Tajikistan - Institution Building Technical Assistance Project

Document of The World Bank Report No. T-6811-TJ TECHNICAL ANNEX REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT APRIL 16, 1996  CURRENCY EQUIVALENTS Currency Unit = Russian Ruble (Until May 10, 1995) Currency Unit = Tajik Ruble (After May 10, 1995) End of Period End of Period (Russian Rubles per US$) (Tajik Rubles per US$) 1993 December 1,240 1995 May 50 1994 December 3,550 August 58 1995 April September 153 December 300 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ARSP Agricultural Recovery and Social Protection Credit CAS Country Assistance Strategy CEM Country Economic Memorandum EAMU External Assistance Management Unit FSU Former Soviet Union GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IBTA Institution Building Technical Assistance ICB International Competitive Bidding IDA International Development Association IMF International Monetary Fund MOA Ministry of Agriculture MOF Ministry of Finance NBT National Bank of Tajikistan NGO Non-governmental Organization PIU Project Implementation Unit SPC State Property Committee SOE State-Owned Enterprise TR Tajik Ruble UNDP United Nations Development Program GOVERNMENT FISCAL YEAR January I - December 31  REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT TECHNICAL ANNEX Contents Credit and Project Summary I. Background .............................................. 1 A. Policy Priorities During Transition ........ ...................... 2 B. Stabilization Program . ...................................... 2 C. Structural Reform Program ........... ........................ 2 II. The Project.. 6 A. Project Objectives. 6 B. Project Description. 6 III. Project Costs, Financing, Procurement and Disbursements 10 IV. Project Accounting, Financial Reporting and Auditing ....................... 14 V. Environmental Aspects ........................................... 14 ANNEXES: Annex 1: Small-Scale Privatization Annex 2: Medium- and Large-Scale Privatization Annex 3: Mass Privatization Annex 4: Public Information in Support of Privatization Annex 5: Privatization of Cotton Entity Annex 6: Farm Restructuring Annex 7: Legal Assistance in Financial Sector Annex 8: Accounting and Auditing Reform Annex 9: Bank Audit Reports Annex 10: Bank Supervision and Regulation Annex 11: Payments System Annex 12: Procurement Advisor Annex 13: Office Equipment SCHEDULES: Schedule A: Detailed Project Costs and Financing Plan Schedule B: Summary of Proposed Procurement Arrangements and IDA Disbursements Schedule C: Timetable of Key Processing Steps Schedule D: Implementation Plan Schedule E: Cost Estimates by Major Contract and Schedule of Critical Procurement Steps Schedule F: Supervision Plan Schedule G: Performance Monitoring Indicators   REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Credit and Project Sumnmary Borrower: Republic of Tajikistan Implementing Agency: Office of the Prime Minister Beneficiaries: State Property Committee, Ministry of Agriculture, Banking Sector Poverty: Not applicable Amount: SDR 3.4 million (US$5.0 million equivalent) Terms: Standard IDA terms, repayable over forty years Financing Plan: Local Foreign Total -------------US$ million equivalent---------- IDA - 5.0 5.0 Government 0.5 - 0.5 TOTAL 0.5 5.0 5.5   REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Technical Annex 1. Background 1. Landlocked Tajikistan, which declared independence from the former Soviet Union (FSU) in September 1991, shares borders with Uzbekistan, the Kyrgyz Republic, China and Afghanistan. About six million people occupy the country's 143,000 sq.kms. Tajikistan's territory is mountainous; 7 percent of its land is arable; of this, 85 percent is irrigated. A system of glacier- fed rivers provides 3,900 megawatts of hydroelectric power. Tajikistan is the poorest of the FSU republics, with a per capita income estimated at US$ 350 in 1994, and now probably even lower. 2. The highly mechanized and irrigated agricultural sector accounts for 25 percent of output and 50 percent of employment, a higher share than in most FSU republics. Almost seventy percent of the population lives in rural areas. The main agricultural products are cotton, silk, fruits and vegetables. Nevertheless, industry accounts for 35 percent of output, 16 percent of employment and a large portion of exports and imports. The country has considerable potential in gold and silver. 3. Tajikistan has been wracked by political instability and civil war since its independence. The collapse of the trade and payments system among the FSU countries triggered a precipitous decline in output. Industrial and agricultural enterprises operate far below capacity because fuel and other essential imports are in short supply. Civil war, floods and mudslides took more than 50,000 lives, displaced 850,000 persons and inflicted extensive damage on the country's infrastructure. These external shocks further contributed to an unprecedented output drop, loss of control over the state budget, rampant inflation, widening current account deficits and an explosive buildup of external debt. 4. Between 1991 and 1995, output fell about 60 percent, with agriculture and industry most affected. In 1995, real output plummeted by 13 percent. Since the majority of the population resides in rural areas, the plecipitous decline in agricultural output has severely depressed living standards throughout the country. 5. Considerable dependence on transfers from Moscow during the Soviet era has meant that both the state budget and current account deficits have been unsustainably large. Budget deficits on an accrual basis averaged over 27 percent of GDP during the period 1992-94. For 1995, the deficit on an accrual basis declined to about 11 percent of GDP. Although tax revenue collection in the fourth quarter of 1995 was more than expected, the decline was due largely to expenditure reduction and was financed through accumulation of arrears (including unpaid wages) and expansion of domestic bank credit. Tajikistan's inflation reached 2,200 percent in 1993, 350 percent in 1994 and 600 percent in 1995. 6. The civil war (which necessitated an increase in defense-related imports) and the output decline ha.ve caused Tajikistan to depend increasingly on imports and have triggered a reduction in export volume. The resulting current account deficits were financed primarily by external borrowing from FSU trading partners. By the end of 1995, Tajikistan had accumulated  -2- about US$810 million of external debt, over 80 percent of which is owed to the CIS countries, specifically Russia, Uzbekistan and Kazakstan. External debt payment requirements for 1996 are estimated at $446 million (for debt service and to clear arrears). Other creditors include the European Union, Turkey and the United States. A. Policy Priorities During Transition 7. Political conditions were not conducive to economic reform until late 1994. A constitutional referendum and presidential election were held in November 1994. In December 1994, the Government was restructured and a reform-minded cabinet appointed. Parliamentary elections took place in February 1995; the April session of Parliament confirmed the President and the cabinet. Security conditions improved somewhat in 1995. The unrest of late January/early February 1996 among government forces was settled peacefully. The fifth round of inter-Tajik talks began in November 1995 and ended in February 1996, with a promise to extend the ceasefire until May 26, 1996. The Government has, however, reiterated that it will not agree to opposition groups' demands for constitutional changes and restructuring government agencies. 8. Since mid-1995, the Government has been engaged in a dialogue with the IMF and IDA on a program of stabilization and structural reform. The relative improvements in the political and security conditions have prompted the Government to begin implementing a comprehensive economic reform program. Having been approved by the November 2, 1995 session of Parliament, the program is expected to be implemented during 1995-2000. The program's initial stage is underpinned by an IMF stand-by arrangement, a proposed Agricultural Recovery and Social Protection (ARSP) Credit and the proposed Institution Building Technical Assistance (IBTA) Credit. B Stabilization Program 9. The principal elements of the Government's stabilization program are: (i) fiscal adjustment to bring the budget deficit down to about 5 percent of GDP in 1996; (ii) a monetary program compatible with the fiscal objectives to limit money supply growth; and (iii) reduction of the inflation rate to 4 percent per month after September 1996. The IMF and the authorities have agreed on a financial program that will be monitored during January-March 1996. The Fund expects to submit the stand-by arrangement to its Board in early May 1996.' C. Structural Reform Program 10. Key elements of the Government's structural reform program include: (i) privatization of state-owned enterprises (SOEs); farm restructuring; and (iii) reforming the banking system, including revising the current legal framework for banks, introducing internationally accepted accounting and auditing procedures, upgrading bank supervision and regulation, improving management of liquidity and payments system. 1/ The Structural Transformation Facility (STF), for which Tajikistan would have qualified, lapsed in April 1995.  -3- 11. Privatization of SOEs. The size and scope of Tajikistan's SOE sector is difficult to determine, partly because SOEs include not only Republican property (controlled by the central Government), but also communal property (controlled by local governments). Data on communal property is decentralized to the regions and no comprehensive, centralized database exists. The best estimate indicates that there are approximately 9000 state-owned entities, 7000 of which are small- scale units. Of the estimated 9000 entities, about 50 percent are in wholesale and retail trade, 30 percent are in consumer services, 7 percent are in agriculture, 6 percent in construction and the remaining 7 percent are in industry and transport. 12. The privatization program was initiated in 1991 but was interrupted in 1993 due to the deterioration in the country's security situation. Following relative restoration of political stability, momentum was reestablished in late 1994, only to be interrupted again in 1995, in part by uncertainties created before introducing the national currency. The legal framework has also been a primary obstacle to rapid privatization in Tajikistan. The 1991 Privatization Law gave the State Property Committee (SPC) responsibility for privatization of Republican property, while local governments controlled privatization of municipal (or communal) property. In all cases, the law granted labor collectives the right to decide whether or not to privatize. Neither the SPC nor local authorities could set deadlines for the labor collectives to come forward with a privatization proposal. Furthermore, line ministries (in the case of Republican property) and local governments (in the case of municipal property) were required to approve the requests submitted by the collectives before an enterprise could be included in the program. Under this legal framework, SPC lacked the authority necessary to overcome resistance from line ministries and local governments to accelerate and expand the scope of privatization. As a result, less than 7 percent of the SOEs were privatized by the end of 1995. 13. To address these constraints to effective implementation of the program, the Government has prepared a set of legislative amendments to the 1991 Privatization Law that should significantly improve the program's scope, the pace of implementation and the transparency of the process. Instead of relying on a bottom-up approach initiated by the collectives, the Government will now select the enterprises to be included in the program. Once an enterprise is selected, the SPC will set strict deadlines for completing the various stages required to bring it to the point of sale. The new legislative framework also calls for a standardized and simplified valuation methodology; mandates the Government to prepare time-bound quantitative targets for privatizing SOEs; and introduces a monthly progress report to the President. The amended law prescribes standard methods for privatization of SOEs, as follows: (i) for small-scale enterprises (less than 30 employees), through auctions or tenders; (ii) for all remaining enterprises, through transformation into open joint stock companies and sale of their shares to foreign and domestic investors or through a mass privatization program within one year of transformation; (iii) for unfinished construction projects and non-profitable enterprises, through tenders. and, (iv) for the assets of liquidated enterprises, through sale on a proposed "Republican Real Estate Exchange." 14. These amendments to the 1991 Privatization Law were approved by Parliament on November 2, 1995, and new program implementation began earl, in 1996. Some of the ministries and government agencies, however, have not yet complied with Government Decree 543, which established a deadline of October 20. 1995 for submission of sector-specific lists of enterprises to be privatized and converted to Joint Stock Companies. Also, a clear decision has not yet been made concerning the proportions of enterprise shares designated for privatization through management- employee buy-outs, share auctions and tenders. The Government plans to remove current  -4- impediments and significantly accelerate implementation of the 1996 privatization program. It also intends to lay sound foundations for the policy, legal and institutional aspects of the program and to enhance the SPC's institutional capacity to significantly strengthen its independent implementation and monitoring capacities. 