Tanzania - Country procurement assessment report

SCANNED Document of The World Bank TANZANIA COUNTRY PROCUREMENT . ASSESSMENT REPORT ~~~~~~~~~~~~~~~. Africa Technical Operations Support Unit 1 Africa Region September 1996 , 1  TANZANIA Country Procurement Assessment Report Table of Contents Section Topic Para. 1. General Information and Summary.................................... 1 2. Procurement Laws and Regulations.................................... 2 3. Public Sector Procurement..................................... ;.3 Organization................................... 3.1 Procurement of Goods and Works................................... 3.2 Employment of Consultants................................... 3.3 4. Private Sector Procurement.................................... 4 5. Procurement-Related Technical Assistance..................................... 5 Previous and Ongoing Technical Assistance.................................... 5.1 Technical Assistance Strategy in Procurement................................... 5.2  DRAFT September 1996 TANZANIA Country Procurement Assessment Report 1. General Information and Summary 1.1 Date of Report: September, 1996 1.2 Basis of Report: (a) IDA Mission, June/July 1996: Messrs. Kranz, Westring and Dhingra (Public Procurementand Supply Management Study [PPSMS]; (b) PPMS Inception and Draft Completion Report by CrownAgents and subsequent drafts; (c) Tanzania Co\untryPortfolio Performance Review, May 1996; (d) IDA Mission/Procurement in the Private Sector, March 1996; Messrs. Kranz and Beckers (Consultant); and (e) persons Interviewed by Mission (Attachment 1). 1.3 Acceptability of CouMttry'sProcurement System: As detailed inthe mission's Terms of Reference, the Tanzanianpublic procurement system is recognized as being seriously flawed and in urgent need of reform. Reform efforts have been underway since 1992 through the Integrated Roads Project (IRP) but have not yet resulted in any concrete action by Government. IRP has funded the Public Procurementand Supply Management Study (PPSMS) which has to date produced a number of key draft documents for a revamped national procurement system. Tne PPSMIShas been carriedout by Crown Agents under a contract with Government. Several months prior to the CPAR mission,IDA provided extensive comments on the documents produced by Crown Agents, particularlythe proposed Public Procurement Act and the Procurement Regulations. These PPSMSdraft documents were taken as the starting point of the CPAR mission. However, in the courseof reviewing all aspects of public and private sector procurement inthe field, the mission discovered additional facts and  also gained a better understanding of the problems described in the PPSMS. The mission therefore decided to reconsider some of the concepts proposed by CrownAgents in the draft documents. Para. 3.1 of this report contains these additional findings and is intended as a modification of IDA's earlier comments on the PPSMS draft documents. In a technical note presented to its Tanzanian counterparts, the mission put special emphasis on the issue of implementing the reforms proposed in the PPSMS. Crown Agents proposed and Government endorsed implementation through an Act of Parliament. The mission voiced its concerns regarding this choice of legislative instrument. At present, Tanzanian procurement regulations form part of Financial Orders issued by the Minister of Finance under the Exchequer and Audit Ordinance. The fact that procurement is regulated by a legislative instrument of this relatively low order should not in itself diminish the respect for the regulations. After all, the Financial Orders are considered to be a sufficiently strong prescription for other aspects of public expenditure management. It is rather more the archaicnature and insufficient coverage of the present regulations which provides the rationale for athorough overhaul. The mission searched the Crown Agents' report for motives in favourof raising the status of the regulations from the present ministerial level to that of an act of Parliament and found no convincing arguments in favor of doing so. Neither was the mission impressed with the recommendation that the act containing the procurement regulations would need to be supplemented by Government regulations and ministerial guidelines. Several risks and disadvantages with such a multi-tiered structure can be foreseen in this case, as compared with a simple Government regulation, supported by standard documents. Among these risks are the likelihood that: it would take more time to bring these new regulations into effectthrough an Act of Parliament; - it would politicize an executive function such as public procurement; - it would unnecessarily create the problem of deciding which aspects of public procurement are of such a high dignity as to be spelled out in the Act and whichaspects may be relegated to the lower level of governmental (or ministerial) decree; and - the existence of a regulatory hierarchy, topped by an Act of Parliament, could result in contradictions, or at least confusion, among instructions emanating from different sources. The mission would have recognised a need to elevate the procurement regulations to the status of an act of Parliament had the substance been such as to involve the right of individuals or the relations between govermnent and other public sector bodies. The immediate problem, however, is to bring order and discipline to Government procurement. 2  1.4 Action(s) Required. Actions required are indicated in the relevant sections throughout this report and in particular, inpara. 3.1 and the attached report on Procurement in the Private Sector. They can be summarized in capsule form as follows: (a) the immediate need for reforn, according to the CrownAgents study and to everybody interviewed by the mission, lies in bringing order to Government procurement. In the mission's opinion, that should be achieved through urgent promulgation of a revised and comprehensiveset of Government regulations, supported by adequate standard documents and active training schemes; (b) the CTB should become an advisory body which monitors the overall functioning of the national procurement system, collects and disseminates information, produces standard documents, sponsors training programs and interprets the Regulations, i.e., the role ascribed to the proposed Procurement Advisory and Management Service in the PPSMS; (c) procurement responsibility and approval authority should be squarely placed on the entity to which public funds are allocated andwhich requires the goods, works and services to be procured, in orderto implement its work program. In most cases, this entity would bethe line ministries; (d) all ministries and the CTB will require short-term technical assistance, as well as a long-term strategy to implement these procurement reforms. The most critical technical assistance is procurement and supply management training for the first cadre of civil service staff who showpotential to be selected for this opportunity. This cadre would not only improve implementation in the shortest possible time but could eventually form the core of future trainers. Concurrently, a long-term strategy for civil service training in procurement and supply management will need the full commitment of Government, especially, resourcesand performance incentives; (e) the Office of the Controller and Auditor General and the Tanzania Audit Corporation should be provided with technical assistance, in order to strengthen the capabilities that are essential to auditing public procurement; and (f) IDA and other donors should support these reforns through technical assistance and funds, while agreeing with Government on a timetable and progress indicators. 3  1.5 Earlier Actions Taken (as per attachments): Country Portfolio Performance Review, May 21-22, 1996,Attachment 6 CPAR Mission Dealing with Procurement in the Private Sector,March 1996, Attachment 5 CIR Follow-up Report, June 13, 1995, Attachment 8 Recommendations for A Revised Public Procurement System, PPSMS, Crown Agents, February 1995, Attachment 4. 1.6 List of StaffMembers who are particularly familiar withprocurement in the country, by sector. Charles Griffin HEALTH &NUTRITION Nancy Mcinemey-Lacombe P&P ENTERPRISE Yitzhak Kamhi IRP Yasuyo Abe CAS/CPPR James Coates AGRICULTURE Ronald Brigish RESIDENT REPRESENTATIVE Tony Thompson RIMOPERATIONS Subhash C. Dhingra PPMS/CROWN AGENTS Paul Vandenheede DISBURSEMENTS Fred Kranz CPAR 1.7 Next Procurement Assessment Mission: One year after the start of procurement reforms or during calendaryear 1998, whichever comes first. 2. Procurement Laws and Regulations 2.1 Applicable laws and regulations: -The Exchequer and Audit Ordinance 1961; -Financial Orders, Part III, Stores Regulation 1965 (withsubsequent amendments); -Financial Orders, Part I (concerning building construction,maintenance and transport services); and -for information on import trade regime, see separate report, "Procurement in the Private Sector", March 1996. 2.2 Applicability of Laws and Regulations: The regulations are applicable countrywide. They apply to government entities at central, regional and district levels (Tanzaniahas 20 regions and 117 districts). However, Parastatals are not bound by government regulations;they follow procedures defined by their own boards. 4  3. Public Sector Procurement 3.1 Organization The overall environment for public procurement It is expected, according to the recent budget speech by the Minister for Finance, that total Government expenditure for the fiscal year ending June 1996 will reach Tanzania shillings TSH 521.437 billion equivalent to approximately US$1.1 billion, of which about 80% for recurrent expenditure and 20% for development. This is less than originally estimated, probably due to a shortfall in aid receipts. In turn, this shortfall in aid receipts is due to poor project implementation, as exemplified in the slowdown of IDA disbursements. For fiscal 1997, the Minister of Finance expects the Government to spend TSH 758.896 billion, of which 631.906 billion for recurrent expenditure and 126.990 billion for development. External loans and grants at the level of TSH 187.537 billion, and some bank borrowing, are expected to help finance these expenditures. The Minister also admitted in his speech that real expenditure requirements will be "muchhigher" than those included in the budget but refrained from formulating a strategy to deal with the funding of that additional deficit. To put it succinctly, the country is in deep financial trouble and procurement is among the affected areas. Procurement Volume According to Crown Agents' estimates, about 55% of Government expendituresis used for procurement of goods and services, representing an approximate value of US$600 m-illionin fiscal 1996. Impact of economic crisis on public procurement Tanzania is and remains highly dependent on foreign aid. The majority of public procurement is exempted from national regulations through provisions in aid agreements with donors; some aid is granted in kldnd. Some urgently needed items such vehicles, office equipment and similar items are procured through IAPSO, UNICEF and other UN agencies. Being in deep financial trouble and failing to make contractualpayments as required, The Government of Tanzania has also lost the confidence of many domestic and international suppliers, contractors and consultants. According to somereports, Governnent owed TSH 600 million to suppliers at one point during the past year. Several sources reported that domestic and international suppliers are refusing to deal with Governmentprocurement, unless offered 100%payment on order, i.e. before delivery. One agency reported "proudly" that it had been able to reduce this advance to 50% before delivery (the norm is 10%). Worse yet, bank guarantees for advance payments to suppliers were not commonly required. This practice, in evident contradiction of Government regulations, was reported by the Controller and Auditor General in his report for 1993/94. According to this report, TSH 474.9 million had been paid in 5  that year for goods which were n=Zdelivered. On closer inspection, this practice of "payment against proforma" is usually linked to non-competitive procurement. It is also suspected, that in some cases goods were never delivered and that "buyer" and "seller" were instead colluding to defraud the country. Another striking example of Government's