Cambodia - Health Sector Support Project

Document of The World Bank Report No: 24220-KH PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 13.1 MILLION (US$ 17.2 MILLION EQUIVALENT) AND PROPOSED IDA GRANTS OF SDR 1.6 MILLION (US$2.0 MILLION EQUIVALENT) AND SDR 6.0 MILLION (US$7.8 MILLION EQUIVALENT) TO THE KINGDOM OF CAMBODIA FOR A HEALTH SECTOR SUPPORT PROJECT November 25, 2002 Human Development Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective August 19, 2002) Currency Unit = Riel Riel 1 = US$0.000262 US$1 = Riel 3,815 FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank JSR Joint Sector Review ADB-HSSP ADB Part of HSSP MDG Millennium Development Goals AIDS Acquired Immune Deficiency Syndrome MEF Ministry of Economy and Finance ARI Acute Respiratory Infection MMR Matemal Mortality Rate BMC Budget Management Center MOE Ministry of Environment CAS Country Assistance Strategy MOH Ministry of Health COCOM MOH Coordination Committee MPA Minimum Package of Activities CPA Complementary Package of Activities MSF Medecins sans Frontieres CSW Commercial Sex Worker MTEF Medium Term Economic Framework CPAR Country Procurement Assessment Report MTR Mid-Term Review DCA Development Credit Agreement NGO Non-governmental Organization DCHD Disease Control and Health Development NIPH National Institute of Public Health DFID U K Department for Intemational Development OD Operational Distncts DHS Demographic and Health Survey PCU Project Coordinating Unit DOTS Directly Observed Treatment, Short-Course PER Public Expenditures Review DRF Drug Revolving Fund PHA Provincial Health Advisor EMP Environmental Management Plan PHC Pnmary Health Care FMG Financial Management Group PHD Provincial Health Department FDD Food and Drug Department PIP Project Implementation Plan GOKC Government of the Kingdom of Cambodia PLWHA People Living with HIV/AIDS HC Health Center PMMP Pesticide Management and Monitonng Plan HCF Health Care Facility QA Quality Assurance HCWM Health Care Waste Management SIL Specific Investment Loan HIV Human Immunodeficiency Virus SIM Sector Investment and Maintenance Loan HIWG HSSP Implementation Working Group SMG Sector Management Group HMA Health Management Agreement STD Sexually Transmitted Disease HNP Health, Nutrition and Population STI Sexually Transmitted Infection HSSP Health Sector Support Project SWIM Sector Wide Management Program HWP Health Workforce Plan TB Tuberculosis IDA International Development Association U5MR Under Five Mortality Rate IEC Information, Education and Communication WB-HSSP World Bank Part of HSSP IMR Infant Mortality Rate WHO World Health Organization Vice President: Jemal-ud-din Kassum, EAPVP Country Manager/Director: Ian C. Porter, EACTF Sector Manager/Director: Emmanuel Y. Jimenez, EASHD Task Team Leader/Task Manager: Vincent Turbat, EASHD  CAMBODIA HEALTH SECTOR SUPPORT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2. Main sector issues and Govemment strategy 5 3. Sector issues to be addressed by the project and strategic choices 13 C. Project Description Summary 1. Project components 16 2. Key policy and institutional reforms supported by the project 21 3. Benefits and target population 22 4. Institutional and implementation arrangements 22 D. Project Rationale 1. Project altematives considered and reasons for rejection 24 2. Major related projects financed by the Bank and other development agencies 26 3. Lessons leamed and reflected in the project design 27 4. Indications of borrower commitment and ownership 27 5. Value added of Bank support in this project 27 E. Summary Project Analysis 1. Economic 28 2. Financial 28 3. Technical 29 4. Institutional 29 5. Environmental 35 6. Social 38 7. Safeguard Policies 41 F. Sustainability and Risks 1. Sustainability 42 2. Critical risks 42  3. Possible controversial aspects 44 G. Main Conditions 1. Effectiveness Condition 44 2. Other 45 H. Readiness for Implementation 48 I. Compliance with Bank Policies 48 Annexes Annex 1: Project Design Summary 49 Annex 2: Detailed Project Description 55 Annex 3: Estimated Project Costs 64 Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 65 Annex 5: Financial Sunmmary for Revenue-Earning Project Entities, or Financial Summnary 72 Annex 6: Procurement and Disbursement Arrangements 73 Annex 7: Project Processing Schedule 97 Annex 8: Documents in the Project File 99 Annex 9: Statement of Loans and Credits 101 Annex 10: Country at a Glance 103 Annex 11: Health Management Agreements 105 Annex 12: Environmental Review 110 Annex 13: Social Assessment 114 Annex 14: Equity Funds 123 Annex 15: Supervision Schedule and Budget 126 MAP(S) IBRD32073  CAMBODIA Health Sector Support Project Project Appraisal Document East Asia and Pacific Region EASHD Date: November 25, 2002 Team Leader: Vincent Turbat Sector Director: Emmanuel Y. Jimenez Sector(s): Health (100%) Country Director: Ian C. Porter Theme(s): Fighting communicable diseases (P), Health Project ID: P070542 system performance (P) Lending Instrument: Sector Investment & Maintenance Loan (SIM) tProjectjFinancing.Data %. r > '% r , ,. * ' f ;-,; ^ ' - ..' [ Loan [X] Credit [X] Grant [ ] Guarantee [I Other: For Loans/Credits/Others: Amount (US$m): US$17.20 (Credit) US$9.80 (Grants) Proposed Terms (IDA): Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: Standard Service charge: 0.75% -, - " ~ ~ ~ ~ ~ ~ ~ ~ ~~', O :Oi"a'n,-Plan (JS$m) . Source ,'',F relgmO* ..: Totalj , BORROWER/RECIPIENT 3.00 0.00 3.00 IDA 6.52 10.68 17.20 UK: BRITISH DEPARTMENT FOR INTERNATIONAL 0.57 1.27 1.84 DEVELOPMENT (DFID) IDA GRANT FOR POOREST COUNTRY 2.84 4.96 7.80 IDA GRANT FOR HIV/AIDS 1.00 1.00 2.00 Total: 13.94 17.90 31.84  BorrowerlRecipient: KINGDOM OF CAMBODIA Responsible agency: MINISTRY OF HEALTH Address: 151 - 153 Kampuchea Krom, Phnom Penh, Cambodia Contact Person: Dr. Char Meng Chuor Tel: 855 23 880 406 Fax: 855 23 880 407 Email: mengchuor.pcu@bigpond.com.kh Estimated Disbursements ( Bank FYiUSSm): FY >2003l 2004 ,2005 XA200- 2007 2008 . . Annual 2.01 l 4.82 5.65 5.84 5.84 2.84 Cumulative 2.01 6.83 12.48 18.32 24.16 27.00 Project implementation period: 2003-2007 Expected effectiveness date: 02/01/2003 Expected closing date: 12/31/2007 OCS FPD PF Mt.. I.d0 -2 -  A. Project Development Objective 1. Project development objective: (see Annex 1) The objective of this project is to contribute to the improvement of the health status of the population by: (a) increasing the accessibility and the quality of health services; and (b) assisting the Kingdom of Cambodia to implement its Health Sector Strategic Plan and strengthen the sector's capacity to manage resources efficiently. The project's specific objectives are to: (i) develop affordable quality health services with emphasis on primary health care and first referral services in rural areas; (ii) increase the utilization of health services by the poor; (iii) mitigate the effects of infectious disease epidemics and of malnutrition; and (iv) improve the health sector's capacity and performance. 2. Key performance indicators: (see Annex 1) In conformity with the Millennium Development Goals (MDGs) and the Ministry of Health's (MOH) targets for the year 2005, an extended list of 23 core performance indicators are proposed to monitor and evaluate the project (see Annex 1); of these, the following constitute nine key performance indicators that will be monitored on an annual basis: 1. MOH recurrent budget (salary excluded) as a proportion of the total Government recurrent (salary excluded) budget. 2. % of the population with access to Health Centers (HC) providing a minimum package of activities (MPA) services (as defined by MOH). 3. Per capita consultations (or visit rate) for curative care in public facilities, especially by the poor. 4. % of patients satisfied with services received in public health facilities. 5. % of Provincial Health Departments (PHD) and Operational Districts (OD) producing annual health plans/Health Management Agreements (as specified in the MOH manual). 6. Incidence of malaria per 100,000 inhabitants in areas at risk and malaria case fatality rate in public facilities per 100 patients. 7. Pulmonary tuberculosis (TB) smear (+) case detection rate and cure rate. 8. HIV sero-prevalence rate among women attending antenatal care. 9. Malnutrition (weight-for-age) rate in children < 2 and children 2-5 years of age. - 3 -  Analysis of these indicators will include, where pertinent, the examination of the situation by income (quintile, poor/non-poor, exempted/non-exempted, etc.), sex, and ethnicity. Changes in these indicators (and in other proxy indicators) will be monitored and compared with the respective base line levels. Progress will be evaluated at mid-termn and at the end of the project against projected improvements of these indicators. Impact will also be measured by comparing health and nutritional status as estimated through Demographic Health Surveys (DHS) and National Health Surveys (NHS). The design of these surveys will be adapted to allow the breakdown of data per income groups and by adding more specific information on matters such as nutrition and HIV/AIDS. B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 020077-KH Date of latest CAS discussion: 02/07/2000 The main objective of the 2000 CAS is to help the Government of the Kingdom of Cambodia (RGC) to establish the foundations for sustainable development and poverty reduction over the medium and long term. Achieving this objective will involve: (a) rebuilding human capital by increasing access to quality health care services; (b) supporting good governance; and (c) facilitating private sector development. By focusing on accessibility and quality of health services in rural areas, where the majority of poor people live, the Health Sector Support Project (HSSP) will contribute significantly to the implementation of the joint IDA/EFC CAS. The project will also contribute to the attainment of the objectives listed in the Interim Poverty Reduction Strategy Paper (I-PRSP). The proposed strategy aims, among others, at reducing poverty by investing in health and nutrition activities that explicitly target the poor and vulnerable groups. The proposed HSSP is an integral part of the RGC sector-wide effort (called Sector-Wide Management; SWIM) in the health sector currently being implemented with support of donors and non-governmental organizations (NGOs). This approach (SWvIM) is described in the government's Health Sector Strategic Plan, 2003-2007. The HSSP was designed and will be financed and implemented in a collaborative manner with the Asian Development Bank (ADB) and the United Kingdom's Department for International Development (DFID). The ADB financing will be parallel to that of the IDA while the DFID will use both co-financing and parallel financing. The ADB part of HSSP (ADB-HSSP) will be financed through an ADB concessional loan (US$20.0 million) and a Japanese grant (US$2.2 million), and co-financed by DFID (US$10.4 million equivalent). The World Bank part of HSSP (WB-HSSP) will be financed through an International Development Association (IDA) credit (US$17.2 million) and two IDA grants (IDA grant for HIV/AIDS: US$2.0 million and IDA grant for poorest country: US$7.8 million, or a total amount of US$9.8 million), and co-financed by DFID (US$1.84 million equivalent). Moreover, DFID will provide an additional grant of US$9.76 million equivalent, which will be allocated on an annual basis. The first development grant will finance, together with other partners, including the Global Fund to fight AIDS, Tuberculosis & Malaria, activities aiming at controlling the HIV/AIDS pandemic in Cambodia. The activities to be financed include the procurement of STI drugs (for an estimated amount of US$0.86 million) and the implementation in the field of the "100% condom use" strategy that targets specifically sex workers and other high risk groups and effectively decreases STIs and HlV transmission (for an estimated amount of US$1.0 million). An amount of US$0.14 remains unallocated at this stage and will be allocated to HIV/AIDS activities during the sector annual reviews. - 4 -  The second development grant will finance activities that address the special public health needs of Cambodia as one of the poorest IDA countries. The activities to be financed include Malaria Control (for an estimated amount of US$2.2 million), Tuberculosis control (for an estimated amount of US$2.7 million), Dengue control (for an estimated amount of US$0.9 million) and Nutrition (for an estimated amount of US$2.0 million). IDA grants for Cambodia for this FY (2003) have been mostly allocated to the health sector, which received about 81% of the total amount of grants for H1V/AIDS and poorest countries. In addition, the education sector received 1% for HIV/AIDS and the remaining 18% will be allocated in accordance with the IDA 13 guidelines to projects to be delivered this FY. For the upcoming years, IDA grants allocation will be discussed as part of the CAS preparation. The WB-HSSP will: (a) continue IDA's assistance to the Government's sector reforms that was successfully initiated under the WB-financed Cambodia Disease Control and Health Development Project (WB-DCHD; Cr. N005-KH); (b) provide IDA's support for MOH's adoption and implementation of the SWIM approach, emphasizing governance, infrastructure development and health/education; (c) focus IDA's lending on rural infrastructure and rural development; and (d) increase IDA's collaboration with partners (multilateral, bilateral, and NGOs) and, in particular, with ADB and DFID. The project will promote the World Bank Group Assistance Program as proposed in the CAS through its emphasis on: * building good governance and its support to health sector reform by: (a) promoting transparency in the budget allocation process, in cost recovery schemes, and in health provider employment regulations; and (b) encouraging provider accountability in health service delivery and participation of users of services in decision making at health facility level; * developing rural areas by: (a) extending health facility coverage; (b) increasing accessibility and affordability of health services in the rural areas; and (c) supporting the RGC's effort to redeploy health providers; * building physical infrastructure by upgrading and expanding the existing health facility network both at primary (health centers) and secondary (referral hospitals) levels; * developing the private sector by: (a) involving private providers and community-based operators in health service delivery in the public sector; and (b) enacting regulation promoting the private provision of quality services; and * coordinating with other aid agencies. Specifically, the HSSP was designed and will be financed and implemented in a coordinated manner with ADB and DFID. Among the other donors and technical agencies, the collaboration with the German Technical Cooperation (GTZ), the World Health Organization (WHO), and the United Nations Children's Fund (UNICEF) has been particularly fruitful so far and will be further pursued. Consultation and collaboration on specific activities has also been established with: Australian Agency for International Development (AusAID); Canadian International Development Agency (CIDA); European Commission (EC); French Cooperation; Japan International Cooperation Agency (JICA); Swedish International Development Cooperation Agency (SIDA); and United States Agency for International Development (USAID). 2. Main sector issues and Government strategy: Background. Cambodia is still struggling to overcome decades of war, genocide and social disruption, and remains one of the poorest countries in Southeast Asia (with one of the highest - 5 -  proportions of population living below the poverty line; see Tables B.1 and B.2 below for a list of comparative indicators). Table B.1: Economic Indicators in Cambodia and Selected Southeast Asian Countries GDP Per GDP Growth Governmental % of Population % of Population Capita Rate (Average Tax Revenue that is Urban Below National 2001 Annual) as % of GDP 1995 1/ Poverty Line 2001 - 2005 1998 1995 - 2001 Cambodia 276 4.5 8.5 21 36 Indonesia 680 4.4 15.6 35 13 Lao PDR 340 5.0 9.8 22 46 (1993-1998) Philippines 930 4.6 16.6 54 26 Vietnam 415 7.0 18.8 21 32 Sources: World Bank except as noted. 1/ ADB (1999). Cambodia's economic and social indicators are similar to those of most South Asian countries than to those of other Southeast Asian countries (except those of Lao PDR). Only 65% of Cambodian adults are literate (compared to 94% in neighboring Vietnam and 95% in the Philippines). Women in Cambodia face particular disadvantages, particularly in education, where female secondary school enrollment is only 59% of male enrollment, compared to 93% in Vietnam and 102% in the Philippines. Except for Lao PDR, Cambodia has the highest percentage of children in the labor force. Further, as indicated in Box B. 1 below, based on its current situation and its projected MDGs, Cambodia has been assessed as "not being on track" to reach MDGs goals by 2015. Box B.1: Cambodia's MDGs (1, 4, 5 and 6) for 2015 * Reduce extreme poverty from 36% to 20% (MDG-1); * Reduce the proportion of under-weight children under five years of age from 50 to 26% (MDG-1); * Reduce infant mortality from 95 to 32 deaths per 1,000 live births, and under-five mortality from 125 to 41 deaths per live birth (MDG-4); * Reduce the ratio of Maternal Mortality from 437 to 250 deaths per 100,000 live births (MDG-5); * Achieve a reduction in HIV infection rates among the 15 to 49 years of age from 2.8 to 2.1% (MDG-6). Table B.2: Social Indicators in Cambodia and Selected Southeast Asian Countries Country Adult Literacy Female Secondary Percent of Children (% of people age 15 School Enrollment Age 10-14 in the Labor and above) As % of Male Force 2000 1/ 1990-1996 1997 Cambodia 68 59 24 Indonesia 87 85 8 Lao PDR 49 61 25 - 6 -  | Philippines | 95 | 102 | 5 Vietnam 93 93 5 Sources: World Bank except as noted. 1/ UNESCO, 2002. Health Sector Issues Financing and Financial Resources Utilization Issues. Expenditures for health care in Cambodia account for 12-13% of GDP, the highest share among Asian developing countries. Nonetheless, in spite of this high proportion of GDP spent on health, public sector support for health care is low and access to and use of basic health services is inequitable. Health expenditures financed from the Government budget are less than 5% of total annual expenditures or US$2.90 per capita. External funding from donors and NGOs is two to three times higher than the Government share, and out-of-pocket household expenditures account for 82-84% of total health expenditures, one of the highest household shares in the world. Recent studies found that: (a) private providers deliver twice as many services as public providers; (b) both public and private providers offer low quality services; and (c) neither type of provider effectively reaches the poor population. With regard to the MOH budget, expenditures on primary health care (PHC) are very low (2.7% of total MOH expenditures) and have not increased during recent years; expenditures on hospitals, although relatively more important (6.5% of total), have also remained very modest; while expenditures for health administration and training (88% of total) are substantial. This disproportionate expenditure structure can be explained to a large extent by the very low salaries of the public health providers. As a result, the health sector's performance remains low. This situation is further worsened by problems with geographical distribution of financial and other resources, financial management and procurement. Capacity Problems. Over the past decade, the Government has made significant progress in reestablishing the health services destroyed by the Khmer Rouge regime. Initial emphasis on the reconstruction and rehabilitation of public health facilities has been complemented recently by increased attention to health service delivery (in both the public and private sectors) and to health sector reform, particularly in the areas of human resource development and sustainable financing. Despite such progress, the public health system remains far from operating optimally. MOH is not yet sufficiently able to: (a) establish a cohesive enabling environment linking policy, legislation, and regulation with sector activity planning; (b) work effectively with the 24 provinces and 73 operational districts of the country to plan and program health service interventions; (c) allocate and deploy resources efficiently to health care providers at different levels; and (d) monitor and evaluate the performance of the health service delivery system. MOH has initiated a sector-wide management reform (SWIM) to improve sector performance through: (a) the formulation of a sector strategic plan and annual operational plans; and (b) the enhancement of health sector management capacity. In August 2002, at the end of a comprehensive strategic planning exercise (assisted by DFID and carried out in consultation with all main stakeholders) that reviewed and updated the sector strategies, the Health Sector Strategic Plan for 2003-2007 was adopted. SWIM will also help strengthen donor coordination at national and provincial levels and, more generally, will foster decentralization and improve stakeholder participation in the decision making process for the health sector. Among the challenges facing MOH are: (a) adoption and subsequent enforcement of the legal and regulatory instruments for sector reform; (b) definition of roles and responsibilities for health services administration and health care delivery at national, provincial, and district levels; and (c) effective improvement of key sector-wide functions, particularly in the areas of: - 7 -  (i) accessibility to health facilities, quality of care and utilization of services; (ii) human resources development (including manpower planning); (iii) decentralized financial management; (iv) procurement (including various possibilities for contracting in and contracting out services); and (v) evaluation of sector performance. Quality, Affordability and Utilization of Services. Despite the population's poor overall health status and great needs, public health services are underutilized (e.g., the bed occupancy rates in public hospitals and the average number of consultations delivered in outpatient facilities are lower than in neighboring countries). In addition, household survey data indicate that service utilization is inequitable, and access and affordability of services for the poor remain critical. Distortions in the geographical distribution of health personnel and facilities contribute to the problem of access to services while the precarious quality of health care services contributes to service underutilization. In addition, the persistence of under-the-counter payments (albeit reduced in the last years by the establishment of user fees), the inadequacy of risk pooling arrangements, and the scarcity of health facilities in the poorest geographical areas result in a much lower use of services by the poor. One of the major challenges of the current sector reform is to raise the quality of services and increase service utilization while simultaneously maintaining or improving the affordability of the minimum (MPA) and complementary (CPA) packages of activities. There is also a need to better inform the consumer on the existing services and raise the demand for public services. Also, it is essential to improve user satisfaction regarding the services provided by both private and public sectors. In recent years various arrangements (known as "New Deal", "Boosting", and contracting in and out of public services) have been piloted by several donors in selected health facilities, featuring: (a) contracting of services and management to private operators (NGOs); (b) providing better formal fees/salaries to health providers in exchange for better services; and (c) financing of services provided to the poor population from equity funds. Evaluations demonstrate that these projects have improved service utilization and health outcomes, strengthened short-term financing and management, and, therefore, deserve to be expanded. However, these programs have been substantially donor supported and driven, and their design has not adequately addressed important issues such as long-term financial sustainability and management limitations. Problems with Drug Quality and Utilization. While drug availability has improved since the introduction of the Cambodia National Drug Policy in 1995, among the key persisting problems there are: (a) MOH's limited capacity to adequately purchase pharmaceuticals; (b) problems with drug management and distribution; and (c) insufficient funding from the public budget to cope with price and drug consumption increases. Further, the ability to control drug quality is modest and the enforcement of drug regulations is plagued by logistic and personnel problems. About 2,000 illegal pharmacies, spread all over the country, do not comply with the Food and Drug Department's (FDD) regulations and provide drugs of poor quality. As a result, public health facilities as well as private pharmacies do not provide adequate access to quality and affordable essential drugs. Drug shortages affect, in particular, the poor living in the remote areas of the country. In addition, drugs are rarely prescribed in compliance with standard treatment guidelines. While drugs are theoretically free for the indigent seeking care in the public sector, drug quality is poor (according to health providers) and many essential drugs are not available for long periods of time (as shown in field visit and supervision reports). Burden of Communicable Diseases and Emergency of HIVIAIDS Epidemic. Because Cambodia is at the beginning of its demographic and health transition, the burden of communicable diseases as well as of pregnancy-related conditions is still very important. As indicated in Table B.3 below, the risk of death is high for infants, children, and pregnant women: in 1997 the Infant Mortality - 8 -  Rate (IMR) was still around 95; the Under Five Child Mortality Rate (U5MR) was approximately 115 per 1,000 live births; and the Maternal Mortality Rate (MMR) was estimated at 900 per 100,000 live births. It is worth mentioning that in recent years progress has been made in all these indicators: IMR was estimated at 65.4 in 2001; U5MR at about 130 per 1,000 in 2000; and MMR at 473 per 100,000 live births. In spite of these improvements, the health status of the Cambodian population remains critical and compares poorly with most of the other countries in the region. Also, Cambodia has high fertility rates (Total Fertility Rate is 5.0), Contraceptive Prevalence Rate (modern contraceptive methods) has not reached 20%, and the Population Growth is still at around 2.5%. Diseases for which cost effective interventions are available (that is, diseases which could be avoided if resources were available and appropriately used) affect the health status of the population in Cambodia to an overwhelming extent; among these, communicable diseases remain the main causes of morbidity and mortality. According to the recently conducted Joint Health Sector Review, three quarters of the burden of all diseases could be eliminated. Child mortality, for example, could be reduced by up to 23% by providing vitamin A supplementation, an easily implementable and cost-effective strategy. Similarly, important improvements in child health status could be derived from a more effective immunization program. As in other developing countries there is limited access to safe water and appropriate sanitation, and acute respiratory infections, water borne diseases, diarrhea, and neonatal tetanus are among the main public health problems. Other important public health problems are tuberculosis, malaria, dengue and the STIs/HIV/AIDS epidemic. Table B.3: Health Indicators in Cambodia and Selected Southeast Asian Countries in 1997 HIV/AIDS Maternal Under 5 Children Under 5 Low Birth Prevalence Mortality Rate Mortality with Moderate Weight (%) (per 100,000 Rate and Severe (%) live births) (per 1,000 Stunting live births) (%) Cambodia 2.40 (a) 900 115 (b) 53.0 (c) (96) 18 Indonesia 0.05 390 60 42.0 (95) 11 Lao PDR 0.04 660 122 47.0 (94) 18 Philippines 0.06 210 41 32.7 (93) 11 Vietnam 0.22 105 40 47.0 (94) 17 Sources: World Bank (1999). (a) 1.8 in 2001; (b) Ministry of Health (1999) for a ten-year period (1993-1998); and (c) 44.6% in the year 2000. Tuberculosis (TB) is still one of the most important infectious diseases in Cambodia. The incidence rate of TB (all forms) is estimated at 540 new cases per 100,000 inhabitants and the smear-positive pulmonary TB incidence rate at 241/100,000 (in 1999, there were 18,503 new cases of tuberculosis of all forms and 15,773 new smear positive pulmonary TB recorded in public health facilities; also 10% of all new cases were extra-pulmonary cases, 5% of the new cases were sputum negative and the remaining 85% were pulmonary sputum positive cases). Among the issues contributing to this situation are the poverty of the population, the lack of access to health facilities in some remote geographical areas, the inadequate level of performance of public health facilities, and the emergence of multi-drug resistant TB strains. In response to the high level of the TB epidemic, the MOH has strengthened the capacity of the National Center for Tuberculosis Control, has adopted and implemented a very efficient strategy [i.e., Directly Observed Treatment, Short-Course (DOTS)], has improved the delivery of TB control activities by integrating them into the health service delivery system, and has -9-  adopted the National Health Policies and Strategies for TB control for the Kingdom of Cambodia for the period 2001-2005. As a result of these efforts, the TB cure rate has improved dramatically (more than 85% of the new detected cases are successfully treated and become sputum negative). The new objectives pursued by the TB program include the further expansion of DOTS to all ODs and, gradually, to health centers and communes, efforts to maintain the cure rate at currently reached levels, improved prevention and case detection, and greater equity and access to TB services. TB program management activities are aimed, inter alia, at improving TB reporting, quality of laboratories, provision of specialized drugs of good quality, and quality of supervision. Malaria is still highly prevalent in some areas of the country (in the central region the malaria transmission is moderate, while in the northeast and northwest regions malaria transmission is very high). Although recent indicators seem to suggest that the epidemic might have started to decline due to the implementation of the impregnated bed nets and impregnated hammock-nets policy, the malaria epidemic remains an important public health concern in Cambodia. Climatic conditions, the high level of poverty and population mobility, the weaknesses of the public infrastructure (roads, communications and health services in particular in the remote areas) and the development of drug resistance contribute to the complexity of the malaria epidemic. The National Center for Parasitology, Entomology and Malaria Control (created in 1984 under the name of the National Malaria Center) is the leading institution in malaria control. The malaria control program is integrated in the provincial and district health services (the staff of all provinces and of those districts affected by malaria include malaria supervisors) and executed at the commune level by the network of public health facilities. In the geographical areas of moderate and high transmission (this encompasses 337 out of the total of 1,569 communes, or about 15% of the population) the prevalence rates range from 15-40% and the fatality rate reaches 10%. These high prevalence rates are found in villages surrounded by forests