FOR OFFICIAL USE ONLY - World Bankdocuments.worldbank.org/curated/en/708081559008894254/...Uzbekistan Institutional Capacity Building Technical Assistance Project (P168180) Page 6

FOR OFFICIAL USE ONLY Report No: PAD3042

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF

US$33 MILLION

TO THE

REPUBLIC OF UZBEKISTAN

FOR A

INSTITUTIONAL CAPACITY BUILDING PROJECT

MAY 3, 2019

Finance, Competitiveness and Innovation Global Practice Governance Global Practice Europe and Central Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective on March 15, 2019)

Uzbekistan Sum 8,374 = US$1

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

ACN Anti-Corruption Network

ADB Asian Development Bank

ASAM Agency for State Assets Management

COA Chamber of Accounts

CPF Country Partnership Framework

CTLC Component and Technical Lead Coordinators

DLI Disbursement Linked Indicator

DPL Development Policy Loan

DPM Deputy Prime Minister

DPO Development Policy Operation

EBRD European Bank for Reconstruction and Development

ECA Europe and Central Asia

ECAPDEV Europe and Central Asia Capacity Development Trust Fund

FDI Foreign Direct Investment

FIPA Foreign Investment Promotion Agency

GLC Government Linked Company

GOU Government of Uzbekistan

GRS Grievance Redress Service

IA Internal Audit

IAIS International Association of Insurance Supervisors

ICBP Institutional Capacity Building Project

ICR Implementation Completion and Results

IDA International Development Association

IFMIS International Financial Management Information System

IFRS International Financial Reporting Standards

IMF International Monetary Fund

INTOSAI International Organization of Supreme Audit Institutions

IPCC Intergovernmental Panel on Climate Change

IPF Investment Project Financing

IPSAS International Public Sector Accounting Standards

ISA International Standards of Audit

ISP Implementation Support Plan

ISR Implementation Support and Results

JSC Joint Stock Company

LLC Limited Liability Company

M&E Monitoring and Evaluation

MIS Management Information Systems

MoE Ministry of Economy

MoF Ministry of Finance

MTEF Medium-Term Expenditure Framework

MFD Maximizing Finance for Development

NAPM National Agency of Project Management

NDS National Development Strategy

NPF New Procurement Framework

PAD Project Appraisal Document

PDO Project Development Objective

PEFA Public Expenditure and Financial Accountability

PEMPAL Public Expenditure Management Peer-Assisted Learning

PFM Public Financial Management

PIAB Project Implementation Advisory Board

PIC Public Internal Control

PIM Public Investment Management

PIU Project Implementation Unit

PLR Performance and Learning Review

POM Project Operational Manual

PPDO Project Procurement Development Objectives

PPF Project Preparation Facilities

PPP Public-Private Partnership

PPSD Project Procurement Strategy for Development

PRAMS Procurement Risk Assessment and Management System

PSA Public Sector Accounting

PULSAR Public Sector Accounting and Reporting Program

REPF Report on the Enhancement of Public Sector Financials

RIAC Republican Inter-Agency Anti-Corruption Commission

SAI Supreme Audit Institution

SCD Systematic Country Diagnostic

SOB State-Owned Bank

SOE State-Owned Enterprise

STEP Systematic Tracking and Exchanges in Procurement

TA Technical Assistance

TSS Thematic Support Specialists

UFRD Uzbekistan Fund for Reconstruction and Development

UZPSAS Uzbekistan Public Sector Accounting Standards

WB World Bank

Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc

Global Practice Directors: Alfonso Garcia Mora, Edward Olowo-Okere Practice Managers: Marialisa Motta, Daniel Boyce

Task Team Leader(s): Stefka Slavova, Arman Vatyan

The World Bank Uzbekistan Institutional Capacity Building Technical Assistance Project (P168180)

TABLE OF CONTENTS

DATASHEET .................................................................................. .............................................1

I. STRATEGIC CONTEXT ...................................................................................................... 6

A. Country Context ............................................................................................................................... 6

B. Sectoral and Institutional Context .................................................................................................... 8

C. Relevance to Higher Level Objectives ............................................................................................. 16

II. PROJECT DESCRIPTION .................................................................................................. 18

A. Project Development Objective .................................................................................................... 18

B. Project Components ...................................................................................................................... 19

C. Project Beneficiaries ....................................................................................................................... 25

D. Results Chain .................................................................................................................................. 26

E. Rationale for Bank Involvement and Role of Partners ................................................................. 27

F. Lessons Learned and Reflected in the Project Design ................................................................... 28

III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 30

A. Institutional and Implementation Arrangements ........................................................................ 30

B. Results Monitoring and Evaluation Arrangements ...................................................................... 32

C. Sustainability .................................................................................................................................. 32

IV. PROJECT APPRAISAL SUMMARY ................................................................................... 33

A. Technical, Economic and Financial Analysis (if applicable) .......................................................... 33

B. Fiduciary ......................................................................................................................................... 34

C. Safeguards ...................................................................................................................................... 35

V. KEY RISKS ..................................................................................................................... 37

VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 40

ANNEX 1: Implementation Arrangements and Support Plan ................................................. 52

https://operationsportalws.worldbank.org/sites/RoadMap/OPCS%20Documents/Guidance%20PAD%20IPF.pdf







































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DATASHEET

BASIC INFORMATION BASIC_INFO_TABLE

Country(ies) Project Name

Uzbekistan Institutional Capacity Building Project

Project ID Financing Instrument Environmental Assessment Category

P168180 Investment Project Financing

C-Not Required

Financing & Implementation Modalities

[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)

[ ] Series of Projects (SOP) [ ] Fragile State(s)

[ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s)

[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country

[ ] Project-Based Guarantee [ ] Conflict

[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster

[ ] Alternate Procurement Arrangements (APA)

Expected Approval Date Expected Closing Date

24-May-2019 30-Nov-2024

Bank/IFC Collaboration

No

Proposed Development Objective(s)

The Project Development Objective is to strengthen public financial management and enable the market operation of the corporate sector.

Components

Component Name Cost (US$, millions)


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Improving Public Financial Management 10,000,000.00

Improving Conditions for Market Operation of the Corporate Sector 16,000,000.00

Improving Support Mechanisms for Reforms 5,000,000.00

Project Management 2,000,000.00

Organizations

Borrower: Republic of Uzbekistan

Implementing Agency: Ministry of Finance

PROJECT FINANCING DATA (US$, Millions)

SUMMARY-NewFin1

Total Project Cost 33.00

Total Financing 33.00

of which IBRD/IDA 33.00

Financing Gap 0.00

DETAILS-NewFinEnh1

World Bank Group Financing

International Development Association (IDA) 33.00

IDA Credit 33.00

IDA Resources (in US$, Millions)

Credit Amount Grant Amount Guarantee Amount Total Amount

National PBA 33.00 0.00 0.00 33.00

Total 33.00 0.00 0.00 33.00

Expected Disbursements (in US$, Millions)

WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025


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Annual 0.00 1.93 3.64 6.23 8.76 8.40 4.04

Cumulative 0.00 1.93 5.58 11.81 20.56 28.96 33.00

INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas

Finance, Competitiveness and Innovation Governance

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Gender Tag

Does the project plan to undertake any of the following?

a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF

No

b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment

Yes

c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance ⚫ Substantial

2. Macroeconomic ⚫ Substantial

3. Sector Strategies and Policies ⚫ Substantial

4. Technical Design of Project or Program ⚫ Substantial

5. Institutional Capacity for Implementation and Sustainability ⚫ High

6. Fiduciary ⚫ Substantial

7. Environment and Social ⚫ Substantial

8. Stakeholders ⚫ High


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9. Other ⚫ Substantial

10. Overall ⚫ Substantial

COMPLIANCE

Policy Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✓] No

Does the project require any waivers of Bank policies?

[ ] Yes [✓] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Performance Standards for Private Sector Activities OP/BP 4.03 ✔

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 ✔

Legal Covenants

Sections and Description i) The Recipient shall establish not later than two (2) months after the Effective Date and, thereafter maintain throughout the Project implementation, a Project Implementation Advisory Board for purposes of monitoring the progress of the Project and facilitating the resolution of inter-institutional implementation challenges, with a composition and membership, resources and terms of reference described in the POM and satisfactory to the Association. ii) The Recipient shall establish not later than one (1) month after the Effective Date an automated accounting


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information system, satisfactory to the Association, for recording Project records and generation of Project financial statements.

Conditions

Type Description

Effectiveness (a) The Recipient has adopted the Project Operational Manual in form and substance

satisfactory to the Association.

(b) The Recipient has established the PIU with composition, staff, resources and terms of

reference satisfactory to the Association.


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I. STRATEGIC CONTEXT

A. Country Context

1. Uzbekistan is at a critical juncture of its economic transformation to a market economy, needing to urgently tackle a legacy of stark structural imbalances, while sustaining its macroeconomic stability. The real GDP growth in 2018 is estimated to be 5.1 percent, down marginally from 5.3 percent in 2017 and 6.2 percent in 2016, and significantly lower than the average of over 8 percent for the previous decade, reflecting the growing strains of macroeconomic imbalances and a history of official policies that constrained private sector dynamism.1 The recent slowdown could be attributed to lower world commodity prices, negatively affecting Uzbekistan’s exports, unfavorable weather for agriculture, and energy and water shortages. Lower than expected investment inflows and adjustment costs linked to the ongoing reforms may have also contributed to the moderation in growth. The national poverty rate fell only slightly between 2016 and 2017 from 12.5 percent to 12.4 percent.2 Uzbekistan is still among the poorest countries in Eastern Europe and Central Asia (ECA), with GDP per capita of US$1,5343 in 2017. The WB’s Listening to the Citizens of Uzbekistan baseline survey estimates a national poverty rate of 9.5 percent, with the share of females in poverty slightly higher than the share of males in poverty (9.8 percent vs. 9.2 percent). Poverty rates among children (0-15 years of age) are even higher.4 According to the survey unemployment among working-age women (15-65 years old) is more than double that for men (12.4 percent vs. 5.4 percent), and women’s labor force participation rate is half that for men: 31.5 percent vs. 60 percent (Table 1). Public investment increased sharply in 2017 and 2018, by 35 percent and 25 percent respectively, following a large injection of directed lending to state-owned enterprises (SOEs).

2. The public sector as a key player in the country’s economic transformation suffers from lack of transparency, weak accountability, poor control of corruption and insufficient skills of public officials. Uzbekistan’s ranking in the Worldwide Governance Indicators is still low in all dimensions, with voice and accountability ranking the lowest at 3.45 (100 being the highest) in 2017. Perceptions of public sector corruption are high, with the country scoring 22 (up from 17 in 2012) out of 100 (very clean) and ranking 158 out of 180 (most corrupt) in the 2018 Corruption Perception Index issued by Transparency International.

3. After independence in 1991, Uzbekistan remained a closed and centrally-planned economy with low private sector participation. For 25 years, the efforts of the government were to develop an import-substitution growth model, based on heavy state dominance in key sectors of the economy, such as energy, mining, agriculture (cotton, wheat), industry (chemical, automotive, pharmaceutical) and

1 World Bank. Report No. 126078 – UZ. Performance Learning Review of the Country Partnership Framework (FY19-21). May 29, 2018. 2 According to the Government of Uzbekistan national poverty estimates. 3 World Bank National Accounts Data (current US$). 4 The survey measures poverty at the household level, and it is not always clear who within a household is poor. Thus, these estimates are best thought of as the “share of [group] living in poor households”. This matters if there is a lot of within-household inequality (i.e. men within a household consuming much more than women or children) as this method would understate the poverty rate among the vulnerable groups of interest, such as women and children.








































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services. Estimates vary, but as of late 2016, the state contributed more than 50-60 percent of GDP, and the domestic private sector is weak and informal. The country’s export competitiveness had been in decline for a decade. Uzbekistan needed to take new measures to increase growth and radically shift the economic model from an isolationist, import-substitution one to a more open, export-driven one.5

4. Uzbekistan is vulnerable to climate change, as the region is projected to have the strongest warming of hot extreme temperatures. The country may face deficiency of water resources, growth in land desertification and degradation, increase in occurrence of droughts and other dangerous phenomena, leading to instability of agricultural production and threatening the country’s food security.6 Anticipated impacts of climate change in Uzbekistan (higher temperatures, greater variability in precipitation, and increased frequency of extreme weather events) are putting pressure on water availability, land, biodiversity, and ecosystems, with severe negative impacts on agriculture, the energy sector and public health. Increasing climate resilience through the efficient use of water, land, and energy resources is also among the development priorities of the Government of Uzbekistan.

5. In late 2016, under the leadership of newly-elected President Shavkat Mirziyoyev, the Government of Uzbekistan (GOU) embarked on an ambitious economic modernization program to reinvigorate growth to benefit all Uzbek citizens. The government issued its 2017–2021 National Development Strategy on February 7, 2017 (Presidential Decree No. 4947), which reflects a clear intention to build a private-sector-led market economy. It is a market-oriented reform program with five priority policy areas: enhance state and public institutions, secure the rule of law and reform the judicial system, promote economic development, foster social development, and ensure personal and public security. More recently, the government adopted an ambitious reform roadmap through a presidential decree and established a new high-level Economic Council to advise the President and the Cabinet on the design and sequence of reforms. A new dedicated government agency tasked with reform of SOEs and improving their corporate governance—the Agency for State Asset Management (ASAM)—was established on January 14, 2019. In parallel, there is clear demand from the President to reform public sector governance and performance. The Ministry of Finance is revising the public financial management (PFM) strategy, which is based on the recent Public Expenditure and Financial Accountability (PEFA) assessment (which was disseminated in March 2019). There is now a strong commitment to reform the PFM system with an emphasis on improved accountability, transparency, and performance.

6. To date, the government has made notable progress toward social and economic transformation. Over the past two years, the government has enacted the long-awaited Law on Public Procurement, which is based on international best practices, and the Law on Anti-Corruption. It has started reducing large economic distortions and avenues for corruption and the state’s large presence in the economy. It has liberalized some prices and opened the economy to greater foreign and domestic private sector participation. While initial steps in all these areas have been taken, the government intends to undertake deeper institutional reforms through enhancing the capacity of all ministries and agencies involved in the transformation of the economy.

5 World Bank Group Country Private Sector Diagnostic: Creating Markets in Uzbekistan: from Stabilization to Competitiveness. January 2019. 6 Intergovernmental Panel on Climate Change (IPCC): Report on Global Warming of 1.5C, 2018.


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7. Thus far, the government has enjoyed widespread support from citizens, but expectations are high and demographic pressures present a major job creation challenge and a risk of radicalization. The President and Cabinet have begun an open dialogue with citizens via online platforms and meetings in all regions of the country. Job creation is imperative to improve citizens’ living standards and ensure sustained support for the government’s reform plan. In this sense, economic reforms will have to balance the needs for a radical transformation toward private ownership with a need to avoid massive job losses associated with privatization. Creating economic opportunities and jobs is particularly important for the young cohorts of the population, which are at risk of radicalization.

Table 1: Summary Statistics on Male and Female Employment in Uzbekistan

Male Female

Working-age population ('000s) 10,910 11,079

Labor force ('000s) 6,521 3,492

Labor force participation rate (%) 60 32

Employment ('000s) 6,172 3,058

Employment-to-population ratio (%) 57 28

Unemployment ('000s) 349 434

Unemployment rate (%) 5.3 12.4

Youth unemployment ('000s) 146 147

Youth unemployment rate (%) 12.5 24.0

Working poor ('000s) 390 144

Share of working poor in total employment (%) 6.3 4.7

Social security coverage rate (%) 42 59 Source: World Bank Listening to the Citizens of Uzbekistan survey, 2018

B. Sectoral and Institutional Context

8. Uzbekistan’s weak public institutions are not conducive to improving PFM and facilitating the creation and operation of markets. Public sector laws, regulations, institutions, approaches, and business processes need to be enhanced for ongoing market reforms to have the desired impact and for public service quality to be improved.