15. Farm Restructuring. Tajikistan's agricultural sector is dominated by large-scale state and collective farms. As of 1993, approximately 600 state and collective farms cultivated nearly all Tajikistan's arable land. Less than 10 percent of arable land (about 75,000 hectares) was allocated to private household plots on state and collective farms. Despite the disparity in land allocation, private household plots account for about 30 percent of the value of agricultural production, while state and collective farms account for about 70 percent. Because of insufficient arable land, agricultural growth will mainly depend upon increasing the efficiency and intensification of land use. Recognizing this, the Government has emphasized the importance of a farm restructuring program and is in the early stages of its implementation. The program aims at eliminating most state farms by converting them into collective farms and transforming collective farms into small-scale farms operated by individuals or groups. Between late 1994 and July 1995, the number of private leasehold farms increased from 600 to 1500. Although Tajikistan's farm restructuring program contains several positive elements, certain aspects jeopardize the program's effectiveness and sustainability. These include lack of: (i) transparency in the selection criteria for leaseholders, (ii) provision for collective farm members who do not receive leases; and (iii) availability of an exit mechanism from the lease. The Government is revising its farm restructuring program to address these issues. 16. Financial Sector. The Tajik financial sector has been faced with several obstacles in recent years due to high inflation, uncertainty regarding the legal tender prior to introduction of the Tajik ruble in May 1995 and political uncertainty caused by civil unrest. The Tajik authorities and senior bank management are eager to reform the banking system, but in many vital areas they lack the technical expertise necessary for the task. The need to upgrade technical skills within the financial sector has been accentuated by the social upheaval of recent years, since one consequence of the unrest has been the emigration of qualified Russian staff, who contributed significantly to this sector. 17. The Tajik financial sector is still organized along the traditional Soviet model of sectoral banks. Four sectoral banks for industry (Orienbank), agriculture (Agroprombank Shark), trade and light industry (Tajikbankbusiness) and trade (Tajvnesheconombank) still dominate banking activities in Tajikistan. The majority of the remaining banks represent a second layer of state-owned banks. Credit is still allocated administratively by the authorities, in the form of directed credits and a credit ceiling imposed on the banks. 18. The legal framework for the National Bank of Tajikistan (NBT) and the commercial banks is established by the Law on the National Bank (February 1991) and the Law on Banks and Banking Activity (December 1993). These laws lay the foundation for a two-tier banking system but are not suitable for a market-based banking system. The NBT is aware of serious weaknesses in the current legal framework. New laws are currently being drafted and the NBT plans to submit them for consideration by Parliament during 1996. 19. The current accounting and auditing framework in Tajik banks gives little insight into their true financial condition. The accounting system is still predominantly based on the banks' role  -5- as fiscal agents in channelling government funds, rather than as independent and responsible financial entities. 20. Supervision and inspection of the Tajik banking system is currently carried out by a staff of 16, most of whom are new to this area. Bank supervision focuses largely on observing economic normatives. Though sanctions are applied if banks do not observe these normatives, 9 out of 14 Tajik banks currently violate them. The NBT's inspection department, which was not created until July 1995, takes a control-oriented role. It checks the authenticity of data submitted by banks to the NBT and reviews the banks' credit policies, repayment history on outstanding credit and the structure of their assets and liabilities. At present, the inspection department visits only one bank a month. 21. The Tajik payments system is based on courier transport and manual processing of clearing documents and payments. All interbank settlement takes place through NBT branches and the process is slow. The settlement of payments in different regions takes up to 7 working days. Some modem-based reporting has been introduced to communicate correspondent balances. Banks are, however, still required to have positive end-of-day balances on their correspondent accounts with the NBT on a region-by-region basis. 22. Institutional Capacity. Tajikistan faces significant difficulties in formulating and implementing economic reforms. Civil war and political unrest have led to an exodus of about half a million skilled employees in Tajikistan's ministries, agencies, banking system and enterprises. This departure has put substantial pressures on the country's capacity to absorb and implement reforms. In many cases, the remaining public sector staff, though well-educated, are unfamiliar with market economy concepts and practices. Government employees are being asked to quickly design and implement a comprehensive market-oriented reform program in a number of areas in which they have no background, experience or training. The Government has recognized the importance of obtaining technical assistance and expertise to develop and implement its economic reform program.  -6- II. The Project A. Project Objectives 23. In the short term, the proposed project will help meet skill shortages to develop and carry out reform programs in priority areas of privatization and the financial sector. In the long run, it will help strengthen the country's institutional capacity to sustain reform in these areas. B. Project Description 24. The proposed project aims to address urgent technical assistance requirements in the following core areas: (i) privatization of SOEs; (ii) farm restructuring and demonopolization of cotton marketing authority and (iii) financial sector reform. The proposed project will provide advisory services, training and office equipment to the SPC, the Ministry of Agriculture (MOA), the NBT and commercial banks. These components are elaborated below and tentative numbers and employment period for essential personnel, training program and office equipment are mentioned under each sub-component. (i) Privatization Assistance 25. Privatization assistance will support the Government's reform program by providing technical assistance, training and office equipment to develop and implement appropriate mechanisms for a swift and wide-ranging privatization program. Proposed assistance for privatization includes assistance to: (1) the SPC and (2) the MOA. 26. Technical Assistance to the SPC. The proposed project provides financing for consultants, training and office equipment to assist in preparation and implementation of a comprehensive privatization program. The proposed SPC's technical assistance is comprised of design and implementation assistance in the following four sub-components: (a) privatization of small enterprises; (b) privatization of medium and large enterprises; (c) mass privatization; and (d) public information in support of privatization. Technical assistance to SPC in support of privatization will be sequenced to meet its priority needs. First, two short-term policy/legal advisors, funded by UNDP (see paragraph 41), have been placed in SPC from January 1996 until June 1996. They are helping SPC establish the policy and legal foundations of the accelerated program prior to arrival of the IDA-funded consultants. Second, the IDA-funded consultants assisting with privatization of small and medium-scale enterprises (Sub-Components 1 and 2, respectively) will be fielded. Initiating auctions of small-scale enterprises will be the main priority, while preparatory work (corporatization) begins on medium and large enterprises. Third, public information consultants (Sub-Component 4) and consultants assisting with mass privatization (Sub-Component 3) will begin their work. Training will be an on-going activity of each sub-component throughout the project. 27. Sub-Component 1: Privatization of Small Enterprises ($US 329.000). Consultants, training and office equipment will be financed to support preparation and implementation of an accelerated small-scale privatization program. It will include assistance to establish a database of all small-scale properties, prepare time-bound privatization programs for 1996 and 1997 and develop simple valuation and auction mechanisms to help ensure that the annual programs' targets are met. The proposed technical assistance for privatization of small enterprises includes a Privatization  -7- Advisor for about 9 months, 10 Local Consultants (12 months each), 2 seminars in Tajikistan (10 days and 40 trainees each) for central and regional SPC staff on the practical application of auctions and some office equipment (see Annex 1 for Terms of Reference of consultants and training program and Annex 13 for details of office equipment). 28. Sub-Component 2: Privatization of Medium and Large Enterprises ($US 779.000). A team of foreign and local consultants, training and office equipment will be financed to assist SPC in preparing and implementing a comprehensive privatization program for medium-and large-scale enterprises. The consultants will help SPC establish a management information system to reliably monitor program implementation and complete all steps necessary to prepare enterprises targeted for privatization (including enterprise registration, development of a simplified valuation methodology, design of a sound legal and operational framework for investment funds, corporatization and development of simplified auction mechanisms). The consultants will assist SPC in implementing auctions for a significant number of participating enterprises. The proposed technical assistance will include a Privatization Advisor/Team Leader for 9 months, a Financial Specialist for 3 months, a Legal Advisor for 2 months and a Privatization Specialist for 6 months. In addition, 10 Local Valuation Consultants (18 months each) and 5 Local Privatization Consultants (24 months each) will be employed under the proposed project. Two months of training in Tajikistan, covering four programs, are envisioned in computer application, corporatization, share registration and share auctions. Three study tours each for 2 SPC staff, as well as adequate office equipment, will be financed under the proposed sub-component (see Annex 2 for Terms of Reference of consultants and training program and Annex 13 for details of office equipment). 29. Sub-Component 3: Design and Implementation of Mass Privatization ($US 425,000). Technical assistance will be available for preparation and implementation of a possible mass privatization program. Should the Government decide to pursue this option, the consultants will be expected to expand the scope of their activities and augment the size of their team to carry out this sub-component. (Most of the enterprise-level preparatory work will be provided for under Sub-Component 2.) Foreign expertise, local consultants and office equipment will be provided to assist SPC to establish policy actions for the program, develop the legal, institutional and operational framework and implement voucher auctions for the initial wave of participating enterprises. The proposed technical assistance will include a Team Leader for 3 months, a Mass Privatization Specialist for 6 months and a Legal Advisor for 1 month. In addition, 4 Local Consultants (24 months each) and 10 Local Data Entry Clerks (2 month each) will be employed under the proposed sub-component. In addition to the on-the-job training, two months of training will cover a policy seminar and a workshop on implementation of mass privatization. Adequate office equipment will be provided under the sub-component (see Annex 3 for Terms of Reference of consultants and training program and Annex 13 for details of office equipment). 30. Sub-Component 4: Public Information ($US 224,000). Reliable and timely information on the privatization program's nature, objectives and opportunities for the general public to participate in the privatization process form an essential element of SPC's privatization assistance. The proposed assistance under this sub-component is key to building support for privatization (and the overall reform program) and ensuring its sustainability. Short-term public relations specialists will be provided to assess public knowledge and perceptions of the benefits of privatization of SOEs, develop and implement a comprehensive national information strategy through a variety of media and organize special events, such as seminars and public exhibitions. The proposed technical assistance will include a Team Leader (4 months), a Public Relation Specialist (4 months), one Local  -8- Consultant for 9 months, 4 local Survey Consultants (2 months each) and a contribution of $20,000 to the Media Costs (TV, Radio and Print) (see Annex 4 for Terms of Reference of the consultants). 31. Technical Assistance to the MOA. This component will support the Government's reform program in the agricultural sector and includes: (a) design and implementation of a strategy for demonopolizing the state cotton marketing authority (Glavchlopkoprom) and its ginneries; (b) preparation and implementation of a farm restructuring program; and (c) training MOA staff in all aspects of farm restructuring and demonopolization of the state cotton marketing entity. 32. Sub-Component 5: Design and implementation of a strategy for demonopolizing the state cotton marketing entity and its ginneries ($US 107,000). The main objective of this sub- component is to identify options for modifying the legal framework in cotton processing and marketing and assess the efficiency of the cotton marketing entity. Consultants will identify options for the role and operation of the cotton marketing entity and its ginneries, provide alternatives for remedying the weaknesses of the cotton sector and prepare an implementation plan for demonopolizing the state cotton marketing entity. The proposed technical assistance will include a Cotton Sector Specialist (4 months), 3 Local Consultants (4 months each) and one month of training in Tajikistan (see Annex 5 for Terms of Reference). 