provides a favorable context for the provincial economy.

B. Sector and Institutional Context 3.

Limited local tax revenue and low public sector efficiency are two critical problems of public sector management and key constraints for economic and social development in La Rioja. Additional provincial tax revenue is essential to provide resources for a more inclusive development agenda focused on rural development. To create fiscal space without compromising macroeconomic stability and fiscal sustainability, there is a need for reforms that lead to greater public savings and improved expenditure efficiency through reforms in tax administration, budgeting, procurement, and service delivery.

4.

Tax administration reform could mobilize additional local revenue for an inclusive development agenda. La Rioja generates less than six percent of its total revenue locally, well below the national provincial average of 17 percent. The low tax collection (about 2.8% of provincial GRP, compared to a provincial average of 4%) is largely due to inefficiencies in tax administration. Low property tax collection, which has virtually stagnated since 2006, is largely the result of outdated valuation and problems with the cadastre and property tax register.

Ineffective tax enforcement and low recovery of tax arrears further contributed to a total stock of outstanding tax debt of AR$54 million (about US$13.5 million) in 2009. Broadening the tax base and reforming tax administration are expected to generate a sustainable financial platform for the Government’s key development priorities.

5.

Effective expenditure management is limited by shortcomings in budgeting and public procurement. Although an effective budget process exists and the structure of public administration is comparable to other provinces of similar size, existing rigidities, lack of costeffectiveness, and limited predictability of the current budget process do not allow for effective

1

planning and allocation of resources. This reduces the impact of public services in priority areas such as rural water management. Likewise, improvements in the provincial public procurement system, which contracts up to US$55 million annually, could offer significant fiscal savings.

6.

Public water resource management is critical in an arid region such as La Rioja and presents significant opportunities for improvement. Water management is a key challenge in a province located in the arid Chaco region, characterized by intense dryness conditions and severe desertification. Managing hydrological resources for irrigation is fundamental for the agricultural-related activities and agro-industrial sector, which represents 12 percent of GDP, more than 65 percent of total provincial exports, and a considerable share of provincial employment. Water management is also crucial for basic access to drinking water, particularly in rural areas. However, public service delivery in water management remains weak and intermittent, mainly due to deficiencies in planning, budgeting, and the management of water system and resources. Furthermore, the regulation of irrigation districts is inadequate and technical support to agricultural producers is poorly coordinated. These deficiencies reduce not only the profitability of agricultural enterprises but also hinder the satisfaction of basic human and environmental needs.

7.

To address these challenges, the Provincial Government of La Rioja (PGoLR) has committed to a multi-annual program of public sector reform that will also improve public service delivery. La Rioja’s Integral Provincial Development Plan (IPDP) identifies as a key objective the need to strengthen the institutions of the public administration to ensure effective and sustainable delivery of essential public services for human and productive development. To pursue this objective, the Government is committed to a reform program that creates additional fiscal space by reforming tax administration and improving expenditure quality, and enhances public services delivery in priority areas.

8.

In turn, visible improvements in service delivery are expected to sustain these reform efforts. The political economy of public sector reform indicates that cross-cutting public sector reforms are most sustainable if combined with visible improvements in service delivery; such improvements will generate the necessary political capital to make this possible.

Improvements in service delivery are significantly more tangible than horizontal public sector reforms. This is in particular the case if improvements in service delivery are a clear priority for citizens’ welfare (i.e. efficient water resource management in an arid environment) and easy to comprehend by the general public (i.e. better irrigation and access to drinking water).

9.

Building upon these considerations, the Provincial Government Program links horizontal public sector reform with visible improvements in rural water management.

The program aims to address, in parallel, reforms to tax administration, budgeting and procurement in the ‘back office’ of Government with clearly visible improvements in public service delivery. Given its high and visible impact, public water resource management has been selected as a pilot to improve public service delivery, but reforms will eventually be extended to other public services.1

1

Figure A.2.1 in Annex 2 illustrates how improvements in service delivery are expected to sustain political support for reform.

2

C. Higher Level Objectives to which the Project Contributes 10.

Promoting governance at sub-national level, the program is fully consistent with the objectives of the Bank Country Partnership Strategy (CPS). The proposed program is consistent with the governance pillar of the CPS. 2 The Project will help achieve two specific CPS outcomes: (i) to strengthen the effectiveness, efficiency, transparency and accountability of public sector management, and (ii) to expand performance management and to improve the quality of public expenditure, enhance service delivery and trust in institutions. The CPS makes support to Argentina’s provinces a priority. Within this context, La Rioja’s reform experience is likely to offer important lessons for other provinces. This is particularly true for the procurement reforms, which will be the first of their kind in Argentina. The Project is also consistent with the Bank’s Governance and Anticorruption strategy and generates synergies with the Technical Cooperation for Governance in La Rioja envisaged by the Bank.

II.

Pr oject Development Objectives A. Program and Project Development Objectives 11.

The Program Development Objective for the Public Sector Strengthening Adaptable Program (APL) is to strengthen the institutions of the public administration of the Province of La Rioja to promote effective and sustainable delivery of essential public services for human and productive development. It is aligned with Development Objective 7 of the Provincial Development Plan.

12.

This program is designed in two stages (APL1 & APL2). The first Adaptable Program Loan (APL1) will introduce fundamental improvements in cross-cutting public sector areas (tax, performance oriented budgeting and public procurement) and support public service delivery in the agriculture sector, specifically in water management. Agriculture has been selected as a pilot area of intervention not only because of its importance for sustained and inclusive growth, but also due to the fact that agricultural expenditure programs are traditionally the most volatile and unsustainable in Argentina. The second operation (APL2) would then seek to deepen the public sector reform agenda and to extend it within agriculture as well as to other sectors related to human and productive development. This programmatic approach will effectively introduce these complex cross-cutting changes throughout the provincial public sector.

13.

The Project Development Objective of the APL1 is to increase tax collection and improve expenditure quality, and to pilot improvements in public service delivery in the area of rural water management.

1. Project Beneficiaries 14.

The Project activities benefit the citizens and the Government of La Rioja. The rural population (17 percent) will directly benefit from better access to and management of water resources for both irrigation and potable uses. Citizens will receive a more equitable tax treatment. The provincial Government, in particular the Ministry of Finance, will reap efficiency gains from improved tax collection, budget planning, and procurement management. The Secretariat of Water (within the Ministry of Infrastructure) will benefit from enhanced managerial capacity, coordination and planning.

2

Report No. 48476-AR. The current CPS is for the period 2010 to 2012 and a new CPS is in preparation.

3

2. PDO Level Results Indicators 15.

Achievement of the development objectives will be assessed through the following indicators: (i) Increased local tax revenue; (ii) Increased share of budgeted primary expenditures executed; (iii) Higher share of budgeted Projects which are drawn from the provincial development plan; (iv) Increased proportion of competitive bidding; (v) Increased efficiency in the management of irrigation water supply systems.

Pr oject Descr iption

III.

A. Project Components The Project consists of two complementary components: the Implementation of the 16.

Eligible Expenditure Programs Component and the Technical Assistance Component. The Implementation of the Eligible Expenditure Programs Component (US$24 million) will disburse against Eligible Expenditure Programs (EEPs) in three areas: Tax Administration Improvement; Quality of Expenditure; and Service Delivery in Rural Water Management. This component follows the SWAp modality, and disbursements are linked to the achievement of agreed disbursement-linked indicators (DLI) and the execution of at least 70 percent of the budgeted EEPs expenditures. The TA Component (US$5.25 million) supports the achievement of the Government reform programs in the same three areas; it further assists Project coordination and management. Each Project component is described below.

1: EEP Budget Programs Identified Eligible Expenditure Program Eligible Expenditure Amount (US$ million) CY CY CY CY CY CY EEP Budgets Total 10 11 12 13 14 15 Tax Administration Improvement: Sub Programs (i) Modernization of the Tax Administration System, and (ii) 2.1 2.0 2.0 2.0 2.0 2.0 12.1 Update of the Provincial Cadastre Strengthening and Improving Quality of Expenditure: Sub Programs: (i) coordination of the sectoral activities of the reform process, (ii) strengthening of the resource 4.0 5.1 5.1 5.1 5.1 5.1 29.3 administration system in all Directorate of Financial Administration, (iii) strengthening of the budget system, and (iv) reform of the procurement system Rural Water Resources Management: Sub Programs: (i) Joint activities of Programs 35, 36, and 37, and (ii) 2.7 4.5 4.5 4.5 4.5 4.5 25.0 Maintenance and operation of the hydraulic infrastructure Total 8.8 11.5 11.5 11.5 11.5 11.5 66.4 Disbursements of Loan Component 1 - Government Public Sector Reform Program (EEPs). The 12.0 3 6.0 2.0 2.0 2.0 24.0 disbursement calendar is detailed in Table A.3.6, in Annex 3.

3

The CY disbursement (US$12 millions) includes: US$6 million of retroactive disbursement related to 2010 EEPs and US$6 million related to 2011 EEPs.

4

Table 2: EEPs and DLIs Eligible Expenditure Programs

Disbursement-Linked Indicators (see Annex 1)

Tax Administration Improvement: Sub Programs (i) Modernization of the Tax Administration System, and (ii) Update of the Provincial Cadastre

• The number of land parcels updated and integrated in the urban cadastre has reached the following non-cumulative values by, at the latest, the end of calendar year 2011: 1,500; by, at the latest, the end of calendar year 2012: 2,000; by, at the latest, the end of calendar year 2013: 2,500; by, at the latest, the end of calendar year 2014: 2,500; and by, at the latest, the end of calendar year 2015: 2,500.

Performance Budgeting: • By the Signature Date the Borrower has budgeted the Public Sector Reform Program and adequate related budget programs have been designed for this purpose.

• The share of budgeted projects drawn from the IPDP, as a percentage of capital expenditure, has increased of 20% by, at the latest, the end of calendar year 2013; of 40% by, at the latest, the end of calendar year 2014; of 50% by, at the latest, the end of calendar year 2015.

• The number of staff trained in strategic planning and program budgeting has reached the following non-cumulative values by, at the latest, the end of calendar year 2012: 10; by, at the latest, the end of calendar year 2013: 10; by, at the latest, the end of calendar year 2014: 10; and by, at the latest, the end of calendar year 2015: 10.

• The number of Secretariats with strategic and operative plans updated (all acceptable to the Bank) has reached the following non-cumulative values by, at the latest, the end of calendar year 2012: 2; by, at the latest, the end of calendar year 2013: 2; by, at the latest, the end of calendar year 2014: 2; and by, at the latest, the end of calendar year 2015: 2.

• From calendar year 2013 onwards a programmatic structure and effective physical and financial indicators (all acceptable to the Bank) have been introduced into the Borrower’s budgetary process.

Public Procurement: • Satisfactory procurement audits have been carried out by the Borrower by end 2013, 2014 and 2015 to verify compliance with its new Public Procurement Law and its regulations. The audits shall cover, by the end of calendar year 2013: 25% of provincial central administration cumulated expenditure; by the end of calendar year 2014: 50% of provincial central administration cumulated expenditure; by the end of calendar year 2015: 75% of provincial central administration cumulated expenditure.

• The number of procurement staff trained and accredited has reached the following non-cumulative targets by, at the latest, the end of calendar year 2013: 6; by, at the latest, the end of calendar year 2014: 5; and by, at the latest, the end of calendar year 2015: 5.

Strengthening and Improving Quality of Expenditure: Sub Programs: (i) coordination of the sectoral activities of the reform process, (ii) strengthening of the resource administration system in all Directorate of Financial Administration, (iii) strengthening of the budget system, and (iv) reform of the procurement system

Rural Water Resources Management: Sub Programs: (i) Joint activities of Programs 35, 36, and 37, and (ii) Maintenance and operation of the hydraulic network 4

• The number of existing water users in the Borrower’s territory that pay water fees has increased, non-cumulatively, by at least 20% in at least: 1 WUA by 2011; in 2 WUAs by 2012; by 5 WUAs by 2013; in 5 WUAs by 2014; in 5 WUAs by 2015.

Responsible Agency Ministry of Finance Secretariat of Finance

Ministry of Finance Secretariat of Finance; Financial Directorate of each Ministry

Ministry of Infrastructure - Secretariat of Water

Component 1: Government Public Sector Reform Program (EEPs) – US$24 million 17.

This component supports the implementation of the Eligible Expenditure Programs.

Tax Administration Improvement Program: Ministry of Finance 18.

This program is designed to strengthen the provincial tax administration through increased tax collection. This Government Program covers the following two sub-programs: i) modernization of tax collection system, and ii) updating of the provincial cadastre. Provincial financing for this program amounts to about US$12.1 million for the period 2010-2015, with an annual average allocation of US$2.0 million for the period 2011-2015.

4

Joint activities of Programs 35, 36, 37 include coordination, management, and capacity building related to these three programs.

5

Quality of Expenditure Program: Ministry of Finance & Financial Directorates of Ministries 19.

This program aims to increase the quality and efficiency of public expenditures and focuses on two areas: budgeting and public procurement. This Government Program addresses the need to improve the quality of expenditure to ensure strategic allocation of resources and effective and transparent execution of procurable expenditures. Provincial financing for this program is estimated at about US$29.3 million for the period 2010-2015, with an annual average allocation of US$5.1 million per year for the period 2011-2015. This program supports the implementation of two main reforms: • Introduction of Fundamentals for Performance Oriented Budgeting: strengthening of program budgeting; introduction of performance indicators; linkage between budget and planning; strengthening of line ministries staff capacities in budgeting; and introduction of monitoring & evaluation function. •

Public Procurement Reform: adoption of a legal framework; establishment of a public procurement policy unit; implementation of a public procurement system; and professionalization of public procurement staff.

Rural Water Management Program: Ministry of Infrastructure (Secretariat of Water) 20.

This program aims to improve irrigation management, improve access to drinking water, and design a medium-term environmentally sustainable water strategy. Efficient water management is a key concern in an environment where water is a scarce and vital resource.