9. The GOU is fully aware that its current institutions and their operating frameworks lack the capacity to support a well-functioning public sector and an effective market economy. Uzbek public sector institutions do not follow international good practices. Those include the areas of program and performance budgeting, public investment management, financial reporting, internal control, and internal audit. Nearly half of the country’s economic activity is carried out by SOEs that have long been benefactors of preferential treatment over private firms (e.g., monopoly operating rights; preferential access to capital and basic infrastructure; tax and customs duties exemptions or preferences; low input prices for electricity, gas, water; and direct and indirect subsidies). SOEs are energy-intensive and improving energy efficiency and investing in renewable energy are among the priorities of the GOU.

10. The country’s international climate change commitments (Nationally Determined Contribution (NDC)) under the Paris Climate Agreement elaborates mitigation pledges and adaptation priorities in


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detail and indicates measures to achieve them. Uzbekistan’s NDC foresees mitigation measures to increase energy efficiency in various sectors of economy, including increases in renewable energy and decreasing losses in gas and electricity systems, the development of financial support schemes from the government for mitigation action, and educational and training activities.

Challenges:

Lack of transparency and weak accountability in the public sector

11. Uzbekistan has a highly centralized government and decision-making system7. There is a need to improve the accountability of public sector officials and the transparency and efficiency of public sector operations. Citizens need improved access to information on government policies and performance. The conclusions from the recently completed 2018 PEFA assessment and preliminary findings from the 2019 Public Expenditure Review are reflected below.

12. PFM institutions do not apply international good practices. The budget preparation process managed by Ministry of Finance (MoF) does not apply a multi-year framework and is not informed by sector strategies. The oversight (MoF, Ministry of Economy (MoE)) and line agencies involved in public investment management (PIM) do not have adequate capacity to identify, develop, appraise, execute, and monitor infrastructure projects. The treasury system within the MoF does not allow it to monitor cash flows in currencies other than the Uzbekistan Soum (UZS), nor does it allow adequate data analytics to inform decision-making on payments, revenue collection, funds management, and debt management. The public internal control framework, managed through the MoF, is excessive and mostly control and inspection dominated, with a heavy reliance on a culture of punishment.

13. There are fundamental weaknesses in the capacity and business processes for budgeting and planning. The state budget process produces reliable budgets as actual implementation reflects what was intended8. The budgeting system in Uzbekistan is rapidly reforming and many new formal procedures and formats are being put in place. However, there are still fundamental budgeting capacity shortcomings. Preliminary evidence from the 2019 Public Expenditure Review confirm that basic business processes around the annual budget process need to be strengthened before more sophisticated budgeting methodology can be effectively implemented. This is also highlighted in the PEFA (performance indicator (PI) 17) which assesses the budget preparation process. While a budget calendar exists, there is no guidance to line ministries on ceilings for their budget submissions (PI 17 ‘D’). This indicator confirms that the iterative budget preparation process between the MoF, other central organizations, and line ministries is not working well. The budget classification does not support program nor performance budgeting. While Article 88 of the Budget Code requires information on development programs, the concept of development programs is not well-developed and lacking performance information, which does not allow for properly linking the budget with reported results indicators or adequately assessing performance in service delivery. Performance plans are not prepared government-wide, and no reporting arrangements are in place regarding realized outputs and outcomes (PI 8 ‘D+’)9. Budget ceilings are not

7 World Bank. Report No. 106454-UZ. Systematic Country Diagnostic for Uzbekistan. May 20, 2016. 8 2018 PEFA Indicator 1 ‘A’ score. 9 PEFA Indicators are scored from A (highest) to D (lowest).


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provided in the budget circular nor is there alignment between strategic plans and budget estimates (PI 16.2 and PI 16.3 ‘D’). Overall, the capacity of the MoF and line agencies for strategy formulation and budget preparation has yet to develop. Furthermore, PIM requires strengthening in the identification, assessment, selection and evaluation of projects, including with respect to Public-Private Partnerships (PPPs). Public non-financial asset monitoring is still not sufficiently developed.10

14. Complex business processes limit efficacy in the flow of public funds. The treasury system provides a tight centralized control of activities by the budgetary organizations, with some inefficiencies in business processes. The existing treasury system is restricted in use, with excessively complex business processes. In parallel, the system does not allow the MoF to monitor the non- UZS fund flows of budget entities. The reporting functionality of the treasury system also needs significant modifications and systematic upgrades to allow the MoF to generate data, reports and analytics (payments, revenue collection, funds management, debt management) for improved operations, decision-making and accountability.

15. Institutionalized internal and external accountability and transparency of PFM systems are weak. Regarding budget execution reporting, financial information is detailed and consistent. However, the government financial statements are neither consolidated nor do they have disclosures on accounting policies and other information required by international accounting standards (e.g., contingent liabilities). The Annual Financial Reports are de facto a budget execution report (PI 29 ‘D+’). There is no clear legal framework, nor comprehensive national public sector accounting standards. Public sector accounting and reporting expertise and knowledge is inadequate. Current internal audit practices do not adhere to international good practices on the role of the internal audit and there is little or no internal audit focused on systems monitoring (PI 26 ‘D+’). The focus is on detecting formal violations, recommending corrective actions, and levying penalties, instead of analyzing systemic issues (e.g., evaluation of business processes, effectiveness of internal control frameworks, governance and risk management). Overall, these approaches heavily emphasize compliance over performance, and thus are not consistent with modern public sector management practices. Accordingly, the PFM system does not adequately contribute to accountability of institutions and individuals for public sector results.

Large presence of ineffective and inefficient SOEs

16. The Uzbek economy is dominated by state presence across all sectors. In 2016, 38,000 SOEs and organizations generated approximately 50 percent11 of the country’s GDP and, according to official statistics, provided 18 percent of official employment in the country. Poorly performing and ineffectively governed SOEs drain limited budget resources, raising fiscal risks, leading to suboptimal capital investments and high levels of contingent liabilities.

17. Official data on Uzbek SOEs, including on their accountability and contribution to the economy, is incomplete and requires significant refinement. The predecessor to the recently created ASAM, the

10 Concept Note on the Improvement of the Public Finances of the Republic of Uzbekistan. 11 World Bank Staff Estimation. Statistics Committee data states GDP contribution at 19%, which is significantly understated due to data limitations and classification of SOEs as entities with 100% state ownership. Statistical data collection classifies all entities with less than 100% state ownership or ownership by several state entities as private. The availability and quality of economic and financial data in the country is a significant concern.


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former State Committee on Assistance to Privatized Enterprises and Development of Competition, was responsible for administering the Registry of legal entities owned by the state. As of July 1, 2018, the Registry included 23,215 entities including companies, institutions and other budget organizations owned by the state. However, available statistical data differ. According to the Statistics Committee, 34,967 legal entities operated in the state sector during 2017. There are also problems in the way SOEs are defined during registration, and these are further exacerbated by the different legal forms of productive SOEs (unitary enterprises, joint stock companies and limited liability companies). For example, the Statistics Committee only distinguishes between state and non-state companies and considers state companies only those in which the state owns 100 percent of the capital. With the creation of ASAM and its work on creating a systematic SOE database (currently only SOEs that are registered as Joint Stock Company (JSC) and Limited Liability Company (LLC) are under ASAM), the size of the SOE sector is being re-assessed and clarified, but more work is needed to build a comprehensive SOE database, which would allow to formulate an SOE ownership policy, plan privatizations and PPPs and get reliable information about the impact of planned SOE reforms. ASAM has started with compiling data on JSCs transferred to it for management, and they will get a clear picture in the coming months on these priority SOEs, including with the help of this project.

18. The core of the state-owned assets is represented by the fifteen (15) largest SOEs in the most important sectors of the economy. As per official data for 2017, five of the 15 largest SOEs are loss-making. The other ten large companies generate insignificant profits before taxes. Significant profit is recorded in only one company (UzbekNefteGaz JSC, the state oil and gas company). The 15 largest SOEs, including their subsidiaries, employ approximately 586,000 people, while the total employment in the country amounts to about 13.5 million. The relative share of large companies in the total employment in the country is thus only 4.3 percent. However, when total employment in the 15 largest companies is compared to overall industrial employment (1.827 million), the relative share increases to almost one third (32.1 percent).

Table 2: Uzbekistan: List of 15 largest SOEs, 2017

№ Company Sector Gross profit before tax,

Uzbek Soums, billion

Number of employees

Note

1 Holding Company "Uzpahtasanexport”

Textile/Cotton -40.3 51,235 In reorganization since October 2017

2 Joint Stock Company "Uzdonmahsulot"

Food production /Bread

34.3 17,044

3 Navoi metallurgical plant / Navoi Mining and Metallurgy Combinat

Mining/ Uranium/ Gold

851.8 56,213

4 Joint Stock Company Almalyk Metallurgical Plant

Mining/ Copper/ Silver/ Gold

544.1 30,781

5 Joint Stock Company Uzbek Metallurgical Plant

Steel 73.1 10,569 Under management contract with SFI Management Group (SAR) since September 2017

6 Joint Stock Company Oil & Gas 4,968.4 127,099


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Uzbekneftegas

7 Joint Stock Company Uzagrotehsanholding

Agro machinery -69.1 6,175

8 Joint Stock Company Uzavtosanoat

Automotive

44.3 25,584

9 Joint Stock Company Uzbekengilsanoat

Textiles/Cotton -40.3 59,477 Reorganized into Uzlegprom under reform roadmap, September 2017

10 Holding Company Uzbekozikovkatholding

Food production -897.8 14,717

11 Joint Stock Company Uzkimesanoat

Chemicals/ nitrogen

-160.8 29,748

12 Joint Stock Company Uzstroymaterials

Construction

889.8 15,033

13 Joint Stock Company Uzsharobsanoat

Winery 183.8 11,451

14 Joint Stock Company Uzbekenergo

Energy 903.0 48,247 Reform roadmap approved in July 2018

15 Joint Stock Company Uzbekiston temir yullari

Transportation/ Railways

1,107.9 82,436

Total 8,392.3 (US$1 billion at exchange rate of US$1: UZS8,000)

585,809

Source: Former State Committee for Assistance to Privatized Enterprises and Development of Competition (GKK)

19. Poorly performing and ineffectively governed SOEs drain limited budget resources, while undertaking suboptimal capital investments, generating high contingent fiscal liabilities and inter-company arrears that are currently impossible to quantify. Preliminary calculations indicate that the quasi-fiscal activities of SOEs and state-owned banks (SOBs) could be as high as 5-6 percent of GDP. In addition to relatively small on budget subsidies, SOEs receive support from the government, other SOEs, the UFRD and the SOBs. Capital investments undertaken by SOEs are driven by state investment plans and not necessarily by profit maximization. To understand the true financial position of connected SOEs, it would be critical to simulate their finances without the subsidies passed from one to the other. For example, the energy company might be profitable because it buys gas from another SOE at well below market prices. The energy company then passes on these below market costs to the chemical company, which in turn passes them on to the companies buying chemical products. In addition, reported profits are likely to be inflated due to the widespread use of old accounting standards, with only one or two large SOEs now transitioning to modern accrual accounting.

20. SOE governance and oversight functions are scattered among multiple government ministries and agencies, complicating SOE monitoring and undermining their accountability. Empowering ASAM with centralized ownership and oversight functions over SOEs, is an important step toward making Uzbek SOEs more effective and reducing the state’s share in the Uzbek economy. However, the agency is new and yet to build capacity to exercise its mandate effectively. Meanwhile, the line ministries have retained


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their responsibility for exercising the state’s ownership rights regarding their sectoral SOEs. Other agencies, including the Foreign Investment Promotion Agency (FIPA), the National Agency for Project Management (until recently), the MoF and the MoE may also control shares in SOEs and exercise their ownership rights. These bodies have different functions and do not have established communication channels that would allow them to streamline their oversight mandate, which weakens SOEs’ accountability. The decision-making mechanism is now handled by several high-ranking officials (Deputy Prime Ministers, Ministers and SOE executives), which is out of line with good international practices, where Boards of Directors play a central role, providing strategic advice while ensuring that management discharges its responsibility in the best interests of the state as an owner and of the enterprise itself. The current division of roles and responsibilities between the various stakeholders involved in corporate management and oversight of SOEs remains blurred, with executive decision-making power often non-transparently embedded into the government structure, diluting SOEs’ accountability and negatively impacting their performance.

21. Existing financial reporting frameworks applied to SOEs remain outdated and hinder raising SOEs’ accountability. SOEs produce financial statements according to national accounting standards, which do not provide a true and fair valuation of their assets, liabilities, equity and financial results. Some large SOEs – such as Uzbekenergo – have begun to adopt International Financial Reporting Standards (IFRS), but the experience so far shows that significant handholding and strengthening of internal accounting systems are needed in this process.

22. Attracting private capital in historically state-dominant infrastructure projects has been difficult; PPP frameworks and the PPP Agency are at the earliest stages of development in Uzbekistan. There is no PPP law, nor PPP regulations in force. The government is developing a draft law on PPPs, aiming to pass this legislation by June 2019. Given the prevailing role of SOEs in the infrastructure sector and the lack of private investment, it is not surprising that the GOU only established the PPP Agency in late 2018. The agency remains in its infancy with ten staff members, with a plan to move to 30 staff by mid-2019. As of now, the government has not signed a PPP contract with a domestic or foreign investor. However, given recent signals that Uzbekistan is open for business, there has been a flurry of private sector investor activity across most sectors that involve PPPs, without the government having the capacity to assess unsolicited proposals which have been received. In all cases, the government does not systematically prepare PPPs for the marketplace and private sector participation, thus it cannot know the various risks it will incur, including environmental and social risk, and the impact on women. Sometimes, strong global investors may have stayed away from the Uzbek market, given the perception that there is a lack of coherence and predictability in the PPP space, as more opportunistic investors bring unsolicited proposals and seek to gain an early advantage.

New and untested market regulatory agencies on competition, capital markets and insurance regulation

23. Challenges in competition policy implementation: The Competition Law includes provisions to tackle anticompetitive practices and control mergers, and even address anticompetitive actions by public bodies (including legislation). However, five areas remain problematic. First, firms considered dominant are subject to burdensome obligations. Second, the finding of dominance is based merely on market shares, which may be as low as 35 percent. Third, authorities lack essential tools to prosecute cartels or grant leniency to firms that reveal cartels (whistleblowers). Fourth, there is insufficient time for proper


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pre-merger review.12 Finally, suboptimal sanctions limit deterrence. Uzbekistan has introduced several amendments to its Competition Law aimed at promoting efficiency-based market dynamics. The changes include eliminating the criterion to determine dominance based only on a 35 percent market share. However, institutional and technical constraints have limited implementation. The recently established Anti-Monopoly Committee (one of the three successor agencies to the State Committee for Assistance to Privatized Enterprises and Development of Competition (known as GKK in its Russian abbreviation)) will need to build up its staff and would require significant capacity building to discharge its functions.

24. The capital market is underdeveloped, with low capitalization and turnover. A new Agency on Capital Market Development was established in January 2019 to develop securities market legal framework and regulate the market. As in the case with the Anti-Monopoly Committee above, the Agency on Capital Market Development needs to hire new and competent staff (they have retained one foreign consultant so far) and train the existing employees. The agency will play a critical role in developing the securities market, especially the national stock exchange, with some initial public offerings (IPOs) of privatized SOEs planned to take place on the stock exchange.

