Document ofThe World Bank

Report No. T-7117-GZ

WEST BANK AND GAZA

PALESTINIAN EXPATRIATE PROFESSIONAL PROGRAM

TECHNICAL ANNEX

May 14, 1997

Private Sector Development and Infrastructure DivisionCountry Department IIMiddle East and North Africa Region

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CURRENCY EQUIVALENTS

(as of May 1997)Currency Unit: New Israeli Sheqalim (NIS)

US$1.0 = NIS 3.35

WEIGHTS AND MEASURES

1 meter (m) = 1.09 yards (yd)1 m2 = 10.76 square feet1 kilometer (km) = 0.62 miles (mi)1 km2 = 0.38 square miles

ABBREVIATIONS

CBJ = Central Bank of JordanCG = Consultative GroupEAP = Emergency Assistance ProgramEHRP = Education and Health Rehabilitation ProjectERP = Emergency Rehabilitation ProjectGOI = Government of IsraelHF = Holst FundIDA = International Development AssociationMOET = Ministry of Economy and TradeMOF = Ministry of FinanceMOPIC = Ministry of Planning and International CooperationPA = Palestinian AuthorityPECDAR = Palestinian Economic Council for Development and ReconstructionPEPP = Palestinian Expatriate Professional ProgramPLO = Palestine Liberation OrganizationPMA = Palestine Monetary AuthoritySC = Steering CommitteeTA = Technical AssistanceTATF = Technical Assistance Trust FundTFGWB = Trust Fund for Gaza and West BankTOKTEN = Transfer of Knowledge through Expatriate NationalsTS = Technical SecretariatUNDP = United Nations Development ProgrammeWBG = West Bank and Gaza

FISCAL YEAR

January 1 - December 31

Regional Vice President: Kemal Dervi5, MNAVPProgram Manager: Odin Knudsen, MNCWGManager: Nigel Roberts, MNCWGDivision Chief: Alastair J. McKechnie, MN2PITask Manager: Robert A. Mertz, MN2PIPeer Reviewer: Nimrod Raphaeli, OPRPG

WEST BANK AND GAZA

PALESTINIAN EXPATRIATE PROFESSIONAL PROGRAM

TECHNICAL ANNEX

Table of Contents

Page

I. DETAILED PROJECT DESCRIPTION ................................. 1A. Origin of the PEPP Project Concept ................................. 1B. Institutional Setting ................................. 2C. Project Objectives ................................ 2D. Project Cost and Financing ................................. 3E. Main Conditions of the Trust Fund Credit ............................. 6F. Risks and Risk Alleviation Measures ................................ 6

11. PROJECT ADMINISTRATION AND IMPLEMENTATION . . 8A. Project Management and Organization. 8B. Procurement .10C. Disbursement .10D. Accounts and Auditing .11E. Monitoring and Evaluation .11F. Project Supervision Plan .11

Appendix I. Key Performance Indicators .13

WEST BANK AND GAZA

PALESTINIAN EXPATRIATE PROFESSIONAL PROGRAM

TECHNICAL ANNEX

I. DETAILED PROJECT DESCRIPTION

A. Origin of the PEPP Project Concept

1.1 Since the beginning of the technical assistance (TA) program funded by the Technical AssistanceTrust Fund (TATF) in early 1994, Palestinian ministries and agencies have frequently requested financialsupport to bring expatriate Palestinian professionals from a broad range of specializations to assist variousgovernment departments. To meet this need in the case of one key economic agency, a small amountof TATF funds were allocated in 1995 to provide relocation allowances for Jordanians of Palestinianorigin who were being seconded by the Central Bank of Jordan to work with the Palestine MonetaryAuthority (PMA) for a period of one or two years as departmental managers or senior technical expertsin bank supervision. Knowledge of this pilot program for the PMA quickly elicited requests from theMinistry of Finance (MOF) and other ministries for similar support.

