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Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: PP2139

PROJECT PAPER

ON A

PROPOSED GRANT

IN THE AMOUNT OF US$ .35 MILLION EQUIVALENT

TO

IRAQ

FOR A

IRAQ EITI IMPLEMENTATION SUPPORT PROJECT

23rd January, 2017

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 January 1, 2017)

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

CPS Country Partnership Strategy CSO Civil Society Organization

EGPS Extractives Global Programmatic Support EITI Extractive Industries Transparency Initiative FM Financial Management

GRS Grievance Redress Service IDA International Development Association IEITI Iraq Extractive Industries Transparency Initiative IBRD International Bank for Reconstruction and Development MDTF Multi-Donor Trust Fund MSG Multi-Stakeholder Group PDO Project Development Objective TA Technical Assistance

Regional Vice President: Hafez M. H. Ghanem Country Director: Ferid Belhaj

Global Practice Senior Director: Riccardo Pulliti Practice Manager: Christopher Gilbert Sheldon

Task Team Leader: Bakhtiyar Karimov

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IRAQ

IRAQ EITI IMPLEMENTATION SUPPORT

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT ............................................................................................................. 8

A. Country Context ........................................................................................................................ 8

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

C. Higher Level Objectives to which the Project Contributes ....................................................... 9

II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 9

A. PDO ........................................................................................................................................... 9

B. Project Beneficiaries ................................................................................................................... 9

C. PDO Level Results Indicators ................................................................................................... 10

III. PROJECT DESCRIPTION ........................................................................................................ 10

A. Project Components ................................................................................................................ 10

B. Project Financing ..................................................................................................................... 11

IV. IMPLEMENTATION ................................................................................................................. 12

A. Institutional and Implementation Arrangements ..................................................................... 12

B. Results Monitoring and Evaluation ......................................................................................... 12

C. Sustainability ........................................................................................................................... 12

V. KEY RISKS AND MITIGATION MEASURES .................................................................... 133

VI. APPRAISAL SUMMARY .......................................................................................................... 14

Annex 1: Results Framework and Monitoring ....................................................................................... 20

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DATA SHEET

Iraq IRAQ EITI Implementation Support. (P160274)

Small RETF Grant Project Paper .

MIDDLE EAST AND NORTH AFRICA 0000009266

.

Basic Information Date: 10.20.2016 Sectors: Energy and Mining, Oil and

Gas

Country Director: Ferid Belhaj

Themes: Public Sector Governance

Practice Manager/Global Practice Senior Director:

Christopher Gilbert Sheldon / Riccardo Pulliti

EA Category: C- Not Required

Project ID: P160274 Instrument: Investment Project Financing

Team Leader(s): Bakhtiyar Karimov

. Recipient: Republic of Iraq Executing Agency: IEITI SECRETARIAT

Contact: Allaa Mohie Al Deen Title: Secretary General Telephone No.: 964-712-000-446 Email:aldeen57@msn.com . Project Implementation Period:

Start Date: 01-Feb-2017 End Date: 29-Dec-2017

Expected Effectiveness Date:

1-Feb-2017

Expected Closing Date: 29-Dec-2017

.

Project Financing Data(US$M)

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Total Project Cost : 0.35 Total Financing : 0.35 Financing Gap : 0 .

Financing Source Extractives Global Programmatic Support (EGPS)

Amount(US$M) 0.35

BORROWER/RECIPIENT Republic of Iraq Others - Financing Gap 0 Total 0.35 .

Expected Disbursements (in USD Million) Fiscal Year

2016 2017 2018

Annual 0 0.20 0.15

Cumulative

0 0.20 0.35

.

Project Development Objective(s) The project development objective (PDO) is to enhance transparency in Iraq's extractives sector through support of the government’s activities on the implementation of the Extractive Industries Transparency Initiative (EITI). .

Components Component Name Cost (USD

Millions) EITI Report production, including consultants services to prepare the report, data collection, dissemination, stakeholder workshops and consultations

0.20

Capacity support to IEITI MSG and IEITI Secretariat, including training 0.10

Outreach and Public Data: Enhancement of IEITI website, including design of an online interactive web portal

0.02

Program Management and Operating Costs, including stationary, transportation, telecommunication etc.

0.03

.

Compliance Policy Does the project depart from the CAS /CPS/CPF in content or in other significant respects?

Yes [ ] No [ x ]

. Does the project require any exceptions from Bank policies? Yes [ ] No [ x ]

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Have these been approved by Bank management? Yes [ x ] No [ ] Is approval for any policy exception sought from the Board? Yes [ ] No [ x ] Does the project meet the Regional criteria for readiness for implementation? Yes [ x ] No [ ]

.

Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X

Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waters OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X

.

Legal Covenants Name Recurrent Due Date Description of Covenant

.