while the prevalence can be as low as 0-3% in the plains and rice fields (where the case fatality rate is also much lower). The importance of the epidemic is documented by fact that malaria remains the first cause of hospitalization (14% of all hospital admissions and 23% of all hospital deaths are due to malaria) and the third cause of attendance of public outpatient services (the very many consultations for malaria that occur in private sector are not recorded). The malaria case fatality rate (1.1% for the entire country) is higher than in the neighboring countries. In the year 2000 there were about 130,000 patients treated for malaria (half of these were confirmed microscopically) and 600 deaths attributable to malaria. Eighty percent of deaths and 92% of positive slides are attributable to Plasmodium Falciparum, and the remaining mostly to P. Vivax and to a very small proportion of mixed infections. Falciparum multi-drug resistant strains are wide-spread especially in the Westem provinces. The National Malaria Control Program's latest policy document, i.e., the Strategic and Operational Master Plan for National Vector Borne and Parasitic Disease Control Programs (Malaria, Dengue, Filariasis, Schistosomiasis, and Helminthiasis) for the period 2001 to 2005, aims at reducing malaria morbidity by 20% and malaria mortality by 30% by strengthening institutional capacity centrally and at the periphery, improving case management (e.g., dipstick or microscopy for diagnostic, prepackaged affordable drugs distributed with the help of drug vendors and involvement of private practitioners for appropriate treatment), intensifying prevention in the population at risk (bed nets and hammock nets, social marketing, reimpregnations campaigns), and increasing information, education and communication (EEC) in the population at risk and among ethnic minorities. Specific prevention activities have been designed for different groups at risk which include traditional forest population, forest workers, new forest settlers and some marginalized ethnic minorities (e.g., bed nets or hammock nets, distributed free of charge or through social marketing, targeting children, pregnant women and/or adults). Lastly, the program also pursues the strengthening of malaria surveillance and control of outbreaks. To some extent, malaria program activities are relevant for curbing dengue hemorrhagic fever, which is another important epidemic disease. Dengue (a viral disease which is also transmitted through a - 10 -  mosquito vector) increasingly affects children living in urban areas and has started to spread to other population groups and new geographical areas. The dengue control activities aim at: (a) protecting the population at risk (limiting contact with and development of the vector); (b) detecting early and treating cases appropriately; and (c) improving health provider skills. In contrast with the malaria and TB programs in which the donor community has provided substantial support, the dengue control program has received less support and has a larger financial gap. The HIV/AIDS epidemic, resulting primarily from heterosexual transmission of the HIV virus, is another major challenge. HIV prevalence in Cambodia is the highest in Asia, and the number of reported AIDS cases has increased sharply in recent years. However, it is worth mentioning that from 1997 to 2000 the number of people living with HIV/AlDS (PLWHA) (estimated on the basis of available HIV and behavioral surveillance data) has declined, from 210,000 in 1997 to 170,000 in the year 2000. This was measured with similar techniques and occurred, very likely, as a result of the activities to increase awareness and improve sexual behavior, and of the concomitant death of AIDS cases. Notwithstanding this decline, the epidemic remains high (at about 3.7% in the population 15-49 years in 1999), and HIV/AIDS control activities maintain their importance. Among the factors impeding the success of interventions to reduce HIV are the: (a) low use of condoms (about 30% of those having sex with sex workers do not use condoms); (b) frequency of STIs in the groups at risk (women sex workers and the indirect sex workers, and soldiers, policemen, truck and motorbike drivers for men); (c) high proportion of HIV positive sex workers and STI patients (4.2% but, in some provinces, up to 40% of brothel-based commercial sex workers are HIV positive, and 9.2% of STI patients are HIV positive); (d) high population mobility (internal migration and exchanges with the neighbor countries); (e) persistence of important behavioral risks (it is customary for most men, including married men, to have sex with sex workers; when this occur condoms are rarely used); and (f) the TB epidemic. The country has established a rather reliable sentinel system that enables to monitor the epidemic in six sentinel groups [female commercial sex workers (CSW), indirect sex workers, male police officers, pregnant women attending antenatal care, TB patients, and hospital patients]. With the participation of many external and internal partners, the MOH (through its National Center for HIV/AIDS, Dermatology and STI) has developed a "Policy for HIV/AIDS prevention and care in the health sector in Cambodia", and a Strategic Plan for 2001-2005. The priorities of the HIV/AIDS policy are: (i) reduction of transmission through activities in groups at high risk aimed at decreasing STIs and promoting "100% condom use"; (ii) provision to the general population of IEC, counselling and testing services; and (iii) strengthening of the health delivery system. Other important areas of action are: provision of STI services using both public and private providers, blood safety, mother to child transmission, AIDS care (treatment of opportunistic infections, guidance on AIDS case management, guidance for health providers to avoid stigmatization of PLWHA, expansion of home-based AIDS care programs, HIV counselling and testing, and epidemiological surveillance and research. It is worth mentioning that: (a) the financial gap foreseen in the implementation of STIs/HIV/AIDS control activities during the proceeding 5-6 years has been reduced due to the strong commitment of the Government and donor community (especially through the Global Fund to fight AIDS, Tuberculosis & Malaria); and (b) due to the efforts made by the program and the support received from the international community, Cambodia is one of the very few developing countries in which the epidemic has recently started to decline. - 11 -  Nutrition Problems. Another important underlying factor of the high morbidity and mortality rates in Cambodia is the poor nutritional status of children under 5 years of age and women. Cambodia has the highest rates of under-nutrition in children under 5 years of age in the region: 44.6% of children under five are stunted (low height for age) and 45% of children are underweight (low weight for age). Rates of micronutrient malnutrition also are high. Sixty-three percent of 6-59 months old children are anemic (hemoglobin < 11 g/dL) with high rates of severe anemia (hemoglobin < 7g/dL) in the 0-1I month age group. In Cambodia, 6.9% of 0-1I month old children are severely anemic (it is considered a public health problem when the prevalence of severe anemia is greater than 2%). Also, 58% of 15-49 year old women are anemic with high levels (> 2%) of severe anemia in pregnant women. Iodine deficiency disorders are endemic in some areas of Cambodia. The latest survey, in several provinces, found goiter in 12% of school children and in two out of three women. Eight percent of women have night-blindness, a manifestation of severe vitamin A deficiency. The consequences of malnutrition in Cambodia are significant. It is estimated that in 49% of childhood deaths under-nutrition is an underlying cause of death, i.e., 49% of children would not die from a childhood illness if they were well-nourished. Most of these deaths do not occur in children with sev,re under-nutrition but in the much greater group of children with mild to moderate malnutrition. The consequences of micronutrient malnutrition are also significant and include: (a) increased risk for morbidity, mortality, and learning and developmental disorders in children; and (b) increased risk for morbidity and mortality and reductions in productivity in adults. Cost-effective interventions exist to reduce malnutrition in both children and women (nutrition interventions account for 8 out of the 22 most cost effective public health interventions for developing countries, as defined by the World Bank) but, so far, they have not been adequately implemented in Cambodia. Also, there are insufficient skill and capacity for designing, planning and implementing nutrition activities, and, in particular, for effecting behavioral changes in population. High Maternal Mortality and Other Reproductive Health Problems. Although declining, matemal mortality is still very high (437/100,000 live births) due to poverty, high fertility rates and inadequacies of the health care system. About half of pregnant women are not seen by a trained professional for antenatal care (33.8% in rural and 62.3% in urban areas). Similarly, many deliveries are not assisted by a qualified health provider (surveys show that only 14-19% of women with life-threatening obstetrical complications reach a hospital and when they do it is generally late). Moreover obstetric care is expensive and this affects the access of poor women (who also have the highest fertility rates). Other important aggravating factors are the low utilization of contraceptive methods, the frequency of unsafe abortion and the poor level of obstetrical care of most public health facilities (because of deficiencies of the physical infrastructure, obsolete equipment, lack of drugs and blood, unsatisfactory skills and lack of motivation of doctors and midwifes). Government Strategy Since 1996 the MOH has pursued a comprehensive reform of the health sector aiming "to promote people's health, enabling them to participate in the development of the socioeconomic sector and reduce the poverty in Cambodia." The reform is based on the fundamental principles of equity in accessibility to quality basic health services and protection of the poor. Its principal strategies include: (a) promoting women and children's health; (b) reducing the incidence of communicable diseases; (c) improving access to quality health care for all categories of the population; (d) upgrading health staff skills; (e) extending and strengthening private sector participation; and (f) reforming the health financing system by adopting more equitable budget allocation principles and developing cost recovery. To date, many individual projects financed by both multilateral and bilateral donors have addressed key issues, such as the need for investment in buildings and equipment, and the need for - 12 -  improving nursing, midwifery, medical and management skills. While some problems have been successfully tackled by this "one project one donor" approach, many other sector-wide problems have yet to be properly addressed. For example, it has become apparent that a broader approach is needed to provide incentives for good performance, improve the distribution and skill-mix of staff, regulate the private sector and involve private providers in the reduction of major public health problems, and provide adequate funding to guarantee a sustainable development. Moreover, while many donors have been piloting arrangements to improve performance (at provincial, OD, and health facility levels), it is now clear that expanding even the most successful small-scale schemes might not be entirely feasible (because of, among other issues, the quantity of TA used and the cost of pilots). The proposed WB-HSSP would address the remaining sector reform issues as currently expressed by the RGC, namely that the MOH must: (a) strengthen sector management, planning and financial management capacity in order to achieve efficiency gains; and (b) demonstrate, ultimately, tangible and sustainable improvements in health status. To this end, the MOH is committed to: * implementing a coherent sector policy and strategy in a collaborative and transparent manner (thus maximizing the impact of combined donor, government and community resources); * improving MOH capacity to lead and manage health services and resources, including donor-funded activities; and * adapting more flexible funding arrangements and sharper priontization in budget allocation to ensure sufficient financing for essential activities. The National Health Sector Strategic Plan 2003-2007 presents the key sectoral priorities and provides the overall framework for implementing the SWIM; these priorities include: (1) increased accessibility to quality health services, based on (2) the MPA (at Health center level) and (3) CPA (at first referral level); (4) health provider behavioral change to respond to the client's need; (5) quality improvement; (6) human resources development; (7) health financing; and (8) institutional development. The introduction of medium-term plans and annual sector review exercises combined with an improved annual planning process at all levels will guide implementation and provide details for monitor program progress and performance. 3. Sector issues to be addressed by the project and strategic choices: The lessons learned from the current WB-DCHD Project as well as from the 2001 Joint (Health) Sector Review (JSR) and the discussions held with MOH officials and donor representatives have provided valuable information on client expectations and implementation capacity, donor interest in assisting RGC to launch a sector-wide program, and the feasibility of various implementation arrangements. Also, the newly adopted Health Sector Strategic Plan identifies sector priorities and strategies for the period 2003-2007 in a manner consistent with the joint government, donor and NGO analysis of sector issues (presented in section 2 above). The WB-HSSP will provide support to the implementation of the RGC policy for the sector in areas of: (a) demonstrated cost effectiveness; and (b) a clearly determined financial gap. Based on this information, the following issues would be addressed during project implementation: - 13 -  Issues Options Information Gaps Health Policies, Regulation and Sector Management Health services and (1) Expand outreach activities performed Identifying the poor programs are not reaching by public health staff. within communities is the poor. (2) Expand health posts in remote areas. still problematic. (3) Contract services with NGOs and Barriers and limitations to private providers. using key services are not (4) Expand use of community volunteers. well known. (5) Establish mechanisms to protect the access of the poor to health, nutrition and population (HNP) services such as exemptions from user fees, payment of premiums from equity funds, etc. (6) Further develop "New deal" type of arrangements and involve NGOs in identification of indigenous population and service provision. MOH functions are not (1) Give more priority to prevention and Reliable cost data are not clearly prioritized, do not primary health care. available. focus on cost effective (2) Give greater attention to budget Information on cost strategies, allocations to allocation decisions and effectiveness of services, primary, secondary and reconsideration of criteria for budget programs and strategies is tertiary care services are not allocation. missing. optimal, vertical programs (3) Evaluate performance and outcomes of persist. programs. Private sector is not (1) Contract out regulatory function to an Information of private regulated adequately (i.e., to executive agency services and the quality of foster its development, (2) Provide incentives to private providers. services is incomplete. contain costs, encourage (3) Develop and enforce appropriate legal quality of services) and not and regulatory framework. involved in public health (4) Contract out services. problem solving. (5) Improve the dialogue with the private providers and their associations. MOH staff skills and (l) Train staff and provide better career Information on individual performance are weak (e.g., prospects. staff performance is management, planning, (2) Contract out. missing. evaluation, budgeting) (3) Provide technical assistance. (4) Set up a performance based incentive system. Health System and Health Care Services Poor quality of services (1) Improve selection of staff and Assessments of quality of in-service training. both public and private (2) Establish a quality assurance system services ought to be (best practices, information exchange carried out. among providers, monitoring of Information to monitor quality, etc.). quality (including - 14 -  (3), Set up incentives/disincentives systems appropriate indicators) is to reward good performance including missing. criteria such as cost effectiveness, effectiveness, outcome improvement and user satisfaction. (4) Establish stricter licensing, certification and accreditation rules. In spite of progress made in (1) Develop a health infrastructure An accurate inventory of implementing the Health development plan taking into account services including Coverage Plan accessibility criteria such as population density, information on their to services is not optimum proximity to a public or private utilization/performance is (e.g., urban vs. rural, and provider, utilization of services, and missing. overall vs. remote rural epidemiological situation of catchment areas). areas. (2) Contract with NGOs and private providers. (3) Develop strategies such as the MOH "boosting strategy". (4) Expand outreach services including mobile services. MOH piloting of several (1) Set up a monitoring and evaluation unit Reliable data on these innovative financial and within the MOH. pilots should be collected management approaches has (2) Contract out monitoring and evaluation and evaluation carried out not yielded tangible results. services. using criteria such as cost, performance, timeliness and relevance. Health Financing Current level of spending in (1) Improve macroeconomic performance. Information on donor the public health sector is (2) Sharpen prioritization and make more programs, cost and insufficient and cannot meet rational decision in respect to budget performance is not users' needs. Although the allocations. complete. public sector receives a large (3) Expand collaboration with the private Accurate information on share of the public budget, sector. expenditures in the public expenditures per capita are (4) Strengthen donor coordination. and private sector is low and do not ensure a (5) Expand and improve cost recovery (by missing. sustainable development. developing mechanisms to protect affordability of services for the under-served groups). (6) Pilot community prepayment schemes and take initial steps towards health insurance. (7) Make the public sector more attractive to donors and financing institutions by improving performance and better satisfying consumer needs. Health Behavior and Equity Substantial household (1) Educate the consumer. Systematic review of resources are not used (2) Involve the users in health facility alternative IEC/behavioral - 15 -  effectively. decisions. change approaches is (3) Improve quality and develop and needed. enforce regulations to control quality and costs of services. (4) Expand the use of community volunteers and feedback committees. (5) Increase and improve social marketing. HNP services are more (1) Focus education on under-served Basic information on the accessible and used more by groups of users. poor is scarce. the rich than by the poor; the (2) Strengthen collaboration with the Behavioral aspects and demand for services of the education sector. perceptions on health, under-served groups is (3) Protect the affordability of services and nutrition and population smaller and not develop strategies giving a distinct services of under-served commensurate to the burden advantage to the poor such as PHC, population groups need of HNP problems. infectious disease control, nutrition and further exploring. population programs. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The proposed WB-HSSP design responds to: (a) the Borrower's explicit demand to use the IDA credit to launch and implement the Health Sector Strategic Plan for 2003-2007 using a SWIM approach; and (b) Bank's and other donors' concern with the complexity of such an approach for which the sector does not have as yet the required capacity. Consequently, the design of the WB-HSSP is based on: (i) the cormmitment to strengthen sector capacity (to which ADB and DFID but also WHO, GTZ and other partners will contribute through their financing and programs); and (ii) the agreement that while activities have been identified and costed for the entire duration of the project, starting with the third year of the HSSP (and using the Annual Review and Operational Planning process adopted by the Borrower to operationalize the Health Sector Strategic Plan), adjustments or new allocations will be made depending upon the needs of the sector and the level of available funding in each respective year. Further, both to examine progress in the achievement of development objectives and to help HSSP adapt, in management terms, to an annual review and planning process, the HSSP mid-term review is scheduled to take place at the end of the second year of project implementation. The project aims at improving the health status of the population by providing support to: (a) improve the performance and the quality of health services; (b) reform Cambodia's health sector as defined in the Health Sector Strategic Plan; and (c) strengthen the sector's capacity to manage resources efficiently. In particular, the project will focus on equity in the utilization of health services by the poor by improving the accessibility and affordability of health services and by increasing the demand for such services amongst under-served groups. Utilization rates of various income groups will be monitored during project implementation and changes in health outcomes evaluated. While supporting the sector-wide feature of the RGC program for the health sector, the WB-HSSP will also focus on specific priority areas, including: (a) Longer term activities requiring a sustained, coordinated approach, e.g. infrastructure development, equipment and maintenance, pharnaceuticals (essential drugs), and human resource development; - 16 -  (b) Proven cost-effective interventions, relevant to the situation in Cambodia and to which the World Bank and its partners are committed, specifically: (i) poverty alleviation (development of quality affordable services for the poor and of different arrangements to protect the use of services by the poor, women and children); and (ii) reduction of major public health problems (such as infectious diseases in general, and TB, malaria, dengue, and STIs/HIV/AIDS in particular) and malnutrition; and (c) Capacity building and health sector reform, especially by addressing issues in areas such as health financing, planning and financial management, and by supporting other activities conducive to allocative efficiency and other efficiency gains, including the decentralization process, generalization of Health Management Agreements (HMAs) to ensure accountability of health providers, donor coordination, and the strengthening of provincial and ODs' health administrations. Components: (1) Improved Delivery of Health Services (for the benefit of the poor and rural population). Under this component the project will provide support to increase: (1.1) Accessibility and quality of health services. The first objective of this sub-component is the continued development of primary health care facilities and first (district) and second (provincial) referral hospitals, by financing civil works (rehabilitation and new constructions), equipment, and maintenance. A health infrastructure development plan will be developed with HSSP financial support and Bank assistance will focus on rural and remote provinces. This plan will ensure that: (i) investments in infrastructure take into account Cambodia's potential to cope with the recurrent expenditures entailed by such investments; and (ii) the siting of health facilities to be constructed or rehabilitated under HSSP is decided on sound criteria (such as accessibility, utilization rates, health needs, and proximity to private facilities). Other issues such as equipment needs and maintenance services will also be supported, inter alia, by establishing maintenance workshops in districts, and by providing training and technical assistance. The project will also help reduce, through this and other components, some of the current problems with the availability of health providers (very important in rural areas and remote provinces), skill and motivation. The project will support activities to improve the quality of services by providing financial resources to carry out the training for the minimum and complementary packages of activities (MPA and CPA) and, in collaboration with WHO, the MPA Module 3 [Child Health/Integrated Management of Childhood Illness (IMCI)]. Other project components will also support MPA/CPA training, e.g. nutrition, infectious disease control. The project will also help the MOH to establish a Quality Improvement/Quality Standards unit and to finance the activities of this unit after its inception. In collaboration with GTZ, the project will support QA activities in the three districts of the Kampong Thom province. This will include training, supervision, development of quality indicators and of materials to support the health providers in the delivery of curative and preventive care. HSSP will also provide program support for the establishment of: (i) performance-based reward systems and contracts with health providers; (ii) arrangements to increase user participation in decision making and to assess user satisfaction; and (iii) equity funds to pay for the services delivered to the poor population (the equity funds will be based on the same model as described in Sub-component 1.2). Lastly, funding will be provided to help solve current problems with drug quality, utilization and - 17 -  availability throughout the health services. Project supported activities related to drugs will ensure that the goal of providing affordable and good quality drugs to the entire population, and of preserving or enhancing the affordability of drugs for the poor, will be reached. These activities will include: (i) upgrading the National Drug Quality control laboratory to meet intemational standards; (ii) carrying out annually (as part of the annual review and planning process of the sector) a review of the drug situation and a determination of the financial needs for ensuring sufficient drugs, vaccines, reagents and consumables in the public health sector during the upcoming year; (iii) conducting a study to improve the financing of essential drugs (including through cost recovery); (iv) supplying drug kits to health centers, and first and second referral hospitals to meet the needs of the MPA and CPA; (v) strengthening the capacity of the Food and Drug Department; and (vi) carrying out a feasibility study on the establishment of a central drug procurement unit. Other HSSP supported activities (e.g., the expansion of health facilities, the improvement in sector financing and efficiency, the strengthening of MOH capacity, and the support to programs addressing main public health problems) will also contribute to the improvement of the drug situation. (1.2) Affordability of health care services. Under this sub-component, the project will finance alternative means to increase the accessibility and improve the affordability of health services for the poor and under-served populations. These include modifications of the recent, innovative donor-supported pilot programs that have been able to mitigate existing deficiencies in management capacity and funding by strengthening local management capacity and increasing sustainable local funding. In addition to activities specifically focused on helping poor individuals and households to afford health services, the project will also benefit the poor through: (i) developing primary health care (preventive and curative) services; (ii) financing health facilities in the rural areas of the country; (iii) strengthening infectious diseases control programs; (iv) increasing nutrition activities; and (v) improving procurement and distribution of essential drugs. Such strategies are particularly beneficial to the poor who are frequently living in the remote areas of the country and more often affected by infectious diseases and malnutrition, and who cannot afford to purchase drugs from private pharmacies. Given the project's emphasis on poor and under-served groups, it will be crucial to monitor access to and affordability of health services for these groups over the life of the project. The project design uses the information provided by initial beneficiary assessment to target the under-served population groups, while the final project evaluation will include a similar assessment as well as the data of two DHS (see also Section A.2 relating to key performance indicators). (2) Improved Programs Addressing Public Health Priorities. (2.1) Infectious diseases control programs. The TB, Malaria, Dengue and STIs/H1V/AIDS programs will receive support from the project. These interventions are important from an epidemiological standpoint in Cambodia and are consistent with the World Bank Strategy for Health, Nutrition and Population in the East Asia and Pacific Region, 2000. They have high cost effectiveness ratios and contribute to equity. Because of their importance, the infectious diseases control activities will be mainly financed through IDA grants: US$2.2 million for malaria; US$2.7 million for TB; US$0.9 million for dengue and US$2.0 million for STIs/HIV/AIDS. The implementation of Dengue control activities will be entrusted to WHO. Malaria: The project will support the further development of: (a) impregnated bed-nets and - 18 -  hammock-nets program; (b) activities to cope with the emerging problem of parasite drug resistance; (c) case detection (laboratory equipment and training); (d) case management (with emphasis on early treatment of complicated malaria cases, malaria in children and in pregnant women); (e) supervision and improved surveillance; and (f) IEC activities with focus on minority groups and other under-served populations to increase their demand for services. The project will also: (i) support the procurement of environmentally safe insecticides to be used for the impregnated bed-nets and hammock-nets program and for indoor spraying (to reduce mosquito transmission and containing malaria outbreaks); and (ii) provide overall support to the malaria program, both at central and provincial and district levels (training, technical assistance, minor civil works, laboratory and other equipment). Tuberculosis: The project will support the implementation of the TB program's Strategic Plan in its entirety and will focus on: (i) integrating TB activities at health center and district hospital level including the implementation of the Directly Observed Treatment, Short-Course (DOTS) strategy and its further devolution to communities; (ii) increasing the TB case detection rate and reducing the defaulting rate; (iii) improving the laboratory capacity and strengthening supervision and management activities at district and province level; and (iv) developing IEC and other activities promoting behavioral change to increase the detection rate and, in particular, the use of services by under-served populations such as minority groups and the poor in general. The HSSP will finance supervision, training, technical assistance, minor civil works, laboratory