1.2 Several dozen other Palestinian expatriates have come to the WBG on short-term advisoryassignments through the Transfer Of Knowledge Through Expatriate Nationals (TOKTEN) program,managed by the United Nations Development Programme (UNDP) and the Ministry of Planning andInternational Cooperation (MOPIC). Frequently the sponsoring agency has asked the individual to stayfor a longer period to manage and build the department or program which he/she has designed. Sincethese agencies usually do not have dedicated project resources (and wish to save the time involved inpreparing discrete project proposals), they have frequently asked the Bank for access to TATF funds tocover the cost of longer term contracts for "graduates" of the TOKTEN program.

1.3 All of these requests had to be turned down for three reasons. First, TATF funds wereinsufficient for this purpose and unsuited to this usage. Second, based on experience with the PMA andTOKTEN, it was obvious that such a program would need to be professionally designed and managed,with substantial, up-front institutional analysis, an institution-building orientation, an international,competitive search process to identify the most suitable Palestinian candidates irrespective of theirlocation, and a competitive compensation program that could accommodate Palestinians coming frommoderate and higher income countries. Third, and most important, to be successful and to attractexternal funding, such a program would have to be shielded effectively from the pressures surroundingpersonnel recruitment. From experience, this would happen only if the project was professionallymanaged by a qualified, independent company of recognized international stature, responsive to a multi-ministerial body rather than to a single ministry or agency, and with independent oversight. Hence thePalestinian Expatriate Professional Program (PEPP), as described in this annex, was developed gradually,as a result of the lessons learned from the TATF and TOKTEN programs and in an effort toaccommodate the unpredictable and evolving operating environment.

1.4 The PEPP project concept was originally discussed in 1995 with the Palestinian Authority (PA)and with the Palestinian private sector sponsors, a group of prominent Palestinian businessmen, the

2 Technical Annex

Palestinian-Jordanian Follow Up Committee, who had become concerned about the need to strengthenthe professional capacity of Palestinian government agencies. It was quickly agreed to join forces toprepare the project and the Follow-Up Commnittee pledged their financial support for the project inSeptember 1995. Since then, a representative of the Palestinian private sector has participated at everysignificant step in project preparation, including pre-qualification of potential consulting firms to provideproject management, evaluation of the proposals received, and discussions with Dutch and Israeligovernment representatives and the PA.

1.5 Subsequently, a project concept note was prepared and the project was included in the CoreInvestment Program of the PA and presented to the Consultative Group (CG) for the WBG which metin Paris in November 1995. However, beginning immediately after the CG meeting, there was a rapiddownward spiral in the political and security situation in the WBG, resulting in extremely tight travelrestrictions on movement between Gaza and the West Bank. This closure policy demonstrated thatagreements would be needed with the Government of Israel to ensure the free mobility of PEPP programparticipants, or the effectiveness of the PEPP program would be compromised.

B. Institutional Setting

1.6 The institutions to be assisted under this project are the ministries and agencies of the PA. ThePA encompasses 24 ministries and 21 autonomous agencies. By agreement, the project will focus duringthe pilot phase on four or five key economic ministries and agencies, including the Ministries of Finance(MOF), Planning and International Cooperation (MOPIC), Economy and Trade (MOET), Education(MOE) and Health (MOH) and the Palestine Monetary Authority (PMA). In principle, the PEPP willgradually expand its scope to include most ministries and agencies. The PEPP project will, however,concentrate on high priority economic and financial management positions, specialized technical functionsand policy making units in each agency and only upon the senior management and technical positions inthose agencies. The ministries and agencies to be assisted by the project, and the priority positions tobe filled during each three-month period, will be identified in a rolling quarterly work plan which willbe prepared each quarter by the Technical Secretariat (TS).

C. Project Objectives

1.7 The PEPP project is designed to achieve the following objectives: (i) institutional development:(a) to strengthen the management and technical capabilities of ministries and agencies of the PalestinianAuthority; (b) for organizational units where the PEPP will recruit managers and senior technicalpersonnel, to advise on the appropriate organizational structure and the qualifications of the personnelto be recruited; (c) to identify and recruit the most qualified Palestinian expatriate professionals to filltargeted positions; (d) to establish and utilize a professional, transparent, competitive, internationalrecruitment process for such persons; and (e) to establish and apply an objective, transparent and fairmethodology for the payment of relocation allowances; (ii) capacity building: (a) to ensure that suitablyqualified individuals are identified and trained, primarily on-the-job, to take over the positions of thePEPP program participants so that there is minimal disruption when they return to their countries ofdomicile; and (b) to build a data base of Palestinian expatriates which can be used to recruit professionalsunder the program and that can be used to maintain contact with the Palestinian diaspora once the projecthas been completed.