Team Composition Bank Staff Name Title Specialization Unit UPI Bakhtiyar Karimov Team Leader (ADM Responsible) Regional

Coordinator GEEX1 263803

Mourad Belguedj Team Member Oil and Gas Consultant

GEEX1 86526

Nazaneen Ismail Ali Procurement Specialist (ADM Responsible)

Senior Procurement Specialist

GGO05 275389

Walid Hamoud Ali Al-Najar

Financial Management Specialist Financial Management Specialist

GGO23 460456

Chesaline M. Cuffley Team Member Temporary GEEX1 11102 Gloria Jean Whitaker Team Member Program Assistant GEEX1 374427

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Jad Raji Mazahreh Team Member Sr Financial Management Specialist

GGO23 334086

Leena Mohammed Khider Al Abbasy

Procurement Specialist Consultant GGODR 421117

Saba Nabeel M Gheshan Counsel Counsel LEGAM 483769 Shingira Samantha Masanzu

Counsel Counsel LEGSG 455014

Sridar Padmanabhan Kannan

Team Member Consultant GEEX2 407297

Non Bank Staff Name Title Office Phone City .

Locations Country First Administrative

Division Location Planned

.

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I. STRATEGIC CONTEXT

A. Country Context 1. Oil accounts for over 90% of Iraqi exports and some 97 % of its foreign exchange earnings. Furthermore, Iraq holds some of the world largest untapped oil and gas reserves, which could safely be exploited for the next three to four decades at their current rates or above. Therefore, the World Bank support program to the Iraq economy would only make sense, if these indigenous resources were used first and foremost for the economic development of Iraq, and could be integrated in the Country Development Program. The revenues from this source alone could drive the economy for decades to come, to help it diversify into more productive and lasting industrial and services base. This would ensure a strategic and planned weening of the oil dependency over the long term, and establish the structure of a sustainable economic sector not based on oil rent alone. This policy shift needs however to be driven by the government and supported by institutions which have the trust of the Iraqi people at large.

B. Sectoral and Institutional Context

2. Iraq holds 10% of the world's proved oil reserves (circa 115 billion barrels) and 2% of global gas reserves (120 TCF). Oil Production is currently steady at 4.6 million barrels/day, with about one million barrels /day going to the domestic market and the balance destined for export. Iraq’s hydrocarbon sector contributes to 65% of its GDP, 90% of public revenues and most of its foreign exchange earnings. The government is fully committed to the sound management and optimal performance of the sector, by prioritizing lasting policy decisions for universal access to gas and to power in the domestic market. It also wants to attract expertise and FDI to reverse output decline from existing oil and gas fields, and develop a new production capacity and new oil and gas fields, in a way commensurate with Iraq’s resource base. Iraq joined Extractive Industries Transparency Initiative (EITI) in 2008 and, despite the continuing deteriorating security environment, five annual EITI reports have since been published, and covering the period spanning from 2008 to 2013. Iraq is now preparing for validation under the Standard in 2016-17. Iraq is also considering using experience gained through the current EITI process to launch a draft Iraq EITI Law inspired from the existing Petroleum Law. In 2010, the EITI program was extended to the semi-autonomous of Iraqi Kurdistan and helped initiate and establish a constructive national dialog on oil and gas issues with authorities of this region.

3. The World Bank Group has been supporting the implementation of EITI in Iraq since the country joined the initiative in 2008 by providing Technical Assistance, policy guidance and funding (through the erstwhile EITI Multi-Donor Trust Fund) to ensure that internal budget constraints due to the post-war and reconstruction situation would not impede EITI implementation. Previous World Bank projects supporting EITI in Iraq are (i) “Iraq: Extractive Industries Transparency Initiative Implementation (P117511)” which was a recipient executed grant given to the Ministry of Electricity as the implementing agency in Iraq for an amount of USD 1.64 million; this was disbursed in two separate tranches of USD 0.84 million and 0.80 million respectively; and (ii) “Iraq Extractive Industries Transparency Initiative (P118292)” , which was a World Bank executed technical assistance project for an amount of USD 0.5 mln. The World Bank is also currently supporting a bank-executed technical assistance project titled “Iraq Gas Flaring Reduction TA (P162845)” funded by the EGPS.

4. The funding of IEITI implementation has historically been partly by the Government of Iraq, with the remaining financial support being provided by the World Bank. As of date, there are no other donors or development agencies that are providing financial supporting to IEITI. The Government of Iraq has provided from the outset of IEITI strong political, financial and logistical support by : (i) housing the project earlier within the Ministry of Electricity, and now the Ministry of Oil; (ii) by providing qualified staff as required to support the implementation of the project; and (iii) financially supporting outreach and dissemination events as well as training and capacity building efforts due to the high turnover of staff at the IEITI Secretariat. During the period of the first World Bank grant to support the implementation of IEITI, governmental financing to the process of IEITI implementation was to the

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amount of around 65% of the costs. Governmental buy-in to the process still remains strong, with the above-mentioned efforts by the executive being supported by efforts by parliamentarians who invite the IEITI Secretariat to make presentations of the IEITI report, and the annual activity report every year, and are also invested in the follow-up actions requested by the reports. To that end, the proposed introduction of an IEITI law has been widely discussed in recent years, and is being considered within the framework of the updating of the existing petroleum legislation.