33. Sub-Component 6: Preparation and implementation of a farm restructuring program ($US 584,000). Consultants will help propose changes in the existing laws necessary to ensure secure land access rights and full transferability of access rights for individual leasing land, assess development of a land registry program so that those with land access rights can use these rights as collateral and specify implementation mechanisms for the farm restructuring program. The consultants will also assist in designing a methodology to develop voluntary farmer associations. The proposed technical assistance will include one Land Reform Specialist (12 months), one Agricultural Services Specialist (12 months) and 8 Local Consultants (24 months each). In addition, adequate office equipment will be provided under this sub-component (see Annex 6 for Terms of Reference of consultants and Annex 13 for details of office equipment). (ii) Financial Sector Assistance 34. The major objective of technical assistance in the financial sector is to help upgrade a number of key operations crucial for the reform of banking system. The proposed component will provide technical assistance, office equipment and training to the NBT and other banks to facilitate transition toward a market-based banking system. The resulting improvement in the banking system's institutional capacity will be a prerequisite to its opening to competition from new domestic and international private banks. The proposed technical assistance under this component will be closely coordinated with assistance from IMF and will consist of the following sub-components: (a) legal framework; (b) accounting and auditing procedures; (c) audit reports; (d) prudential norms and banking supervision; and (e) payments system. 35. Sub-Component 7: Legal framework ($US 118,000). Consultants under this sub- component will assist in re-drafting the present law on banks and banking activity and review laws in the areas of licensing process, prudential regulatory framework and accounting and reporting requirements. This will ensure that the banking law defines banks and banking operations consistent with international practice. Technical assistance under this sub-component will be closely  -9- coordinated with the legal assistance provided by the IMF, to ensure consistency between the revised legal framework for banks and the revised law for the NBT. The proposed technical assistance will include one Legal Advisor (3 months) and 2 Local Consultants (12 months each). In addition, two seminars in Tajikistan each for 10 days, and adequate office equipment will be provided under the proposed technical assistance (see Annex 7 for the Terms of Reference for consultants and Annex 13 for details of equipment). 36. Sub-Component 8: Accounting and Auditing Reforms ($US 983,000). The main objective of this sub-component is to revise the current accounting system in the banking sector, which is based on principles inherited from the command economy. Consultants will prepare and introduce completely revised accounting procedures, based on International Accounting Standards (lAS), enable the banks to carry out meaningful audits and enhance transparency in the financial positions of banks. Revised accounting is also a prerequisite for introducing a more meaningful set of prudential norms and improving banking supervision. The proposed technical assistance will include 2 Accounting Experts (15 months each) and 10 Local Consultants (15 months each). In addition to on-the-job training, two months of formal training, in the form of workshops and seminars, will cover various aspects of the new accounting system. Adequate office equipment will be financed under the sub-component (see Annex 8 for Terms of Reference of consultants and Annex 13 for details of equipment). 37. Sub-Component 9: Bank Audit Reports ($US 530,000). This sub-component will assist in preparing audit reports for the four large sectoral banks once the accounting system according to IAS is in place. Its main purpose will be for the auditors to review the structures and operations of these banks and make recommendations for moving toward a market-based banking system. The proposed technical assistance will include 4 Expatriate Consultants (5 months each), 4 Local Consultants (5 months each) and one month of training in Tajikistan (see Annex 9 for Terms of Reference of consultant). 38. Sub-Component 10: Bank Supervision and Regulation ($US 303,000). Improving bank supervision, training NBT staff in off- and on-site supervision and re-designing and implementing prudential norms will be financed under this sub-component. The proposed technical assistance will finance one Expatriate Consultant (4.5 months), four Local Consultants (14 months each), 2.5 months training in Tajikistan and the necessary office equipment (see Annex 10 for Terms of Reference of consultants and Annex 13 for details of equipment). 39. Sub-Component I 1: Payments System ($US 189,000). Financing a feasibility study describing the current payments system and introducing an efficient payments system commensurate with market-based banking will be provided under this sub-component. The study will define methods to reduce or eliminate payments and settlement risks and establish ways for clearing both small and large payments. The proposed study will also define hardware and software needs, estimate costs and suggest an implementation strategy. The proposed sub-component will include one Expatriate Consultant (6 months), 4 Local Consultants (6 months each) and 1.5 months of training (see Annex 11 for Terms of Reference). 40. Sequencing financial sector assistance The legal and accounting frameworks, as well as the audit reports of banks, will precede assistance designed to improve NBT's prudential and regulatory skills and to upgrade the payments system.  -10- 41. Coordination with other donors. The IDA will closely coordinate the proposed technical assistance to SPC, MOA and the banking sector with other donors. Given the SPC's urgent need for support in implementing the accelerated privatization program, two short-term privatization policy advisors financed by UNDP are assisting the SPC before the consultants under the proposed project begin to work in Tajikistan. For privatization and banking system reform to be successful, a sound legal environment must be established, particularly in the areas of property rights, contracts, bankruptcy and promotion of competition. The Government has requested the World Bank to seek additional funding for technical assistance to support private sector development. The Canadian International Development Agency (CIDA) has agreed in principle to finance technical assistance for private sector development activities. III. Project Costs, Financing, Procurement and Disbursements 42. Project Costs and Financing. Total project costs are estimated to amount to US$5.5 million, of which foreign exchange costs are calculated at US$5.0 million, or 90 percent of the total. Local costs have been estimated on the basis of current and foreseeable salary and accommodation needs. Unit costs of advisory and consultant services, training and office equipment are based on rates quoted for equivalent services in other FSU republics, with adjustments where necessary for Tajikistan's special circumstances. The estimates include price contingencies amounting to about 10 percent of total costs, based on estimated international prices for consulting contracts over the planned 4-year implementation period. 43. All office equipment, installation and foreign consultant costs that would be exempt from any taxes or duties would be met from the proposed IDA Credit. In addition, the Credit would finance the salaries of local consultants and meet foreign and specified national training costs. The main Government contributions would be in the form of support services, secondment of staff and physical facilities, and have been determined according to the beneficiary agencies' capacity and the specific nature of each sub-component. The Association would thus finance 100 percent of foreign exchange costs and 90 percent of total project costs. The Project Cost and Financing Plan is summarized in Schedule A. 44. Institutional Arrangements for Project Coordination and Implementation. The project will be implemented over a 4-year period in accordance with the project description in Part 11 (B) and the implementation plan in Schedule D. Responsibility for project coordination and implementation will be vested in the Office of the Prime Minister. 45. Proiect Implementation. To coordinate and ensure efficient and timely implementation of the proposed project, a Project Implementation Unit (PIU) has been created in the office of Prime Minister. To facilitate early initiation of the project, PIU has hired a procurement advisor under a Netherlands Trust Fund grant to help and train the beneficiary agencies-- the MOA, SPC and the banking sector (including the NBT and other banks)-- on all procurement procedures, including selection of consultants and purchase of equipment according to World Bank Procurement Guidelines. The Terms of Reference for the procurement advisor is presented in Annex 12. Beneficiary agencies are supported by the procurement advisor, their representatives in the PIU and local staff, with well-defined responsibilities to assist implementation of their respective technical assistance components.  -11- 46. Effective project implementation calls for the PIU, with cooperation from the procurement advisor, to help: (i) coordinate actions with the beneficiary agencies and ensure timely implementation of all phases of project activity; (ii) advise beneficiary agencies on World Bank methods and procedures to select consultants and procure equipment financed under the proposed project, including assistance to prepare bidding documents and other related matters; (iii) manage in bid openings, including evaluation and recommendation for awarding contracts; (iv) ensure that proposed contract awards meet the proposed projects' criteria and objectives; (v) monitor overall progress in project implementation; (vi) administer a Special Account and manage overall accounting and auditing of the project; and (vii) prepare detailed progress reports and a project completion report. 47. The designated representatives from the beneficiary agencies include the Deputy Chairman of the SPC, the first Deputy of the MOA and the Deputy Chairman of the NBT, with well-defined responsibilities to implement their relevant technical assistance components. The representatives will closely coordinate their activities with consultants provided by other donors, with the PIU Director and Deputy Director and the procurement advisor. Directed by the Prime Minister's Advisor, who has also been designated as project counterpart, PIU will provide assistance to implement the proposed project throughout the project's duration and will be responsible for coordinating all aspects of project implementation. 48. To help the Government initiate the project without delay and implement it effectively, the Association will organize a project launch workshop, after Credit approval, at which a team consisting of the task manager, a procurement specialist and component specialists, will fully review implementation procedures and requirements. At this stage, the criteria for trainee selection and short lists of consultants will be approved. The list of trainees will be finalized prior to the mobilization of consultants for each sub-component and the necessary office space and facilities will be made available. Bi-annual supervision missions would follow, with a mid-term review 24 months after effectiveness. Additional technical assistance requirements may be identified in this process. To allow the project to finance studies, activities and other inputs as need arises, $US 231,000 has been reserved. The Supervision Plan is shown in Schedule F. The inputs process, output and impact indicators are presented in Schedule G. 49. Procurement. The Government has requested an IDF grant to cover part of the cost for preparing and introducing the legal and institutional framework for public procurement reform. The request is being considered by the Bank for extending an IDF grant for US$178,000. The procurement advisor assigned under this operation will work with the PIU and train local staff in IDA procurement procedures and will assist on public procurement reform to be initiated under the proposed IDF grant. 50. Under this Credit, provision is made for consultant services, training and office equipment and related services, including hardware and software to be procured in accordance with the "Guidelines for the Use of Consultants by the World Bank as Executing Agency," published by the Bank in August 1981 (The Consultant Guidelines) and "Guidelines for Procurement under IBRD Loans and IDA Credits." published by the Bank in January 1995 (The Guidelines). Project components, estimated costs and procurement arrangements are summarized in the following table and set out in detail in Schedule E.  -12- Summary of Proposed Procurement Arrangements (thousands in U.S. dollars) Procurement Method Project Element IS Other Total Goods 300a' 300 Computers and related (300) (300) equipment Consultancy, Other Technical Expert Assistance and Training -- 47001b 4700 (4700) (4700) Total 300 4700 5000 (300) (4700) (5000) Note: Numbers in parentheses are amounts to be financed by IDA. a/ International Shopping b/ Consultant Services, according to "The Guidelines for the Use of Consultants by the World Bank as Executing Agency," published by the Bank in August 1981. 51. To minimize the number of contracts and reduce unit costs, equipment and materials to be financed under the Credit will be combined into substantial packages to the extent practicable. Contracts estimated to cost under US$300,000 will be procured through international shopping, based on at least 3 quotations from two eligible countries, with the proviso that the aggregate amount of goods procured through international shopping may not exceed US$ 300,000. 