poor creditworthinesseven with local banks was discovered in discussions about the terms under which letters of creditare issued in connection with IDA credits. The procuring entity, even though it holds an account in the local bank into which payments under the IDA credit are also made, is still required by the same local bank to deposit 120% cover in local currency at the time the letter of credit is opened. Confused status of public procurement regime The Crown Agents' Study describes -and the mission witnessed- the confused state of public procurement in Tanzania: the regulations are outmoded; their origin is in stores manage- ment rather than competitive procurement and their applicability to procurement of works and services is highly questionable; in fact, the regulations are commonly disregarded in the case of consulting services; they do not contain a full and proper description of procurement methods and the circumstances in which different procedures are to be used; the authority of the CTB is eroded by ad hoc arrangements in different sectors (e.g. works, health and education); contract value thresholds above which CTB scrutiny and approval is required by regulations have been rendered totally inappropriate by inflation. The CTB- present composition. secretariatand working modalities The CTB is cQmposedof a chairman, presently a Deputy Principal Secretary in the Ministry of Finance, together with representatives of the Ministries of Agriculture, Works, Water and Energy, Industry and Trade, Bank of Tanzania, Government Stores, and the Treasury. Representation on behalf of the various Ministries is normally delegated to medium level staff. The secretary to the Tender Board is also a member of the Board. Members attendmeetings regularly and are regarded as experienced in public procurement. Confidential Tender Board papers are provided to members 34 days in advance of meetings. Items on the agenda deal almost exclusively with matters of contract award. The documentation consists of a copy of the procuring entity's evaluation report, which is sometimes accompanied by comments from the secretariat. Representatives of the procuring entity are not normally called upon to be present. The typical agenda will list some 10 items per meeting. In recent years, there has been a decline in the number of matters submitted for CTB scrutiny. This is directly related to the reduction in Government procurement due to the country's fmancial troubles. Minutes are kept of CTB meetings. Generally, they portray apicture of active involvement by the CTB in bid evaluation. Many evaluation reports are returned to the procuring entities with a request for explanations which may range from procurement issues to the need for the items to be procured. For each award decision by the CTB, the minutes record the amount and other relevant details of the winning bid. 6  Prior to the publication of the invitation to tender, the CTBsecretariatexamines the procuring entity's draft invitation to tender, along with the bidding documents. The CTB in this initial stage is active also by: - checking the specifications, estimated value of the contract,and availability of funds; - placing the advertisement for tenders in newspapers; - selling the tender documents to interested firms (and forwardingreceipts to the Treasury), and - receiving bids by the indicated deadlines and organizing the public bid opening. The CTB secretariat consists of the Board secretary and 1-3assistants. Relatively little information is available about the assistant level staff, as they have been reassigned rather frequently. Official exceptions to the requirement to submit procurementdocuments and award recommendations to CTB scrutiny have been made for the Ministryof Works and the Ministry of Education. In the case of the Works Ministry, the National Tender Committee (with 4 members representing the Treasury, and the Ministries of Justice and Planning inthe Prime Minister's Office) scrutinizesaward proposals in the range of US$1-5million. Contracts over US$5 million are still subject to CTB review. In the case of the Ministry of Education, a ministerial tender board has assumed the CTB's review function; the same applies to the procurement of pharmaceutiqals in the Ministry of Health. It could not be confirmed that all other ministries fully comply with the requirement for CTB review in all cases. The attached listings of CTB Tender Awards in 1994 and 1995 leave the impression that a considerable volume of procurement takes places without CTB review, contrary to prevailing regulations. Crown Agents also refer to this situation in PPSMS. Asked about procurement in the case of contracts not submittedfor CTB review, the secretary to the CTBinforned that the CTB has no powers to call for information about ongoing procurement within aparticular procuring entity and to questionparticular procedures being followed. As a result, there is no information available in the CTBabout the frequent use of sole source procurement, based on proforma invoices, as indicated abovefrom the report of the Controller and Auditor General. Lack of standard documents and proper guidance The procuring entities lack proper guidance from those in Governmentwho should be most capable of providing such guidance -say, the Treasury- which is the watchdog over the Financial Orders, or the CTB. However, the interviewed procuring entitiesreported that the officials in these bodies are unable to answer inquiries because of the obscurestatus of the law. National Standard procurement documents are largely unavailable, as furtherdescribed in subparagraph 3.2. 1. 7  Behavior of procuring entities vis-a-vis CTB and donors Procuring entities such as line ministries and parastatals have a need toprove their effectiveness within the Government apparatus by minimizing process and maximizingresults. Approving authorities, especially the Central Tender Board, exist primarily to ensure that the process is not curtailed and complies with established regulations. Donor organizations insist on adherence to previously agreed project implementation plans and guidelines which, by being incorporated into and made a part of development credit agreements, become contractual obligations. These conflicting pressures affect the behavior patterns of the individuals who constitute the procuring entities. The most egregious example of these behavior patterns is the widespread practice of procuring entities to substitute IDA's requirement for prior review and 'no objection' notice for the mandatory endorsement of their proposed contract awards by the responsiblenational approving entity, i.e., the Central Tender Board and/or the ministerial tender board. It has been proven that packaging the procurement of similar goods and the scope of civil works to take advantage of economies of scale and increase competitiveappeal can result in significant savings to the country. However, under present conditions in Tanzania, the esti- mated value of any procurement package also determines the procurement method mandated by the agreement with the donor and thejurisdiction of the existing tender boards, or even, the possibility of avoiding the scrutiny of any approving authority. There is a discernible pattern of circumvention among Government units which manifests itself in the uneconomicalpractice of subdividing rather than aggregating procurement packages, in order to minimize the approval requirements. According to some reports, several unauthorized and closely spacedpurchases of very small quantities of certain goods have been substituted for the competitive procurement of the same goods in more reasonable quantities, according to procedures. The cumulative loss of potential savings for Tanzania due to such wasteful practices could be significant. Discussionpoints about a future relationship between procuring entities and the In discussions with the chairman and the secretary of the CTB, there was mutual agreement that (a) CTB review levels should be raised considerably, that (b) the focus of CTB review should be on the regularity of the procedure followed, rather than commercial and technical aspects and that (c) the CTB should concentrate on its guidance role. The mission, noting the continuing lack of clarity in the relative roles of procuring versus approving entities, felt the need to raise the question of going one step further and placing the CTB in the role of a purely advisory body, having the sort of functions ascribed to the Procurement Advisory and Management Service in the Crown Agent's draft report: a body which monitors the overall functioning of the country's procurement system, collects and disseminates information about implementation of the regulations, produces standard documents, and sponsors training and staff development programmes, etc. This would also meet a need that many ministerial staff had expressed in the interviews. 8  Thisproposed redefinition of the CTB's roles would serve the purpose of squarely placing the responsibility for procurement where it belongs, i.e. with the procuring entity, which receives and is held accountable for the public funds and is the ultimate owner/client of the goods, works and services procured. As the illustration of the internal process inside the Ministry Works shows (Attachment 3), there are already numerous internal checks and balances in a procuring entity. As far as the CTB is concerned, a purely advisory role would also address criticisms raised in interviews with various procuring entities about the relatively little value added by the CTB to the evaluation work of the procuring entity compared to the high costof the delays caused by the CTB review in the procurement process. It would also leavethe CTB able to investigate complaints by dissatisfied bidders about the manner in which procuring entities apply the regulations which is a course of action that is not currently available to bidders. If CTB on the other hand, takes part in the procurement process by reviewing bid evaluations (and at times, overruling the procuring entity) and approving contract award recommendations, it becomes a party to the process and is thus excluded from any role in investigating complaintsconcerning that same process. 3.2 Procurement of Goods and Works: ICB and OtherMethods of Procurement 3.2.1 Standard Bidding Documents for Works and Goods:. Tanzania uses th; Bank's Standard Bidding Documents (SBD)in ICB procurement. The preparation of bidding documents has improved with the introductionof Bid and Contract Data Sheets in the Bank's SBD. In connection with the Integrated Roads Project (IRP), model documents for use in NCB works procurement have been developed. Model requests for quotationshave also been prepared in connection with IRP but have not yet been used. The East Africa Standard Building Contract has been used on projects which are not funded by the Bank. However, by and large, the Bank's SBDs are used for ICB as well as NCB procurement; in the latter case with appropriate modifications. 3.2.2 Advertisementof bids: Advertisements are placed in national papers which are published daily. For ICB and NCB, the time allowed for the preparation of bids is generally 45 days. Large consultancyassignments are sometimes advertised locally and in international publications. Advertisements in "Development Business" are placed in compliancewith IDA's Procurement Guidelines. 3.2.3 Prequalification: Prequalification is rarely used inNCB. In ICB, the Bank's standard documents and procedures are used. The verification of prequalification information has been a difficult task and the cause for rejecting requests for IDA's "no objection" notice. 9  3.2.4 Bid opening, review, and evaluation: See detailed description of issues causing delays under para 3.1. In addition, many procuring entities also complain of delays caused by IDA in reviewing bid evaluation reports for the purpose of issuing the "no objection" notice. For a description of delays according to one complaining entity, see data on health sector project, Attachment 2. Internalprocedures can also be cumbersome within a procuring entity, see outline of process inside the Ministry of Works in Attachment 3. Most ICB bidding documents require a bid validity period of 120 days, but even this relatively long time period is often insufficient to complete the bid evaluation and contract award process, due to delays in obtaining clearances from all approving entities. The excessively long bid validity periods in Tanzania tend to increase costs, particularly in civil works contracts, as contractors use inflated costs as a hedge against expected delays in awarding contracts. 