5. Iraq is has remained compliant under EITI since 2012, and is currently undergoing a re-validation under the new EITI Standard, 2016 as of January 1, 2017. Having published 7 consecutive EITI Reports over the years, the sustainability of EITI in Iraq moving forward will be reflected through a proposed mainstreamed EITI process that embeds EITI reporting into governmental and company reporting systems, and established an online platform for the reporting of EITI data.

6. The need for mainstreaming of IEITI is also closely related to the lessons learnt from the previous World Bank support to IEITI implementation. It has been observed by the International EITI secretariat that IEITI implementation has in the past been too focused on the publication and dissemination of EITI reports, and not the further mainstreaming; and that the dissemination activities as such have focused more on improving the branding of IEITI rather than on disseminating the findings of the report. The quality of the IEITI reports, it has also been observed, will also benefit from improvements. The Government of Iraq will work towards addressing these issues in the proposed Grant.

C. Higher Level Objectives to which the Project Contributes

7. Ongoing support to Iraq’ s EITI process is a core element of the World Bank's FY 2013-2016 Country Partnership Strategy, which specifically mentions supporting improvements in institutional capacity and governance, through technical assistance to improve accountability in Government wide systems, public financial management, transparency in oil revenue management, particularly through the continuation of the ongoing Extractive Industries Transparency Initiative. The support to implementation of EITI in Iraq is also a core element in the World Bank’s draft CPF for Iraq for the FY 2018-2023 under the specific objective of ‘Enhanced transparency in Reporting on Oil Sales’.

II. PROJECT DEVELOPMENT OBJECTIVES

A. PDO 8. The project development objective (PDO) is to enhance transparency in Iraq's extractives sector through support of the government’s activities on the implementation of the Extractive Industries Transparency Initiative (EITI).

B. Project Beneficiaries

9. The immediate beneficiaries of the project will be institutions comprising Iraq EITI as well as other branches of the Government, such as the Legislative and Judiciary, which would gain from enhanced transparency, as much as has the Executive branch, which actively and publicly supported Iraq EITI, by attending its annual events, at its highest level of representation. Other direct project beneficiaries include, the three constituencies within the Multi-Stakeholder Group (MSG), which besides the government, extend to civil society organizations and domestic as well as international oil and gas companies, as well as their wider constituency groups. The success of EITI, when its compliancy status is revalidated, will contribute to the enhancement of the governance of extractives, and in this case alone, the broader public in Iraq will greatly benefit. Stakeholders also include the donor community, who are advocates of EITI, as well as financing partners in some cases.

10. The specific beneficiaries include: (i) Government: The relevant government agencies that are mandated to monitor and regulate the

extractive industries, are expected to continue generating and reporting the information necessary for the annual EITI Reports in an accurate and timely fashion.

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(ii) Companies: Major Oil and Gas Companies in the extractives sector are expected to continue providing a full and accurate report of all payments made to the government, including social expenditures and financial provisions made for environmental rehabilitation. They are also encouraged to continue disclosing their contracts, by clearly stating the terms attached to the exploration and production of oil, gas and minerals. In the process, the industry is expected to recommend policies and reforms to achieve the broader objectives of EITI implementation, as these International Oil Companies officially adhere to the EITI principles and objectives. This is not the case in Kurdistan where many operators are smaller Companies, who do not feel bound by EITI principles, and are therefore less forthcoming in terms of transparency and governance.

(iii) Civil Society Organizations. Civil society’s role is to closely monitor on behalf of their respective constituencies, proper EITI implementation, evaluate the EITI report, and provide essential inputs to the EITI process through its involvement on the EITI Multi-Stakeholder Group. Civil society is expected to continue encouraging and leading the public debate on all matters related to EITI implementation in particular and extractive industry issues in general. It also plays a role in advocating for and representing the interests of vulnerable groups with issues pertaining to gender, health and environmental impacts of extractives on affected neighboring communities.

C. PDO Level Results Indicators

11. Progress in achieving the PDO will be measured by the following key results indicator: (i) Production and dissemination of 8th (2016) I-EITI Report; and by the following intermediate results indicators: (i) Familiarization on EITI Standard, 2016 for at least 50% of IEITI Secretariat staff and MSG Members; and (ii)Enhanced IEITI Website.

III. PROJECT DESCRIPTION A. Project Components

12. The project is expected to comprise two phases: the first phase of $350,000 will be covered by the existing grant and the second phase of $700,000 will follow at a later date as described below.