25. The insurance market is growing, but the capacity of the insurance regulator is limited, and this could be problematic as the insurance industry grows. The insurance sector largely provides compulsory products, such as auto and property insurance, but voluntary insurance products, such as life insurance, are growing rapidly. The insurance regulation department in MoF has limited staff and low capacity. It does not currently adopt the principles and standards of the International Association of Insurance Supervisors (IAIS). The staff of the department has limited knowledge of new insurance regulations and products.

Lack of a strong reform champion and sustained push at the highest political level

26. Challenges in reform initiation and implementation: various government agencies have had overlapping responsibilities regarding initiating and carrying out key economic reforms. Reform champions and decision-makers have been scattered around ministries and agencies, such as the President’s administration, MoF, ASAM and the former State Investment Committee, among others. The establishment of an Economic Council at the highest level is one way of ensuring that reforms are well planned, articulated and properly implemented.

Response to challenges:

27. The government has initiated reforms to address these multiple challenges and has requested World Bank support to continue to do so.

28. The Government has committed to enhance the PFM system and take steps to improve the transparency, accountability, and overall performance of the public sector. In 2017, the law on anti-corruption was enacted and it included the establishment of a Republican Inter-Agency Anti-Corruption Commission (RIAC), under the President, with the Prosecutor’s Office serving as the Secretariat of the Commission. In December 2017, Presidential Decree No. 3437 “On the introduction of a new procedure

12 10 days for mergers and 1 day for acquisitions unless the case presents competition concerns when the term can be extended up to 30 days


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for the formation and financing of state development programs of the Republic of Uzbekistan” was issued, with the aim to improve PIM. The government has drafted a law on internal audit in the public sector, and it is in the early phase of designing and implementing an internal audit function within the government. In April 2018, the new Law on Public Procurement was adopted. A strategy to reform the PFM system is expected to be adopted following the PEFA assessment which was completed in February 2018 to radically revise the system of public finances and increase the effectiveness of budget funds use by introducing internationally recognized methods of budget planning, modern information and communication technologies, and involving citizens in the management of public finances.13

29. The Project will support GOU in advancing PFM reforms specifically in the areas of budget planning and execution (internal controls, treasury systems), PIM and internal audit. These will be supported under component 1 of the project.

30. The Government has initiated important reforms to liberalize the economy and attract private investment, including the creation of the ASAM, as the main agency responsible for implementation of SOE reforms and support for the PPP Agency and the development of PPPs. Since 2017, the Government has taken steps to review the financial standing of the largest 25 SOEs, with the National Agency on Project Management (NAPM) having completed detailed financial analysis of seven of these. In January 2019 the Government abolished the GKK and created three new agencies with clear mandates. These include the ASAM, created January 14, 2019 by Presidential Decree No. 5630), which reports to the Prime Minister and the President of the country, as well at the Agency for Capital Market Development and the Anti-Monopoly Agency. In addition, a PPP Agency was established in the MoF. ASAM’s mandate is to implement reforms in the SOE sector. The agency is responsible for: (i) performing shareholder functions of the State in monitoring performance and exercise ownership rights regarding SOEs, and (ii) reviewing and executing any divestiture of ownership in SOEs. In September 2018, the GOU announced plans to prepare 74 SOEs for privatization. The list contained four of the largest SOEs, including their subsidiaries, in key sectors of the economy. Those tentative early steps culminated in the creation of ASAM, which has been tasked with leading the overall SOE reform process.

31. The Project will support GOU in building the proper infrastructure for effective management and oversight of SOEs, developing a pipeline of PPPs, supporting the preparation of PPPs and privatization transactions, and building the capacity of ASAM and the PPP Agency. These activities will be supported under component 2 of the project.

32. Competition and capital markets regulation: In January 2019, in addition to ASAM, the Government created two new agencies as successors to GKK: the State Anti-Monopoly Committee in charge of implementing competition and consumer protection policy, and a Capital Markets Development Agency, responsible for regulating the securities market and working with other stakeholders in developing a National Financial Structure Strategy.14

13 Government of Uzbekistan: Concept Note on the Improvement of the Public Finances of the Republic of Uzbekistan, publicly disclosed for consultation on the government website in May 2018. 14 The World Bank has been asked to assist the CBU, Ministry of Finance, Capital Markets Development Agency and other stakeholders in the elaboration of the Financial Sector Structure Strategy. This is being done with trust fund resources.


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33. The project will support the Anti-Monopoly Committee, the Capital Market Development Agency and other regulatory agencies in drafting new laws and regulations and training their staff. These activities will be carried out under component 3 of the project.

34. Creation of an Economic Council to support reforms in several economic and social areas, including on PFM and SOEs. The President, through Decree No. 5614 of January 8, 2019, established an Economic Council that will have overall responsibility for advising on, and monitoring the implementation of, the 2019-2021 reform roadmap15. The Council is chaired by the Prime Minister and comprises key ministers and senior presidential advisors responsible for reform design and implementation. A Secretariat has also been established at the MoF under the management of the First Deputy Minister of Finance. The Council is expected to fill a critical institutional gap in Uzbekistan’s transition – the need for reforms to be well-coordinated and based on robust evidence. The process of reform has been largely ad-hoc, where senior officials and line agencies have focused on developing and implementing requirements in the February 2017 Presidential Decree setting out the 2017-2021 Reform Agenda. This approach has generated considerable successes, such as the exchange rate, tax and administrative price control reforms, but it has also held back more complex reforms that require multi-agency coordination and implementation strategies.

35. The Council’s Secretariat will draw heavily on local and foreign experts to prepare and peer-review work submitted for the Council’s endorsement. A well-experienced international advisor to the Council and Secretariat would help establish a work program and serve as a liaison with the international advisory community. The Council is also expected to periodically invite experts on specific topics to join their monthly deliberations and annual conferences.

36. The Project will support the Economic Council with the hire of high-level international and local experts and fund periodic conferences and other events. These activities will be carried out under component 3 of the project.

C. Relevance to Higher Level Objectives

37. The Institutional Capacity Building Project (ICBP) supports Uzbekistan’s National Development Strategy and the World Bank’s country strategy. The ICBP supports the country’s National Development Strategy for 2017-2021, as it contributes directly and indirectly to the achievement of its five priority areas (See Figure 1). It is also well aligned with the Performance and Learning Review (PLR) of the Country Partnership Framework (CPF) for Uzbekistan for the period FY19–FY21 (Report No. 126078-UZ). Specifically, the project directly supports two of the three focus areas of the CPF adjusted as per the PLR:

• sustainable transformation toward a market economy, and

• reform of select state institutions and citizen engagement.

15 The reform roadmap, adopted by GOU in January 2019 by Presidential Decree No. 5614, is a comprehensive policy document. It was elaborated with the active support of the World Bank Group. It covers short- and medium-term activities under five themes: Macroeconomic Stability, Transition to Competitive Markets, Social Protection and Public Services, Role of the State in a Strong Market Economy, and Environmental Sustainability.


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38. The ICBP support the government’s reform priorities as outlined in its Reform Roadmap. The project is part of a package of World Bank Group support to accompany the GOU in keeping the momentum in the pursuit of its ambitious program of market-oriented reforms launched in 2017 that are unprecedented in the country’s modern history. It is one of the key instruments of engagement that supports the implementation of the World Bank’s Reform Roadmaps (October 2017 and November 2018), as well as the GOU-approved national reform roadmap aimed at maintaining Uzbekistan’s reform momentum. This project complements and provides the necessary funds to finance technical assistance to the recently approved Development Policy Operation (DPO) – Uzbekistan: Reforms for Sustainable Transformation toward a Market Economy (P166019) as well as the DPO-2 under preparation, Sustaining Market Reforms in Uzbekistan (P168280). (See Figure 1.) It is also expected to inform and complement future DPOs.

Figure 1: Complementarity of ICBP Components and Pillars of DPOs 1 and 2

39. The project maximizes finance for development (MFD) because it aims to remove binding constraints to private investment. It will support improvements in the legal and regulatory frameworks and develop a pipeline of PPPs and other MFD-relevant projects that could be implemented through other funding sources during project implementation or shortly thereafter. The project may also support the privatization of SOEs and SOBs.

ICBP Components

•Improving PFM(Budget, PIM, Treasury, Public Sector Accounting, Internal Control and Audit)

•Improving the Conditions for Market-Oriented Operation of the Corporate Sector (SOE, PPP)

•Improving Support Mechanisms for Reforms

Related DPO 1 Pillars

•Foundations for Sustainable Economic Growth and Macro-Financial Resilience

•Supporting Market Formation for Private Sector Development

Related DPO 2 Pillars (Proposed)

•Removing market and institutional constraints to private sector led growth

•Improving efficiency of factor markets

•Redefining and strengthening the role of the state


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Figure 2: ICBP Hierarchy of Objectives

II. PROJECT DESCRIPTION

A. Project Development Objective

PDO Statement

45. The Project Development Objective (PDO) is to strengthen PFM and enable the market operation of the corporate sector.

PDO-Level indicators

Improved PFM

• Budgeting processes, public internal control and audit, and public sector accounting standards

ICBP

• The Project Development Objective is to strengthen public financial management and enable the market-oriented operation of the corporate sector.

CPF 3 Focus Areas

• Sustainable transformation towards a market economy (includes enhancing economic growth and transition towards a market economy, improving regulatory environment for business, strengthening access to finance and financial services for the private sector, improving efficiency of infrastructure service delivery, including through PPPs)

• Reform of select state institutions and citizen engagement (includes strengthening PFM and financial sustainability of SOEs)

• Investing in people

NDS 5 Priority Areas

• Enhance state and public institutions (includes reforming the governance system to introduce modern mechanisms for state-private partnership, improving transparency, increasing efficiency, quality of and access to public services, reforming the public administration including gradual reduction of state regulation of the economy, developing modern forms of public control, increasing the efficiency of social partnership )

• Secure the rule of law and reform of the judicial system (includes providing guarantees of protection of rights and freedoms of citizens and improving the administrative, criminal, civil and commercial law)

• Promote economic development (includes reforming and improving the stability of the banking system, the level of capitalization and deposit base of banks and strengthening their financial stability and reliability, expansion of lending to promising investment projects, as well as small and medium enterprises, creation of a competitive environment for industries and gradual reduction of the monopoly at commodity and services markets, continuing institutional and structural reforms aimed at reducing the state's presence in the economy, further strengthening the protection of rights and priority role for private property, encouraging the development of small business and private entrepreneurship)

• Foster social development

• Ensure personal and public security


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implement international good practices

Market Operation of the Corporate Sector

• Corporate governance of SOEs follows OECD Corporate Governance Standards

• Number of SOEs privatized (more than 50 percent of shares divested) and number of infrastructure PPPs

B. Project Components

46. The proposed project has four components and finances mostly technical assistance and IT. The four components are: 1) Improving PFM; 2) Improving conditions for market operation of the corporate sector; 3) Improving support mechanisms for reforms, and 4) Project Management. The project will finance primarily advisory services (i.e., hiring of consultants), funding of IT (hardware and software) and Management Information Systems (MIS), training and workshops, and covering of operating costs.

Component 1: Improving PFM (US$10 million)

47. This component will support improvements in areas fundamental to a functional PFM system that promotes achievement of public policy objectives, improved performance, and institutionalized accountability. Those will complement work by the International Monetary Fund (IMF) in development of fiscal rules and fiscal risk management, and Asian Development Bank (ADB) on Medium-term Expenditure Framework implementation. The activities will be sequenced and will start from diagnostics and respective interlinked reform strategy development, followed by implementation. All interlinked PFM elements will be designed so that those are piloted in a government entity. Component activities will include:

48. Capacity building for budgeting and effective public investment (US$1.45million). This sub-component aims to strengthen the institutions through better budgeting processes, effectively managing public investments, and improved capacity of government officials. The sub-component will support the government’s PFM strategy as it is developed. It will consider the complementary support activities of other development partners (e.g., the IMF, ADB, European Union). The sub-component will provide support to the development and implementation of capacity building programs: (a) to enhance fundamental budgeting capacity in the MoF, the MoE and line ministries with a special focus on the process of preparation, results, monitoring, and accountability; and (b) to enhance PIM capacity of the MoF and line ministries for the development of sustainable investment projects, including pre-screening, economic analysis and selection of investment proposals with due consideration to climate change and disaster risks mitigation and adaptation; and (c) to enhance the ability of the MoF, the MoE and line ministries to identify, develop, analyze, present, execute and monitor infrastructure investment projects.

49. With regards to the scrutiny of SOEs’ investment programs, the sub-component would strengthen the capacity of the MoF to carry out financial analysis of SOEs’ strategic development and capital investment plans, hereby ensuring that contingent liabilities and fiscal risks are managed appropriately.

50. Treasury system improvements (US$3.37 million). This sub-component will support treasury reform with a focus on four related elements: financial reporting reform, cash management reform, treasury operations, and supporting IT systems development. This sub-component targets to help the


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treasury in: (a) to expand its systems coverage to, inter alia, include USD and other foreign currency accounts as well as budget transactions of all the Recipient’s budget entities; (b)to develop procedures and guidelines for conducting payments through a Treasury Single Account; (c) to improve the treasury’s cash management system; (d) to improve business processes and operations through the introduction and operation of new information technology systems; and (e) the assessment of existing public financial information systems and information and communication technology environment, including users’ current capacity for further development of the integrated financial management information system concept and its implementation strategy.

51. Public Sector Accounting (US$3.0 million). This sub-component aims at improving institutionalized accountability by aligning the public sector accounting practices of Uzbekistan toward international good practices and standards. This sub-component will provide support to: (a) the conduct of an overall analysis on the difference between the national accounting standards and practices with International Public Sector Accounting Standards (IPSAS), including the development of a comprehensive public sector accounting reform roadmap linked to the integrated PFM reform strategy; (b) the development of comprehensive national public sector accounting standards (i.e., Uzbekistan Public Sector Accounting Standards, UZPSAS) and a unified chart of accounts, including the drafting of supporting regulations on the new public sector accounting and financial reporting, development and testing of procedures for financial statement consolidation, piloting the new accounting standards and framework through applying entity-level accounting software, capacity building, change management and awareness program on the new accounting standards and framework; and (c) establishment of a certification system on the new accounting standards.

52. The project activities in this area will provide several benefits. First, they will allow for a clear understanding of the prevailing local accounting principles and policies and, most important, local practices compared to IPSAS and international good practices. The Report on the Enhancement of Public Sector Financial Reporting (REPF) assessment will detail the accounting environment in the public sector. The roadmap for public sector accounting (PSA) reforms will estimate the required resources and recommend sequencing, taking into account the required linkages and timing of other PFM reforms. Parallel capacity building measures will ensure that public sector accountants and other staff can implement the reforms. PSA reform awareness-raising activities will be conducted to reach the broader universe of stakeholders, given that the reforms are going to impact all public sector organizations in the country.

53. Public Internal Control and Internal Audit (US$2.18 million). This sub-component aims at improving institutionalized accountability by upgrading public internal control (PIC) and internal audit (IA) frameworks toward international standards and good practices. It will provide support to the development and implementation of: (a) a new PIC framework, following an assessment of the current PIC framework and including design and piloting within a sector (reflecting all PIC components from budgeting to reporting and using the treasury system toward this end), and drafting of supporting legal and regulatory framework; and (b) a new public sector IA framework including the drafting of new legislation for public sector IA, developing risk-based guidelines and manuals following international good practices (e.g., Public Expenditure Management Peer-Assisted Learning (PEMPAL) Community of Practice on Internal Audit) and standards (i.e., International Professional Practices Framework), developing and piloting an IA management software, designing and implementing learning and awareness programs


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(including change management) on the new IA framework, and developing a concept for a certification system on the new IA framework.