Technical Annex 3

1.8 It is important to place the objectives of the project in the broader context of the establishmentof a Palestinian government after 30 years of occupation. The project focuses on filling imnmediate gapsin senior management and technical positions in the PA by recruiting skilled Palestinians from outsidethe WBG. The project will seek to minimize the potential disruption from the departure of PEPPparticipants, by seeking to ensure that trainable permanent WBG residents, with appropriate backgroundand skills, are identified to work with each new PEPP participant, learning on the job, with the possibilityof some short-term training.

D. Project Cost and Einancing

1.9 Project Costs. The estimated cost of this project is US$9 million over a three-year period, assummarized in the following table:

Foreign LocalComponent Costs Costs Total

--------------- US$ Million -----------Local salaries to PEPP personnel -0- 3.0 3.0Relocation allowances to PEPP personnel 4.5 -0- 4.5Project management 1.5 -0- 1.5

Total 6.0 3.0 9.0

1.10 Local Salaries and Relocation Allowances. The cost of local salaries and hypothetical relocationallowances is based on the actual salaries and relocation allowances currently being paid to seniorJordanian personnel seconded to the PMA by the Central Bank of Jordan (CBJ). For budgeting purposes,we have assumed that the average person engaged under the project would be paid an annual salary of$20,000 and an annual relocation allowance of $30,000, slightly above the current level of salary andrelocation allowances being paid.' However, these levels would probably not be adequate to attractindividuals in higher paid positions and from higher income countries.

1.11 Table 1 shows an indicative range of relocation allowances which might apply to PEPP programparticipants, calculated on the basis of a local senior management government salary in the WBG (firstcolumn @ $18,000) and on the basis of "take-home" income in the present country of residence (columnstwo, three and four). These allowances have been calculated on the basis of the World Bank's currentmethodology for staff sent on overseas assignments. During the pilot phase the TS will assess themethodologies utilized for relocation allowances by other international companies and institutions and willdevelop a methodology that can be applied in a transparent and effective manner to Palestinian expatriatescoming from a large number of countries:

I/ Palestinian expatriates from Jordan currently seconded to the PMA as senior technical specialists, managersand directors are being paid an annual salary of about $18,000 (which is about the same as their Jordaniansalaries) and an annual relocation allowance, calculated on international norms, of between $18,000 and$24,000, a total of about $36,000 - $42,000. This is much less than foreign consultants are paid to workin Palestine. The relocation allowance for Palestinians coming from higher wage areas, such as WesternEurope, North America and the Gulf, would probably be tied more to their opportunity cost (net take homepay or some other comparator) and not to their governmental salary.

4 Technical Annex

Table 1: Calculation of Hypothetical Relocation Allowances(US$)

Annual Salary ** $18,000 $50,000 $75,000 $100,000

Post AllowanceAssignment Allowance* $2,500 $2,500 $2,500 $2,500Hardship Allowance (15%) $2,700 $7,500 $11,250 $15,000Cost of Living (16.25%) $2,925 $8,125 $12,188 $16,250

Subtotal $8,125 $18,125 $25,938 $33,750

Housing Allowance $12,000 $12,000 $15,000 $15,000

Installation ExpensesSettling-in Grant* $1,038 $2,885 $4,327 $5,769Return to HQ grant* $692 $1,923 $2,885 $3,846

Subtotal $1,731 $4,808 $7,212 $9,615

Grand Total - Individual $21,856 $34,933 $48,150 $58,365

Family Allowance $4,231 $7,308 $9,712 $12,115Grand Total - Family $26,087 $42,241 $57,862 $70,480

* family allowance would be double** the three higher salary levels are assumed to be net of income tax in the country of current residence.

