China - Pension Reform Project

Document of The World Bank Report No: 19301-CHA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LEARNING AND INNOVATION CREDIT IN THE AMOUNT OF SDR 3.7 MILLION (US$5.0 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF CHINA FOR A PENSION REFORM PROJECT June 4, 1999 Human Development Sector Unit East Asia and Pacific Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 1999) Currency Name = Renminbi Currency Unit = Yuan (Y) Y 1.00 = US$0.12 US$1.00 = Y 8.28 FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CQ Consultants' Qualifications COE Collectively Owned Enterprise GPN General Procurement Notice ICB International Competitive Bidding LIL Learning and Innovation Loan (Credit) MIS Management Information System MOF Ministry of Finance MOLSS Ministry of Labour and Social Security NCB National Competitive Bidding QCBS Quality Cost Based Selection PIU Project Implementation Unit PMO Project Management Office SDPC State Development Planning Commission SOE State Owned Enterprise TOR Terms of Reference Vice President: Jean-Michel Severino Country Director: Yukon Huang Sector Manager: Alan Ruby Task Manager: Mark Dorfman  China Pension Reform Project Contents A: Project Development Objective .................................................................2 1. Project Development Objectives: .................................................................2 2. Key Performance Indicators: ................................................................2 B: Strategic Context .................................................................2 1. Sector-related Country Assistance Strategy (CAS) Goal Supported by the Project ................ 2 2. Main Sector Issues and Government Strategy: .............................................................. ...2 3. Sector Issues to be Addressed by the Project and Strategic Choices: ......................................3 C: Project Description Summary .................................................................3 1. Project Components ................................................................3 2. Key Policy and Institutional Reforms Supported by the Project ..............................................4 3. Benefits and Target Population: .................................................................4 4. Institutional and Implementation Arrangements: ................................................................. 4 D: Project Rationale ................................................................6 1. Project Alternatives Considered and Reasonsfor Rejection: ............................. .....................6 2. Major Related Projects Financed by the Bank and/or Other Development Agencies: ............6 3. Lessons Learned and Reflected in the Project Design: ............................................................7 4. Indications of Borrower Commitment and Ownership: ...........................................................8 v. Value Added of Bank Support in this Project: ................................................................. 8 E: Summary Project Analysis .................................................................8 1. Economic: .................................................................8 2. Financial ................................................................8 3. Technical: .................................................................8 4. Institutional: ................................................................9 5. Social: .................................................................9 6. Environmental Assessment: .................................................................9 7. Participatory Approach: ..................................................................9 F: Sustainability and Risks ................................................................ 10 1. Sustainability: ................................................................ 10 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): ................................ 10 3. Possible Controversial Aspects: ................................................................ 10 G: Main Loan Conditions ................................................................ 11 H: Compliance with Bank Policies ................................................................ 11  Annexes Annex 1 Project Design Summary ........................................ 12 Annex 2 Project Description ........................................ 17 Annex 3 Estimated Project Costs ........................................ 19 Annex 4 Procurement and Disbursement Arrangements ........................................ 20 Table IV-A Project Costs by Procurement Arrangements .................. ...................... 21 Table IV-B Thresholds for Procurement Methods and Prior Review ....................................... 22 Table IV-C Allocation of Loan Proceeds ........................................ 23 Annex S Project Processing Budget and Schedule ........................................ 24 Annex 6 Documents in Project File ........................................ 25 Annex 7 Statement of Loans and Credits ........................................ 26 Annex 8 Country at a Glance ........................................ 31 Map IBRD No. 28104R This project was prepared by Mark Dorfman (Task Manager, EASHD), Wang Wei (Social Protection Specialist, EACCP), Yvonne Sin (Social Protection Specialist, HDNSP), Yu Xiaoqing (Economist, LCSHD), Hoi-Chan Nguyen (Counsel, LEGEA), Nicolette Dewitt (Counsel, LEGEA), Bertrand Ah-Sue (Procurement Unit Chief, EACCF), Guo Xiaowei (Procurement Specialist, EACCF), Chau-Ching Shen (Financial Specialist, EACCF), Junxue Chu (Disbursement Officer, EACCF), Ramgopal Agarwala, Winston Cobb and Zhou Xiaoji (Consultants). The project benefited from the input of Dmitri Vittas (Lead Economist, DECRG), Louise Fox (Lead Specialist, Pensions, HDNSP), Robert Palacios (Pensions Economist, HDNSP) and Tamar Manuelyn-Atinc (Acting Manager, EASPR). The project was developed under the direction of Yukon Huang (Country Director) and Alan Ruby (Sector Manager, EASHD).  China Pension Reform Project Project Appraisal Document East Asia and Pacific Regional Office Human Development Unit Date: June 4, 1999 Task Manager: Mark Dorfmnan Country Director: Yukon Huang Sector Managers: Alan Ruby Project ID: CN-PE-58308 Sector: Human Development Program Objective Category: Economic Management Lending Instrument: Learning and Innovation Credit Program of Targeted Intervention: [ Yes [X] No Project Financing Data [ Loan [X] Credit [] Guarantee [] Other ISpecify] For Loans/Credits/Others: Amount: $ 5.0 Million/SDR 3.7 Million Proposed terms: [x] Multicurrency [ Single currency, specify Grace period (years): 10 [I Standard Variable [x] Fixed [ LIBOR-based Years to maturity: 35 Commitment fee: 0.0-0.5% Service charge: .0.75% Financing plan - US$ 5.0 Million: Source: Local Foreign Total IDA 1.8 3.2 5.0 Government 1.3 1.3 Total 3.1 3.2 6.3 Borrower: Government of the Peoples Republic of China Responsible agency: Ministry of Labour and Social Security, Heilongjiang Provincial Labour Bureau, Qingdao Municipal Labour Bureau Estimated disbursements (Bank FY/US$M): 2000 2001 2002 2003 Annual 3.5 1.0 0.4 0.1 Cumulative 3.5 4.5 4.9 5.0 Project implementation period: 3.0 years (October 1, 1999 - September 30, 2002) Expected effectiveness date: October 1, 1999 Expected closing date: December 31, 2002  China: Pension Reform Project Main Text - Page 2 Project Appraisal Document June 4, 1999 A: Project Development Objective 1. Project Development Objectives: The objective of the Project is to assist the Borrower to reform its pension system through: (i) the formulation of a sustainable funding strategy, and (ii) the improvement of pension systems in a pilot province and a pilot city, in order to obtain experience and develop a template for the establishment of a national unified pension system. To achieve these objectives, the project would: (a) develop an actuarial model and use the model to assess the financial viability of the Qingdao municipal pension system and the Heilongjiang provincial pension system according to existing parameters; (b) utilize the model to assess pension reform options in the pilots; (c) review regulations and other issues connected with funded schemes in the two pilots; (d) review pension administrative procedures including funds transfers, data collection, processing and management in order to develop a procedural template; and (e) provide inputs to national policymakers on key parameters of policy and implementation. 