Joint water resource management by private users and the public sector has been identified as an important means to achieve economic efficiency while satisfying basic human and environmental needs. Provincial financing for this program is estimated at about US$25 million for the period 2010-2015, with an annual average allocation of US$4.5 million per year for the period 2011-2015. This government program has been selected as a pilot area of intervention as improvements in water resource management are perceived as highly relevant and visible, and hence are aligned with political economy considerations that show that public sector reform is most sustainable if accompanied by visible improvements in service delivery.

21.

Water User Associations (WUAs) are responsible for the management of irrigation districts and the maintenance of the water systems, but their capacity and compliance with irrigation regulation is low. La Rioja has about 50 WUAs and most of them, under the supervision and guidance of the Secretariat of Water, are involved in irrigation management.

Low capacity and low compliance with irrigation regulation contribute to inefficient and unsustainable water resource use.

22.

The Government program aims to strengthen WUAs through the process of consolidation, which is expected to promote sustainable water resource management.

Consolidation consists of a series of processes and targets that WUA are expected to meet: (i) the requirement that the WUAs has a regulatory status and complies with it; (ii) the monitoring of water usage and availability; (iii) the supervision of the water distribution; and (iv) the determination and collection of fees from water users. This is expected to increase the water fee collection from 50% to 95% of users and to reduce the time elapsed between irrigation turns by 50% (from a current average of 30 days to 15 days); this in turn is expected to make the overall system more efficient, improve equity in access to irrigation water, and increase the volume of production. The Secretariat of Water assists the consolidation process through technical assistance and capacity building.

6

The rural water management program further aims to improve access to drinking 23. water in remote rural areas. The program includes the following activities: the expansion of water supply systems and distribution networks; 5 the transfer of the responsibility of system maintenance to WUA; and the training of WUA in the maintenance of water supply systems and distribution networks.

24.

The program also conducts a Sector Environment Assessment (SEA). The SEA will inform provincial public policy, the private sector and civil society on sustainable long term water resource planning and management for production and human activities.

25.

The expenditures for all three above Government programs, which are eligible for the purpose of APL1, consist of recurrent expenditures. They include: salaries, recurrent services, and transfers which do not require procurement or where the existing procurement process is acceptable to the Bank. In particular the eligible expenditure of the Water Management EEP does not finance any infrastructure. Table A.3.8 in Annex 3 indicates the eligible expenditure per program and category.

Component 2: Technical Assistance US$5.25 million 26.

This component supports the preparation and implementation of the Government Expenditure Programs described under Component 1, and contributes to the fulfillment of the disbursement-linked performance indicators. Areas of technical assistance include: 27. A. Provide technical assistance in the Project Sectors in order to: •

Support the modernization of the Borrower’s tax administration function and related institutions through, inter alia, supporting improvements on: (a) the quality of the Borrower’s taxpayer’s registry; (b) organizational changes resulting in reductions in tax arrears and improvements on tax collection; (c) the carrying out of tax audits; (d) the Borrower’s tax enforcement capacities by carrying out of an evaluation of legal and regulatory alternatives thereto; and (e) the Borrower’s capacity to update its urban cadastre through, inter alia, the provision of training, exchange of international experience, and the purchase of GPS equipment, satellite images and IT equipment.

•

Support the improvement of the Borrower’s quality and efficiency of expenditure programs through, inter alia: (a) the introduction of performance-informed budgeting through the strengthening of the Borrower’s program budgeting, the introduction of performance indicators, the creation of linkages between budget and planning, the strengthening of the Borrower’s staff capacities in budgeting, the introduction of monitoring and evaluation functions, the provision of intensive training and assistance in the design of a monitoring and evaluation unit, and the support to the design of pilot sector strategies; and (b) carrying out a reform of the Borrower’s public procurement function through the provision of assistance in the design of legal and regulatory frameworks related to public procurement, the establishment of a procurement policy unit, the implementation of a public procurement system, and the provision of assistance in the training and professionalization of public procurement staff.6

5

This activity is not eligible for Bank financing.

The professionalization of procurement staff is intended to be reached through the implementation of an accreditation system.

6

7

•

Support the development of a strategy to improve management of and access to water resources by dispersed rural population through, inter alia: (a) the preparation of a Sector Environmental Assessment; (b) institutional strengthening of WUAs and rural development secretariats, including strengthening the Provincial Water Institute; (c) improvement of integrated rural water management; (d) preparation of strategic plans for water resource management and strengthening of extension and technical assistance services.

B. Support overall Project coordination and supervision, and strengthen 28. effectiveness and quality of Project operation through: (i) the strengthening of the PCU’s institutional, operational and implementation capacity; (ii) the provision of technical assistance and staff training to the PCU (on financial management, procurement, and monitoring and evaluation of Project activities); (iii) the carrying out of studies on the Project Sectors supported by the Project and related consultancies; (iv) a monitoring and evaluation review; and (v) the carrying out of annual Project external audits.

B. Project Financing 1. Lending Instrument 29.

APL program modality, amount, and duration. The proposed APL will consist of a series of two loans representing a total amount of US$80 million, both 100 percent IBRD funded and fully guaranteed by the Argentine Republic. The APL Program consists of a results-based disbursement approach modeled on similar sub-national SWAp operations in Brazil, and the Argentine Province of San Juan. The APL is scheduled to be implemented between 2011 and 2019.

30.

The APL includes two Phases. The first loan (APL1) is for US$30 million with an implementation period of five years (2011-2016). It will focus on introducing fundamental crosscutting public sector functions and support public service delivery in water management in rural areas. The second loan (APL2) is projected for US$50 million and planned to be implemented between 2014 and 2019. The APL2 will seek to deepen the public sector cross-cutting reforms initiated with APL1 and to extend their impact upon public service delivery within agriculture and other sectors related to human and productive development that will be determined by the PGoLR. 31.

APL Triggers for the second phase aim to secure structural changes in public procurement, performance-oriented budgeting and tax administration. APL triggers ensure that the public sector reform agenda is sufficiently advanced to support further improvements in expenditure management and to guarantee that local resources are available to extend improvements in service delivery to other sectors.

Table 4: Trigger Indicators for Phase 2 Trigger Evidence of satisfactory implementation of public procurement reform Evidence of an effective introduction of performance oriented budget methodology Evidence of sustainable improvement in tax administration

•

Indicator Public Procurement Policy Unit is established.

Public Procurement Training and accreditation system is established.

Programmatic structure and effective physical and financial indicators have been introduced in the budget process and is updated.

At least three Secretariats have updated strategic and operative plan.

•

Tax enforcement powers have been delegated to DGIP.

• • •

8

The design of the APL instrument corresponds to specific client demand. The 32.

Government has asked the Bank for sustained programmatic assistance to increase public sector capacity for service delivery. The APL program with a SWAp modality allows the Bank to: support Government expenditure programs in the selected reform and public service areas; provide direct technical assistance; and allow for a programmatic expansion on the basis of results achieved during this first phase.

33.

The proposed Project design combines three critical and interrelated elements: i) eligible expenditure programs (EEPs) 7 against which loan proceeds will flow to the Provincial Treasury, ii) a set of disbursement rules that provide a performance framework to advance the reform agenda and contribute to the development objectives supported by the operation, and iii) a TA Component to strengthen the sustainability of the operation. The main disbursement arrangements are summarised below and detailed in the Annex 3.

•

Component 1 - Eligible Expenditure Programs. These EEPs comprise sub-programs in the annual provincial budget. The budgeted and actual expenditures under these line items will be reported to the Bank for the PGoLR to receive loan disbursements, provided that the corresponding disbursements rules have been met.8

•

Component 1 - Disbursement rules. The operation relies on a series of disbursement rules that assist in ensuring performance by the Provincial Government. The first disbursement of loan proceeds is retroactive and will be disbursed against EEP expenditures incurred during 12 months before the loan signature, subject to a “50 percent execution rule”. Further disbursements of loan proceeds will be advances made against 6-month projections of EEP expenditures. These disbursements will be transferred to a specific sub-account of the Provincial Treasury. Ensuring disbursements will also require compliance with two criteria: i) a “70 percent disbursement rule”, requiring that the province spends at least 70 percent of the amounts budgeted in the EEPs in a calendar semester, and ii) compliance with annual performance targets agreed with the Ministry of Finance (disbursement-linked indicators DLI), and detailed in Annex 1. The ‘cost’ of each DLI will be weighted equally in terms of disbursement amount. The Interim Financial Reports (IFRs) will evidence the fulfillment of these requirements. Also, a mechanism is foreseen to adjust and/or postpone disbursements (i) if only partial evidence of compliance under the DLIs is received; (ii) if loan proceeds are not approved; and (iii) if the amount spent for the EEPs does not achieve the minimum 70 percent rule. These mechanisms are detailed in the Disbursement Letter and the Loan Agreement. Table A3.6/Annex 3 gives a calendar of disbursements and corresponding DLIs. 9

•

Component 2 - Disbursement rules. Out of the US$5.25 million of the Component 2 (TA), loan proceeds will be disbursed through: (i) direct payments from the Bank to suppliers for the payment of TA contracts (representing US$5.05 million, as spelled out in the procurement plan in Annex 3), and (ii) advance transferred to a Designated Account in Banco de la Nación Argentina, for minor recurrent expenditures (representing US$0.2 million). While full supportive documentation will be required for direct payments, the

7

EEPs are subdivisions of the budget programmatic classification, incorporated into the PFM system (SIPAF) and are related to the project PDOs. 8 Refer to Table A.3.8 Annex 3.

9 Specific disbursement mechanisms are detailed in the Disbursement Letter and the Annex 3.

9

advance to the Designated Account for minor current expenditures will be made on the basis of IFRs. 2. Project Cost and Financing 34.

Allocation and source of financing is described in Table 5 below:

Table 5: Estimated Project Cost and Financing (US$ million) Component IBRD Provincial Government of La Rioja Component 1 – Implementation of the Eligible 24.00 0.00 Expenditure Programs 5.25 Component 2 – Technical Assistance 0.00 Front-End Fee (0.25 percent of the IBRD loan amount) 0.75 0.00 0.00 Total 30.00

Total

24.00 5.25 0.75 30.00

C. Lessons Learned 35.

The design of this operation draws upon and adapts the experiences of previous successful SWAps in LCR and elsewhere in the Bank. (1) By disbursing against EEPs expenditures linked to DLIs, SWAps are especially appropriate to reform-minded clients, such as La Rioja. (2) Successful DLI SWAps have been preceded by sector diagnostics and close client collaboration. This has been done in La Rioja, which has ensured that technical assistance, DLIs, and EEPs are well founded and owned by the client. As the resulting operation takes La Rioja’s needs, priorities and capacity into consideration, implementation is therefore expected to proceed smoothly. (3) In a number of DLI SWAps, TA components have not fully disbursed. In part this resulted from overambitious programs, lack of sector ownership, and short loan duration coupled with delays in procurement. La Rioja’s operation mitigates these risks by keeping the TA Component small with only a few contracts and by ensuring that TA is related to critical relevant activities, fully owned by the client.

36.

Political economy lessons from other public sector reforms show that reforms are sustainable if Governments deliver visible results within a predictable political horizon.

Selecting water management as a pilot for reforms to public sector delivery not only tackles a key developmental priority for La Rioja, but the expected visibility of associated improvements in service delivery are expected to sustain far reaching public sector reform efforts.

IV.

Implementation A. Institutional and Implementation Arrangements

37.

Overall Project management will be the responsibility of the Provincial Ministry of Finance. For this purpose, it will establish a specific Project Coordination Unit (PCU).

38.

Specific responsibilities comprise: (i) being the primary liaison with the Bank; (ii) overseeing technical inputs from all involved Ministries (Finance, Infrastructure) and, as such, consolidating the required documentation on EEPs, DLIs and TA activities to report to the Bank compliance in a timely and comprehensive manner; (iii) ensuring compliance with Bank financial management, procurement regulations and safeguard requirements; (iv) coordinating efforts of participating Ministries; (v) managing the TA Component; (vi) preparing specific TORs for FM and procurement related activities, including the annual audit and procurement

10

reviews, and overseeing their implementation; (vii) consolidating Project financial reports in a timely manner; (viii) reallocating unspent balances; (ix) reconciling amounts advanced by the Bank with those spent under the EEPs; and (x) verifying the timely release of EEP budgeted resources. The Ministry will also ensure that the funds in the Designated Account will be used properly and according to Bank guidelines. The participating Ministries will not directly manage procurement under this project. The Operations Manual specifies implementation arrangements, fiduciary responsibilities, and a detailed description of EEPs and DLIs. 39.

In addition, as executing institutions of the EEPs, the Provincial Ministries of Finance and Infrastructure will have the following responsibilities: (i) implementing sector EEPs and complying with the disbursement-linked indicators; (ii) tracking and reporting on all activities for which the Ministry has assumed responsibility; (iii) collaborating with the PCU on the TA Component by preparing specific TORs for TA activities related to each sector’s EEPs and overseeing their implementation; (iv) taking the lead in all sector activities as required to implement the loan and achieve its objectives; and (v) providing sector expertise as needed to optimize loan impact. The Secretariat of Water is under the responsibility of the Ministry of Infrastructure. In turn, the Ministry of Finance has a dual role: it has the overall responsibility for the Bank-funded operation and it acts as sector implementing institution for tax administration and expenditure management activities of the loan.

40.

An inter-governmental steering committee will be created no later than six months after effectiveness. This committee will oversee Project management, provide strategic direction and guidance to the PCU, ensure exchange of information between participating ministries and the PCU, and identify problems as well as discuss corrective measures. This steering committee will be chaired and led by the Ministry of Finance, which will have final decision upon Project matters.

B. Results Monitoring and Evaluation 41.

The provincial Ministry of Finance will be responsible for M&E. Monitoring instruments consist of progress reports on Project implementation, output and performance indicators, validated by a third party and an external assessment of compliance with DLIs and PDO indicators. The existing M&E system will incorporate improved mechanisms to monitor Project implementation, compliance with the established procurement and financial management procedures, and achievement of Project performance indicators included in Annex 1.

C. Sustainability 42.

Commitment and ownership of the Project has been demonstrated by high-level support and active engagement of both provincial Government and technical staff in Project preparation. The provincial Government views the loan as a means to improve public services and as a vehicle in support of broad economic development. Senior technical staff at the Ministry of Finance, the Ministry of Infrastructure and related agencies considers the loan a useful tool to improve public financial management and service delivery. The interest to engage in a second operation under the APL approach further demonstrates ownership and commitment to a medium-term reform agenda.