Component 2: Improving conditions for market operation of the corporate sector (US$16.0 million)

54. This component will support the restructuring and “rightsizing” of the SOE sector in Uzbekistan. The component will do this through: (a) improving the legislative framework for SOE strategic ownership and performance and putting SOEs on an equal footing with the private sector; (b) strengthening institutions in charge of SOE governance and oversight and developing the tools for such oversight; (c) developing an inter-operable IT system for managing SOE data in ASAM; (d) preparing PPP and privatization transactions through dedicated project preparation facilities; (e) capacity building and training for ASAM; and (f) technical assistance on communications and employee outreach. This component will complement the policy framework as outlined in the Uzbekistan Reforms for a Sustainable Transformation Toward a Market Economy DPO. Component activities will include:

55. Improving the legal and regulatory framework for SOE strategic ownership and performance on an equal footing with the the private sector (US$2 million). This sub-component will fund the development of a coherent and well-articulated SOE ownership policy and restructuring strategy, including a strategic SOE mapping, to be based on ASAM’s ongoing inventory and categorization of all SOEs in Uzbekistan. This work will lay the foundations for the “rightsizing” of the SOE sector and bringing in much needed private capital, and conducting a strategic assessment of the state’s role in the economy and as an owner of SOEs. Both the SOE ownership policy and SOE mapping will require the government’s approval via regulation or decree.

Specifically, this sub-component will provide TA to: a. Develop a coherent and well-articulated SOE ownership policy and restructuring strategy. The

SOE ownership policy should specify the state’s objectives as an owner for the overall state-owned sector, and for specific SOEs. The policy should also clarify: (i) the respective roles of the state, the board of directors, and management; (ii) autonomy in SOEs operations, where the government is removed from operational decision-making; (iii) fiduciary duty of boards and management to act in the best interest of an SOE; (iv) provide guidance to boards in cases where an SOE’s commercial and non-commercial objectives are in conflict; (v) restructuring options and approaches as well as the assessment and selection of the companies that will become restructuring candidates; and (vi) gradual implementation of the restructuring strategy through piloting in a few companies.

b. Conduct a comprehensive review and update of the legal and regulatory framework for SOE governance. The SOE ownership policy and mapping should be accompanied by a comprehensive review and updating of the legal and regulatory framework for SOE governance. The main legislation will be analyzed aiming to bring SOEs under company law, subject SOEs to the same requirements as private entities, updating corporate governance, accounting and audit legislation, and applying other laws and regulations to SOEs to create a level-playing field. Moreover, a clearly defined legal and regulatory framework for SOE ownership will establish key expectations to all stakeholders, including shareholders, boards, management, and the public. This will help improve SOE governance and performance, strengthen the state’s ownership


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function and improve the efficiency of resource allocation. The process requires a comprehensive approach and can bring significant gains in increasing the efficiency of SOEs, while optimizing the use of public resources. The laws that would require updating and redrafting are: (i) Civil Code, (ii) Corporate Insolvency Law, (iii) Law on Joint Stock Companies and Protection of Shareholders’ Rights; (iv) Law on Limited Liability Companies; (v) Corporate Governance Code; and (vi) Accounting and Audit legislation. ASAM management has indicated the need for significant amendments needed in the Civil Code, company law and the potentially the Labor Code.

56. Strengthening institutions and developing tools for improved SOE oversight and governance (US$1.5 million). This sub-component will support the first phase of the government’s actions and gradual transition to better performance by SOEs. This work will build the foundation for enhancing corporate governance infrastructure for SOEs and improve SOEs’ financial accountability, performance monitoring and management. In particular, this sub-component will support implementation of SOE governance through capacity building in ASAM, developing and implementing an SOE performance monitoring system and building an IT platform for aggregation and publication of large SOEs’ financial statements.

57. ASAM will need to put SOEs on a financial sustainability path, improving their profits and contribution to the economy. This sub-component will include support to: (i) building the staff capacity of ASAM, the MoF, the Foreign Investment Promotion Agency under the Ministry of Investment and Foreign Trade, and other government agencies in charge of performing SOE ownership and oversight functions; (ii) developing and implementing an SOE performance monitoring system in ASAM; (iii) setting the policies and procedures on SOEs data collection and processing; (iv) supporting the gradual transition of the largest SOEs to IFRS and International Standards of Audit (ISA) to increase the reliability and quality of financial information of SOEs; (v) developing and implementing guidelines for SOEs’ financial performance evaluation (based on IFRS); and (vi) upgrading and implementing an IT platform for aggregation and timely publication of large SOEs’ (i.e., top 30) financial statements.

58. Development of a system database for ASAM (US$1.0 million). The activities will include technical support to ASAM in upgrading and implementing an information and technology platform for aggregation and timely publication of the SOEs financial statements. The support will include assessing the IT requirements for a new information system that collects and manages data collected from SOEs, and procurement of such IT solution. The solution should be a user-friendly and interactive system, which would allow for collecting and maintaining detailed information for each company (e.g., taxation, employment, financial analysis, and dynamic data).

59. Two Project Preparation Facilities (PPFs) for GOU institutional capacity upgrading to bring strategic investments (divestments, PPPs) to the market (US$10.0 million). There will be one PPF for divestments and one PPF for PPPs. This sub-component will finance technical assistance (TA) support (through needed studies and advisories) the restructuring and transition of select SOEs to privatization (the “divestments”) and the development of PPPs; the PPFs will also complement the policy dialogue between the World Bank Group (WBG) and the government. Under this sub-component, two separate PPFs will be established – one to support the ASAM and the second for the benefit of the PPP Agency under the MoF, each capitalized with US$5 million. These TA funds will be used to finance the preparation of privatization transactions and the preparation of PPP transactions for the market, respectively.


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60. The PPF funds will help coordinate and finance activities required to ensure that investment projects (divestments and PPPs) are well-structured, commercially viable, and structured in line with global best practices; deliver value for money to the GOU and are fiscally prudent; and are executed in line with GOU policies and procedures – complementing donor support. The PPFs are being established to ensure that any privatization or PPP that comes to the market for private sector investment in Uzbekistan is properly prepared by the government through studies and advisory TA. Eligible PPF activities would support all stages of the transaction lifecycle, where there are identifiable outstanding public sector capacity needs, and include: (a) consultant services to prepare and bring approved projects to the market; (b) pre-feasibility and feasibility studies, (c) financial models or cash flow projections, (d) valuation reports, information memoranda, prospectuses.

Project selection criteria might include:

(i) High likelihood of commercial and economic viability; (ii) Economic impact, transformational potential, and contribution to jobs and broader

economic growth; (iii) Readiness for implementation; (iv) The demonstrated need for funding support from the PPF, given available complementary

advisory and financial resources from the IFC and other donors, including trust funds.

61. The PPFs will cover several sectors and will be set up as revolving facilities, i.e., to the extent possible, successful bidders of privatizations and PPPs will repay the cost of the PPF studies or advisories. As successful bidders recapitalize the PPFs, the PPFs will use much more than the US$5 million initially capitalized under each facility at the beginning of the project. In terms of sectors, the PPFs are expected to prepare divestments and PPPs in numerous sectors, including agribusiness, energy, information and communications technology, logistics, transportation (airports, toll roads etc.), social sectors (health, education), tourism, and water and sanitation. To ensure the proper use and accounting of the two PPFs, the Government will keep separate accounts for each PPF, one account for the PPP PPF and a second account for the ASAM PPF.

62. Capacity building for all government agencies involved in SOE corporate governance reform, privatization and PPPs (US$1.0 million). A large share of the capacity building and training will be integrated into the implementation of activities under this component. However, there will be specific technical assistance (seminars, workshops, consultations, study tours, etc.) provided for the capacity building of the implementing agencies, including the enhancement of individual skills of staff. The required knowledge covers the skills to select the external consultants, legal and industry experts in a transparent manner, to help them in communications with the companies, and to control and comment on the proposals received. GOU staff working on privatizations and PPPs will need to work closely with financial, technical and legal advisors hired with project funds. Government officials will also need to be trained in several areas, including the development of project concepts, information memoranda, how investors are identified, data rooms, bidding documents, evaluations, financial instruments, contract monitoring, etc. For PPPs, several early training areas will be prioritized, such as fiscal risk impact, value for money, risk identification and mitigation, project preparation, and the treatment of unsolicited proposals.

63. Carry out a comprehensive review and update of the legal and regulatory framework on privatization process and procedures. This would require a review of the Privatization Law and other sector-specific laws and regulations, and amendments of these laws and regulations in accordance with international best practice. The OECD Policy Maker’s Guide to Privatization can serve as a benchmark in


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determining the sequencing of the privatization process, the need for pre-privatization industry and company restructuring, addressing employee and stakeholder relations and concerns, deciding on the appropriate method of sale of the SOE, and ensuring effective communication, transparency and integrity of the process. These principles could be laid in the laws and regulations that would be subject to review and amendment. The Privatization Law would also need to determine the institutional arrangements for privatization at different levels of the government.

64. Technical Assistance on communications and employee outreach (US$0.5 million): The TA will assist ASAM and other relevant Uzbek authorities develop a communications strategy to support the SOE reform agenda. This task will entail the development of an overarching communications strategy around the transformation toward an economy led by the private sector and the role of the State in providing sound regulations, as well as an engagement template for managers and employees of the various SOEs slated for privatization. The TA will also include a substantial capacity building element to ensure that ASAM can continue implementing various communications and employee outreach activities.

Component 3: Improving Support Mechanisms for Reforms (US$5.0 million) 65. This component will provide support to the newly established Economic Council, key regulatory agencies and other public sector agencies expected to be identified as critical for implementing market reforms during project implementation. Component activities will include:

66. Technical assistance to the Economic Council (US$1.0 million). The TA will support the Economic Council implement the reform roadmap 2019-2021 launched on November 29, 2018 with a view to foster private-led economic growth. The Council is expected to draw heavily on local and foreign experts to prepare and peer-review work submitted for the Council’s endorsement. The costs of this advisory work – consultant honorariums, fees, and travel costs – are expected to be supported through this proposed operation. The proposed operation is also likely to cover some costs involved with the ongoing operations of the Secretariat – such as the recruitment of local experts and costs associated with logistics of organizing Council meetings and periodic conferences.

67. Technical Assistance to Regulatory Agencies and Other Public Sector Agencies performing economic regulatory functions as the Recipient may propose and the Association may agree (US$4.0 million). This sub-component will involve financing of activities that would contribute to the achievement of the PDO but have not yet been identified. For example, the newly established regulatory agencies, such as the Anti-Monopoly Committee and the Agency for Capital Market Development, have expressed interest in receiving TA under the project. If this is deemed additional and contributing to the PDO, the project could fund potential activities for these agencies. The objective of this sub-component is to respond to emerging institution building needs and changing priorities of the government. The selection process and criteria for activities to be funded under this sub-component are discussed in Annex 1 and will be provided in the Project Operational Manual (POM).

Component 4: Project management (US$2 million)

68. Project management (US$2 million). This sub-component will provide support to the overall implementation arrangements for the project. This will involve financing activities of the project implementation unit (PIU) in the MoF, including coordination, follow-up, and reporting (budget and task contracts and completion), project management and fiduciary training, travel, relevant operating costs


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and personnel, such as the PIU Director, fiduciary staff, component technical leads and coordinators, thematic specialists, administrative staff and other staff deemed necessary for the efficient and effective operations of the PIU. The sub-component may include carrying out of studies or other activities as needed to achieve the objectives of the project as may be proposed by the Recipient and approved by the Association.

C. Project Beneficiaries

69. The Uzbek citizens are the final beneficiaries of improved public sector performance and increased private sector participation in the economy. The project will pay special attention to women being direct beneficiaries under the different components, especially in training programs. Women-entrepreneurs are also expected to benefit from the project indirectly. The direct project beneficiaries are the government agencies and officials, who will benefit from enhanced tools, capacities and a new operating environment supporting market-oriented reforms. The Uzbek private sector is also expected to benefit directly, if Uzbek private firms bid for some of the PPPs or SOEs under the credit. Indirect benefits for the private sector will come from the reforms focused on levelling the playing field among private firms and SOEs (privileged until now), as well as strengthening some of the agencies that regulate private business activity.


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D. Results Chain

Table 3: ICBP Theory of Change

Problem Statement: PFM fundamentals are not up to international standards and institutions lack the capacity and frameworks to support market-oriented reforms.

Activities Outputs Intermediate Outcomes PDO-level Outcomes

Develop and implement enhanced frameworks and build capacity for the management of PSA, public internal control and audit, budget, and public investments.

Uzbekistan Public Sector Accounting Standards (UZPSAS) developed, Public sector IA regulations and procedures designed, Budgeting procedures improved focusing on results and accountability; diagnostic on current situation of PIM, staff trained.

Accounting and financial reporting regulations improved, new public sector IA framework established, PIM and budgeting regulations implemented.

Budgeting processes, public internal control and audit, and PSA standards reflect international good practices

Implement and build capacity to improve SOE governance, restructure SOEs and build capacity for privatization; review and update legal frameworks for the corporate sector and establish PPFs for PPPs and SOE privatization.

SOE ownership policy and strategy completed; inventory of SOEs completed; regulations for SOE governance and accountability updated; staff of State Assets Management Agency trained on ownership function, corporate governance and performance monitoring; comprehensive legal and regulatory review of the corporate sector completed (including new laws on competition and PPP, privatization); comments on existing SOE laws provided or new SOE laws prepared; Review of national investment legislation and FDI strategy completed; pipeline of PPP and MFD-relevant projects completed; SOE restructuring strategy completed; ASAM staff trained.

SOEs use IFRS for financial reporting and publicly disclose their reports; professionalized SOE boards created; SOE performance monitoring uses key performance indicators (KPIs) and results are publicly disclosed; enactment of new laws and regulations for competition, PPP, FDI and privatization; number of SOEs made available for privatization; number of SOEs restructured; number of PPPs developed for the market; number of bids received per privatization transaction; number of bids received per PPP transaction.

Corporate governance of SOEs reflects OECD Corporate Governance Standards

Number of SOEs privatized (more than 50% of shares divested) and number of infrastructure PPPs completed


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Activities Outputs Intermediate Outcomes PDO-level Outcomes

Build capacity in other regulatory agencies. Support the work of the Economic Council in implementing the reform roadmap 2019-2021.

Assessment of compliance with multiple international standards for regulatory agencies; workshops conducted;staff trained in regulatory procedures and market oversight. Council meetings held periodically; workshops and conferences held with local stakehpolders; written inputs provided by technical experts on key laws and regulations to the GOU.

New supervisory and regulatory tools adopted; enhanced compliance with standards. Number of new laws and regulations reviewed by the Economic Council; number of advisory notes prepared by technical experts to support the work of the Council.


Critical assumptions:

(a) Sustained commitment by the Government on the identified reforms.

(b) Continued support by internal and external stakeholders on the reforms.

(c) Positive response from the private sector on the reforms.

(d) Availability of highly competent and specialized technical advisors to support the reforms.

E. Rationale for Bank Involvement and Role of Partners

70. The government considers the World Bank (WB) to be its key strategic economic advisor. In this regard, the value added of the Bank will be in providing knowledge and experience gained from various operations that supported transition to market economy and core public sector reform and competitiveness in several countries (e.g., on SOEs in Serbia, Poland, Belarus, Turkey, Ukraine and Vietnam, PFM in Armenia and Georgia, among others). The Bank would also play an important role in assisting the government in maintaining reform momentum that will help secure expected gains from reforms, including increasing private investment, enhancing the functioning of institutions and establishing sound management of public finances. The Bank will also help establish links between the GOU and the Governments of other countries, which is especially needed in a historically closed country. Regional networks such as PEMPAL and Public Sector Accounting and Reporting Program (PULSAR) present opportunities in this regard.

71. The IMF, ADB, EBRD, EU, and bilateral agencies are actively financing complementary activities to support Uzbekistan in its transition to a fully-functioning market economy and consistently with priorities set in Uzbekistan’s NDS. See Figure 3 below.