2. Key Performance Indicators: A set of key performance indicators is presented in Annex 1. Key performance indicators would be: (i) development of policy papers and draft implementing regulations on key pension reform issues; (ii) developing sustainable funding strategies for Heilongjiang and Qingdao, respectively; (iii) installation of automated and networked information systems and demonstrated efficiency gains emanating from such systems; (iv) well-trained personnel capable of exercising oversight and implementing policy regulations on unified pension system programs. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) Goal Supported by the Project (Annex 1): CAS document number: 1632 1-CHA Date of latest CAS discussion: March 18, 1997; Progress Note: May 28, 1998 The Bank Group's strategy and objectives of 1995 and 1997 were grouped around five major themes, one of which was human development, comprising poverty alleviation, health, education and social protection. This project contributes to the CAS objective of social protection by assisting Government in developing financially sustainable parameters for pension policies based on the experiences in two pilots. 2. Main Sector Issues and Government Strategy: China has enacted pension reforms dating back to more widespread economic policy changes in 1978. In 1986, state-owned enterprise (SOE) pensions which had operated since the cultural revolution at the enterprise level, began to be pooled on a limited basis across enterprises at the municipal level. Contributions began to be pooled but enterprises retained responsibility for distributing pension benefits. In the late 1980s, pooling was extended to workers in collectively-owned enterprises (COEs) in many cities. Since then, some joint ventures, joint stock companies and foreign enterprises have been brought into these municipal pension pools. In 1991, a State Council decision required individual contributions by all workers, in addition to enterprise contributions. The 1991 decision also called for an expansion of pooling and the establishment of three tiers in the pension system: a basic benefit; a supplementary benefit provided by enterprises in sound financial condition; and a benefit based on individual savings. In 1993, the central Government introduced individual accounts as part of pension reforms. The most recent framework for China's pension reform was established in a July 1997 State Council Decision adopting a unified, publicly managed system covering all urban workers. In August of 1998, a State Council circular mandated provincial pooling to be applied nationwide. Eleven sector funds organized at a national level (and pertaining to sectoral ministries) would also be decentralized.  China: Pension Reform Project Main Text - Page 3 Project Appraisal Document June 4, 1999 Enterprises and workers covered under separate plans or not at all would be brought into a single system, with multiple funding channels. Key elements of the Government's current policy strategy are to: (i) establish a nationally unified pension system; (ii) establish a system of individual accounts; (iii) separate a basic pension which aims to set a floor of benefits, from a supplementary pension which links to accumulated contributions; (iv) segregate pension administration from investment management; (v) gradually pool individual pension funds first at a municipal level and eventually at a provincial level; and (vi) establish transition mechanisms for funds in deficit to maintain sufficient benefit payments while achieving financial solvency. A key feature of the Government's institutional strategy is to establish and strengthen oversight institutions both at a provincial and national level. Although considerable progress has been made in realizing these parameters, a number of important issues are not resolved. Contribution rates continue to vary both by province as well as by municipality within most provinces; individual pension accounts established in many communities remain essentially notional because contributions are still largely used to fund current pensions; contribution rates for non- state enterprises and some industrial sectors vary from SOEs and COEs and those with relatively young work forces may have conflicting opinions on participation/unification; and individual accounts yield neither a market nor a positive real return so that the accumulations in these accounts may or may not be sufficient to offer an effective means of income smoothing. In 1999, a number of pension reforms are underway as part of Government's strategy: (i) at the end of 1998, eleven sector funds previously operating on a national level apart from the SOE system had shifted over to administration and oversight at a provincial level and such administration is in the process of consolidation; (ii) coverage of private sector, joint ventures and foreign enterprises is being significantly increased towards a target of over 90% during the first half of 1999; (iii) establishment of provincial adjustment funds is just being implemented in many provinces in 1999, with the simultaneous establishment of funding mechanisms and distribution formulae for such funds; (iv) administration is being consolidated at a provincial level for public institutions (to date unfunded); and (v) special programs to control early retirements are being implemented. 3. Sector Issues to be Addressed by the Project and Strategic Choices: This project focuses on the achievement of financial sustainability in a pilot province and pilot city. A LIL was chosen as an appropriate instrument to test policy and implementation parameters identified with the assistance of an actuarial modeling exercise. The LIL is a means of learning from modeling and experimentation in pilot communities then providing input to policymakers from the results as well as from similar modeling exercises supported by other donors. The project is focused as follows: (i) geographically on just two communities; (ii) on retirement pensions and not on health insurance, unemployment and disability insurance which are also social security benefits provided; and (iii) on the pension systems of urban enterprise workers and public institution employees (See section D. 1 below). C: Project Description Summary 1. Project Components (see Annex 2for a detailed description): Cost Ind. kak- %7 of- Component Category Contingeneies % of fiancing Bank- __________________........ _ ,,,,,,.,____,_ _,_,_-_ . ,,,, -, .(Us$M Total (US" fi.anad g Policy Development Institutional Development 0.7 11.1 0.7 14.0 Information Systems Institutional Development 4.2 66.7 3.5 70.0 Training Institutional Development 0.9 14.3 0.8 16.0 Project Administration Project Management 0.5 7.9 Total j1 6.3 - 100.0 5.0 100.0  China: Pension Reform Project Main Text - Page 4 Project Appraisal Document June 4, 1999 2. Key Policy and Institutional Reforms Supported by the Project: Policy Reforms. The project would support policy studies at the central, provincial (Heilongjiang) and municipal (Qingdao) levels. Long-term financial projections would be carried out at the provincial and municipal levels of expected receipts from contributions and other accrued income (interest income on assets held) as well as payouts for benefits. This would include projected cashflows for all pension benefit systems and sensitivity analysis. These iterations would provide policymakers with a sense of what modifications or clarifications of policy would be necessary so as to achieve such viability and sustainability. Parallel to the above sustainability analysis, studies would be undertaken with support of project funds to evaluate, inter alia: (i) funding strategies for public institutions and private enterprise pensions; (ii) the design and incentives of readjustment funds for provincial pooling; (iii) voluntary supplementary pension accounts; and (iv) sequencing of reform measures for state-owned, collective-owned, private, foreign and joint venture enterprises, the self-employed and public institutions, respectively. Institutional Reforms. The project would support the development of administrative systems for the MOLSS, Heilongjiang and Qingdao urban retirement pension programs, through: (i) carrying out of a users needs assessment for the development of management information systems; (ii) provision of equipment and software for pension administration and oversight; and (iii) strengthening and implementation of procedures for pension management and oversight in the project entities. The project would also support the identification by MOLSS of personnel skills requirements and, thereafter, development and implementation of training programs to improve the skills of its personnel, including in: (a) pension management and oversight; (b) pension reform policy; (c) financial projections and modeling; and (d) pension asset management. 