13. The proposed grant (first year budget $0.35 million) will retain, consolidate and further develop the existing body of skills of the Iraq National EITI Secretariat, and members of the IEITI MSG in understanding and implementing the EITI Standard, 2016. In line with the increasing focus of “mainstreaming” within the EITI and the Iraq Government's commitment to publicly disclosing production volumes and corresponding revenues, the project will place an emphasis on linking EITI and government disclosures. Improving civil society participation within the IEITI MSG and use of EITI information and institutionalizing EITI-type transparency will also be priorities for the project.

14. For the first phase of the project, the following activities are envisaged under the following components:

(i) COMPONENT I: EITI Report production, including consultants services to prepare the report, data collection, dissemination, stakeholder workshops and consultations. The production, publication and dissemination of the 8th EITI report (2016) shall be supported. The report will be launched at a national conference, followed by four regional conferences to be held in Baghdad, Basra, Erbil, and Kirkuk respectively. Stakeholder engagement shall be conducted especially amongst members of the IEITI MSG, and all relevant materials will be translated into English, Arabic and Kurdish, depending upon the region where the workshops are to be held.

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(ii) COMPONENT II: Capacity support to IEITI MSG and IEITI Secretariat, including training. Training shall be imparted to the IEITI MSG members and staff of the IEITI Secretariat on the EITI Standard, 2016. Moreover, capacity support shall also be provided to the IEITI Secretariat and the IEITI MSG by the contracting of the following consultants to perform the tasks mentioned below:

(a) Financial Consultant (advisor): The Financial consultant shall provide financial advice and opinion related to all activities and reports of IEITI. The consultant shall also provide legal advice and follow up for all stages of issuance of annual and periodic reports, like preparing ToRs, draft contracts, preparing reporting templates and lessons learned.

(b) Legal Consultant: The legal consultant shall provide legal advice and opinion for IEITI MSG and IEITI Secretariat in terms of relationships, contracts, deals and disputes inside and outside of Iraq with the Government, NGOs and related International organizations. The consultant shall also provide legal advice and follow up for all stages of issuance of annual and periodic reports, such as preparing ToRs, draft contracts, preparing reporting templates and lessons learned.

(iii) COMPONENT III: Outreach and Public Data: Enhancement of IEITI website, including design of an online interactive web portal. This activity will involve procuring a web design consultant who will coordinate with relevant IEITI National Secretariat staff to develop and implement a dynamic and interactive website that meets the users’ needs, interacts with corresponding user interface requirements, facilitate access to IEITI reports and publications, announces about IEITI events, etc. The web design consultant shall also provide a specific training of 5 days on the new website for 3 of IEITI staff; provide a one year maintenance and technical support for the website including trouble shooting, along with a warranty for the website for a period of three months from launch.

(iv) COMPONENT IV: Program Management and Operating Costs, including stationary, transportation, telecommunication etc.: This component shall finance the operating costs of the grant, including activities such as payment for transportation, purchase of stationary, and payment for internet and telecommunications. Consultants shall also be hired for the performance of the activities such as accounting, administration, translation, and logistics support.

15. A precondition for moving towards phase II of support towards IEITI implementation shall be the successful preparation and dissemination of the 8th IEITI Report (2016). Phase II of support to IEITI implementation shall be directed towards the following recipient executed activities: (i) support for publication and dissemination of 9th IEITI report, and production of summary reports; (ii) continued institutional capacity support to IEITI secretariat, (iii) continued wide dissemination of the validation report, and subsequent outreach and communication following IEITI validation, including building a consensus to implement corrective measures identified (if any), (iv) implementation of the beneficial ownership roadmap, and (v) undertaking a feasibility study for mainstreaming IEITI into government and company systems, and the establishment of an online portal for EITI data reporting. Funding to be requested for Phase II of the grant will be requested for around USD 0.70 Million.

B. Project Cost and Financing

Project Components Project cost Grant Financing % Financing

EITI Report production, including consultants services to prepare the report, data collection,

0.20 0.20 100%

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dissemination, stakeholder workshops and consultations

Capacity support to IEITI MSG and IEITI Secretariat, including training

0.10 0.10 100%

Outreach and Public Data: Enhancement of IEITI website, including design of an online interactive web portal

0.02 0.02 100%

Program Management and Operating Costs, including stationary, transportation, telecommunication etc.