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Figure 3: Examples of Complementary Activities to ICBP by Other Donors

F. Lessons Learned and Reflected in the Project Design

72. The scope, technical design and implementation arrangements of the project were informed by lessons learned from various countries that improved PFM in a similar country context (e.g. Georgia, Armenia, Kazakhstan, countries of Eastern Europe) or transitioned to market economies, and by lessons learned from previous institution building projects supported by the Bank in Uzbekistan. Broad success factors include strong and sustained commitment of government and non-government stakeholders, having the project as part of a wider reform program, implementation beyond legislation, international best practices (including those established by PEMPAL and PULSAR) adjusted to local circumstances, technical implementing agencies taking the lead on relevant activities with a strong PIU providing project management and fiduciary support, as well as strong monitoring and evaluation and the need for a long implementation timeline.

73. Specifically, the lessons learned on PFM16 include the need to commence with a diagnostic to understand the system, including business processes, staffing capacity, internal controls, and supporting environment. Those will be followed in the design of the improved PFM elements tailored to the country environment, with application to be validated during piloting of the interlinked PFM elements. The activities will also include raising the awareness of the management and capacity building of the staff of the MoF and relevant department which will be affected by the reforms.

16 Partially available on pempal.org and pulsarprogram.org.

Asian Development Bank

•$300 million policy-based loan aimed at improving access to bank finance by strengthening bank supervision and intermediation to facilitate competitive financing of private sector operations, while also strengthening economic data collection, analysis, management, and dissemination systems to bolster economic decision making.

•US$1 million technical assistance grant to enhance the government’s capacity to implement reforms in budget frameworks; public-private partnership; internal audit; risk-based supervision and capital adequacy assessment; and gender sensitivity of public expenditure programs, among others.

•MTEF development and implementation

IMF

•TAs on: Central Bank legal reform, Monetary operations and policy, External statistics, National accounts/Government Finance Statistics, Fiscal transparency, Tax policy and administration

•Fiscal rules development and fiscal risk management

European Bank for Reconstruction and Development

•The new Country Strategy adopted in 2018 focuses on: (i) Enhancement of competitiveness by strengthening the role of the private sector’s role in the economy; (ii) Promotion of green energy and resource solutions across sectors; and (iii) Support increased regional and international cooperation and integration.

•Current lending portfolio is EUR 679 million, with loans in power and energy, municipal and environmental infrastructure, and financial institutions. The private sector share of the lending portfolio is 20%. In March 2019, EBRD provided a US$20 million trade finance facility to UzPromstroybank

•A Memorandum of Understanding on advisory work was signed in August 2018. Advosry services focus on competition policy, capital market development, corprate governance and privatizaiton.


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74. Past Bank operations on SOE reform and privatization offer valuable lessons learned that have been considered in the design of this project. A recently completed Implementation Completion and Results (ICRR) report17 the First and Second Programmatic Development Policy Loans (DPLs) on SOE Reform in Serbia revealed several salient lessons: the need for a longer timeframe to implement such sensitive and critical agenda, such as SOE restructuring and privatization. The first Serbia DPL took 5 years from inception to approval, during which the team had to maintain the dialogue and establish close relations with the stakeholders. Another lesson was the need for a well-articulated communications strategy on SOE restructuring, both with stakeholders in the government, but also with affected SOE management and staff, and with the general public. Strong Bank presence at senior management level was necessary to implement the communications strategy and engage counterparts on how the reform would affect the economy and the jobs and wellbeing of the population. With the Serbian experience in mind, this project incorporates both flexibility for adjusting the time horizon of the credit, but also including TA for a robust communications strategy for SOE reform.

75. SOE reform is a lengthy process, fraught with reversals. Previous Bank projects, such as the Serbian DPL series indicate that the agenda is still unfinished, even after some divestment and closure of SOEs in the Privatization Agency’s portfolio took place and corporate governance of large SOEs improved significantly. Yet, more remains to be done with remaining large SOEs, especially in the utilities and municipal infrastructure. The DPLs also paved the way for a follow-on lending operation to reform the State-Owned Financial Institutions (SOFIs). The current project’s design is informed by these lessons, and it is likely that a future operation focused SOFIs and SOBs would be needed to address challenges not met by the current project.

76. SOE reform does not necessarily mean outright privatization: corporatization and instituting discipline in SOEs through better corporate governance and gradual withdrawal of state subsidies, can also reduce SOE losses and improve overall performance, as demonstrated by the lessons learned from the Bangladesh Enterprise Growth and Bank Modernization Project. This was relevant for Bangladesh, where political infighting also meant that SOE reforms targeted by the project became opportunistic and sporadic. The project also targeted reducing the state’s participation in the SOBs. But a lesson learned identified in the ICRR18 was that addressing SOB reform would have been better handled in a separate operation rather than in a complex project, which involved both privatization of manufacturing and banking SOEs. This is a lesson that the current project has taken into account. While some bank privatizations may be piloted under the ICBP, reforms in the banking sector could follow only after a Financial Sector Strategy has been approved and consensus on how to deal with the SOBs reached. Another lesson on SOB reform from the Bangladesh case is the need for strong and continued oversight by the bank regulator to sustain the gains made through SOB privatization.

77. Scope and Technical Design. International experience indicates that macroeconomic stability through sound management of public finances, monetary policy and financial sector is critical to successful market reforms and boosting private sector confidence. Successful transition to market

17 World Bank, Implementation Completion and Results Report on a Series of Development Policy Operations to the Republic of Serbia for a First and Second Programmatic State-Owned Enterprise Reform Development Policy Loans, March 25, 2019. 18 Implementation Completion and Results Report on an IDA Credit to the People’s Republic of Bangladesh for an Enterprise Growth and Bank Modernization Project, World Bank, June 23, 2011.


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economy by Poland, China and Vietnam indicate that certain policy choices are critical in this early phase of Uzbekistan’s reform path. These include investing in strong market institutions for competition, property rights, and enforcement of contracts.19

78. Implementation of successful reform programs, especially on SOE restructuring and privatization requires political will, broad public consensus and a strong communication campaign. The IMF’s Staff Report for 2018 Article IV Consultation noted critical aspects that would need to be considered in implementing market-oriented reforms in Uzbekistan based on lessons drawn from earlier transitions. These include: (i) recognition of follow-on reforms, to initial liberalization efforts, such as restructuring SOEs, strengthening competition, and improving governance face more opposition; (ii) proper timing for implementing reforms not to be compromised by over-strategizing.20 A lesson learned in the Bangladesh project mentioned above was not to over-complicate implementation with too many implementing agencies. There were seven implementing agencies at project effectiveness, which grew to ten, leading to delays in the flow of funds and disbursement. In addition, the scope of the project was too wide and contained disjointed elements. While the underlying theme was SOE reform (including in the banking sector), the enterprise growth component received less attention, particularly the Communication and Public Awareness part. These implementation lessons learned have led to the current project trying to keep at a minimum the number of implementing agencies and the overall scope.

III. IMPLEMENTATION ARRANGEMENTS

A. Institutional and Implementation Arrangements

79. Several agencies will be involved in the ICBP. To ensure effective collaboration across all agencies, a Project Implementation Advisory Board (PIAB) will be established no later than 1 month after the project becomes effective to monitor progress and facilitate the resolution of inter-institutional implementation challenges. The overall implementing agency for the project is the MoF. Component 1 is also expected to be led and coordinated by the MoF. Component 2 will be coordinated with ASAM and the PPP Agency, which will provide technical support and monitoring of implementation. Component 3 will be led and coordinated by the MoF. Under each component, sub-components will have beneficiary agencies (that maybe the same or different from the component leads) who will be in charge of their respective activities/sub-components.

80. In terms of decision-making and accountability for the project, the project implementation arrangements will have the following key elements: (i) the Deputy Prime Minister (DPM) who oversees the MoF will be the main decision-maker for the overall project; (ii) reporting to the DPM, the Deputy Minister of Finance will oversee day-to-day project implementation; (iii) supporting the Deputy Minister of Finance, a PIU - responsible for fiduciary, facilitation, coordination, and monitoring and evaluation (M&E) – will be established in the MoF; (iv) each component will be coordinated with the corresponding lead agency that will provide technical support for the implementation of the component activities and monitor achievement of results; and (v) for each thematic area, the relevant Deputy Minister or Head of the beneficiary agency will be the single decision-maker and will be supported by a thematic group

19 World Bank. Maintaining Uzbekistan’s Reform Momentum. (Draft Reform Roadmap 2, August 2018). 20 IMF. Staff Report for 2018 Article IV Consultation. April 23, 2018.








































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composed of key stakeholders (including a representative from the beneficiary agency’s public advisory council, PAC) to advise on TORs, facilitate and coordinate implementation, and conduct M&E on the specific thematic area. The beneficiary agency will be responsible for technical leadership and implementation of activities and accountable for the results. With respect to pilot activities, the selected pilot agency (e.g. potentially certain divisions or territorial units of the Ministry of Public Education may be selected for PFM-related activities) will collaborate with the key beneficiary agency for the activities under the thematic area and be responsible for the implementation of the pilots and accountable for expected results.

Table 4: Project Management Responsibilities

Component/Project Management Areas

Component 1 Component 2 Component 3

Overall Project Oversight, Coordination & M&E

MoF and PIU

Component Oversight, Coordination & M&E

MoF MoF, ASAM and PPP Agency

MoF, Economic Council and other regulatory and

public sector agencies

Fiduciary (Procurement process/ Financial Management)

PIU

Develop TORs, Take Procurement Decisions, Implement activities, Manage consultants, M&E

MoF, COA + selected pilot agency

ASAM and PPP Agency MoF, Economic Council and other regulatory and

public sector agencies

81. The PIAB will be chaired by the DPM who oversees the MoF and will have the Deputy Ministers or Heads of relevant agencies as members, the Deputy Minister of Finance as the Secretary, and the PIU Director supporting the Secretary.

82. The PIU will be led by a PIU Director and composed of fiduciary staff, Component and Technical Lead Coordinators (CTLC), Thematic Support Specialists (TSS), administrative and other relevant staff. The CTLC will support the component lead agency, while the TSS will support the beneficiary agencies, including the selected pilot agencies.

83. Each thematic group will be led by the Deputy Minister or Head of the beneficiary agency and will have the following as members: Directors or equivalent who have direct responsibility for the thematic areas in the beneficiary agency, a representative of the beneficiary agency’s public advisory council and the TSS.

84. A POM will be prepared to guide implementation. The POM will include the following information: (i) the detailed description of project implementation activities, their sequencing and the prospective timetable; (ii) the institutional arrangements for the implementation of the project; (iii) the project administrative, procurement, financial management and disbursement requirements and procedures; (iv) the plan for the monitoring, evaluation and supervision of the project; (v) the results indicators for the project; (vi) the process and criteria for the selection of technical assistance activities not yet identified under component 3; (vii) plans for mainstreaming citizen engagement and gender considerations into the project; and (viii) plans to manage the project’s climate and disaster risks.


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85. Key PIU staff, a PIU Director and an FM specialist, were selected in March 2019. They have already started working on project preparation tasks from the MoF side. The formal establishment of the PIU is pending a special resolution of the GOU, which is expected to be issued before project effectiveness. The project POM and other key project documents will be prepared under the project’s Europe and Central Asia Capacity Development Trust Fund (ECAPDEV) preparation grant and completed before effectiveness.

86. The project will be implemented in about 5 years (September 2019-November 2024).

87. Details of the implementation arrangements are provided in Annex 1.

B. Results Monitoring and Evaluation Arrangements

88. As discussed in the previous section, the MoF through the PIU will be responsible for conducting overall monitoring and evaluation of project implementation and results achievement. The PIU will report on implementation progress, results achieved and issues that impede progress and results to the MoF, PIAB, and the WB. The PIU will be supported by the CTLC in each component to consolidate, monitor progress and results achievement of each component level. At the thematic level, M&E will be the responsibility of each of the thematic group that will then report to their corresponding component agency leads who in turn reports to the MoF. The M&E responsibility will be supported by the TSS at the thematic level, component technical lead and coordinator at the component level and by the PIU Director at the PIU level. At all levels, the reports on implementation progress and results will be utilized by the respective groups and chairs to monitor progress, discuss and make decisions on the actions necessary to ensure achievement of the PDO.

89. Through the participation of non-government representatives in the thematic groups, citizens will be engaged in monitoring the project as well as in providing feedback on how activities could be pursued more effectively. The non-government representative is a member of the beneficiary agency’s public advisory council. In the meetings of the proposed thematic groups, citizens would have the role of providing feedback to the discussion on project activities to help improve achievement of the results of the project activities as undertaken by each beneficiary agency.

90. For monitoring and evaluating results, the project’s results framework (Section VI) will be utilized and progress will be disclosed to the public through the Implementation Support and Results (ISR) Report on the WB’s external website for the project (and MoF will be suggested to publish the project status on the MoF’s website). In addition to the outcomes identified in the results framework, project progress will also be validated at mid-term and completion against external indicators that are critical to boosting investor confidence such as improvements in PEFA, OBI, Doing Business, and World Governance Indicators (WGI) scores to which project interventions are expected to contribute but do not fully influence.

C. Sustainability

91. To ensure and facilitate sustainability, learning by doing approaches will be adopted as much as possible for all technical advisory interventions to ensure that capacity is built in the participating agencies. Terms of Reference for technical assistance will emphasize the importance of familiarity with local context (culture, language) and the requirement for ensuring knowledge transfer from international


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practitioners. The project will also accompany the actual implementation of reforms beyond the enactment of legislation and adoption of regulations to ensure that these are institutionalized. Moreover, the project is upgrading institutions and their frameworks toward international good practices and standards which would need to be maintained to attract private sector participation and ensure sustainable private sector solutions for development projects materialize. Furthermore, the project is part of the initial set of interventions that will help anchor the comprehensive support being deployed by the World Bank Group and international development partners to ensure Uzbekistan’s successful transition to a market economy. The project’s link to the wider reform being pursued by the government further enhances the project’s sustainability.

IV. PROJECT APPRAISAL SUMMARY

A. Technical, Economic and Financial Analysis (if applicable)

92. This project is primarily a technical assistance project that does not lend itself to a traditional cost-benefit analysis.

93. Based on the lessons learned and international experience, the project will address the current needs of Uzbekistan in its reform trajectory toward establishing a fully-functioning market economy with increased private sector participation, including the possible use of MFD instruments. In this regard, the project will help address Uzbekistan’s problem of lacking the institutional capacity and frameworks for supporting market-oriented reforms with particular focus on improving PFM and creating the conditions for market-friendly corporate and financial sectors that are critical to macroeconomic stability that in turn is important to successful market reforms and boosting investor confidence and private sector participation in development.

94. The project will focus not only on establishing new legal frameworks but also on building capacity to implementing the reforms and help ensure sustainability. The project targets upgrading the current practices and standards in the country toward internationally accepted good practices and standards, while calibrating for the local culture to facilitate success. A fundamental focus of project activities is also increasing transparency.

95. It is expected that the project will support the strengthening of existing institutions and build new ones that are critical for macro-fiscal sustainability, public sector performance, and ensuring a positive environment for investments and private sector participation in the economy. The project will largely focus on technical assistance to transform public sector institutions, regulation and to build the fundamentals for a market-based economy, which will in turn directly facilitate increased private sector participation, and specific MFD infrastructure development within three years of project completion. This will contribute to enhanced growth, job creation and increased efficiency in public sector operations – in turn increasing both tax base, cost efficiency and effectiveness of the Uzbek Government.