3.2.5 Bid andperformance security: Bid and performance securitiesandmobilization advances against a bank payment guarantee are always required in ICB and NCB. However, poorly managed local banks create difficult conditions for local contractorswanting to comply with these bidding requirements. 3.2.6 Contract award and ratification procedures: See detailed description under para 3.1. 3.2.7 Contractpayments: Letters of credit are used in ICB, but not in NCB. Otherwise, payment provisions followBank Guidelines and common commercial practice. However, the opening of a letter of credit in favor of a foreign supplier requires a cash deposit in foreign currency of at least 40 percent of the amount of the letter of credit. 3.2.8 Price Indexing: The existing system is not sufficiently reliable to be applied in the price adjustment formula of IDA's standard documents. 3.2.9 Settlement of contractual disputes: In ICB, as per standard bidding documents, including international arbitration. In NCB, disputes are referred to an administrative review at a higher level in the procuring entity inthe first place. No formal complaints mechanism exists within the country, except for the courts of law to whichcomplainants rarely resort. In ICB, most complaintsare raised through World Bank Headquarters or the Resident Mission. 3.2.10 Eligibility requirement for firms to bid: Eligibility requirementsare spelled out on a case-by-case basis in bidding documents. No foreign firm are excluded,except on the basis of documented poor performance in the past. In NCB, contractors must meet the requirements of the NationalBoard of Architects, Quantity Surveyors and Building Contractors, in order to be eligible to bid. 10  3.2.11 Capacity and competitiveness of the local private manufacturing and construction industries in sectorsfor which Bankfinancing may be involved; domesticpolicy onjoint ventures betweenforeign and local.firms. See report "Procurement in the Private Sector", Chapter 4. 3.2.12 Parastatals: A major program of privatization of parastatals is underway.However, background documents in the Public and Private Sector Reform Project reveal that Governnent wants to retain a significant stake in major public utilities, such as the Petroleum Refinery Corporation (TIPER), the National Urban Water Authority (NUWA), the Tanzania Petroleum Development Corporation (TPDC), the Tanzania Railways Corporation (TRC), the Tanzania Harbours Authority (THA), Tanzania Electricity Supply Corporation (TANESCO) and some social sector public institutions such as universities and hospitals. Most of these parastatals depend heavily on government subsidies for their funding. Therefore, a considerable percentage of Government funds is applied to procurement by parastatals. The issue which has not been addressed at all by Government is whether a reform of the public procurement system in Tanzania should also include the parastatals. Current figures on procurement by parastatals using Government funds obtained through subsidies are not available. The Crown Agents propose in their Public Procurement and Supply Management Study that parastatals be obliged to obtain CTB clearance for procurement funded with government subsidies, above certain thresholds. However, the proposal would not subject the parastatals to the substantive parts of the proposed regulations. Given the fact that parastatals are obligated to adhere to rules set by their own board of directors, it seems incongruent to subject them to CTB reviews. Managers of the parastatals who were interviewed confirmed that procurement financed by IDA follows IDA Guidelines and is overseen solely by their own board of directors. 3.2.13 Thresholds Related to Procurement Methods: (a) thresholds for Review by the Central Tender Board (CTB) According t6 the existing regulations, any procurement in excess of US$1,000 (one thousand) must be submitted to the CTB. Furthermore, this extremely low threshold is often confused with the spending authority of the procuring entity which may be much higher. Spending authority rests in principle, with the Accounting Officer, who is the Principal Secretary in any Ministry and who in turn may delegate spending authority to subordinate levels; (b) threshold for Review by Ministerial Tender Boards (MTB) Theoretically, all procurement would be subject to CTB review because of the US$1,000 threshold. However, a considerable volune of procurement is approved by MTBs only, at thresholds which vary among ministries; and 11  (c) thresholds for IDA's Prior Review The following examples taken from current Development Credit Agreements demonstrate the use of thresholds in IDA funded projects. PRIOR REVIEW THRESHOLDS (USD '000) PROJECT GOODS WORKS SERVICES ASMP All ICB N/a 100 ROADS II 500 1,000 100 EDUCATION PLANNING 250 250 250 MINERAL SECTOR 100 100 100 3.3 Employment of Consultants: General policy: Hiring of consultants is not regarded as an activity falling under Tanzanian public procurement regulations and no such contracts go to the CentralTender Board for review. Consulting services are mostly funded by donors; the procedures for selection consequently follow donor regulations. Selection and contracting procedures: In Bank-funded projects, procedures are those agreed with the Bank, and Bank task managers play a major role in defining the terms of reference and monitoring the process in each case. Policy regarding the use and eligibility of foreign firms; experience of foreign firms: There are no formal restrictions as to the ability of foreign firms to provide consulting services in Tanzania. According to privileged information from Nordic consulting firms, many such firms have established branches in Tanzania in order to show good will and to receive more invitations to bid. Since most business is aid financed, however, the bulk of contract payments goes to head offices in foreign countries via aid budgets. One Swedish company, as an example, explored in 1990,via an intemational accounting firm, the prospects of establishing a local company in Tanzania; the result of the exploration was negative. Nevertheless, the firm decided to establish a branch in 1995 and achieved better access to the market. Selection procedures and documentation: The selection procedures described in the Bank's Guidelines for the Use of Consultants by Borrowers (August 1981) and such standard documents as the letter of invitation and the Form of Contract for Consultancy Services (June 1995) are almost universally followed for all donor-funded projects, IDA has also provided simplified contract documents for short-term and relatively small consultancy assignments. Ad- hoc evaluation committees in the procuring entities requiring consultancy services carry out the selection process. 12  Local consultants - areas of expertise and levels of remuneration:Qualified Tanzanian consultants exist in such fields as management, architecture, civilengineering and certain specialised sectors such as agriculture and mining. One example of the last kind are firms used in the Mineral Sector Development TA Project. A Tanzanian firm, Tandiscovery, was selected in competitionwith other local firms for a base line survey of the small scale mining sector. The negotiatied fees came to about USD 600/day, compared to price levels of USD 900- 1200/day charged by foreign firms. In the same project, local managementconsultants perform institutional capacity building and training services for about USD 6,000/monthunder a contract for some 20 m/m total. The emergence of viable local consulting firms seemsto have caused some foreign firms to lower their fees, in order to stay competitive. The aforementioned Swedish firm, e.g., has directed its Tanzanian branch to limit charges for accounting services to USD 7,000/month. The development of local consulting firms could undoubtedly be accelerated through technical assistance in proposal preparation and overall management. According to identical information from all interviewees, procurement of consulting services is always donor funded, follows donor procedures and escapes CTBreview. 4. Private Sector Procurement See separate Report on Private Sector. 5. Procurement-Related Technical Assistance 5.1 Previous and Ongoing Technical Assistance: The Public Procurement and Supply Management Study conductedby the Crown Agents under the IntegratedRoads Project is, in itself, a major technical assistance effort. It addresses not only legislative needs to improve procurement and supply management but also approaches to human resource development in these areas. Chapter VI of the PPSMS draft completion report is devoted to the development of capacity in procurementand could form the basis for developing a long-term strategy and estimate of required resources. Tanzania also benefits from various training programs organizedby the Bank or African training institutes supported by the Bank, such as ESAMI in Arusha and GIMPA in Accra. Several IDA project staff have participated in these training programs. The Bank has conducted one-week training seminars inprocurement and disbursement, as well as several project launch workshops. One of the shortcomings of the Bank's technical assistance in procurement is the lack of a procurement specialist at the Resident Mission in Dar-es-Salaam who could be a local source of information for IDA funded projects and provide routine assistancein reviews. At present, the Resident Mission inNairobi fulfills this function on a limited basis. 13  5.2 TechnicalAssistance Strategy in Procurement: Staff assignedto procurement duties in ministries and parastatals include so-called Supplies Officers at various civil service grade levels as well as other professionals in various disciplines who, over a number of years, have acquired some proficiency in procurement while managing donor-funded projects. However, fully trained and experienced procurement specialists are a rarity in Government and parastatals and were found by the mission only in Agriculture and Water, Energy and Mineral Resources and even then, not as regular civil servants. The typical training of Supplies Officers may be sufficient for handling normal purchases of common user items through Government requisitions and requests for quotations from local sources but is grossly insufficient for the known duties of a procurement officer on donor-funded projects. Many such projects require intemational competitive bidding for a wide range of goods and works, complex bid evaluations and dealings with sophisticated suppliers and contractors. It is equally doubtful that a person with such limited training would have the requisite professional preparation to grasp and apply the procurement guidelines and standard documents on which intemational donors insist as a condition of disbursing credit funds. Professionals in other disciplines who have acquired proficiency inprocurement through training courses and daily practice seem to fare much better and are oftenreferred to as the unit's resident procurement experts. An example would be certain civilengineers inthe Ministry of Works whose services are also sought by other ministries. However, procurement may not be their primary professional career interest and otherjob dutiesplus procurement may in fact, result in divided attention to both. Statistics on the number of civil servants who are considered to be assigned to procurement duties in various ministries are therefore, unlikely to convey a completepicture of the country's human resources in this important aspect of project implementation;nor can short- term training courses offered by various international organizations serve as a substitute for the type of dedicated training and apprenticeship under the guidance of expertsthat are provided in industrialized countries and if implemented, would ultimately provide Tanzania with a cadre of seasoned procurement specialists. This cadre would not only improve performancein procurement but also form the core of future trainers. Since training in any field such as procurement takes financial and human resources, besides time and tenacity, both short-term and long-term training strategieswould seem to be the most sensible interventions in response to these observations. The short-term strategy should continue to consist