equipment. Additionally, the HSSP will finance activities in collaboration with the HIV/AIDS program aiming at controlling the spread of TB in AIDS patients and providing better care to the TB/HIV positive patients. Dengue: In collaboration with the National Dengue Program and WHO, the project will contribute to this program that aims at strengthening: (i) early diagnosis and appropriate clinical management; and (ii) vector control, in synergy with the malaria program where appropriate. Dengue control activities financed from WB-HSSP will be executed by WHO. The activities that will be financed from the project will focus on the provision of logistic support for larvicide distribution and training, and the phasing in of more sustainable control strategies (such as impregnated jar lids). STIs/HIV/AIDS: The project will support the procurement of STI drugs and the implementation in the field of the "100% condom use" strategy that targets specifically sex workers and other high risk groups and effectively decreases STIs and HIV transmission. (2.2) Nutrition activities. Because of the alarmingly high rates of both under-nutrition and micronutrient malnutrition in Cambodia and the consequent effect that malnutrition has on morbidity, mortality, educability and productivity, the HSSP will finance an essential package of preventive and curative nutrition activities inducive of behavior changes. The nutrition activities selected to receive financial support from the HSSP have been shown to be the most cost-effective in reducing the developmental and productive problems associated with malnutrition. This essential package includes the following: (a) exclusive breast-feeding for infants 0-6 months; (b) timely and adequate complementary foods for children from six months to two years of age with continued breast-feeding until two years of age and promotion of an adequate diet for women of reproductive age, particularly pregnant women; (c) appropriate care of sick and malnourished children; (d) provision of iron-folate supplements for women and children; (e) provision of vitamin A for women and children; and (f) availability of iodized salt for all members of the household. - 19 -  (3) Strengthened Institutional Capacity. Under this component, the project will provide appropriate support to ongoing efforts at central, provincial, and district levels to strengthen key health sector functions, including: (a) oversight of the policy, legislative and regulatory framework for health service administration; (b) sector planning and program coordination of health care delivery; and (c) management of sector resources (human, financial, and material including infrastructure, drugs, etc.). An additional function, monitoring and evaluation of sector performance and health status, will be financed jointly by ADB and DFID. (a) Oversight of the policy, legislative and regulatorv framework. The project will support: (i) local legal consulting services to help the ministry formulate a legislative program and to draft appropriate legislation; and (ii) translation services and dissemination of information through the production of materials and the organization of workshops for health personnel, local authorities, and public opinion leaders. (b) Sector planning and program coordination. In addition to sector reforms, the project will: (i) strengthen MOH's capacity for analyzing health sector financing; (ii) develop the planning roles and capabilities at central and decentralized levels; and (iii) reinforce the coordination and monitoring of plan implementation. Specifically, the project will use the proposed medium-term expenditure framework (MTEF) exercise as the basis for improving health sector financial analysis, introducing a medium-term planning process, and strengthening annual planning guidelines and procedures. The project will also support the progressive decentralization of the planning process and the integration of planning and budgeting activities. The project will contribute to the organization of annual sector reviews, which will be carried out by an independent organization, with oversight from a suitable institution within MOH [e.g., National Institute of Public Health (NIPH), CoCom, Directorate General for Inspection, etc.] responsible for contracting and managing the reviews, disseminating the findings, and incorporating them into MOH policy-making and planning processes. (c) Management of sector resources. The project will assist MOH to solve the present problems with human resources in regard to: (i) manpower planning and management; and (ii) improvement of skills and performance. Based on the Health Workforce Development Plan (1996-2005), the recommendations of the biennial workforce development plan reviews (of 1999 and 2001), the National Policies and Strategies for Human Resources for Health (1999-2003), and the proposed reforms of the National Program of Administrative Reform (NPAR), the project will support measures to: (i) strengthen manpower planning and personnel management at all levels; and (ii) improve the knowledge and skills of health service providers and administrators. In addition to strengthening human resource development, the project would also focus on strengthening financial resource management and procurement capabilities. With respect to financial management, the project will finance: (i) the recruitment and training of financial management staff at central, provincial, and district levels; (ii) the development and implementation of systems acceptable to both the Govermment and IDA along with a policy and procedures manual; and (iii) the creation of a strong internal audit function within MOH. With respect to procurement, the project will finance: (a) additional staff and training on Bank procurement policy and procedures; and (b) the recruitment of an international procurement advisor and four national procurement consultants to supplement MOH capacity. Additional training for provincial health departments will also be provided if they are to be given - 20 -  responsibility for procuring small contracts for civil works, drugs, other goods and services. (d) Monitoring and evaluation (M&E). The project (through ADB and DFID financing) would support efforts to improve M&E analytical capabilities and expand its investigative range to include: (i) systematic comparison of the outcomes of the various ongoing pilots and experiments (HMAs, contracting in and out, boosting, etc.); (ii) surveillance of health service delivery outside the public sector to provide a comprehensive view of sector-wide change; and (iii) use of the information to improve health sector governance, in particular at the local level, by increasing information to health center management committees, feedback conmmittees, and NGOs. o-rponent; L 44 I -dica.i . , - - Banh- t * 'r '' ' ' 1-..'' +; . r ; % ''2 l l';; ' w- % N i '1' ] ' I (US$M) < T.tal 2 (US$M) fIniicng! 1. Improved Delivery of Health Services (for the Benefit 0.0 0.0 of the Poor and Rural Population)-Credit Financed 1I.1 Accessibility and Quality of Health Services 13.00 40.8 11.50 42.6 1.2 Affordability of Health Services 3.00 9.4 1.70 6.3 2. Improved Programs Addressing Public Health Priorities 2.1 Infectious Diseases Control Programs 0.0 0.0 2.1.1 Malaria-Second Development Grant financed 3.54 11.1 2.20 8.1 2.1.2 Tuberculosis- Second Development Grant financed 2.80 8.8 2.70 10.0 2.1.3 Dengue-Second Development Grant financed 0.90 2.8 0.90 3.3 2.1.4 STIs/HIV/AIDS-First Development Grant financed 2.00 6.3 2.00 7.4 2.2 Nutrition-Second Development Grant financed 2.10 6.6 2.00 7.4 3. Strengthened Institutional Capacity-Credit financed 4.50 14.1 4.00 14.8 Total Project Costs 31.84 100.0 27.00 100.0 Total Financing Required 31.84 100.0 27.00 100.0 Note: Activities have been identified and costed for the entire duration of the project However, as part of WB-HSSP design, it was agreed that, starting in project year 3, these indicative allocations will be reviewed during the Annual Review and Operational Planning process adopted by the Borrower to operationalize the Health Sector Strategic Plan, and adjustments or new allocations will be made depending upon the needs of the sector and the level of funding in each respective year. Diferences due to rounding 2. Key policy and institutional reforms supported by the project: The key elements of the RGC policy and institutional reform process that will be supported by the project are spelled out in the Health Sector Strategic Plan for 2003-2007. They include: (a) decentralization; (b) reconsideration and development of MOH's role and organization with concomitant strengthening of central, provincial and district health administrations; (c) efficiency by preferentially allocating the budget to cost-effective interventions, among which the project will support primary health care, prevention, nutrition and infectious diseases control programs, by improving staff performance and by expanding the use of the private sector; (d) affordability of health and other services for the poor; (e) quality assurance in health care delivery and provider incentive system based on user satisfaction, performance and outcomes; - 21 -  (f) donor coordination and stakeholders involvement in decision making and overall program development; and (g) laws to ensure universal salt iodination and regulation of the marketing of products to feed infants and young children. 3. Benefits and target population: Benefits. By supporting sector reform, institutional capacity building and also cost-effective interventions with large externalities, the HSSP will substantially: (a) increase the quality and the availability of health, nutrition and family planning services; and (b) improve sector performance and HNP outcomes. Furthermore, the financing of specific activities that target the under-served groups will contribute to equity. Decentralization and user involvement in decision making at facility level will contribute to health services which are more responsive to actual needs and to the development of mechanisms to protect the poor that will be implemented by key community members in accordance with local conditions. Target Populations. All segments of the population will benefit from the project, which will support the health sector in its entirety, but the poor living in rural areas should be the main beneficiaries for three main reasons: (i) because the project focuses on policies and programs relating to primary health care, prevention, infectious disease control and nutrition; (ii) because the project activities aim at improving the affordability of health services; and (iii) because the project will finance activities to increase the demand for services by the poor, illiterate and minorities. The project will, therefore, fulfill the two criteria required for designation as a Poverty Targeted Intervention: (a) the operations will have a specific mechanism for targeting the poor (see Component 1.2); and (b) among project beneficiaries there will be a significantly larger proportion of poor people than in the country's total population (see Components 1.1, 2.1 and 2.2). The project will also include measures to benefit vulnerable populations like ethnic minorities. In order to improve the access and the affordability of services, the project will also provide for close M&E of the levels and pattems of use of services by the poor. Data will be collected through routine monitoring, annual questionnaire surveys, and beneficiary assessments. 4. Institutional and implementation arrangements: Project Implementation. The project implementation period is expected to start about February 1, 2003 and last for a period of five years. Use of a Project Coordinating Unit (PCU) is not envisaged by the Borrower; instead, MOH capacity will be strengthened both before credit/grants effectiveness and during implementation to enable MOH to operate without a PCU. To carry out the preparation work in a coherent and coordinated manner, the MOH appointed a project director, a project coordinator, and a project preparation team comprising the heads of the programs to be supported from the project. For implementation, the Borrower will establish a Steering Committee comprising representatives from the MOH, the Ministry of Economy and Finance, and other key ministries as needed. The Steering Committee will be responsible for the overall project direction. The Planning Department in the MOH will have the responsibility for coordinating the project activities. During project preparation, the procurement, financial management, planning and donor coordination capacity were assessed and plans to strengthen MOH capacities in these areas were developed. Annual Planning and Budgeting. The early strengthening of the planning and donor coordination capacity is necessary as the project will finance activities identified at the preparation phase (using as a reference the sector's Policy and Strategic Plan, the Health Coverage Plan, and other policy documents and programs), but will reassess their relevance on an annual basis (using the Annual Review - 22 -  and Planning Process). Within the context of this annual process, identification and financing of the HSSP activities may be modified, provided that the proposed activities are consistent with and contribute to the project's development objectives. A plan to improve capacity in all the above mentioned four areas (i.e., procurement, financial management, planning, and donor coordination capacity) was discussed and agreed upon with MOH. This plan takes into account the existing capacity and future needs, and schedules the most important steps necessary for the strengthening of MOH. Monitoring and Supervision. The PIP provides the basis for project implementation, monitoring, and supervision. The project's implementation progress will be monitored through the following reports: (a) Annual Review of the health sector; (b) detailed budget and expenditure reports; (c) quarterly project management reports; (d) Health Management Agreements (HMAs; see a detailed discussion below); (e) annual questionnaire surveys and beneficiary assessments; (f) mid-term evaluation report; (g) final evaluation survey; and (h) final evaluation report. These reports will contain essential data on the implementation of the project components and sub-components, and additional analysis and information will be gathered through field supervision visits. The HMAs will set out implementation targets against which project performance will be monitored. Achievement of project objectives will also be assessed through a Mid-term Evaluation, to be carried out by April 30, 2005, and through a final evaluation survey produced by the Borrower at the end of the project. The Final Evaluation Survey should be completed by October 31, 2007, and a Final Project Evaluation Report by December 31, 2007. Given the inherent complexity of the operation, the limited local capacity, the large share of technical assistance in the operation and the need to collaborate intensively with other donors, and as recommended by the WB's Quality Enhancement Review Panel, intensive Bank supervision will be required. Joint project supervision by ADB, DFID and the World Bank has been agreed (see Annex 15 for the proposed detailed schedule and budget for project supervision). Health Management Agreements. In order to clearly define the expectations and responsibilities of both the MOH and the provincial authorities under the Project, HMAs between the MOH and the Provincial Health Departments (PHDs) will be entered into for each of the twelve provinces under WB-HSSP and nine provinces under ADB-HSSP (see Annex 11). The HMAs have been piloted and audited under the WB-DCHD Project from 1998 to 2002. The overall assessment is that HMAs: (a) empowered provinces and districts; (b) increased providers' accountability; (c) improved planning process; (d) improved monitoring and evaluation; and (e) enhanced quality of service delivery, and therefore should be generalized to the entire country. The aim of instituting such agreements is to improve the relationship between the MOH and the PHDs to one of mutual responsibility and accountability, with a single overall purpose of improving performance of public sector health services. The HMAs will provide a framework for planning and managing the health programs covered by the project. They will govern the provision of inputs by MOH to the provinces in return for provincial agreement to attain annual targets in disease control and other areas. Commitments made by the MOH and the PHDs will be clearly specified in terms of annual health objectives, inputs, and processes with quantifiable and monitorable targets set. These annual plans will be defined and agreed in the context of 5-year goals and outcome/impact indicators. The HMAs will be used as a planning and management tool. They will be monitored and evaluated and action will be taken in response to performance. From the detailed performance indicators contained in the HMAs, a group of more broadly indicative measures have been selected as Project Performance Indicators (see Project Implementation Plan). The HMAs will be formulated and agreed annually at provincial planning workshops with the involvement of representatives from the Provincial Governors' Office, the PHD, and MOH (including - 23 -  Ministry level representatives from the three disease control programs). The provincial health advisors (PHAs) and donor organizations assisting a given province will also be invited to the planning process and HMA negotiations. Agreement was reached with the Borrower that no expenditures for civil works or medical equipment would be made by any province under the project unless the MOH and the province concerned have entered into their respective HMA for the first year of project implementation. Ideally this type of agreement will also be made between the provinces and the districts, but most districts are still managerially too weak to undertake this type of agreement in the early stages of the project. As district health office capacities improve with the activities carried out under Component 3, they could enter into sub-agreements with the provinces. Financial Management. (See Annex 6 for detailed description. The detailed Financial Management Assessment is located in the Project File.) Procurement and Disbursement. (See Annex 6 for detailed description). The MOH Budget and Finance Department will be responsible for project procurement and financial management. At the central level, the national programs and project activities will be implemented by respective national agencies which include: National Tuberculosis Center, National Malaria Center, National Center for HIV/AIDS, Dermatology and STD Control, and Maternal and Child Health Center. At the provincial and district levels, the Technical and Account and Finance bureaus will manage the project activities. This decentralized structure for project implementation and centralized management for procurement and disbursement are in line with the design of the project which emphasizes capacity building of the MOH and other government agencies at different levels to carry out sector reforms. It is the Borrower's decision not to set up a separate or independent project implementation unit and the decision receives strong support from the WB. DFID Financing. The United Kingdom's Department for International Development has agreed to provide to the RGC a grant of about US$22.0 million equivalent, to co-finance the HSSP as follows: (i) US$1.84 million equivalent for WB-HSSP; (ii) US$10.4 million equivalent for ADB-HSSP; and (iii) US$9.76 million equivalent, to be allocated on an annual basis. The US$1.84 million equivalent channeled through the WB will finance two sub-components: (i) equity funds for US$0.6 million equivalent; and (ii) malaria control for US$1.24 million equivalent. The DFID has played a very active role during project development and will also be fully involved during project implementation. Coordination with ADB, Other Donors and Technical Agencies. As mentioned in Section B. 1 above, the HSSP has been defined and parallel financed in a coordinated manner with the Asian Development Bank. As a result, the ADB and WB financed parts of the project reflect a very high degree of consistency and mutual reinforcement. During HSSP implementation, project activities will be monitored and supervised in close collaboration with ADB. Other RGC's partners, such as WHO, UNICEF, GTZ, JICA, AUSAID, CIDA, EC, SIDA, USAID and the "umbrella" NGO MEDICAM, have also been consulted during project preparation. As mentioned, the contribution of each donor and the HSSP contribution to the overall health sector program will be discussed yearly during the Annual Review and Operational Planning exercises. D. Project Rationale 1. Project alternatives considered and reasons for rejection: The project builds on the successful WB Cambodia Disease Control and Health Development Project (Cr. N005-KH) that has contributed to the establishment of appropriate service delivery -24-  mechanisms and locally based HiMAs. It also supports the continued work of several successful technical programs such as TB, Malaria and Dengue. The project's components and implementation arrangements provide a means for supporting the SWIM approach and gradually moving toward a full-fledge Sector-Wide Approach (SWAP) at a pace consistent with the development of local capacity. The SWIM approach features: (i) improved coordination mechanisms among stakeholders (MOH, MEF, donors, NGOs and communities); (ii) an agreed health sector strategic plan; (iii) annual review process during which the RGC will present, first, a performance review of the past year and, second, a budgeted operational plan for the upcoming year that will be discussed, approved and ultimately financed by the assembly of stakeholders and out of the public budget; and (iv) diversified financing (not only through funds pooling) and implementation arrangements. The SWIM may not evolve into a full-scale SWAP during this project's life, but will lay the foundations for such a program. The start-up period is also likely to take time, given the decision to use the MOH as the project implementation agent. Three alternatives have been considered and rejected: (a) A follow-up Sector Investment Loan (SIL) to the current investment operation in the health sector (i.e., WB-DCHD Project). The advantages were substantial, as such an option would have (1) minimized risks (the design has proven its feasibility in Cambodia), (2) assured relevance, and (3) enabled an easy start of the new operation (due to Borrower's familiarity with implementation arrangements and project priorities). However, this alternative was not chosen because: (i) a SIL would not have matched the SWIM's implementation requirements; (ii) the sector reform process has moved into a next phase characterized by more emphasis on quality of services and a clearer concern with offering better services to the poor as well as improving sector efficiency; (iii) a SIL limits the financial support to recurrent spending and identifies all activities at the preparation phase offering little subsequent flexibility; and (iv) the Borrower expressed clearly its intention to implement the project without appointing a separate PCU. Nonetheless, the HSSP design incorporates some of the most successful features of the WB-DCHD Project by: (a) continuing the emphasis on infectious diseases control and development of quality and affordable health services; (b) capitalizing on the health personnel trained under the previous project; and (c) integrating the PCU staff of the earlier project into appropriate positions within the ministry. (b) A full Sector-wide Investment Program was also considered because it corresponds to RGC's intentions with its own SWIM approach. The rejection of this option was based on: (i) the reluctance of some important donors to join in the process beyond the mere alignment of their programs with the health sector strategic plan for 2003-2007; and (ii) the risk of diluting IDA's intervention by acting as financier of last resort in a process in which a great part of the decision making is carried out on an annual basis. In other words, it was thought that under the conditions in the sector, a full sector-wide operation might both alienate some important partners and lead to a loss of project focus and an inability to clearly evaluate the impact of the WB-HSSP funding. (c) An Adaptable Program Lending (APL) was discussed with RGC and other partners but was not chosen because, while the sector policy is defined for a time span limited to about five years (and its details are being developed and will be presented in the sector's Strategic Plan and Annual Plans), little is known beyond this time horizon (both macroeconomically and politically but also in regard to the feasibility of the health sector reform). Also, it was hardly possible, at this stage, to identify sector development benchmarks and phase the program adequately without taking unacceptable risks. Lastly, both the Borrower and the project team felt that, after having improved the sector performance and information system, and reached a more stable development overall, an APL would indeed become a suitable instrument for future projects. - 25 -  As a result of this process, the proposed WB-HSSP will use a Sector Investment and Maintenance Credit (SIM) as the lending instrument. A SIM is appropriate because IDA financing will provide both continued support to programs developed under the WB-DCHD Project, and promote the additional priorities of the reform process. While IDA will finance activities identified at the project preparation phase (especially activities for which annual planning is not an appropriate tool, such as infrastructure, equipment and human resources development), the annual review and operational planning exercise will serve to examine the relevance of these allocations and to make adjustments based on changes in the sector context. Thus, the proposed WB-HSSP will remain flexible and adaptable to changes in health needs and sector performance. It is also anticipated that Cambodia will still need, at least during the initial years of project implementation, financial support to meet some recurrent cost needs. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). 1 . Latest Super*ision Sector Issue j:Project (PSR)IRatings (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) ObJective (DO) Health services strengthening, and Cambodia: Disease Control S S prevention and control of malaria and and Health Development tuberculosis. Project (Cr. N005-KH) Safe water and water-related diseases. Cambodia: Urban Water S S Supply Project (Cr. 3041-KH) Community development in rural and Cambodia: Social Fund II S S poor areas. Project (Cr. 3179-KH) Other development agencies ADB Basic Health Services Project DFID Health Sector Financing Program; HlV/AIDS Program GTZ Health System Development Project UNICEF Health and Nutrition Program; HIV/AIDS Prevention and Care WHO Health Sector Reform Program MSF Sotnikum New Deal Project IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) - 26 -  3. Lessons learned and reflected in the project design: The MOH's current efforts to develop a SWIM approach show a willingness to implement a transparent program and refocus health sector reform strategy on issues such as improving the performance of the public health sector and providing services to the poor. At the same time, the experience with the WB-DCHD Project has shown that MOH capacity remains weak in some areas (e.g., procurement, financial management, and planning, for which MOH is facing problems with personnel availability and motivation). Consequently, the proposed HSSP will strengthen MOH capacity and support the decentralization process, while providing financial assistance to achieve very specific objectives central to the reform process (especially to improve efficiency, protect the affordability of services and promote equity). Another lesson learned from Bank and other donor operations is that in Cambodia, as much or more than in any other country of the region, there is a need to promote the use of objective criteria to make decisions. Consequently, the WB concluded that it should support the development of a policy and planning process based on the broad participation of key stakeholders, including provincial and district authorities as well as civil society representatives. In addition, clear criteria will be developed and used to allocate the budget, and select the sites for health facility works (extension, rehabilitation and new construction), equipment, and staffing. These criteria will be used in decision making, and the adequacy of planning proposals will be openly discussed with donors and other stake holders (see also WB-HSSP legal covenants). The current project has also shown that while the PCU has functioned adequately, this has not always contributed to the strengthening of the MOH capacity. Consequently, the HSSP intends to make use of MOH's own capacity (after substantial strengthening) and to encourage the personnel of the WB-DCHD Project to compete for the MOH posts which will soon be created. 4. Indications of borrower and recipient commitment and ownership There is a high degree of commitment from the government. The RGC has already: (a) carried out a thorough review of the sector to analyze health service delivery priorities (involving all major donors and supported technically by MOH staff and international and local consultants); (b) organized (with technical and financial support from DFID) a participatory process, which included all donors and NGOs, for revising the sector policy; (c) adopted, in August 2002, the Health Sector Strategic Plan 2003-2007; (iv) developed various other more specific policy and planning documents (such as the epidemic control programs for malaria, TB, dengue, and STIs/HIV/AIDS); and (v) commnitted itself to develop an infrastructure development plan, a workforce plan and annual operational plans. The RGC is firmly committed to the implementation of its health sector reform program and the use of a SWIM approach. The SWIM has already been used to involve all major donors and NGOs in the formulation and the consensus process of the Health Sector Strategic Plan for the period 2003-2007. Similarly, the SWIM will continue to be used in the implementation of the strategic plan. The MOH has identified and appointed two core teams of national experts that, with technical support from local and intemational consultants and in close collaboration with other MOH staff and partners have (a) developed the Strategic Plan; and (b) prepared the HSSP. The MOH has expressed its commitment to the components of the proposed HSSP (which are all fully consistent with the Strategic Plan). 5. Value added of Bank support in this project: The value added by the WB is the focus on health care financing, provider payment issues, risk and cost sharing and, more generally, efficiency gains, health sector reform and protection of the poor. - 27 -  Since the project will also be, to a great extent, a follow-up project to the WB-DCHD Project, IDA financing to the sector will further support the country's: (i) priority programs in areas such as nutrition, malaria, TB, dengue and STIs/H[V/AIDS; and (ii) internal contracting mechanisms through the HMAs. Lastly, the WB commitments to (a) poverty alleviation, translated already in the project's emphasis on accessibility and affordability of services for the under-served population groups, and (b) macro-economic development, will contribute to improved equity and sustainability in the sector. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): o Cost benefit NPV=US$ million; ERR = % (see Annex 4) o Cost effectiveness * Other (specify) The economic analysis of the WB-HSSP covers the following: (a) linkage to CAS; (b) benefits and economic returns to the project; (c) risks; (d) rationale for public sector investment in the project activities; (e) poverty assessment; and (f) fiscal impact and sustainability. A high economic return is estimated using conservative assumptions of project parameters. In the absence of the priority health programs, the high return is not robust in the face of variations in project risks. The returns are sensitive to achievement of the expected increases in service efficacy and use. With the addition of the priority programs the returns become very high and robust. The analysis underlines the importance of achieving the improvements in system management and capacity as well as the importance of the priority programs to be supported. 2. Financial (see Annex 4 and Annex 5): NPV=US$ million; FRR = % (see Annex 4) Cost recovery is an essential part of the Government's policy for quality and would increase over the life of the project to provide six to seven percent of health sector revenues by 2009. While most of this cost recovery would represent a deflection of current household informal payments to health providers, cost recovery or informal payments remain a burden on low income households. The equity funds to be supported by the project will mitigate the adverse effect of cost recovery on the poor. In addition, the project will address diseases that disproportionately affect, and support services more heavily used by the poor. The analysis of the distribution impact of project benefits indicates that the project will provide important benefits for the poor compared with the general use of health services and the distribution of income. Equity funds have not yet been used on a large scale in Cambodia and the funds will be monitored during the project for effectiveness. Fiscal Impact: The fiscal burden of the project is substantial and requires a clear understanding of its implications and a strong and sustained Government commitment to support the programs at all budgeting levels. On completion the project will require a sustained commitment of 20-40% of the aggregate government health budgets currently allocated to the participating provinces. In the contract provinces, contracted improvements will be sustainable with an increase of the total local budget allocation to 120% of current budget levels. This will be achievable with a combination of an increase in Government funding, continued donor support and a modest increase in cost recovery. In addition, the cash flow of the project during implementation represents a sizable addition to the volume of funds normally managed at the local level and will require careful attention to financial management capacity during implementation. - 28 -  3. Technical: The WB-HSSP's technical design includes the application in the specific conditions of Cambodia of well proven health strategies such as the DOTS intervention to contain TB epidemic, the Roll Back Malaria strategies for curbing the malaria epidemic, development of PHC and first referral hospitals, quality assurance, improvement of drug quality and affordability, and nutrition interventions. As confirmed during the Appraisal mission, the WB-HSSP design is appropriate to the health sector's needs and consistent with the country's overall commitment to poverty alleviation, since it capitalizes on strategies already tested and feasible in Cambodia. These include the risk sharing/prepayment arrangements and the payment of premiums or cost-recovery fees from equity funds mentioned under paragraph Section E. 1 above. During project preparation, activities to be supported from the credit/grants (defined as priority activities of program areas with clearly projected financial gaps) were identified for all project components and for the entire duration of the project, and cost estimates were calculated taking into consideration physical contingencies and possible price increases. As a result, the proceeds of the credit/grants were allocated to WB-HSSP components and sub-components and the breakdown per disbursement category was developed. However, because of (i) the dynamics of the reform process and the priorities of the newly adopted Health Sector Strategic Plan, (ii) likely changes in donor support to the sector (many donors were unable to discuss their support beyond a two year time horizon), and (iii) possible changes in health status and sector performance, it was decided to use the annual health sector review and planning exercise to regularly check the relevance of these allocations and to adapt the project to changes in the sector. In the case of the TB and Malaria control programs, at Borrower's demand, this procedure went a step farther, in that funds from the credit/grant were earmarked for these two programs but the identification of activities to be supported with funds from the WB was carned out only for the first year of the project. Thus, in case of a smaller financial gap than projected during the next years (due to additional grants from other donors), the unused balance of the TB and malaria allocations would supplement WB-HSSP support to the project's first component. 4. Institutional: 4.1 Executing agencies: MOH will be the executing agency, and the project will be implemented under its oversight by the participating provinces and ODs. The National Malaria and TB centers, respectively, will implement, with support from provinces and districts, the sub-components on malaria and TB control; dengue control activities will be executed by WHO. The set of activities on Quality Improvement (part of Sub-component 1.1) will be executed in close collaboration with GTZ in Kampong Thom, where GTZ is active and IDA has already provided support from the current project. 4.2 Project management: The project will be executed without the use of a PCU. Project management will be integrated into the existing MOH structures at central and provincial levels (see Figure 4.1). The overall direction and guidance for the project will be provided by a Steering Committee, comprising senior staff from the MOH and representatives from the MEF and other key ministries as needed. The Steering Committee will be responsible for overseeing the HSSP. This will include approval of annual sector plans, reviewing implementation progress, ensuring compliance with covenants and approval of quarterly reports to be submitted to HSSP three donors. The Steering Committee will be chaired by a Secretary of State and report directly to the Minister of Health. Project management structure will also include a - 29 -  Director, a Deputy Director, a Coordinator, a Senior Management Group (SMG), and an HSSP Irnplementation Working Group (HIWG). The SMG will include the Directors General for Administration and Finance and for Health, the Director of the Department of Planning and Health Information (DHPI), and the Project Coordinator (in the case where the Project Coordinator is not the Director of DHPI). The group will ensure the smooth running of project activities within the MOH. It will convene regularly to exchange information and issues in the implementation of the HSSP. The HIWG will be chaired by the Project Coordinator. It will include Directors and other representatives of key MOH departments. Meeting weekly (or as needed) the HIWG will facilitate the exchange of information among operational departments and units involved in HSSP implementation, and especially between the two directorates general. - 30 -  Figure 4.1 PROJECT MANAGEMENT AND IMPLEMENTATION STRUCTURE Senior Minister Ministry of Health Secretary of State Health Sector 4 < Steering Committee Chair~ Secretary of . ~~~~~~~~~~State Sectearv: OG Health Director General Senior Maagewent Administration and Finance Gr------- tmpintatton Of Drrector General Health Straic Plan (Health) Project Director Department of Budget and Finance Deparbmnt Of Planning (Procuromnt Unlt) and HeaIth informaton Project Coordinator HSSP Sertariat Department of Administration - - - - - The Project < > implementaton * Working Group Department of Human (Chair: Project Resource Development : Coordinatorx Deparitnentof Personnel ------------- Departmentof Preventive I 'in. ~~~~~Medicine Department of Drugs and Medical Material Other Departments Central Institutions, and Provincial Health Departments The Planning Department will have overall responsibility for project coordination, while the Budget and Finance Department will be responsible for project procurement and financial management. National programs involved in project implementation will manage and implement their respective project activities; these implementing units include: National Tuberculosis Center; National Malaria Center; National Center for HIV/AIDS, Dermatology and STD Control; and Matemal and Child Health Center. At provincial and district levels, project management will primarily involve the Technical and Account and Finance bureaus. - 31 -  In order to strengthen MOH capacity and adequately manage the project, MOH capacity was assessed and measures to strengthen it were agreed upon (including the use of consultants and the staff of the current IDA financed project). Based on the current and future experience of project implementation, MOH may eventually consider certain additional organizational changes. The latter should result from the functional analysis that will be conducted at the onset of project implementation. Project planning and coordination. In addition to its current tasks, the Planning Department will serve as a focal point and liaison for project coordination between MOH and the WB. The credit/grants will finance modest project start-up and operating costs as well as short-term technical assistance to support transition to sector-wide management, which will require: (a) strengthening capabilities for public expenditure analysis and budgeting; and (b) introduction of an annual sector review process to include all stakeholders in the planning and management of the sectoral strategy. The Planning Department will oversee the introduction of a rolling medium-term (3-4 year) planning process, which will be conducted by central level and will serve as the basis for situating existing sources of funds (by source, by program, by district, etc.), for projecting future needs in relation to the health strategy, and for orienting anticipated new donor support. Each year, based on the initial year of the medium-term plan, the Planning Department (in conjunction with the Budget and Finance Department) will promulgate overall guidelines and specific directives for the preparation of the annual plans and budgets. The PHDs will be responsible for conducting the annual planning and budgeting process to facilitate the integration of national program orientations and specific district conditions. Detailed semi-annual action planning, based on the annual plan, will continue to be an OD responsibility. The Planning Department will also be responsible for organizing the annual sector review to bring together all of the stakeholders active in the health sector to: (a) review sectoral achievements (on the basis of agreed-upon indicators as well as previously planned activities and expenditures); (b) discuss the comprehensive three-year rolling plan integrating the proposed contributions of all stakeholders; and (c) adopt the annual plan comprising planned activities and sources of financing for the coming year. The project will contribute annually to the organization of these sector reviews, which will take place from March to November of each year. 4.3 Procurement issues: Procurement arrangements under the project are discussed in Annex 6. A Country Procurement Assessment Report was released on March 31, 1997. The CPAR shows that there are no substantive procurement issues and that the implementation of CPAR recommendations are in progress. The MOH procurement capacity was assessed at Pre-appraisal and a plan to strengthen MOH procurement capacity was discussed and agreed with the Borrower. A draft procurement plan for the WB-HSSP has been prepared. Given the size and complexity of the project, additional staff and training on ADB/WB procurement policies and procedures will be needed to improve central and provincial procurement capacity. Additional procurement staff at central level will include a number of locally recruited consultants and an international expert procurement advisor, who will report directly to the chief of the procurement unit, oversee procurement activities, and provide training and advice to the staff and local consultants. These consultants will be contracted before HSSP effectiveness. Additional short-term consultants with special expertise in the preparation of technical specifications for bidding documents shall be contracted as needed throughout the project implementation period. This HSSP procurement team will manage procurement for both ADB and WB financed parts. - 32 -  4.4 Financial management issues: An assessment was carried out of Cambodia's financial accountability including the history of compliance with audit covenants (see Annex 6, Attachment 1). As part of the decentralization and budget reform process in the government, seven PHDs and selected national hospitals and programs are piloting the transfer of spending authority for parts of the budget (operating costs financed under Chapter 13 of budget). Accounting policies and procedures were designed to manage the decentralized budget, a computer based accounting system has been installed at MOH and at provinces for accounting and reporting of the decentralized funds, and technical assistance has helped MOH to develop financial management systems and train staff. While the procedures for authorization, payment, accounting and reporting of the decentralized budget have been carried out successfully in accordance with the Accounting Policies and Procedures Manual, MOH and the PHDs have not yet instituted the requisite managerial oversight over the budget management and efficient use of funds. In addition, misunderstandings among MEF, MOH, and the provincial health, finance, and treasury departments as well as inadequate training of the accountants have contributed to difficulties in executing the budgets. The Government is currently preparing a major reform program to strengthen public financial management systems. The principal objectives are to increase access to and accountability for the use of financial resources in general (and Government funding in particular). To support implementation of the reforms within MOH, the project will finance improvements in the areas of budget preparation and financial management and control. To assist in budget preparation, a Budget Advisor has been appointed to MOH to develop a single budget management system, which consolidates recurrent and capital budgets, institutes forward planning of expenditures on the basis of a medium-term framework, and introduces performance/output based program budgeting. Work on the budget will continue during 2002 and should be fully ready in 2003 for preparation of the 2004 budget. A project financial management advisor will be recruited to work with the MOH Chief Financial Officer both to ensure the successful implementation of the budget reforms and the financial management and control systems. Additional resources needed by central or provincial levels to implement the budget reforms will be determined during future annual planning exercises. While details of the Government's financial management reforms are still being finalized, it is likely that: (a) budget decentralization will be extended to all provinces during 2002; (b) the position of Chief Financial Officer will be created within the MOH to combine responsibilities currently discharged by MOH Department of Budget and Finance and the MEF Financial Controller; and (c) financial authority, decision making, and control will be delegated to the MOH. The reform program will be pilot tested in 2002 and will be fully implemented in 2003. Because the new budget and expenditure management policies developed under the reform program will apply to the management of project finances, the project will need to work with UNDP/ADB funded consultants to: (a) develop systems that take account of project financial management and reporting requirements acceptable to IDA; and (b) prepare a policy and procedures manual. Adoption of a financial management manual, establishment of a computerized financial management system, both satisfactory to IDA, and completed training in the operation of such system for the financial management staff, are conditions for effectiveness of the credit/grants. Project financial management at central level will be carried out by a Financial Management Group (FMG) to be established in the Department of Budget and Finance, MOH. This FMG will be headed by an individual [Project Financial Management Officer (PFMO)] who has appropriate qualifications and experience in accounting and financial management. The PFMO shall be assisted by three deputies responsible for: (a) planning and budgeting; (b) project accounting; and (c) management of bank accounts. An adequate number of assistant accountants will be appointed (4-6 in total) to ensure - 33 -  efficient functioning of the unit and separation of duties consistent with sound internal control procedures. The FMG will have primary responsibility for budgeting, preparation of cash forecasts and financial management reports, consolidation of central, provincial and district level expenditures, payment processing, and the management of the special account and counterpart fund account. Under the current WB-DCHD Project, project provinces maintain "90-day advance" bank accounts. Under WB FMS guidance, the MOH has invested significant time and effort to train provincial staff in the guidelines, procedures, and administration of these accounts. For the WB-HSSP, the following financial management arrangements were agreed: (i) a Special Account for the IDA credit covering Components I and 3, managed by the MOH; (ii) a Special Account for the first IDA grant covering the STIs/HIV/AIDS Sub-component, managed by the National Center for HIV/AIDS, Dermatology and STD Control; (iii) a Special Account for the second IDA grant covering the Malaria, TB, Dengue, and Nutrition Sub-components, managed by the MOH; (iv) a Special Account for the DFID grant covering the Malaria and Affordability of Health Services Sub-components, managed by the MOH; (v) two Second Generation Special Accounts, one each for the Malaria and TB Sub-Components, managed by the National Malaria Center and the National Tuberculosis Center, respectively, under the Special Account for the second IDA grant; and (vi) twelve provincial project accounts, managed by the provincial health department of each project province. The accounting organization at the provincial level shall mirror the MOH structure, with a provincial project finance officer (PPFO) to be designated in each province and assisted by three accountants, each responsible for planning and monitoring, accounting and cashiering. At district level, a bookkeeper/cashier will be appointed for project related accounting activities. A Project Financial Management Advisor will be appointed to work with the MOH PFMO. A primary responsibility of the PFMO will be to provide on the job training programs for the central, provincial and district staff. The TORs and responsibilities of the PFMO have been agreed at appraisal. The establishment of the FMG and the recruitment and training (covering basic and advanced accounting skills, public expenditure financial management, treasury management and financial reporting) of financial management staff at central, provincial and district levels will be required according to the Financial Management Action Plan (FMAP; see Annex 6). The WB-executed part of the Japanese Grant for project preparation included technical assistance to design a supplementary project accounting system for recording of project financial transactions and reporting, and revise the current WB-DCHD Project's financial management manual to reflect the new design and integration with MOH's accounting system. The proposed budget reform program envisions the establishment of an internal audit function as a condition of eliminating the current pre-expenditure controls of MEF. The project will support the creation of a strong internal audit function within the MOH; because the function and required expertise does not currently exist in MOH, the internal auditor and a core group of audit staff may need to be recruited for the project. Appointment of an Internal Auditor and staff acceptable to IDA should be done according to the FMAP. The project will also require an annual external audit. The MOH financial management capacity assessment included the capacity of provinces receiving funding from the credit/grants, and a plan to strengthen MOH FM capacity was discussed and agreed with the Borrower. The said plan should be achieved by December 31, 2002. Funding resources for the project include an IDA Credit, two IDA Grants (one for HIV/AIDS and the other for Poorest Country), and a DFID Grant. Counterpart funds will come from central as well as local governments. The project will disburse based on traditional disbursement techniques and will not use PMR-based disbursements. No outstanding audits or audit issues exist with any of the implementing agencies involved in the project. The task team will continue to be attentive to financial - 34-  management matters and audit covenants during project supervision. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The potential environmental impacts of the project are limited in scope and, to the extent that environmental mitigation measures are required, they are relatively simple and well known. An Environmental Review (ER) was carried out to assess the particular environmental and human health impacts with the main emphasis being on: construction and rehabilitation of health care facilities (HCF) focusing on civil works and drinking water supply; health care waste management (HCWM) practices; and pesticide use in malaria and dengue vector control programs. The ER complied with the provisions of OP 4.01 concerning Environmental Assessment, and reviewed and complied with Cambodia's environmental laws, regulations, policies, and other relevant legislation to ensure that applicable assessment requirements are fully addressed in project implementation. The ER benefitted from extensive consultation with the MOH, Ministry of Environment (MOE), provincial health authorities, and national and intemational organizations involved in the provision of health care in Cambodia to ensure that potential project impacts were fully understood and appropriate conclusions and recommendations were reached. Particular attention was given to obtaining inputs from targeted provinces and technical programs expected to be involved in WB-HSSP delivery. The recommendations of the ER have been incorporated into the project, including the Project Implementation Plan, and will be included in the Annual Operational Plans and Health Infrastructure Development Plan. The ER Report was publicly disclosed in Phnom Penh, Cambodia on September 20, 2002. The findings summarized by activity are as follows. (a) HCF Construction and Rehabilitation - Review of this activity confirmed that it does not pose any serious environmental concems and as such will not trigger an assessment under Cambodia's environmental impact assessment (EIA) guidelines. (b) Construction of a new National Laboratory for Drug Quality Control - This activity is expected to trigger additional assessment under Cambodian EIA requirements. Anticipated construction-related environmental impacts are expected to be minimal as the site selected is situated in an existing built urban area of Phnom Penh. No environmentally sensitive areas were identified during a site visit. Potential environmental and human health concerns that were identified relating to laboratory operations include: air emissions containing harmful pollutants; laboratory wastewater disposal; and disposal of hazardous solid laboratory wastes. These aspects of laboratory operations are well understood and readily addressed through adoption of industry best environmental management practices. All environmental concems will be addressed in the design and civil works contract. (c) Drinking Water Quality - Review of the safety of drinking water sources available to HCF identified potential risks associated with microbial water quality and naturally occurring arsenic in groundwater. Microbial water quality represents the most serious human health threat countrywide in Cambodia with infectious diseases and parasites being the most common and widespread health risk associated with drinking water. Available data indicate that overall chemical water quality in Cambodia is generally very high but that elevated arsenic levels are prevalent in some provinces targeted by the WB-HSSP. Additional study of water sources typically used by HCF will be necessary to ensure that WHO guidelines for drinking water are consistently met. (d) HCWM - Potential environmental and occupation risks associated with wastes generated by HCF, particularly hazardous chemical and infectious wastes, were reviewed in detail in completing the ER. It was deternined that risks are well defined and are readily addressed through adoption of best - 35 -  HCWM management practices encompassing: waste minimization, recycling, and reuse; proper handling, storage and transportation; and treatment of waste by safe and environmentally sound methods. Additional assessment will be undertaken to fully evaluate available HCW treatment options prior to finalizing HCWM recommendations for adoption by HCF during project implementation. The need to address wastewater, a sub-category of HCW, in construction and rehabilitation of HCF was also examined and recommendations made to provide appropriate treatment to avoid human risks associated with discharge of untreated or inadequately treated sewage to the natural environment. (e) Pesticide Use in Vector Control - Review of planned malaria and dengue vector control activities confirned that insecticide/larvicide to be used in the WB-HSSP have successfully passed WHO's Pesticide Evaluation Scheme (WHOPES). Chemicals currently recommended by WHO pose very low risks to humans if used correctly. Of these Deltamethrin, used in insecticide treated nets, is considered the least toxic and highly unlikely to cause adverse effects in normal usage. Temperos, used as larvicide for drinking water containers, has a very low toxicity to humans. Although both chemicals are known to be highly toxic to non-target species such as aquatic organisms, environmental risks are limited under normal circumstances where only negligible quantities of these chemicals are likely to be released to the natural environment. Review of existing occupational health and environmental safeguards in place for vector control programs in Cambodia confirmed that there exists a low potential for unintentional release of these chemicals through improper handling or disposal. Following the ER, appropriate mitigation measures and monitoring programs were incorporated into an Enviromnental Management Plan (EMP) and a Pesticide Management and Monitoring Plan (PMMP). Implementation of the EMP and PMMP will be monitored together with the other WB-HSSP activities and evaluated both at mid-term and at final evaluation. 5.2 What are the main features of the EMP and are they adequate? The main recommendations contained in the EMP and PMMP are sumnmarized below. Environmental Management Plan (a) Health Care Facility Construction and Rehabilitation - Best environmental and occupational health practices should be followed during HCF construction and rehabilitation to minimize or avoid any potential minor adverse impacts. Environmental checklists currently used to assess government civil works projects should be completed for all HCF to ensure that potential site-specific environmental impacts are documented and that appropriate mitigation measures are taken to address environmental effects related to project location and design, rehabilitation and construction activities, and HCF operations. Specific mitigation measures are outlined to avoid or minimize occupational health risks associated with the potential presence of asbestos in existing HCF. (b) Laboratory Construction - Environmental concerns arising from construction of a new laboratory in Phnom Penh should be comprehensively addressed in project planning, design and construction. Appropriate mitigation measures during the construction phase include: strict adherence to occupational health and safety guidelines; controlling dust emissions and noise to minimize nuisance to neighbors; proper disposal of demolition materials to landfills; and control of surface water run-off from the construction site. Emphasis should be given during laboratory operations to the adoption of an environmental management system encompassing: air emissions controls; proper disposal of wastewater; and best management practices for the minimization, handling and disposal of hazardous chemical wastes. (c) Drinking Water Supply - The safety of drinking water used in HCF is to be assured through - 36 -  conducting water quality monitoring to evaluate whether available drinking water sources meet WHO drinking water guideline values. Recommended mitigation and remedial measures specify selection of the best available drinking water source and installation of treatment systems to ensure that acceptable water quality is achieved. (d) Health Care Waste - Environmental issues posed by HCW are readily resolved through provision of adequate management systems encompassing all aspects of waste generation, collection and segregation, transportation, storage and safe disposal. Preliminary recommendations are made regarding mitigation and remedial measures that could be adopted to enhance existing HCWM practices at HCF. Additional assessment will be undertaken to fully evaluate all available HCW treatment options before finalizing recommendations. Possible interventions include installation of appropriate waste handling and disposal infrastructure and systems (e.g., waste-segregation, incineration and landfills) and capacity building for HCF staff covering best management practices. Pesticide Management and Monitoring Plan Recommended mitigation measures are intended to ensure that safeguards already in place are adhered to in the delivery of WB-HSSP malaria and dengue vector control programs. Because existing guidelines and training materials are considered to represent best management practices, recommendations focus on possible enhancements to strengthen selected aspects of program implementation. Specific recommendations made to further reinforce occupational health safety and environmental protection include provisions for: secure transport of pesticides to target provinces; additional occupation health safeguards during pesticide handling and distribution; and extending training provided to local communities to minimize or avoid environmental harm. 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: September 20, 2002 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Extensive consultations were carried out in undertaking the ER to delineate potential environmental impacts associated with completion of WB-HSSP activities and to solicit inputs with a view to crafting appropriate mitigation and remedial measures. Interviews were completed with government agencies including the MOH and the MOE to identify potential environmental impacts of planned new construction and rehabilitation of HCF and construction of a new quality control laboratory in Phnom Penh. Field visits to provincial referral hospitals provided an opportunity to review rehabilitation plans and complete a preliminary assessment of site-specific environmental issues. Follow-up consultations with central and provincial level staff were held to review, discuss, and reach agreement on the project's environmental issues and recommendations to prevent, minimize, mitigate, or compensate for any adverse impacts and improve environmental performance. Consultations were also completed with specialists from national and intemational organizations and NGOs to solicit inputs on specific issues such as drinking water quality, health waste management treatment practices, and infectious disease programs. The ER provides a complete list of contacts. 