52. Firms and individuals will be selected for consultant assignments in accordance with the Bank's Consultant Guidelines. Consulting assignments based on shortlisted firms shall be selected for a total amount of US$4.329 million in four contracts consisting of: (i) privatization assistance to SPC; (ii) privatization assistance to MOA; (iii) assistance in legal, accounting and audit reports; and (iv) assistance in bank supervision and payment system. Individual consultants (aggregate value of US$0.371 million) shall be appointed for short-term assignments in project  -13- implementation and to provide other technical assistance as needed. The terms of reference for all assignments would be subject to the Association's prior review. 53. Association Review. Procurement arrangements require special attention because agencies in FSU republics have limited knowledge of international commercial practices, including Bank procedures. For this reason, all procurement activities are to be coordinated by the PIU, assisted by the procurement advisor assigned to the project. Special emphasis has been placed on the design of a project launch seminar, planned after Board approval of the project to ensure that IDA procurement procedures are fully understood by the beneficiary agencies. The first two contacts under international shopping and documentation for contracts valued at US$100,000 or more for consultant firms, and at US$50,000 or more for individual consultants, as well as single source contracts would be subject to prior review and approval by the Association. All other contracts would be subject to selective ex-post reviews. A General Procurement Notice was issued before project's negotiation. 54. Procurement Monitoring. Information on procurement would be collected and recorded to provide: (i) prompt reporting of contract awards by the Borrower; (ii) full quarterly reports to the Association; and (iii) changes in procurement schedules, including advertising, bidding, contract awards and completion dates. 55. Disbursement. The Credit would finance: (i) 100 percent of foreign expenditures of imported goods, up to 100 percent of local expenditures (ex-factory costs) and up to 75 percent of costs of other items obtained locally; and (ii) 100 percent, excluding any taxes, of consultant services and agreed training costs. The disbursement profile is included in Schedule B. Withdrawal applications will be fully documented, except for expenditures against contracts of under US$50,000, which will be based on certified statements detailing the individual transactions. Documentation supporting these expenditures will be held by the PIU for at least one year after receipt of the audit report by the Association for the year in which the last disbursement is made and will be made available for review by the auditors (see para. 60 below) and to the Association on request. The project is expected to be completed by May 31, 2000, with a closing date for the credit on December 31, 2000. 56. A Special Account would be established at the NBT to facilitate the disbursement of funds. The authorized allocation to this account would be US$0.2 million, with an initial deposit of US$0. 1 million, to be increased once a disbursement of US$0.5 million is reached. The account would be opened in the name of the Borrower and administered by PIU authorized representatives. The PIU would make requests for replenishment on a quarterly basis, or more often if necessary. Monthly bank statements for the Special Account, reconciled by the Borrower, would accompany all replenishment requests.  -14- IV. Project Accounting, Financial Reporting and Auditing 57. Accounting. The Borrower would be responsible for the appropriate accounting of the funds provided by IDA under the Credit, for reporting on the use of these funds and for ensuring timely submission of audits of financial statements and reports to the Association. 58. The PIU, on behalf of the Borrower, would establish an accounting system to provide information on the proper receipt and use of funds furnished in accordance with the Credit Agreement. Accounting for all Special Account transactions and all other project accounts will be maintained in accordance with practices and standards satisfactory to the Association, with the objective of timely and accurate accounting of all transactions under the Credit. 59. Financial Reporting. Financial reporting would be geared to the specific requirements of the Credit and would include a full statement of receipts and payments from the project's inception. Reporting would be in accordance with disbursements classified and reported under the expenditure categories agreed to by the Borrower and specified in the Credit Agreement. The PIU would submit quarterly financial progress reports, including a separate report for the Special Account. A Project Completion Report would be submitted to the Association by the PIU promptly after the conclusion of project activity, and in any event not later than 6 months after the Credit closing date. 60. Auditing. A key condition of the Credit would be that financial statements and reports on the proceeds, including funds channelled through the Special Account, are audited in accordance with internationally accepted standards by independent auditors acceptable to the Association. The selected auditors are to be: (a) impartial and independent from the entity to be audited; (b) well-established and reputable; (c) experienced in the type of assignment to be undertaken; and (d) able to fulfil the terms of reference within the stated timetable. V. Environmental Aspects 61. This project, providing technical assistance and utilizing existing physical facilities, will have no negative environmental impact and has therefore been placed within category C under Operational Directive 4.01 on Environmental Assessments.  -15- ANNEX 1 TERMS OF REFERENCE TECHNICAL ASSISTANCE IN SUPPORT OF PRIVATIZATION Sub-component 1: Design and Implementation Assistance for Privatization of Small Enterprises Objectives 1. Privatization of small-scale enterprises is a high priority, not only because the number of such entities is substantial and will absorb a significant proportion of SPC (State Property Committee) time and resources, but also because small enterprises are expected to be a primary source of employment and job creation throughout the economy. Therefore, this sub-component's objectives are to assist SPC to quickly catalog small-scale properties, prepare a time-bound program for their rapid transfer to private ownership through a simple, open and transparent auction mechanism, and reliably monitor the progress of their transfer. 2. The expatriate consultants responsible for this sub-component will train a team of local consultants in data collection, database management, auction procedures and auditing and methods of monitoring overall program implementation. These local consultants would then be expected to provide training and logistical support to staff of local SPC offices, who will be responsible for organizing and carrying out auctions and monitoring program implementation. Activities and Outputs 3. The consultants will undertake activities and deliver outputs as follows: (i) Propose amendments to the legislative framework and normative documents (such as implementing regulations, guidelines and administrative orders) to ensure accelerated implementation of small-scale privatization and assist SPC in drafting such amendments; (ii) Assist SPC in documenting the universe of small-scale state-owned enterprises at the Republican and municipal levels, assist in the design, installation and maintenance of a central management information system to reliably monitor progress of privatization of small-scale enterprises by region and sector, and assess data collection capabilities and requirements of local SPC offices necessary to maintain the central database; (iii) Assist SPC in preparing a time-bound program (by region) for accelerated sale of small-scale Republican and municipal entities; (iv) Develop detailed guidelines and procedures for simple auction mechanisms to facilitate rapid sale of small-scale entities and provide direct assistance in  -16- implementing auctions for a number of targeted enterprises (agreed with SPC and the World Bank); (v) Assist SPC in developing simplified methods of valuation for small-scale entities; (vi) Develop the procedures to privatize small-scale entities that are part of larger enterprises (such as transport and catering sub-divisions); and (vii) Develop the procedures to divest to the local authorities the social assets of enterprises that cannot be immediately privatized (such as housing, clinics, etc.). Training 4. The consultants will organize and conduct two seminars (ten days, 40 trainees each) for local consultants, central and regional SPC staff on the practical application of auctions. This training will cover issues such as advertisement of auctions, deposit documentation, bidder registration, conduct and auditing of the auction, standardized sales contract and accounting of payments. Contract Arrangements 5. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the Consultants may reasonably request.  -17- ANNEX 2 TERMS OF REFERENCE TECHNICAL ASSISTANCE IN SUPPORT OF PRIVATIZATION Sub-Component 2: Design and Implementation Assistance for Privatization of Medium and Large Enterprises Obiectives 1. The State Property Committee (SPC) estimates the number of medium- and large- scale state-owned enterprises (SOEs) at two to three thousand; the majority of these will be subject to privatization. The preparatory steps required to bring these SOEs to the point of sale are complex and time-consuming and require careful planning. SPC currently lacks the skills and experience to undertake this task without external assistance. The consulting team will be expected to assist SPC in laying the groundwork for program implementation, provide on-the-job and formal training to central and local SPC staff in each of the required steps, and assist in program implementation for a significant number of the participating enterprises. In addition, policy development will form an important element of the consultants' work program, particularly during the contract's initial phase. Upon departure of the consultants, SPC is expected to be capable of independently carrying out the program to its conclusion. 2. The consultants will assist SPC to establish a database of medium and large SOEs, develop efficient procedures for enterprise registration, establish the legal and financial foundations of enterprise corporatization and provide direct assistance in corporatizing enterprises to be privatized, prepare a sound legal, operational and regulatory framework for investment funds, and organize and conduct share auctions. Activities and Outputs 3. The consultants will undertake activities and deliver outputs as follows: (a) Establishment of Database on Medium- and Large-Scale Enterprises (i) Review and recommend alterations (as necessary) to the Govermnent's criteria for classifying enterprises as small, medium and large; (ii) Document the universe of medium- and large-scale state-owned enterprises at the Republican and municipal levels, assist in the design, installation and maintenance of a central management information system to reliably monitor progress of privatization of medium- and large-scale enterprises by region and sector, and assess data collection capabilities and requirements of local SPC offices necessary to maintain the central database.  -18- (b) Establishment of a Central Share Registry and Depository (i) Review current share registration arrangements for enterprises and assess the possibility of establishing a Central Share Registry and Share Depository and review the need for regional registry offices, as well as their functions and linkages with the Central Share Registry; (ii) Draft legal framework and develop the normative documents, organizational structure, staffing requirements, internal procedures, and specifications for needed software and hardware for the Central Share Registry and Depository; and (iii) Draft founding documents for the Central Share Registry and Depository and assist in their establishment. (c) Legal Basis for Corporatization (i) Review current enterprise registration arrangements and recommend alterations (as necessary) to improve this system; (ii) Review and strengthen the policy and mandatory guidelines on the appointment, institutional affiliation and qualification of members of Board of Directors of corporatized enterprises; (iii) In collaboration with the Legal Provision for Economic Reforms Department of the Ministry of Economy and the legal advisor working under the Private Sector Development, review and propose amendments (as necessary) to the laws on Enterprises, Entrepreneurship, Enterprise Registration, Joint Stock Companies and Securities and Stock Exchanges; and (iv) Review and refine (as necessary) the standard company charters for different legal forms of companies. (d) Actual Incorporation of Enterprises (i) Review and improve (if necessary) the guidelines, standard documents, etc., for the employee share purchase scheme; (ii) In collaboration with the Center for Valuation of State Property, review the valuation methodology applied to medium and large enterprises and assist in introducing a simplified valuation methodology, conduct valuations for a limited number of enterprises requiring valuation methodologies outside the standard, simplified methodology, and assess the Center's staffing and equipment requirements necessary to carry out an accelerated privatization program;  -19- (iii) Provide practical assistance in planning, supervising, and implementing the incorporation of medium and large state-owned enterprises scheduled for privatization in the auction waves that will occur during 1996 and 1997; (iv) Assess current corporatization status and recommend alterations (as necessary), conduct a "spot review" of