0.03 0.03 100%

TOTAL COST 0.35 0.35 100%

C. IMPLEMENTATION

(a) Institutional and Implementation Arrangements

16. The Government of Iraq, especially the IEITI Secretariat, which is housed within the Ministry of Oil, is the main institution and the key driver behind this endeavor, in close coordination with the Ministry of Finance and other pertinent institutions and bodies of the Iraqi Government. A key supporting player in this effort, is the Parliamentary Commission for Energy, which has shown increasing interest in the Initiative and has often contributed constructively to the overall debate. Iraq is also considering using experience gained through the current EITI process to launch a draft Iraq EITI Law inspired from the existing Petroleum Law, which is due to be revised. The EITI program was extended to the semi-autonomous Iraq Kurdistan and managed to establish a dialogue on oil issues between the central Government and the KRG authorities.

(b) Results Monitoring and Evaluation

17. Monitoring and evaluation will be managed by the IEITI National Secretariat. The Results Framework is included in Annex 1 of this Project Paper. The Bank would assist the IEITI National Secretariat with daily/weekly technical, policy advice and ad hoc guidance, as well as in tracking performance indicators during regular supervision missions, all in close coordination with the EITI International Secretariat. The IEITI National Secretariat remains responsible for overall day-to-day technical supervision of the implementation of the project activities and will benefit to this end from technical and policy input from the Multi-Stakeholder Group. This is of particular importance under the Standards, as even the Terms of Reference and key aspects of the Work Plan, must first be agreed and designed with and by the MSG.

(c) Sustainability

18. The current project focuses on the ongoing implementation issues to ensure IEITI continues. It is acknowledged that the IEITI needs to develop into a more sustainable platform going forward. Discussions of this future model has started and the sustainability of the EITI approach and reporting will be included as a key element of Phase II of the Grant, where efforts will be made to mainstream EITI into governmental and company reporting systems.

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D. KEY RISKS AND MITIGATION MEASURES

Risk Category Rating

Political and Governance High

Macroeconomic High

3. Sector strategies and policies Substantial

4. Technical design of project or program Moderate

5. Institutional capacity for implementation and Sustainability Moderate

6. Fiduciary Moderate

7. Environment and Social Low

8. Stakeholders Substantial

9. Other Low

Overall High

19. Political and Governance risk: The risk has been rated as High, as Iraq has been subject to increased instability and insecurity in the Country.

20. Macroeconomic risk: The risk has been rated as High, as the excessive dependence of Iraq on oil revenues, which are subject to commodity price fluctuations. Currently oil prices being on the lower side, this has significant macroeconomic implications on Iraq.

21. Sector strategies and policies: The risk has been rated as substantial, as entire regions of the country have not been under the control of the Government of Iraq for long periods of time, thereby making the implementation of sector strategies and policies in the exploitation of Oil and Gas very difficult.

22. Technical design of the project or program: Moderate, as the project is in its 8th year and the country is sill EITI compliant; it is facing however a second validation under the Standards in FY17, which may be harder to bring about this time around. This period will also require substantial Bank support and guidance, as well as policy advice at critical levels, so that the second validation confirms the steady progress made so far by I-EITI.

23. Institutional capacity for implementation and sustainability: Moderate. The institutional capacity for implementation in place at the I-EITI Secretariat is pretty steady and staff are moderately competent. The prevailing insecurity and the ongoing war in the North of the country, will affect sustainability as revenues from reduced oil production in the war zones under DAESH control is already affecting the Government Budget. Moreover, the reduced Bank contribution from the US$1.6 million made available under the MDTF in the previous phase to the US$0.35 million now made available now under the EGPS, will reduce the sustainability of the project execution due to reduced resources, may translate into a slower

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delivery pace and probably reduced effectiveness, unlike what had been achieved during the previous eight years.

24. Fiduciary: This risk has been rated as Moderate. The implementing agencies are subject to periodic governmental audit, which reduces this risk.

25. Environment and Social: The risk has been rated as Low. The Environmental Assessment category assigned to the project is ‘Category C’, as this is a transparency initiative which does not involve any physical activities concerning extraction. Similarly, social risks due to the project are also very low. In fact, implementing EITI is often seen as a useful tool to stimulate public dialogue around extractives, and as a means to mitigate social risk in extractives operations.

26. Stakeholders: The risk has been rated as Substantial, even if the Government institutions and the Iraq-EITI Secretariat are familiar with the prevailing level of uncertainty and danger in Baghdad, where, despite the increased checkpoints, bombs and IEDs regularly explode in highly populated areas, making simply going to work a performance by itself.

27. Others: The project also has a reputational risk to the World Bank Group, which has been rated as low. The World Bank has been successfully supporting the publication of IEITI reports every year despite the issues facing the country, and therefore has not suffered any reputational harm.

28. Overall risk: In light of the above individual risks, overall risk has been rated as High.

E. APPRAISAL SUMMARY

29. Oil accounts for over 90% of Iraqi exports and some 97 % of its foreign exchange earnings. Furthermore, Iraq holds some of the world largest untapped oil and gas reserves, which could safely be exploited for the next three to four decades at their current rates or above. Therefore, the World Bank support program to the Iraq economy would only make sense, if these indigenous resources were used first and foremost for the economic development of Iraq and could be integrated in the Country Development Program.