of stop-gap technical assistance to Governmentunits in which procurement deficiencies have been identified as the cause of delays and cost overruns; however, a more systematic approach may be necessary. The long-term training strategy should (1) have as its main objective, practices that benefit the country by virtue of greater economy and efficiency in procurement, rather than mere compliance with donor requirements, (2) guarantee from year-to-year the necessary resources from Government and donors to sustainthis training 14  strategy and (3) identify and establish transparent performance incentives for civil service staff who show the potential, ambition and personal commitment to this profession. Attachments to CPAR 1. List of persons contacted during mission 2. Ministry of Health, Examples of Delays 3. Ministry of Works, Example of Procurement Process from Bid Documents to Contract Award 4. Recommendations for A Revised Public Procurement System, Public Procurementand Supply Management Study, Crown Agents, February 1995 5. Tanzania - Procurement in the Private Sector, March 1996 6. Country Portfolio Performance Review 7. Tanzania - CPAR Summary Checklist of Acceptability of Procurement Proceduresfor Competitive Bidding 8. Follow-up of Tanzania CIR (November 1993) with Project Coordinators, June 13, 1995 15  ATTACHMENT 1 TANZANIA COUNTRY PROCUREMENT ASSESSMENT REPORT List of Persons Contacted During Mission  Attachment 1 COUNTRYPROCUREMENTASSESSMENTREPORT List of Persons ContactedDuring Mission Mr. P. L. Luhanjo Deputy Principal Secretary Ministry of Finance Mr. A. J.Malyi Secretary Central TenderBoard Ministry of Finance Mr. W.A.Lyatuu Project Coordinator IntegratedRoads Project Ministry of Works Mr. J. Bagenda Project Coordinator Ministry of Education Mr. S. Ndunguru Coordinator,EducationPlanning& RehabilitationProject Prime Minister'sOffice Dr. F.N.Njau Coordinator,Health &Nutrition Project Ministry of Health Ms. C.M. Mdundo Coordinator,FILMIUPProject Attorney General'sChambers Mr.B. A. Kyama Controllerand AuditorGeneral Ms. S. E. Kaduma,Project Coordinator  2 Mr. M.K. Sarin, ProjectAccountant Agricultural SectorManagementProject Ministry of Agriculture Mr. B.A. Shamshudin Manager,Finance Tanzania ElectricSupplyCo. (TANESCO) Mr. D.K. Jairo,Project Coordinator Mr. G.B. Bukori,ProjectAccountant Mineral SectorDevelopmentProject Ministry of Energy andMinerals Mr. P.S. Malembeka Principal FinancialAnalyst Tanzania TelecommunicationsCo Mr. S.Williams Crown Agents Mr. C.P. Tesha Registrar National Boardfor MaterialsManagement  ATTACHMENT 2 TANZANIA COUNTRY PROCUREMENT ASSESSMENT REPORT Examples of Delays Ministry of Health (MOH) Elapsed Time From Bid Advertisement to Request for "No Objection" to Contract Award  Attachment 2 to CPA.= Page 1 of 2 EXAMPLESOF DELAYS MINISTRYOF HEALTH (MOH) ELAPSEDTIME FROM BIDADVERTISEMENTTO REQUESTFOR "NO OBJECTION"TO CONTRACTAWARD Dateon Date on Date on whichl which Date on Date on which request CTB which which clearance was issued bids bidswere of Status as of sent to Tender were received Date on whiicihEvaluation contract Dateon whichitheaward was set to July 1996 Tender No. CTBto Notice opcned from CTB Rcport wassubmiittedto CTB award WBfor no objection issue for by CTB for for award received Elapsedl Tender adverti evaluation from timeto Notice sement CTB date 39 of 1994/95 Record 6th 27th 2ndNov. - On15thDec.1995,the 14th - On30th March1996,MOH "No FORTHE isnot Sept. Oct. 1995 EvaluationReportwassubmitted March submittedrequestfor"noobjection"to objection" SUPPLYOF avail- 1995 1995 to CTB; 1996 WB; isstillbeing TRAINING able awaited BOOKS - on 16Jan. 1996,CTBresponded - on 6thMay 1996,WBrespondedby fromWB. by askingMOHformore askingMOIItofurnishadditional clarificationson theevaluation documentswhichwererequiredfor submitted;and "noobjection"; Elapsed - on 19thJan. 1996,MOH! - on 13thMay 1996,MOHsent Time: respondedbysubmittingthe reminderletterto WBrequesting"no 300days requiredclarificationtotheCTB. objection";and - on 25thJune 1996,MOHresponded to theWBbysubmittingthe documentsas requested. 38 OF 1994/95 28th 20th 8th 9thMarch - On6thMay 1996,tihe C1TB Willbesentafterobtainingclearance - Unre- FORTHE Nov. Dec. March 1996 evaluationreportwassubmitted clearance of awardfromCTB. solved SUPPLY 1995 1995 1996 toCTB; isbeing OF awaited. COMPUTERS - on 2ndJuly 1996,CTBwroteto AND MOFIaskingto submitviewson ACCESSORIES someissuesraisedby theCTB regardingtheevaluationreport; and Elapsed Time: -on 4th July1996,MOH 210days .______________ .___.___ _ . responded&submittedviewsto  Attachmcnt 2 of CPtAtC Page 2 of 2 ____._ CTB. I OF 1995/96 28th 19th 29th 10thApril - On28thMay 1996,Evaluation CTB Willbe sentafterobtainingclearance Unresolved FORTHE Nov. Dec. March 1996 ReportwassubmittedtoCTB; clearan-ce fromCTB SUPPLYOF 1995 1995 1996 isbeing OFFICE - on 2ndJuly1996,CTBwroteto awaited EQUIPMENT MOHaskingtosubmitviews raisedby CTBregardingthe evaluatonreport;and Elapsed - on 4thJuly 1996,MOH Time: respondedandsubmittedviewsto 210days CTB. c~~~~~~~  ATTACHMENT 3 TANZANIA COUNTRY PROCUREMENT ASSESSMENT REPORT Example Miniistry of Works (MOW) Procurement Process from Bid Documents to Contract Award  Attachment3 to CPAR EXAMIPLE MINISTRYOFWORKS(blOW) PROCUREMENTPROCESSFROiM BIDDOCUME;NTSTOCONTRACTAWARD PMPLEMENTOR=OPERATIONAL UNHI [CODAP-DONSORASSISTANCECOORDINATOR] Forns ad hocbid evaluationcommitteeand INPLEMENTOR evaluatesbids;sendsbid DIRECTOR OFROADS evaluationreport Forwardsbids Checksandapproves toImplementor bidevaluationreport withassistanceofpanel rCCU CCU Receivesbids, opensbidsand Assemblesdocuments forwardsthemtoCCU and forwardstoPermanent r Secretary(PS) c,rB PS 7 Purchasebiddingdocuments, Endorsesdocumentsand prepareandsubmitbids submitsforclearance ALTI ALT2 BIDDERS LessthanS5m Morethan$5m Advertisesbidinvitation NATIONALTENDER CENTRAL COMMlTTEE TENDERBOARD LIB CLEARS (CTB) CLEARS Sendsdraftadvertisement ContractsControlUnit(CCU) { Providesnotificationto proceed CODAP CODAP forwardsbidevaluationreport-, X Reviewsandgives'noobjection' &awardsrecommendationto IDA for'noobjection' IDA EDA t Forwardsforbiddingdocuments Gives'noobjection'toaward reviewbyID.A,ifrequired CODA? CODAP ForwardsNOBto Draftsbiddingdocumentsandsubmitsto IMPLEMENTOR IMPLEMENTOR Finalizescontract& submitsto SuccessfulContractor DIRECTOROFROADSct START SignsconSuContract ntract,PSsignscontra FINISH ' I  ATTACHMENT 4 TANZANIA COUNTRY PROCUREMENT ASSESSMENT REPORT Recommendations for A Revised Public Procurement System, Public Procurement and Supply Management Study Crown Agents February 1995  RECOMMENDATIONS FOR A REVISED PUBLIC PROCUREMENT SYSTEUM 1. Introduction The recommendationsfor a new system of procurement for the Governmentof Tanzania, made in our Final Inception Report in March 1994, were revised in November 1994. In particular, we respondedto the comments made at the Launch Workshop,held at Arusha in September 1994. Wehave now up-dated the proposals, makingclearerthe operational steps envisaged at MinistryandRegionallevels, and the specificprovisionsforprocurementof civil works, constructionand consultancyservices. A significant factor affecting our proposals is the decision by the Government to "commercialise"the GovernmentStores. This paper has been written on the understanding that the Stores are to become fully self-financing on 30 June 1995,i.e., all their operating costs will have to be met either from the profit margin on sales of goods (which is not currently allowed by the Treasury), or from peripheral revenue-earningactivities, such as leasing warehousespaceor sub-contract transport operations;any uneconomicactivities will either haveto be subsidisedor cease altogether. However, as we pointedoutinour discussion paper, "The Commercialisationof Government Stores", prepared for the MNinistryof Works, Communications and Transport (MWCT) in October 1994, questionsremain as to the parameters within whichthe Stores will be expected to operate,andthe future status of the staff. The system described in this paper is intended to be applicable to all procurement by Government at headquartersand regional levels, whether of goods,civilworks,construction, consultancy or other services. Procurement by urban councils anddistrictauthoritieswill be the subject of a separatepaper. Parastatal bodies operatingunder their own legislation are outside the scopeof this Study, except that provisionhas been made for the Central Tender Board(CTB)to examine their major tenders in caseswhere the procurement is being funded by centralGovernment from their own or donor's funds. 2. Current Situation Most headquartersministrieshandle much, if not all, of their own procurementin practice, even when this is contraryto the current Stores Regulations(FinancialOrdersPart III). These regulations are inadequate and outdated in key areas, and do not provide for effective procedures. Procurementof civil works andconstruction, andassociatedconsultancyservices, are barely mentionedin Financial Orders at all. The decision-makingprocess is often far too protracted, which can seriouslyupset the inter- dependent elementsof a project. The time taken for tenderingandevaluationof civil works in particular has beenfound to be far too slow in several cases,althoughthe MWCT is very much aware of the problem.  3.2 Supplies Supplies Officersshouldberesponsibleto the Accounting Officerfor maintainingsuch stocks of supplies as are necessaryfor the smooth conduct of the Ministry'sor Region'soperations. Accounting Officersshould be answerable for any stockholdingsin excessof prudent needs, and for the disposal of any redundant or dorrmantstocks in such a manneras to recover, as far as is practicable, the realistic value of the surplus goods. There are neitherfunds norjustification for the purchase, by GovernmentStoresor any other department, of unallocatedstocks of items for which there is no properlypre-determinedneed. 3.3 Government Stores and Regional Supplies Officers As the Government Stores are being "commercialised" as a Government agency, we recommend that the requirementfor ministries and departmentsto approachthe Stores should be retained, but onlv for items that are listed in their catalogue, and are readilyavailable at a price that is competitivewith the buyer's local sources. The Stores willthereforenow only be one source, if a preferred source, of supply. If the requir2dgoods are notamongst those which the Stores can justify stocking (i.e., those with a acceptably rapid turnover), departments will probably have to look elsewhere. The Stores will only obtain "one-off' requirements if the mark-up is sufficient to warrant the effort, and they are still able to compete with trade sources. At present, the Supplies Officer in charge of a Regional Stores advises the RDD on procurement matters and acts as the Secretary of the Regional Tender Board (RTB). However, with the full c6mmercialisationof the Stores, that SuppliesOfficerwill becomethe Manager of the Stores;he or she may be under terms of employmentappropriateto the new agency, and is unlikely to be available to fulfil these tasks unless the Stores is to be recompensed for the time spent on such duties. Each RDD will therefore need his own Regional Procurement/SuppliesOfficer, at a sufficiently seniorgrade,to handle the administration's purchasing(whichmaybe either from GovernmnentStores or from local or more distant trade sources) and to run the RTB Secretariat. 4. Proposals for the Revised System 4.1 Ministries, Headquarters Departments and Regional Administrations Accounting Officers (who in most cases are Principal Secretaries and RDDs) and their nominated SupervisingOfficers or Supplies Officers, will continue to initiateprocurement, as now. It is the responsibilityof each Accounting Officer to determine (i) thejustification for the requirement (ii) that sufficient funds are available in the appropriate Vote  - receive bids and conduct public or internal tenderopenings; - examineand approve the Ministry's tender evaluations,andauthorise awards. If establishmentof anMTB is not thought to be justified, procurementthat isestimated to be above the PurchasingCommittee's level of authority should continueto berouteddirectly to the CTB. MTBs shouldincludeat least two members from outsidethe ministry,so theyshould only be set up where the volume of relevant procurement justifies the time spentby senior civil servants on tender board meetings. Under thesearrangements,the Elimu and Military Tender Boardswouldcontinue,exceptthat their compositionand levels of authority would conform with that of any other MTB. (The Medical Tender Boardis established under the provisions of the MedicalStoresDepartment Act, with a differentcomposition). 