1.12 Proiect Management. The estimated cost of establishing and operating the TS over a three-yearperiod is US$1.5 million. Arthur Andersen subrnitted the winning proposal with a price of $2.0 millionover two years. The initial project proposal was based on a six-person international team, resident inthe WBG, with offices in Gaza and the West Bank managing a far larger program. However, theoperating environment has changed considerably from mid-1996 and the World Bank and other agencieshave encountered considerable operating difficulties, not to mention the substantial hardship imposed onPalestinian individuals and organizations by the Israeli closures. Thus, the Bank, in December 1996,redefined the project concept and requested that Arthur Andersen present a modified proposal based ona smaller and non-resident professional team in order to substantially reduce the fixed costs and the useof resident expatriate personnel. Instead the program will operate initially from abroad with a substantialpresence in the WBG whenever needed during the initial one-year pilot period. The cost of projectmanagement for this phase is about $500,000, plus a 20 percent contingency. If all forty positionstargeted for the first year are filled, the cost per recruitment will be about $12,500 (excluding thecontingency), or about 25 percent of the average annual cash compensation. This amount is somewhatbelow the normal cost of international recruitment (about one-third of the first year's cash compensation).The unit cost is expected to decline somewhat in subsequent years since the intensive work required toestablish the operating policies and procedures and get the program going will not need to be repeated,project management and the Steering Committee will have moved up the learning curve, and most of thefirst year's recruits are expected to remain for a second year with little input from the TS.

Technical Annex 5

1.13 Toward the end of the pilot period the effectiveness of the project will be reassessed and a basisagreed for subsequent operation of the program. Given the risks inherent in the project, continuedoperation is expected to be based on an approach that minimizes fixed costs and keeps expatriatemanagement personnel to the minimum required for efficient project management. The contract for theremaining two-year period of the project will be negotiated at the end of the pilot phase, based onadjustments to the project concept and operating policies and procedures which result from the first twelvemonths of operations. It is anticipated that the project will be carried out with a lean team and withcontinued attention to cost-effective implementation. The salaries of international and local staff are basedon current private sector salary levels and are expected to remain constant over the life of the project.

1.14 Financing Plan. Project funds are being provided by the Palestinian Authority, the Palestinianprivate sector through the Welfare Association, a private, charitable NGO headquartered inGeneva, Switzerland, and the IDA. The Palestinian private sector sponsors informed the WorldBank in September 1995 through the Jordanian-Palestinian Follow-Up Committee that they would provide$4-5 million to the project on a grant basis. This commitment has been reconfirmed. A first tranche ofUS$3 million will be contributed to the project at the outset. These funds will be administered by IDA.The balance of the funds (US$1-2 million) would be contributed to match an equivalent amount of fundsfrom donors or the IDA if the project operates successfully and if additional funds are required to expandor extend the project. One possible source of additional funds is the Dutch Government. A meeting isscheduled at the end of May 1997 to consider a Dutch government funding commitment for the project.In the event that additional donor funds are contributed to the project, the Palestinian Authority hasconfirmed that it will contribute additional funds up to at least US$3 million to cover the local salariesof the additional PEPP program participants. The PA would pay the local salaries of PEPP programparticipants during the period of their contract. External funds would cover the cost of the relocationallowances and the management contract with Arthur Andersen acting as the TS.

1.15 IDA funding would amount to US$3 million, one-third of the total project cost. IDA will financethe management contract with Arthur Andersen during the pilot phase in order to reduce the risk to thecofinanciers that their funds would not be put to productive use if the project did not go forward.Palestinian private sector funds would finance relocation allowances only during the pilot phase.Assuming successful extension of the contract to the full three-year project period, funding of themanagement contract and relocation allowances would shift to a pari passu basis between the WelfareAssociation and the IDA at that point so that equal disbursement of both funding sources is achieved andmaintained.