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? Mitigation measures prescribed in the EMP and PMMP are expected to fully address all human health and environmental impacts associated with implementation of WB-HSSP activities. Although no - 37 -  significant environmental impacts have been identified for planned HCF construction and rehabilitation, provisions have been incorporated into the EMP to document all environmental resources potentially at risk and to undertake appropriate pro-active mitigation measures during project implementation. Follow-up assistance to the Borrower will include review of their intended implementation strategy and approach to ensure that environmental safeguards are properly applied throughout. Planned activities to be undertaken in this regard are: (a) completion of a drinking water survey at existing and future HCF to evaluate available drinking water sources and ensure that drinking water is of acceptable quality; (b) site-specific assessment of representative HCF to validate and elaborate recommendations contained in the EMP; and (c) revision of existing training materials to incorporate best HCWM practices. Technical assistance will also be financed under WB-HSSP to ensure that applicable environmental assessment requirements relating to the planned new quality control laboratory in Phnom Penh are met - all environmental aspects of the planned laboratory will be assessed to the satisfaction of the MOE before commencing construction. Recommendations outlined in the EMP and to be elaborated in the follow-up activity-specific assessment will include adoption of a comprehensive environmental management system, and linked monitoring and evaluation procedures to enable the laboratory to demonstrate compliance with best management practices on a continuous basis. Minor revisions to existing comprehensive guidelines and training materials for the malaria and dengue vector control programs as recommended in the PMMP will be completed during the initial phase of project implementation. Adoption of recommended revisions will provide assurances that human health and enviromnental concems relating to these programs are fully addressed. Satisfactory implementation of all recommended safeguards will be evaluated both at WB-HSSP mid-term review and final evaluation. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. A social development consultant participated in the preparation of the project. Institutional analyses of the sector were undertaken by institutional development consultants during project preparation and in the development of the strategic plan. A study was undertaken by an anthropologist to review the health situation of ethnic minorities in Cambodia, and a more targeted study of the health seeking behaviors and constraints to accessing health services of ethnic minority groups in WB-HSSP provinces of Kratie and Stung Treng was also carried out. See Annex 13 for a summary of the social assessment, including the Ethnic Minorities Development Strategy. The complete Social Assessment is located in the project file. III health is a leading cause and consequence of poverty in Cambodia. Health care in Cambodia is expensive, of poor quality and for many difficult to access. The WB-HSSP aims to increase the health of the poor, extreme poor, women and children, and other vulnerable groups by increasing the affordability of, access to, and quality of public health services. It will promote equity of access to health care and support poverty reduction. The WB-HSSP takes a two-pronged approach to addressing inequities in health access and utilization: geographical targeting of primary stakeholders; and mainstreaming social development principles within sector reform and the institutional development of the Ministry of Health. WB-HSSP targeting includes: (a) strengthening health services in particularly poor and disadvantaged geographical areas; (b) introducing social protection measures to safeguard the most vulnerable from the costs of hospital care in specific geographical areas; (c) supporting national health programs that most benefit the poor and disadvantaged, including malaria, TB, dengue, nutrition, and HIV/AIDS. The mainstreaming approach aims to strengthen the social assessment capacity of the MOH and to institutionalize the principles of client-centeredness, pro-poor, social inclusion (including ethnic minorities), and stakeholder participation. The Borrower's strategic plan expresses a commitment to mainstreaming a framework and - 38 -  social objectives. The WB-HSSP will assist the MOH to operationalize social objectives by building capacity and processes to mainstream social development concerns into planning, management, budgeting, monitoring and evaluation, and human resource development. This will include for example, a shift toward pro-poor needs-based budgeting, and the strengthening of the monitoring and evaluation system to monitor the sector's progress in improving the health of different sections of society according to socioeconomic status, gender, and ethnicity. In addition, the WB-HSSP will enhance and enable consumer and civil society participation across the sector, from strategic sector reviews to local operational planning and monitoring. The WB-HSSP will create forums for consumer voice, and this will underpin efforts to improve public accountability and service responsiveness. The project aims at improving health outcomes with emphasis on the under-served groups including the rural and urban poor and women. The project will improve accessibility to health services for the lowest income groups by: (a) developing primary health care (i.e., preventive and curative PHC services); (b) financing health facilities, with priority to the rural areas of the country; (c) strengthening infectious disease control programs; (d) developing nutrition activities; and (e) improving procurement and distribution of essential drugs. These strategies offer more benefits to the low-income groups which are frequently living in the remote areas of the country, are more often affected by infectious diseases and malnutrition, and cannot afford to purchase drugs from private pharmacies. Moreover the project will: promote and assess cost recovery for services and drugs as well as exemptions and equity funds for the poor; and review and finance, if warranted, the establishment of risk sharing schemes protecting the poor. Increased utilization of health services by the poor and women is one of the project's specific objectives and it will be measured by three performance indicators dealing with the utilization of outpatient services, utilization of hospital services and patient satisfaction. The access to and the affordability of health services for the low-income groups will be monitored during the life of the project. The project design will use the information provided by an initial beneficiary assessment targeting the under-served population groups, while the project final evaluation will include a similar assessment as well as the data of two DHS (see also Section A.2). 6.2 Participatory Approach: How are key stakeholders participating in the project? Through the SWIM process, and especially the COCOM, all stakeholders in the Cambodia health sector have participated in project preparation, and will continue to do so during implementation. Contracting in and out of activities with NGOs, community groups, decentralized health administrations and the private sector are envisaged. All programs financed by donors will be aligned to the RGC's program for the health sector (SWIM). Some of these, such as the operations of ADB, DFID, GTZ, UNICEF, and WHO will be linked closely with the IDA Credit/Grants; others, such as AUSAID, CIDA, EC, and SIDA, may join in during program implementation. Health service users and their community representatives, such as members of feedback committees that deal with the management of health centers and provision for the poor, will also be important participants in the project. The Social Assessment included identification of the stakeholders, their needs, interests and aspirations, including the direct recipients who may be positively or negatively affected by the project. The project, embedded as it is within the Borrower's Health Sector Strategic Plan, and designed to strengthen the MOH's capacity to move toward sector wide management, requires broad stakeholder participation if it is to be effective. Examples of how the project will encourage and demand stakeholder participation are: (a) project management will be mainstreamed into the line management of the MOH, and no separate management unit will be created. The project will be managed and implemented by existing, though strengthened government structures, and will involve the various program managers involved in the current WB-DCHD Project; (b) monitoring of the project will be subsumed into the - 39 -  agreed common sector monitoring process with no separate project monitoring activities. The annual review process in particular will ensure broad stakeholder participation in monitoring progress: MOH, donors, NGOs, and civil society; (c) institutional development support to the planning, monitoring and evaluation, and management systems will assist MOH in defining how it can achieve its objective of increasing and mainstreaming consumer participation. This will include, but not be limited to: consumer/community participation in facility, operational district and provincial annual plans and monitoring processes; consumer surveys and special demand-side research; and experimentation with initiatives to enhance public participation; and (d) participatory planning approaches will underpin the innovative elements of the project to be implemented parallel to MOH, such as contracting and equity funds, with good practices adapted for the public sector. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? NGOs are part of the COCOM and therefore will be consulted on a regular basis. NGOs were involved in project preparation and will continue to be involved in ongoing participatory planning processes. NGOs are project stakeholders in their role as service providers (e.g. to population at high risk within the STI/HIV/AIDS component) and potential health service contractors, in advocacy, and in the management of equity funds. NGOs and broader civil society will also be partners in the annual review of sector performnance, providing a high level presence for civil society. NGOs working on the demand side of health will be important partners to the strong supply side emphasis of the project at strategic and operational levels. Consultations with the poor and other primary stakeholders are integrated into the sector's monitoring and evaluation framework, which will include consumer surveys and beneficiary assessments. NGOs will also be heavily involved in targeting health services to ethnic minorities. In addition, user committees in health centers or referral hospitals are an important part of civil society. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The WB-HSSP will assist the MOH to translate social development policy objectives into practice through sector reform and institutional development, as well as the piloting and delivery of specific interventions, such as contracting and equity funds. Mainstreaming will be achieved by strengthening the social assessment capacity of the MOH, and building the capacity to mainstream social objectives through planning and management, monitoring and evaluation, and human resource development. The WB-HSSP's intention to move to a sector program approach with funding tied to annual plans and emerging priorities provides flexibility for social development mainstreaming activities to be designed as the project rolls out. 6.5 How will the project monitor performance in terms of social development outcomes? The project will support MOH's monitoring and evaluation framework for the Health Sector Strategic Plan (2002-2007). The framework embraces a commitment to introduce social and poverty variables into the system, and to systematically introduce consumer and civil society participation in monitoring program and sector performance. Project assistance will strengthen the availability and monitoring of health performance data broken down by sex, socioeconomic status, and ethnicity, which is a major development. Consumer surveys and beneficiary assessments, along with special studies of demand side issues, such as the constraints to access and demand of the extreme poor, will provide focused insight into consumer experiences and service gaps. Inclusion of NGOs and civil society in annual reviews of sector performance will ensure that the interests of the poor and disadvantaged are presented. At the operational end, the WB-HSSP will provide assistance to develop modalities of community participation in monitoring service performance and raising public accountability. - 40 -  Specific mechanisms to monitor and measure social development outcomes will be developed. They will include additional surveys focusing on the measurement of utilization by the low-income groups in selected ODs and in health facilities supported by the project. Such surveys are not new in Cambodia, and they have been carried out at health facility level to ascertain that the poor maintain or increase access to services, at OD level and country-wide with the opportunity of household surveys. For instance, ADB has developed a checklist of housing characteristics that can be used to identify the poor. Within this method, researchers are required to identify whether households have the following assets: roof of permanent material, bicycle, radio, motorcycle, television, ox-cart, boat with outboard motor, at least one cow or water buffalo. The suitability of this method of identification of the poor or low-income groups will be considered for its potential as a tool to be developed and adapted for use in the project monitoring. If suitable for use, the income level of health service users would be assessed according to answers they give relating to a checklist similar to that used by ADB researchers. Questions regarding patient satisfaction could also be included in the questionnaire survey. As mentioned previously, the project will also support two DHS (base and end-line) and three beneficiary assessments (base, mid-term and end-line) which will provide information on health status, user of services satisfaction etc. 7. Safeguard Policies: 7.1 Do any of the following safeguard policies apply to the project? -policy pl, i. 'ppniability ', 1 Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) * Yes (U No Natural Habitats (OP 4.04, BP 4.04, GP 4.04) ( Yes S No Forestry (OP 4.36, GP 4.36) (9 Yes * No Pest Management (OP 4.09) * Yes (9 No Cultural Property (OPN 11.03) U Yes S No Indigenous Peoples (OD 4.20) 9* Yes (9 No Involuntary Resettlement (OPIBP 4.12) * Yes U No Safety of Dams (OP 4.37, BP 4.37) U Yes 4P No Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) (U Yes * No Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* ( Yes 0 No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The following Safeguard Policies apply to the WB-HSSP: (a) Environmental Assessment; (b) Pest Management; (c) Indigenous Peoples; and (d) Involuntary Resettlement. Environmental Assessment and Pest Management. See Section E.5 above, Annex 12, and the Integrated Safeguards Data Sheet for a detailed discussion. Indigenous Peoples. See Section E.6 above, Annex 13, and the Integrated Safeguards Data Sheet for a detailed discussion. Involuntary Resettlement. The WB-HSSP includes the continued development of primary health care facilities and first referral and provincial hospitals, by financing rehabilitation and new construction. A health infrastructure development plan will be developed with WB-HSSP financial support, and WB assistance will focus on rural and remote provinces. This plan will ensure that the siting of health facilities to be constructed or rehabilitated under WB-HSSP is decided on sound criteria (such as accessibility, utilization rates, health needs, and proximity to private facilities). Supported infrastructure projects are small in scale and are expected to cause little or no significant adverse -41 -  impacts. Nonetheless, since all sites have not been identified, experience shows that such activities sometimes do cause loss of land or loss of access to other resources. Therefore, any land acquisition associated with civil works will be undertaken in accordance with an agreed Framework for Land Acquisition Policy and Procedures. The Framework defines terms and provides guidance for involuntary acquisition of land or other assets (including restrictions on asset use), and establishes principles and procedures to be followed to ensure equitable treatment for, and rehabilitation of, any persons adversely affected. The Framework was publicly disclosed in Phnom Penh, Cambodia on October 1, 2002. F. Sustainability and Risks 1. Sustainability: Sustainability is an important project risk given: (a) the low level of public sector resources; and (b) the unpredictability of public sector support for the health sector which could threaten the continuation of project achievements after the end of the project. Until macroeconomic development takes off strongly, the success of health sector reform and program implementation will continue to depend upon donor inputs. It is, therefore, important that both the government and donors recognize the long term commitment that is required to support funding of the expanded health sector program before commencing the project. A failure to develop adequate management capacity could also jeopardize continuation of the programs supported by the HSSP. Therefore, the HSSP contains substantial provisions for strengthening Cambodian management capacity. Careful monitoring of the growth of management capacity will be required during the HSSP's execution. Some additional project features contributing to sustainability include: * development and harnessing of the private sector to address priority public health problems and improve sector management; * reforms in the public health sector to improve performance, thereby increasing the public sector's credibility to donors; * efficiency gains to generate resources, and quality improvements expected to increase facility utilization rates; * expansion of cost-recovery to channeling more of household expenditures to public facilities; and * improvement of provider payment in exchange for better services. 2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1): ., ., I I I IRisk Risk Rating Risk Mitigation Measure From Outputs to Objective Decision making structures and processes M The project would strengthen and diversified are adequate to create and maintain the methods used by the RGC to maintain a consensus. constructive dialogue with development partners. Sufficient political will to continue sector S Annual reviews will focus on progress in reforms, improve sector financing and particularly difficult areas, including establish sustainability. infrastructure development, human resource development, and sector financing. Sufficient capacity to plan and implement S The project would support institutional activities in key management and strengthening in the areas of planning, program areas and in PHDs and ODs. procurement, disbursement, financing -42 -  management, and performance review. Implementation plans will be reviewed annually to ensure MOH's adherence to prioritized and cost-effective strategies. PHD and OD capacity will be strengthened. Strategies for identifying the poor and M Ongoing efforts to increase access for the poor reducing barriers to their use of services (equity funds, micro-credit projects, are effectively implemented. prepayment schemes, etc.) will be evaluated and scaled up. In particular, the effects of expanding the cost recovery system will be carefully monitored. Poor economic performance and political M Progress in CAS implementation will be instability may hinder the Government's evaluated regularly. Government allocations to ability to implement reforms. the health budget will be examined annually through PERs and discussed during the annual review. Private sector involvement in service M The project would support substantial delivery will be adequately regulated. assistance to build on the existing legislative and regulatory framework and focus on quality. Decentralization and integration of M The project will support the decentralization program management responsibilities at strategy through institutional strengthening of provincial and district levels will management skills at provincial and district continue. levels. From Components to Outputs Human resource development strategies S The project will provide substantial additional (for increasing the quantity and support for the implementation of the Health distribution, ensuring quality, and Workforce Development Plan (1996-2005). improving motivation) will be Human resource development will be one of implemented. the major areas of emphasis during the annual reviews. Salaries below living-wage and lack of S Salary supplements will be provided by the staff incentives may hinder the whole RGC and DFID, together with other donors and SWIM approach. NGOs, will support the most needed civil service reform. Financial management. Channeling of H Advance Accounts will be opened at Provincial funds to PHDs and ODs will require level; ODs involved in HSSP will be selected additional financial management and as Priority Activity Programs (PAP). control measures. Slow disbursements for project S Training in financial management and operations. accounting; close supervision of the MOH Department of Budget and Finance; MOH (and not MEF) to authorize disbursement. Misallocation of project resources. M Close monitoring undertaken by various actors (such as beneficiaries, TA teams, partners for health, NGOs and independent auditors); establishment of transparency mechanisms. Poor collaboration among MOH S Coordination capacity of the Project departments. Coordinator will be strengthened through the -43-  establishment of a Project Secretariat including an Executive Administrator, addition of 2-3 administrative staff, and the use of Technical Assistance. Overall Risk Rating S Proposed measures to strengthen key sector management functions within the MOH will ensure increased ownership and technical abilities. The combination of allocated and unallocated funds will allow MOH to advance at its own pace toward its stated objective of sector-wide management. The proposed annual planning, budgeting, and review mechanisms will provide a sound institutional structure for assessing progress in the sector and introducing timely modifications. As suggested by the Quality Enhancement Review Panel, and given the inherent complexity of the project, the limited local capacity, the large share of TA in the operation and the need to collaborate intensively with other donors, the PAD includes an explicit schedule and budget for project supervision that is well above the Regional Norm (see Annex 15). Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects: None expected. G. Main Loan Conditions 1. Effectiveness Condition The Task Team has tried to comply with the agreed readiness filter for Cambodia including the rule of zero effectiveness project conditions. However, a limited number of measures are essential for project implementation conditions and have to be in place prior to effectiveness. Those include conditions relating to Financial Management and Disbursement (it is expected that these conditions will be met by Board Presentation date), and counterpart funding: * Financial Management Manual adopted, satisfactory to IDA; * Computerized accounting system established at the Financial Management Group (FMG) of the MOH's Department of Budget and Finance, satisfactory to IDA, and training of staff in its operation completed; * Counterpart funding covering the first year of project implementation deposited in the project account; and - 44 -  * Effectiveness of the WB First Development Grant Agreement, the WB Second Development Grant Agreement, and the ADB Loan Agreement. 2. Other [classify according to covenant types used in the Legal Agreements.] Financial * The Borrower shall: (i) provide IDA with annual financial audits conducted by an independent auditor, acceptable to IDA; and (ii) establish and thereafter maintain an internal audit function within MOH, satisfactory to IDA, and appoint an internal auditor and a core group of audit staff, acceptable to IDA, under TOR satisfactory to IDA. * The Borrower shall maintain a FMG within the MOH's Department of Budget and Finance, acceptable to IDA, headed by a qualified and experienced financial management officer acceptable to IDA, with competent staff in sufficient numbers, and provided with adequate resources. A program of training for FMG staff, acceptable to IDA, shall be completed by June 30, 2003. * The Borrower shall: (i) by no later than April 1, 2003, appoint a qualified and experienced financial advisor, acceptable to IDA, to the Director of the MOH's Department of Budget and Finance, under TOR satisfactory to IDA; and (ii) by no later than June 30, 2003, complete a program of financial management training, acceptable to IDA, for all health service managers. Institutional * The Borrower shall maintain throughout the project period the: (i) Steering Committee, with membership acceptable to IDA; (ii) Senior Management Group, under TOR acceptable to IDA, with competent staff in sufficient numbers and provided with adequate resources; and (iii) Implementation Working Group, under TOR acceptable to IDA, headed by a Project Coordinator acceptable to IDA, with competent staff in sufficient numbers and provided with adequate resources. Sector Wide Management * The Borrower shall carry out an annual review of its health sector with the participation of IDA, by no later than April 30 of each year throughout project implementation, commencing in 2003. * For the purpose of the annual review, the Borrower shall, by no later than two weeks prior to the scheduled review, provide to all participants a report on: o the performance of the health sector, using selected performance indicators and trends; o progress in the implementation of policy measures and institutional reforms; o progress in the implementation of the Institutional Capacity Building Plan, the Health Workforce Development Plan, and the Infrastructure Development Plan; o a procurement audit report and details of government budget and actual expenditures in the health sector for the preceding fiscal year; o a report on the purchase of medicines, reagents, consumables and vaccines necessary for the implementation of MPA and CPA at public health facilities and the funding for such purchase during the preceding fiscal year, and the plan for such purchase and the funding for such purchase for the current fiscal year; and o a draft three-year rolling plan for health sector development, including detailed proposed activities, projected costs and resources for the first year of such rolling three-year period (the Annual Operation Plan). - 45 -  * The Borrower shall, commencing in 2003 and in each year throughout project implementation, following the annual review of the health sector: (i) revise the draft Annual Operational Plan for the following year and, by no later than May 31, provide it to IDA for review and comments; (ii) finalize the Annual Operational Plan together with the three-year rolling plan, by no later than July 31; and (iii) provide to IDA for its review and comments the final version of the Annual Operational Plan as approved by MEF, by no later than October 15. FunctionalAnalysis * For the purpose of the 2004 annual review, the Borrower shall provide to IDA, by April 30, 2004, a plan for strengthening the administration of health services (Institutional Capacity Building Plan) for the period 2004 through 2007. Improving Quality and Access to Health Services * For the purpose of the 2004 annual review, the Borrower shall: (i) provide to IDA, by April 30, 2004, a report on the implementation and results of the Health Workforce Development Plan (1996-2005); (ii) a draft Health Workforce Development Plan for the period 2004 through 2013, and thereafter take all necessary actions to implement the plan; and (iii) provide to IDA, by April 30, 2004, a Health Infrastructure Development Plan and a Maintenance Plan for the period 2004 through 2007, and thereafter take all necessary actions to implement the plan. Health Financing * The Borrower shall, for each fiscal year commencing in 2003, allocate at least 60% of any increase over the preceding fiscal year of the budgetary allocation to recurrent expenditures in the health sector, to provincial and district hospitals and commune health centers, and health programs which directly benefit the poor. * The Borrower shall review exemptions to cost recovery arrangements in the health sector, formulate cost recovery mechanisms designed to benefit the poor, acceptable to IDA, and implement the proposed mechanisms. * The Borrower shall, by September 2006, evaluate various initiatives to improve the affordability of health services to the poor and, on the basis of such evaluation, mainstream the implementation of such arrangements in its health sector strategy. * The Borrower shall, in the allocation of the health sector budget to provinces and districts, develop a formula, acceptable to IDA, which incorporates, inter alia, poverty criteria acceptable to IDA, and disease burden, and commencing in fiscal year 2004, put into effect such formula. * The Borrower shall, for each of its fiscal years from 2003 through 2007, propose to Parliament the allocation of at least 10% of the national recurrent budget to the health sector. * The Borrower shall ensure that budgetary funds disbursed for actual salary and non-salary expenditures in the health sector shall be: (i) in fiscal years 2003 and 2004, no less than 90% of the amount allocated to such expenditures; and (ii) in fiscal years 2005 and 2006, no less than 95% of the amount allocated to such expenditures. * The Borrower shall ensure that, in each fiscal year commencing in 2003, at least 50% of budgetary funds allocated to the health sector shall have been disbursed by no later than September 30 of each such year. * The Borrower shall, in each fiscal year commencing in 2004 through 2007, increase the budgetary allocation to programs of health education and health services consumer behavior, acceptable to IDA, by no less than 10%. -46 -  * The Borrower shall, under TOR acceptable to IDA, complete and submit to IDA, by no later than April 30, 2004: (i) a feasibility study on the establishment of a central drug procurement unit, and (ii) a feasibility study on mechanisms to ensure timely and adequate funding for the purchase of medicines, reagents, laboratory consumables and vaccines to allow the implementation and gradual expansion of MPA and CPA to all public health facilities. Health Management Agreements * MOH shall enter into a HMA, satisfactory to IDA, with each project province. * Each project province shall perform its obligations under its respective HMA and in accordance with the Project Implementation Plan. * All HMAs shall be updated by no later than December 31 of each year, in such scope and detail as IDA may reasonable require. * Expenditures for works or goods for any project province under Component 1 shall not be financed unless said project province has entered into its respective HMA with MOH, satisfactory to IDA, covering the first year of project implementation. Contracting of Health Services * The Borrower shall ensure that ODs subject to health services delivery contracts: (i) receive budgetary allocations comparable to those of non-contracted ODs; and (ii) receive their budgetary share of civil service salaries, and receive on a timely basis necessary equipment and supplies of consumables, including increased supplies of necessary drugs to enable them to respond to increased utilization of public facilities. Project Monitoring and Evaluation The Borrower shall: * maintain policies and procedures adequate to enable monitoring and evaluation on an ongoing basis, in accordance with indicators satisfactory to IDA, the carrying out of the project; * prepare, under TOR satisfactory to IDA, and furnish to IDA, by no later than April 30 and October 31 of each year, commencing October 31, 2003, a semi-annual report on the progress achieved during the preceding calendar semester; * prepare, under TOR satisfactory to IDA, and furnish to IDA, by no later than April 30, 2005, a mid-term report; * prepare and submit to IDA, in form and substance satisfactory to IDA, a financial monitoring report that details sources and uses of funds for the project, describes physical progress in project implementation, and details the status of procurement under the project; * carry out an evaluation survey of the impacts of the project, under TOR satisfactory to IDA, by September 30, 2007 (the costs of which will be shared equally with the ADB); and * prepare, on the basis of guidelines acceptable to IDA, and submit to IDA, by the closing date (December 31, 2007), a final project evaluation report. Social and Environment * The Borrower shall carry out the project in accordance with the measures required under the Ethnic Minorities Development Strategy, the Framework for Land Acquisition Policy and Procedures, the Environmental Management Plan, and the Pesticide Management and Monitoring Plan. -47 -  H. Readiness for Implementation E 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 0 1. b) Not applicable. 