3. Benefits and Target Population: Benefits. The most important benefit would be a learning process which reviews and tests policy parameters and administrative systems for wider applicability. The learning process can have four very important benefits: (i) policy solutions could be developed which enable state and collectively-owned enterprises to be more competitive against enterprises in other municipalities or provinces because contribution, benefit and investment policies are optimized so as to minimize contribution levels; (ii) similarly, policy solutions could be developed which enable workers to receive a reasonable replacement of their pre-retirement income while not materially penalizing new workers or newly-covered enterprises; (iii) as unfunded liabilities are better understood at a municipal level, enterprise restructuring could potentially be accelerated with a clearer view of the potential costs; and (iv) efficiency gains in administration could materially reduce the costs of pension administration and increase the service provision to contributors and retirees. Target Population. The target populations can be viewed at three levels: (i) national level policymakers; (ii) contributors, retirees and beneficiaries of existing pension funds in Qingdao and Heilongjiang, respectively; and (iii) pension system members in other cities and provinces who could potentially benefit from the wider adoption of the reforms found to be applicable in the pilots. 4. Institutional and Implementation Arrangements: Implementation Period: Three years, October 1999 to September 2003 Executing Agencies: Ministry of Labour and Social Security, Heilongjiang Labour Bureau, Qingdao Labour Bureau Project Implementation. Overall responsibility for the implementation and coordination of the Project would be entrusted to the Ministry of Labour and Social Security (MOLSS). A Project Implementation  China: Pension Reform Project Main Text - Page 5 Project Appraisal Document June 4, 1999 Unit (PIU) has been established to oversee the project and maintain policy consistency across project entities involved in the project, coordinating implementation and ensuring adequate financial management (procurement, disbursement, accounting and audit) and general administration (monitoring implementation and reporting). A Project Manager has been appointed to head up the PIU and would be responsible for the overall execution of project activities and timely delivery of outputs. Bi-annual progress reports would be provided by Heilongjiang and Qingdao (Project Entities) to IDA under the guidance of the PIU and based upon a template agreed-to by the Ministry of Finance (MOF). IDA would carry out regular supervision missions and a mid-term review at mutually agreed dates. Finally, Government would transmit a completion report to IDA six months prior to the project closing date. The PIU would provide procurement support to each project entity in the two pilots and liaise closely with the designated counterpart of each. The Project Manager would: (i) prepare and update the procurement plan for the Project; (ii) assist the project entities in the preparation of bidding documents and advertisements for goods contracts, requests for proposals for consulting assignments, bid opening and evaluation; (iii) monitor procurement, disbursement and audit; (iv) take responsibility for record- keeping and financial reporting; and (iv) submit Terms of Reference, training plans and procurement documentation to IDA as required. A Project Management Office (PMO), headed by an Implementation Manager has been established in each of the two project entities. These managers have responsibilities similar to that of the Project Manager for the project, albeit for their respective entities. Consultants, contractors and suppliers would be selected in accordance with Bank guidelines, on the basis of proven experience. Local consultants would be used wherever possible. Where foreign consultants are used for lack of requisite local skills, special attention will be given to promoting and strengthening local capacity through skills transfer. Each beneficiary would, therefore, appoint counterparts who would work closely with the outside consultants and make adequate preparations before the arrival of each to ensure the effective utilization of his/her services. The Government will make Credit proceeds available to Heilongjiang and Qingdao, respectively on IDA terms with each bearing the foreign exchange risk. The Government would also provide a detailed budget for counterpart funds prior to the end of each year (cash contributions as well as in-kind contributions) as well as evidence of actual contributions for the previous year. Such project accounts would be subject to the same audit requirements as the other project accounts. Accounting, Financial Reporting and Auditing Arrangements. Responsibility for accounts management would be assigned to the Project Manager in collaboration with the implementation managers. The Project Manager would maintain accounting records (project activities, resources, expenditures and net position) in accordance with appropriate accounting standards and practices. Financial management guidelines and a computerized accounting template will be prepared and put in use. The Project Manager, in conjunction with each implementing agency, would update procurement schedules and provide reports on related activities to ensure compliance with IDA requirements. During Negotiations, agreement was reached on the following points: All project accounts, the Special Account, and Statements of Expenditure would be audited at the end of each fiscal year by an independent auditor acceptable to IDA. The audit report would include an auditors' opinion; * The audit report, certified by auditors would be provided to IDA no later than six months following each fiscal year; and IDA would be provided with any other information regarding the Project's accounts and audits it may request from time to time. Monitoring and Evaluation Arrangements. Semi-annual progress reports, prepared on the basis of formats agreed with MOF would be provided by each project entity through the PIU and by MOLSS to IDA no later than March 1 and September 1 of each year, beginning March 1, 2000. Semi-annual  China: Pension Reform Project Main Text - Page 6 Project Appraisal Document June 4, 1999 supervision missions would jointly review with each implementing agency the performance of each component, including the status of procurement and disbursement. A joint IDA-Governmient mid-term review would monitor the achievement of project objectives, overall project execution, key project activities, project implementation schedule, and supervision plans. it would also identiify any obstacles to the achievement of project objectives and recommend remedial measures. An Implementation Completion Report (I]CR) would be prepared jointly by IDA and the Government six months prior to the closing date. D: Project Rationale 1. Project Alternatives Considered and Reasons for Rejection: The Rationale behind a Learning and Innovation Credit (LIL). Although many reforms have been mandated and implemented, a number of important policy issues remain unclear or implementation parameters still are being tested. Utilizing the broad approach developed in the Bank's 1996 sector study, a LIL is an instrument which can facilitate the testing of specific policy measures and implementation parameters, learn frorn modeling and experimentation in specific pilot communities, then review lessons from such experience as well as the analysis supported by other donors. Based on what is learned, the Government may support a wider program of follow-on interventions. The Decision to Support Pilots. The key strategic choice made by Governm-ent was not to undertake project support on a national basis but, rather, to use this project for one provincial and one municipal pilot as a basis for learning and innovation. Government's view is that it could then learn from these experiences to guide more comprehensive policy and institutional choices. This is consistent with the policy making process in China whereby policy reforms are often piloted on a trial basis before being fully adopted in national legislation. Choice of Pilots. The provincial and municipal pilots were chosen because of their distinct circumstances. Heilongjiang was chosen because it is a province whose demographic and economic circumstances makes it particularly difficult to find policy parameters resulting in financial sustainability. Heilongjiang's economy has a proportionately large percentage of SOEs and such enterprises are virtually entirely covered in the existing pension system. Moreover, Heilongjiang has limited automation and identified weaknesses in administrative systems at both municipal and provincial levels. Qingdao however, as a municipality, has achieved full unification of contribution rates, and has fully automated information systems. It enjoys considerable economic and population growth and aims to fully integrate itself into a provincial system (Shandong). Qingdao also has a large SOE presence with relatively high dependency rates but also has had rapid economic growth including a large growth in joint ventures and private companies not covered under the pension system. One criteria which the Government also used in the choice of pilots was the ability of such pilots to repay the funds provided. 