43.

The Government views the program as an incubator initiating a series of reforms to be further sustained by own resources. For example, the activities supported by the operation

11

in the area of public procurement reform will establish legal and institutional fundamentals that will allow for autonomous development of efficiency gains and capacity building.

D. Key Risks and Mitigation Measures 44.

The overall Project risk is rated Medium-I, mainly due to limited implementation capacity. Main identified risks are summarized below and detailed in the Annex 4. Identified risks are manageable and mitigation measures are in place.

Table 6: Main Risks and Mitigation Measures Proposed Mitigation Measures

Main Risks Fiduciary risk: (i) lack of an effective and transparent legal and institutional framework for public procurement; (ii) need for clearer definition of responsibilities; and (iii) lack of knowledge of Bank Financial Management rules for investment loans.

Government Capacity to successfully implement APL1: The Provincial Government’s ability to implement APL1 could be affected by the lack of experience in implementing Bank funded operations, the need for clear rules of implementation and adequately trained staff.

Social & Environmental Safeguards: Expected sector activities aimed at improving water access and management may trigger indigenous safeguards and affect Project implementation. Also, drought and thus efficient and sustainable water resources management is a considerable concern for the province.

V.

• At sector level: public procurement is a key reform priority for the Government; and the area is covered by Project’s technical assistance.

• At Project level: each category of expenditure for EEPs has been revised from a Bank procurement point of view; the technical assistance component will be implemented through five main contracts; these contracts will be paid via direct payments; other mitigation measures include regular supervision, annual audits.

• Project design has been adjusted to ensure adequacy with implementation capacities (only two implementing agencies; proposed instrument (APL/SWAp) to ensure the sustainability of the operation.

• Implementation mechanisms have been simplified to mitigate fiduciary and implementation risk.

• Project TA will provide extensive training and coaching to the implementing institutions.

• The Project Operational Manual will include a clear definition of responsibilities.

• An Inter-institutional Committee involving all implementing institutions will ensure monitoring and horizontal coordination.

• Although Project activities are not expected to have any significant negative environmental or social impact, precautions have been already taken to prepare an Environmental Framework and an Indigenous Peoples Plan in consultation with indigenous communities and other stakeholders.

• Carrying out a Sector Environmental Assessment (SEA) for water resources management at the province level to improve related procedures and planning, as well as an adequate impact assessment of all concrete water management measures prior to their implementation.

Appr aisal Summar y A. Economic and Financial Analysis

Economic Analysis 10 45.

The expected economic impact of the Project is positive, although with the exception of the tax administration reform, difficult to quantify. The proposed Project will strengthen public sector performance by improving tax administration and revenue collection; enhancing the quality of public expenditures; and boosting the impact of public service delivery. While increases in tax collection can be projected, improvements in institutional performance do not easily translate into monetary terms. The economic and financial analysis of this Project needs therefore to go beyond quantitative data and rely to a large extent on qualitative analysis.

Furthermore, the transversal nature of reforms to planning, budgeting and procurement and the

10

Annex 7 provides a comprehensive economic analysis of the project.

12

fact that these reforms are implemented alongside other Government initiatives makes it difficult to attribute the expected Project outcomes to a single reform initiative.

46.

After Project implementation, La Rioja will not only benefit from greater fiscal space, but its public administration will also count on results-based management tools, more efficient information systems, a more qualified workforce, greater internal capacity, and potential savings in procurement. In addition to such intermediate outcomes, the Project is also expected to contribute to greater transparency in the allocation of public resource and to an overall improvement of public sector management capacity, which will benefit all areas of economic and social development of the province.

47.

The proposed improvements in tax administration are expected to significantly raise local tax revenue. In net present value terms, the increase in tax collection derived from the overall tax administration reform would be AR$43.8 million in the period 2011-2015 and of AR$62.1 million over the entire 25 year period of loan repayment, equivalent to about 52.4 percent of the principal loan amount of US$30 million. In addition to increasing revenue, these reforms would also enhance the equity of the tax system. In a broader context, taxation mobilizes domestic financial resources for public service delivery and to finance long-term investments in public goods. It is also increasingly recognized that taxation matters for effective state-building, as efficient tax systems enhance public sector accountability and governance.

48.

Greater efficiency of public expenditures is expected to translate into important efficiency gains in service delivery and public sector performance. Technical assistance and training financed by the Project are expected to yield the following outcomes. •

Budget planning. The introduction of performance budgeting and strategic planning tools is expected to improve the allocation process of public resources, strengthen the budget and financial administration area of the Ministry of Finance, and introduce performance and result-based public sector management. • Procurement system. The new procurement system will consolidate and extend coverage to the entire public administration. Significant gains are expected both in terms of enhanced transparency and financial savings resulting from the elimination of duplication, the outsourcing of basic services and the centralization of common purchases. • Water management. More effective irrigation and more extensive supply of drinking water will support rural productivity and development. The impact of the Project will further be reflected in the adoption of environmentally sustainable water resource management, enhanced capacity in relevant agricultural secretariats, and the availability of new and improved management tools.

Fiscal Sustainability Analysis 49.

The fiscal impact of the proposed loan will be relatively small. A loan amount of US$30 million will represent about 4.3 percent of primary expenditure in 2010. The loan will lead to slightly increased debt service over the projection period, but the Province would continue to comply with the requirements set by the Federal Fiscal Responsibility Law under this scenario. Fiscal equilibrium, as defined by the law, would be maintained throughout the projection period. Debt service would remain at less than seven percent, well below the 15 percent ceiling set by Article 21 of the Federal Fiscal Responsibility Law. 50.

Debt sustainability analyses carried out for this operation suggest that La Rioja will preserve fiscal sustainability over the medium-term. A forward looking debt sustainability

13

analysis until 2020 further confirms that fiscal sustainability will be preserved according to the parameters of the Fiscal Sustainability Law. B. Financial Management 51.

A financial management assessment was performed in September 2010. It concluded that the province’s Financial Management (FM) arrangements are satisfactory to the Bank and adequate to support the proposed loan. The Ministry of Finance will undertake the FM functions of the Project comprising budgeting, accounting, financial reporting, internal control, disbursements and external audit arrangements. Given that this is the first operation of this kind in the province, the FM risk has been assessed as Medium-I. Mitigation measures and technical assistance in the area of Public Financial Management will mitigate this risk.

52.

The Bank will approve retroactive financing for payments made up to one year prior to the date of signature of the Loan Agreement. This retroactive financing is limited to up to 20 percent of the loan amount.

53.

FM related covenants include: i) no later than six months after the end of each year, the Borrower shall furnish to the Bank the annual audited financial statements; ii) no later than 45 days after the end of calendar semester, the Borrower shall furnish to the Bank a semi-annual Interim Financial Reports (IFRs); iii) no later than 45 days after the end of calendar semester, the Borrower shall furnish to the Bank semi-annual audit opinion setting forth whether the EEPs implemented in calendar years 2011 and thereafter have complied with the spending requirement rules; iv) prior to the commencement of each calendar year during Project implementation, the borrower shall create, and thereafter maintain throughout each said calendar year of Project implementation, a specific budget line entry in the provincial annual budget to keep track of the corresponding expenditures incurred during Project implementation.

C. Procurement 54.

A procurement assessment of the implementing institutions has been undertaken.

PCU existing procurement capacity is low, as the Province has not implemented any Bank operation. However, it has been involved in several Bank projects that were managed by the Federal Government: i.e., Provincial Agricultural Service Program (PROSAP, P006010) and Small Farmer Development Project (PROINDER, P006041). The legal and institutional framework for procurement and current procurement practices are not consistent with international standards, but will be modernized under the TA Component.

55.

The Project will contain several measures to mitigate the risk associated with the low procurement capacity. An experienced procurement consultant will be contracted by the PCU to provide support under a time-based contract. Also, procurement of Bank funded TA activities will be grouped into five main contracts to ensure a 100% prior review by the Bank, as per the procurement plan.

56.

As for the SWAp Component, EEPs have been selected after careful scrutiny of procurement practices in place. Financing will be limited to salaries and fees, taxes, travel and per-diem, services provided by public utilities, and other minor operational costs. Regulations concerning the expenditure category transfers/subsidies will be revised to ensure consistency with the Procurement Guidelines to allow the inclusion of this new type of transfers among the

14

eligible expenditures in due course. A concurrent supervision audit will be in place to ensure compliance with agreed procedures.

57.

Procurement for the TA Component will be carried out according to World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised in October 2006 and May 2010, and according to “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, revised in October 2006 and May 2010.

D. Social 58.

La Rioja’s indigenous population is estimated between 0.3 and 0.5 percent of the total provincial population, and the OP 4.10 on Indigenous Peoples has been triggered.

Although the Project will likely benefit all stakeholders, to better understand the Project’s impact on the indigenous population, the Government in conjunction with the Bank has (i) conducted a preliminary assessment to determine the presence of indigenous communities, (ii) started to publicly announce the Project in the media, (iii) conducted a public consultation with approximately 40 civil society organizations, in which participants expressed their agreement with the Project, and iv) prepared an Indigenous Peoples Planning Framework (IPPF). A second consultation was carried out in November to address questions on the Environmental and Social Management Framework (ESMF) of the Project. Both consultations have been registered by acts and reflect widespread support. The ESMF was published in the country on December 27, 2010 and disclosed by the Bank on December 21, 2010. While this project does not finance infrastructure, OP 4.12 on Involuntary Resettlement has been triggered and a Resettlement Framework has been included in the ESMF on a precautionary basis in case economic displacement may occur in relation to any activity under Component 1.

E. Environment As the Project mainly supports activities related to capacity building, adverse 59. environmental impacts are expected to be low. The Project is rated as a Category B Project.

Treatment of safeguard policies will focus on the specific non-TA activities to be carried out under the water resources management part of Component 1 (see Annex 3 for details).

60.

An Environmental and Social Management Framework (ESMF) approach will be applied to guide environmental (risk) management: The ESMF includes screening criteria for eligible activities, and each potential activity that may be undertaken will have to comply with applicable national and provincial legislation and procedures as well as the Bank’s safeguard policies. Activities of Category A will not be eligible. The ESMF includes a Sectoral Environmental Assessment (SEA) for water resources management to be conducted for the La Rioja Province under Component 2. The SEA will serve public policies in La Rioja with respect to medium-long term water resource planning and use for production and human activities.

61.

The Secretariat of Water is already involved in implementation of projects supported by the Bank-financed PROSAP program, and thus has institutional capacity compliant with the safeguard requirements of this operation. However, capacity building measures will be provided on a needs basis during Project implementation. The overall responsibility for ensuring compliance with the ESMF will rest with the Ministry of Finance.

15

Annex 1: Results Framework and Monitoring Project Development Objective (PDO): The Project Development Objective of the Public Sector Strengthening Program -APL1 is to increase tax collection and improve expenditure quality, and to pilot improvements in public service delivery in the area of rural water management.

Responsibility Target Values Data Source/ PDO Level Results Indicators* Unit of Measure Baseline Frequency for Data Methodology YR 1 YR 2 YR3 YR 4 YR5 Collection AR$ million (constant prices)

159

162

167

174

179

189

Annual

DGIP monitoring report

PCU

%

79.1%

80%

82%

85%

87%

90%

Annual

Budget reports of MoF

PCU

Higher share of budgeted projects which are drawn from the provincial development plan.

% of capital expenditure

0%

0%

10%

20% DLI

40% DLI

50% DLI

Annual

Budget Report, Approved Law & Development Plan

PCU

4)

Increased proportion of competitive bidding in at least 2 Secretariats.

%

0%

0%

0%

20%

30%

40%

Annual

Monitoring reports of PPU and listing of contracts

PCU

5)

Increased efficiency in the management of irrigation water supply systems

Additional Number of Water Users Associations consolidated

5

1

2

5

5

5

Annual

Reports from Secretaria de Agua

PCU

Frequency

Data Source/ Methodology

Responsibility for Data Collection

1)

Increased local tax revenue

2)

Increased share of budgeted primary expenditures executed.

3)

INTERMEDIATE RESULTS Improvement of Tax Collection

Unit of Measure

Target Values

Baseline YR 1

YR 2

YR3

YR 4

YR5

0

1.500 DLI

2.000 DLI

2.500 DLI

2.500 DLI

2.500 DLI

Annual

DGIP monitoring reports

PCU

Number

0

500

500

500

500

500

Annual

DGIP monitoring reports

PCU

Increase in pending tax arrears cases send to court

Number

0

30

40

50

60

70

Annual

DGIP monitoring reports

PCU

Increase of integral audits for Gross Income Tax

Number

100

150

200

200

200

Annual

DGIP monitoring reports

PCU

Annual

Decree/act proving the transfer

PCU

Number of land parcels updated and integrated in the urban cadastre

Number

Number of tax arrears accounts in excess of AR$5,000 processed for collection

Delegation of tax enforcement powers to DGIP

0

X

16

Strengthening and Improving Expenditure Quality

Unit of Measure

Target Values

Baseline YR 1

YR 2

YR3

YR 4

Frequency

Data Source/ Methodology

Responsibility for Data Collection

Annual

Budget modifications legal documents

PCU

Annual

Budget Law and budget reports from Integrated Financial Management System

PCU

YR5

i) Performance Budgeting The Public Sector Reform Program has been budgeted and budget programs have been designed for this purpose

Budget Modification adopted

Programmatic structure and effective physical and financial indicators have been introduced in the budget process and is updated

Annual set of budget programs and indicators

No Budget Program for Reform

X DLI Retroactive Disbursement X DLI

X DLI

X

Staff trained in strategic planning and program budgeting

Number

0

0

10 DLI

10 DLI

10 DLI

10 DLI

Annual

Reports/documents proving the training

PCU

Number of budget amendments affecting appropriations between budget programs or expenditure categories

Number

380

380

370

295

250

< 250

Annual

Budget reporting documents form MoF

PCU

Number of Secretariats with strategic and operative plan updated

Number

0

0

2 DLI

2 DLI

2 DLI

2 DLI

Annual

Number

0

0

0

3

4

5

Annual

No Legal framework

X

Number of Directorate of Financial Administration preparing reports on program budgeting and monitoring ii) Procurement

Strategic plan and reports, and other documents Strategic plan and reports, and other documents

PCU

PCU

Percentage of provincial central administration expenditure covered in procurement audit that verifies the compliance with the new procurement law and its regulation.