4.3 Regional TenderBoards We envisagethat thestructure and membership of the RTB's will remainas before,i.e., with the RDD as Chairman, the Regional Engineer as member and the Regional Procurement/SuppliesOfficer as Secretary, subject to suitablearrangementsbeing made for alternate membersand for quora to be established to prevent undue delaysin the absence of the "statutory"members. As with the CTB (see 4.4), those members whose departments' tenders are underconsiderationshould defend the evaluation,butnot takepart inthe decision on the award. The special arrangementsfor the Regional IRP Tender Boards should be absorbedinto the new system. The raised level of authority for the RTB should be the samefor IRP tenders as for other procurement. (Because of evidence of limited local capacity for tender evaluation, we do not believe that the revised limit should be as highas the US$ 1 million at present allowed for IRP Tender Boards). The Regional Engineermay still present the recommendations from each IRP tender evaluation, but should not take part in the final decision. The duties of an RTB will be the same as those described for an MTB at 4.2. Above the limitof authorityof the RTB, tender evaluationswill continuetobereferred to the CTB for cndorsementof the award. Where the estimated value of the goods, construction works or servicesis more than 25% above the RTB's levelof authority,thetender documents should be referred to the CTB before advertising or issue. At its discretion,the CTB may either advertiseand issuethe tender itself, for bids to be returned to them for public opening in Dar es Salaam,or allowthe RTB to proceed with tenderingsubjectto CTB'sendorseemnt of the award.  We also feel that it is importantthat the CTB follows up, firstly the awardof thecontract (we have found casesof significantdelays between approval of awardsby theCTBfor civil works and construction, and actual contract signature), and the implementationand eventual completion of the contract. (It is not acceptable for the CTB to be unawareof instances in which a contractortakes the advance but fails to complete, or evento start,the work). The compositionof the CTBshould be re-structured to consistof independentmembers,who are likely to bein, or recentlyretired, from the Public Service. They shouldnotbe appointed to represent the interestsof any specific ministry, except Finance and Justice. The ministrieswhosetendersare being considered may send representativestoBoardmeetings in order to presenttheir evaluations and discuss technical and commercialaspects, but they should not take part in the eventual decision. The CTB Secretariatwill need to be strengthened with further professionalprocurementand contracts staff. 4.5 The Procurement Advisory and Monitoring Service The structure describedat 4.1 to 4.4 is intended to provide for propertendering,consideration of bids and award of contracts at the appropriate level of authority for the value of the procurement. There is still a need for an organisation to provide back-upadviceand support to Accounting Officers,and in particular to their Supplies Officerswheretheprocurement of goods are concerned.This body should also monitor Governrmentprocurementso as to guide and, if necessary,warn, if good practice is not followed or Regulationsare being breached. We propose that a ProcurementAdvisorv and Monitoring Service (PAMS)be establishedin the Treasury, eitheras an independent unit or as part of an expandedSecretariatto the CTB. Its functions would be as follows: (i) to provideadvice and assistance to ministries, departmentsandregions on all procurementmatters, including evaluation of tenders; (ii) to drawup guidelines and procedures, and to setandhelp implementstandards of good practice in procurement and supply; (iii) to set up and maintain management information systems,soas to provide for proper accountability and to build up a data-base of information on specifications,sources of supply, prices and usage of goods; (iv) to advisethe CTB and RTB's on items that may beconsideredas "common- user", and assist the tender boards in drafting national or regional call-off contracts; (v) in conjunction with the Civil Service Department, the Ministry of Works, Communicationsand Transport and other technicaldepartments,to advise on standardisationof stores, vehicles and equipment;  4.7 ManagementInformation and Accountability A most importantfeatureof the new systemmust be the captureandrecordingof contractand purchase order data. Firstly, it is most important that commitments are recorded immediately,not only to keep Vote books up to date, but to ensure that sufficient funds are alwaysavailablefor payment to suppliers. Frequentdelayin paymentseems to be the biggest single-reasonfor contractors' and suppliers' lack of confidence, and this in turn leads to high prices andpoor payment terms (often cash in advance). Secondly, it is essentialtoprovide timely financial managementinformation,bothto link with the Treasury's centralisedpayments system through Regional Sub-treasuries,and to enforce accountability. Thirdly, purchase order information will be needed by PAlMSfor the suppliesinformation data-base, for monitoringpurposes and for advice to the Stock VerificationDivision. Manual systems are practicable,but as soon as possible the informationshould-berecorded and analysed by computer. Information can be exchanged simply by hand transfer of diskettes, which could be sent by courier or by Expedited Mail Service(EMS)to PAiMSin Dar es Salaam. J. Implementation The first step is for Governmentto discuss these proposals. Whenthey havebeen modified as necessary and finallyagreed, legislation has to be enactedand regulationsmade to replace the inadequate FinancialOrders Part III and provide a sound basis for publicprocurementin the future. In order to get this systemestablishedand running, the-first essentialis practicaltraining for the people who are to run it. Computers can come later; if manual systemsdo not work, automated systems will not w7orkeither. Pilot schemes in one or two ministriesand regions are proposed as the bestway to proceed. Within ministries and Headquartersdepartments, the change in the statusof the Government Stores will have little immediateeffect, as in most cases they are alreadyused to doing their own purchasing. In the regions, however, there is a greater reliance on the Stores, and substantial changes in operatingpractice will be involved. The following steps are envisaged;they are set out in approximatesequence,although some may be made simultaneouslyand some activities will be protracted: 1. Acceptance by Cabinet of these proposals and the draft bill for a new Public Procurement Act (first draft submitted to Ministry of Finance, December1994).  * ready access to procurement advice and sourcinginformation * betterprocurement performance and value for money * use of scarce resources to best advantage * improvedaccountability and control of funds * expansionof trade by encouraging a move away from the "cashculture" and towards the growth of credit facilities. The new system is intended to be flexible, and we look forward particularlyto receiving constructive commentsand suggestions from those most closelyinvolved. Crown Agents Public Procurementand Supply Management Study Dar es Salaamn,February 1995  Annex A PROPOSED THRESHOLD POINTS AND LEVELS OF AUTHORITY HeadquartersProcurement: TSh SupervisingOfficer, Ministry Supplies/ Procurement Officer: 500,000 Accounting Officer, acting alone: 2,000,000 Ministry PurchasingCommittee: Goods and Services: 10,000,000 Works and Construction: 50,000,000 MinistryTender Board (where applicable): Goods and Services: 50,000,000 Works and Construction: 250,000,000 Central Tender Board: Goods and Services: above 50,000,000 Works and Construction: above250,000,000 2. Regional Procurement: District Officer 200,000 Regional Engineer, Supplies/Procurement Officer, SupervisingOfficer: 500,000 District Tender Board: 2,000,000 Regional DevelopmentDirector, acting alone: 2,000,000 Regional AdministrationPurchasing Committee: 10,000,000  Annex B STRUCTUREOF PROPOSED PROCUREMENTSYSTEiM Level of Authority F. Central Tender Board _I I T -- _ _ _ _ _ _ _ _ _ _ _ E. Ministry TenderBoard RegionalTenderBoard I ~ ~ ~ r __ D. Ministry Purchasingc Regional Purchasing Committee Committee C. Accounting Officer RDD (Accounting Officer) District Tender (acting alone) (acting alone) Board B. SupervisingOfficer! Regional Supervising Supplies Officer Officer/SuppliesOfficer A. District Officer N.B. The Accounting Officer (or an officer nominated by him in writing)will chair the Purchasing Committee, and-will be the signatory for all procurement approved by the Committee, as recorded in the minutes of the Committee's meetings. Not every ministryneed have a tender board; many do not do enoughprocurementto justfy setting it up. In these cases, procurement above the financial powers of the Purchasing Committee will go straight to the CTB.  ATTACHMENT 5 TANZANIA COUNTRY PROCUREMENT ASSESSMENT REPORT Procurement in the Private Sector September 1996  Documentof The World Bank TANZANIA PROCUREMENTIN THE PRIVATE SECTOR ATTACHMENT5OF COUNTRY PROCUREMENT ASSESSMENTREPORT September1996 Africa TechnicalOperations Support Unit 1 AfricaRegion  CURRENCYEQUIVALENTS US$1.00 = 615.49 TanzanianShillings ABBREVIATIONSANDACRONYMS COMESA - East-South African Community CRF - Clean Report of Findings HS - Harmonized System Custom Coding IDE - Inport Duty Entry IDF - Import Declaration Form IPC - Investment Promotion Center NASACO - The NationalShippingAgencyControl NBC - National Bank of Commerce PEHCOL - Plant and Equipment Hiring Company TAN - Tax Assessment Notice TCFB - The Tanzania Control Freight Bureau THA - Tanzania Harbor Authority TPDC - TanzanianPetrolDevelopmentCorporation  - ii- TABLEOFCONTENTS PREFACE . iv SUMMARY...1 3 - IMPORTDUTIES- RESTRICTIONSAND PREFERENCES .. 2 3.2.15 - Range of Import Duties on Goods .............................................. 2 3.2.16 - CustomsDuties onIndustrialSuppliesand Equipment . . 2 Types of Exemptions A. DiscretionaryExemptions..................................................... 2 B. StatutoryExemptions........................................................ 3 C. TheInvestmentPromotionCenter (IPC)................................... 3 D. FavoredNations........................................................ 3 E. The Zanzibar/PembaIslands - A SpecialCase............................. 3 3.2.17 - Import Restrictions........................................................ 4 3.2.18 - Practice of Domestic Preference................................................. 5 3.2.19 - PreferencesGrantedto membersof the RegionalTradeGroups.......... 5 3.2.20 - Import Trade Verification - Effectiveness of the Country's CustomsServices.5........................................................ 5 3.2.21 - Pre-shipment Inspection - Import Trade Verification Program............ 7 4 - REGARDINGPRIVATESECTORPROCUREMENT .. 9 4.1.1 - a - Established Commercial Practices............................................ 9 A. The PrivateSectorSituation- The AsianCommunity....................... 9 B. Banksand CreditFacilities........................................................ 9 C. The NewlyEstablisheaForeignBanks......................................... 10O D. The InformalSector........................................................ 10 E. TaxExemptionAbuse........................................................ 11 4.1. 1 - b - The Private Sector - World Bank Project Issues .......... .................11 A. SeriousImplementationDelays................................................. 11 B. One-sidedContracts........................................................ 11 C. Lack of Transparency- The ConsultantIssue . . 11 D. TheSelectionProcessfor Consultants......................................... 12 E. DelaysinPayment........................................................ 13 F. Awardof PublicWorks Contractsto the Private Sector................... 13 G. The Borrower'sConstraints..................................................... 13 H. Award of Contracts for Procurement of Goods to the Private Sector .... 15  - ii - RECOMMENDATIONS 3.2.21 - RegardingImportTrade Verification.................................. 