96. Among the expected economic benefits are improved efficiency in the use of public resources, more profitable operations of SOEs and higher value of the enterprises. These together would facilitate delivery of better quality goods and services to the Uzbek citizens.








































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B. Fiduciary

(i) Financial Management

97. The FM assessment of the MoF, as the implementing agency and responsible for the fiduciary function of the project was carried out for staffing, budgeting, accounting, internal controls, flow of funds, financial reporting, and etc. The FM arrangements will be acceptable upon implementation of the agreed action plan. The FM procedures applicable to the project (budgeting, planning, accounting, reporting, contract management, audit, etc.), including internal control, will be detailed in the POM the high-level draft of which has been already developed and is being finalized by the MoF. The FM risk is assessed as Substantial following implementation of the mitigation measures, including appointment of the PIU Director, the FM specialist and the procurement specialist, who have already been preselected and work on establishing project organization and procedures (the PIU set-up, devising and adopting POM).

Table 5: Financial Management Action Plan

Actions (Conditions) Responsible Completion Date

1. Develop and implement the POM, that will include FM manual describing project’s internal controls, planning, budgeting, external auditing, financial reporting and accounting policies and procedures, and the funds flows.

MoF (PIU under the MoF) Prior to Effectiveness

2. Acquire and install a fully functional automated accounting information system for maintaining the project records and generation of project financial statements.

MoF (PIU under the MoF) Not later than 1 month after effectiveness

3. Hire a qualified FM staff as per WB terms of reference.

MoF (PIU under the MoF) Prior to Effectiveness (the staff was pre-selected and is in the process of appointment)

98. The project FM process will rely on the existing statutory budgetary country procedures, and stand-alone accounting, financial reporting, funds flow, internal control and external audit arrangements. The budget allocation for the project will be in the MoF’s budget envelope. MoF and PIU staff will be trained on the Bank’s fiduciary procedures and supported before and during project implementation. Adequacy and timeliness of the budgetary allocations are critical success factors for project implementation. Semi-annual project un-audited financial statements (i.e., interim financial reports, IFRS) will be required to be prepared in the pre-agreed formats and submitted to the Bank within 45 days after the end of each reporting period (semester). The project financial statements will be subject to annual audit by independent auditors acceptable to the Bank, in accordance with agreed terms of reference. The annual audit reports will be due to submission to the Bank within six months after the end of audited period and will be subject to public disclosure as per WB policy.

(ii) Procurement

Applicable Procurement Arrangements: Procurement under the project will be carried out in accordance with the WB Procurement Regulations for Investment Project Financing (IPF)


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Borrowers – Procurement in IPF of Goods, Works, Non-Consulting and Consulting Services, issued in July 2016, revised in November 2017 and August 2018 (hereinafter referred to as “Procurement Regulations”) and with the latest Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits.

Capacity Assessment: assessment of the capacity of the MoF to implement procurement under the project was carried out by the Bank team during appraisal. The findings were recorded in the Procurement Risk Assessment and Management System (PRAMS). The risk is expected to be high before mitigation due to lack of existing capacity for managing WB procurement in MoF, lack of procurement knowledge in the government agencies and ministries. The residual risk after mitigation is expected to be lowered to moderate with the establishment of the PIU that will include hiring of a seasoned procurement consultant and application of the Bank’s Procurement Regulations under the project procurement. The findings of the assessment are detailed in Annex 1.

Project Procurement Strategy for Development (PPSD): A PPSD was developed for the project by the Borrower/MoF with the closest support and guidance from the Bank team. The PPSD Summary is provided in Annex 1.

C. Safeguards

(i) Environmental Safeguards

99. The project will primarily finance technical advisory, purchase of IT systems (software and hardware), training and workshops. The project location is primarily Tashkent, the capital city. The project activities are not expected to trigger safeguard policies. Accordingly, the project team does not plan to prepare any safeguard-related studies.

100. The proposed activities under the three project components are environmentally benign. The project does not finance any new construction, rehabilitation or renovation of existing infrastructure.

101. Climate co-benefits. The project will contribute to enhancing the country’s capacity to generate climate co-benefits under Components 1 and 2, given the significant impact of climate change already being felt in Uzbekistan per the SCD. Under component 1, a PIM framework will be developed that will include climate and disaster risk screening considerations in projects entering the public investment pipeline. Likewise, under component 2, the PPFs that will be established will finance feasibility studies that will include the conduct of environmental and social impact analyses. The development of the PIM framework and the operationalization of the PPFs will be further informed by the planned climate change adaptation action plan and mitigation assessments planned under the Uzbekistan Reform Roadmap 2.0, which includes a pillar on maintaining environmental sustainability. Accordingly, future projects that will be processed under the new PIM framework and the PPFs could help mitigate and/or adapt for the risks presented by the climate change vulnerabilities of Uzbekistan.

(ii) Social Safeguards

102. The project is predominantly a technical assistance and capacity building project. The project will engage with citizens to improve its effectiveness. (See discussion on M&E). The project will also


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compile gender data (e.g., women employed in SOEs, women employed in government units, women trained under the different components) to ensure benefit sharing opportunities for all citizens.

103. The Project does not trigger any safeguards policies. The project will not directly finance privatizations that may lead to worker layoffs. It will help the GOU prepare selected SOEs for divestiture and their eventual privatization through their better management and corporate governance. Nevertheless, in order to mitigate the potential negative social effects of the privatizations that may be informed by the work done under the project, the project will fund an assessment of risks associated with large Uzbek SOE privatizations, so as to inform GOU policymakers about the magnitude of the problems and the types of employees that would be affected. This will be done as soon as GOU and ASAM announce their privatization plans. In addition, all the Environmental and Social Impact Analyses funded by PPFs will include a Social Risk Assessment and Mitigation Measures for potential changes in employment status and staff reduction. The team is also coordinating closely with the WB Social Protection project in estimating worker layoffs that may follow future privatization, and in designing appropriate mitigations mechanisms (severance packages and job re-training programs) that would need to be put in place. The Risk Assessment and Mitigation Measures Study will provide guidance to the Borrower how to carry out future activities which may involve staff reductions.

Gender

104. At appraisal, the project is gender informed. It is primarily informed by the 2018 Listening to the Citizens of Uzbekistan baseline survey (conducted by the Poverty and Equity Global Practice of the WB) and the WB’s Uzbekistan SCD analysis, highlighting that: : (i) the employment rate for women is much lower than for men across all age groups; (ii) the share of female adults who are outside of the labor force (which include being a homemaker and/or a discouraged worker) is much higher for the bottom 40 percent of the income distribution compared to the top 60 percent (51 percent versus 18 percent); and (iii) the majority of males opt for education programs in the transport and communications sectors, industry, and construction, as well as economics and law, which generates higher income, while female mostly choose disciplines in the education and healthcare professions which are paid less.

105. The project aims to ensure equal access to women to all training activities to ensure that they continue to be able to effectively contribute to the reforms and avail themselves of new jobs and economic opportunities. The project will also ensure participation of women from the public advisory council in the thematic groups. Moreover, gender impact analyses would be carried out as part of feasibility studies conducted under the PPFs to understand the impact of potential SOE restructuring and privatization on men and women employees and ensure risk mitigation measures for potential negative impact are designed. Specific concerns of women would be investigated to ensure that training and certification arrangements are not prohibitive to female participation (e.g., out-of-town training may prevent mothers from participating). Reporting on how many male and female officials have benefited from the various capacity building interventions proposed under the project (e.g., attendance to training events) will be required.

106. The project plans to conduct a gender gap assessment under the project’s ECAPDEV preparation grant that will allow the project during implementation to address gender gaps..

Citizen engagement


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107. The project is likewise designed to support improvements of public management system by engaging citizens consistent with Focus Area 1 of the Government’s NDS for 2017-2021. Specifically, the project supports the operationalization of the creation of Public Councils at all state bodies by incorporating in the project’s implementation arrangements the participation of a member of the project beneficiary agency’s public advisory council in each of the relevant thematic groups. In the meetings of the thematic groups, citizens (through the member of the public advisory council) would have the role of providing feedback to the discussion on project activities to help improve design, ensure effectiveness, and facilitate achievement of the results of the project activities as undertaken by each beneficiary agency. Through the participation of a member of the public advisory council in the thematic groups, citizens will also be engaged in monitoring the project in addition to the providing feedback and/or comments on the MoF’s and WB’s external webpages for the project. The project’s results framework will also include an indicator that will measure citizen’s perception of the effectiveness of the project’s citizen engagement efforts. This will primarily be collected via a simple survey (e.g., Survey Monkey) that will be deployed by the PIU to members of public advisory councils who participate in the thematic groups. This information will also be disaggregated by gender to identify gender-specific concerns, if any. This approach is consistent with the Bank’s citizen engagement framework for Uzbekistan as provided for in Annex 6 of the PLR of May 2018 as well as the Uzbekistan Reform Roadmap 2.0.

Other safeguards

108. Not applicable.

(iii) Grievance Redress Mechanisms

109. Communities and individuals who believe that they are adversely affected by a WB-supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate GRS, please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

V. KEY RISKS

110. Overall. The project has an overall substantial risk rating with potential for high rewards. High risk ratings have been assigned to implementation capacity and sustainability as well as stakeholder risks and the rest are considered to carry substantial risks.

111. Political and Governance. The political and governance risk is rated substantial. The Government’s stated objective to minimize the social impact of the transition could lead to decisions that would delay implementation of the reforms supported under the project (i.e., privatization). Mitigating factors include the Government’s commitment to the reforms and the high expectations from the citizens.

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service

http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service

http://www.inspectionpanel.org/


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Within the project, mitigation measures would include establishment of a PIAB at the DPM level that could help address potential political challenges, as well as the Economic Council that would provide sustained political commitment and high-level push for reforms supported by the project. In addition, the project contemplates setting-up a mechanism for transparent monitoring of project implementation (through the WB website with public disclosure of the project’s Implementation Status and Results (ISR) Report and potentially through the website of the MoF).

112. Macroeconomic. The macroeconomic risk is rated substantial. External risks remain high as a result of uncertainties related to nominal and real demand shocks for exports from Uzbekistan (especially given large concentration in Russia/China markets). Domestic risks include high inflation as a result of price and exchange rate liberalization, and the uncertainties of how the reform agenda will affect SOE and banking sector contributions to growth and jobs. While these risks remain substantial, they are somewhat moderated by ample foreign reserves and a strong commitment from the authorities to maintain macroeconomic stability. The reforms envisaged in this project will also contribute to strengthened macroeconomic stability over the medium-term.

113. Sector Strategies and Policies. Risk related to sector strategies and policies is also rated substantial. Supporting market creation for private sector development creates potential risk due to infancy of basic market institutions or incomplete implementation of the reform program. With its National Development Strategy (NDS), the Government has taken the steps to set the stage for building institutions that would be supportive of a market-oriented economy. In this regard, the project will help implement specific areas of the strategy.

114. Technical Design of Project or Program. The technical design risk of the project is rated substantial. The project is complex, covering various areas and involving several agencies whose individual mandates do not normally require them to collaborate on a day-to-day basis. This risk will be mitigated through the implementation arrangement that will include a PIAB and Thematic Groups at the level of the key beneficiary agencies. The Economic Council, supported by the project, will also serve as a mitigating factor for complex technical design. The Advisory Board will provide advice and facilitate collaboration across ministries and agencies while the Thematic Groups will review TORs, facilitate project implementation and conduct M&E of their project activities. A PIU has been set up in the MoF to provide the fiduciary support and overall project facilitation. In addition, intensive implementation support would be necessary and potentially complemented by Bank-executed trust funds (TFs) to enable provision of additional in-depth technical advisory.

115. Institutional Capacity & Sustainability. The risk related to institutional capacity and sustainability is rated high. Institutions have been in place and largely unchanged for decades. There will be resistance and weak capacity to implement the new approaches introduced under the project. In addition, agencies involved have not managed WB projects for more than a decade. To mitigate, intensive implementation support would need to be deployed as well as change management approaches adopted. The Economic Council would serve to mitigate the risks associated with low institutional capacity by providing high-level monitoring of key reforms supported by the project. In addition, lessons learned on similar operations from transition countries would be further considered. Learning by doing approaches will be adopted as much as possible for all advisory interventions to ensure that capacity is built in the participating agencies and to facilitate sustainability.


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116. Fiduciary. The fiduciary risk is rated substantial, requiring mitigation measures to be implemented. Protracted procurement has been prevalent in the WB’s portfolio in Uzbekistan. This could potentially be mitigated by recent GOU-WB agreements to adopt fast-track implementation and address low disbursements. Intensive handholding from Bank fiduciary team would also be necessary. Establishing the PIU and hiring of international procurement staff and qualified financial management staff as well as fiduciary training will also help mitigate this risk.

117. Environmental & Social. The overall environment and social risk is substantial. The proposed activities under the three components in this project are environmentally benign. The project does not finance any new construction, rehabilitation or renovation of existing infrastructure. Hence, the environmental risk is low. However, the social risk is rated substantial due to potential staff reductions in SOEs, even though the project will not directly finance privatization of SOEs. In this regard, Social Risk Assessment and Mitigation Measures for potential changes in employment status and staff reduction as well as potential impact on gender will be conducted as part of the feasibility studies under the PPFs.

118. Stakeholders. The stakeholder risk is high. It is expected that there would be significant resistance to change by impacted institutions and staff. Social resistance would be particularly high with respect to potential job losses from SOE restructuring and privatization. Mitigation measures would include deployment of adequate change management and proactive communication strategies for agency restructuring and introduction of business process re-engineering. With respect to SOE restructuring and privatization, the project would adopt good practices in structuring deals to manage the impact on jobs, in consultation with the Social Protection and Poverty teams. This is a reputational concern for the Bank and will be monitored closely during implementation.

119. Other - Reputational Risk. The project presents a substantial reputational risk for the Bank for the following reasons: (i) Bank’s difficulties in implementing large technical assistance projects, compounded by the low implementation capacity of the GOU; (ii) risk of replicating failures from attempts at similar reforms in other transition countries; and (iii) the Bank’s potential inability to deliver with speed and quality vis-à-vis client’s expectations. To mitigate these risks, the project will pay careful attention to lessons learned in other TA projects, especially on SOE and SOB reforms from other transition countries. In addition, the Task Team will provide quality and timely hands-on support to the PIU during project implementation.

.


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VI. RESULTS FRAMEWORK AND MONITORING

Results Framework COUNTRY: Uzbekistan

Institutional Capacity Building Project

Project Development Objectives(s)

The Project Development Objective is to strengthen public financial management and enable the market operation of the corporate sector.

Project Development Objective Indicators

RESULT_FRAME_T BL_ PD O

Indicator Name DLI Baseline Intermediate Targets End Target

1 2 3 4 5 6

Improved public financial management

Budgeting processes, public internal control and audit, and public sector accounting standards reflect international good practices (Text)

Reforms under consideration

New law/regulations adopted on public internal control, internal audit and accounting

Marked improvement in linkage between strategic plans and budget estimates (to be assessed using PEFA methodology)

New accounting standards and internal control/ audit piloted.

PEFA indicators related to budget improved, internal control and audit follows international good practices, accounting follows IPSAS

Market Operation of the Corporate Sector

Corporate governance of SOEs reflects OECD Corporate Governance Standards (Text)

Newly created agency with low capacity (ASAM)

Accountable government agency appointed under the Cabinet

SOE Ownership Policy adopted (Regulation) (December 2019)

Top [10] SOEs have board of directors (December 2020)

Top [10] SOEs report under IFRS, their financial statements audited

Top [30] SOE performance and KPIs monitored, results are publicly disclosed

Independent board members with relevant industry expertise appointed in [5]

SOE aggregate report for Top [30] produced and published by SOE








































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RESULT_FRAME_T BL_ PD O


1 2 3 4 5 6

(July 2019) (December 2021) (December 2022) SOEs in competitive sectors (December 2023)

ownership agency

Number of SOEs privatized (more than 50% of shares divested) and number of infrastructure PPPs completed (Number)

0.00 2.00 4.00 6.00 6.00

PDO Table SPACE

Intermediate Results Indicators by Components

RESULT_FRAME_T BL_ IO


1 2 3 4 5

Improving Public Financial Management

Improved public investment management (Text)


PIM diagnostic completed

PIM regulation updated

Multi-year investment plan adopted following new PIM regulations (that includes pipeline of PPP and MFD relevant projects) and informs budget preparation process of 2023

Multi-year investment planning introduced in 30% of ministries

Multiyear investment planning introduced in 50% of ministries and a sustainable training program and capacity established.