3 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. i 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. 0 4. The following items are lacking and are discussed under loan conditions (Section G): Note: Regarding 1 (a) above, this refers to architectural designs for health facilities. 1. Compliance with Bank Policies El 1. This project complies with all applicable Bank policies. 7 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Viffcent Turbat Emmaluel Y. Jimenez Ian C. Porter Team Leader Sector Director Country Director - 48 -  Annex 1: Project Design Summary CAMBODIA: Health Sector Support Project : C . .,R-;. :;,.- '*hirformanc-e i-' Diti C6iectionlSt!rtuyi H11ier icKyofbbjiactiv4s- l 5h^~'dictrrA e 4t t* itic A l ins' Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Poverty reduction through: 1. Promote broad-based * % of total Government * PERs and Annual * Current macroeconomic growth and income generation recurrent (non-salary) Statistical Reports. policies are implemented budget devoted to health. and economic performance improves. * Political stability is maintained. * Effects of extreme adverse climatic conditions are coped with and do not overwhelmingly affect development. 2. Provide adequate health * Curative visit rate in * Annual Statistical services health centers. Reports. * Barriers and limitations to * Bed occupancy rate in using key services are referral hospitals. increasingly understood and overcome. * Prionty is given to strategies such as PHC, prevention, and nutrition. 3. Ensure participation of the * % of out-of-pocket * Household studies. * Effective mechanisms to poor and other vulnerable expenditures on health * Beneficiary assessments. identify the poor and to groups in the benefits of care by income. * DHS. protect accessibility to improved health services * Annual statistical reports. services are strengthened. 4. Support good governance * % of ODs with annual * Annual operational plans. * Current civil and facilitate private sector plans indicating * Annual statistical reports. administration reforms development stakeholder consumer will be continued involvement. * Private sector * Strengthened management involvement in service capacity to ensure delivery is promoted and transparency and regulated in a manner that accountability. fosters development and * Increased participation of quality. private providers and communities. Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: Contribute to improved health 1. Infant Mortality Rate. * DHS. * RGC maintains status by strengthening sector 2. Under Five Mortality * Household surveys. commitment to health performance and providing Rate. * Annual statistical reports. reform and to providing more accessible and better 3 Maternal Mortality Rate. * Specialized surveys. health services to the quality health services. 4. Total Fertility Rate. * Beneficiary assessments. poor. 5. Malnutrition (weight for * Funds allocated to the age) in children < 2 and sector are consistent, children 2-5. sufficient, and predictably -49 -  disbursed. * Incentive schemes for health providers are expanded. Output from each Output Indicators: Project reports: (from Outputs to Objective) Component: 1. Improved Delivery of Health Services (for the Benefit of the Poor and Rural Population) I. I Accessibility and Oualitv * Percentage of the * Progress reports. * Infrastructure of Health Services and Drugs population with access to * Statistical reports. development plan will be health centers providing * Infrastructure supported by donors and MPA services. development plan. implemented by RGC. * Percentage of health * Beneficiary assessments. * Quality assurance will be regional hospitals (RH) * Reports from facilities maintained as a sector and HCs meeting essential under "Contracting". pnority. obstetric care standards. * Drug policy and * Percentage of facilities regulation will be without shortages of enforced. essential drugs. * Human resource policy * Patient satisfaction rate in objectives in public public facilities. services and in the health * Percentage of households sector will be pursued. satisfied with the quality of services offered by public health facilities. 1.2 Affordability of Health * Number of * Annual statistical report. * Government will pursue Services exempted/non-exempted * Progress reports. its overall policy to households for which * MOH supervision reports. reduce poverty. costs have been paid * Household surveys. * Public sector regulation (fully/partially) by equity * Specialized surveys. will support the specific funds. * Reports from facilities actions taken by the health * Financial accessibility to under "contracting" or sector to protect poor health services. with an equity fund population's access to * Urban/Rural health services. expenditure differential. * Utilization of outpatient and inpatient facilities by indigent population. * Number of equity funds. 2. Improved Programs * Annual operational plans. * Health sector policy Addressing Public Health * Annual statistical plans. objectives will be Priorities * MOH supervision reports. implemented. * Progress reports. * Other donors' support to * Specialized surveys. these programs will - 50 -  continue. 2.1 Infectious Diseases Malaria * Incidence of malaria per 100,000 inhabitants in areas at risk. * Malaria case fatality rate in public hospitals. Tuberculosis 0 Pulmonary TB case detection rate. * Pulmonary TB cure rate STI/HIV/AIDS * HIV sero-prevalence rate of women in antenatal care. * Surveillance system established and operational. * Prevalence of STIs. * Percentage of hospitals screening blood for HIV. 2.2 Nutrition * Number of severely * CDHS National Health malnourished children Surveys. adequately treated in * UNICEF surveillance health facilities. reports. 3. Strengthened Institutional Capacity 3.1 Improved MOH * Percentage of actual * PER. * Levels of spending in the performance MOH salary and * Annual operational plans. public sector will non-salary expenditures. * Audit reports. increase. * Public health expenditures * Statistical reports. * RGC will step up efforts per capita. * MOH supervision reports. to curb corruption. * Qualified audits. * Progress reports. * Public health will be * Planning and monitoring recognized as a specialty. process. 3.2 Strengthened provincial * Percentage of PHDs and * PER. 0 RGC will accelerate the and district health ODs producing annual * Annual operational plans. decentralization process. administrations health plans. * Audit reports. * Percentage of actual * Statistical reports. recurrent expenditures * MOH supervision reports. disbursed by ODs. * Progress reports. Project Components / Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) I. Improved Delivery of US$16.00 million * Project supervision * Adequate funding, Health Services (for the reports. including from other Benefit of the Poor and * MTR and ICR. donors, will be provided. Rural Population) * Periodical analysis of the * Adequate collaboration implementation of the among sectors and with 1.1 Improved Accessibility infrastructure the civil society will and Quality of Health Services development plan. prevail. * Annual Operational Plan - 51 -  1.2 Improved Affordability of review. Health Services * Progress reports. 2. Improved Programs US$11.34 million * Project supervision * Agriculture and price Addressing Public Health reports. policy for foods will Priorities * MTR and ICR. enhance food availability. * Periodical analysis of the * Development in other 2.1 Infectious Diseases implementation of the sectors such as water and Control Programs technical programs plan. sanitation will be * Annual Operational Plan adequate 2.2 Nutrition review. * Progress reports. 3. Strengthened US$4.50 million * Project supervision * Health sector policy Institutional Capacity reports. objectives will be * MTR and ICR. implemented. * Periodical analysis of the * Overall civil service implementation of the reformn objectives will be human development plan. pursued. * Annual Operational Plan * Incentives systems will be review. established in the public * Progress reports. sector. Note: Activities have been identified and costed for the entire duration of the project. However, as part of WB-HSSP design, it was agreed that, starting in project year 3, these indicative allocations will be reviewed dunng the Annual Review and Operational Planning process adopted by the Borrower to operationalize the Health Sector Strategic Plan, and adjustments or new allocations will be made depending upon the needs of the sector and the level of funding in each respective year. - 52 -  Core Performance Indicators In conformity with the Millennium Development Goals (MDGs) and MOH's targets for the year 2005, listed below are 23 core performance indicators are being proposed to monitor and evaluate the project. INPUTS Government budget Allocation 1. MOH recurrent (salary excluded) budget as a proportion of the total Government recurrent (salary excluded) budget. Expenditure 2. % of actual MOH salary and non-salary expenditures. 3. % of actual recurrent expenditures disbursed by ODs. OUTPUTS Health sector planning 4. % of PHDs and ODs producing annual health plans (as specified in the MOH manual on planning). Health service organization Access / Physical 5. % of the population with access to HCs providing MPA services (as defined by the MOH). Coverage Plan 6. % of health RHs and HCs meeting essential obstetric care standards. Access / Financial 7. % of out-of-pocket expenditures on health care by income. 8. Numbers of exempted/non-exempted households for which costs have been paid (fully/partially) by equity funds. Personnel 9. % of RHs and HCs meeting minimum staffing levels. Drugs 10. % of facilities without stock-outs of essential drugs (using tracer drugs). Utilization of health services Curative services 11. Per capita new consultations (or visit rate) for curative care in public facilities. Reproductive health services 12. % of deliveries attended by a primary or secondary midwife or a doctor. - 53 -  Infant / Adolescent health services 13. % of children under 1 year fully immunized. Participation in / Satisfaction with services 14. % of ODs with annual plans indicating stakeholder/consumer involvement (e.g., joint approval, budget line for meetings, etc.). 1 5a. % of patients satisfied with services received in public health facilities. 1 5b. % of households satisfied with the quality of services offered by public health facilities. OUTCOMES Curative services 16a. Incidence of malaria per 100,000 inhabitants in areas of risk. 16b. Malaria case fatality rate in public facilities per 100 patients. 17a. Pulmonary TB smear (+) case detection rate. 1 7b. Pulmonary TB smear (+) cure rate. Preventive services 18. CPR/modem methods for all women 15-49 yrs. 19. Malnutrition (weight for age) in children <2 and 2-5. HIV/AIDS 20. HIV sero-prevalence rate among women attending ANC. IMPACT 21. Infant mortality rate per 1,000 live births. 22. Under five mortality rate per 1,000. 23. Maternal mortality ratio. - 54 -  Annex 2: Detailed Project Description CAMBODIA: Health Sector Support Project 1. The project will have three main components: Component 1, Improved Health Services for the Benefit of the Poor and Rural Population; Component 2, Improved Programs Addressing Public Health Priorities; and Component 3, Strengthened Institutional Capacity for Health Sector Reform. The project provinces are: Banteay Meanchey, Battambang, Kampong Thom, Kampong Speu, Kampot, Kratie, Krong Kep, Krong Pailin, Oddar Meanchey, Pursat, Preah Vihear, and Stung Treng. 2. Activities to receive financial support from the credit/grants have been identified for the five years of the project for each component. Taking into account the evolving situation in the sector and the fact that both donor support and financing from the public sector may undergo changes, an agreement was reached to reassess the relevance of these allocations on an annual basis with the opportunity of the Annual Review and Activity Planning exercises. Changes in the level of financing of the HSSP activities could, therefore, be made annually, provided that they are consistent with the situation in the sector and help achieve the project's development objectives. While these changes could be agreed upon on the occasion of the Annual Review and Activity Planning exercise, it is expected that no substantial change will be necessary during the first two years of the HSSP. By Component: Project Component I - US$16.00 million 3. Improved Delivery of Health Services (for the Benefit of the Poor and Rural Population) comprises two sub-components: (a) Sub-component 1.1, Accessibility and Quality of Health Services and Drugs (US$13.0 million); and (b) Sub-component 1.2, Affordability of Health Services (US$3.0 million). 4. The objectives of Component 1 are to increase the accessibility to quality primary health and referral services, and to improve the affordability of these services for the poor. The component would also build sustainability through training (to strengthen health facility management, improve the quality of services provided to the population and, ultimately, increase service utilization) and development of increased local funding. Successful implementation of the component would be measured by increased accessibility to PHC and referral hospitals, improved availability and quality of drugs, use of quality services, reduction in related morbidity and mortality rates, equity indices of the use of enhanced services, successful development of local management capacity, and increased proportion of operational cost financed from domestic funding sources. 5. This component draws on the experience gained in developing and implementing the Health Sector Coverage Plan by the three partners (World Bank, ADB and DFID) and other organizations by carrying out innovative pilot programs for health financing and management. These programs include contracting out local services, contracting in and out management of local services (supported by ADB), a "boosting strategy" (piloted, for example, as the New Deal by MSF and UNICEF in Siem Reap), and equity funds (for example, the fund supported by DFID in Phnom Penh). The component will improve the programs and extend the experiment to new provinces and operational districts. 6. In addition to health financing pilots, the HSSP and other donor programs are continuing to support service improvement (in terms of rehabilitating or constructing new health facilities, equipping, providing technical support, developing arrangements to make services affordable to the poor, and fostering quality care) as well as measures to improve accessibility to and affordability of quality drugs. The HSSP will assist the MOH to: (a) better coordinate the donors involved; (b) develop a reliable data - 55 -  base; and (c) improve health infrastructure, equipment and personnel planning (through this component but also by means of the HSSP Institutional Capacity component). The utilization of health facilities by different income groups will be monitored, and increased utilization by the poor will be the main indicator used to evaluate the project's performance. Sub-component 1.1: Accessibility and Quality of Health Services 7. The financing for this sub-component includes: IDA credit: US$11.5 million; and RGC: US$1.50 million. This sub-component will finance construction and rehabilitation, equipment, and drugs to health facilities in all provinces assigned to WB-HSSP. Quality improvement will also be pursued in Kampong Thom Province on a pilot basis. 8. Civil Works and Equipment. This sub-component will finance construction, rehabilitation and equipment of health facilities in ten of the twelve WB-HSSP provinces, e.g., Krong Pailin, Kampot, Banteay Meanchey, Stung Treng, Preah Vihear, Battambang, Kampong Speu, Pursat, Kampong Thom, and Kratie. In these ten provinces, health facilities in 16 districts were selected on the basis of the following three criteria: (a) poverty level (priority to districts with lower income rates); (b) number of potential users (priority to highest number of inhabitants per facility); and (c) unfulfilled needs in facilities (priority to districts with the highest number of unfulfilled needs in facilities). The civil works program will include, over a five year implementation period: the rehabilitation and extension of 16 existing district or provincial hospitals, the construction of 24 new Health Centers (HC), and the rehabilitation/extension of 46 existing HCs. In addition, the project will finance the construction of 6 district offices and 10 drug stores and provide equipment to all constructed and repaired facilities. This will include: (a) MPA kits to each newly constructed HC; and (b) complementary equipment for the rehabilitated and under-equipped HCs and district and provincial hospitals (to replace fallen into disrepair and/or misplaced equipment). 9. Five Operational Districts have been selected for the first phase (2003-04) of civil works, including the two districts designated for the "Contracting" sub-component and the three highest priority districts (with health facilities in need of rehabilitation works or on sites lacking access to health services). The final list of this first phase has been discussed and agreed upon at Appraisal, and architectural studies have been planned. 10. Before project launching, the initial survey of existing facilities and sites as well as the preliminary designs for the first phase of civil works will be carried out by two individual consultants (architects) to be recruited and financed under the Japanese Grant. After launching, the project will finance consultant services related to civil works including: (a) design and supervision of works to be provided by several local firms; and (b) civil works management, including pre- and post-construction services, coordination and monitoring of consultant and contractor activities. 11. The project will also strengthen the public facility and equipment maintenance units in provinces. Project funds will support the establishment of six maintenance units including: (a) construction of workshop facilities; (b) provision of equipment, including transportation vehicles (motorcycles), tool kits and provision of spare parts; (c) training of health personnel and maintenance technicians; and (d) consultant services for the development of maintenance procedures and manuals. These activities will be developed on the basis of the results obtained by the pilot maintenance project currently implemented by the Hospital Services Department (HSD) in Kampong Thom Province with the assistance of the GTZ. In addition, to standardize maintenance procedures and harmonize training programs, the project will coordinate this sub-component's activities with the maintenance - 56 -  sub-component of the HSSP financed by the ADB. 12. Quality Improvement. This HSSP sub-component will support one of the main prionties of the newly adopted Health Sector Strategic Plan by increasing the quality of services to be delivered to the population and, ultimately, contributing to improved health outcomes. Quality will be raised by improving the performance of health care providers (in terms of facilities and individuals) and emphasizing the satisfaction of both the health needs and the expectations of the users of services. Quality improvement will also be essential to a better utilization of services and key to increased revenues through cost-recovery, thus making possible the financing of performance-based incentive schemes. The project will support activities to: (a) monitor and improve the quality of care delivered in health facilities (such as the development of quality standards and quality indicators), (b) improve the training and supervision of the health providers; (c) develop materials and other means to support case management and the delivery of improved preventive services; and (d) initiate quality assurance (quality circles, performance-based incentive systems, etc.). HSSP will also provide support to analyze and find solutions to the current problems (e.g., implementation of the MPA and CPA packages and training modules, expansion of the utilization of these packages, etc.). Establishment of the annual health sector review and planning process (to be followed by HSSP review of allocations to specific project activities) will be beneficial to this new and evolving sub-component which comprises: (i) Training in MPA Module 3 (Child HealthilMCI) in selected provinces and districts. This activity will be implemented in collaboration with WHO in eight districts of four participating provinces (Kratie, Pursat, Kampong Speu, and Battambang). Other HSSP components will also contribute to MPA/CPA training (e.g., Nutrition, TB, Malaria, and STIs/H1V/AlDS) as well as the activities in Kampong Thom Province described below. (ii) Establishment of a Ouality iMprovement/Quality Standards Unit in the MOH (to which HSSP will provide technical assistance, equipment, and program support to develop indicators for quality and to monitor quality, to establish quality standards, to implement quality assurance activities, etc.). Because the QA unit is now being created, HSSP support will begin in 2004 when the work plan of the unit becomes available. In 2003, however, technical assistance could be provided, upon request, to help the unit develop its policy and work plan. (iii) Development, in collaboration with the GTZ. of activities to improve quality in the three districts of the Kampong Thom Province. In these three districts the project will provide support to develop: (a) indicators to monitor the quality of services; (b) clinical algorithms and other means to help providers to provide quality care; (c) an incentive/disincentive system to motivate and reward good performance; and (d) the participation of users of services and civil society in the evaluation of the services and in decision making. In order to enhance the use of health facility by the poor, an equity fund will be established in the participating province and funded from WB-HSSP Sub-component 1.2. Also, work contracts will be established to reward good performance measured in terms of outcomes and service user satisfaction. The models developed for baseline surveys, contracting and equity funds under the WB-HSSP Component 1.2 will also be used in Kampong Thom Province. 13. Pharmaceuticals. Funding will be provided to help solve current problems with drug quality, utilization and availability throughout the health services. Project supported activities related to drugs will ensure that the goal of providing affordable and good quality drugs to the entire population, and of - 57 -  preserving or enhancing the affordability of drugs for the poor, will be met. These activities will include: (a) Upgrading the National Drug Quality Control Laboratory to meet international standards. This will entail: * Civil works, encompassing: (i) construction of a 1,260 square meter building; and (ii) site developments to comply with the requirements of a drug control laboratory (e.g., incinerator, waste disposal, water and electricity supply); * Laboratory equipment including: (i) technical support for the installation and utilization of the equipment; (ii) maintenance; and (iii) spare parts for the life span of the credit/grants; and * An international technical assistant who will advise on improving laboratory management and financial matters, as well as on obtaining efficiency gains; (b) Strengthening the capacity of the Food and Drug Department by supporting the recurrent cost of the following units: (i) drugs legislation bureau; (ii) essential drugs bureau; (iii) drug registration bureau; and (iv) pharmaceutical trade bureau; (c) Carrying out a study on the establishment of a central drug procurement unit and financial support to the investment cost of this unit; (d) Supplying drug kits to health centers, and first and secondary referral hospitals to meet the needs of the MPA and CPA; (e) Providing technical assistance to: (i) ensure that drugs are procured through appropriate procurement procedures (including adequate provisions for qualifying providers, technical specifications, and QA measures); and (ii) advise on drug logistics, stock management, and appropriate drug distribution; (f) Increasing the capacity of the MOH procurement unit by rehabilitating and constructing drug warehouses; (g) Carrying out a study on drug financing. This study will evaluate the available pilots/experiments with drug cost recovery already implemented in Cambodia (including from an economic perspective); and (h) Carrying out annually (as part of the annual review and planning process of the sector) a review of the drug situation and a determination of the financial needs for ensuring sufficient drugs, vaccines, reagents and consumables in the public health sector during the upcoming year. Other HSSP supported activities (e.g., the expansion of health facilities, the improvement sector financing and efficiency, the strengthening of capacity and the support to programs addressing main public health problems) will also contribute to the improvement of the drug situation. Sub-component 1.2: Affordability of Health Services 14. The financing for this sub-component includes: IDA credit: US$1.7 million; DFID grant: US$0.6 million equivalent; and RGC: US$0.7 million. The objectives of this sub-component would be to increase the accessibility to quality primary health services and first referral services, and to increase the affordability of these services for the poor. To address the problem of accessibility to health services, the sub-component would support the use of contracts for management and provision of services in selected low performing and low income districts. Quality improvement would mainly be financed with the proceeds of user fee collection. To address the problem of affordability the second sub-component would support the adoption of equity funds to cover the cost of fee exemptions for the poor. The sub-component would also build sustainability through training for local management capacity and development of increased local funding. Successful implementation of the sub-component would be - 58 -  measured by increased use of quality services, reduction in related disease rates, equity indices of enhanced service use, successful development of local management capacity, and increase in the proportion of operational costs supported through domestic funding sources. 15. Contracting of District Health Services. Contracts for health services would be supported in Preah Vihear. This province was selected based on rankings by indicators of poverty and lack of service provision. In addition, the contracting component in the ADB-HSSP would support the provision of health services in ten districts. The project will finance the cost of the contracts, central level technical assistance, internal travel, associated incremental office equipment, district baseline surveys where DHS (or other existing surveys) is not adequate, and sub-component evaluation. Details of contract TORs and sub-component activities are set out in the implementation manual. Key activities include: (a) organize central support; carry out baseline survey; (b) award district contracts; (c) obtain district staff performance contracts; (d) monitor contracts; (e) develop performance contracts with PHDs; (f) monitor PHD Performance Contracts; and (g) conduct household survey in Year 3 of the contracts. 16. Equity Funds. Cost recovery and the development of equity funds would be supported in contract operating districts and in two to six additional districts, depending on the size of the districts selected and the availability of funding. Criteria for district selection for the development of equity funds would be: potential local management capacity, district use of significant fees, other ongoing or planned quality enhancement activities, and the percent of district households in poverty. The clustering of districts for efficiency in sub-component supervision is also an important consideration. The project will finance local and foreign technical assistance, incremental office equipment and domestic travel for the central equity fund support, training and equipment to set up the district equity fund, and the operating cost of NGO management contracts. Districts selected for equity fund development are Kampong Thom, Thmar/Baray-Santuk and Stong in Kampong Thom Province, and Kampong Speu, Odoung, and Kong Piseu in Kompong Speu Province. Details of Equity Fund sub-component activities are set out in the implementation manual. Key activities include: (a) organize central support; (b) carry out baseline survey; (c) award district equity fund management contracts; (d) set facility fee policy, district equity fund payment and exemption policies; (e) monitor equity funds; (f) develop local management capacity; and (g) evaluation. Project Component 2 - US$11.34 million 17. Improved Programs Addressing Public Health Priorities comprises two sub-components: (a) Sub-component 2.1, Infectious Diseases Control Programs (US$9.24 million); and Sub-component 2.2, Nutrition (US$2.1 million). Because of the importance of infectious diseases control activities and nutrition, these activities will be financed through IDA grants: US$2.2 million for Malaria; US$2.7 million for TB; US$0.9 million for Dengue; US$2.0 million for STIs/HIV/AIDS; and US$2.0 million for Nutrition. Sub-component 2.1: Infectious Diseases Control Programs 18. The following programs, important from an epidemiological stand point in Cambodia and consistent with the WB Strategy for Health, Nutrition and Population in the East Asia and Pacific Region, 2000, will receive support from the project: Malaria, Dengue, Tuberculosis, and Sexually Transmitted Infections/Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (STIs/HIV/AIDS). 