30. Ongoing support to Iraq’ s EITI process is a core element of the World Bank's 2013-2016 Country Partnership Strategy, which specifically mentions supporting improvements in institutional capacity and governance, through technical assistance to improve accountability in Government wide systems, Procurement, public financial management, transparency in oil revenue management, particularly through the continuation of the ongoing Extractive Industries Transparency Initiative.

F. Financial Management:

31. The Bank’s team updated the assessment of the financial management arrangements within EITI Secretariat that were applied to the related closed project: Extractive Industries Transparency Initiative Implementation for this envisaged project. The assessment concludes that with the implementation of agreed-upon actions, the proposed FM arrangements will satisfy the minimum requirements under OP/BP10.00. Annex 2 provides additional information on the FM assessment and the recommended mitigation measures.

32. Based on the proposed implementation arrangements, EITI Secretariat will continue to be responsible for the project implementation and coordination through the established Project Management Unit (PMU), assuming the responsibility of the Project’s financial management and disbursement arrangements. The PMU will continue to be responsible for planning and coordinating specific activities, including FM (payment authorization, disbursement, accounting, reporting and audit), procurement of consultants (and related contract management), and monitoring and evaluation. The FM team consists of a Financial Officer seconded from EITI Secretariat’s own staff with good experience of World Bank projects. FM arrangements are described in detail in Annex 2.

G. Procurement:

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33. Procurement will be carried out by MoO - IEITI secretariat in accordance with Procurement Regulations for Borrowers under New World Bank Procurement Framework that became effect in July 1, 2016. In addition under the new project, the implementing agency will use the Bank Systematic Tracking of Exchanges in Procurement (STEP) for communication with the World Bank.

34. Based on assessment and discussions through Bank’s local consultant held during project’s preparation and implementation of previous EITI propjet, initial procurement risk rating is determined as “Substantial” mainly due to lack of procurement capacity. The implementing agency needs to identify a qualified and dedicated procurement officer for the project.

35. In accordance with Bank’s new Procurement policy, the implementing agency MoO (IEITI secretariat), will prepare a Project Procurement Strategy for Development (PPSD) to decide procurement methods and approaches for procurement (template of simplified PPSD shared). Once PPSD is complete and procurement officer are identified in by IEITI secretariat, Bank will arrange a procurement training on the new regulations and use of STEP.

H. ENVIRONMENT AND SOCIAL (INCLUDING SAFEGUARDS)

36. The proposed Grant is a technical assistance grant of a limited scope with activities that do not have any likely adverse environmental or social impacts. Funding of the EITI Report, training and other capacity building activities are aimed at improving the transparency of payments and revenues in the extractives sector. Therefore, per OP 4.01 Environmental Assessment, the proposed project is classified as a Category C Project.

37. Environmental risks: Project activities including funding of the EITI Report, training and other capacity building activities are designed improve the transparency of payments and revenues in the extractives sector. The EITI process will not entail any physical activity, or produce a master plan or feasibility study of an investment project that may cause any environmental or social impact. The Bank’s role through this grant is solely to provide Technical assistance and policy advice in order to facilitate the EITI process. No advice on regulatory reform or investment climate issues will be provided through this grant.

38. Social risks: The neutral and fact-based platform for dialogue on natural resource wealth management created by the EITI has benefitted all sides of the debate. The team will continue working closely with civil society groups to ensure that they play an active role in decision-making and voicing the concerns of indigenous peoples and mining-affected communities, where relevant. GEEDR will continue to work closely with the World Bank Iraq Country Office to ensure that the Bank’s role in supporting – but not leading – the EITI process is clearly articulated.

39. Per OP 4.01 Environmental Assessment, the proposed project is classified as a Category C Project.

I. World Bank Grievance Redress

40. Communities and individuals who believe that they are adversely affected by a World Bank (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 Grievance Redress Service (GRS), please

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visit http://www.worldbank.org/GRS.For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

17

Annex 1: Results Framework and Monitoring Country: Project Name

Project Development Objective (PDO): The project development objective (PDO) is to enhance transparency in Iraq’s extractive sectors through support of the country Government activities on the implementation of the Extractive Industries Transparency Initiative (EITI).

PDO Level Results Indicators* C

ore Unit of

Measure Baseline Cumulative Target Values**

Frequency

Data Source/

Methodology

Responsibility for Data Collection

Description (indicator definition

etc.) YR 1 YR 2 YR3 YR

4 YR5

Indicator One: Production and dissemination of 8th (2016) I-EITI Report

Yes/No No No Yes Annual 8th IEITI Report, IEITI Website

IEITI National Secretariat

Intermediate Indicator: Familiarization on EITI Standard, 2016 for at least 50% of IEITI Secretariat staff and MSG Members

Percentage 0% 25% 50% Annual Annual activity report, IEITI Website

IEITI National Secretariat

Intermediate Indicator: Enhanced IEITI Website

Yes/No No No Yes Annual Annual activity report, IEITI Website

IEITI National Secretariat

18

Indicator Description .