15 1. Customsand Pre-shipmentCompanies.................................. 15 2. Abolishmentof the FreightBureau (TCFB)............................ 16 3. Privatizationof the Shipping(NASACO)and Stevedoring(THA) Parastatals............................. 16 4 - Regarding Private Sector Procurement A. Rebuildingof the Private Sector................................ 16 ANNEXES AnnexA - Importationproceduresin the TanzaniaMainland Listof Abbreviations Annex B - Storage Charges in the Ports Annex C - Decisions Steps - Ministry of Public Works AnnexD - ProcurementTimein Days BetweenTender and ContractSignature Consultants'ContractsFull-timesequencefrom Tenderuntil Final Implementation AnnexE - NewspaperExtract overBribery DuringClearingOperations Annex F - List of People Met  - iv- PREFACE This report is the result of an eight-day mission to Tanzania. During this visit, the missionteam' interviewedfive to six peopleper day. Somepeoplewere interviewedtwice to obtainmore accurate information, particularly in the case of the IntegratedRoadsProject(IRP)of the Ministry of Works. Withinsucha short time frame, it is difficultto addressallthe pending issuesand hidden constraintswhich could cause delay in project implementation. The mission team attemptedto gather as much data as possible but also foundthat several people, mostly nationals,were reluctant to divulge informationfor fear of retaliation from their superiors. These people insisted on keeping their assertions strictly confidential. In spite of this, we hope that this report will clarify the main issues facingthe privatesectorinlTanzania. The mission was conducted in March 1996 and was led by Mr. Frederick Kranz, Senior Procurement Officer, World Bank, and Mr. Rend Beckers, Consultant.  SUMMTIARY Twenty years of socialist lethargy have damaged the Tanzanianprivate sector and have had a major impact on procurement. The mode of operationof the former socialist administrationstill prevails, and underpaid officials take advantageof their positions and opportunitiesfor graft. Becauseof its financialsituation,the Governmentcannotincreasewages. High import taxes and low wage levels encourage corruption on a growingscale. Laws against tax evasioncannotbe implementedeffectivelyunder suchconditions. The rebuildingof the private sector is a major, long-termissue. Due to the deficienciesof the private sector, local competitiondoes not exist exceptbetweenthe Asian communityand foreign companies. Special incentives are not granted to the local privatesector. For Bank-financedprojects,efficientproceduresshouldbe set inplaceto reduce delays during project implementation. The loss of interest of potentialbidders on Bank-financedcontractsgoes against the World Bank's goal of developingthe private sector. Governmenthas shown no commitment to put effective, independentcontrol agencies in place to verifythe delivery of goods and completionof work under Bank- fmancedprojects.  - 2 - 3 - IMPORT DUTIES- RESTRICTIONS ANDPREFERENCES 3.2.15 - Range of Import Duties on Goods According to the Tanzanian authorities, taxes and customs duties on imported commoditiesaccount for about 85 percent of the Government'srevenue. There are three mainkindsof taxesand duties on importedgoods: (a) customsduties,withfour percentagelevels- 5, 10, 30 and40 percent; (b) salestax, withthreepercentagelevels - 5, 25, and 30percent; (c) excise duties, at 30 percent (levied mainly on beer, liquor, and cigarettes), or a fixed amount per metric ton, (e.g., as for sugar, cement). On basicfood itemssuch as sugar, cooking oil and wheatflour, import dutiesplus salestax reacha totalof 40 percent; on rice - 30percent, andmilkpowder - 70 percent,witha reducedrate of 45percent for infants' milk. 3.2.16 - Customs Dutieson Industrial Supplies and Equipment Import duties on industrial supplies such as cement, corrugated iron sheets and concreteiron bars are 30 percent. There is no salestax, but an exciseduty of 125 Tanzanianshillingsper metric ton of cement is imposed. Import duties and salestax onindustrialequipmenttotal20 percent. Types of Exemptions A. DiscretionaryExemptions For projects of national interest, the Minister of Finance can grant exemptions. Thisconcernsindustrial,agricultural, or fishingprojects,as wellas to the import of basic commodities. This privileg, is also extendedto the presidentof the Zanzibar/Pembaislandsfor areasunder his control. Frequent abuse of privilege, on imported basic commodities are tolerated. Savingsfrom tax exemptionsare not passed on to consumers,and/or feed fraud from Zanzibarto mainlandTanzania(seepara. E on Zanzibar).  - 3- B. StatutoryExemptions The customs tariff act is a law which grants duty exemptions to international welfare organizations, embassies, youth associations, commonwealth organizations, military aircraft operations, and imported goods for government supplies, etc.. C. The InvestmentPromotionCenter (IPC) Up until June 1995, full exemptions were given by the IPC for investmentprojects. SinceJuly 1995, a 10percent importduty and a 10percentsales tax is levied on investmentprojects. Equipmentimported on a temporarybasiswithin the frameworkof a tax exoneratedproject is also subject to a five percenttax on the CIF valueduring the first year, a period whichcan be extendedas needed. D. FavoredNation The East and South Africancountries (membersof the COMESA)are a part of a trade agreementwhosegoal is to attain zero levelfor customsduties. So far, however, implementationis slow and very few commoditiesactually benefit from preferentialtreatment. Since 1989, a 10 percent preferential rate has been granted to Kenyan imported beer and a six percent special rate is applied to corrugated iron sheets importedfrom COMESA'sneighboringcountries. No other country has been granted preferential treatmentexcept under the frameworkof a specificprojectfinancedby that country. E. TheZanzibar/PembaIslands - a SpecialCase Unlike mainland Tanzania, the Zanzibar/Pemba Islands which are integrated into the state of Tanzania benefit from more favorable tax treatment. Customs duties are the same but the sales tax and most of the excise dutiesare at a lower level (20 percent sales versus 30 percent). Furthermore, no preshipment inspection or Freight Bureau controls are required. This special status makes it attractivefor free tradersas evidencedby the congestionat the localport. Theamount of discretionary exemptions granted by the President of Zanzibar on imported foodstuffsis highcomparedto those granted on the mainland. Thissituationindirectly favors smugglingto the mainland. Accordingto customs authorities,Zanzibarimports more goodsthan is neededby itspopulation. (accuratefigurescouldnot beprovided.)  -4 - 3.2.17 - Import Restrictions There are no special import restrictions, except for petroleumproducts which are imported by a state monopoly. The Tanzanian Petrol Development Corporation (TPDC), 100 percent Government-owned,has the monopolyover crude and refined oil. Oil by-productssuch as lubricantsare exclusivelyimportedby AGIP under Governmentcontrol. TPDC regularly launchesinternationalbids forboth crude and refined oil despitethe existenceof a local refinery ownedby the Government(60 percent)and AGIP(40percent). On average, 32,000 tons of crude oil and26,000 tons of kerosene,jet premiumand gasoil, are importedeach month. Therefinery'scapacity does not meet all of the country's requirements. TPDC sets the sale prices and transport costs for the whole country. There are four main distributorssharingthe localmarket, one of whichis local, Tanzanian-ownedcompany(GAPOIL).All imports of oil by-productsare under Government control except for brake fluids, which are importeddutyfree. Along withthe state monopoly, AGIP has the exclusiveright to import all lubricants as well as the base and blended oils. AGIP sets the saleprice of these goods. Additives, however,can be imported directly, through their head offices, by Caltex (Tanzanian-ownedcompany.GAPOIL),Total, and B.P. Thissituationreduces competition. However, privatecompaniescanbe authorizedto importon their own, but the importer has to pay a marginto TPDC and to a RehabilitationFund. All handlingcostsare invoicedaccordingto TPDC's official rates since TPDC owns all petroleum product terminals and distributionpoints. The smallprofit marginleftto the importer is a discouragingfactor. In Zanzibar, there is a no competition since the oil sector is under complete control of the local government. Except for the lubricants that are exclusively delivered by AGIP, Tanzania has subcontracted all oil supplies to ECO/TEH, London. Thedistributionis managedby a localparastatal. OtherImportRestrictions Officially, no import restrictions and import licenses are required anymore. Severalcommoditiesare prohibited from being imported(weapons,drugs, pornography, etc.), includinga list of 38 dangerouschemicalproducts,medicines,and foodstuffswith a validitydate of less than six months' from the timetheyare imported into the country.  - 5 - 3.2.18 - Practice of Domestic Preferences In general, the 15 percent preference for goods and 7.5 percent preference for all domesticcivil works is respected. Proceduresare appliedaccording to Bankguidelines. 3.2.19 - PreferencesGrantedto Membersof the RegionalTradeGroups No special preference (prices, exemptions) are granted to foreign companiesfrom membercountriesof COMESA. Normally, all projectsfinancedby the Bank (likethosefinancedby other donors), obtainIPC exemptions. I1PORT TRADEVERIFICATION 3.2.20 - Effectivenessof the Country'sCustomsServices Thecustomsauthoritiesof Tanzaniahave set up a bureaucratic,outdated and constraining organizationfor the clearance of goods, which hinders the local economy. Also, SGS (Geneva)and Inchcape(London), who are granted contractsby the Ministry of Financefor pre-shipmentinspectionsystems, are seen by the customs officials as "foreign agents" and not qualified to excercise any real control over the import of goods. Every step is taken to thwart the inspecting agencies' actions by systematicallydisputingtheir decisions (customs duties, tax levels, price evaluations, etc.). Unnecessarycontrolsare added in an effort to demonstratecustoms' superior efficiency and skills. This has a detrimental effect on the clearing process for the imported commodities: customs inspectors arbitrarily set the amount of duties, contradictingthe inspectingagenciesand providingopportunitiesfor bribes. A heavy customs administration seems to justify its existence by practicing double and triple controls where a single control wouldsuffice(see Annex A, the detailedimportprocedureson the Tanzania mainland,and AnnexE, newspaper extract). Not lessthat 15checkpointshave to be passedby the clearingagentsin the customs "longroom" before a customs declaration is finallycleared. Then, the clearing agent faces warehousecontrols and another 10 checkpointsbefore the good can be delivered. These checkpoints include the THA, the government-owned stevedoring enterprise and the NASACO govermmentshipping enterprise, each of whichcollectvariouscharges2. 2 All stevedoring (port handlingoperations) and shipping activities inthe Tanzanian ports are govenmnent managed entities.  -6 - Compulsorypre-shipment inspection formnalities,for commoditiesover US$5,000value, furthercomplicateand lengthenthe process. As a result,the clearing of a cargo takes at least two to three weeks provided all documentsconformto the requirementsset bythe Tanzanianadministration. Port storageand containerdemurrage chargesare automaticallyinvoiced to the receivers for days exceeding the free of charge period (7-15 days). These charges further increasethe cost of imports. Incentivesare therefore strong to bribe the customsagentsto seeka quick releaseof goods3. Several Asian importers are in a position to clear their cormmoditiesquickly by bribing customsand THA agents at all levels. Even so, the process still takessix to seven workingdays. TheTanzanianHarbourAuthority(THA) The THA has the monopoly for port handling operations. Therefore, the loadingof trucks with containersand general cargoes in the port area dependson the goodwill of THA agents, providing opportunities for bribes. The stevedoring (handlingoperations)onboard is also the exclusiveresponsibilityof the THA. TheNationalShippingAgencvControl (NASACO) NASACO,the Governmentshippingentity, collectsallport fees in cash (wharfage dues, stevedoring, tallying overtime work, port taxes, etc.) prior to any delivery. NASACO also has the monopoly for shipping agency operations in Tanzanianports. NASACOinvoicesthe shippinglines in foreigncurrencyfor services rendered. TheTanzaniaCpntrolFreight Bureau(TCFB) All freight bookingsfor in and out cargoes are supposedto be handled by this Governmententity. Thus, for any importedor exportedcargo, the receiver or the exporter shouldapply for a seafreightrate to TCFB to obtaina freight reservation on a designatedvessel. The seafreight granted includesa commissionfor the TCFB. Even if the importer ends up getting a better seafreight rate than the one obtained through TCFB, the latter still collects a booking commnissionbased on the submitted rate. This additionalconmmissionacts therefore as a tax on all incorningand outbound sea freight. 