6 Technical Annex

Table 2: Project Costs and Financing Plan by Component

Foreign Local TotalComponent Costs Costs Costs/Funding

---------------- (US$million) -------------------Local Salaries 0.0 3.0 3.0-PA - 3.0 3.0

Relocation Allowances 4.5 - 4.5-IDA 1.9 - 1.9-Welfare Association 2.6 - 2.6

Project Management 1.5 - 1.5-IDA 1.1 - 1.1-Welfare Association 0.4 - 0.4

Total Project Cost and Funding 6.0 3.0 9.0-PA 0.0 3.0 3.0-IDA 3.0 - 3.0-Welfare Association* 3.0 - 3.0

* IDA-administered

E. Main Conditions of the Trust Fund Credit

1.16 The Trust Fund Credit would be extended for a period of 40 years, with 10 years' grace, understandard IDA terms. The following conditions of board presentation have been met: (a) negotiation ofthe project management agreement for the pilot period between the PA Ministry of Finance and ArthurAndersen; and (b) negotiation of a Trust Fund Contribution Agreement between the Palestinian privatesector sponsors (represented by the Welfare Association) and IDA as Administrator of such funds. TheContribution Agreement will be signed once the Board of the Welfare Association has given its approval,expected at their next Board meeting on May 25, 1997.

F. Risks and Risk Alleviation Measures

1.17 Risks. There are substantial political and operational risks which the project design has tried toaddress. These risks include: (a) continuation of severe Israeli travel restrictions on Palestinian residentsand expatriates, particularly concerning travel between the West Bank and Gaza, thereby limiting theirmobility and effectiveness and discouraging their continued employment; (b) pressures to deviate fromwhat is intended to be an independent and transparent recruitment process; and (c) high turnover amongrecruited expatriate professionals because of difficult living and working conditions, especially in Gaza.These risks and the project's proposed methods of risk minimization are described in the followingparagraphs.

Technical Annex 7

1.18 Mobility and Effectiveness. The political environment for the proposed PEPP program has beenuncertain, especially since late 1995. Palestinians seconded to the PMA and financed under the TATFhave continued to encounter serious obstacles to their freedom of movement which have negativelyimpacted their overall effectiveness. Under such circumstances, the World Bank and the other sponsorsof the PEPP have questioned whether or not we could establish a sufficient basis to proceed with thisprogram without explicit assurances of travel mobility in advance from the GOI. Following recentconversations with our fellow sponsors, senior officials of the PA and senior representatives of the GOI,we have decided that the need for the managerial expertise and experience which the PEPP program isintended to provide is so critical that we must move ahead, even if we cannot obtain ironclad assurancesin advance that participants will have the mobility necessary to be fully effective in their work. We havebeen informed by officials of the GOI that they will provide multiple entry visas and travel permitsensuring free mobility between the West Bank and Gaza for PEPP program participant during the periodof their contract (including extension of that contract) so long as they can be assured by the PA that theindividuals in the program will abide by the terms of their visas. Mutually acceptable commitments anddetailed operating policies and procedures will be worked out during the pilot phase.

1.19 Fixed Cost Risk Minimization - Pilot Phase. Rather than waiting for the current uncertaintyin the West Bank/Gaza to be resolved before moving ahead with the project, we think it prudent to adopta flexible approach and start the PEPP program on a pilot basis. Rather than undertaking considerablefixed costs at the beginning by moving expatriate consultants to the WBG, it seems more cost-effectiveto operate initially from abroad. This would get the program going but minimize the possible financialrisks of substantial fixed costs in the event that the operating environment proved to be unsustainable.Such an approach seems likely to reduce the substantial, up-front overheads embedded in the originalproject design and project proposal when an improving political environment was anticipated. At theBank's request, the consultants prepared a revised proposal planning to start the project with a one-yearlong pilot period during which the consultants would work largely from abroad. The project managerand other professional staff would make periodic visits to carry out the work required on the ground.Recruitment and other activities could be implemented largely outside the WBG. Back-stopping supportwould be provided by the consultants' local offices.

1.20 During the pilot phase, the consultants would focus on recruiting persons to fill a first batch of25-40 key positions in a small number of key economic ministries (the Ministries of Finance, Economyand Trade, Planning and International Cooperation, Education, Health and the Palestine MonetaryAuthority). These individuals would constitute a test group to establish the internal operating systemsand procedures of the PEPP program and the operating modalities of visas and travel permission withthe GOI. We plan an operational review toward the end of the pilot phase to determine what changesmight be required to adapt to the lessons learned in those first few months. If the operating environmentturns out to be unfavorable, we would make whatever adjustments were deemed necessary, including -in the extreme - shutting down the program.