19. Malaria. The financing for this sub-component includes: IDA grant: US$2.2 million; DFID grant: US$1.24 million equivalent; and RGC: US$0.1 million. The project will provide financial assistance to the implementation of the recently approved (July 2001) Malaria Strategic and Operational - 59 -  Master Plan and, in particular, for the further development of: (i) the impregnated bed-nets and hammock-nets program; and (ii) activities to cope with the emerging problem with parasite drug resistance. HSSP assistance will also be used to strengthen; (iii) case detection (laboratory equipment and training); and (iv) the current surveillance system. The project will support (in case of outbreaks) the procurement of (v) environmental safe insecticides to be used, in addition to the impregnated bed-nets and hammock-nets program, for indoor spraying to reduce mosquito transmission and containing malaria epidemic. The project will also support (vi) training (mainly short local training); (vii) supervision activities and other malaria program recurrent cost; (viii) EEC and other activities to effect behavioral change, raise the demand for bed and hammock nets and make the health providers more responsive to the needs of under-served groups; and (ix) provide overall support to the malaria program, centrally, in provinces and in districts (training, technical assistance, minor civil works, laboratory and other equipment). HSSP activities of the other two project components will also contribute to reducing malaria epidemic and improve case management. For instance, through its first component, HSSP will help control malaria by strengthening health facilities in the geographical areas at risk and by improving the quality of services. Also, through the HSSP component on Institutional Capacity, the project will help integrate further malaria activities within health service delivery, strengthen coordination, and improve management and planning capacity. WHO is committed to provide additional funds in case of unexpected upturn of the epidemic. 20. Tuberculosis. The financing for this sub-component includes: IDA grant: US$2.7 million; and RGC: US$0.1 million. The project will support the implementation of the TB control program's Strategic Plan, and in particular: (i) the implementation of the DOTS strategy and its devolution to and implementation at health center level and below (community level); (ii) integration of TB activities into health care delivery services; (iii) improving TB case detection and management; (iv) strengthening supervision and training of health providers; and (v) IEC and other activities to induce behavioral change, raise the demand for TB services and compliance with DOTS treatment, and make the health providers more responsive to the needs of TB and HIV/TB patients. HSSP will finance, in a complementary manner with the Government, other donors and especially with JICA, the recurrent cost of the TB program (training, TA, supervision), equipment for laboratories and the central program, and the contracting of IEC activities. Inportantly, the HSSP will finance activities to be conducted in close collaboration with the HIV/AIDS program aiming at controlling the spread of HIV infection in TB patients and to provide better care to the TB/HIV positive patients. As mentioned in regard to the Malaria program, the other HSSP components will also support the TB program by developing health services at the periphery, by protecting the access of the poor population to health care, and by strengthening the capacity of the sector at central, provincial and operational districts level. Similarly to all other HSSP components, the HSSP financing for TB control activities will be analyzed and decided every year taking into account the needs of the program and the financial support secured from the public budget and grants. 21. Dengue. The financing for this sub-component includes: IDA grant: US$0.9 million. The project will support activities to contain the development of mosquitoes, to reduce transmission, to improve early detection and case management and, finally, to better monitor the epidemic and phase in new more sustainable strategies. Taking into account: (a) the rapid increase of this mosquito borne viral disease (which affects children and, in the absence of care, has important case fatality ratios); (b) the rather specific skill mix needed for the implementation and supervision of the Dengue control program; and (c) the successful collaboration between WHO and the National Dengue Control Program, the MOH asked to entrust WHO with the implementation of this WB-HSSP sub-component. IDA funding will be used to support the logistic cost of the implementation of the program in provinces (the insecticides and larvicides will be procured with RGC funds upon clearance from WHO in regard to their potential - 60 -  environmental impact). 22. STIs/HIV/AIDS. The financing for this sub-component includes: IDA grant: US$2.0 million. Among the primary components of the rather successful STDs/HIV/AIDS Prevention Program in Cambodia are the "100% condom use" strategy and the development of (STI/HIV) prevention and (STI) case management activities. The project will support these two strategies through: (a) the implementation in the field of the "100% condom use" strategy in 16 provinces. This strategy targets specifically sex workers and other groups at high risk and effectively decreases STIs and HIV transmission as demonstrated already in Thailand and Cambodia. The project will provide support to the work of coordinating bodies such as the CUMEC (Condom Use Monitoring and Evaluation Committee) and the CUWG (Condom Use Working Group). It will also support outreach activities targeting brothel-based sex workers and aiming at increasing awareness and changing behavior; and (b) the purchase of specific STI drugs needed in twelve provinces for a period of five years. Eight percent of the grant was left unallocated to cope with possible changes in the epidemic or to assist other provinces in the case of a smaller than anticipated support from other donors. 23. It should be noted that during HSSP implementation: (a) sector issues as well as progress in project implementation will be closely monitored; and (b) the situation in the sector and the progress in program implementation will be assessed every year. Thus, in case of occurrence of new epidemics, additional funding could be discussed and agreed upon either at the time of the annual sector review and planning meetings or on an emergency basis. Sub-component 2.2: Nutrition 24. The financing for this sub-component includes: IDA grant: US$2.0 million; and RGC: US$0.1 million. The project will focus on delivering an essential package of interventions to support the adoption of cost-effective nutrition behavior by 80% of target groups living in rural areas. This essential package, to be implemented through health services (including the outreach health services and community volunteers) includes the promotion and/or provision of: (a) exclusive breast-feeding for 0-6 months old infants; (b) timely and adequate complementary foods for 6 months to 2 years old children, with continued breast-feeding until 2 years of age and promotion of an adequate diet for women of reproductive age, particularly pregnant women; (c) appropriate care for sick and malnourished children (referral and rehabilitation of severely malnourished children, vitamin A for children with measles, severe malnutrition, persistent diarrhea, Acute Respiratory Infections (ARI) and other infections, and for children with anemia); (d) adequate iron intake for women and children (iron-folate supplements for pregnant women and 6 months to 2 years old children, and promotion of iron-fortified foods, when they become available); (e) vitamin A for women and children (vitamin A for women after delivery until 60 days post-partum and semi-annual vitamin A capsules for children of 6-59 months of age, and counseling to promote food rich in vitamin A); and (f) iodized salt for all members of the household. 25. The project would support the adoption of essential nutritional behavior by: (a) strengthening health services activities in these areas (e.g., improving the quality of nutrition protocols and counseling messages delivered at health services and by community volunteers); (b) increasing coverage of health services to reach 80% of the rural population (e.g, promotion of the use of quality health services, increasing outreach from health services and improving linkages with community volunteers); and (c) strengthening the capacity at national and provincial levels to provide technical assistance to and monitor these activities. Project Component 3 - US$ 4.50 million 26. Strengthened Institutional Capacity. The financing for this component includes: IDA: - 61 -  US$4.0 million; and RGC: US$0.5 million. Under this component, the project will provide appropriate support to ongoing efforts at central, provincial, and district levels to strengthen key health sector functions, including: (a) oversight of the policy, legislative and regulatory framework for health service administration; (b) sector planning and program coordination of health care delivery; (c) management of sector resources (human, financial, and material including infrastructure, drugs, etc.); and (d) monitoring and evaluation of sector performance and health status (to be financed by ADB and DFID). 27. Oversight of the policy, legislative and regulatorv framework. Analysis of the evolving legal and regulatory framework for sector reform indicates a number of areas requiring additional work. The project would support local consulting services (of a Cambodian lawyer) to help the MOH formulate a legislative program (including measures to enforce existing legislation and regulations) and to draft appropriate legislation. Given the need to share proposed legislation with a wide audience, the project would also fund translation services and facilitate the dissemination of information through the production of materials and the organization of workshops for health personnel, local authorities, and public opinion leaders. Further support required (particularly for the implementation of certain legislative initiatives, such as registration of health professionals) would be determined annually. 28. Sector planning and program coordination. Three improvements in the planning and budgeting process are envisioned: (a) the use of the medium-term economic framework (MTEF) to establish indicative spending limits; (b) the consolidation of the various sources (Government, partner, local financing, etc.) and types (investment and recurrent) of financing in a single budget; and (c) the introduction of a rolling three-year plan (of which the first year constitutes the annual plan). To promote these sector management tools, the Project would: (i) strengthen capacity for analyzing health sector financing; (ii) develop the planning roles and capabilities at central and decentralized levels; and (iii) reinforce the coordination and monitoring of plan implementation through the organization of annual sector reviews. (A) Strengthening of analytical capabilities. The project would strengthen the MOH Planning Unit's capacities through: (a) short-term training in health economics and financing (identified from the courses developed by the Economics and Finance Institute of the MEF) to support the budget reform and tailored to meet needs); (b) short-term technical assistance; and (c) establishment of a twining arrangement with a university (in Southeast Asia or elsewhere) to provide short-term intemships for analysis of selected topics. To update the MTEF each year, the Departments of Budget/Finance and Planning/Health Information will need to work collaboratively to estimate available resources, to rationalize the expenditure ceilings for BMC's, and to adapt the current three-year perspective of the PIP for use by the provincial and central levels. Estimation of the need and amount of support required to prepare the MTEF would be determined annually and funded from the unallocated category. Support to improve the integrated financial management system, additional training of managers and accounting staff (targeting central, provincial and district health managers on use of financial information), as well as resources for special analyses would be determined in future plans and financed from the unallocated category. (B) Improving the planning process. With project funding, the MOH would introduce a rolling medium-term (3-4 years) planning process and redefine the planning roles of the central, provincial, and district levels. The project would support the progressive decentralization of the planning process and the integration of planning and budgeting activities by: (a) first strengthening planning at the provincial level; and (b) then improving planning and budgeting capabilities at the operational district level. The - 62 -  project would initially finance provincial planning workshops (to allocate resources within the context of ceilings provided by the MTEF, to update the rolling three-year plan, and to prepare in detail the first year or annual plan) comprising both the PHD and the ODs. Subsequently, the ODs would progressively organize their own planning sessions and use the provincial planning and budgeting meeting to ensure the overall consistency of the proposed plan and budget. Further resources needed by central, provincial, and district levels to produce the three-year and annual plans (equipment, supplies, reproduction costs, etc.) would be included in the plans and financed from the unallocated category. (C) Organizing annual sector reviews. The annual sector review brings together all of the stakeholders active in the health sector to: (a) review sectoral achievements (on the basis of agreed-upon indicators as well as previously planned activities and expenditures); (b) discuss the comprehensive three-year rolling plan integrating the proposed contributions of all stakeholders; and (c) adopt the annual plan comprising planned activities and sources of financing for the coming year. The project would contribute annually to the organization of these sector reviews. The annual review would be carried out by an independent organization, with oversight from a suitable institution (e.g., NIPH, CoCom, Directorate General for Inspection, etc.), which would be responsible for contracting and managing the reviews, disseminating the findings, and incorporating them into policy-making and planning processes. 29. Management of sector resources. In addition to strengthening human resource development, the project would also focus on strengthening financial resource management and procurement capabilities. Because the project will be required to follow the new budget and expenditure policies developed under the ongoing administrative reform program, the project will finance: (a) the recruitment and training of financial management staff at central, provincial, and district levels; (b) the development and implementation of systems acceptable to both the Government and IDA along with a policy and procedures manual; and (c) the creation of a strong internal audit function. 30. Given the size of the project, the project will finance: (a) additional staff and training on WB procurement policy and procedures; and (b) the recruitment of an international procurement advisor and four national procurement consultants to supplement the capacity while staff are being trained. Additional training for provincial health departments will also be provided if they are to be given responsibility for procuring small contracts for civil works, drugs, etc. The need for such training would be determined during future annual planning exercises and financed from the unallocated category. 31. Monitoring and evaluation. Ongoing M&E activities would be strengthened (through ADB and DFID financing) to: (a) produce required information concerning implementation of the project; (b) measure the attainment of sector-wide improvements in managing resources, delivering services, and improving health status; and (c) increase the capacity of key stakeholders to design and implement policies and programs on the basis of evidence. Specifically, the project would support a comprehensive review of health sector M&E/HMIS to expand and update previous recommendations (Rohan, 1999) as necessary and would promote improvements with additional resources identified during future annual planning exercises and financed from the unallocated category. - 63 -  Annex 3: Estimated Project Costs CAMBODIA: Health Sector Support Project Projece<t Cost 'oiooen't 1 9I ;, US $million' , $ n - -rJ -.illi 1. Improved Delivery of Health Services (for the Benefit of the 0.00 Poor and Rural Population) 1.1 Improving the Accessibility and the Quality of Health 4.70 7.00 11.70 Services 1.2 Improving the Affordability of Health Services 0.77 1.94 2.71 2. Support to Programs Addressing Public Health Priorities 0.00 2.1 Infectious Diseases Control Programs 0.00 2.1.1 Malaria 1.20 1.99 3.19 2.1.2 Tuberculosis 0.96 1.56 2.52 2.1.3 Dengue 0.16 0.65 0.81 2.1.4 STIs/HIV/AIDS 0.90 0.90 1.80 2.2 Nutrition 0.73 1.16 1.89 3. Strengthening Institutional Capacity 1.46 2.59 4.05 Total Baseline Cost 10.88 17.79 28.67 Physical Contingencies 0.36 0.59 0.95 Price Contingencies 0.85 1.37 2.22 Total Project Costs 12.09 19.75 31.84 Total Financing Required 12.09 19.75 31.84 . M , ;, . , ... ... . I . . . . S Local Foreign -,,Total Project Cost By,Category U US$m,illion US $Smillion Works 3.80 3.79 7.59 Goods 0.87 3.49 4.36 Services 1.69 6.75 8.44 Training 1.38 1.38 2.76 Operating Costs 4.35 4.34 8.69 Total Project Costs 12.09 19.75 31.84 Total Financing Required 12.09 19.75 31.84 Notes: 1/ Activities have been identified and costed for the entire duration of the project. However, as part of WB-HSSP design, it was agreed that, starting in project year 3, these indicative allocations will be reviewed during the Annual Review and Operational Planning process adopted by the Borrower to operationalize the Health Sector Strategic Plan, and adjustments or new allocations will be made depending upon the needs of the sector and the level of funding in each respective year. 2/ Differences due to rounding. Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 31.84 (US$m) Therefore, the project cost sharing ratio is 54.02% of total project cost net of taxes. - 64 -  Annex 4: Economic Analysis CAMBODIA: Health Sector Support Project 1. The economic analysis covers the following: (i) consistency of the project with Government and Bank strategies, (ii) benefits and allocative efficiency of the project activities, (iii) risks, (iv) rational for public sector investment in the project activities, (v) poverty assessment, and (vi) fiscal impact and sustainability. 2. Consistency of the project with Government and Bank Strategies (CAS) The project would: (i) support priority programs identified by the Government; (ii) be consistent with other ongoing donor financed programs; and (iii) be consistent with the WB's Country Assistance Strategy, dated February 7, 2000 (Report No: 20077-KHI). Health, rural infrastructure, private sector development, and poverty are emphasized in the WB CAS. The CAS also emphasizes improved governance and public institutions. The project is designed to build NGO and private capacity to manage and provide health services but will also strengthen public accountability in health service delivery through improved financial management. The project will improve rural health infrastructure and will promote a more equitable use of health services through targeted priority programs, and financing innovations. The MOH is preparing a health sector development strategy in consultation with the WHO, major donors and NGOs. The MOH strategy will be completed during the first year of the project. The project is consistent with the emerging Government strategy and has the flexibility to conform to the completed strategy during the later project years. 3. Benefits. Project benefits in the form of reduced mortality and morbidity will be created by the improved quality, availability and use of services brought about by the first component through improved infrastructure, greater availability of supplies, vaccines and drugs, and widened use of services across income groups through the affordability component. The second component will bring about substantial improvements in health status from added support for services targeting priority disease groups. The third component will increase the likelihood of achieving the higher levels of service delivery by improving management, public institutions and efficiency in the health sector. 4. Table 4.1 provides a list of the seven basic disease groups that are the priority targets of the project. The table gives estimates of the annual years of healthy life lost per thousand population (from mortality, morbidity and disability) from these seven categories and from all causes in Cambodia and provides a comparison with other middle and low income areas in Asia. 5. There is no precise way of measuring the potential benefits from the project under consideration but it is possible to evaluate a modest change in healthy life years that could be attributed to the project. The analysis examines whether the value of these possible benefits is worth the cost of the project under conservative assumptions of project impact. Thus, the project can be examined for its viability in terms of internal design parameters. Given baseline estimates of health system use and efficacy for the disease groups in the table a gain in healthy life years can be estimated based from: (a) a plausible increase in the proportion of the population using health services in response to improved availability, affordability and the attraction of improved quality; (b) a reduction in morbidity and mortality through increased effectiveness brought about by improved reliability of service provision and strengthened management capacity. The baseline rates for use for childhood diseases, diarrhea, ARI and maternal conditions, are estimated from 1997 data on the use of services. Efficacy rates in the current Cambodia operations environment are based on literature and subjective estimates of practitioners. The analysis includes only nine of the twelve provinces identified for Bank support. - 65 -  Table 4.1: Burden of Disease from Priority Disease Groups for Cambodia (2000) Priority Disease Group Healthy Years of Life Lost Per 1,000 Population CAMBODIA Other Asia & Pacific Childhood Immunization Diseases 13 6 Diarrhea 21 11 Acute Respiratory Disease 21 12 Matemal Conditions 12 3 Sexually Transmitted Diseases and HIV 18 8 Tuberculosis 11 4 Malaria 5 2 Sub-total of Priority Groups 104 46 Other Disease Groups 245 157 Total 349 203 The table is estimated from underlying parameters in Murray and Lopez, Global Health Statistics, 1996 adapted to disease rates, population and vital statistics for Cambodia in 2001. 6. The analysis is carried out in two parts. First the system benefits from the general increase in use and service effectiveness from the first two components (Health Services and Capacity Building Components) are estimated and compared with project costs. Second the value of the added benefits that could accrue to the priority disease programs are added to the general benefits and compared with project costs. 7. Benefits from overall increase in system use and effectiveness. Using the baseline estimates of disease rates and service use, coverage of 85% of project population, and an assumption of a 15% increase in system effectiveness (an increase in effectiveness is derived from increased service use and/or efficacy) the total annual gain in healthy life years from the completed project would be 25,000 in the twelve project provinces. To obtain a monetary value to compare with project expenditures a healthy year of life is valued at the projected national product per capita at project completion. Using the projected value of US$400 per capita, the value of the estimated gain of healthy years of life in one year from the first two components of the completed project would be greater than US$10 million per year. 8. A 15% increase in the operational context of Cambodia appears modest but will require strong project execution and system management to be realized. The need for strong management to attain the planned project outcomes underlines the importance of the capacity building and local system management component in the project. Projects in other countries have demonstrated the response of service use to increased quality. The ADB supported contracting project achieved increases in utilization that were in excess of 15% in some of the contract districts, but this concept used outside technical assistance for important aspects of management. Substantial increases can be achieved in efficacy and use with focused small projects covering smaller areas and populations. However, a 15% increase in overall sector effectiveness is challenging to achieve in a sector wide project. To achieve this size gain will require a concerted effort covering all facilities and staff in province-wide efforts. It also will require considerable behavioral change in a large population. The sensitivity of the project to assumptions and parameters in the analysis is reported in the section on risks below. - 66 -  9. The project disbursement profile and estimated recurrent costs provide the pattern of cost over time. Project benefits on health status are forecast to be 10% in the first year and then 20%, 40%, 60%, 80% and 90% of the completed total in the second through sixth years from the start of the project and 100% thereafter through a ten year time horizon after project completion. Using this time stream of benefits and costs, the internal rate of return (IRR) for the project is 17% and the net present value of benefits minus costs (NPV) with a real discount rate of 3% is US$45 million. This return, while moderate in a low income country with considerable development needs, is high enough to justify the investment. However, as is seen below in the section on sensitivity analysis, the return is not robust in the face of moderate project risks without the added benefits from the priority programs. 10. Benefits from priority programs. If the potential gains from specific potential priority programs are added the net benefits and rate of return to the project are greatly increased. Women and children would benefit additionally through MCH and nutritional programs. The general population would benefit additionally from malaria, dengue, TB and STD/HIV programs. The estimates can be revised to include these programs by comparing the baseline and project targets for specific diseases and calculating the value of the stream of years of life saved. With the addition of the priority programs the total annual gain in healthy years would increase to 50,000. Unfortunately, this analysis is only suggestive of the returns to priority programs because (a) the specific programs to be supported have not been selected and the planned funds cannot support all programs, (b) the programs are already supported by a number of donors and the return to the entire program can not be attributed to the project, (c) the priority programs interact fundamentally with the first two components (for example, infrastructure and service efficiency interact with improved services for obstetrics, antenatal care and reduced maternal mortality); thus the returns to the project must be calculated in the aggregate. 11. Rough estimates can illustrate the high returns to the investment from priority programs. For example, if malaria mortality is reduced in the project area by 30% as targeted by the National Malaria Program (see sec. B.2 of PAD), then the annual value of prevented loss of healthy years of life would be 0.3 x 4.4 million (project pop) x 0.0 18 (malaria mortality rate) x 31 years (based on Murray and Lopez) x US$400 = US$2.5 million. Large gains can also be calculated from other programs. Assuming that the project provides 50% of the resources of all priority programs in the project provinces and allocating the value of benefit gains proportionately, the IRR for the project increases to 42% and the NPV increases to 148. The large economic returns from the addition of the priority programs illustrates the importance of identifying and filling funding gaps in the priority programs. 12. Cost Effectiveness of Health Priority Programs. The programs that could be funded under the second component for malaria, TB, and child mortality and nutritional deficiencies address urgent health priorities with interventions that have been well established as cost effective in countries that have even lower disease rates and higher sector unit costs than Cambodia. There is a large number of donors active in most of the priority disease programs but the support is highly variable and based on commitments of shorter duration than the length of the project. Thus, the question is not the absolute cost effectiveness of the priority programs but a recurring question of the incremental cost effectiveness of added funds given the existing and planned level of other donor commitments. This component has been left flexible so that the incremental cost effectiveness of added program support can be examined as annual funding is planned. The flexibility of this approach in allowing the project to fill program funding gaps is a project advantage. 13. Risks and Sensitivity analysis. The project risks can be grouped into three large risk categories that relate to critical parameters in the economic analysis. (Discussion of the risks and project adjustments to minimize the risks is given in section F.2.) The grouped risk categories are (a) - 67 -  insufficient political will and decision making structures to continue sector reforms and maintain consensus, provide living wages and staff incentives, and maintain budgets and timely disbursements, and establish sustainability, (b) insufficient capacity (especially at the province and local levels) to implement key management activities, manage decentralization, plan, coordinate donors, improve the distribution, quantity and quality of services, and regulate private sector involvement in service delivery, and (c) poor economic performance may impede implementation and sustainability. 14. These risks interact. A lack of political will and consensus could thwart effective use of technical assistance, donor coordination and the development of capacity early in the project. This lack of attention to institutional development could slow the implementation of technical aspects of the project such as effective strategies, such as the equity funds, for encouraging greater and more effective use of services by the poor. The economic implication of the risks is that they may prevent attainment of the assumed levels of project effectiveness and the project may not achieve the estimated benefits and rate of return, the distribution of project benefits may not be as equitable as intended and, the sustainability of the project will be threatened. 