Draft Law submitted to Congress Decrees and Operational documents adopted % of provincial central administration expenditure

Procurement Policy Unit (PPU)/Regulatory Body is established and staffed.

Institution Established

None

X

Annual

Decree establishing unit, staff contracts

PCU

Accreditation System Established

None

X

Annual

Decree establishing unit, staff contracts

PCU

Number of Procurement Staff trained and accredited

Number

0

Number of Government Secretariats that present and monitor an annual procurement plan

Number

0

Adoption of a Legal Public Procurement Framework Adoption of secondary legislation, operational manual and standard bidding documents.

Accreditation system is established.

No regulatory framework

X

No Compliance Audit

25% DLI

0

0

17

50% DLI

75% DLI

Annual

Law document

PCU

Annual

Legal and Regulatory documents

PCU

Annual

Audit reports

PCU

6 DLI

5 DLI

5 DLI

Annual

Documented evidence of training and accreditation

PCU

3

4

5

Annual

Procurement plans and monitoring reports

PCU

Public Policy Support to Productive Sectors

Unit of Measure

Baseline

Procurement Efficiency Study (â&#x20AC;&#x2DC;Quick Gainsâ&#x20AC;&#x2122;)

Study Carried Out

None

Procurement System implemented

None

Target Values YR 1

Procurement Information System is established and statistical data on procurement outcomes and methodologies used by institutions available

YR 2

YR3

Frequency YR 4

YR5

X

Annual

Study Report Documents/reports providing evidence

Annual

X

Data Source/ Methodology

Responsibility for Data Collection PCU PCU

Water Management 0

1.000

1.000

1.000

1.000

Annual

Documents/reports providing evidence

PCU

None

0

2

3

5

5

Annual

Order/Decree

PCU

Additional Number of Water Users Associations

0

1 DLI

2 DLI

5 DLI

5 DLI

5 DLI

Annual

Reports from Secretaria de Agua

PCU

Additional Number of Water Users Associations

0

1

2

3

3

3

Annual

Reports from Secretaria de Agua

PCU

Number of households served

0

150

150

150

150

150

Annual

Reports from Secretaria de Agua

PCU

Assessment Carried Out

None

Annual

Assessment Report

PCU

Number of farmers trained on management on techniques related to access to water

Number

Water User Associations compliant with irrigation regulation.

Number

Number of additional WUAs that have increased their number of fee paying users by at least 20%.

Increase in number of Water User Associations that reduced the time elapsed between irrigation turns by 50% (from a current average of 30 days to 15 days) Additional number of households in remote areas with access to a drinking water system Sector Environment Assessment (SEA)

None

X

18

Annex 2: Detailed Project Description Political Economy of Public Sector Reform and Project Rationale 1.

The political economy of public sector reform indicates that cross-cutting public sector reforms are most sustainable if combined with visible improvements in service delivery; such improvements will generate the necessary political capital to make this possible. Improvements in service delivery are significantly more tangible than horizontal public sector reforms. This is in particular the case if improvements in service delivery are a clear priority for citizens (i.e. efficient water resource management in an arid environment) and easy to comprehend by the general public (i.e. better irrigation and access to drinking water).

2.

Building upon these considerations, the Provincial Government Program links horizontal public sector reform with visible improvements in rural water management. The program aims to address in parallel reforms to tax administration, budgeting and procurement in the â&#x20AC;&#x2DC;back officeâ&#x20AC;&#x2122; of Government with clearly visible improvements in public service delivery. Given its high and visible impact, public water resource management has been selected as a pilot to improve public service delivery, but reforms will eventually be extended to other public services.

The Figure 2.1 below illustrates how improvements in service delivery are expected to sustain political support for reform.

Figure 2.1: Sustaining political support for Public Sector reform through improving service delivery

Inputs

CORE PUBLIC SECTOR REFORMS

SECTOR SPECIFIC REFORMS

Intermediate Processes

Outputs

Objective Outcomes

Tax Administration

Updated Property Values & Increased Tax Collection

Tax Fairness

Budget Planning

Allocation of Expenditure based on Policy Priorities

Procurement Reform

Higher Proportion of Competitive Biddings

Water Management

Improved Water Provision

Better Water Access and Sustainability

Project Description 3.

The Project consists of two complementary components: the Implementation of the Eligible Expenditure Programs Component and the Technical Assistance Component. The Implementation of the Eligible Expenditure Programs Component (US$24 million) will disburse 19

against Eligible Expenditure Programs (EEPs) in three areas: Tax Administration Improvement; Quality of Expenditure; and Service Delivery in Rural Water Management. This component follows the SWAp modality, and disbursements are linked to the achievement of agreed disbursement-linked indicators (DLI) and the execution of at least 70 percent of the budgeted EEPs expenditures. The TA Component supports the achievement of the Government reform programs in the same three areas; it further assists Project coordination and management. Each Project component is described below.

4.

The Project preparation benefited from extensive sector diagnostics, which have been conducted in parallel.

Component 1: Government Public Sector Reform Program (EEPs) Tax Administration Improvement Program: Ministry of Finance 5.

This program is designed to strengthen the Provincial Tax Administration with a view to increase tax collection. This Government Program covers the following two subprograms: (i) modernization of tax collection system, and (ii) actualization of the provincial cadastre. In addition to increasing tax collection, these reforms will also enhance the equality of the tax system. Provincial financing for this program amounts to about US$11.3 million for the period 2010-2015, with an annual average allocation of US$2.0 million. Details on the subprograms are provided below.

•

• •

•

i) Modernization of Tax Collection System This sub-program includes the following activities: Improving the Quality of Taxpayer Registry: this activity aims to match updated property titles with the correct taxpayer ID. It is also complementary to other reform activities supported by this program such as the updating of the Urban Cadastre. The General Office of Provincial Taxes (DGIP) will lead this activity, in close coordination with the Cadastre Office and the Property Registry.

Reduction in Tax Arrears and Improvement of Tax Collection: this activity aims to recover existing and avoid the build-up of future tax arrears. Current arrear accounts of more than AR$5,000 amount to approximately AR$53.6 million. DGIP will lead this activity.

Tax Audits: this activity aims to strengthen and extend integral tax audits for contributors to Gross Income Tax and the ‘Convenio Multilateral’. The audit strategy will include an increase in desk audits as well as large-scale audit controls based on cross-referencing with external information. DGIP will be the implementing agency.

Evaluation of Required Legal Modifications: this complementary program aims to identify organizational, regulatory and legal changes necessary to enforce tax compliance by the agencies involved in this Government function. This activity will be carried out within the Ministry of Finance. ii) Updating of the Urban Cadastre The update of the urban cadastre forms the basis for property taxation, which is why the Cadastre Office will lead the update of the cadastre, in close coordination with DGIP and Property Registry.

20

Quality of Expenditure Program: Ministry of Finance and Financial Directorates of Ministries 6.

This program aims to increase the quality and efficiency of public expenditures and focuses on two areas: budgeting and public procurement. This Government Program addresses the need to improve the quality of expenditure to ensure strategic allocation of resources and effective and transparent execution of procurable expenditures. Provincial financing for this program is estimated at about US$29 million for the period 2010-2015, with an annual average allocation of US$5.1 million per year. This program supports mainly the implementation of two main reforms: Introduction of Fundamentals for Performance Oriented Budgeting and Public Procurement Reform. i) Introduction of Fundamentals for Performance Oriented Budgeting This activity includes strengthening of program budgeting; introduction of performance indicators (also within SIPAF); linkage between budget and planning (Integral Provincial Development Plan, IPDP); strengthening of line ministries staff capacities in budgeting; gradual implementation of a multi-year planning and budgeting process; and introduction of monitoring & evaluation function. ii) Public Procurement Reform This activity aims to establish an efficient and unified public procurement system. This includes: (i) adopting a new unified public procurement legal framework; (ii) establishing a Public Procurement Policy and Regulatory Body, (iii) implementing a procurement information system, (iv) professionalizing staff through internal recruitment, capacity building, and establishing an accreditation system, and (v) carrying out efficiency/quick gains study and compliance audits.

Rural Water Management Program: Ministry of Infrastructure (Secretariat of Water) 7.

The Government Program “Water Management” that aims to develop a water management strategy focuses on (i) improving irrigation water resource management and (ii) expanding access to drinking water. It is also developing in cooperation with the Bank program a Sector Environment Assessment (SEA) that will serve provincial public policy with respect to long term water resource planning and use for production and human activities. The main objectives of the program are to: (i) guarantee a basic provision of drinking water resources to improve quality of life and reduce poverty among the remote rural population; (ii) assure effective and efficient management, maintenance and operation of irrigation districts; and (iii) ensure the sustainable achievement of the two first objectives through the SEA. Finally, the strength of this approach in an environment where water is a scarce and vital resource is to contribute to a joint and consensual water resource management and to promote awareness on the need for a sustainable development and water resource management. Provincial financing for this program is estimated at about US$25 million for the period 2010-2015, with an annual average allocation of US$4.5 million per year between 2011 and 2015. i) Improved water resource management – Irrigation Water This activity aims to establish Water Management Plans to improve the regulation of irrigation districts and the consolidation of the Water User Associations (WUAs). Strengthening these irrigation consortia impacts positively on the financial and technical management and the operation of the irrigation systems, and it enhances WUAs’ participation along with other 21

stakeholders to water management strategic planning. WUA strengthening is contemplated through their consolidation, which consists of the processes and results listed below: Processes: • Ensuring that the WUA is operating in accordance with its regulatory status. In particular, it includes elected authorities and affiliate members; it delivers the service for which it was created, etc.); • Maintaining and updating the users registry; • Evaluating and quantifying the efficiency of the current water usage; taking stock of the actual water availability and current water use and, based on actual needs, re-distributing the water allotment available for each water delivery (“irrigation turn”) among actual users.

• Re-arranging water delivery schedule; • Optimizing the distribution of water; • Recalculating water use fees; and • Sensitizing users on Water Resource Management issues, and train and monitor them on more efficient on-farm application of the resource; Results: • Increasing the water fee collection rate from an average of 50% of users to an average of 95% ; • Reducing the time elapsed between irrigation turns by 50% (from a current average of 30 days to 15 days), improving the efficiency of the overall system, the equity in access to irrigation water, and the volume of production; • Increase the overall efficiency of the system (from intake to point of application) by 50%. ii) Increased access to water – Drinking Water This activity aims to increase the access to water of the dispersed rural population and to promote sustainable use and distribution of water resources, primarily of drinking water used by the population. This is done by the Secretariat of Water through identifying areas with most critical needs, and implementing a series of activities including: transferring ownership of wells systems to WUAs, providing training and technical assistance to the WUAs to ensure an effective maintenance; and providing supervision. Expected results are both in extending the water supply service to the dispersed rural population and to increase consciousness in water usage by all stakeholders.

Component 2: Technical Assistance 8.

This component supports the preparation and implementation of the Government Programs described in Component 1 and contributes to the fulfillment of the disbursementlinked performance indicators. The technical assistance will consist of technical consultancies and capacity building activities, including training, seminars, conference participation, equipment purchase, and other activities to be decided during Project implementation. The sector areas covered by the technical assistance include: tax administration, quality of expenditure, and water resources management. They are further details in the below paragraphs 10 to 12.

9.

This component will also finance the Project management activities of the Project Coordination Unit (PCU) in the Ministry of Finance. These include (i) staff responsible for Project management and implementation support (i.e. financial management, procurement and M&E of Project activities), (ii) Assistance to change management and annual external audit, and 22

(iii) studies and other consultancies, i.e. for change management, to be determined during the Project implementation according to procedures set forth in the operational manual.

10.

Technical Assistance for the Tax Administration Improvement Program will consist of the following activities: i) Modernization of Tax Collection System • Quality of Taxpayer Registry: Technical assistance to support the correct identification of properties and corresponding taxpayers in the taxpayer register ID. • Reduction in Tax Arrears and Improvement of Tax Collection: Advisory Services to mainstream processes to support the reduction in the number of accounts in collecting process holding more than AR$5,000. Delivery of courses and workshops related to taxpayer education.

• Tax Audits: (i) Support an increase in the operational capacity of DGIP’s auditing performance, with special emphasis on ‘large’ taxpayers; and (ii) Advisory activities oriented to upgrading the performance of selection and control processes and the implementation of desk audits and extensive control through external data crossing checking.

• Evaluation of Required Legal Modifications: Legal advice and technical services in the evaluation of potential options to increase the capacity to improve tax enforcement through legal changes. ii) Update of the Urban Cadastre • Activities aim to strengthen physical and human capacities required to update the urban cadastre. This will mainly include the purchase of GPS equipment, satellite images, and IT equipment.

11.

Technical Assistance for the Improvement in Expenditure Quality Program will consist of the following activities: i) Introduction of Fundamentals for Performance Oriented Budgeting • Contribute to the preparation of a diagnostic of the current provincial budget system and its linkage with the IPDP. • Development of a Planning & Budgeting Methodological Guidelines Handbook to ensure a strong link between planning activities and the budget.

• Advisory service to support the formulation of budgets 2012-2014 and ensure in particular adequate reflection of the actions defined in the IPDP. • Assistance in the promotion of gradual implementation of multi-year budgeting.

• Advise on the update of the Financial Management Information System, promoting physical planning and identifying input-output relationships.

• Conducting a survey of the institutional provincial production matrix to identify the outputs, intermediate products and input-output relationships.

• Support in the review and improvement of the budgetary program structures, with reference to the institutional production processes and IPDP. • Technical assistance for the development of a preliminary annual program exercise, built upon both physical production and financial resources scenarios.

• Training for the technical staff from the Provincial Budget Directorate (PBD) and other relevant agencies for the correct implementation of the new financial management information system.

23

•

Support in the design of a training program on strategic planning and budgeting for technical staff of the PBD, the Secretariat of Strategic Planning and other relevant Government agencies.

• Delivery of courses and workshops.