3 This isparticularly noticeable on containers which are subject to double chargers, storage and demurrage (US$24.0/per day/20' container). See Annex B storage rates.  -7- The customs authorities have attempted to reduce fraud, especiallyon commoditieswhichare supposedto transit through the country and whichnever reach the border. Abusesthrough Zanzibar and through the mainlandhave led customsto close down severalcustoms-bondedwarehouses. Thisclosinghas had negativeimpact on the local economy,since importers are then expectedto pay up front the customs duties and taxes. Giventhe high financingcost, the traderscompensateby importing smaller quantities,resultingin a shortageof basic commoditiesandprice increases. 3.2.21 - Pre-shipment Inspection - Import Trade Verification Program Since April 1, 1994, Tanzania has required a preshipmentinspection (PSI) in the countryof supply as well as an import trade verificationprogram. At the time, this increasewasexpectedto stem illegal transfersthroughover-invoicing. Since the liberalizationof the Tanzanianshilling, however, the PSI mostlychecksforunder- invoicing,as importersseekto avoid import dutiesand taxes. Two foreign inspection companies, SGS (Geneva) and Inschcape (London)share the marketwith SGS handling65 percentof the imports,and Inchcape, the balance. Bothcompaniesare under contract with the Ministryof Financethrough the Central Bank of Tanzania. Controls are for commoditiesin excess of US$5,000 FOBvalue. A limitednumber of commoditiesare not subjectto pre-inspection(e.g., weapons, explosives,pyrottchnic products, ammunitions,art objects,preciousstones and metals, scrap metal, live animals, vegetables, fish, meat and eggs, household effects, diplomaticandgovernmentgoods). Oncea trader has arranged to importfrom an overseassupplier,he must apply to his commnercial bank for an import declarationform (IDF), which requires payment of an up frontfee of 1.2 percent on the FOB value4. The commercialbank provides the IDF and the proforma invoice to the agreed inspectioncompanyof the exportingcountry. Thismustbe done in a timelymannerto avoidfurtherdelays. The sellerthen remits a final invoiceand the shippingdocuments(billof lading and airwaybill) to the inspectioncompany. The inspectioncovers qualityand quantity. The inspectingagency of the exporting countrythenissuesa cleanreport of findings (CRF)detailingthe IDF number, details of the transactionand the inspecting body's decisionas to the most appropriate harmonizedsystemcustomcoding(HS) for the goods. They also assess the dutiable value for customspurposes. Upon receiptof this report in Dar Es Salaam, the inspection company prepares the tax assessment notice (TAN) based on the CRF sent by the executingoffice. Upon arrival of the goods, the TAN mustbe collected by the importer. The importersubmitsthe TAN to his bank and pays dutiesaccordingto the inspectingcompany'sassessment. 4 Of this fee, 0.95 percent goes to the inspection company and 0.25 percent to the Central Bank.  -8- In order to import commoditiesin excess of US$5,000FOB value on mainlandTanzania, ten documentsare required: the originalTAN, the "paidcustoms ship", the original invoice,the original bill of lading, the compulsorylocal insurance certificate, the IDF, the CRF, an income tax document providing evidencethat the importer is in good standing vis-a-vis tax authorities, the ocean freight booking obtainedthroughthe TCBF, and the THA shorehandlingpaid bill. Unlike the Tanzanian mainland, Zanzibar requires only the four followingdocuments: the originalbill of landing,the originalinvoice,the importduty entry (IDE), and the shore handlingpaid bill. The clearing and deliveryoperationsin Zanzibaronlytakes4 to 5 days. DisputesBetweenthe InspectionCompaniesand the TanzanianCustoms. The TanzanianCustomsAuthorityfrequentlyquestionsthe assessmentof dutiable values, errors made in the classification of goods, the misinterpretationof facts, invoices,non-collectionof salestax and excise duties, undervaluationof the CIF value, under-declarationof quantities, and omissions of items. According to the Customs Authority's head office, identifyingthese errors has resultedin an additional recoveryof 2.3 billionshillingsfor the Treasury from June 1994toJanuary1996. The inspectingcompaniesargue, on the other hand, that the customsinspectorsresort to any excuse to contest the companies' decision; these continual conflicts open opportunitiesforbribes fromnimporters. In response, the inspection companies have recommended that a simplifieddeclarationbe issuedby the Ministerof Finance. Thisone documentwould replace the two documentsused presently (CRF and TAN), could not be disputedby customsofficersand should, therefore,acceleratethe deliveryof commodities. For containers, a similar single document would be requested. All containers would be sealedby the inspectioncompanyprior to shipment. Therefore, no dispute should arise from customs officers upon arrival of the goods. These recommendationshave not yet beenimplementedby the Ministryof Finance. In Dar Es Salaam, the trader conununity divides their main imnportinvoice into several smaller invoices in amounts below USS5,000 to avoid the pre-inspection requirements. Here again, customs laws impose no financial penalty. Severalimportershave also complainedabout the poor reportingin the exportingcountry via the CRF. As a matter of fact, many inspectionsincludechecks in port warehousesand factories, rather than of container contents. This situation leavesroom for falsedeclarations,damages,and shortages.  - 9 - 4. REGARDINGPRIVATE SECTOR PROCUREMENT 4.1.1. - a - Established Commercial Practices There is no state import monopolyexcept for petroleumproducts. The economy has been deregulated for two years and import licenses are no longer required. The Tanzanianshillingis convertibleand there is no compulsorycontrolon currency transfers. However, the poor state of the economy and drastic lack of financial capacitylimit the wholesale import trade to a limited number of operators. The inflationfluctuatesbetween26 and 30 percent and the commercialbanks' interest rates reachpeaksof 36to 40 percent. A. The PrivateSectorSituation- The AsianCommunity After 20years of socialism,Tanzaniadoes not havea substantialprivate sector except for a vibrant Asian business community, based on traditional trade relationswith India, Pakistan,and the MiddleEast (mainlyDubai). Asiantraderswork in close cooperationwithpurchasingofficesmanagedby relativesor very closefriends in London,Dubai, NewDelhi, or Karachi. The Asian community provides financing to Asian traders on better terms than local Tanzaniancompanies can secure, making it harder for these local firms to compete. Local bankers estimatethat Asians traders accountfor at least 70 percent of the wholesalebusiness. B. Banksand CreditFacilities For 20 years, the poorly managed state commercialbank, the National Bank of Commerce(NBC)granted loans to nationals, often withoutguarantees. The recovery percentage for this portfolio is low and the financing capacityof NBC is weak. According to private bankers debts of Tanzanianstate to the private sectorare highand the liquiditieson the localmarketare low. Furthermore,localfirms cannot obtain credit lines exceeding more than 25 percent of the corporate capital. However, in case of World Bank-financedprojects, bank consortiawith a designated leaderhave providedmore credit (eachbank providedseparatecreditline of 25 percent of the corporate capital.) Obtaiincg special authorizationfrom the CentralBank for highercredit linesis verycomplicatedandtime-consuming. Accordingto Central Bank regulations,the openingof a letter of credit in favor of a foreignsupplierrequires a cashdeposit in foreigncurrencyof at least 40 percentof the amountof the letterof credit.  - 10 - Anothermajor constraint is the requirement for cash depositscovering the total amountof the bid and performancesecurities. Thisposesan additionalburden for local firms sincethe projects' implementationis often considerablydelayedand the release of the securitiesdeferred. As a result of all these regulations,Bank-financed tenders are oftenbeyondthe reachof the localprivate sector. C. TheNewlyEstablishedForeign Banks The newly established, foreign banks carefully scrutinizeand evaluate the projects financedbyinternationaldonors before givingany support. Onlyselected borrowers get financingfrom foreignbanks, for serious and well-designedprojectsnot exceeding two to three years. Foreign banks finance projects within the limits of confirmedletters of credit. Foreign banks are also active in the exporttrade through letters of credit. Foreign bankers complain about the lack of professionalismof the Tanzanianlocalfirms. Lack of accurateand current records, and work whichis below standard, reducethe banks' willingnessto open credit facilitiesfor localfirms. These financial constraints and the presence of a substantial Asian community leave little room for the indigenous private sector. These firms cannot seriously compete for the supply of goods for projects over two million dollars. Similarly, in civil works,the range of project costs for which localfirmscan compete does not exceed this threshold. The only possibility remaining for indigenouslocal contractorsis to enter intojoint venturesor into associationwithforeigncompanies. Asidefromthe well-organizedAsian community,localtradersimporton a small scale and do not have the assistance of a procurementbureauabroad. They usually contact a limitednumber of dealers that are previous acquaintances. They do not have the know-howto handle letters of credit, and are therefore,limited in their capacity to tackle importantbusinessopportunities. Consequently,the competitionis mainlybetweenAsianwholesaletraders and severalforeignfirms. D. TheInformalSector DespiteGovernment'scollectionefforts, the highlevelof dutieson basic goods, provides strong incentives for smuggling. Several sensitive sectors of the economy such as the textile industry. and the import of new cars and spare parts, are affectedby smugglingandinformaltrade. Severaltextilemillsare closing down due to a large volumeof unofficial imports of second hand clothing. Second hand cars are massively imported and underdeclared, setting their value below the US$5,000 limit which requires a pre- shipment inspection. This has considerably hurt the formal import of new cars and spare parts. Furthermore, the low level of wages (between US$20 to US$50 per  month) and highunemploymentresult in migration to cities, indirectlyencouragingthe development of informal smuggling. Although important, the smuggling has not seriouslydamagedmostpartsof the economy, except forthe textilesector. E. TaxExemptionAbuse Businesslobbyists,mainly Asians, in partnershipwith localpoliticans, try to obtain from the FinanceMinister tax exemptionsfor inports of commoditiesof "national interest." Unfortunately, the price reductions awarded through tax exemptionsare not alwayspassed on to the consumer. Traders take advantageof the exemptionto considerablyincreasetheir profit margins. 