Project Development Objective Indicators

Indicator Name Description (indicator definition etc.) Frequency Data Source / Methodology Responsibility for Data Collection

Production and dissemination of 8th (2016) I-EITI Report

The 8th IEITI Report covering the year 2016 will be produced and launched at a national followed by 4 regional conferences to be held in Baghdad, Basra, Erbil, and Kirkuk.

Annual 8th IEITI Report, IEITI Website

IEITI National Secretariat

Intermediate Results Indicators

Indicator Name Description (indicator definition etc.) Frequency Data Source / Methodology Responsibility for Data Collection

Familiarization on EITI Standard, 2016 for at least 50% of IEITI Secretariat staff and MSG Members

Progress will be measured on the training on the EITI Standard, 2016 for all IEITI Secretariat and MSG Member, beginning with at least 50% of members by the end of the grant.

Annual Annual activity report, IEITI Website

IEITI National Secretariat

Enhanced IEITI Website Design of the new interactive IEITI website is approved by the IEITI MSG. The new website will be available in in three languages- English, Arabic and Kurdish.

Annual Annual activity report, IEITI Website

IEITI National Secretariat

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Annex 2 Financial Management Arrangements

The Financial Management (FM) arrangements are described in detail below:

(i) Staffing. The Project’s main FM and disbursement functions will be managed by the PMU. The

qualified Financial Officer, possessing good experience with World Bank financed projects and governmental regulations, will continue to be seconded from the EITI Secretariat for this project.

(ii) Project FM risk. Based on the results of the updated assessment, the overall FM risk is “High”. With mitigation measures in place, the project will have acceptable project FM arrangements and its FM risk rating will be “Substantial”. The residual FM risk is assessed as “Substantial” mainly due to:

Limited capacity at the EITI Secretariat to meet the Project’s financial management requirements;

Security conditions do not allow visits by the Bank team to perform physical verification;

Overall weaknesses and shortcomings in the control environment;

Limited accounting and reporting systems in providing timely and comprehensive information;

Grant funds are not disbursed for the project’s intended purposes or not utilized in an economic and rational manner

(iii) The following measures are proposed to mitigate FM-related risks:

Continuity of the FM function within the PMU, with a well experienced and qualified FM Officer seconded from the EITI Secretariat;

Simplified accounting and reporting arrangements to give timely information on the project financial performance and status; excel spread sheets will continue to be used to record project financial transactions and generate simplified Interim Unaudited Financial Reports (IFRs);

Financing 100% of activities to avoid delays that arise from counterpart financing;

Submission of Semiannual Interim Unaudited Financial Reports (IFRs) will allow the Bank team to follow up on the disbursement progress and address any bottlenecks on timely basis;

An independent external auditor, acceptable to the World Bank, will be hired to audit the project’s annual financial statements in accordance with terms of reference (TORs) acceptable to the World Bank.

The FM manual to be updated for including the particulars of this Project, of which this manual documents the procedures, inter alia, internal controls, financial reporting and auditing, responsibilities’ and duties, flow of information, and other based on the Project Implementation Manual (PIM); and

Oversight, verification, and technical support provided by WB FMS with the assistance of a local FM consultant in Iraq.

(iv) Accounting and Financial Reporting. The project will follow the cash basis of accounting and key accounting policies and procedures as documented in the financial procedures manual. The

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Secretariat uses a simple accounting software to capture its daily financial transactions. The Finance and Accounting Department would receive a copy of contracts and enter them in Excel. Manual accounting and Excel Spread Sheets will be used to record project financial transactions and generate the semiannual IFRs.

(v) The PMU will be responsible for preparing the following:

Interim Unaudited Financial Reports (IFRs) and submitting them to the Bank within 45 days from the end of each quarter. The Project will continue to use the same format as the ones used for the closed project, and will consist of: i) Statement of Cash Receipts and Payments by each category, and (ii) “the list of all signed Contracts per category” showing Contract amounts committed, paid, and unpaid under each contract.

Annual Project Financial Statements (PFS) which will be audited by an independent external auditor. The audit report should be submitted to the Bank not later than six months following the end of each fiscal year. The PFS should include: Statement of Cash Receipts and Payments by category and accounting policies and explanatory notes, including a footnote disclosure on schedules: (i) List of all signed Contracts per category: showing Contract amounts committed, paid, and unpaid under each contract.