15. To estimate the sensitivity of the project's expected rate of return to these risks the response of project benefits is examined for a range of parameters representing project effects. Single parameters are altered as shown in Table 4.2 while keeping all other parameters constant at default values. For example problems in sustaining management reforms, failure to build capacity at the local level, and insufficient counterpart funds and staff support could result in a failure to achieve the gains in effectiveness and service use forecast in the benefits section above. This failure is approximated by examining the change in net benefits as the gain of the programs effectiveness falls from 20% to 8%. Similarly, the importance of providing sufficient technical support to specific programs is approximated by increasing the proportion of potential gains from priority programs while keeping the general system wide increase constant. Finally, poor management, insufficient design and planning capacity could limit the population or number of provinces effectively covered by the project. This would restrict the scale of project benefits. Table 4.2: Sensitivity of Project Benefits to Selected Values of Economic Analysis Parameter Default Range of Values Result Range of Result Range Value IRR of NPV (US$Mil) Increase in System Effectiveness 15% 8%- 20% <0% - 26% 0 -76 Proportion of Priority Effectiveness Potential 0 0% - 50% 17% - 42% 45 - 148 Coverage of Design Project Population 85% 50% - 100% <3% - 22% 0 - 65 Discount rate (real) 3% 3% - 12% . 45 - 7 Benefits lagged one year, slow implementation no lag no lag - lag 1 yr 17% -12% 45 - 37 Value of One Year of Healthy Life Lost (US$) $400 $350 - $400 14%-21% 31-59 - 68 -  16. It is found that the net present value (NPV) of the project falls to 0 with a decrease in the gain in overall project effectiveness to 8%. This illustrates the high sensitivity of the project outcomes to good implementation. In the absence of special emphasis on priority programs there is not a large cushion for underachievement that would allow the project to provide an acceptable economic return. The critical contribution of maintaining a focus on priority programs is demonstrated by the rise in net NPV from US$45 million to US$148 million with an increase in the effectiveness of the priority programs from the general system increase to a realization of 100% of the priority program potential practicable effectiveness. Finally the importance of consistent project implementation is illustrated by the fall in the NPV from US$45 million to 0 if the project coverage is reduced to 50%. 17. Rationale for Public Sector Investment in Health System Development. The rationale for public sector investment in health system development comes from the public welfare loss caused by the inequitable availability of socially acceptable quality services and market failures in provision and financing of modem quality services, especially for priority health needs. The welfare loss is created by: (a) the lack of available and accessible services, especially in rural areas; and (b) the low quality and accessibility of services, especially to the poor. Although surveys indicate substantial private payments for services, the preponderance of these services are provided by public sector health staff receiving private payments. The market failures resulting in inadequate development of true private services and deficiencies in meeting priority needs come from: (i) lack of consumer information on effectiveness of health system for their needs; (ii) lack of incentive to provide quality private medical services focused on social and sector priorities; and (iii) lack of incentives and market for preventive services with important social benefits but diffuse and poorly recognized individual benefits. 18. Poverty Assessment. This section provides an assessment of the benefit incidence of the project by wealth group. The distribution of project benefits can be derived from baseline distributions by wealth quintile of: (1) the population using public health services for treatment of the priority diseases; and (2) disease prevalence. Information is taken from a 1997 survey on the use of services by wealth group and the Joint Health Sector Review (2001). This information allows the derivation of "concentration" curves summarizing the disease burden and service use by wealth decile for the project. 19. Quintile information was interpolated to integrate with population and benefits information available by decile and to provide smoother curves to plot (see Figure 4.1). The curves are derived by ranking all households according to expenditure and plotting the cumulative value of a chosen indicator against the cumulative value of expenditure. Equality is represented by the diagonal. A distribution that falls more on higher income groups lies below the diagonal while a distribution falling on lower income groups lies above the diagonal. 20. In the figure the distribution of the project benefits is compared with: (a) the distribution of expenditures in Cambodia; (b) the distribution of the use of public health services; and (c) the distribution of under five mortality. The examination reveals the greatly disproportionate burden of disease falling on the lower income groups. It is clear from the figure that the distribution of under five mortality, which lies on the left side of the diagonal, is a burden inequitably born by lower income groups. Similar, though less dramatic distributions could be derived for most of the infectious disease targets in the project, for malnutrition and for birth related diseases. Additionally, the distribution of total household expenditures, which lies far to the right of the diagonal, is adverse and highly unequal. - 69 -  Figure 4.1 Distrlbution of Project BeneRfts Service Need and Use for Health 100 90 *80 c 0ta 70 K-Daoa CJ I UsLe Public -c 50 -*Epend 140 .1 X -30 o -8Project ~20 1 0 0 10 20 30 40 50 60 70 80 90 100 % of Population 21. The project benefits will help to counter the adverse distribution of disease and income. The benefits will have a differential incidence across income groups depending on: (1) the differential use of the health services supported by the project; and (2) the differential prevalence of disease. The values of the benefits derived from disease reduction are distributed across wealth group according to proportional use and case burden. The heavy solid line with a slight S shape lying close to the diagonal in the figure represents the distribution of project benefits. The analysis suggests that the project benefits (the Gini ratio is -.01, the minus sign indicates an overall distribution in favor of the poor) are distributed more equitably than all public health services (the Gini ratio is 0.11) and much more equitably than total household expenditures (the Gini ratio is 0.36). This is to be achieved by the focus on priority diseases that have a greater prevalence among the poor. The equity funds combined with cost recovery are expected to add to the favorable equity incidence. A small but significant part of the project effects will inevitably accrue across the sector to public services that are used disproportionately by upper income groups. However, the largest part of project benefits will accrue to middle and lower income groups, and in rural areas, and contribute to greater equity. 22. Fiscal Sustainability. The fiscal impact of the project is projected to be large, both during implementation and after completion, and requires a clear commitment to funding from both the Government and donors. The increased cash flow will also require strong financial management capacity at all levels. The analysis assumes that: (1) government budgets grow at the rate projected for GNP under the base scenario used in current World Bank and ADB projections (5% real growth rate); and (2) allocations among government levels, functions and line items remain stable at the level of the most recent available data. Under these assumptions, the recurrent cost of maintenance, supplies and other new operating expenses would require an addition of over 20% to projected total of health budgets at the federal, province and district levels by project completion in 2008 and in subsequent years. At the local levels (province and district) the Government's share, including all components, will represent over 40% of the budget allocated to services. - 70 -  Table 4.3: Critical Budget Ratios for Fiscal Analysis Budget Ratio 2002 2003 2004 2005 2006 2007 2008 Proportion of KH Budget Allocated to Project Provinces (12) _ _ Project Cash Flow (Dev+Rec) /Total Govemment Health 0 30 0.59 0 59 0 59 0.59 0.39 0 20 Budget _ ___ KH Cost (Dev+Rec) / Total Government Health Budget 0.02 0 06 0 09 0.11 0 13 0.17 0.20 Incremental Rec Costs /Local Recurrent Health Service 0.00 0.04 0.10 0.17 0.22 0.34 0 44 Budgets _ Proportion of KH Budget Allocated to Contract Provinces (1): .__ _ _____ ____ KH Cost (Dev+Rec) / Total Local (P+D) Health Budgets 0.06 0.12 0 12 0.11 0.1 0.69 1 20 KH Costs / Local Province + Distriet Health Service 0 08 0 15 0.14 0 14 0.13 0.85 1.50 Budgets . 23. The burden in contract provinces would be larger and would exceed the projected 2008 level local budget by 20% and the allocation to services by 50%. The contracts under the first ADB project achieved notable gains in quality and service use but did not address adequately managerial and financial sustainability. The ADB and WB supported contracts in this project have features (cost recovery, equity funds, and management training) that will help to address these problems. As cost recovery grows with increasing quality and use of services, and increasing per capita incomes, part of the budget required could be met from this source. But the amount to be raised from fees is limited by considerations of equity and elasticity of use. Cost recovery, even though expected to grow, will not be sufficient to cover more that 15% of the entire financing gap. The burden can be manageable, however, with increased commitment on the part of the Government and sustained commitment on the part of donors. 24. Under a slightly more optimistic scenario in which the government budget grows 2.5% faster than GNP and the health budget grows by 2.5% faster than the total government budget from 2003 to 2008, the incremental recurrent cost for the project would fall to 15% of the total government budget. Under this scenario, the contract recurrent cost would fall to somewhat less than the projected total for local budgets. However, the baseline scenario, with its greater burden, provides a more realistic and conservative basis for projecting the fiscal impact of the project. 25. Finally, in terms of the size of cash flow, the financial management of the project at the local levels will be substantial. The total project cost (all financiers) is from 30 to 60% of the total government budget allocated for the nine provinces. This will be an order of magnitude increase in the amount of money normally managed in local sector budgets and will require additional financial management capacity. The project will provide important benefits for the poor compared with the general use of health services and the distribution of income. - 71 -  Annex 5: Financial Summary CAMBODIA: Health Sector Support Project Years Ending December 31 |Year I I Year 2 | Year 3 |Year 4 |Year 5- | e-ar 6 | Year 7 Total Financing Required Projgect Costs Investment Costs 3.5 5.1 5.0 5.1 4.5 0.0 0.0 Recurrent Costs 1.4 1.5 1.9 1.9 1.9 0.0 0.0 Total Project Costs 4.9 6.6 6.9 7.0 6.4 0.0 0.0 i.Total Financing 4.9 6.6 6.9 7.0 6.4 0.0 0.0 Financing IBRD/IDA 4.0 5.6 5.7 6.0 5.7 0.0 0.0 Govemment 0.6 0.5 0.7 0.8 0.5 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiersDFID 0.3 0.5 0.5 0.2 0.2 0.0 0.0 User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 4.9 6.6 6.9 7.0 6.4 0.0 0.0 Main assumptions: Note: Activities have been identified and costed for the entire duration of the project. However, as part of WB-HSSP design, it was agreed that, starting in project year 3, these indicative allocations will be reviewed during the Annual Review and Operational Planning process adopted by the Borrower to operationalize the Health Sector Strategic Plan, and adjustments or new allocations will be made depending upon the needs of the sector and the level of funding in each respective year. - 72 -  Annex 6: Procurement and Disbursement Arrangements CAMBODIA: Health Sector Support Project Procurement Procurement Guidelines 1. Procurement of goods and works under WB-HSSP will be carried out in accordance with the World Bank's Guidelines on Procurement Under IBRD Loans and IDA Credits (January 1995, revised January and August 1996, September 1997, and January 1999). Procurement of services under WB-HSSP will be done in accordance with the World Bank's Guidelines on Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised September 1997, January 1999, and May 2002). Any procurement not financed by the WB will be carried out according to the public procurement regulations of the country. Standard Bidding Documents 2. The WB's standard bidding documents for goods and works will be used, as appropriate, for project procurement. A model bidding document for National Competitive Bidding, a quotation solicitation form, and contract form for very small civil works and goods shall be developed and approved by the WB for use under the project. For consulting services, the WB's Standard Request for Proposals, sample evaluation report, and standard contracts will be used. Advertisement 3. A General Procurement Notice (GPN) has been published in the United Nations Development Business, announcing all procurement of goods and works on the basis of International Competitive Bidding (ICB) and major consulting services to be procured under the project. The GPN will be updated annually for all outstanding procurement over the life time of the project. Invitation for Expression of Interests for all consulting assignments at and above US$200,000 per contract will also be published in the Development Business. Specific Procurement Notices for specific contracts shall be advertised in at least one newspaper of national circulation in the country. The use of Development Gateway (advertising electronically) is encouraged and arrangements for it will be discussed during project launch workshop. Implementation Arrangements 4. The government will establish a Steering Committee which will comprise representatives from the MOH, the MEF, the Ministry of Planning, and other key ministries. The Steering Committee will be responsible for the overall project direction. The Planning Department in the MOH will have the responsibility for coordinating project activities. The Budget and Finance Department in the MOH will be responsible for project procurement and financial management. At the central level, the national programs and project activities will be implemented by respective national agencies which include: National Anti-Tuberculosis Center, National Malaria Center, and Maternal and Child Health Center. At the provincial and district levels, the Technical and Account and Finance bureaus will manage the project activities. The detailed organizational structure for project management was discussed and finalized at negotiations. This decentralized structure for project implementation and centralized management of procurement and disbursement is in line with the design of the project which emphasizes capacity building of the MOH and other government agencies at different levels to carry out the sector reforms. It is the government's decision not to set up a separate or independent project coordination unit and the - 73 -  decision receives strong support from the WB. Summary of the Assessment of Agency's Capacity to Implement Procurement and Suggested Measures for Strengthening 5. The Pre-appraisal mission in November 2001 carried out a capacity assessment of the Department of Budget and Finance which will carry out the day-to-day procurement activities under the project, and one of the Provincial Health Departments, which may carry out some procurement of relatively small values at the provincial levels. The report was further revised by the WB's technical mission in March 2002 to reflect the changes and developments of the MOH, as well as discussions and preliminary agreements reached between the government, the World Bank, and other donors which will support the government's health sector reform programs. 6. The Department of Budget and Finance has a Procurement Unit which handles procurement under the government budget. The Procurement Unit, headed by a chief, has seven staff with diverse backgrounds such as accounting, law, nursing and pharmacy. Most staff have little training in international procurement or contracting, and limited experience in preparation of procurement documents or evaluations of bids under projects financed by the WB or other international organizations. Procurement under the government budget has been carried out mainly through direct contracting because tender procedures stipulated in the government's 1995 sub-decree has been enforced only recently. The Provincial Health Department has less staff and less experience in national or international procurement. Given the limited capacity and the constraints the MOH has to recruit competent staff, it has been agreed that four local procurement consultants and one international procurement advisor should be selected to carry out the procurement for the project for at least the first two years while the government staff take the training on procurement, both on-the-job and intensive classroom training. The international procurement advisor will be the team leader for overall procurement activities, including among other things, updating the procurement plan, preparing major bidding documents, requests for proposals, and evaluation reports. In addition, he/she should also serve as an advisor to the local consultants and provide on-the-job training to the unit staff. The international consultant will report directly to the Procurement Unit Chief and the Project Director/Coordinator. This position will be advertised in both local newspapers and the United Nations Development Business immediately after project appraisal. A draft Terms of Reference has been prepared and discussed by the Appraisal mission. A qualified procurement expert should be selected through comparison of consultants CVs who have expressed interests to the advertisements. The international and local consultants will be working with the unit staff as a team to handle procurement of civil works, drugs, equipment, and consulting services. All consultants should be contracted before project effectiveness. Short-term consultants, both local and international, with special expertise in preparation of technical specifications, architectural designs for hospitals, and bid evaluations shall be contracted on a need base throughout the project implementation period. 7. This arrangement has been discussed with the ADB mission for the same health sector project and it has been agreed to share the same international procurement advisor while retaining a separate team of local consultants to manage procurements financed under the two banks' credits/grants. Sharing the same international procurement advisor has proven to be more efficient and economical since the documents of both banks are similar and the technical specifications for the same items could be shared as well. ADB and the WB have similar arrangements and close coordination under several projects in other sectors in the country and most of them have been working well. In addition, with strong support from the MEF, the two banks have been working closely to harmonize the NCB bidding documents across sectors and the harmonization is expected to be completed with the assistance from the Country Procurement Assessment Report (CPAR) team. The financing of the international procurement advisor - 74 -  will be shared by both the WB and ADB financed projects. 8. The new CPAR is at the early stage of preparation, therefore the prior review thresholds by the WB are set on the basis of the findings of the draft CPAR (1997), and the risk assessment. The thresholds and the supervision plan are presented in Table B. Procurement post reviews will be conducted every year and the ratio is one out of five contracts under each category. The WB will reassess the capacity after one year of project implementation to make necessary adjustments. 9. Prior to project effectiveness, the WB and the MOH will work together to start building up the capacity of the Procurement Unit. The measures to be taken are: (a) the MOH finalizes the project implementation structure and staffing by project negotiation; (b) initial procurement training workshop for procurement staff and managers in the MOH and at the provincial level should be held after appraisal; (c) project specific procurement training will be provided by the WB's project launch mission; (d) intensive and focused training for selected staff during project implementation, both in country and overseas, will be planned and funded by the project, and (e) on-the-job training by the international procurement advisor would start as soon as the consultant is hired. Procurement "Side Letter" 10. As normally done for WB-financed projects in the country, procurement procedures governing National Competitive Bidding (NCB) under the project have been incorporated into the Project Credit Agreement. With inclusion of the following provisions, the government's sub-decree on public procurement and related procedures for NCB are acceptable for the project: (a) Foreign suppliers and contractors from eligible countries shall, if they are interested, be allowed to participate without being required to associate or form joint ventures with local suppliers or contractors; (b) Prior registration shall not be a requirement to participate in bidding procedures; but it may be required in the case of a selected bidder as a condition of signing a contract; (c) A public bid opening ceremony shall take place immediately after the deadline for presentation of bids, and without any intervening time lag, and during such public bid opening ceremony, bids shall be opened and read out in public and in the presence of bidders' representatives who wish to attend; (d) In all cases, the award shall be made to the lowest evaluated responsive and complying bid and except with the prior approval of the WB, no negotiations shall take place with any bidder prior to the award, even when all bids exceed the cost estimates; (e) Bidders, who disagree with arithmetic corrections made by the evaluation committee during the evaluation stage, shall not be allowed to withdraw their bids without forfeiting their bid security; (f) If negotiations with the selected consulting firm ranked first do not result in a contract, the owner shall terminate negotiations with that firm and immediately proceed to negotiate a contract with the second ranked firm; (g) Subject to the prior approval of the WB, price may be used as a factor in the evaluation of consultants' proposals; and (h) IDA reserves the right to require that, in NCB contracts financed by the WB under this project, a provision be included requiring suppliers and the contractors to permit the WB to inspect their accounts and records relating to the performance of the contract and to have them audited by auditors appointed by the WB. - 75 -  Procurement methods (Table A) Procurement Methods (Table A) Procurement of Civil Works 11. International Competitive Bidding (ICB): Construction and rehabilitation of hospitals with contracts at and above US$300,000 per contract will follow ICB procedures. No prequalification of bidders is proposed for any of the ICB works procurement. a margin of preference will be granted to domestic contractors. 12. National Competitive Bidding (NCB): Construction and rehabilitation of hospitals below US$300,000 per contract will follow NCB procedures. The aggregated amount for NCB is US$1,700,000. A model bidding document for National Competitive Bidding shall be developed and approved by the WB for use under the project. Foreign contractors from eligible countries shall, if they are interested, be allowed to participate without being required to associate or form joint ventures with local contractors. 13. Small Works (SW): Rehabilitation and repair of health centers below US$100,000 per contract will procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three (3) qualified domestic contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Association, and relevant drawings, where applicable. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. The aggregated amount for SW is US$2,200,000. Procurement of Goods 14. Goods including equipment, vehicles, medical supplies, drugs, and office equipment and supplies to be financed by the project will be procured under the following procedures: 15. International Competitive Bidding (ICB): Procurement of goods such as equipment, medical supplies, etc. at and above US$200,000 per contract will follow ICB procedures. 16. National Competitive Bidding (NCB): Procurement of impregnated bed nets and hammock nets below US$200,000 per contract will follow NCB procedures which are acceptable to the WB and where any interested international suppliers shall be allowed to participate. The aggregated amount for NCB is US$400,000. 17. Limited International Bidding (LIB): Procurement of drugs will be carried out through LIB due to the following considerations: (i) small countries do not usually attract a large number of pharmaceutical suppliers; (ii) Cambodia does not have the lab facilities and equipment to test and evaluate the quality of the drugs supplied and nor does it have enough qualified technical staff to evaluate the reliability of the suppliers, while the quality of the suppliers vary greatly in the international drug market; (iii) LIB for drugs has been used successfully under many WB-financed projects in countries with similar conditions, in particular with the small size of the procurement contracts. A group of five or more central drug procurement agencies will be selected and invited for bidding. Most of these - 76 -  agencies have over ten years experience in supplying drugs to countries with similar requirements. In addition, they have been operating on a nonprofit basis with competitive prices. The list of these bidders will be submitted to the WB for prior approval. Selection of the winning bidders will be done on the basis of molecules in the total procurement package. There will be two to three contracts with a maximum amount of less than US$200,000 per contract. The aggregated amount for drugs through LIB is US$350,000. 18. International Shopping (IS): Procurement of goods, e.g. medical equipment for health centers, clinical equipment, office equipment including computers, printers, vehicles, etc., below US$100,000 per contract will follow IS procedures where three quotations from at least three suppliers in two different countries shall be obtained as stated in Articles 3.5 and 3.6 of the Guidelines on Procurement under IBRD Loans and IDA Credits. The aggregated amount for IS is US$820,000. 19. National Shopping (NS): Procurement of some simple office equipment and stationary for the nutrition program in different provinces would be carried through National Shopping. The estimated cost will be less than US$10,000 per contract and the aggregated amount for NS is US$50,000. National Shopping will be conducted on the basis of a comparison of at least three written price quotations as stated in Articles 3.5 and 3.6 of the Guidelines on Procurement under IDRD Loans and IDA Credits. 20. Procurementfrom UNAgencies: Procurement medical equipment for the nutrition program such as scales shall be procured through WHO and UNICEF. Each contract will be less than US$5,000 and the aggregated amount is US$10,000 over the life time of the project. Procurement of Consultant Services 21. Quality and Cost Based Selection (QCBS): Consulting services for construction design and supervision, contract management, quality assurance, contracting for district hospitals, TB program support and capacity building of the Ministry of Health will follow QCBS method. 22. Single Source (SS): The Project's Dengue control program, including early diagnosis and clinical management and vector control, will be executed by WHO on a single source basis. WHO has been the executor in the country for the dengue program financed through different sources and it is the most qualified and only entity capable to implement the program in the country. The total contract amount is estimated at US$900,000. Procurement of medical equipment for the nutrition program, basically scales, shall be purchased on a single source basis through WHO/UNICEF. The total aggregated amount is US$ 10,000 over the life time of the project. 23. Consultant Qualifications (CQ): CQ method will be used to select firms for technical assistance in strengthening the National Lab for Drug Quality Control, drug revolving fund and finance management, drug stock management and logistics, equity fund management supervision, surveys, and improved surveillance on malaria, training for malaria case detection and case management, field research for infant feeding, anemia study and evaluation of the nutrition program. These are small contracts estimated to cost less than US$100,000 per contract. The aggregated amount for CQ is US$661,000. 24. Least-Cost Selection (LCS): This method will be used for selection of audit firms for project audits. The aggregated amount is US$150,000. 25. Selection of Individual Consultants (SIC): Individual consultants for project implementation - 77 -  including procurement, financial management, coordinators, civil works engineers, and technical specialists to prepare major bidding documents and technical specifications, medical specialists for child feeding IEC, and nutrition program will be contracted through SIC procedures as in clauses 5.1 to 5.4 of the Guidelines wherein it is stated that individual consultants are selected on the basis of their qualifications for the assignment. However, in exceptional cases where sole source selection is justified, the Borrower could select the consultant on sole source basis with WB's prior approval. The estimated amount for individual consultants is US$2.2 million. 26. Training: Training is an integral element of the project's institutional capacity building component. Training for district nutrition and health center staff will be conducted in the country. Cost of training materials (printing), rental facilities, transportation, food and board, and tuition for trainees will follow Statement of Expenditures (SOE) procedures. Content of training, estimated cost for workshops and lists of trainees will be approved by the WB before any expenditure occurs. Training of MOH staff, including those who have responsibilities for project implementation, will be provided in country and abroad. Selection of training courses, estimated cost and list of candidates shall be prior reviewed and agreed by the WB. Study tours under the nutrition program will also follow the SOE procedures. The list of candidates for study tours and the estimated cost shall be prior reviewed and agreed by the WB. 27. Incremental Operating Cost: This is for project support to cover costs of the project staff for surveillance and monitoring activities, information collection and reporting, transportation and acconmnodations, office supplies and consumables, and communications. These expenditures will follow SOE procedures and the estimated amount is US$890,000. 28. Procurement Plan: The Procurement Plan shall be reviewed and approved annually by the project team of the WB and it shall be monitored and implemented in accordance with the WB's guidelines and the project legal agreement. - 78 -  Table A: Project Costs by Procurement Arrangements (US$ million equivalent) I. i p e 4 f _ 4,;CBb,v*. ,t~~~Pocu~ffiht;M6tf6 '--. 2 . -5 6Epeditdrei catego