• Advice in the preparation of the design of a monitoring and evaluation system for the provincial budget and the IPDP. • Support in the design of a Monitoring & Evaluation Unit and the development of its legal basis.

• Support in the implementation of the Monitoring & Evaluation system. ii) Procurement • Legal advisory services for the updating of the legal procurement framework.

• Advice and technical support for the design, the staffing and the organization of the Public Procurement Policy and Regulatory Body.

• Provide advice and support to the development of a training and accreditation system for public procurement staff.

• Conducting: “quick-gains” study, procurement compliance audits, OECD-DAC evaluation.

12.

Technical Assistance for the Water Management Program will include the following activities: i) Water Resource Management • Technical assistance in the update of the water usage and water rights cadastre, and the measurement of the water levels.

• Advice for the formalization of the WUAs, the adequacy of their tariffs and training programs of the associates.

• Assistance to the establishment of a Provincial Water Institute.

• Advisory services for conducting a Sector Environmental Assessment and the preparation of a Provincial Environmental and Social Framework. ii) Institutional Strengthening of Rural Development Secretariats • Technical assistance for the team based in the Provincial capital and throughout the Province in the strategic planning and budgetary process.

• Support in the revision of sector diagnostics and update of information systems for the decision-making process.

• Advice on revision and update of the provincial sector development plans, and the development of annual budget programs.

• Support in the installation of a monitoring and evaluation system. iii) Coordination of public service provision and strengthening of the extension services • Support in the delivery of workshops on the strategic plans.

• Advise in the development and implementation of a coordination system for the joint activities and on field trips for the selection of the pilot sites.

• Technical assistance for stakeholder workshops with the population of the pilot sites to agree upon an integral development program, supported by the four Secretariats.

• Support in the documentation of the integral programs in each pilot site, and their integration in the strategic and budgetary planning of each Secretariat.

• Technical assistance in the development of a five-year training plan and the associated training modules, and their incorporation in the planning and budgetary process.

24

Annex 3: Implementation Arrangements 1.

Project institutional and implementation arrangements

1.

Overall Project management. Overall Project management will be the responsibility of the Project Coordination Unit (PCU) established within the Ministry of Finance for the purpose of this operation. The PCU will be satisfactorily staffed to manage the Project.

2.

Specific PCU responsibilities comprise: (i) being the primary liaison with the Bank; (ii) overseeing technical inputs from all involved ministries (Finance; Production and Infrastructure) and, as such, consolidating the required documentation on EEPs, DLIs and TA activities to report to the Bank compliance in a timely and comprehensive manner; (iii) ensuring compliance with Bank financial management, procurement regulations and safeguard requirements; (iv) coordinating efforts of participating Ministries (Finance and Infrastructure); (v) managing the TA Component; (vi) preparing specific TORs for FM and procurement related activities, including the annual audit and procurement reviews, and overseeing their implementation; (vii) consolidating project financial reports on a timely manner (these reports will be based on information provided by other services of the Ministry of Finance on planned and actual expenditures under the EEPs); (viii) preparing the Interim Financial Reports (IFRs); (ix) reallocating unspent balances; (x) reconciling amounts advanced by the Bank with those spent under the EEPs; and (xi) verifying the timely release of EEP budgeted resources. The PCU will also ensure that the funds in the designated account will be used properly and according to Bank guidelines. The participating ministries will not directly manage procurement under this Project.

The Operations Manual specifies implementation arrangements, fiduciary responsibilities, and a detailed description of EEPs and DLIs (including their means of verification).

The responsibilities of the provincial Ministries of Finance and Infrastructure 3. include: (i) implementing sector EEPs and complying with the disbursement-linked indicators; (ii) tracking and reporting on all activities for which the Ministry has assumed responsibility; (iii) collaborating with the PCU on the TA Component by preparing specific TORs for TA activities related to each sectorâ&#x20AC;&#x2122;s EEPs and overseeing their implementation; (iv) taking the lead in all sector activities as required to implement the loan and achieve its objectives; and (v) providing sector expertise as needed to optimize loan impact. The Secretariat of Water is under the responsibility of the Ministry of Infrastructure. In turn, the Ministry of Finance has a dual role: it has the overall responsibility of the Bank-funded operation, delegated to the PCU, and it also acts as sector implementing institution of the tax administration and expenditure management activities of the loan.

4.

Inter-governmental Steering Committee. An inter-governmental steering committee will be created no later than six months after effectiveness to oversee project management at the policy level, to provide the PCU strategic direction and guidance, assure the exchange of information between participating Ministries (Finance and Infrastructure) and the PCU, and to identify problems and discuss corrective measures. This steering committee will be chaired and led by the Ministry of Finance, which will have final decision upon project matters.

25

2.

Financial Management, Disbursements and Procurement

Financial Management 5.

The public financial management system of the Province of La Rioja complies with Bank requirements and can be relied upon for the implementation of the proposed Project.

This section provides a general overview of the PFM systems of the Province and concludes that they meet minimum Bank requirements, drawing on the findings from the Public Financial Management Assessment (PFMA) conducted in 2010 by the Bank. The Integrated Financial Information System (SIPAF) incorporating budget, treasury, and accounting information, the overall effectiveness of the provincial PFM system, as well as the system’s ability to classify budget expenditures per program are considered acceptable to implement the operation.

Table A.3.1: Reliance of PFM ‘Country’ Systems for the Implementation of the SWAp APL Execution phases

Reliance on Country System Eligible Expenditure Component

Budget Preparation and Execution Budget Reporting Treasury Accounting and Reporting Internal Control External Audit/Control

The Public Sector Strengthening APL program will rely on provincial systems, which have been assessed acceptable for this purpose.

For external audit, the program will rely on private sector audit firms.

Technical Assistance Component For this component, the execution of Project funds is foreseen to rely on the UEPEX system, commonly used in Argentina for the execution of multilateral lending projects and compliant with Bank fiduciary requirements.

FM risk for this operation is assessed as Medium-I. The implementing agency has 6. highly qualified technical staff to manage the operation and to provide guidance and oversight to all implementing line secretariats. However, the implementation of the operation presents challenges as this is the first Bank-funded operation to the Province of La Rioja. Current implementation capacities are limited; and in addition, its multi-sector dimension will require effective communication and strong inter-ministerial coordination.

7.

Mitigating measures have been incorporated in the loan design to address this risk.

Apart from regular Bank supervision during Project implementation, additional mitigation measures incorporated in the loan design are the following: (i) an annual audit by a private audit firm, (ii) FM training to be provided to implementing agencies; and (iii) PFM technical assistance activities supported by the loan. The Project risk rating will be reviewed regularly during loan implementation.

8.

Budgeting. All of the Project’s operations will be registered and go through the Province’s System of Public Accounts, which is subject to the government-wide budgeting arrangements and control framework. All fund uses are reviewed and approved a priori by the Accountant General’s representatives. The budget control distinguishes various stages in the expenditure process, including commitment. The budget structure uses programs as the basic budget unit but provides for coding of the source of funding, the function, and object of expenditure. The PFM assessment is providing additional details on the budget process of the Province of La Rioja. The Project does not foresee any counterpart funding and the Bank will finance 100% of the Project.

26

Accounting & Financial Reporting. SIPAF will manage Project accounts. The PCU at 9. the Ministry of Finance will prepare Interim Financial Reports (IFRs) reflecting EEPs and TA expenditures. The PCU will also be responsible for the submission of IFRs to the World Bank.

These reports will show actual program expenditures executed in each semester, planned budgeted amounts and variations or discrepancies between the two.

10.

The format of project IFRs, both for financial monitoring and SWAp component disbursement purposes, will follow the format of existing government reporting from SIPAF with some adjustments to ensure that all the information required is included in the IFRs. The final format of IFRs has been agreed at negotiations and includes the following contents: •

Report on the Sources and Uses of Funds (by EEP), cumulative (project-to-date; year-todate) and for the period, showing budgeted amounts versus actual expenditures, including a variance analysis, by sector.

•

Forecast of Sources and Uses of Funds (by EEP), by sector. Schedule of Disbursement-Link Indicators (DLIs).

•

Reconciliation of advances to the Designated Account.

11.

Internal Control. The Government of the Province of La Rioja counts with internal controls mechanisms implemented through the SIPAF, the Provincial General Accounting Office (GAO), and jurisdictional delegates of the Court of Accounts. These controls are comprehensive and cover all budget execution stages. The system has a commitment stage for all expenditure categories except for minor expenditures paid through revolving funds. This commitment stage is registered in the SIPAF by the accounting department of each jurisdiction. The system also incorporates comprehensive controls that efficiently limit expenditure commitments according to real cash availability (conformity with budget allocations and availability). Existing control mechanisms are understood and complied with for the great majority of the transactions.

Regarding payroll, there is a direct connection with personnel records to assure data coincidence and its monthly reconciliation.

12.

Internal Audit. The Internal Control Unit (ICU), established in December 2007, is in charge of the internal audit of the provincial public sector, jointly with the GAO. The ICU reports directly to the Governor and comprises a General Comptroller, and eleven auditors (three senior level and eight junior level), all of them with the required professional background. The ICU only performs ex-post audits over jurisdictions constituting the Provincial Executive. The ICU does not have systematic planning and a pre-defined time schedule for audit activities.

Audit reports, including conclusions and recommendations, are sent to the Governor, jurisdictions being audited, and only in those particular cases where significant fiscal impact is detected also to the Court of Accounts. Most of the jurisdictions adopt the recommendations made by internal audit reports. This high level of compliance is motivated by active monitoring of the implementation of the recommendations by the ICU, which comprises a satisfactory degree of observance due to strong institutional support from the maximum authority of the Executive.

13.

Annual Financial Audit. The Project annual financial statements will be audited according to terms of reference ensuring compliance with Bank guidelines. The financial audit will be performed by an independent auditor following audit standards acceptable to the Bank. It is expected that the audit would be conducted by a private firm acceptable to the Bank as well.

27

For audit purposes, the fiscal year will be the calendar year. The audit is expected to review documents and other evidence showing that expenditures in the budget line items supported by the Loan are eligible, and express an opinion on: (i) the annual financial statements; and (ii) that eligible expenditures cover the amount of Bank financing. Bank financing will not be recorded in the EEPs, and therefore will not appear in the Statement of Sources and Uses of Funds.

Consequently, the audit will not be able to directly link Bank financing to eligible expenditures. 11 In addition, the audit will expressed a semi-annual opinion on the actual execution of budgeted EEP expenditures (compliance with minimum execution target) reported in each IFRs. Table A.3.2: Audit Reports and Due Dates Audit report

Due date

1. Project Financial Statements

June 30 of each year

2. Special Opinions An opinion on the eligibility of expenditures reported and correct use of Loan funds

June 30 of each year

Designated Account

June 30 of each year

Budget execution of EEP expenditures (compliance with minimum execution ta 45 days after the end of each semester

14.

FM Supervision Plan. During the first year of implementation, intensive supervision will be carried out at least twice per year, considering the complexity of the Project. This will be complemented by desk reviews of the IFRs and the annual external audit. Thereafter, the supervision intensity may be reduced to an annual supervision mission.

Table A.3.3: Financial Management Supervision Plan Type

Timing

Mechanism

Objective • Review FM performance • Follow up on external auditor

On-site visit & desk work

General supervision: twice a year

Integrating supervision missions or in agreement with Project TTL

recommendations/ raised issues • Review staffing • Review of IFRs and reconciliation to

SIPAF records Financial audit review

Once a year

Audit Report submitted to the Bank

• Update assigned risk • Review Audit Report • Raise issues disclosed in audit report

Disbursements 15.

For Component 1, disbursements will be made against EEPs, and the triggers will be the DLIs and the percentage rule (at least 70 percent of the EEPs budgeted expenditures executed), evidenced by IFRs. Disbursements under Component 1 will include advances and retroactive financing. Disbursements against EEPs and DLIs will flow to a Designated Account, established 11

As stated in the “Fiduciary Arrangements for Sector Wide Approaches (SWAp): Interim Guidelines to Staff” (November 2002): “The focus of fiduciary activities is on all program funds and the institutions that manage the funds rather than tracking Bank funds only. While Bank funds finance a portion of an agreed expenditure program, borrowers are not required to separately identify the individual transactions financed by Bank proceeds.” (p.5).

28

at Banco de la Nación Argentina in US Dollars, and then to an account of the Provincial Finance Ministry. Retroactive financing is foreseen for the disbursements against EEPs and is foreseen to amount to US$6 million (20% of the loan amount) 12.

16.

For Component 2, disbursements will include direct payments for most payments (five main contracts paid in approximately 11 transactions), and advances. In the case of Direct Payments, funds will be transferred directly from the Bank to the supplier bank account for major technical assistance and supply contracts (thresholds will be indicated in the Disbursement Letter), which represent an amount of US$5.05 million. For minor current expenditures, which total budget is US$200,000, disbursements will also be made against IFRs. For this purpose, a segregated Designated Account in US Dollars will be opened at Banco de la Nación Argentina (BNA). Funds will follow from the DA to an Operative Account (cuenta corriente) in AR$, opened at the same bank. The Project Coordination Unit will manage both accounts on behalf of the Ministry of Finance and the Government. Eligible expenditures under Component 2 comprise of: (i) consultant services, (ii) goods, (iii) workshops and training, and (iv) other operating costs.

Bank account maintenance and commission charges for the designated and operating accounts will be financed by the loan. The remaining amount (US$0.75 million) covers the front-end fee of the operation.

Table A.3.4: Disbursement Arrangements

Retroactive financing

Other Disbursement Methods

Supporting documentation

Eligible payments • Are paid up to one year before the date of loan singing; • Do not exceed 20 percent of the loan amount and; • For items procured in accordance with applicable Bank procurement procedures.

• Subject to the 50 percent execution rule.

• Direct payments to suppliers for the Technical Assistance (TA) Component. The minimum application size for direct payment requests will be US$100,000.

• Advance to: (i) a segregated designated account in US$ managed by the Coordination Unit, in BNA, with a ceiling of US$70.000 for outstanding advances for the TA Component; (ii) a segregated designated account in US$ managed by the Coordination Unit, in BNA. • IFRs for the EEP and TA Components.

• Records (supplier contracts, invoices and receipts). 13 • Full supporting documentation for direct payments.