2. Major Related Projects Financed by the Bank and/or Other Development Agencies: Background. The World Bank's role in pension reform in China was initiated by a national level assessment which led to the 1997 publication, "Old Age Security, Pension Reform in China." Discussions were held with Government officials as to possible measures to follow-up upon the report's recommendations. Two pension reform seminars were then organized in 1998 by the Economic Development Institute, both of which were well received, later resulting in a Government request for the proposed project. This project was also viewed as a means of testing and learning from IDA assistance in specific communities. World Bank and Other Donor Assistance. Given the decentralized nature of pensions in China, there are multiple completed, ongoing and planned intervention by donors, be they multilateral, bilateral, NGOs or corporate assistance. Although a comprehensive list is not available, projec.s identified are as follows:  China. Pension Reform Project Main Text - Page 7 Project Appraisal Document June 4, 1999 * The World Bank Enterprise Housing and Social Security Project (1994) has aimed to support technical assistance and studies in four pilot cities (Beijing, Chengdu, Ningbo and Yantai) as well as provide support to the MOLSS and MOF. Studies have been delayed considerably since project initiation and are expected to begin in June 1999. Analysis will be conducted of the computerized operations systems in the four cities, financial sustainability modeling, and program evaluation/ management systems. Technical assistance will also be provided to the MOF and MOLSS including: (i) a review of national level policy on retirement issues; (ii) development of a management and computerized information system to effect a nationally unified pension system; and (iii) assistance in developing a system and strategy for retirement funds management. The project will evaluate other areas of social security besides retirement pensions, including health, work injury and unemployment insurance. The total amount allocated from the project for the combined social security support is US$13.5 million; A project sponsored by seven private companies had been under development since 1997, becoming operational in January, 1999. This project would provide US$2.1 million of financing for national policy studies, undertaking a modeling exercise in two pilot communities (Hubei and Shanghai); evaluating central administrative systems (MOLSS) including its MIS system and links to the provinces; providing external and internal training for Government officials; and supporting an advisory committee and other conferences; * A project was recently approved by the Asian Development Bank (ADB). This project aims to support the formulation and implementation of administrative, legal, regulatory and supervisory frameworks for a new pension system, and facilitate the development of financial and insurance markets in support of pension reform. The project would provide US$3.0 million of which ADB would finance US$2.4 million and the remainder would be financed by the Government. Most of the support would be in the form of consultant assistance, both international and domestic. * Bilateral support has been provided by the Government of the Netherlands to Chongqing municipality, including extensive analysis of administrative and data processing needs as well as training of municipal government staff; and * Bilateral support has been provided by the Government of Australia to the MOLSS. t Sector Issue Project Latest Supervision (Form 590) Rating& Implementation Development Progress (IP) Objective (DO) World Bank Urban Development + Enterprise Housing and Social Security S HS Fiscal and Tax Reform * Fiscal and Tax Reform U S Social Protection * Labor Market Development S S Legal Refonn * Legal Reform S S Public Sector Management * Financial Sector TA S S Other Private Sector Donors * Pension Reform NA NA Asian Development Bank * Pension Reform NA NA IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons Learned and Reflected in the Project Design: The project draws on the results of technical assistance projects undertaken, notably the need for: (i) simplicity of design, based on well targeted objectives; (ii) well-defined actions with timetables for implementation; and clear evaluation criteria with monitorable indicators; (iii) compatibility with the institutional absorptive capacity of Government agencies and project beneficiaries; and (iv) stakeholder involvement in the design and execution of the project. The project also aims to draw upon related  China: Pension Reform Project Main Text - Page 8 Project Appraisal Document June 4, 1999 experience in the China Enterprise Housing and Social Security Project which experienced delays due to the governance structure and weaknesses in central level coordination which made implementation cumbersome. This project proposes a more simplified project management structure and will engage counterparts in the pilots directly (in addition to via the PIU) in an effort to facilitate coordination. 4. Indications of Borrower Commitment and Ownership: The Government has requested IDA support of its ongoing efforts in pension reform. This project has been carefully considered and is supported by the MOLSS, MOF and State Development Planning Commission. Project preparation has been strongly supported by representatives of the Heilongjiang and Qingdao labour bureaus as well as other senior provincial and municipal government officials. A detailed Project Implementation Proposal was prepared by counterparts in January, 1999. The 1997 State Council Decision #26 indicates Borrower commitment to the pension reform process. A further measure of commitment to pension reform would be the passage of a national pension law. 5. Value Added of Bank Support in this Project: IDA offers considerable experience in pension reform worldwide and has country-specific knowledge based on the analytical work undertaken on China's pension system in 1996. During project supervision, IDA would utilize experienced staff with cross-country experience in pension policy and administrative reform issues in order to provide guidance to decision-makers. E: Summary Project Analysis 1. Economic: It is difficult to quantify the expected economic returns to a technical assistance operation of this nature. Increasing the efficiency of the intermediation of pension funds (partly through economies of scale) can result in considerable administrative cost savings. Moreover, creating a viable program for financial sustainability can increase the credibility of a mandatory pension system and thus reduce the level of non- compliance and increase the utility of such a system for consumption smoothing. Project costs are expected to be: (i) direct costs of US$5.0 million to be repaid to IDA (plus service charges over the life of the loan); (ii) direct costs by Government of US$1.3 million; and (iii) indirect costs associated with further pension restructuring. Project benefits are expected to be: (i) a reduction in the cost of intermediating pension assets; and (ii) policy solutions at a municipal and provincial level which are able to minimize contribution rates and strengthen pension planning. 2. Financial: The fiscal impact of the pension reform program cannot be quantified at this time. However, the short, medium and long-term fiscal impact will be quantified for the pilots through the financial sustainability modeling exercise supported in project preparation as well as executed under the project itself. Utilizing the output from this exercise as well as the data generated from similar exercises with other project support, improved estimates of the potential fiscal costs of transition can be developed. 3. Technical: The Project is technically sound and consistent with the CAS agenda. The Project has been designed in such a way as to balance breadth and focus. Support to multiple activities has been grouped into four project components.  