already corporatized enterprises and determine steps needed for them to conform to new procedures; (v) Strengthen capability of local SPC offices to assist enterprises with incorporation procedures; and (vi) Clarify and strengthen arrangements for the settlement of disputes between enterprises, other physical or legal persons and the authorities over the assignment of assets to the enterprises and over issues relating to registration and other corporatization matters. (e) Establishing the Legal and Operational Framework for Investment Funds (i) Advise and assist in establishing the legal and regulatory framework, as well as disclosure requirements, for investment funds, and assist in establishing the institutional structures and capabilities for monitoring investment funds and enforcing pertinent regulations; (ii) Advise, upon request, on the assessment of investment fund applications and recommended actions to enforce regulations; and (iii) Assist in monitoring investment funds' provision of information to citizens on the results of share auctions and on the funds' portfolio, financial performance and structure. (f) Preparation for Share Auctions (i) Assist SPC and the Privatization Fund in establishing the infrastructure necessary to carry out nationwide share auctions (i.e., bid collection centers and regional and central bid processing centers); (ii) Assist SPC in developing the procedures for use of cash, frozen deposits and wage arrears at auctions; (iii) Develop detailed guidelines and procedures for the conduct of nationwide auctions of shares of medium and large enterprises that ensure an open, competitive and transparent process; (iv) Select enterprises to participate in each auction wave, develop policy and clear criteria for deciding on the retention of minority shares in state ownership and on the nature of these shares (i.e., common or preferred), develop procedures for including state enterprises in any mass privatization  -20- program, provide policy advice on inclusion of enterprises that have already been partially privatized, and provide input on decisions regarding share percentage to be auctioned for each participating enterprise; and (v) Develop guidelines and materials for SPC offices and enterprises to assemble standard information packages about the firms prior to the share auctions and establish and strengthen structures at the central and local SPC offices for assisting enterprises in preparing standard information packages for share auctions. (g) Conduct of Share Auctions and Post Auction Activities (i) Announce auctions and participating enterprises and dispatch information packages; (ii) Develop guidelines on information to be provided by enterprises to interested investors and monitor their implementation; (iii) Provide on-site monitoring, management support and advice on the conduct of share auctions; and (iv) Advise on disputes arising from share auctions. TrainiN2 4. The consultants will implement five training programs under this sub-component: (i) computer training; (ii) corporatization; (iii) share registration; (iv) share auctions; and (v) study tours. (i) Computer Training: Nine days of training will be provided to approximately 80 central and regional SPC staff, including those responsible for small-scale and mass privatization, in addition to senior SPC staff, in data processing, database management and the local consultants employed under the sub-component. Four sessions, with 20 participants per session, will be provided. (ii) Corporatization: The consultants will organize and conduct two workshops (nine days, 40 trainees each) for central and regional SPC staff in the corporatization process and determination of the ownership structure of enterprises. This seminar will address issues such as preparation of standard company charters and founding documents, issuance and registration of shares, enterprise registration and appointment of Boards of Directors. (iii) Share Registration: The consultants will provide on-the-job training for 20 staff of the Central Share Registry and its regional offices. Training will cover internal procedures such as database management, documentation of  -21- shareholders, share transfers, dividend re-investment and security and disclosure requirements. (iv) Share Auctions: The consultants will organize and conduct two workshops (nine days, 20 trainees each) and provide on-the-job training for central and regional SPC staff on the organization and implementation of share auctions. Training will address issues such as advertisement of auctions, preparation of enterprise information packages, bid documentation (in cash and/or non- cash), bid processing, notification of winning bidders, documentation of payment (for cash bids), cancellation of bid instruments (for non-cash bids) and announcement of auction results. (v) Study Tours: The consultants will organize three study-tours abroad for two to three senior SPC staff. These study-tours will focus on privatization techniques and international best practices in privatization. Contract ArranRzements 5. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the Consultants may reasonably request.  -22- ANNEX 3 TERMS OF REFERENCE TECHNICAL ASSISTANCE IN SUPPORT OF PRIVATIZATION Sub-component 3: Design and Implementation Assistance for Mass Privatization Background 1. The new legislative framework governing privatization provides for introducing a mass privatization program. The Government has not yet made a decision as to whether such a program is appropriate for Tajikistan, but financing has been set aside for this component in the event that the Government determines that mass privatization is necessary and desirable. (The consultants financed under Privatization Sub-Component 2 of this project would be expected to expand the scope of their activities and augment the size and composition of their team to service this Sub-Component; their contract proposals shall reflect this contingency and will be evaluated accordingly.) 2. Preparation and design of the privatization program in Tajikistan over the coming months will also be affected by two other recent developments. First, wages of state employees went unpaid from end 1993 to May 1995. Second, all Russian ruble bank accounts were frozen in May 1995 upon introduction of the Tajik ruble. To resolve the debt owed by the state to citizens, the new legal framework for privatization provides for converting wage arrears and frozen savings accounts either into cash (at the rate of 1 Tajik ruble for 1,200 Russian rubles), or into "privatization checks' (at a more favorable rate of exchange of 1:100). The "checks" will be denominated and freely tradeable and can be used to purchase physical assets, shares of enterprises to be privatized or placed with an investment fund. 3. One important technical question remaining is whether there will be sufficient effective demand for the supply of privatized assets. If all wage arrears and frozen accounts were converted to "privatization checks", SPC estimates the total value to be no more than 1-3 percent of the book value of the assets to be privatized. Furthermore, given an unstable macro-economic environment with high inflation, there is little additional savings available to absorb the volume of assets to be offered. This raises the question of whether an additional financial instrument (such as vouchers or special deposit accounts) should be introduced to help absorb the assets supply. Objectives 4. As a priority, the consultants assisting State Property Committee (SPC) under Privatization Sub-Component 2 of the proposed project will assess the need for a mass privatization program in Tajikistan and advise the Government accordingly, taking into consideration such factors as: the costs associated with introducing a new instrument; assets supply; the pricing of these assets; the relationship of mass privatization methods to other sales mechanisms (such as cash auctions and the role and impact of "privatization checks"); the need for rapid sale of enterprises; the domestic financial resources available to potential buyers (i.e., effective demand); potential foreign  -23- investment; equity of existing privatization methods; social conditions; and institutional capabilities. Based upon this assessment, the consultants should advise SPC on the most appropriate mechanism or instrument to be introduced, if any. Should a mass privatization program be adopted, the consultants would be expected to assist SPC to rapidly establish the policy, legal, institutional and technical foundations of the program and provide direct support in its implementation. Activities and Outputs 5. The consultants will undertake activities and deliver outputs as follows: (i) Assist SPC in developing program policy and design for mass privatization, including institutional arrangements, the nature of the specific instrument to be introduced (e.g., vouchers, special deposit accounts, etc.), procurement sources for the instrument (if necessary), criteria for who is to receive the new instrument, denomination or non-denomination of the instrument, fungibility of the instrument (i.e., tradability, use for purchase of SOE shares and/or physical assets, use for purchase of investment fund shares, etc.), and criteria for participating enterprises; (ii) Assess the equipment requirements for implementing the mass privatization program in light of what has been allocated under this sub-component; (iii) Advise SPC on methodologies for compiling lists of citizens eligible to receive the mass privatization instrument, provide assistance in computerizing these lists and mechanisms for "cleaning" the database (i.e., eliminating double and erroneous entries, etc.), and assist in resolving logistical problems of data collection, entry and checking of database; (iv) Advise SPC on distribution options for the mass privatization instrument (e.g., through savings banks, post offices, etc.), including security measures and assist in resolving logistical problems of distribution; (v) Assess the possibility of using the national share auction network developed under item (e) (iii) of Sub-Component 2 to implement nationwide mass privatization auctions and adapt this network as necessary; (vi) Develop the methodology for clearing bids (i.e., establish the rate of exchange of instruments for shares based upon supply and demand for each enterprise); (vii) Assist SPC in implementing the mass privatization program for a significant percentage of participating enterprises; and (viii) Develop a mechanism for cancelling the instruments.  -24- Training 6. Training for mass privatization will involve three components: (i) a policy seminar; (ii) a workshop on implementation of mass privatization; and (iii) on-the-job training. (i) Policy Seminar: The consultants will organize and conduct a three-day policy seminar on mass privatization for approximately 40 Tajik officials, including senior SPC staff, members of the cabinet, ministries and Parliament. This seminar will address issues such as mass privatization techniques, purpose and objectives of mass privatization, and the role of public information. (ii) Workshop on Implementing Mass Privatization: The consultants will organize and conduct two workshops (twenty days, 30 trainees each) for mid-level central and regional SPC staff on implementing mass privatization. This workshop is intended to familiarize SPC staff with the organization and implementation procedures of mass privatization auctions, such as procedures for distributing bid instruments, the bidding network, receipt and verification of bid documents, processing bid documents, methodology for calculating auction results, notification of winning bidders, cancellation of the bid instrument and announcement of auction results. (iii) On-the-Job Training: The consultants will conduct on-the-job training for 40 central and regional SPC staff in managing the mass privatization process. Contract Arrangements 7. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the Consultants may reasonably request.  -25- ANNEX 4 TERMS OF REFERENCE TECHNICAL ASSISTANCE IN SUPPORT OF PRIVATIZATION Sub-Component 4: Public Information in Support of Privatization Objectives 1. Successful privatization requires that the public be well informed about the objectives of the privatization program, the nature of the process, the opportunities available and the rules for participation. This Sub-Component is intended to provide this information to the public and to identify and correct inevitable misconceptions about the program and process. Consultants will be provided to assist State Property Committee (SPC) to assess public knowledge of the program, develop a comprehensive public information strategy and implement that strategy. Of particular importance is the need to ensure that the public is aware of the introduction of "privatization checks," who is eligible to receive them, and how, when and where these "checks" are to be used. Further, this Sub-Component will take on additional importance should the Government decide to adopt a mass privatization scheme, the successful implementation of which relies, to a large extent, upon providing accurate and timely information to the public at large. Activities and Outputs 2. The consultants working under this Sub-Component will undertake activities and deliver outputs as follows: (i) Develop and implement a public information research and development program to assess public knowledge and perceptions regarding privatization. This should include qualitative research (focus groups) and quantitative research (public opinion surveys). The research should serve both as a basis for developing a public information strategy and, through regularly scheduled focus group sessions and periodic surveys, for tailoring the campaign to improve its effectiveness; (ii) Develop and implement a comprehensive national public information strategy to support the privatization program (including television, radio and print advertising), oversee and coordinate the design, production and dissemination (including media buying) of advertising to support the public information strategy through various media, and oversee and coordinate the design, production and dissemination of collateral materials (such as posters, brochures and educational materials); and (iii) Organize and help implement special events, such as public exhibitions and seminars for key public officials, in order to educate the public and major stakeholders about the privatization process.  -26- Contract Arrangements 3. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Govermnent and local bodies; and (vi) any other assistance not readily available that the Consultants may reasonably request.  -27- ANNEX 5 TERMS OF REFERENCE TECHNICAL ASSISTANCE IN SUPPORT OF PRIVATIZATION Sub-Component 5: Options for the Role and Privatization of Glavchlopkoprom Objectives 1. The main objective of this sub-component is to liberalize the public sector's control of processing and marketing channels. Decontrolling public sector monopolies is not without risks, foremost of which is that a lack of competition will allow formerly public institutions to operate as private monopolies. To minimize this risk, the Government plans to conduct a study for the privatization of the cotton marketing authority (Glavchlopkoprom) and the privatization of the ginneries currently under the control of the cotton marketing authority. Activities and Output 2. The consultants are expected to: (i) describe and assess the legal framework and mandate that governs Glavchlopkoprom; (ii) identify options for modifying the legal framework in order to improve the processing and marketing services available to cotton producers; (iii) provide a detailed description of the cotton processing operations of Glavchlopkoprom, including an assessment of the cost, efficiency, volume and management of the ginneries Glavchlopkoprom operates; (iv) provide a detailed description of Glavchlopkoprom's domestic and international cotton marketing operations, including an assessment of their efficiency with respect to optimizing the price received for cotton fiber; (v) identify, within the context of liberalized cotton processing and marketing channels and in the light of international experience in the cotton sector, options for the role and operation of Glavchlopkoprom. Particular attention should be paid to the following issues: (a) the appropriate size of future operations; (b) the appropriate degree of vertical integration for Glavchlopkoprom; (c) the ability of Glavchlopkoprom to compete with private sector cotton processing/marketing enterprises; and (d) the most appropriate mechanisms for financing Glavchlopkoprom operations.  -28- (vi) identify and assess, based on international experience and Tajikistan's particular circumstances, options for providing research and extension services to cotton producers (particular attention should be paid to identifying options for financing these services); (vii) assess the feasibility of levying a processing tax on cotton fiber at the ginnery as an alternative to existing taxes and as an alternative to an export tax; and (viii) identify the appropriate production and international marketing strategy for the sector to pursue in order to maximize profits, given the characteristics of the cotton producing sector in Tajikistan. 3. Based on the analysis and conclusions that emerge from the above analysis, the consultants should identify several options for the Government's role in the cotton sector, with particular emphasis on the changes in Glavchlopkoprom that will be necessary to achieve any of the options. Among the options identified should be the: (a) evolution of Glavchlopkoprom into an agency to operate the cotton exchange and (b) the complete privatization of Glavchlopkoprom. Following the presentation of these options to the Government, the Government will, in consultation with IDA, specify one or two of these options to be developed in detail. Contract Arrangements 4. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the consultants may reasonably request.  -29- ANNEX 6 TERMS OF REFERENCE TECHNICAL ASSISTANCE IN SUPPORT OF PRIVATIZATION Sub-Component 6: Implementing the Farm Restructuring Program Objectives 1 . The lack of sufficient arable land in Tajikistan means that agricultural growth will mainly depend on increased efficiency and intensification of land use. The main objective of this sub-component is to assist the Government with converting land currently under the control of state and collective farms into small-scale, privatized farms. Activities and Output 2. The consultants are expected to work closely with Government officials to: (i) identify and propose changes in existing laws and/or the Constitution that are needed to ensure the integrity and security of private property, e.g., land, buildings and equipment; (ii) identify and propose changes in existing laws that are needed to ensure secure land access rights and full transferability of access rights for individuals leasing land; (iii) prepare an inventory of land to be restructured; (iv) specify detailed implementation mechanisms for the farm restructuring program. The core of this methodology should: (a) specify transparent criteria for selecting individuals/families to receive land and/or other assets; (b) determine eligibility, amount and form of compensation to be paid/transferred to those who do not receive land; (c) ensure that the reallocation of farm assets is voluntary and acceptable to the intended beneficiaries; (d) ensure inheritability of land access rights; and (e) ensure the complete transferability of land under lifelong inheritable leases. (v) assess the development of a land registry program so that those with land access rights can use these rights as collateral;  -30- (vi) identify the collective farms' centralized functions (e.g., procurement of inputs, output marketing, record keeping) that need to be performed by an Agricultural Services Center; (vii) specify the mechanisms for establishing the Agricultural Services Center, including the financing of its operations, its role vis-a-vis farmers and farmer associations, and its role vis-a-vis the Government, including public sector research and extension services; (viii) develop a methodology for forming voluntary farmer associations. The core of this methodology must require: (a) a constitution for each association specifying the rights and obligations of all members; (b) the democratic selection of officers; and (c) an exit mechanism for members wishing to leave the association. (ix) prepare an estimate of the cost of the farm restructuring program; and (x) prepare a timetable for the farm restructuring program that ensures that 75 % of land currently under the control of state and collective farms will be redistributed to leaseholders. Contract Arrangements 3. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the consultants may reasonably request.  -31- ANNEX 7 TERMS OF REFERENCE FINANCIAL SECTOR DEVELOPMENT Sub-Component 7: Legal Assistance Obiectives 1. The legal framework for the National Bank of Tajikistan (NBT) and the commercial banking system are described in the Law on the NBT (February 1991) and the Law on Banks and Banking Activity (December 1993). These laws lay the foundation for a two-tier banking system. The NBT is aware of serious weaknesses in the current legal framework, which it intends to address. The IDA will provide assistance through consultants specialized in general banking law. Activities and Output 2. The consultants will: (i) Advise the NBT on re-drafting the present law on banks and banking activity, propose amendments to draft legislation currently under preparation and advise the authorities so that they are able to introduce a law on banking that will support the development of banking activity in Tajikistan while being fully consistent with international practice. (ii) Ensure that the banking law includes: (a) definitions of banks and banking operations; (b) licensing process to engage in banking and/or financial business activities; (c) banking requirements (management, prudential, accounting and reporting requirements ); (d) the means of enforcing the legal and regulatory provisions on banking activities (role and power of regulatory and supervisory authorities), sanctions, appeal procedures; and (e) measures aimed at protecting depositors and creditors and strengthening banker-customer relations. (iii) Coordinate closely with the legal advisor provided by the IMF, thereby ensuring consistency between the revised legal framework for banks and the revised law on the NBT.  -32- Training 3. The consultants will organize two seminars and workshops, each for a period of ten days, for the management and staff of the legal department of the NBT and commnercial banks in order to review the implications of the new law and the relations between the NBT and the banks and enterprises. Contract Arrangements 4. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the consultant in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the consultants may reasonably request.  -33- ANNEX 8 TERMS OF REFERENCE FINANCIAL SECTOR DEVELOPMENT Sub-Component 8: Assistance in Accounting and Auditing Reform Obiectives 1. The major aim of this sub-component is to revise the banking sector's current accounting framework to a system consistent with International Accounting Standards. The consultants will work closely with the National Bank of Tajikistan (NBT) in designing the revised accounting framework. An accounting instruction manual will be developed and management and staff of NBT and the banking system will be trained to implement the new accounting system. The system will be implemented according to a timetable to be discussed by the consultants, including in the first instance two larger banks as pilot banks for the system. Activities and Output 2. The consultants will: (i) review current accounting principles for banks in Tajikistan with a view to reconstituting the whole accounting framework so that it is consistent with International Accounting Standards (IAS); (ii) revise the accounting framework used by the NBT consistent with international practice regarding Central Bank accounting practices and with the proposed new accounting framework for the Tajik commercial banking sector; (iii) introduce new accounting principles and standards; (iv) develop, in close cooperation with the NBT, charts of accounts unique to the needs of each financial institution, as well as minimum reporting and disclosure requirements and formats; (v) develop an accounting instruction manual to be made available to the banks, hold on-the-job training sessions for NBT management and staff, and train bank accounting managers and staff as well as representatives of the Ministry of Finance and the State Tax Committee; (vi) develop reporting formats for disclosing accounting and regulatory information to the NBT; (vii) implement the accounting framework on a pilot basis in two of the large sectoral banks and prepare and implement detailed on-the-job training for management and staff;  -34- (viii) assist in the design and promotion of a program for establishing a Tajik accounting association, where accounting issues can be discussed and resolved; and (ix) assist the banks by making available computer-based accounting packages and advise on banks' software and hardware needs for accounting purposes. Training 3. Besides on-the-job training, a more formal training in the form of workshops and seminars (totalling about 2 months of intensive training) is envisioned, introducing and illustrating all aspects of the new accounting system. Management and staff of the accounting and auditing departments of the NBT and commercial banks will be trained to understand the differences between the current accounting procedures and the International Accounting System. Modern technology will be applied to illustrate both systems and the changes to be undertaken. Contract Arrangements 4. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the Consultants may reasonably request.  -35- ANNEX 9 TERMS OF REFERENCE FINANCIAL SECTOR DEVELOPMENT Sub-component 9: Assistance in Bank Audit Reports Objectives 1. The major objective of bank audit reports is to review the structure and operations of the four major sectoral banks and make recommendations for reforming and restructuring these operations. The auditors will work closely with the banks' management to improve their knowledge of market-based banking activities and their insight into the necessary restructuring of the banks' activities. Audit reports should be based on the new accounting system, according to International Accounting Standards (IAS). Scope of Reports 2. The auditors will provide and use long form audit reports. The reports will include the total package of Financial Statements for year-end, an assessment of internal controls and procedures and specific recommendations to improve all operational matters the auditors find during the course of performing the audits. Scope of the Audits 3. The required audits will place particular emphasis on the following: (i) Portfolio Assessment The audits will include a systematic evaluation of the large enterprises and a sample evaluation of smaller enterprises to cover, at a minimum, all loans greater than 1 % of the value of the loan portfolio, 50% of the remaining Tajik rouble portfolio, by value, and 50% of the remaining foreign currency portfolio, by value. The portfolio audits will include visits to a number of significant borrowers whenever the information available at the bank level is not sufficient to enable the auditor to carry out a proper assessment. (ii) Investment Portfolio The auditors will assess the equity portfolio and the reasonableness of the values reported on the balance sheet. In assessing the equity portfolio, particular attention will be given to the bank's objectives and policies in making equity investments. The relationship (ratio) between total equity investments and the bank's own net worth and the reasonableness thereof must be assessed.  -36- (iii) Liquidity and interest mismatches The liquidity position included in the Financial Statements will be assessed by the auditors, taking into account roll over and rescheduled (longer terms than initially decided) loans. Any interest mismatch will be reported and explained. (iv) Capital Structure The shareholders' structure will be described and the following questions answered: Is capital growth funded by internal cash generation or capital contribution? In case of capital contribution, is it cash (Tajik rouble, hard currency) or real assets? In case of real assets, has a reliable third party valuation been provided? (v) Guarantees The auditors will assess the guarantees, considering the Bank as recipient and issuer. (vi) Capital Adequacy The auditors will assess the adequacy of capital on the format provided to them, as well as the capacity of the bank to: (1) maintain a core capital to risk-adjusted assets ratio of 4% and a total capital to risk-adjusted assets ratio of 8%; and (2) maintain minimum equity capital of Tajik rouble 10 million. (vii) Financial Solvency and Profitability The auditors will give particular attention to: (1) breakdown and analysis of the banks' operating costs; (2) assessment of the reliability and composition of reported bank earnings, with special emphasis on the extent to which accrued but uncollected interest on non-performing loans is taken into income and the relative shares of operating and non-operating income; (3) demonstration of financial solvency and profitability, as measured by net income before dividends, providing a positive return on assets. (viii) Managerial Autonomy The auditors will assess managerial autonomy through: (a) source of funds; (b) legal and ownership structure; (c) composition and locus of authority to appoint the Board of Directors; (d) management and staff selection and promotion policies and practices; and (e) loan approval procedures (equal treatment of shareholders and non- shareholders and the absence of shareholders on the credit committee)  -37- Training 4. The consultants will provide one month of training, which will concentrate on familiarizing the local consultants assigned to review each bank and the staff of the NBT and the banks with the international accounting system. The resident expatriate consultants will explain the main characteristics of IAS. They will elaborate on the banks' accounts that must be particularly scrutinized and transformed into IAS, how the findings must be presented, what conclusions can be drawn and what recommendations can be made. Each of the four resident expatriate consultants will work closely with one local consultant in one of the four major banks (3 months). After the audits have been completed, the team will prepare reports (1 month) and at the same time, introduce their work to the management of each bank in several working meetings. Contract Arrangements 5. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the auditors in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the auditors may reasonably request.  -38- ANNEX 10 TERMS OF REFERENCE FINANCIAL SECTOR DEVELOPMENT Sub-Component 10: Assistance in Bank Supervision and Regulation Objectives 1. A major upgrade of the bank supervision and regulation in Tajikistan is called for. The supervisors' authority needs to be clearly defined in the new banking legislation. The norms currently used to regulate bank activities do not measure ,he banks' economic viability and require thorough revision. Licensing of new banks needs to be encouraged, but the licensing framework should be designed to avoid establishing poorly-run and undercapitalized banks. The focus should be on establishing stable institutions, so as to enhance the process of financial re-intermediation. The main objective is to train National Bank of Tajikistan (NBT) staff on bank supervision and regulations and implement effective supervision of the banking system. The IMF has drafted the Law on the NBT and has had preliminary discussions on supervision issues with NBT officials. The proposed sub-component will provide consultants, specialized in Central Bank supervision, who in close cooperation with the IMF, will help organize a supervision department and advise and train its management and staff. The consultants' main emphasis will be to familiarize the commercial banking community with the revised NBT supervision requirements. Activities and Output 2. The consultants will: (i) advise on up-grading the organizational structure of the supervision department (both in NBT's Dushanbe office and at its regional branches), making it possible to train and keep qualified staff; (ii) advise on establishing routine on-site bank supervision practices according to international standards, including procedures for the systematic evaluation of credit policies, lending practices, loan classification and write-off policies; and (iii) advise on the complete revision of off-site supervision practices, including replacing the "economic normatives" used by the NBT with internationally recognized prudential and capital standards, introducing a manual on bank reporting requirements and improving reporting techniques and practices. Training 3. The consultants will provide on-the-job training regarding all aspects of bank supervision and regulations. They will also provide training for the NBT staff, designed primarily to improve the Bank's knowledge of on-site supervision techniques. It is envisaged that the consultants, together with NBT staff, will undertake pilot on-site supervision of 5 banks, as well as  -39- more formal training in the form of workshops and seminars (totalling about 2.5 months of intensive training) for all members of the supervision department to improve understanding of the economic significance of the revised off-site norms adopted by the NBT. Contract Arrangements 4. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the consultants may reasonably request.  -40- ANNEX 11 TERMS OF REFERENCE FINANCIAL SECTOR DEVELOPMENT Sub-Component 11: Assistance in the Payments System Obiectives 1. The Tajik payments system is based on courier transport and manual processing of clearing documents and payments. All interbank settlement takes place through branches of the National Bank of Tajikistan (NBT), but the process is slow. The settlement of payments between branches in different regions of the country takes up to 7 working days. While some modem-based reporting has been introduced to communicate correspondent balances, banks are still required to have positive end-of-day balances on their correspondent accounts with the NBT on a region-by- region basis. The objective of this sub-component is to describe in detail the current payments system. The consultants will then undertake a feasibility study for introducing a more efficient payments mechanism to minimize settlement delays while limiting payments system risks. Introducing a new payments system is necessary, both to allow banks to manage their liquidity efficiently and to enable enterprises to assume full responsibility for their own treasury functions. Activities and Output 2. The consultants will: (i) describe the current payments infrastructure to identify the priorities for improvement and provide a full analysis of risks inherent in the current structure and how these will be gradually reduced; (ii) provide the conceptual framework for a revised payments system, define methods to reduce or eliminate payments and settlement risks (embracing the principle of gross settlement) and establish routines for clearing both large and small value payments; (iii) based on current and planned development of the telecommunications infrastructure in Tajikistan, undertake a feasibility study of the proposed payments system, including hardware and software needs, focusing on realistic, stage-by-stage implementation; and (iv) describe detailed requirements, on a stage-by-stage basis, for computer and telecommunications equipment and data transmission software to implement the revised payments system.  -41- Training 3. The consultants will provide training (of six weeks duration) for the NBT staff on the conceptual framework of the proposed payments system. Contract Arrangements 4. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the consultants may reasonably request.  -42- ANNEX 12 TERMS OF REFERENCE PROCUREMENT ADVISOR Profile of the Procurement Advisor 1. The Procurement Advisor will be responsible for assisting the Director and Deputy Director of the Project Implementation Unit (PIU) and the Beneficiary Agencies in carrying out procurement functions in accordance with the procurement procedures outlined under the proposed credit and specified in the Credit Agreement with the Borrower. The term "Procurement Advisor," is used to mean expert staff from a specialized firm or an individual with experience in procurement procedures, international commercial practices and use of consultants' services in accordance with World Bank guidelines. Responsibilities of the Procurement Advisor 2. The Procurement Advisor will: (i) organize and coordinate activities with the Director and Deputy Director of PIU and the representatives of the Beneficiary Agencies and ensure timely action in all phases of project implementation; (ii) advise Beneficiary Agencies on World Bank methods and procedures for selecting consultants and procuring equipment financed under the proposed project, including assistance in preparing bidding documents and other related matters: (iii) assist in bid openings, including evaluation and recommendation for awarding contracts; (iv) assist ensuring that proposed contract awards meet the project's criteria and objectives; (v) help to monitor overall project implementation progress; (vi) assist in managing overall accounting and auditing of project accounts; and (vii) help in preparing progress reports and a project completion report. 3. To procure consultants' services in accordance with " The Bank Guidelines for Use of Consultants by World Bank Borrowers" and by the IDA as Executing Agency, the Procurement Advisor will assist the PIU and the Beneficiary Agencies in: (i) Arranging invitations and providing information to interested consultants;  43- (ii) Preparing documents for the selection of consultants that comply with Bank requirements, including reviewing Terms of Reference with appropriate adjustments to suit each agency's requirements; and seeking approval of documents from the World Bank that involve discussions and meetings; (iii) Distributing documents to prospective bidders; (iv) Inviting bids/proposals; (v) Providing clarifications in response to potential bidder's questions; (vi) Conducting the bid opening process and preparing the minutes of bid opening; (vii) Evaluating the Consultants' offers and submitting a bid evaluation report to the Bank with award recommendation, providing any clarification or analysis required by the financing agency; and (viii) Finalizing the contract in accordance with the Standard Form of Contract for Consultants' Services issued by the Bank. 4. For non-ICB procurement, the Procurement Advisor would assist the PIU/Beneficiary Agencies in the appropriate procedures specified in the Credit Agreement, including: (i) Soliciting written quotations from a list of potential suppliers broad enough to secure competitive prices and stating the results in writing; evaluating quotations and negotiating the resulting contracts; (ii) Soliciting quotations on sole-source basis after required approvals and negotiating with supplier for spare parts or other proprietary items at reasonable cost; and (iii) Placing purchase orders and contracts with selected suppliers, including follow-up for delivery of goods according to schedule. 5. If necessary, for procurement conducted according to International Competitive Bidding (ICB) procedures, the Procurement Advisor will assist the PIU and the Beneficiary Agencies in the ICB procurement procedures. 6. The Procurement Advisor will assist the PIU/Beneficiary Agencies in the area of contract administration services by: (i) Collecting documentation, such as inspection certificates, certificates of origin (manufacturers), suppliers' guarantees, bills of lading, beneficiary insurance certificates and manufacturers' invoices;  -44- (ii) Maintaining in coordination with the PIU, accounting and financial management and handling warranty and insurance claims; and, (iii) Assisting in the preparation of withdrawal applications, with the required supporting documentation, and arranging payments to suppliers through the PIU. 7. The Procurement Advisor will also undertake the following tasks: (i) Train the Borrower's staff in intemational commercial practices and World Bank Procurement Procedures, including familiarization with the Bank's sample bidding documents so that the Borrower's staff can eventually handle the procurement work; (ii) Advise the PIU in collecting and translating into English local procurement laws, regulations and commercial practices to enable the preparation of a Country Procurement Assessment Report for Tajikistan, and recommend improvements to existing regulations and practices, within the framework of intemational procedures and trading practices; (iii) Other procurement related activities of the project requested by the Borrower and approved by the World Bank. Reports 8.. The Procurement Advisor will submit periodic reports to the Government of Tajikistan, as follows: (i) An Inception Report, within one month of work beginning in Dushanbe, describing the proposed program of assistance in procurement and training; (ii) Subsequent reports every two months thereafter and a Final report on conclusion of the work, including a draft Country Procurement Assessment Report based on the Bank's outline; and (iii) Five copies of each report will be submitted in English and Russian to the Government of Tajikistan and one copy of the English version will be submitted to the Word Bank, through the Government.  -45- Contract Arrangements 9. Prior to issue of invitation to bid, the Sub-Component Beneficiary Agencies, in consultation with IDA, will review the TOR and include such details as the recruitment of local consultants, the duration of assignments, counterparts, required qualification, experience and background and language proficiency. The TOR will also indicate assistance to be provided to the consultants, such as: (i) administrative assistance in obtaining visas, custom clearance and any other administrative permits required by the Consultants in the performance of the assignment; (ii) existing data, maps, studies; (iii) office space, secretarial and other staff in Dushanbe; (iv) transport; (v) liaison with Government and local bodies; and (vi) any other assistance not readily available that the Consultants may reasonably request.  -46- ANNEX 13 REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Office Equipment Financing Components Computer Printer Photocopier Fax Machine Cost (thousands of U.S. dollar) 1. Privatization 45 17 2 10 166 a. Small-Scale 10 5 - 4 55 b. Medium- and Large-Scale 15 4 2 1 35 c. Mass Privatization 21 4 - 1 47 d. Public Information - - - - e. Cotton Marketing Authority - - - - f. Farm Restructuring 10 4 - 4 29 2. Financial Sector 52 16 9 - 116 g. Legal Assistance 2 1 - - 5 h. Accounting and Auditing 20 5 3 - 47 i. Bank Audit Reports - - - - j. Bank Supervision 30 10 6 - 64 k. Payment System - - - - - 3. Project Implementation and other Technical Assistance 9 3 7 1 18 TOTAL 106 36 18 11 300  Schedule A Page 1 of 2 REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Detailed Project Costs (thousands of U.S. dollars) Foreign Component Costs Costs as % of as % of Cost Components Local Foreign Total Total Costs Total Costs 1. Privatization 223 2225 2448 91 45 a. Small-Scale 30 299 329 91 6 b. Medium- and Large-Scale 71 708 779 91 14 c. Mass Privatization 39 386 425 91 8 d. Public Information 20 204 224 91 4 e. Cotton Marketing Authority 10 97 107 90 2 f. Farm Restructuring 53 531 584 91 11 2. Financial Sector 184 1939 2134 91 39 g. Legal Assistance 11 107 118 91 2 h. Accounting and Auditing 80 903 983 92 18 i. Bank Audit Reports 48 482 530 91 10 j. Bank Supervision 28 275 303 91 6 k. Payments System 17 172 189 91 3 3. Other Technical Assistance 27 231 258 90 4 4. Project Implementation 16 140 156 90 3 5. Price Contingencies 50 465 515 90 9 TOTAL PROJECT COSTS 500 5000 5500 90 100  Schedule A Page 2 of 2 REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Financing Plan (thousands of U.S. dollars) IDA Financing Total as % of Local Foreign Total Project Project Financing Components GOT IDA IDA GOT IDA Cost Cost 1. Privatization 223 62 2163 223 2225 2448 91 a. Small-Scale 30 12 287 30 299 329 91 b. Medium- and Large-Scale 71 30 678 71 708 779 91 c. Mass Privatization 39 10 376 39 386 425 91 d. Public Information 20 2 202 20 204 224 91 e. Cotton Marketing Authority 10 1 96 10 97 107 91 f. Farm Restructuring 53 19 512 53 531 584 91 2. Financial Sector 184 28 1911 184 1939 2134 91 g. Legal Assistance 11 2 105 11 107 118 91 h. Accounting and Auditing 80 15 888 80 903 983 92 i. Bank Audit Reports 48 2 480 48 482 530 91 j. Bank Supervision 28 7 268 28 275 303 91 k. Payments System 17 2 170 17 172 189 91 3. Other Technical Assistance 27 - 231 27 231 258 90 4. Project Implementation 16 - 140 16 140 156 90 5. Price Contingencies 50 - 465 50 465 515 90 TOTAL PROJECT FINANCING 500 90 4910 500 5000 5500 90  Schedule B Page 1 of 2 REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Summary of Proposed Procurement Arrangements (thousands of U.S. dollars) Procurement Method Project Element IS Other Total Goods 300a/ 300 Computers and related (300) (300) equipment Consultancies, Other Technical Expert Assistance and Training -- 4700b' 4700 -- (4700) (4700) Total 300 4700 5000 (300) (4700) (5000) Note: Numbers in parentheses are amounts to be financed by IDA. a/ International Shopping b/ Consultant Services, according to "The Guidelines for the Use of Consultants by the World Bank as Executing Agency," published by the Bank in August 1981.  Schedule B Page 2 of 2 REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT IDA Disbursements (thousands of U.S. dollars) Category Amount % of Expenditures to be Financeda' Consultants' services and training 4700 100% of expenditures. Computers, equipment and other goods 300 100% of foreign expenditures, 100% of local expenditures (ex-factory costs), and 75% of expenditures for other items procured locally. Total 5000 a/ All expenditures to be financed will be net of taxes. Estimated IDA Disbursements (millions of U.S. dollars) FY97 FY98 FY 99 FY 2000 Annual 1.0 1.5 1.5 1.0 Cumulative 1.0 2.5 4.0 5.0  Schedule C REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Timetable of Key Processing Steps Time taken to prepare: (a) Project prepared by: Government, with the assistance of World Bank staff (b) Preparation/Pre-appraisal: October - November 1995 (c) Appraisal mission: January 1996 (d) Negotiations: March 1996 (e) Board presentation: May 1996 (f) Planned date of effectiveness: June 1996 (g) Expected project completion: May 2000 Responsibility for Project Preparation Task Manager : M.R. Ghasimi (EC3Cl) Project Team : S. Bell (PSD); M. Fuchs, N. Minners (EMTPS) Division Chief : M. Gould (EC3AI) Department Director : Y. Huang (EC3) Regional Vice President : J. Linn (ECA) Peer Reviewers . M. de Nevers (LA2EU); 0. Ruhl (EC4C2)  Schedule D REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Implementation Plan Component Responsible Agency Timing Privatization a. Small-Scale SPC February 96 - July 97 b. Medium- and Large-Scale SPC February 96 - February 98 c. Mass Privatization SPC September 96 - December 98 d. Public Information SPC September 96 - December 97 e. Cotton Marketing Authority MOA May 96 - December 97 f. Farm Restructuring MOA May 96 - December 97 Financial Sector g. Legal Assistance NBT March 96 - March 97 h. Accounting and Auditing NBT March 96 - December 98 i. Bank Audit Reports NBT March 97 - December 99 j. Bank Supervision NBT March 97 - December 99 k. Payments System NBT March 97 - December 99 Project Implementation PIU January 96 - May 2000  Schedule E REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TEC HNICAL ASSISTANCE PROJECT Cost Estimates by Major Contract and Schedule of Critical Procurement Steps (thousands of U.S. dollars) Component Contract Type Procurement Method Prepare Bid Issue Bid Sign Contract and Base Cost Invtation Doumment Contract PRIVATIZATION Assistance to SPC Consulting/Training 1,630 Short list of firms Feb. 1996 May 1996 Aug. 96 Assistance to MOA Consulting/Training 666 Short list of firms May 1996 July 1996 Oct. 96 SUBTOTAL 2,296 FINANCIAL SECTOR Legal. Accouning and Audit Reports Consulting/Tmining 1,605 Short list of fums Mar. 1996 May 1996 Aug. 96 Bank Supervision and Payments System Consulting/Training 428 Short list of firns Mar. 1997 July 1997 Sept. 97 SUBTOTAL 2,033 Project Implementation and Other Technical Consulting/Training 371 Short list of individuals(timing to be determined) Assistance OFFICE EOUIPMENT Goods 300 International Shopping May 1996 July 1996 Aug. 96 TOTAL 5,000  Schedule F REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Supervision Plan Approximate Stafff Staff Dates Activities Composition Weeks 05/96 Project Launch Workshop Task Manager, Procurement, 7 Disbursement and Component Specialists 02/96 - Preparation of consultant bid and equipment bid Task Manager, 15 08/96 packages. Procurement and Component Specialists 01/97 - Review training program. Task Manager 6 07/97 03/97 - Review work progress on all components and Task Manager and 10 09/97 finalize timetables for completion of all components. Component Specialists 11/97 Review Diagnostic Studies and Privatization Program. Task Manager and 5 Component Specialists 03/98 Mid-term review. Task Manager and 10 Component Specialists 06/98 Review privatization Component. Task Manager and 7 Component Specialists 11/98 Review payments system and supervision Task Manager and Financial Specialist 6 05/99 Review financial sector components and Privatization. Task Manager 7 Component Specialists 12/99 Supervision of disbursement and ftnal report Task Manager 12 Disbursement Specialist 85  Schedule G Page 1 of 3 REPUBLIC OF TAJIKISTAN INSTITUTION BUILDING TECHNICAL ASSISTANCE PROJECT Performance Monitoring Indicators Component: Privatization Objectives: a) Increase efficiency of enterprises b) Strengthen country's institutional capacity to sustain reform c) Reduce fiscal burden on Government Input Indicators Process Indicators Output Indicators J Impact Indicators i) Consultancy services to assist i) Bids to provide consultancy i) Public information strategy i) Improved enterprise sector in development of policy, services invited; developed and operational; efficiency as measured through strategy and implementation of ii) Bids received and evaluated; ii) 3,500small enterprises a reduction in unit cost of the privatization program; and iii) Contracts for consultancy privatized from July 1996 to production and increase in the ii) Consultancy services, training services awarded; December 1997; quantity and quality of output; and equipment to increase SPC iv) Process of establishing legal iii) 275 medium and large ii) Strengthening of Government capacity to independently and regulatory framework enterprises privatized from capacity through improved implement the privatization started; January to December 1997; technical understanding of program. v) Process of establishing and privatization process; databases for (a) small-scale iv) Corporatization of medium iii) Reduced net financial flows SOEs and (b) medium- and and large enterprises not from Government to the public large-scale SOEs started; privatized. enterprise sector (on the vi) Development and official condition that financial flows approval of competitive and to enterprises remaining in the transparent auction and tender public sector will not increase procedures initiated; to offset the reduction to vii) Auction has become privatized enterprises); and operational nationwide; and iv) Increased speed of the viii) Enterprise and share auctions privatization program from 7 started. percent of small-scale enterprises to 50 percent from July 1996 to December 1997 and from a minimal percentage of medium and large enterprises to 14 percent from January to December 1997.  Schedule G Page 2 of 3 Component: Farm Restructuring and Demonopolization of Cotton Processing and Marketing Channels Objectives: a) Increase farm efficiency b) Strengthen country's institutional capacity to sustain reform c) Liberalize public sector control of cotton sector d) Reduce fiscal burden on Government |Input Indicators Process Indicators Output Inidicators | Impact Indicators i) Consultancy services, training i) Bids to provide consultancy i) Reports containing i) Improved farm efficiency as and equipment to prepare services invited; recommendations on the measured through reduction in unit studies of farm restructuring ii) Bids received and evaluated; design and cost of production and increase in and privatization of the cotton iii) Contracts for consultancy implementation of a farm the quantity and quality of marketing authority and services awarded or advisors restructuring strategy agricultural output; ginneries under its control. appointed; ready; and ii) Capacity enhancement of the MOA iv) First draft of studies ii) Options established for through improved technical completed, circulated and privatization of the cotton understanding of farm restructuring discussed; and marketing authority and and privatization of the cotton v) Process of reviewing options privatization of the marketing authority and its for the role and privatization ginneries under its ginneries; of the cotton marketing control. iii) Reduced public sector control of authority started. cotton sector; iv) Reduced net financial flows to state farms (on the condition that financial flows to farms remaining in the public sector will not increase to offset the reduction to privatized farms); and v) Increased speed of farm restructuring program from 10 percent of land allocated to private household plots to 75 percent from May 1996 to May 2001.  Schedule G Page 3 of 3 Component Financial Sector Objective: a) Facilitate transition to a market-based financial sector b) Strengthen country's institutional capacity to sustain reform Input Indicators Process Indicators Output Indicators Impact Indicators i) Consultancy services, training i) Bids to provide consultancy i) Banking law ready for i) More viable banking system as and equipment to National services invited; submission to Parliament; measured through reduction of Bank of Tajikistan (NBT) and ii) Bids received and evaluated; ii) New accounting and auditing the ratio of non-performing commercial banks. iii) Contracts for consultancy standards and accounting bank assets to total assets; services awarded or advisors instruction manual ready; and ii) Enhanced NBT policy making appointed; and iii) Studies containing background and institutional capacity iv) First draft of studies on banking information, analysis and through improved technical law, charts of accounts for recommendations on audit understanding of operations, banks, accounting instruction reports of four sectoral banks, supervision and payments manual for banks, audit reports and bank supervision and system of banks; of four sectoral banks, bank payments system for use by ii) Improved financial supervision manual and policy makers in formulating performance measured through payments system completed, financial sector strategy sufficiency of capital and circulated and discussions complete. liquidity, the interest spread started. between loans and deposits and the quality of assets; iii) Better banks supervision and payments system through suitable criteria and systems for licensing and prudential regulations consistent with international standards and audits of banks by qualified firms; and iv) More skilled and knowledgeable banks' staff in risk management procedures, budgeting principles and human resource development. m:\tj\nv-lend\pa-43231\21ena\1apprais\teanne.gr April 16, 1996 2:46 pm MRGhasimi:gb   r gl&'PA:AXSTAN /19 ' ~Ac~SAN~9 1, rTAJIKISTAN \ S <' .. To T7s5kEn_ ./ To Tashkent MAIN ROADS To TOS,-OSent ~~~~~~~RAILROADS S SELECTED CITIES UZBEK. 1~~~ ~~~0, AUTONOMOUS OBLAST (AO) CENTER ToGusin t. w <,To Cuqon