12

For retroactive financing, a “50 percent execution rule” will be applied. This rule requires that at least 50% of the amounts allocated for the financing of EEPs (AR$35.1 billion, as identified in MOF’s Resolution No. 1030 dated October 6, 2010) has been spent during the twelve months prior to the Loan Agreement Signature Date.

13 The Borrower through the Coordination Unit shall retain all records (contracts, orders, invoices, bills, receipts and other documents) evidencing expenditures under the Project until at least the later of: (i) one year after the Bank has received the audited Financial Statements covering the period during which the last withdrawal from the Loan Account was made; and (ii) two years after the closing date. The Borrower and the Coordination Unit shall enable the Bank’s representatives to examine such records.

29

Graph A.3.1: Flow of funds

17.

The disbursement procedures were designed to provide incentives for greater efficiency and results-orientation in the Provincial Government. The minimum percent of 70% in execution rule creates incentive for timely execution of EEPs supported by the Project, while the DLIs specify the results to be achieved. Therefore, the disbursement rules have a combined effect of assuring timely implementation of the EEPs, but with a focus on the expected results. Moreover, the requirement to meet a determined level of execution of EEPs also assures line ministries’ ownership and timely funding for achievement of benchmarks. On the other hand, since DLIs will be verified on an annual basis (based on protocols and conditions established during Project preparation), there is a recurrent reminder of what is expected from the EEPs and incentives for constant reassessment of whether design changes are needed to assure that the DLIs targets are met. The ‘cost’ of each DLI will be weighted equally in terms of disbursement amount. In sum, important incentives are incorporated into the loan design to support the sector wide approach.

18.

Disbursements will be semi-annual for the EEP Component, subject to Bank minimumdisbursement amount criteria, and as-needed for the TA Component. Disbursements will also be subject to disbursement conditions as described below.

19.

Disbursement Schedule. The PGoLR requested and the Bank concurs with disbursement of the loan over five years, but with a disbursement frontloaded in the first year (Table A.3.6): •

•

There will be one retroactive disbursement against EEP eligible expenditures incurred up to 12 months immediately previous to the Loan signature. This disbursement is limited to up to 20 percent of the loan amount, and provided the Government submits the supporting documents for the full amount. A “50 percent execution rule” will also be applicable. This rule requires that at least 50% of the amounts allocated for the financing of EEPs (AR$35.1 billion, as identified in MoF’s Resolution No. 1030 dated October 6, 2010) has been spent during the twelve months prior to the Loan Agreement signature date.

The following disbursements will be made as advances against six-month projections of EEP expenditures. Eligible expenditures to be documented through IFRs will be reported in 30

the subsequent period. Actual EEP expenditures will be confirmed at the end of each sixmonth period. They will also be contingent upon compliance with the two following rules: • Complying with the “minimum percent rule” in execution of EEPs. This rule requires that at least a minimum percent (70%) of the EEPs is spent by the PGoLR during the preceding semester. The disbursement amounts will be rolled-over, if EEPs do not disburse at least the minimum percent of the assigned budget in the preceding semester. The Disbursement Letter spells out how the undisbursed amount can be rolled over to future disbursement periods.

• Achieving the performance conditions set by the DLIs. An adjustment may be applied for each unmet indicator. In the case that one or more DLIs are not fully met, the Disbursement Letter spells out how the undisbursed amount can be rolled over to future disbursement periods subject to the following conditionality: if above 50 percent of the DLI is fulfilled, the corresponding payment will be weighted accordingly and the remaining amount will be transferred for the next payment; if less than 50 percent of the DLI is fulfilled, the payment corresponding to this DLI is not made and rolled forward to the next period. Details are provided in the Disbursement Letter.

Table A.3.5: Allocation of Expenditure per Category and Source of Financing Amount of the Loan Percentage of Expenditures to be Category Allocated financed (expressed in USD) (inclusive of Taxes) Up to 100% of amounts spent and (1) Goods and Operating Costs reported under the IFRs on EEP under the Eligible Expenditure 24,000,000 Reports Programs (Part 1 of the Project) (2) Goods, Non-consultant Services, Training, Operating Costs, and consultants’ services for Part 2 of the Project

(3) Front-end Fee

(4) Premia for Interest Rate Caps and Interest Rate Collars TOTAL AMOUNT

5,925,000

100%

75,000

Amount payable pursuant to Section 2.03 of the Loan Agreement in accordance with Section 2.07 (b) of the General Conditions

0

Amount payable pursuant to Section 2.07 (c) of the Loan Agreement

30,000,000

31

Table A.3.6: Disbursement Schedule Date

US$ million

March 2011

6.01

DLIs for Retroactive Disbursement: 14 • The Public Sector Reform Program has been budgeted and budget programs have been designed for this purpose.

March 2011

3.0

EEPs execution: Six-month projection of EEP expenditures; 15approved PGoLR Budget 2011.

October 2011

3.0

March 2012

3.0

October 2012

3.0

March 2013

1.0

October 2013

1.0

March 2014

1.0

October 2014

1.0

Disbursement-Linked Indicators and EEPs disbursement

DLIs: • Number of land parcels updated and integrated in the urban cadastre.

• Number of additional WUAs that have increased their number of fee paying users by at least 20%.

EEPs execution: Report previous six months’ actual expenditures; 16 six month projection of EEP expenditures7 ; comply with minimum execution target (percentage). 17 DLIs: • Staff trained in strategic planning and program budgeting.

EEPs execution: Report previous six months’ actual expenditures; six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Number of land parcels updated and integrated in the urban cadastre.

• Number of Secretariats with strategic and operative plan updated.

• Number of additional WUAs that have increased their number of fee paying users by at least 20%.

EEPs execution: Report previous six months’ actual expenditures; Six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Programmatic structure and effective physical and financial indicators have been introduced in the budget process and is updated.

• Staff trained in strategic planning and program budgeting.

• Percentage of provincial central administration expenditure covered in procurement audit that verifies the compliance with the new procurement law and its regulation.

• Higher share of budgeted projects which are drawn from the provincial development plan.

EEPs execution: Report previous six months’ actual expenditures; Six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Number of land parcels updated and integrated in the urban cadastre.

• Number of additional WUAs that have increased their number of fee paying users by at least 20%.

• Number of Secretariats with strategic and operative plan updated.

• Number of Procurement staff trained and accredited.

EEPs execution: Report previous six months’ actual expenditures; six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Staff trained in strategic planning and program budgeting.

• Programmatic structure and effective physical and financial indicators have been introduced in the budget process and is updated.

• Percentage of provincial central administration expenditure covered in procurement audit that verifies the compliance with the new procurement law and its regulation. Higher share of budgeted projects which are drawn from the provincial development plans.

EEPs execution: Report previous six months’ actual expenditures; six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Number of land parcels updated and integrated in the urban cadastre.

• Number of additional WUAs that have increased their number of fee paying users by at least 20%.

• Number of Secretariats with strategic and operative plan updated.

• Number of Procurement staff trained and accredited.

14

Retroactive disbursement: up to 20% limit; against combined EEP expenditures in the 12 months immediately before loan signature. A “50 percent execution rule”, requiring that the province spends at least 50 percent of the amounts allocated for the financing of EEPs during the preceding year; will also be applicable.

15 Subject to a maximum disbursement equal to the disbursement ratio (70%) multiplied by the aggregated estimated EEP expenditures.

16 At this stage, the disbursement ration will be checked against actual expenditures presented.

17 The “minimum execution rule” means that during the previous 12 month period the PGoLR must have executed at least 70 percent of the budgeted amount of EEPs. The total amount eligible for disbursement in the period will be rolled-over if the “minimum execution rule” is not satisfied. The disbursement letter will spell out how the undisbursed amount can be rolled over to future disbursement periods.

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March 2015

1.0

October 2015

1.0

EEPs execution: Report previous six months’ actual expenditures; six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Staff trained in strategic planning and program budgeting.

• Percentage of provincial central administration expenditure covered in procurement audit that verifies the compliance with the new procurement law and its regulation. Higher share of budgeted projects which are drawn from the provincial development plans.

EEPs execution: Report previous six months’ actual expenditures; six month projection of EEP expenditures; comply with minimum execution target (percentage).

DLIs: • Number of land parcels updated and integrated in the urban cadastre.

• Number of additional WUAs that have increased their number of fee paying users by at least 20%.

• Number of Secretariats with strategic and operative plan updated.

• Number of Procurement staff trained and accredited.

EEPs execution: Report previous six months’ actual expenditures; six month projection of EEP expenditures; comply with minimum execution target (percentage).

20.

Disbursement-Linked Indicators & Related Reporting Requirements. Decisions over compliance and disbursement against indicators will be made on the basis of reports prepared by the PGoLR and presented to the Bank with necessary documentation verifying that they have been satisfied. The Bank will, at its convenience and with the full assistance of the Province, verify the findings presented in these reports. Should there be any discrepancy found such that the satisfaction of the indicator is not validated then the Bank will, at its discretion, determine whether none, partial or delayed compensation is justified.

EEPs Execution and Disbursement reporting requirements. It is important to note 21. that for disbursement purposes, the Project will use IFRs that provide i) estimated expenditure amounts and ii) summary information on actual expenditures made by the province under the EEPs. However, the annual audit of the Project will review detailed supporting documentation of eligible expenditures. Therefore, it is important that the Ministry of Finance monitor the overall resources—Bank and PGoLR—Project performance from a financial management point of view.

Procurement 22.

The procurement risk assessment noted that there is a lack of (i) modern and transparent regulations, (ii) a Public Procurement Regulatory Body, (iii) a Senior Official responsible for the area, (iv) a clear, transparent procurement system, and (v) institutional capacity in line ministries is more limited than within Ministry of Finance. In this context, the Project was designed in order to introduce mitigating measures to avoid implementation, governance or corruption challenges. The procurement-related risk ratings were Medium I for “Implementing Agency Capacity”, Medium I for “Governance”, and Medium I regarding “Fraud & Corruption”.

23.

Regarding the agreed mitigation measures, the Government and the Bank agreed on the operational manual prior to negotiations, and during implementation, to hire a procurement expert, contract a concurrent supervision audit and group contracts in order to minimize the number of processes and have them all prior-reviewed by the Bank. The contracting approach agreed with the Government (limited number of sizeable contracts executed through direct payment) will mitigate the potential lack of implementation capacity for Bank executed projects, as well as mis-procurement, fraud and corruption risks. The Procurement Technical Assistance Component will also improve the control environment for project implementation in the medium- term.

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Table A.3.7: Public Sector Strengthening APL1 Procurement Plan No. 1 2 3 4 5 6 7

Expected Outcome / Activity Description Procurement Compliance Audit Design, Supply and Installation of Procurement Information Systems Technical Assistance: “Public Sector Modernization” ITC Equipment GPS Equipment & Satellite Images Financial Audit Year 1 to 3 Financial Audit Year 4 & 5

Estimated Cost (US$ mill)

Procurement Type

Start Date

0.3

LCS

Jul 12

0.5

ICB

May 13

4.0

QCBS

Aug 11

0.825 0.1 0.06 0.04

ICB ICB LCS LCS

Oct 12 Oct 12 May 11 May 14

24.

The procurement for the proposed Project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised in October 2006 and in May 2010, and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, and revised in October 2006 and in May 2010, respectively. All contracts will be subject to prior review and records post reviewed during supervision missions. The following Special Procurement Provisions shall apply to procurement under the Project: • Foreign and local contractors, service providers, consultants and suppliers shall not be required: a) to register or b) to establish residence in Argentina, as a condition for submitting bids or proposals.

• The invitations to bid, bidding documents, requests for expressions of interest and information on contract award shall be published in a web page acceptable to the Bank in a manner acceptable to the Bank.

• The Implementing Agency: a) will provide the Procurement Plans Execution System (SEPA) within 30 days of Loan Effectiveness with the information contained in the initial Procurement Plan, b) will update the Procurement Plan at least biannually or as required to reflect actual project implementation needs and progress and will feed the Bank Procurement Plans Execution System (SEPA) with the information contained in the updated Procurement Plan immediately thereafter.

• Bidders and consultants shall not be allowed to review or make copies of others bidders’ bids or consultants’ proposals, as the case may be.

• Compliance with ISO quality standards shall not be required to foreign bidders. Local bidders may be requested to comply with such standards whenever mandated by local law.

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Table A.3.8: Eligibility of Expenditures 18 Category of Expenditures Category 1.

Staff Salaries

Eligible Expenditures 19 1.0 Staff salaries

2.5.6 Oil and Lubricants Category 2.

Consumer Goods

Category 3.

Non-personal Services

Category 4.

Capital Expenditures

Category 5.

Transfers

Comment

Expenditures related to the wage bill are fully eligible.

Although formal procurement processes take place, the oil and lubricants market is not competitive due to strong government regulation. The participation of new players is not expected due to high logistics costs and the relatively low incidence of procurement activities that would be financed in comparison to the size of the total (public and private) market.

3.1 Basic Services (excluding the sub-section 3.1.9: Others, not specified) 3.4 Professional, Technical Services and related services (excluding the sub-section 3.4.9: Others, not specified) 3.7 Flight tickets, per diem and others (excluding the subsection 3.7.9: Others, not specified) 3.8.1 Indirect Taxes 3.8.2 Direct Taxes 3.8.3 Rights and Fees Not eligible

5.1.1 Retirement Payments 5.1.2 Pensions 5.1.3 Scholarships 5.1.4 Social transfers to individuals 5.1.7 Transfers to cultural and social non-profits – Transfers to Water User Associations (WUA)

Expenditure Category 5.17 is at present only admissible for the purpose of the retroactive financing of transfers to WAU. These transfers (i) support institutional strengthening and (ii) subsidize minor operating costs (individual amounts below AR$ 2.500) of 66 WUAs, that have been the legally formed to cooperate in the maintenance and operation of irrigation systems and water networks.

Current procurement processes for Category 5.17 are broadly not acceptable; however, they might be easily adjusted (by decree, since they have not been regulated by law) to meet the following requirements in order to be recognized as eligible expenditure in the future: • Participating organizations should be limited to groups of beneficiaries.

• Procurement and contracting procedures should be compatible (in terms of competition and transparency) with the regulation of the Provincial Administration.