China: Pension Reform Project Main Text - Page 9 Project Appraisal Document June 4, 1999 4. Institutional: a. Executing Agencies: Ministry of Labour and Social Security b. Project Management: Ministry of Labour and Social Security, Heilongjiang Labour Bureau, Qingdao Labour Bureau Executing Agency: The MOLSS will have overall responsibility for implementing the Project. The Project will be executed by a PIU located in the MOLSS, staffed with qualified personnel, including a designated Project Manager. Each provincial and municipal project entity will also be expected to have strong ownership for its program and has established a PMO headed by an Implementation Manager. Project Management: The PIU and pilot implementing agencies will have staff with accounting and financial reporting skills and some familiarity with IDA procedures. This capacity will be reviewed throughout the tenure of the Project. Financial Management: The project's implementation capacity has been reviewed by the Financial Management Specialist to determine if the system and accompanying staff are capable of producing timely and accurate information required in the production of financial reports to satisfy the requirements under BP 10.02. The Financial Management Specialist has indicated his certification of the ability of the PIU and PMOs to comply with this standard. 5. Social: Pension system coverage in China is most concentrated in SOEs in urban areas. Workers, retirees and beneficiaries from such enterprises generally tend to have higher incomes than non-urban workers (although often not as high as employees of private companies). As such, pension reform for SOEs will likely not disproportionately impact the lowest income groups in China nor will this project have such an impact. The project will however, evaluate the basic benefit pension which aims to provide subsistence income support for retirees of urban enterprises. 6. Environmental Assessment: Environmental Category []A [] B [xl C The project is not expected to present any environmental risks and thus an environmental rating of "C" has been agreed to. This is a technical assistance project for the pensions sector which will not have any direct or indirect environmental impact. Neither an indigenous peoples plan nor resettlement plan has been developed. 7. Participatory Approach: a. Primary Beneficiaries and Other Affected Groups: The primary beneficiaries receiving direct support from the Project are the provincial pension management and oversight authorities in Qingdao and Heilongjiang, respectively, as well as authorities in the MOLSS and other national policy makers in the pensions area. These organizations have been actively consulted and involved in project preparation. They have, and will continue, to actively participate in the development of work programs, including project objectives, assistance requirements, budgets, timetables and performance indicators. The other most affected groups are the contributors and retirees of the pension systems in these two pilot communities.  China: Pension Reform Project Main Text - Page 10 Project Appraisal Document June 4, 1999 b. Other Key Stakeholders: Other stakeholders are the Ministry of Finance and local finance bureaus who are responsible for fund management. F: Sustainability and Risks 1. Sustainability: The focal point of this project is to develop strategies (including policies and implementation parameters) which achieve medium-term financial sustainability (pension funds that sustain themselves in terms of cash flow sufficiency and actuarial solvency in Qingdao and Heilongjiang, respectively). The project also seeks to assist in the development of national, provincial and municipal pension management and oversight institutions that are able to demonstrate capacity and have the management systems to maintain that capacity. Recognizing that strong institutions require years to develop, the project aims to initiate a process that will maintain itself well beyond the period of the credit. Performance indicators are indicated in Annex 1. 2. Critical Risks (reflecting assumptions in the fourth column ofAnnex 1): The project will not be properly implemented in Subs. * Project preparation includes significant review of terms of the computers (hardware) bought, software Risk administrative procedures, hardware and software needs; used and administrative systems adopted. * Project supervision will include extensive review of the appropriateness of items procured; and * Procurement support mechanisms have been designed into the project. Even if the right projection model is developed, local Modest This risk depends on the estimated economic and political cost authorities will not design and implement reform Risk of reform measures. These risks are difficult to mitigate by the measures indicated by the policy analysis that will be project design. conducted with the help of this model. Lessons of the pilot exercise will not be heeded at the Modest Interventions have been designed to complement those in other national level. Risk pilot provinces and municipalities. Measures have been taken to ensure that there is a common approach to the sustainability analysis being undertaken in other communities with support of other projects Even if the results of the project are incorporated in High The Bank is working to integrate its discussion of pension the search for a national solution, implementation of Risk reform into the wider financial sector dialogue. Moreover, the reform measures may be frustrated by failure to issue of the importance of positive accumulations and positive develop efficient and well-regulated financial real returns on the assets of individual accounts will be markets. The rate of return on assets could therefore addressed in training programns and in seminars on pension insufficient for maintenance of value of individual reformn options. accounts. Overall Risk Rating Substantial Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) 3. Possible Controversial Aspects. Many aspects of pension reform invite controversy. Four are worth highlighting: (i) national unification of the contribution rate would result in significant net benefits for some as well as significant costs for others. This reflects the diversity of the Chinese economy and demographic distribution of workers and retirees across different provinces and municipalities. The potential opposition of those communities adversely affected is in addition to the technological difficulties posed. This project will assist in  China: Pension Reform Project Main Text - Page II Project Appraisal Document June 4, 1999 reviewing the implications of contribution unification; (ii) the nature, design and sequencing of financial market reforms is also controversial. Achieving market-based returns on individual accounts will prove critical to system solvency and public confidence. Bearing in mind the resistance to market liberalization, reform measures which could ensure the real value of pension assets could be implemented on a gradual basis mitigating the short-term financial market impact. Such an approach will be explored in the policy reviews under the project; (iii) the intention of the current strategy to extend coverage to private companies and, more important, to eventually unify the contribution rates with those of SOEs and COEs results in considerable controversy amongst new participants. Employees of such companies have not to- date had the benefits of pension participation yet these companies are faced with absorbing the costs of supporting existing retirees from SOEs and COEs. This involves issues of fairness between old and new participant companies as well as promoting and maintaining enterprise competitiveness with the large increase in contributions; and (iv) potential measures to link the collection and reporting of taxes with pension contributions is controversial because of an inability to reach agreement between different authorities on a unified strategy. G: Main Loan Conditions The Borrower shall develop with guidelines acceptable to IDA a procurement training program for staff of the PIU and the PMOs by December 31, 1999; * Credit proceeds will be made available to Heilongjiang and Qingdao, respectively on IDA terms with each bearing the foreign exchange risk; * Annual implementation plans would be submitted to IDA by December 1 of each year; and * Annual training plans would be submitted to IDA. H: Compliance with Bank Policies [x] This project complies with all applicable Bank policies. Task Manager: Mark Dorfman Sector Manager: Alan Ruby Country Director: Yukon Huang  China: Pension Reform Project Annex I - Page 12 Project Appraisal Document June 4, 1999 Annex 1 Project Design Summary China: Pension Reform Project Sector-related CAS Goal: .. ~ = _ .. .. _ (Goal to Bank Mission) One theme of the CAS was Social Maintenance of Protection. The project contributes to the comprehensive CAS objective by assisting Government approach to Social in developing financially sustainable Protection with parameters for pension policies based on pensions as one element the experiences in two pilots. in it. Project Development Objective: (Objective to Goal) * Plans for policy parameters * Project Reports; The objective of the Project is to assist (contribution rates, * Project Supervision; and the Borrower to reform its pension retirement age, return on * Mission Reports system through: (i) the formulation of a pension assets, etc.) which sustainable funding strategy, and (ii) the indicated financial improvement of pension systems, in a sustainability over a 70 year pilot province and a pilot city, in order to period; and obtain experience and develop a template * Information system for the establishment of a national unified development plans pension system. compatible with provincial and national objectives. a.