(vi) Internal controls: The Project’s expenditure cycle will follow the controls specified in the National Financial System of the Republic of Iraq, which includes: (i) technical approval of the department involved; (ii) checking and approval by finance staff; (iii) verification of the accuracy of the payments and its compliance with the applicable laws in Iraq and the World Bank procurement and FM procedures as well as the Grant terms and conditions. Although the project will follow the Government-applied controls set in the local laws, there will be supplementary controls in place for monitoring project activities, including the verification and approval of the PMU staff (financial and technical). A financial management manual will be updated to include particulars of this project and related procedures. The manual documents the Project’s implementation of internal control functions and processes and describes the roles and responsibilities of the PMU staff and relationship with EITI Secretariat, summarized in terms of authorization and execution processes.

(vii) Financial Audit: The Project’s financial statements will be audited annually by an independent auditor acceptable to the Bank, in accordance with the International Standards on Auditing (ISA) and terms of reference (TOR) cleared by the Bank. The PMU will be responsible for preparing the TORs for the auditor and submit them to the Bank for clearance. The PMU should engage an external auditor six months following the submission of the first withdrawal application. The audit report will be sent to the Bank no later than 6 months following the end of the Project’s fiscal year. The report shall include an opinion on the Project’s financial statement. The auditor will also be requested to provide an opinion on the Project’s effectiveness of internal control system. Finally, a management letter shall accompany the audit report, identifying any deficiencies in the control system the auditor finds pertinent, including recommendations for their improvement.

(viii) Budgeting: The PMU will maintain a detailed disbursement plan per quarter. This plan will be developed based on the initial procurement plan, or based on the schedule of outputs as defined in the implementation schedule and estimated payments cycles, and revised upon need. It will be used as a monitoring tool to analyze budget variances and manage cash, and will feed into the semiannual Interim Unaudited Financial Reports (IFRs). To ensure that funds are readily available for project implementation, a Designated Account (DA) will be opened for the PMU in U.S Dollar. The PMU will be responsible of managing its DA, preparing the reconciliations, and submitting monthly replenishment applications with appropriate supporting documentation.

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(ix) Flow of Documentation and flow of funds. The flowchart below depicts the flow of documentation and flow of funds at the PMU:

(x) Disbursements

Reimbursement for incurred expenses. Authorized signatories, names and corresponding specimens of their signatures would be submitted to the Bank prior to the receipt of the first Withdrawal Application. The PMU will be responsible for submitting monthly replenishment applications with appropriate supporting documentation. The proceeds of the Grant will be disbursed in accordance with the World Bank's disbursements guidelines that will be outlined in the Disbursement Letter and in accordance with the World Bank Disbursement Guidelines for Projects. Transaction-based disbursement will be used under this project. Accordingly, requests for payments from the Grant will be initiated through the use of Withdrawal Applications (WAs) either for direct payments or reimbursements. All WAs will include appropriate supporting documentation, including detailed Statement of Expenditures (SOEs) for reimbursements. The category of Eligible Expenditures that may be financed out of the proceeds of the Grant and the percentage of expenditures to be financed for Eligible Expenditures will be spelled out in the Grant Agreement.

E-Disbursement. The World Bank has introduced e-disbursement for all projects in Iraq. Under e-Disbursement, all transactions will be conducted and associated supporting documents and IFRs scanned and transmitted online through the World Bank’s Client connection system. The use of e-Disbursement functionality will streamline online payment processing to (i) avoid common mistakes in filling out WAs; (ii) reduce the time and the cost of sending WAs to the Bank; and (iii) expedite the Bank processing of disbursement requests.

(xi) Statements of Expenditures. All Reimbursement Applications for withdrawal of proceeds from the grant account will be fully documented. Necessary supporting documents will be sent to the Bank in connection with contracts that are above the prior review threshold contracts as per the procurement plan, except for expenditures under Contracts with an estimated value of: (a)

Document flow Cash & Documents flow - Consultancy Services Cash flow

Check or Bank transfer

Payment Bank replenishes DA sends WA to WB

Direct payment

Consultants

PMU Manager

PMU Procurement PMU Finance Team

Secr. finance dept Project DA

Consultants

Accounting Entry - Project

system I nterim Un - Audited

Financial Reports (IFRs)

World Bank IBRD

PMU Finance Team

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US$150,000 or less for Goods; (b) US$100,000 or less for Consulting Firms; and (c) US$50,000 or less for Individual Consultants, incremental operating costs, as well as Training, which will be claimed on the basis of SOEs. The documentation supporting expenditures will be retained at the PMU and will be readily accessible for review by external auditors and periodic Bank supervision missions.

(xii) “Incremental Operating Costs” means Project related incremental costs incurred by the PMU on account of communication, translation and interpretation, printing, procurement-related advertising, office supplies, banking charges, Project related travel including per diem accommodation and transportation, vehicle rental and fuel, postal fee, and other miscellaneous costs directly associated with Project implementation subject to prior approval by the World Bank.