Staff trained on all PFM areas (of which female) (Text)

0.00 100 (of which atleast 50% of potential female beneficiaries

200 (of which 70% of potential female beneficiaries are




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1 2 3 4 5

are included) included) included) included)

Improved internal audit (Text)


Draft new law on public sector internal audit presented to parliament

Adopted manuals for the new public sector internal audit

Internal audit management software developed and piloted

New manuals and internal audit management software updated following lessons from pilot and gradually rolled-out

Gradual implementation of the new IA methodology and new IA management software in 30% of line ministries. 20 trainers trained and training program developed

Gradual enhancement of budget process (Text)

2018 PEFA Scores are D for PI 8.1, 8.2, and 8.3; PI 16.2 and 16.3; and PI 17.2

Observed improvement based on Bank assessment of selected PEFA Indicators (target for year 3)

Marked improvements in PEFA Assessments - score of C for PI 8.1, 8.2 and 8.4; PI 16.2 and 16.3 and PI 17.2

New public internal control framework implemented following international good practices (Text)


Diagnostic of PIC framework and recommendations for a new framework completed

New PIC framework designed and law/regulations on PIC enacted and pilot started

Pilot on-going including required training

Adjusted framework based on lessons learned from the pilot

Gradual roll-out of new PIC framework with 10% at the central level of government implementing. 50 trainers trained and training program developed.

New public sector accounting and financial reporting standards implemented following international good practices (Text)


Completed gap assessment on difference of national public sector accounting standards and practices with IPSAS, and reform roadmap designed

Enacted new law/regulation on public sector accounting and financial reporting and new standards/manuals adopted

Accounting software developed and initiated piloting of new accounting and financial reporting standards in a line ministry

Piloting of new accounting and reporting standards and of the new accounting software continue and include a subnational government

Piloting completed. Applicable accounting and financial reporting standards and software updated based on lessons from pilot. Certification system for new standards initiated. 50


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1 2 3 4 5

trainers trained and training program developed.

Improving Conditions for Market Operation of the Corporate Sector

Strategic mapping of existing SOEs (Number)

0.00 100.00 1,000.00 3,000.00

3 Core legislative acts reviewed and updated (Text)

Outdated laws on accounting, auditing and corporate governance

Corporate Governance Code reviewed, updated and adapted for private and SOEs (listed or significant for economy)

Law on accounting reviewed and updated, introducing International Financial Reporting Standards (IFRS) for private and SOEs (public interest entities, listed, significant for economy)

Law on auditing reviewed and updated, and adapted introducing statutory audit based on International Standards on Auditing (ISA) for public interest entities, listed, significant for economy (private and state-owned).

Updated 3 core laws

Percentage of SOEs using IFRS for financial reporting and publicly disclosing the reports (Percentage)

0.00 80.00

Largest SOEs follow high standards of transparency and are subject to the high quality accounting, disclosure, compliance and auditing standards, as per Chapter VI of the OECD Guidelines (Number)

0.00 5.00 15.00 20.00 25.00 30.00 30.00

Boards are formed at largest 30 SOEs and given 0.00 5.00 10.00 15.00 20.00 25.00 30.00


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1 2 3 4 5

an authority and competencies for strategic guidance and monitoring of SOE management (Number)

Number of SOE restructuring plans adopted (Number)

0.00 1.00 2.00 3.00 5.00 6.00

Number of SOEs privatization public calls announced (Number)

0.00 1.00 3.00 5.00 7.00 9.00 10.00

Number of bids received per privatization transaction (Number)

0.00 2.00 2.00 2.00 2.00 2.00

New laws/regulations on PPP enacted and implemented (Text)

Reform options under discussion

Completed review of laws and regulations market oriented operations of the corporate sector, developed PPP framework

Enactment of PPP laws

New laws on PPP under implementation

Staff trained on corporate governance, privatization and PPP development (of which female) (Number)

0.00 40.00

Number of PPPs developed for the market (Number) 0.00 3.00 5.00 5.00 5.00 5.00 5.00

Number of bids received per PPP transaction (Number)

0.00 3.00 3.00 3.00 3.00 3.00 3.00

3 monitoring tools adopted for SOE oversight and governance (Text)

Weak monitoring of SOE fin performance and corporate

SOE performance monitoring framework adopted

KPIs for SOE performance monitoring in line

SOE performance monitoring portal launched for Top [30]

3 tools adopted (SOE performance monitoring framework,


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1 2 3 4 5

governance arrangements

(June 2020) with good international practices adopted (Regulation) (December 2020)

SOEs that remain under State control (June 2021)

KPIs in line with good practices, and SOE performance monitoring portal)

Improving Support Mechanisms for Reforms

No. of new laws and regulations reviewed by the Economic Council (Number)

0.00 0.00 1.00 3.00 5.00

Number of Advisory Notes Prepared by technical experts to support the work of the Council (Number)

0.00 15.00

Project Management

Percentage of citizens (participating in thematic groups and/or providing through the MOF website) who report that the engagement process was effective (Percentage)

0.00 10.00 30.00 50.00 70.00 90.00

IO Table SPACE

UL Table SPACE

Monitoring & Evaluation Plan: PDO Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Budgeting processes, public internal control and audit, and public sector

Measures evolution of improvements in the

Yearly

MOF and PIU reports, Bank

Review of documents, interview of

MOF and PIU


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accounting standards reflect international good practices

adoption of international good practices/standards

assessments

government officials and other relevant stakeholders, expert opinions and PEFA Methodology for the conduct of future PEFA exercise

Corporate governance of SOEs reflects OECD Corporate Governance Standards

This measures the gradual adoption by Government and SOEs of good corporate governance following applicable OECD guidelines.

Annually

ASAM and PIU reports

Interviews of government officials and expert opinion of technical advisors and non-government stakeholders.

ASAM and PIU


Measures the number of SOEs privatized and PPPs developed under the project (e.g., feasibility study funded under the PPF). At minimum, two out of six in the end target number must be privatized.

Annually

ASAM, PPP Agency and PIU

Reports on SOE and PPP transactions

ASAM, PPP Agency and PIU

ME PDO Table SPACE

Monitoring & Evaluation Plan: Intermediate Results Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Improved public investment management Measures evolution of reforms in PIM

Annually

MOF and PIU reports

Interview of government officials and expert opinions of

MOF and PIU


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technical advisors and non-government stakeholders.

Staff trained on all PFM areas (of which female)

Refers to number of staff of MoF and other relevant agencies trained on PFM international best practices

Annually

MOF and PIU Reports

Training attendance reports

MOF and PIU

Improved internal audit

Measures evolution of adoption of internal audit in line with international good practices

annually

MOF and PIU reports


MOF and PIU

Gradual enhancement of budget process

Measures evolution of improvements in budget processes. Specifically on PEFA Indicators related to performance plans for service delivery (PI 8.1), performance achieved for service delivery (PI 8.2), resources evaluation for services delivery (PI 8.4), medium-term expenditure ceilings (PI 16.2), alignment of strategic plans and medium term budgets (PI 16.3), and guidance on budget preparation (17.2).

Every 3 years

MoF and PIU reports, Bank assessments, future PEFA exercise

Review of documents, interview of government officials and other relevant stakeholders, expert opinions and PEFA Methodology for the conduct of future PEFA exercise

MoF and PIU


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New public internal control framework implemented following international good practices

Evolution of the public internal control framework towards international good practices (that is adoption of risk-based approaches, practices endorsed by PEMPAL, and other bodies including the Insitute of Internal Auditors )

Annual

MoF and PIU reports

Interview of government officials and expert opinion of technical advisors and non-government stakeholders

MoF and PIU

New public sector accounting and financial reporting standards implemented following international good practices

Evolution of public sector accounting towards international good practices (that is the adoption of IPSAS based standards).

Every 3 years

MoF and PIU


MoF and PIU

Strategic mapping of existing SOEs Refers to the number of entities identified and categorized by ASAM.

Every 2 years.

ASAM reports

ASAM/PIU

3 Core legislative acts reviewed and updated

Refers to the legislation update process with respect to laws on accounting, auditing, and corporate governance code.

Annually

Government website

Monitoring government portal and interview the ASAM and the MOF

ASAM/PIU/MOF

Percentage of SOEs using IFRS for financial reporting and publicly disclosing the reports

Refers to the number of SOEs publishing their IFRS statements

annually

Individual SOE website or ASAM website

Monitoring of the individual SOE website or ASAM website

ASAM or PIU

Largest SOEs follow high standards of transparency and are subject to the high

Refers to the number of SOEs publishing their

Annually

Individual SOE

Monitoring of the individual SOE

ASAM/PIU


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quality accounting, disclosure, compliance and auditing standards, as per Chapter VI of the OECD Guidelines

financial statements. website or ASAM website

website or ASAM website

Boards are formed at largest 30 SOEs and given an authority and competencies for strategic guidance and monitoring of SOE management

Refers to the number of the SOEs with functioning supervisory boards

Annually

SOE Charters and ASAM interviews

ASAM monitoring and interview of government officials and expert opinion of technical advisors

ASAM/PIU

Number of SOE restructuring plans adopted

Refers to the number of SOE restructuring plans adopted with support under the project

Annually


ASAM monitoring and interview of government officials and expert opinion of technical advisors and non-government stakeholders

ASAM and PIU

Number of SOEs privatization public calls announced

Refers to SOEs prepared for privatization under the project and with public calls announced

Annually

ASAM/reports on privatization

Monitoring of issued public calls for SOE privatization

ASAM/PIU

Number of bids received per privatization transaction

Refers to the number of bids received per privatization transaction supported under the project.

Annually

ASAM/Privatization reports

Monitoring reports on privatization transaction

ASAM/PIU

New laws/regulations on PPP enacted and implemented

This measures the gradual implementation of new laws on PPP.

Annually

PPP Agency

Gazette and interview of government officials and expert opinion of technical advisors and non-government stakeholders

PPP Agency and PIU


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Staff trained on corporate governance, privatization and PPP development (of which female)

Refers to number of staff trained on corporate governance, privatization and PPP development disaggregated by gender.

Annually

PIU reports

Attendance report on training

PIU

Number of PPPs developed for the market

Refers to the number of PPPs developed for the market with support under project (i.e., under the PPF)

Annually

PPF and PPP Agency Reports

Monitor by PPF and PPP Agency

PPf, PPP Agency, and PIU

Number of bids received per PPP transaction

Refers to the number of bids received per PPP transaction

annually

PPF and PPP Agency Reports

Monitor by PPF and PPP Agency

PPf, PPP Agency, and PIU

3 monitoring tools adopted for SOE oversight and governance

Monitoring tools for SOE oversight and governance in line with OECD principles

Semi annually



ASAM and PIU

No. of new laws and regulations reviewed by the Economic Council

Refers to the number of laws reviewed by the Economic Council

Annually

Economic Council reports

Monitoring of Economic Council activities

MOF and PIU

Number of Advisory Notes Prepared by technical experts to support the work of the Council

Refers to the number of outputs/technical advisory notes of technical experts in supporting the Economic Council

Annually

Economic Council report

Monitoring of Economic Council

MOF and PIU


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Percentage of citizens (participating in thematic groups and/or providing through the MOF website) who report that the engagement process was effective

This indicator will measure the perception of citizen representatives in the thematic groups with respect to the effectiveness of the citizen engagement approach under the project.

Semi-annually

PIU reports

Simple survey (e.g., survey monkey) conducted on representatives of the public advisory council in the thematic groups and users of the MOF website that provided suggestions/feedback on the project.

MOF and PIU

ME IO Table SPACE


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ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN

COUNTRY: Uzbekistan

Uzbekistan Institutional Capacity Building Technical Assistance Project

1. Implementation Arrangements

A. Project Management and Oversight

Figure 1.1. ICBP Implementation Arrangements at a Glance

1. Project Owner and Technical Leadership. The overall implementing agency for the project is the MoF. Component 1 is also expected to be led and coordinated by the MoF. Component 2 will be led and coordinated by the oversight State Assets Management Agency. Under each component, sub-components


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will have beneficiary agencies (that maybe the same or different from the component leads) who will be in charge of their respective activities/sub-components.

2. Advice and Collaboration. Several agencies will be involved in this project given the thematic areas that are proposed to be supported. To ensure effective collaboration across all agencies, a PIAB will be established to monitor progress and facilitate resolution of inter-institutional implementation challenges.

3. Reporting to the WB. The PIU will facilitate and monitor day-to-day implementation of the project and produce and transmit to the WB all data, reports, and information required to follow project implementation progress, detect deviations and problems, and identify and respond to problems and bottlenecks – including procurement transactions and FM requirements. The PIU will also report to the WB on the progress and status of contract administration against agreed or contractual timetables and schedules.

Composition of PIAB, PIU and Thematic Groups

4. The PIAB will be chaired by the DPM overseeing the MoF and will have the Deputy Ministers or Heads of relevant agencies as members, the Deputy Minister of Finance as the Secretary, and the PIU Director supporting the Secretary.

5. The PIU will be led by a PIU Director and composed of fiduciary staff, CTLC, TSS, administrative and other relevant staff. The CTLC will support the component lead agency while the TSS will support the beneficiary agencies, including the selected pilot agency(ies).

6. Each thematic group will be led by the Deputy Minister or Head of the beneficiary agency and will have the following as members: Directors or equivalent who have direct responsibility for the thematic areas in the beneficiary agency, representatives of key stakeholders outside of the beneficiary agency (i.e., a member of the beneficiary agency’s public advisory council) and the TSS.

B. Financial Management

7. The POM will define in detail the budgeting, planning, accounting, audit, the flow of relevant documents and approval process, internal control procedures to be followed for managing project resources as well as the disbursement and reporting procedures and formats specific to the project. The adoption of the POM will be a condition for project effectiveness.

8. The project will follow the traditional transaction-based disbursement mechanism, including direct payments and replenishments of the designated account and reimbursements. The minimum application size and designated account ceiling are specified in the project disbursement letter.


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9. Staffing. The PIU will hire adequately qualified Financial Manager and FM Specialist to manage FM requirements. The to-be-hired FM staff will be trained in WB policies and procedures and provided with additional implementation support after project effectiveness.

10. Budgeting and Flow of Funds. The PIU will prepare an annual budget based on procurement plans, operating expenses estimations, etc., and will submit it to DFM for approval. The PIU Director and the FM Manager will be responsible for the Project budget preparation, planning and execution procedures. These will include monthly planning and the preparation of annual budgets. The budget will form the basis for allocating the funds as per project activities and project periods. Based on agreed budget, the PIU will be entitled to use funds from PIU designated account.

11. Accounting. The PIU will be in charge of keeping accounting records for this project and will keep its accounting records in the accounting system which would be acquired and installed by the project effectiveness. The project accounting records will be maintained in accordance with the Cash Basis IPSAS. At the same time, the PIU will apply accrual basis accounting to reporting with respect to state agencies. This system would allow fully automated accounting and reporting, including automatic generation of Statements of Expenditure, Interim un-audited financial reports (IFRs), and other reports required by national legislation. The system will have in-built controls to ensure data security, integrity, and reliability.