~~~~~~~I,~e S J I) 1.0 Project the financial viability and Sustainability defined as a Submission of Prost Assumes that sustainability of the Qingdao municipal projection whereby individual model outcomes, identification/ pension system and the Heilongjiang accounts are backed by tangible including sensitivity quantification of policy provincial pension system and from such and marketable assets so that analysis. constraints will assist in projections, test the implementation of benefit outlays are more than modifying them. key policy parameters embodied in State covered during the entire Council Document #26 of 1997. projection period. 2.0 From assessments above, provide Inputs provided on policy and Submission of Assumes feedback input to national policymakers on key implementation parameters recommended policy process from province parameters of policy and implementation. indicated in State Council changes. to Central Government. Documents. 3.0 Install, test and review wider * Design and Installation of Submission of information Assumes clarity of applicability of a new model of pension System; system users needs objectives behind data collection, processing and * Development of assessment, system automation. management. Implementation Manual; and specifications, * Development of implementation manual Administrative Procedures. and hardware/software configuration. 4.0 Develop and carry out training * Staff development programs Submission of training Assumes individuals programs for MOLSS, provincial and which include the designed materials and training can utilize the skills municipal staff. training; and completion developed and stay in * Completion of training documentation. their posts to use them. programs.  China: Pension Reform Project Annex I - Page 13 Project Appraisal Document June 4, 1999 I. Policy Development Component 1. Carrying out by * Contracting of Consultants; * Consultants' * Interagency Heilongjiang of a study of * Completion of Initial Data Collection; Studies/policy cooperation to the sustainability of its * Completion of "Base Case" scenario based options papers; provide critical existing urban enterprise upon widely agreed-upon assumptions; . PROST Model data; employee pension systems, + Completion of sensitivity analyses assuming Simulation Outputs, * Collaboration on and by Qingdao of a study of modifications to contributions and benefits; including sensitivity key the sustainability of its * Completion of policy paper on options for analyses; assumptions; enterprise employee pension urban enterprise pension reform; * Bi-Annual Reports; * Receptiveness of systems, said studies to . Dissemination of policy paper to key and policymakers to include: (a) the development decision-makers; and * Supervision Missions. output results. of long-term financial * Development of revisions to the pension projections of the cashflows reform strategy and pension policy based on of said systems; and (b) the policy options paper. sensitivity analysis of said systems. 2. Carrying out by each . Contracting of Consultants; * Consultants' . Provision of Project Entity of a study, . Completion of modeling exercise; Studies/policy critical using modeling techniques, . Completion of policy paper on options for options papers; information for to design funded pension reform of public institutions pensions; * Receipt of revised undertaking the systems for government * Completion of policy report; policies; assessment; and agencies within its * Dissemination of findings; and .Bi-Annual Reports; * Receptiveness of jurisdiction whose * Development of a revised strategy for and policymakers to employees are not covered incorporating public institutions pensions into . Supervision Missions. output results. by the civil service regime the national pension system. (public institutionsm). 3. Carrying out by each * Contracting of Consultants; . Consultants' Project Entity of a study to * Completion of policy options reports; Studies/policy develop policies and . Dissemination of findings to policymakers; options papers; procedures to enhance the * Revision of strategy towards incorporation of + Receipt of policies; participation in its pension private enterprises, joint ventures and foreign * Bi-Annual Reports; systems by non-state-owned enterprises into the national pension system; and enterprises operating within and * Supervision Missions. its jurisdiction (private . Drafting and implementation of revised enterprises, joint ventures policies for pensions contributions and and foreign enterprises). benefits applied to private enterprises, joint ventures and foreign enterprises. 4. Carrying out by + Contracting of Consultants; + Consultants' Heilongjiang of a study of * Completion of policy report; and Studies/policy the coherence of various . Dissemination of findings. options papers; pension systems with its * Bi-Annual Reports; readjustment funds. and * Supervision Missions.  China: Pension Reform Project Annex I - Page 14 Project Appraisal Document June 4, 1999 -, ~~. V .--==-4 5. Carrymg out by * Contracting of Consultants; * Consultants' Heilongjiang of a study to * Completion of policy report; Studies/policy assess the implementation of . Dissemination of findings; and options papers; policies and procedures for . Drafting and implementation of revised * Receipt of policies; the unification of policies and procedures. * Bi-Annual Reports; contribution rates among and sector-based pension * Supervision Missions systems. 6. Carrying out by . Contracting of Consultants; * Receipt of Heilongjiang of a study to + Completion of policy report; and Consultants' design voluntary . Dissemination of findings. Studies/policy supplementary retirement options papers savings accounts. 7. On the basis of * Contracting of Consultants; * Receipt of recommendations from the * Completion of modeling exercise; Consultants' studies carried out by the * Completion of policy report; Studies/policy project entities under Section * Dissemination of findings; and options papers; 2 of the Project above, . Drafting of revised national policies for * Receipt of modeling carrying out by MOLSS of a pensions contributions and benefits applied to results; and study, using modeling public institutions. * Evidence of techniques, to design funded consideration of pension systems for national revised policies. government agencies whose employees are not covered by the civil service regime (public institutions). g. Assessment by MOLSS, . Contracting of Consultants; * Receipt of on the basis of . Completion of policy paper on options for Consultants' recommendations from the reform of private enterprise, foreign Studies/policy studies carried out by the enterprise, and Joint Venture pensions; options papers Project Entities under . Dissemination of findings; * Evidence of drafting Section 3 of the Project * Revision of Government strategy towards of revised policies. above, of the suitability of incorporation of non-state-owned enterprises adopting policies and into the national pension system; and procedures to enhance the . Draft modifications to relevant policies. participation in its pension systems by non-state-owned enterprises on a nationwide basis (private enterprises, Joint Ventures and foreign enterprises). 9. Development by MOLSS, . Contracting of Consultants; * Receipt of on the basis of . Completion of policy report; Consultants' recommendations from the . Dissemination of findings; Studies/policy studies carried out by * Consideration by policymakers; options papers Heilongjiang under Section 4 . Revision of national strategy; and * Evidence of of the Project above, of . Drafting of revised national policy implementation of national guidelines for guidelines. revised policies. pooling of pension funds on a provincial basis.  