1.21 Independent Recruitment Process. In the highly charged atmosphere of the WBG, it will bedifficult to set up and operate a project to recruit managers and technical specialists for the governmentin a transparent, independent and apolitical manner. This has made it difficult to identify any onecounterpart agency for the project which will satisfy other beneficiary agencies. However, the sponsorsagree that unless the recruitment process is insulated from politics, the risks are high that politicalconsiderations will subvert the process. They have said that they would be unwilling to use their funds

8 Technical Annex

unless the independence and integrity of the process is assured. The acceptance by the PalestinianAuthority of the project concept and the proposed independent operating structure being established, asdescribed in the Memorandum of the President and the Technical Annex, was confirmed duringnegotiations. The commitment of the PA to the principle of independent project operation has also beenconfirmed in a letter to IDA from the Minister of Finance on behalf of the PA. We will also rely on theSC and the project manager (the TS) to remain apolitical and to maintain the integrity of the recruitmentprocess. Finally, IDA will conduct thorough due diligence in monitoring project implementation at keypoints as outlined in paragraph 14 of the Memorandum of the President.

1.22 "Interference." in Domestic Affairs. There may be concerns that an independent recruitmentprocess and close supervision of the consultant selection process by IDA could constitute interference inthe selection of senior Palestinian government officials. There may also be concerns that relocationallowances give the providers of those funds a call on the loyalty of those individuals. This risk givesadded strength to the importance of a transparent and professional recruitment and selection processinsulated from politics, to the need for an explicit endorsement of the project concept and approach fromthe PA prior to Board presentation, and to close monitoring of implementation by IDA. The fact thatthe final choice of the individual to be contracted will, in all cases, rest solely with the Minister of thespecific Ministry should reduce this concern.

II. PROJECT ADMINISTRATION AND IMPLEMENTATION

A. Project Management and Organization

2.1 The project would be implemented by the Ministry of Finance on behalf of the PA. A SteeringCommittee, chaired by the Minister of Finance, and consisting of the Ministers of Economy and Trade,and Planning and International Cooperation, and two non-governmental representatives, will beestablished to supervise project implementation. At least one representative of the Palestinian privatesector would participate in the project as a member of the Steering Committee. The SC is expected tomeet monthly to review project progress against the quarterly work plans, to recommend modificationsor technical improvements in design and implementation, to give the SC's approval of the prequalifiedcandidates and those selected by the ministries, and to approve the new quarterly work plan.

2.2 Day-to-day project management would be contracted to Arthur Andersen on behalf of the SteeringCommittee. This management consulting firm would act as the Technical Secretariat (TS) for the project,with the responsibility of establishing and operating a transparent, independent process to identify andrecruit well qualified Palestinian expatriate professionals to fill specific senior positions. The operationsof the TS have been thoroughly described in paragraph 9 of the Memorandum of the President.

2.3 The PA would be responsible for all matters regarding the contracting of the individual PEPPparticipants and payment for their services. Funds would be transferred by the Bank to the PA forpayments on a three-month advance basis, subject to confirmation that the individual was performingsatisfactorily. Timely payment of local salaries and relocation allowances, bookkeeping and relatedadministrative tasks would be the responsibility of the Ministry of Finance. Agreement to these

Technical Annex 9

arrangements was confirmed at negotiations. The MOF will appoint an individual to assume theseresponsibilities as the Ministry's project manager and counterpart to the TS.

2.4 Suitable office space and secretarial support for the TS will be provided, at cost, in the localoffices of Arthur Andersen in Gaza and the West Bank. The Arthur Andersen team consists of employeesfrom their Washington, D.C., Saudi Arabian and Jordanian offices. One specialist from PublicAdministration Associates, a Washington-based firm specializing in public administration developmentin developing countries, is also a member of the core team of the project. For the pilot period, theseindividuals will travel to the WBG as needed. A data base manager will be hired locally. Should theseproject management arrangements prove to be inadequate at the time of the performance review towardthe end of the pilot phase, the PA would take such measures as may be agreed with Arthur Andersen andIDA to adjust project management satisfactorily. In addition, the following actions were agreed atnegotiations:

(a) the PA confirmed its commitment to maintain the management contract with ArthurAndersen on a mutually satisfactory basis between the parties during the project periodand will agree with IDA in case of any significant changes in the organization, staffingand responsibilities of the TS; and

(b) operating policies and procedures covering international recruitment, the methodology forcalculating and paying relocation allowances, and day-to-day management of the projectwill be recommended by the TS during the pilot phase and agreed by the SteeringCommittee and IDA. Financial procedures to be followed by the PA in utilizing andauditing project funds, acceptable to IDA, will be adopted by the PA by the end ofAugust 1997.