12. The accounting records will be maintained in the currency of payment, as well as in the USD equivalent, applying the actual exchange rate used at the currency conversion. The accounting records will need to include the necessary detail, including all individual payments under each contract, balances and transactions from the designated/transit account, etc.

13. Internal Controls. The PIU will establish an internal control system capable of providing reliable and adequate controls over financial management and disbursement processes and procedures. These include controls for safeguard of assets, segregation of duties, authorization of transactions, review and approval of invoices, and contract management, among others. The internal control system to be used by the PIU, and additional reporting and auditing requirements, will be specified in detail in the POM.

14. Financial reporting. The PIU will prepare and submit IFRs to the Bank every calendar semester, starting with the semester in which the first disbursements occur. The format of IFRs will be agreed with the Bank and will include (a) Project Sources and Uses of Funds, (b) Uses of Funds by Project Activities, (c) Project Balance Sheet, (d) Designated Account Statement, and (e) a Statement of Expenditure Withdrawal Schedule. IFRs will be automatically generated by the project accounting software. These financial reports will be submitted to the Bank within 45 days after the end of each calendar semester.

15. External audit. The PIU will be responsible for arranging the annual audit of project financial statements. The project financial statements audit will be conducted (a) by independent private auditors acceptable to the Bank, on terms of reference acceptable to the Bank, and (b) according to the ISA issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. The project audit will include (a) audit of financial statements; and (b) review of the internal controls of the PIU. No entity audit is required. Table 1.1 summarizes the audit requirements for this project.


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Table 1.1. Audit Requirements for this Project

Audit Report Due Date

Project Financial Statements The project financial statements include Project Balance Sheet, Sources and Uses of Funds, Uses of Funds by project activities, Statement of Expenditures Withdrawal Schedule, Designated Account Statement, Notes to the financial statements, and Reconciliation Statement

Within 6 months of the end of each fiscal year and also at the closing of the project

16. The audited project financial statements will be disclosed to the public in a manner acceptable to the Bank. Following the Bank’s formal receipt of these statements from the Borrower, the Bank will make them available to the public in accordance with the WB Policy on Access to Information. Audit of annual project financial statements will be financed from credit proceeds.

C. Procurement

17. Procurement procedures. The Borrower will carry out procurement under the proposed project in accordance with the WB’s “Procurement Regulations for Investment Project Financing (IPF) Borrowers” (Procurement Regulations) dated July 2016 and revised in November 2017 and August 2018 under the “New Procurement Framework” (NPF), and the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated July 1, 2016, and other provisions stipulated in the Financing Agreements. The POM will include the procurement arrangements under the project and how the procurement would be governed by the PIU. Procurement capacity building for the PIU and evaluation committee members will be organized in the first year of implementation and on demand in the later years. 18. On behalf of the Borrower and in full coordination with the MoF and other stakeholders, the PIU will have day-to-day responsibility for overseeing and monitoring the implementation of the project. It will also be responsible for conducting procurement, following the Bank-approved draft procurement plan.

19. PPSD Summary. A PPSD has been prepared by the PIU. The Bank procurement team provided the necessary closest support and guidance for preparing the PPSDs. The Bank has reviewed and agreed on the PPSD. General: Procurement under the project would be carried out in accordance with the procedures as specified in the WB’s Procurement Regulations for IPF Borrowers - Procurement in Investment Project Financing Goods, Works, Non-Consulting and Consulting Services, dated July 2016, revised November 2017 and August 2018. As per its requirements a comprehensive PPSD is being prepared with support of eth Bank. The PPSD shall be finalized before negotiations. Project Procurement Development Objectives (PPDO): To increase procurement efficiency and ensure value for money that contributes to improved PFM and the market operation of the corporate sector.


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Summary of PPSD. The PPSD has been developed by the MoF with closest and active support from the Bank staff. Based on which the optimal procurement approaches have been determined and procurement plan for the first 18 months of project implementation has been prepared and will be agreed by negotiations. The PPSD includes detailed market, procurement approaches and procurement risks analysis along with corresponding risk mitigation measures. Market analysis for large value packages—like technical assistance for PSA standards development, capacity building for budgeting and effective public investment, and improving the legal and regulatory framework for SOE strategic ownership and performance—have been conducted. The market analysis has confirmed the availability of relevant and relatively competitive markets (large number of consulting firms at national, regional and international levels). The PPSD and the procurement plan will be updated during project implementation to reflect any substantial changes in procurement approaches and methods to meet the actual project needs.

20. Procurement Risk Assessment and Mitigation (PRAMS). As part of the project preparation process, an assessment of procurement capacity of the implementing entity was completed using PRAMS and, accordingly, risk mitigation measures have been proposed. An assessment of MoF’s and the PIU’s procurement capacity indicates that procurement risk would be satisfactory following the adoption of mitigation measures.

21. Procurement risk. The overall procurement risk associated with the project is High in view of the project’s risk profile and the experiences with previous WB-financed projects.

22. Oversight and monitoring by the WB. All contracts not covered under prior review by the WB will be subject to post review during implementation support missions including missions by consultants hired by the WB or by the Bank’s Accredited Procurement Staff. The WB may, at any time, conduct Independent Procurement Reviews of all the contracts financed under the project.

23. Procurement Plan

Textual Part

Project information: Institutional Capacity Building Project (P168180)

Project implementation agency: Ministry of Finance of the Republic of Uzbekistan.

Date of the procurement plan: April 23, 2019

Period covered by this procurement plan: From August 2019 to February 2021(18 months)

Preamble

In accordance with paragraph 5.9 of the “World Bank Procurement Regulations for IPF Borrowers” (July 2016) (“Procurement Regulations”) the Bank’s Systematic Tracking and Exchanges in Procurement (STEP) system will be used to prepare, clear and update procurement plans and conduct all procurement transactions for the project.

This textual part along with the procurement plan tables in STEP constitute the procurement plan for the project. The following conditions apply to all procurement activities in the procurement plan. The other elements of the procurement plan as required under paragraph 4.4 of the Procurement Regulations are set forth in STEP.

The Bank’s Standard Procurement Documents shall be used for all contracts subject to international competitive procurement and those contracts as specified in the procurement plan tables in STEP.


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National Procurement Arrangements: In accordance with paragraph 5.3 of the Procurement Regulations, when approaching the national market (as specified in the procurement plan tables in STEP), the country’s own procurement procedures may be used.

When the Borrower uses its own national open competitive procurement arrangements, as set forth in the Law of Republic of Uzbekistan “On Public Procurement” dated April 9, 2018, such arrangements shall be subject to paragraph 5.4 of the Procurement Regulations and the following conditions:

1. The request for bids/request for proposals document shall require that bidders/Proposers submitting bids/Proposals present a signed acceptance at the time of bidding to be incorporated in any resulting contracts, confirming application of, and compliance with, the Bank’s Anti-Corruption Guidelines, including without limitation the Bank’s right to sanction and the Bank’s inspection and audit rights. The Bank’s Anti-Corruption Guidelines and Sanctions Framework shall be incorporated into the national bidding documents by adding a page entitled “Letter of Acceptance of the World Bank’s Anti-Corruption Guidelines and Sanctions Framework”.

2. Contracts shall be signed stipulating an appropriate allocation of responsibilities, risks, and liabilities between the Borrower and the contractors/suppliers/consultants.

3. Rights for the Bank to review procurement documentation and activities. In accordance with the Procurement Regulations, each bidding document and contract shall include provisions stating the Bank's policy to sanction firms or individuals, found to have engaged in fraud and/or corruption as defined in the Procurement Regulations. In accordance with the Procurement Regulations, each bidding document and contract financed out of the proceeds of the Financing Agreement shall provide that bidders, suppliers, contractors and their subcontractors, agents, personnel, consultants, service providers, or suppliers shall permit the Bank to inspect all accounts, records and other documents relating to the bid submission and performance of the contract and to have said accounts and records audited by auditors appointed by the Bank. Acts intended to materially impede the exercise of the Bank's inspection and audit rights provided for in the Procurement Regulations constitute an obstructive practice as defined in the Regulations.

4. No bids shall be rejected solely because they fall below or exceed the estimated cost. All bids (including in the case when less than two bids are received) shall not be rejected, the procurement process shall not be cancelled, and new bids shall not be solicited without the Bank's prior written concurrence.

The Bidding Documents template to be used under “national open competitive procurement arrangements” are subject to prior written concurrence by the Bank.

When other national procurement arrangements other than national open competitive procurement arrangements are applied by the Borrower, such arrangements shall be subject to paragraph 5.5 of the Procurement Regulations.

Leased Assets as specified under paragraph 5.10 of the Procurement Regulations: Not Applicable.

Procurement of Second-Hand Goods as specified under paragraph 5.11 of the Procurement Regulations: Not Applicable


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Domestic preference as specified under paragraph 5.51 of the Procurement Regulations (Goods and Works).

Goods: applicable for those contracts identified in the procurement plan tables;

Works: not applicable as per the Annex VI. Domestic Preference for Works of the Procurement Regulations.

The Procurement Plan for the first 18 months of the project implementation has been developed as attached below.

Procurement Plan Summary for the First 18 Months Contract title, Description and Category

Estimate

d cost (US$)

Bank

oversight

Procurement approach / Competition

Selection methods

Evaluation method

Procurement start date

Capacity building for budgeting and effective public investment

1,450,000 Prior review

International / Open

QCBS Most advantageous Proposal

Start on Sept 2019

Treasury system improvement 2,020,000

Prior review



Start on Oct 2019

Public Sector Accounting Standards Development (UPSAS)




Start on Jan 2020

Development of integrated reforms strategy road map

50,000 Post review


IC Most advantageous Proposal

Start on Sept 2019

Training and certification of PSA professionals 900,000

Prior review



Start on Sept 2020

Public Internal Control and Internal Audit system improvement




Start on Sept 2019

Component 2

Strengthening institutions and developing tools for improved SOE oversight and governance




Start on Nov 2019

Development of an information system/ database for ASAM



QCBS

Most advantageous Proposal

Start on Dec 2019

Capacity building for all relevant



QCBS


Start on Nov 2019


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D. Selection Criteria for Technical Assistance not yet identified to be financed under Component 3

24. The process for selecting the technical assistance not yet identified is as follows:

(a) Beneficiary agency submits a proposal to the PIU for a TA. Activity should have endorsement of its thematic group (citizen engagement emphasized) – or if not currently a beneficiary agency with its own thematic group – the interested agency through its deputy PM/head of agency submits to the PIU with endorsement from its public advisory council representative. CTLCs/TSs to support proposal development. (This is to ensure quality from the beginning and avoid another layer of technical review by the PIU which is supposed to

government agencies involved in SOE corporate governance reform, privatization and PPPs

Technical Assistance on communications and employee outreach

500,000* Post review

National/Open

CQS Qualification

Start on Sept 2019

Component 3

Technical Assistance to Regulatory Agencies and Other Public Sector Agencies (US$4.0 million),

Capacity Building and TA support to the Insurance market regulator



QCBS


Start on Dec 2019

Diagnostics of insurance market and reforms roadmap (TA for the Department for Insurance Supervision, MOF)



QCBS


Start on Sept 2019

Revision and Improvement of the Insurance Law



QCBS


Start on Sept 2019

Technical assistance to Project Implementation the Economic Council

1,000 000 Prior review



Start on Sept 2019

Project Financial Audit 500,000

Prior review


LCS Most advantageous Proposal

Start on Jan 2020


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have a facilitative character and technical ownership be clearly made a responsibility of the concerned component/beneficiary agencies.)

(b) PIU circulates to PIAB members for comments, advice and proposed prioritization

(c) DPM decides whether to propose to the Bank for approval to fund under the project

(d) PIU submits to WB for no-objection the proposed activity, including proposed changes in the procurement plan

(To ensure agility and flexibility, the time between submission of proposal to PIU and receipt of WB no-objection would typically take around ten working days and should not exceed 20 working days unless there are critical issues.)

(e) Procurement process initiated by PIU in consultation with concerned agency

(f) The concerned Agency jointly with the PIU manages contract/consultants and reports on progress and results achieved through its thematic group (TG) or the CTLC, if no TG exists for the agency

25. The Form for TA proposals will have the following elements:

(a) Responsible agency

(b) Title of proposed activity

(c) Description of problem that it intends to address

(d) Proposed solution/activities/outputs to address the problem

(e) Discussion of linkage to the UZ ICBP PDO – how does it contribute to the achievement of the PDO and/or specific indicators in the results framework

(f) Estimated cost of activities by required inputs (consultants, training, etc.) and implementation timeline and

(g) Procurement method required

(h) Endorsement date by TG/PAC representative when no TG exists

2. Implementation Support Plan (ISP)

A. Strategy and Approach for Implementation Support

26. Given the overall substantial risk of the project, its complexity, the high risk related to implementation capacity and stakeholders, the project would require intensive supervision. Previous World Bank experience in implementing institution building projects in Uzbekistan and other transition countries indicates the need for intensive implementation support and handholding from the Bank team to ensure smooth implementation and project success. Higher than normal supervision, field presence and support are required from the WB team.


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27. Implementation support will be provided by the WB team, consisting of staff with relevant competencies in PFM, SOE, financial sector, privatization, operations, procurement and finance management. Other Bank specialists would also be deployed as necessary (e.g., Social Protection Specialists in cases of SOE/SOB restructuring and privatization). Technical missions are expected to be deployed often to accompany the beneficiary agencies in their implementation of the critical reforms. Fiduciary support will be provided from the field that will allow for intensive and close support to the PIU. Oversight missions covering M&E of project implementation, assessment of outcomes and results will be deployed at the minimum every six months and supplemented by regular virtual meetings with the PIU. A Mid-Term Review will be carried out at the end of the second year of project implementation.

28. Intensive support to ensure the smooth functioning of the PIU – that is newly established - is expected in the first year with potentially almost day-to-day coordination with Bank fiduciary staff and task team leaders. In this regard, a launch workshop with all key stakeholders and PIU will be conducted before effectiveness to ensure: (i) clarity on the roles and responsibilities of each party in the implementation arrangement; (ii) the proper sequencing of activities; (iii) the proper characterization of the Terms of Reference for technical advisory to facilitate successful implementation; and (iv) expectations on results and their sustainability.

29. Since the project is part of a wider reform, the Bank team will ensure regular exchanges of information and coordination with other key stakeholders. These would include other Bank teams working on complementary tasks as well as bilateral and multilateral donors.

B. Implementation Support Plan and Resource Requirements

30. The following ISP reflects the preliminary estimates of the skill requirements, timing, and resource requirements over the life of the project. Given the need to maintain flexibility over project activities from year to year, the ISP will be reviewed annually to ensure that it continues to meet the implementation support needs of the project.

31. Tables 1.2 and 1.3 indicate the level of inputs that will be needed from the WB to provide implementation support for the proposed project and skills mix required.


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Table 1.2. Implementation Support Plan

Time Focus Skills Needed

First 12 months

• Provide support to establish strong project management that includes: ✓ Successful project launch ✓ Operationalize PIAB and TGs ✓ Required FM systems in place ✓ Required Procurement system in place ✓ Establishment of M&E system

• Provide support to start implementation of technical activities and closely accompany progress

All skills

13 - 72 months

• Ensure adequate implementation support of all aspects of project

• Monitor implementation of project activities, including site visits

• MTR at end of year 2

• Provide support to final evaluation and ICR of the client

All skills

Table 1.3. Skills Mix Required

Skills Needed Number of Staff Weeks

Number of Trips Comments

Task Team Leader 32 SW 5 Regionally based staff

Co-Task Team Leader 32 SW 3 Regionally based staff

Technical leads/operational staff

20 SW 5 Combination of internationally, regionally and Tashkent based staff

Project Implementation Consultant

- Based in Tashkent

Financial Management Specialist

5 SW - Based in Tashkent

Procurement Specialist 5 SW - Based in Tashkent