4.1.1 - b - The Private Sector - World Bank Project Issues A. SeriousImplementationDelays Most of the private sector firms respondingto bid invitationsof Bank- fmanced projects bitterly complain about long delays between bidding and implementation. The financialconsequencescan be devastatingas a result of inflation and financing charges. Many reliable firms are no longer interestedin bidding on Bank-financedprojectsdue tothese unpredictableconditions. The pervasive lack of familiarity and experience with World Bank guidelineshas also contributedto delays. Accordingto the Ministryof PublicWorks, deferred responses or rejections of requests to the Bank for no-objectionto contract amendmentsare a frequentcause of substantialdelaysthat in turn, affectcash flow to localcontractors. B. One-SidedContracts Bidders complain that contract provisions which safeguard the borrowers' and the Bank's interestsdo not sufficientlyconsiderthe bidders' interests. The bidders are forced to acceptamendments to avoid disqualification. Bidders are appealingfor fair treatment. Biddersbelieve that theyshouldbe fairlycompensatedfor delayscausedby Government'snon-performnance. C. Lack of Transparency- The ConsultantIssue Localconsultantscomplainabout a lack of transparency. Accordingto the local consultants'association,locals are not given a fair chanceto compete. The criteria guidingthe consultants'selectionare vague. There are nopublishedresults of a consultant selection after tenders. The selection is often made on the basis of personal relations rather than on an evaluation of technical abilities. This lack of transparencyopensthe way tocorruption.  - 12 - Bank guidelinesfor consultant selectiondo not require selectionof the lowest offer, leaving room for arbitrary decisions. Local consultantspoint to Bank policy to "encourage and foster the developmentand domestic consultingfirms" and therefore request better opportunities for participation in consultant selections and greater transparency. Often, small contracts are awardedto foreign consultingfirms without competition. Theborrowers' representativescontendthat localconsultants,sufferfrom the following: lack of experienceeven if they are up to the requiredtechnicalstandard; lack of financialmeans; and lack of basicequipmentto perform efficiently(e.g. computersand software). An example of malpractice A Government parastatal intended to fully computerize one department. Three consultingfirmswere askedto bid. One of the consultingfirms was finallyselected on the conditionthat a bribe for the director and his assistantbe included in the price. As this enterpriserefusedto comply, anotherfirm wasappointedwith a team which includedunqualifiedpersonnelclaiming fictitiouscredentials. There was no officialtenderor advertisementfor this contract. D. The SelectionProcess for Consultants The selectionprocess for consultantstakes far too much time. In one example,proposalswere submittedin February 1994to the Ministryof PublicWorks; selectiononly tookplace in November 1994; contract negotiationsstarted in February 1995 and ended in April 1995,when a draft contract was sent to the Bank. The "no objection" was given by the Bank in May 1995. Sevenversionsof the contractwere discussed and the contract was finally signed in October 1995, 20 months after the initial proposal submission. This two-year contract stipulates that the consultants' services shouldbe paid as a fixed, lump sum, without any price adjustmentprovision. Anotherexampleof a Bankfinancedproject showsthe followingrecordof the selection process: October1994 - invitationoffering 10packagesof roadsurveys May 1995 - evaluationreport sent to Bankfor "no objection" March 1996 - onlyone of the 10packagesawardedat a fixedcontractrate. The othernine packagesare still undernegotiation,twoyears after the invitationfor proposalswasissued.  - 13J- E. Delavsin Payment A consultingfirm workingfor the Ministry of PublicWorkscomplained that US$400,000of consultantfees have been outstanding since September1994for services rendered. There is no disagreementthat the fees are due. The delays are mainly due to the approval process for an amendment to the contract. Delayed payments are a matterof great concern for small local consultingfirms which cannot afford to pay the high financing charges. Consultants are not entitledto financing charges in caseof delayedpayments. Internationalconsultingfirmscanusuallytolerate delayed payments much more readily and therefore, have an inherent advantage in competingwithlocalfirms. F. Awardof PublicWorks Contractsto the PrivateSector In general, indigenous local construction companiesfind it difficult to satisfy the bid requirementsfor public works. The localprivatesectoris quitenew and does not have the experience of international companies, or of Asian-ownedlocal companieswhichhavebeenestablishedin the country for manyyears. Governmentsources contend that local companiesoften provide poor documentationand do not have the required skills to prepare bids. They often fail to meet financial requirements. For Bank-financed projects, many bid requirements follow Bank procurement guidelines for International CompetitiveBidding (ICB), puttinglocalcontractorsat a further disadvantage. Withregard to equipment rental, a Governmentparastatal, PEHCOL, was created to helplocal contractors secure road building equipment. Unfortunately, PEHCOL does not have the right equipment for rent and when available, this equipment is not properlymaintained. Local contractors can also sublet equipment from foreignersat internationalprices, raising considerablythe costsbeyondwhatthey can bear. Localcontractors survive by joint-venturingwhich foreign firms (e.g., Mecco with the GermancompanyStrabag). From past experience,it seemsthat two million dollars in constructioncosts is the top limit for local participationin bidding; beyondthis limit,biddingis inthe hands of foreigncompaniesandjoint ventures. G. TheBorrower's Constraints Project management know-how in the Ministry of Public Works is deficient. This has caused substantial delays in projects, created hardshipsfor local contractorsand discouragedlocal and some foreign contractorsfrombiddingon public works projects.  - 16 - officers should not be used as tax collectors for all departmentsof the Ministryof Finance. 2. Abolishmentof the Freight Bureau (TCFB) Thisbureauis an anachronism. It is incapableof identifyingthe best sea freight rates for localtraders. Its abolishmentwould reduce the formalitiesand reduce the costs of transport. Its missionis contraryto officialliberalizationpolicies. 3. Privatizationof the Shipping(NASACO)andStevedoring THA) Parastatals A major source of foreign exchange, these parastatals are likely to remain Government-ownedin the near future. Yet, allowing three or four private operations to compete in the port of Dar-Es-Salaam would reduce the costs of stevedoring and shipping, while enhancing service. Such competitionwould reduce corruption, shorten clearingtime, thus diminishingstorage and demurragecosts. The port authorities would continue to own the warehouses, while an equipmentrental consortiumwouldbe set up under privatemanagement.Warehouseswouldbe assigned by tender to operators on the basis of traffic volumes. Tanzanianand foreign firms shouldbe allowedto competein this privatizationoperation. 4. Regarding Private Sector Procurement A. Rebuildihg of the Private Sector The local private sector should be rebuilt and strengthened to be more viablein competitionfor contractawards through: a considerably more effective system for informing the local private sector concerning bidding opportunities; ministries should not implement projects, unless they have adequate institutional capacity to manage them; development incentives, such as tax exemptions on projects, credit lines and help with bid and performance securities; PEHCOL should be privatized to improve its management and finances, thus helping local contractors find adequate equipment at acceptable rental rates; NBC should be capitalized with private and public funds, while enforcing strict control over its lending. The bank would then be in a better position to promote small and medium size contractors by granting them loans on favorable terms.  - 17- * foreign banks, with Tanzanian offices, should becomeinvolved in promotingthe localprivatesectorthroughGovernmentincentives; * the CentralBankof Tanzaniashould allow credit linesrangingfrom 25to 50percentof the corporatecapitalfor localenterpriseswinning bidsunder Bank-financedprojects. cash deposits for bank guaranteesshould not be compulsoryunder ordinarycircumstances; * procedures for decision making in procurementin the Ministry of Public Works should be considerablysimplifiedin order to reduce this delayfactorin its dealingswithprivatecontractors; * a Bank engineer in Tanzania should approve amendmentsup to 15 percentof the projectvalueto shortenIDA's noobjection'process; * the Principal Secretaryof the Ministry of Works shoulddelegatehis decision-makingpower for contractawardswhenhe is awayfromhis duty station; * whenpayments are delayedas a result of complicatedamendments, payment on-accountshould be provided to contractorsbefore final settlement; contract provisions should consider the contractors' interests and provide fair compensation in case of delayed performanceby the Government; ccontractors should not be forced to accept amendments under financialduress; * terms and -conditions of contracts should not be changed in midstream; * for local consultants, participation in projects should be simplified and adaptedto localcircumstances;and * an independentverification system is needed to assure that goods match the specifications of contracts, in terms of quality and quantity,whentheyare actuallydeliveredto theirfinaldestination. Kranz:si A:\TANZ.DOC September 17, 1996 11:20AM  AZNNEXA Importation Proceduresin Tanzania (vainlandL 1. Documentation - You haveto ffi so manyformsandth.ereissomarny stepsto foUow. a) 1)DFORM - Withattachnent of 4 copies of Proforma. - Processwith the bank to pay 1.2% PSIEcarges on FOBprice. - SGSforPre Lnspection Report (CRF) b) rnen applicaticn forTANenclosingthe B1L,CRE & Final Invoice. c) TXLNhas to be accompaniedwith B/L, DF, Final Invoice, Ewome Tax papers, D & DO, CRE,TCFMetc. Process in Longroom- I Receivinga . ImnorLLicense 3. IncomeTax 4. Valuation C. Declaration 6. P.C. H. D. 0. 8. Numbering 9. Recording IO. Auditing Il. EB.S. 12. Manifest 13. Quay 14. TCFB i). CDO Then to PCWhar. AT THE WHARF 1. CUSTOMS A) Receiving B) Recording C) P.C. D) Controller E) Shed concerned - customsto verifty. F) Health & AgricuIture 2. THA ) Receiving 2) LodIag 3) Rotation 4) Manifest 5) Recording 6) Compturerroom 7) Cashier 8) Distmion 9) CDO 10) ZONE 11 SHED. Rates are very high for wharfage & handling. TARIFF Rates are exorbitantand unstableand subject to change every 3 months. Commissionercan change the valuationof goods at will. NASACO Charges tallying& Agency fees for stevedoring  ANNEX B (see report page 9) STORAGE RATES in Tanzanian ports 1 - As in every port ,thereis a free period of gratuity A - For port storage (T.H.A.) - 7 days ,iflocal consumption (as from vessel's arrival date) - 15days ,iffor transit . B - For demurragecharges levied on containers by the shippinglines - 7 to 15days ,iffor local consumption. - 28 to 45 days,if for transit. 2 - Storage charges ,chargedby T.H.A. For break bulkcargoes :(mostly general cargoes not containerized) - next 30 days after free period: 1USD /Mt /Day - After these 30 days: 1,50 USD /Mt/Day For containers: - next 15 days after free period: USD 20 /CT 20' /Day USD 40 / CT 40'/Day - afterthese 15 days : USD 27/ CT 20' /Day USD 54/CT 40'/Day 3 - Demurrage charges invoiced by Shipping lines through Nasaco For container: - Ist week after free period: USD 4 /CT 20' /Day : USD 8/ CT 40' /Day - 2nd week after free period: USD 10/CT20' /Day USD 20/CT 40'/Day - After 2 weeks : USD 14/CT20' /Day USD 28/CT 40'/Day 4 - The minimumperiod to clear the goods is 5 days ,meaningthat in the large majority of the imports, the importer will have to pay storage and demurrage charges.  Ministryof PublicWorksof Tanzania- DecisionSTEPS- ANNEXC Pal Secretary Min.ofWorks . r~~RPCODAP - ,c IContract ControlUni jDirector (DepartnentROADS T IunRoad I Min___c Po i SenirEng.Construction1 rojecten ers ]RoadProjectSupervisn n CONTRACTO~R  ANNEX D (see page 23 of the rejort) This annex includes two parts: 1 - An e:-tract of the paper written by Mr.N.S.D Kinga ,ChiefEnginccr ofh-'e Control ' ontract Unit of t'he Ministry of Works.This paper was presented internati iaal meeting with donors held in Arusha last year.These 12 pages of tables ar: rczording the procurement times in days from date of Tender submiss.on until contract signature for the 62 contracts presently in force from 18 ,'arious international donors. Please see on top the contract numbers-The 3 next pages mention the namncsof the various contracts and their nature.with the contract numbers. 2 - The econd part concerns the (<Mbeya road peTiodic maintenance (< wi.th the supervision of two consultancy supervision contracts oIsangati - Shi-amba road >