2.5 At negotiations, the PA confirmed that:

(a) the TS will prepare a quarterly work plan for each three-month period indicating whichministries are to be assisted and which positions are to be filled, and the expected methodof recruitment. Each work plan will be agreed by the Steering Committee and IDA;

(b) a suitably qualified local counterpart would be designated for each Palestinian expatriateprofessional engaged under the program;

(c) the TS would produce summary quarterly progress reports covering the work done in theprevious quarter, appointments and cancellations of contracts, and disbursements offunds, as part of report containing the quarterly work plan; and

(d) the work plan to recruit the first 10-15 candidates for the key ministries to be coveredby the first quarterly work plan during the period July 15 - October 15, 1997 will beprepared within one month of project start-up (i.e., by target date August 15, 1997).

10 Technical Annex

B. Procurement

2.6 All Trust Fund Credit funds and IDA-administered donor funds (a total of US$6 million) wouldbe used for consulting services. Both the project management contract and the payment of relocationallowances to PEPP program participants are considered payments for consulting services because of thenature of the work being done and the selection process which will be used. A very limited amount ofequipment may be purchased under this project as part of the contract with Arthur Andersen.

2.7 Procurement of all consulting services financed by the Trust Fund Credit funds and IDA-administered donor funds under this project would be according to IDA guidelines for the selection ofconsultants. The management company providing project management services as Technical Secretariatto the project has been selected on the basis of an internationally diversified, competitive process. Theindividual PEPP program participants will be recruited by the TS on behalf of the client ministries on thebasis of a transparent international search, using advertisements, direct contacts and other standardrecruitment techniques. Non-competitive, single source appointment of individuals will not be authorized.

2.8 The principal burden of procurement would rest on the TS, although the ministries and agencieswould have the sole responsibility to choose among the candidates identified for each position. As lenderand administrator of trust funds, IDA would act in its normal capacity to monitor project implementationat key points. Because this is a time-consuming process, substantial staff time has been budgeted forprocurement-related issues in the supervision plan (see para. 2.17). In order to reduce the burden on stafftime, standard contracts for the relocation allowances would be used.

2.9 Schedule B of the Memorandum of the President summarizes the cost of items to be financed bythe project and the expected procurement methods for each.

C. Disbursement

2.10 The project is expected to disburse fully over a three-year period. The Trust Fund Credit wouldfinance up to 100% of the cost of the project management and relocation allowances. Since the relocationallowances will consist of many small amounts, almost all disbursements are expected to be through twoSpecial Accounts (SA) established for the purpose of the project. Supporting documentation in respectof all payments would be retained by the MOF for a period of not less than two years for review by IDAsupervision missions and independent auditors, acceptable to IDA. Disbursement would be accordingto the standard terms specified in the Disbursement Handbook published by the World Bank and dated1986, as may be amended from time to time.

2.11 During the pilot phase, the Trust Fund Credit alone will fund the management contract; IDA-administered funds from the Welfare Association will fund relocation allowances. Following completionof the pilot phase and signature of an extension contract covering the full project period, funding of themanagement contract and relocation allowances will be shared equally by the Trust Fund Credit and theWelfare Association. Should additional external funding be received, disbursements between externalfunding agencies would be expected to be proportional to maintain parity between these sources.

2.12 To expedite implementation, the MOF would establish two Special Accounts at a commercialbank acceptable to IDA, to be operated as revolving funds for the Trust Fund Credit and the IDA-administered contribution of the private sector to the project. These accounts would each be funded with

Technical Annex 11

an initial deposit of US$300,000 and would be replenished as and when needed upon presentation of awithdrawal application. The target would be to provide liquidity sufficient to cover quarterlydisbursements from each SA. The Minister of Finance and one other signatory would be authorized tooperate each SA, as well as to sign the withdrawal applications under the project. Approval ofdisbursements to the Special Accounts would be contingent on continuing satisfactory performance of theproject.