• Ex-ante controls will need to be restricted to the approval of sub-projects. There will not be ex-ante controls for procurement processes, but an ex-post audit.

Such audits will be implemented by an auditing agency acceptable to the Bank’s standards.

The criteria above are in line with the stipulations of paragraph 3.17 of the Procurement Guidelines, “Community Participation in Procurement”.

18

This Table is consistent with the Schedule 4 of the Loan Agreement and provides the breakdown of eligible expenditures (i.e.: all these expenditures are eligible from a procurement point of view) per category and subaccount from the Government Budget.

19

Additional budget lines may become eligible in future To be classified as eligible expenditure, procurement processes will need to be found acceptable to the Bank, as per the criteria spelled out in the document identified as “Fiduciary Arrangements for Sector Wide Approaches (SWAps), Interim Guidelines to Staff”, which is dated November 22, 2002. In particular, Transfer to Water User Association will become eligible if procurement requirements are complied with. Scholarships are acceptable from a procurement point of view, but are not currently considered as eligible expenditures. In order for these expenditures to become eligible will also require introducing amendments to the Loan Agreement.

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The Table A.3.8 is breaking down eligible expenditures per budget line items and sub25. accounts (for instance, fuel expenditures are recorded in the budget expenditure account 2.5.6 ‘Oil & Lubricants’), while the Loan Agreement is presenting those same expenditures with a Bank terminology (See Schedule 2, Section IV, A) and refer to ‘Operating Costs’ and ‘Goods”: the budget expenditures from Categories 1, 3, and 5 are recorded as Operating Costs in the Loan Agreement, and the budget expenditures from Category 2 (2.5.6 Oil & Lubricants) are recorded as ‘Goods’ in the Loan Agreement. Although both classifications refer to the same universe of expenditures, in some cases, the terminology is different. For instance, the budget expenditures related to pension and social security/health (5.1.1 Retirement Payment; 5.1.2 Pension; and 5.1.4 Social Transfers to Individuals), and which are part of personal expenditures, are recorded as salaries (operating cost) in the Loan Agreement.

3.

Environmental and Social (including safeguards)

26.

Environmental Safeguards. As the activities to be financed mostly involve capacity building, negative environmental impacts are expected to be low. For the purposes of the Bank’s environmental risk rating, the Project is rated as a Category B project. Treatment of safeguard policies will focus on the specific non-TA activities to be carried out under the water resources management part of Component 1. The WRM activities will be implemented by the Secretariat of Water as described in the Operational Manual.

An Environmental and Social Management Framework (ESMF) approach will be 27. applied to guide environmental (risk) management: The Project will apply an adjusted version of the Environmental and Social Management Manual of the Bank-financed Provincial Agricultural Service Program (PROSAP, P006010), tailored to the scope of the planned WRM activities and the provincial level implementation arrangements.

The ESMF includes screening criteria for eligible activities and a “negative list” of non28. eligible activities. Each potential activity that may be undertaken will have to comply with applicable national and provincial legislation and procedures and the Bank’s environmental and social safeguard policies. The ESMF includes screening procedures to determine if an activity falls into category B or C; activities of category A will not be eligible.

29.

Category B activities will be required to develop a site-specific Environmental Management Plan (EMP) including specific environmental and social mitigation measures to be followed by the Secretariat of Water. The measures will also be included in bidding documents so that contractors will be required to carry out their respective part of them.

30.

The ESMF includes a Sectoral Environmental Assessment (SEA) for water resources management to be conducted for the La Rioja Province under Component 2. The SEA will serve public policies in La Rioja with respect to medium-long term water resource planning and use for production and human activities. The ToRs of the SEA will include considerations of climate change adaptation and social dimensions of water use.

31.

Applicable environmental safeguard policies are: (i) OP 4.01 Environmental Assessment;

36

(ii) OP 4.04 Natural Habitats: The ESMF includes procedures for reviewing activities that might affect natural habitats. An activity screening mechanism and a negative list will be used to evaluate activity proposals. Those affecting critical natural habitats, protected areas, or other sensitive sites will not be eligible for Bank financing; (iii) OP 4.09 Pest Management: The ESMF contains provisions for evaluating activities that propose to use or procure pesticides. Although not expected, any Project related procurement of pesticides or agro-chemicals will be carried out in accordance with the Bank policy. The activity screening mechanism will identify those involving pesticides, and an appropriate EA and development of an integrated pest management plan will be required. No Bank financing will be used for procurement of pesticides or agro-chemicals; (iv) OP 4.11 Physical Cultural Resources: The ESMF contains provisions for accurate processing in case of any chance finds; and (v) OP 4.37 Safety of Dams: The ESMF contains provisions for evaluating activities that might affect any existing dams.

32.

The overall responsibility for ensuring compliance with the ESMF will rest with the PCU, where an environmental and social specialist will be hired to monitor and advise on the environmental and social aspects of the financed activities, which will be supported by the Bank.

Periodic monitoring of the screening and the applicable EA processes will be used to ensure consistency with related procedures as well as to update and refine them where necessary. The Bank will also review EMPs to be developed for specific activities proposed. The Secretariat of Water is involved in the implementation of projects supported by the Bank-financed PROSAP Project (P006010), and thus has in-house capacity for safeguards compliance. While the Borrower capacity on safeguard matters is deemed satisfactory, capacity-building measures will be provided on a needs basis during Project implementation.

Social Safeguards. The Project triggers the OP 4.10 on Indigenous Peoples and the OP 33.

4.12 on Involuntary Resettlement. La Rioja’s indigenous population is estimated between 0.3 and 0.5 percent of the total provincial population. Although the Project will likely benefit all stakeholders, to better understand the Project’s impact on the indigenous population, the Government in conjunction with the Bank has i) conducted a preliminary assessment to determine the presence of indigenous communities in the province, ii) started to publicly announce the La Rioja Public Sector Strengthening Program in the media, iii) conducted a public consultation with approximately 40 civil society organizations, including the indigenous community ‘In Gua-Col’, in which participants expressed their agreement with the Project, and iv) prepared an Indigenous Peoples Planning Framework (IPPF). A second consultation was carried out on November 29th to address questions on the Environmental and Social Management Framework (ESMF) of the Project. Both consultations have been registered by acts and reflect widespread support. The revised ESMF was sent to the Bank for No Objection and was published in the country on December 27, 2010 and disclosed by the Bank on December 21, 2010. While this Project does not finance infrastructure, OP on Involuntary Resettlement has been triggered and a respective framework included in the ESMF only on a precautionary basis in case economic displacement may occur in relation to any activity under Component 1.

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4.

Monitoring & Evaluation

34.

The Ministry of Finance will be responsible for M&E of the proposed Project.

Monitoring instruments include progress reports on Project implementation, output and performance indicators, validated by a third party and an external assessment of compliance with triggers, DLI and PDO indicators.

Funds for project coordination under Component 2 have been allocated to cover the 35. cost for the Monitoring and evaluation of this Project. This includes training and capacity building for the PCU and other consultancies or support activities which will respond to upcoming needs during Project implementation. All reported data will be verified by internal and external audits.

38

Annex 4: Operational Risk Assessment Framework (ORAF) ARGENTINA –PUBLIC SECTOR STRENGTHENING PROGRAM – APL 1 Project Development Objective(s) The Project Development Objective of the present operation (ALP1) is to increase tax collection and improve expenditure quality, and to pilot improvements in public service delivery in the area of rural water management.

1. Increased local tax revenue 2. Increased share of budgeted primary expenditures executed 3. Higher share of budgeted projects which are drawn from the provincial development plan 4. Increased proportion of competitive bidding in at least 2 Secretariats 5. Increased efficiency in the management of irrigation water supply systems

PDO Level Results Indicators:

Risk Category Project Stakeholder Risks

Implementing Agency Risks

Risk Rating Low

Medium I

Proposed Mitigation Measures

Risk Description

The Government may experience some resilience from the population in the area of tax reform.

Lack of experience with the implementation of Bank projects and weak capacity in some institutions involved in the Project might pose the risk of delays in the implementation process of this Project.

Existing rules and procedures for project implementation might not be sufficient to handle the requirements of the Project as well as timely decision making and implementation.

The Government planned to undertake intense consultations and dialogue with citizens and legislative power to implement selected reforms. The design and sequencing of these reforms is cautious and take into account contextual and political aspects. Finally, those public sector reforms are planned to be strongly associated to better service delivery.

In the course of the Project preparation, the design has been adjusted to ensure adequacy with implementation capacities (in particular, the pilot approach for sector activities, hence the reduced number of institutions involved). Implementation mechanisms have also been simplified to mitigate both fiduciary and implementation risk. Additionally, Project TA will include specific to support implementation and provide extensive training and coaching to the implementing institutions.

The project operational manual will include a clear definition of responsibility within the Project Coordinattion Unit (PCU at MOF), and between the different institutions involved in the operation.

The Operational Manual will also detail the establishment of an Inter-institutional Committee involving all institutions related to the preparation of the operation, and ensuring regular monitoring and oversight.

The TA Component will include a sub-component to support the PCU and provide training.

Project Risks • Design

Low

The participation of different implementation entities and the multi-sector design of the Project may test the Government’s internal coordination and therefore implementation capacity.

39

The number of implementing ministries (2) and components and reform areas (2) have been reduced in order to facilitate smooth Project implementation and to reduce transaction costs.

â&#x20AC;˘ Social and Environmental â&#x20AC;˘ Program and Donor â&#x20AC;˘ Delivery Quality

Medium I

N/A

Medium I

Carrying out a Sector Environmental Assessment (SEA) for water resources management at the province level to improve related procedures and planning, as well as an adequate impact assessment of all concrete water management measures prior to their implementation.

Potential environmental issues might impact the Project implementation.

N/A

N/A The proposed instrument (APL/SWAp) helps in mitigating this risk: (i) the APL provides wider time-horizon, continuity of action, and opportunity for adopting a sequencing adapted to the client capacity; (ii) SWAp provides incentives (DLI) to implement reform actions (and ensures sustainability during the operation); and (iii) performance indicators are embedded into the SWAp design, thus allowing for an effective Project M&E.

Sustainability of the Project might be limited by a deficient implementation capacity.

Overall Risk Rating at Preparation Medium-I

Overall Risk Rating During Implementation Medium-I

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Comments

Annex 5: Implementation Support Plan Strategy and Approach for Implementation Support 1.

The strategy for Project Implementation Support has been adapted to the client Government’s characteristics and implementation capacities. In particular, it took into account the political economy context, as well as the risks and challenges mentioned in the ORAF section. In particular, the following aspects have been considered: • The Government is highly committed and expects a smooth preparation of the operation. In turn, the Government’s plan for reform implementation is cautious and based on a phased pilot approach.

• Main operational risks are related to capacity and fiduciary risk. In particular, the client team (and the PCU from the Ministry of Finance) has never implemented a Bank funded operation.

• There is a capacity gap between the Ministry of Finance and Sector Ministries. Interministerial work will require high commitment form Ministry of Finance to achieve success.

• Although country systems are reliable, they are not foreseen for managing external resources such as the Bank’s.

2.

The design and future implementation of the operation have been prepared on the above mentioned characteristics. The underlying principles for the design and the implementation support plan rely on the following: • Dialoguing with client and understanding of the context. A significant proportion of the Bank project team has a strong experience and understanding of the political and institutional context of Argentina, both at national and sub-national level. In the composition of the team, this contextual dimension was considered as critical.

• Designing a program adapted to client capacity to ensure a smooth and effective implementation. For this purpose, simplicity and progressive implementation were prioritized. In particular, sector activities were approached on a pilot basis (limited to water resources management), on a sequenced way, and with modest targets, intending to privilege sustainability upon high performance.

• Relying on the Bank team operational experience to guide the client in preparing the implementation. In particular, the Government was advised to group the procurement of TA services and IT equipment into approximately five contract processes, all submitted to Bank ex-ante control, and relying on transparent and competitive procedures. These contracts would also be executed through direct payment between the Bank and the contractor, hence reducing the fiduciary risk while improving efficiency. From the inception of the operation, the client project team will be coached and provided the necessary training by the Bank project team.

• Incorporating incentives to facilitate a smooth project implementation. The results-based disbursement scheme of the SWAp loan modality generates incentives to the implementing entities to progress in project executing, whereas the APL modality provides a wider timeframe for a phased implementation and adaptability to the client’s changing needs. In addition, the emphasis in increasing the immediate visibility of service delivery through pilot sectors, such as water resources access and management, encourages public support for the Government’s reform agenda.

41

3.

This early consideration on operation implementation at design stage will serve to optimize available supervision resources. Given the fiduciary design of the operation, limited procurement resources are expected during implementation (as well as TTL involvement in No Objections). This will help to allocate those free resources to dialogue upon and monitor reform processes. It will be critical to ensure, mostly from a Buenos Aires based supervision team, a regular dialogue with the client on budgeting, procurement, tax administration, and water resources management. This close dialogue is expected to facilitate in particular the monitoring of consultant work and their performance (instead of reacting to operation process challenges).

4.

Specific provisions have also been considered to guarantee sound fiduciary and safeguard oversight: • Procurement. Procurement implementation support by the Bank will include: i) providing training to the PCU, ii) providing detailed guidance on the Bank’s Procurement Guidelines to the Procurement Unit, iii) reviewing procurement documents and providing timely feedback to the Procurement Unit, and iv) monitoring procurement progress against the Procurement Plan.

• Environmental and Social Safeguards. The Bank team will closely support and monitor implementation of the Environmental and Social Management Framework, e.g. related activity screening and EA processes, Environmental Management Plans (EMPs) to be developed and the Sectoral Environmental Assessment (SEA) for water resources management. The team will provide timely guidance to address any safeguards related issue that might rise.

• Financial management. The Bank supervision team will: i) provide training to the PCU’s Financial Management Unit and the Project team; and ii) review the Project’s financial management system and its adherence to the Project Operations Manual, including but not limited to, accounting, reporting and internal controls.

Implementation Support Plan 5.

General Supervision inputs. There will be two formal missions per year complemented by a series of visits (at least two additional) made by personnel based in Buenos Aires. The current team composition with two TTLs, including one based in Buenos Aires, is helping to intensify the supervision. In addition, team members based in the country office and at headquarters will provide day to day supervision of all operational aspects, as well as coordination with the client and among Bank team members.