China: Pension Reform Project Annex I - Page 15 Project Appraisal Document June 4, 1999 N9jeet Comp6mats. Pe7 Irman&-hdi'atod s 7 7 -of Veficatn Critical -ib~p# t Assumptions 10. Carrying out by MOLSS . Contracting of Consultants; * Receipt of of studies to design . Completion of policy report including Consultants' Cooperation of voluntary supplementary recommendations for modifications to tax Studies/policy Tax Authorities retirement savings accounts. treatment of retirement savings, and options papers; parameters for account remuneration. * Receipt of revised . Dissemination of findings; national policies and * Drafting and adoption of revised national procedures. regulations for voluntary savings accounts. I1. Formulation by MOLSS . Contracting of consultants; * Receipt of policy * Interagency of a policy paper for pension * Completion of policy report; paper. cooperation to reform, including sequencing . Dissemination of findings; provide critical of measures for state-owned, . Adoption of recommendation by data; collective-owned, private, policymakers; * Receptiveness of foreign and joint venture * Revision of national strategy for national policymakers to enterprises, the self- pension reform. output results. employed, public institutions and civil service, respectively. II. Administrative Systems Development - Strengthening by each * Completion of the assessment including a * Equipment Project Entity and the review of information processing objectives, specifications; Borrower of systems for the existing systems, needs and administrative * Documentation in administration of its urban capacity; procurement plan for retirement pensions, through: * Basic design specifications for hardware, equipment purchases; (a) carrying out of a user software and peripherals in order to meet the * Draft Bidding needs assessment for the identified need; Documents; development of management * Completion of recommended specifications * Consultants' Studies; information systems; for NCB and Shopping purchases of PCs, * Bi-Annual Reports; UPSs and printers; and and * Completion of specifications for bidding *Supervision Missions documents (hardware for networked systems); and * Completion of specifications for RFP (software). (b) provision of equipment . Initiation of procurement of phase I of * Receipt of Bidding * Counterpart and software for pension automation (PCs, printers); Documents; Capacity to administration and oversight; . Completion of RFP for Software * Physical verification; effect equipment Development; * Bi-Annual Reports; procurement on * Initiation of Bidding process for software and a timely basis. developer; * Supervision Missions * Initiation of Bidding process for hardware; * Installation, testing, operation and limited systems training for hardware operation. * Completion, installation, testing and limited training in database and network software applications.  China: Pension Reform Project Annex I - Page 16 Project Appraisal Document June 4, 1999 (c) strengthening and * Assessment of administrative systems and * Consultant reports; Commitment to implementation of design of revisions to administrative systems, * Receipt of revised administrative procedures for pension including strengthening of procedures; procedures manuals; reform management and oversight * Increase in efficiency of pension . Bi-Annual Reports; consistent with in the Project Entities. management - ability to effect processes on a * Supervision Missions. development of more timely basis, ability to undertake a information wider scope of oversight; ability to reduce systems. non-compliance; and Strengthening of oversight. III. Training Identification by MOLSS * Undertaking a skills assessment; * Submissions of skills . Sufficiency of and by each Project Entity of * Development of a staff development plan assessment; staff to carry out personnel skills requirements consistent with identified skills needs; * Submission of staff pension and, thereafter, development . Number, role and functions of staff involved development management and and implementation of in skills improvement program. programs; oversight training programs to improve . Initiation and Completion of Staff . Terms of Reference mandate; the skills of its personnel, Development Plans; for training; * Mix between including in: (i) pension * Design and Preparation of Training Programs * Course Materials; initial skills management and oversight; (foreign and domestic); * Course Reports; profile and (ii) pension reform policy; * Undertaking and completion of training * Bi-Annual Reports; required (iii) financial projections and programs in: (a) pension management and * Supervision Missions. additional modeling; and (iv) pension oversight (including pension management responsibilities; asset management. information systems); (b) pension reform * Willingness of policy; (c) financial projections and authorities to be modeling; and (d) pension asset management, explicit about all consistent with the individual staff staff development programs established. development . Number of Officials Receiving Training; needs. * Relevance of Training programs to Staff Development Plans; * Ability of Social Insurance Staff to efficiently discharge new duties for pension management and oversight based on training received; and * Ability of Social Insurance Staff to efficiently utilize acquired technology and revise administrative procedures to achieve more efficient results. IV. Project Administration Establishment, equipping . Equipping and maintaining the PIU and * Audit Reports; and operation of a unit PMOs with staffing with the specific skills * Bi-annual Reports; within MOLSS and each requirements; and Project Entity to be . Equipping and maintaining the PIU and . Supervision Missions. responsible for coordination PMOs with the space and office equipment to and management of its carry out their mandate; Respective part of the * Development and updating of procurement Project. plans by PIU and PMOs; . Development and updating of training plans by PIU and PMOs; * Efficient and timely preparation and dissemination of bi-annual reports; * Efficiency of expediting procurement processes; * Comprehensiveness, timeliness and accuracy of accounting practices in the PIU and PMOs; . Efficiency of Disbursement; and * Timely orchestration of audit functions.  China: Pension Reform Project Annex 2 - Page 17 Project Appraisal Document June 4, 1999 Annex 2 Pension Reform Project Project Description Project Component 1 - Policy Development - US$ 0.7 million. This component would support policy studies at the central, provincial and municipal levels. Long-term financial projections would be carried out at the central, provincial (Heilongjiang) and municipal (Qingdao) levels of expected receipts from contributions and other accrued income (interest income on assets held) as well as payouts for benefits. This would include projected cashflows for all four pension benefit systems - basic, transitional, mandatory individual accounts and voluntary supplementary accounts. Sensitivity analysis would test modifications to, inter alia: (i) effective contribution rates; (ii) coverage rates and labor force growth; (iii) compliance rates; (iv) rates of real wage growth; (v) rates of real returns accrued to pension accounts (interest rate assumption); (vi) adjustments to retirement ages; (vii) adjustments to the transition formula applied; (viii) changes to the period of distribution of individual account accumulations to more closely approximate municipal or provincial life expectancies; and (ix) modification of the basis of indexation of pension benefits (wages to prices). Multiple iterations of such projections should be able to indicate the feasibility of achieving a sustainable, albeit partially-funded position over a 70 year period. These iterations would provide policymakers with a sense of what modifications or clarifications of policy would be necessary so as to achieve such viability and sustainability. Parallel to the above sustainability analysis, the following studies would be undertaken with support of project funds: * Carrying out by Heilongjiang of a study of the sustainability of its existing urban enterprise employee pension systems, and by Qingdao of a study of the sustainability of its enterprise employee pension systems, said studies to include: (i) the development of long-term financial projections of the cashflows of said systems; and (ii) sensitivity analysis of said systems; . Carrying out by Heilongjiang and Qingdao of a study, using modeling techniques, to design funded pension systems for government agencies within its jurisdiction whose employees are not covered by the civil service regime (Public Institutions); * Carrying out by Heilongjiang and Qingdao of a study to develop policies and procedures to enhance the participation in its pension systems by non-state-owned enterprises operating within its jurisdiction (private enterprises, joint