D. Accounts and Auditing

2.13 The accounts of all project funds, including the Special Accounts, would be audited annually byindependent auditors acceptable to IDA.

E. Monitorin2 and Evaluation

2.14 A rolling work plan and budget for each quarter would be prepared by the TS and agreed withthe Steering Committee and with IDA. Implementation of these quarterly work plans would be monitoredthrough quarterly progress reports prepared by the TS. The content of the quarterly reports was agreedat negotiations. The TS will furnish to the SC and IDA a work plan for the July-October 1997 periodat the end of the first month of operations. The first quarterly progress report (for the July-October 1997quarter) would be prepared by October 15, 1997, and at quarterly intervals thereafter. To facilitateproject management and review, the quarterly progress report and forward-looking quarterly work planwill be combined as separate sections in one document to be presented simultaneously in advance to theSC and IDA for review and agreement.

2.15 The PA and IDA would carry out a joint review of progress in implementing the project duringthe pilot period on the basis of performance indicators which were agreed at negotiations and which arecontained in Appendix 1 to this document. Key indicators would include progress, acceptable to IDA,in recruiting the first 25-40 professionals, arrangements by the GOI to provide free mobility and fulleffectiveness of PEPP program participants, and a transparent, professional and competitive selectionprocess.

F. Proiect Supervision Plan

2.16 Because of the labor-intensive nature of consultant selection, IDA staff supervision of the projectis expected to require considerable effort and attention. However, the presence of a high quality TSshould enable IDA to focus on the quarterly work plans and the pre-qualification of candidates and notto get involved in day-to-day issues of project management. The Bank's Resident Mission is expectedto be responsible for day-to-day monitoring of project activities with little need for headquarters input.

12 - Technical Annex

2.17 The table below gives the estimated staff-weeks for supervision of the project during the FY98-FY00 period:

Supervision Plan

Fiscal Year FY 1998 FY 1999 FY 2000

1. Project management issues 13 12 102. Procurement issues 2 1 1

Total staff-weeks 15 13 11

The cost of IDA supervision has been calculated at $153,500 (39 staff/weeks at an average cost ofUS$3,750 and US$17,000 for travel). This level of resources should be feasible. IDA is expected toreceive about US$60,000 in administrative fees on US$3 million of donor funds under Trust Fundarrangements, calculated at two percent of the amount of funds contributed by external sources.

Technical Annex 13

APPENDIX 1

Key Performance Indicators

A. Institutional Development Objectives: FY 1998 FY 1999 FY 2000

- number of positions targeted for recruitment in 40 30 30each annual period (does not include contract extensions)

- number of professionals recruited in each annual period 30 40 30- number of professionals recruited who fulfill the full period 27 36 27

of their contract (does not include contract extensions)- number of professionals recruited who are offered and -- 20 30

accept a second year of employmentpercentage of professionals recruited who are 75% 75% 75%considered to have performed in the first orsecond tranche of performance categories(highest = 1 and lowest = 5)

- independence, quality and transparency of the 75% 75% 75%international recruitment process followed (rateon the basis of the number of top-ranked candidates selected)

B. Capacity Building:

- number of individuals appointed to act as full-time deputies 30 40 30to the expatriate professionals recruited

- number of appointed individuals who replace PEPP n.a. 24 32participant on his departure

- establishment and operation of the data base on expatriate 1,000 5,000 15,000Palestinian professionals (number of individuals included)

C. Proiect Management:

- number of individual participants granted full travel and work 100% 100% 100%permits and mobility consistent with their contracts

- quality of the methodology used to calculate and 66% 80% < 80% <pay relocation allowances (proportion of appointmentswithout disputes over level of compensation percentage)

- management of project financial operations and Special Account 1 or 2 1 or 2 1 or 2(highest = 1 and lowest = 5)

- actual disbursement of funds against projected disbursements 60% < 75% < 85% <