6.

Fiduciary inputs. Training will be provided by the Bank’s financial management and procurement specialists before commencement of Project implementation. The Bank team will continue to support the PCU to identify capacity building needs to strengthen overall Project implementation, with an emphasis on fiduciary aspects. Both the team financial management and the procurement specialists are based in the Bank Buenos Aires office allowing for timely support. Formal supervision of project implementation and financial management will be carried out semi-annually or as needed, while procurement supervision will be carried out on a timely basis as required by the client. As indicated in the above approach, the proposed procurement approach will also allow reducing the proportion of procurement staff required for the supervision (after the initial phase of selection of contractors).

42

Safeguards inputs. Inputs from Bank environmental specialists will be essential, though 7. the Projectâ&#x20AC;&#x2122;s social and environmental impacts are expected to be limited. With respect to the environmental safeguards, supervision will focus on implementation of the SEA on water resources management and activity specific EMPs as applicable.

Sector & Technical inputs. Given the fiduciary and implementation arrangements 8. mention in section, Strategic Approach for Implementation Support, the supervision will be strongly focused on those Sector/Technical aspects. The objective of the team is to maintain continuity and a regular dialogue between the Government counterparts and the technical specialists. The main focus of implementation support is summarized below.

Time

First twelve months

12-48 months 12-48 months

Focus

Type of Resources

Procurement training (two sessions) Technical and procurement review of the bidding documents

FM training and supervision Dialogue with Client & Team leadership Financial management disbursement and reporting Project supervision coordination & technical and sector

Skills Mix Required Skills Needed Public Sector Specialist (Tax,

Number of Staff Weeks 6

Staff Week Estimates 2 2 3

Procurement Specialist Procurement Specialist Public Sector Specialist (Tax, Budget, Procurement) Rural Development Specialist FM Specialist TTLs (x2) FM Specialist Disbursement specialist

1 2 8 4 2 12

TTLs (x2) & Public Sector Specialist

Number of Trips

Comments

1 per year

Partially based in Buenos Aires

5 4 8

1 per year As necessary As necessary

Based in Buenos Aires Based in Buenos Aires Based in Buenos Aires

5 16

1 per year 2 per year

Based in Washington One TTL based in Buenos Aires

Budget, Procurement) Rural Development Specialist Procurement Specialist (Fiduciary) Financial Management & Disbursement Specialist Environment Safeguard Specialist Task Team Leader Partners Name Ricardo Guerra

Eduardo Rojo Nora Ferrari

Institution/Country Minister of Finance, Province of La Rioja, Argentina Secretary of State, Province of La Rioja, Argentina Secretary of State, Province of La Rioja, Argentina

43

Role Director of Project, Counterpart

Co-Director of Project, Counterpart Project Coordinator, Counterpart

Annex 6: Team Composition World Bank staff and consultants who worked on the Project: Name Alexandre Arrobbio Norbert Fiess Marcelo Barg Jeffrey Rinne Alvaro Soler Andres Mac Gaul Raul Junquera Varela Tarsila Velloso Alejandro Guerrero Ruiz Alejandro Alcala Gerez Jose Janeiro Victor Ordo単ez Alejandro Solanot Natalia Bavio Tuuli Bernardini Cecilia Simkievich Chris Parel Nicolas Raigorodsky Jorge Sotelo Juan Sanguinetti Beatriz Nussbaumer Isabel Tomadin Fanny Weiner Carolina Biagini Majoral

Title Sr. Public Sector Specialist Sr. Economist Country Representative in Chile Sr. Public Sector Specialist Sr. Rural Development Specialist Sr. Procurement Specialist Sr. Public Sector Specialist Public Sector Specialist Public Sector Specialist Sr. Counsel Sr. Finance Officer Disbursement Officer FM Specialist FM Specialist Environmental Specialist JPA Consultant Consultant Consultant Consultant Consultant Consultant Consultant Consultant

44

Unit LCSPS LCSPE LCC6C LCSPS LCSAR LCSPT PRMPS LCSPS LCSPS LEGLA CTRFC CTRFC LCSFM LCSFM LSCEN LCSPE LCSPS LCSPS LCSPS LCSPS LCSAR LCSEG LCSPS LCSPE

Annex 7: Economic and Financial Analysis 1.

The expected economic impact of the Project is positive, although with the exception of the tax administration reform, difficult to quantify. The proposed Project will strengthen public sector performance by improving tax administration and revenue collection; enhancing the quality of public expenditures; and boosting the impact of public service delivery. While increments in tax collections can be projected, improvements in institutional performance do not easily translate into monetary terms. The economic and financial analysis of this Project needs therefore to go beyond quantitative data and rely to a large extent on qualitative analysis.

Furthermore, the transversal nature of reforms to planning, budgeting and procurement and the fact that these reforms are implemented alongside other Government initiatives, makes it difficult to attribute the expected project outcomes to a single reform initiative.

Expected benefits from Tax Administration Reform 2.

Taxation is increasingly recognized as providing a long-term financial platform for sustainable development. An assessment of La Riojaâ&#x20AC;&#x2122;s tax system reveals potential to improve in particular property taxation, by expanding the tax base and updating property values (Junquera, 2010). The Project will provide technical assistance to enhance tax collection, by: (i) supporting the updating of the cadastre, (ii) improving the quality of the property tax payer register, (iii) reducing the stock of tax arrears and improving tax enforcement, (iv) developing a strategy to improve tax audits for Gross Income Tax, and (v) assessing legal changes needed to transfer tax enforcement power to the provincial tax administration.

3.

Net Present Value (NPV) gains from tax administration reform. In net present value terms, expected benefits from the overall tax administration reform would be of AR$43.8 million in the period 2011-2015 and of AR$62.1 million over the entire 25 year period of loan repayment. A NPV gains of AR$62.1 million (about US$15.7 million) would enable to repay 52.4 percent of the principal loan amount of US$ 30 million. Box A.7.2 provides further details on the cost benefit analysis for the tax administration reform.

4.

Positive Externalities of Tax Administration Reform. In addition to increasing revenue, these reforms would also enhance the equality of the tax system, in particular due to the progressivity of property taxation. In a broader context, taxation mobilizes domestic financial resources for public service delivery and to finance long-term investments in public goods. It is also increasingly recognized that taxation matters for effective state-building, as efficient tax systems enhance public sector accountability and governance (see Box A.7.1).

Box A.7.1: Taxation increases state capacity, accountability and responsiveness When fiscal revenues depend on a large number of taxpayers there is an incentive to promote broad prosperity, and to develop bureaucracies capable of collecting and administering taxes effectively. This makes Governments more responsive to their citizens and helps build state capacity.

Bargaining with citizens over tax makes Governments more accountable, as taxpayers mobilize to resist or negotiate tax demands, monitor how tax is collected and used, and insist on having a greater say in public policy in exchange for compliance with tax demands. As tax compliance increases, state capacity improves and the taxation process becomes more efficient and predictable. Better public policy results from debate and negotiation with citizens.

Source: Taxation, State Building and Aid, OECD

45

Box A.7.2: Cost Benefits of Tax Administration Reform The proposed Tax Administration Reform consists of five different activities. Associated costs and benefits are assessed over the project implementation period (2011-2015) as well as over the 25 year repayment period of the loan: • Activity 1 aims to update 11,000 urban land parcels to improve property tax collection. Costs associated with this task consist of the employment of 20 staff, to be hired gradually during project implementation and at an annual salary of AR$25,000; IT equipment (5 computers, AR$3,000 each); GPS equipment and satellite images (AR$400,000) and three vehicles (AR$70,000 each). Estimated benefits relate to greater tax collection assuming a permanent gain in property tax of AR$220 per updated land parcel.

• Activity 2 consists of matching and registering 25,000 urban properties with their correct taxpayer ID (‘cuitification’). Associated costs are 7 staff at an annual salary of AR$25,000 and the purchase of IT equipment (18 computers, at AR$3,000 each). Expected revenues are not quantifiable, although they are likely to be significant.

• Activity 3 aims to recover AR$12 million of tax arrears. Costs correspond to the employment of 10 staff at an annual salary of AR$25,000. Expected revenue gains correspond to the established target of AR$12 million.

• Activity 4 aims to conduct 850 integral tax audits for Gross Income Tax. Costs relate to the employment of 20 staff, to be hired gradually at an annual salary of AR$25,000. Revenue projections assume annual gains in tax revenue of AR$500,000 per audit.

• Activity 5 consists of legal modifications to improve efficiency in tax collection. Activity 5 is not quantified, although benefits are likely to be significant.

Net present value analysis (NPV) The proposed reforms to provincial tax administration are expected to yield positive economic returns in terms of increased tax revenues from 2011 onwards. Activity 1 does not yield any revenue collection in year 2011 as by law changes in valuation only become effective in the consecutive year. Since valuation updates will however remain effective beyond project implementation, Activity 1 should yield an infinite stream of additional tax revenue.

Activities 3 and 4 are expected to yield additional revenues only during project implementation. Only costs associated with Activity 2 are quantified, while neither costs nor benefits of Activity 5 are being assessed; the estimated economic returns of the overall tax reform are hence somewhat underestimated. The NPV calculations assume a discount rate of 5 percent and an exchange rate of AR$ 3.95 per US dollar.

In NPV terms, benefits outweigh costs and the increase in tax collection derived from the overall tax administration reform would be of AR$43.8 million during 2011 and 2015 and of AR$62.1 million for the entire 25 year period of loan repayment. Expressed differently, a NPV gain of AR$62.1 million (US$15.7 million) would cover 52.4 percent of the principal amount of the US$ 30 million loan.

A more ambitious reform scenario, as indicated by Junquera (2010), would result in even greater gains. Considering a 50,000 target for Activity 1; a 69,000 target for Activity 2; a 4,565 target for Activity 3; and a 1,960 target for Activity 4, reforms would yield net present value gains of AR$77.8 million during 2011 and 2015 and of AR$153.0

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Box A.7.2: Cost Benefits of Provincial Tax Administration Reform (continued) Table 1. Estimated costs and benefits of Tax Administration Reform, by year and activity 2011 Activity 1 Number of updated urban land parcels Estimated cost (AR$) Number of personnel employed each year Other IT equipment (AR$) GPS Equipment & Satellite images (AR$) Vehicles (2 units in 2011, 1 unit in 2012; AR$) Estimated increase in tax collection (AR$)* Activity 2 Number of "cuitified" urban properties Estimated cost (AR$) Number of personnel employed each year Other IT equipment (AR$) Estimated increase in tax collection (AR$) Activity 3 Number of tax arrears accounts in excess of AR$5,000 Estimated cost (AR$) Number of personnel employed each year Estimated increase in tax collection (AR$) Activity 4 Number of integral audits for Gross Income Tax Estimated cost (AR$) Number of personnel employed each year

2012

2013

2014

2015

1,500

2,000

2,500

2,500

2,500

292,000

445,000

500,000

500,000

500,000

5

15

20

20

20

15,000

-

-

-

-

400,000

-

-

-

-

140,000

70,000

-

-

-

-

330,000

770,000

1,320,000

1,870,000

5,000

5,000

5,000

5,000

5,000

229,000

175,000

175,000

175,000

175,000

7

7

7

7

7

54000

-

-

-

-

-

-

-

-

-

500

500

500

500

500

250,000

250,000

250,000

250,000

250,000

10

10

10

10

10

500,000

1,500,000

2,500,000

3,500,000

4,000,000

100

150

200

200

200

250,000

375,000

500,000

500,000

500,000

10

15

20

20

20

Estimated increase in tax collection (AR$)

5,000,000

7,500,000

10,000,000

10,000,000

10,000,000

Total Estimated cost (AR$) Estimated increase in tax collection(AR$)

1,409,000

1,245,000

1,425,000

1,425,000

1,425,000

5,500,000

9,330,000

13,270,000

14,820,000

15,870,000

* Estimated tax collection in year t is the result of the cumulative sum of revenue gains from updated land plots from year 1 to year t-1 (considering a AR$220 gain per updated land parcel).

Expected efficiency gains in Public Sector Performance and Service Delivery 5.

Greater efficiency of public expenditures is expected to translate into important efficiency gains in service delivery and public sector performance. Technical assistance and training financed by the Project are expected to yield the following outcomes: â&#x20AC;˘ Budget planning: Through the development and implementation of budget planning tools (e.g. results-based budgeting for several key programs or monitoring and evaluation schemes); it is expected to improve the allocation process of public resources and to strengthen the budget and financial administration area of the Ministry of Finance. The 47

â&#x20AC;˘

results-oriented program budget will give way to a new mode of public management as long as it is developed jointly with strategic planning, using performance indicators and monitoring and evaluation schemes.

Procurement system: The implementation of a procurement system is another objective of this operation. The reform involves the development of a unified legal framework, the creation of a governing body, the implementation of an information system, and the professionalization of the staff assigned to the procurement system through the development of a training and accreditation program. As the new procurement system is consolidated and coverage extended to the entire public administration, significant gains are expected both in terms of enhanced transparency and financial savings, associated with the elimination of duplication, the outsourcing of basic services or the centralization of common purchases. To illustrate, when Chile implemented a new procurement system, it consolidated a culture of austerity and promoted a greater focus on efficiency. The implementation of an electronic auction system for decentralized management generated significant savings for purchases of medicine and medical supplies in Paraguay, and in Australia, procurement reforms have brought about up to 20 percent savings in public purchases of goods and services.

6.

More effective irrigation and more extensive supply of drinking water will support rural productivity and development. The impact of the Project will further be reflected in the adoption of environmentally sustainable water resource management, enhanced capacity in relevant agricultural secretariats, and the availability of new and improved management tools.

7.

The overall economic return of the operation is expected to be positive. After project implementation, La Rioja will not only benefit from additional local tax revenue, but its public administration will also count on results-based management tools; more efficient information systems; a more qualified workforce; greater internal capacity; and potential savings. In addition to such intermediate outcomes, the Project is also expected to contribute to greater transparency in the allocation of public resource and to an overall improvement of public sector management capacity, which will benefit all areas of economic and social development of the province.

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