ventures and foreign enterprises); * Carrying out by Heilongjiang of a study of the coherence of various pension systems with its readjustment funds; * Carrying out by Heilongjiang of a study to develop policies and procedures for the pooling of retirement pension funds and rate unification among its various existing retirement pension systems; * Carrying out by Heilongjiang of a study to design voluntary supplementary retirement savings accounts; * Carrying out by MOLSS, of a study, using modeling techniques, to design funded pension systems for national government agencies whose employees are not covered by the civil service regime; * Assessment by MOLSS, on the basis of recommendations from the studies carried out by Heilongjiang and Qingdao, of the suitability of adopting policies and procedures to enhance the participation in its pension systems by non-state-owned enterprises on a nationwide basis; * Development by MOLSS, on the basis of recommendations from the studies carried out by Heilongjiang, of national guidelines for pooling of funds on a provincial level; * Canying out by MOLSS of studies to design voluntary supplementary retirement savings accounts; and . Formulation by MOLSS of a policy paper for pension reform, including sequencing of measures for state-owned, collective-owned, private, foreign and joint venture enterprises, the self-employed and public institutions, respectively.  China: Pension Reform Project Annex 2 - Page 18 Project Appraisal Document June 4, 1999 Project Component 2 - Information Systems Development - US$ 4.2 million. This component would support the development of updated and revised information and related administrative systems in the MOLSS, as well as in the Heilongjiang and Qingdao labour bureaus, respectively. The aim of such administrative reform and automation is to create greater capacity, increase processing efficiency, strengthen control provisions and establish record-keeping and processing capabilities. The following would be supported: * Undertaking a needs assessment to determine the precise specifications for the systems in the three project locations, including support for drafting bidding documents; + Undertaking an administrative systems review and development of an administrative development plan consistent with the personnel requirements and implications of the equipment purchased; + Design, development, installation and testing of a networked system to integrate the automated accounts of the branch offices of Qingdao Municipality; * Design, development installation and testing of a networked system to integrate Jiamusi city in Heilongjiang Province with the Provincial Social Insurance Agency; + Design, development, installation and testing of internal computer system for the pensions area of the MOLSS; * Development (adaptation) of data management software in Qingdao and Heilongjiang to meet the needs of both existing and projected system members; + Design and carrying out of Users' training programs on work process and equipment use; and * Development of a procedures manual consistent with the staff and administrative development plan above. Project Component 3 - Training - US$ 0.9 million. This component would support the identification by MOLSS and of the Heilongjiang and Qingdao labour bureaus of personnel skills requirements and, thereafter, development and implementation of training programs to improve the skills of its personnel, including in: (i) pension management and oversight; (ii) pension reform policy; (iii) financial projections and modeling; and (iv) pension asset management. Training will only be permitted when part of staff development plans at the Heilongjiang and Qingdao Labour Bureaus and MOLSS, respectively. Project Component 4 - Project Administration - US$ 0.5 million. This component would provide assistance in project administration at the level of the MOLSS PIU and the PMOs in Heilongjiang and Qingdao, respectively. Financing would include support for: (i) personnel costs associated with the PIU and PMOs; (ii) costs associated with counterpart meetings; (iii) printing, communications, postage and translation costs; (iv) internal travel costs for coordination between PIU and PMOs; (v) office operating costs (electricity, miscellaneous office supplies); and (vi) costs of special hired assistants.  China: Pension Reform Project Annex 3 - Page 19 Project Appraisal Document June 4, 1999 Annex 3 Pension Reform Project Estimated Project Costs (US$ Millions) Local Foreign Total Policy Development 0.5 0.2 0.7 Information Systems 1.5 2.7 4.2 Training 0.6 0.3 0.9 Project Administration 0.5 0.5 Total 3.1 3.2 6.3  China: Pension Reform Project Annex 4 - Page 20 Project Appraisal Document June 4, 1999 Annex 4 Pension Reform Project Procurement and Disbursement Arrangements I. Procurement 1. All goods and services under the IDA credit would be procured in accordance with IDA guidelines for goods and services - Guidelines: Procurement under IBRD loans and IDA Credits, January 1995 and revised in January and August 1996, September 1997 and January 1999 (procurement guidelines) and Guidelines: Selection and Employment of Consultants by World Bank Borrowers and by World Bank as Executing Agency, September 1997, revised in January 1999. The China Model Bidding Documents for International Competitive Bidding (ICB) and National Competitive Bidding (NCB) procedures will be used. All consultant assignments will follow the Standard Request for Proposals- Selection of Consultants, dated July 1997 and revised in April, 1998. 2. The management of the procurement of goods and equipment and consultant services under the Project would be the responsibility of the Project Implementation Unit (PIU), who will be supported by administrative, procurement and other required staff on an on-going or as-needed basis. 3. Procurement Capacity of the Project Implementation Unit (PIIJ) and Project Management Offices (PMOs). A review of the procurement capacity of the PIU was completed during pre-appraisal. In an effort to ensure procurement quality both at the level of the PIU and the PMOs, the following measures would be taken: (i) a training program for PIU and PMO staff will be completed prior to December 31, 1999; (ii) technical support will be contracted as needed, including a procurement specialist to advise the PIU on procurement procedures; and (iii) tendering companies will provide assistance for all ICB and NCB contracting. Although much of project implementation will take place at the level of the labour bureaus in Heilongjiang province and Qingdao, respectively, the PIU would be responsible for quality control for all procurement processing. The PIU would also provide procurement support to each of the implementing agencies. The PIU would be expected to: (i) prepare and update the procurement plan pertaining to itself and the implementing agencies under the Project; (ii) monitor the progress of procurement; and (iii) assist the implementing agencies in (a) the preparation of bidding documents and advertisements for goods procurement and requests for proposals for consultant assignments, and (b) bid opening and evaluation. 4. Procurement Plan. A draft General Procurement Notice (GPN) will be prepared for the Project and would be finalized and published in Development Business after Board approval. The GPN would be updated every six months and submitted to IDA. It would show all outstanding ICB for goods contracts; and international consultant assignments. A procurement plan has been prepared by the Borrower and includes relevant information on goods and services contracts under the Project as well as the timing of each milestone in the procurement process. The procurement plan and implementation schedule would be updated every six months and submitted to IDA. 5. Training. Training within the country and abroad, including twinning arrangements will be carried out on the basis of IDA approved programs which would identify the nature of training, the specific objectives of the training programs undertaken, personnel to be trained, the duration of training, institutions where training would be conducted and detailed cost estimates for the training. Such programs would be submitted to IDA for review and clearance annually and, as needed, updated and cleared every six months.  China: Pension Reform Project Annex 4 - Page 21 Project Appraisal Document June 4, 1999 Table IV-A: Project Costs by Procurement Arrangements (in US$ million equivalent) 1. Goods 2.60 0.45 0.35 0.60 4.00 (2.60) (0.45) (0.25) (3.30) 2. Consulting Services 0.90 0.90 (0.90) (0.90) 3. Training 0.80 0.10 0.90 (0.80) (0.80) 4. Operating Costs 0.50 0.50 Total 2.60 0.45 2.05 1.20 6.30 (2.60) (0.45) (1.95) (5.00) * Figures in parenthesis are the amounts to be financed by the IDA credit.